PROXY STATEMENT SUMMARY
This summary highlights certain information contained elsewhere in
the accompanying proxy statement, but does not contain all of the information you should consider before voting your shares. For
more complete information regarding the proposals to be voted upon at the 2020 annual meeting of shareholders and our fiscal year
2019 performance, please review the entire proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31,
2019. We use the terms “Shentel,” the “Company,” “we,” “our” and “us”
in this summary to refer to Shenandoah Telecommunications Company.
Annual Meeting
|
|
Date:
|
April 21, 2020
|
Time:
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11:00 a.m. (Eastern time)
|
Location:
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500 Shentel Way
Edinburg, Virginia 22824
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Record Date:
|
Shareholders of record at the close of business on February 21, 2020
|
Voting Matters
Proposals
|
Required
Approval
|
Board
Recommendation
|
Page
Reference
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1.
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Election of directors
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Majority of Votes Cast
for Each Nominee
|
FOR each
nominee
|
9
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2.
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Ratification of auditors
|
Majority of Votes Cast
|
FOR
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32
|
3.
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Advisory vote to approve executive compensation
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Majority of Votes Cast
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FOR
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36
|
Corporate Governance Highlights
Shentel is committed to strong corporate governance practices and
policies, which promote both the long-term interests of our shareholders and the accountability of the Board of Directors and management.
The following table summarizes certain of our corporate governance practices and policies:
|
Majority voting for director elections
|
|
Active shareholder engagement
|
|
Independent directors regularly meet without management present
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|
Policies prohibiting hedging of Company shares
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Board regularly assesses its performance through board and committee self-evaluations
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Board is 87.5% independent (CEO is only management director) and 25% female
|
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Board committees consist solely of independent directors
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No poison pill
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Robust stock ownership guidelines
|
|
|
We value an open and active dialogue with our shareholders and we
believe that regular communication with our shareholders is vital to our long-term success. We strive to foster strong shareholder
relationships that lead to a mutual understanding of issues and approaches. During 2019, members of our management team met and
communicated with many of our shareholders to ensure that we fully understand our shareholders’ concerns with respect to
governance and compensation-related matters.
Board of Directors
The following table contains information about each member of the
Board of Directors of Shentel, including the three incumbent directors—Tracy Fitzsimmons, John W. Flora and Kenneth L. Quaglio—whose
terms are set to expire at the 2020 annual meeting of shareholders and have been nominated for reelection to the Board to serve
three-year terms expiring at the annual meeting of shareholders in 2023.
|
|
|
|
|
Committee Memberships
|
Name
|
Age
|
Director
Since
|
Principal
Occupation
|
Financial
Expert
|
Audit
|
Compensation
|
Nominating & Corporate Governance
|
Thomas A. Beckett
|
52
|
2018
|
SVP, GC and Secretary of American Public Education, Inc.
|
—
|
—
|
—
|
|
Tracy Fitzsimmons
|
53
|
2005
|
President of Shenandoah University
|
—
|
—
|
|
|
John W. Flora
|
65
|
2008
|
Attorney and Shareholder of Flora Pettit PC
|
—
|
—
|
|
—
|
Christopher E. French
|
62
|
1996
|
President and CEO
of Shentel
|
—
|
—
|
—
|
—
|
Richard L. Koontz, Jr.
|
62
|
2006
|
Vice President of Holtzman Oil Corporation
|
—
|
—
|
|
—
|
Dale S. Lam
|
57
|
2004
|
President of Strategent Financial, LLC
|
|
|
—
|
|
Kenneth L. Quaglio
|
61
|
2017
|
CEO and President of Celerity IT, LLC
|
|
|
—
|
—
|
Leigh Ann Schultz
|
46
|
2016
|
CFO of Streetsense, LLC
|
|
|
—
|
—
|
|
Member
|
|
Chairperson
|
|
Financial Expert
|
2019 Executive Compensation (see page 17)
Compensation decisions regarding executive compensation are made
by the Compensation Committee or, with respect to the Company’s Chief Executive Officer or Chief Operating Officer, the Board
of Directors. The Compensation Committee believes that a sensibly-structured, incentive-aligning compensation program is critical
to the creation of long-term stockholder value. The following table summarizes certain highlights of our compensation practices:
What We Do:
|
What We Don’t Do:
|
|
Align pay with performance by linking a substantial portion of compensation to the achievement of predefined performance metrics and share price
|
|
Do NOT provide tax gross-ups in any circumstance
|
|
Retain an independent compensation consultant
|
|
Do NOT provide excessive perquisites for executives
|
|
Require compliance with stock ownership guidelines for directors and executive officers
|
|
Do NOT provide guaranteed bonuses
|
|
Place caps on incentive award opportunities
|
|
Do NOT provide discount stock options or stock appreciation rights
|
|
Maintain a clawback policy
|
|
Do NOT pay dividends on performance units prior to vesting
|
|
Prohibit hedging of Company shares and option trading
|
|
Do NOT permit unapproved pledging of our common stock
|
|
|
|
Do NOT add back to our equity compensation plan reserves any shares tendered as payment for shares withheld for taxes
|
At the 2017, 2018 and 2019 annual meetings of shareholders, approximately
88%, 92% and 99% of votes cast in the annual “say-on-pay” vote, respectively, were in favor of the compensation of
the Company’s named executive officers. In light of this strong support, the Compensation Committee decided to maintain the
core design of our compensation program for 2019 and 2020.
Corporate Social Responsibility
Shentel is committed to growing its business in a sustainable and
socially responsible manner, and our Board of Directors and management team are committed to Shentel’s vision to make a positive
difference in the communities we serve. This commitment is supported at all levels of the Company. Through our actions, our goal
is to make a positive difference in the communities we serve through our dedication to providing high quality and reliable services,
our sincere commitment to being a good employer, our efforts to minimize our impact on the environment, our ongoing engagement
and support for the communities where we operate and our unwavering and strict adherence to the highest ethical standards.
SHENANDOAH TELECOMMUNICATIONS COMPANY
500 Shentel Way
Edinburg, Virginia 22824
Annual Meeting of Shareholders
April 21, 2020
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
2020 annual meeting of shareholders to be held in the auditorium of the Company’s offices at 500 Shentel Way, Edinburg, Virginia,
on Tuesday, April 21, 2020, 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 electronic delivery, officers and other employees of the Company may solicit proxies by personal
interview, telephone and e-mail. 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, and at the time and place
of the meeting during the whole time of the meeting.
This proxy statement is first being delivered to the Company’s
shareholders on or about March 3, 2020. In accordance with the rules of the Securities and Exchange Commission (the “SEC”),
we are furnishing certain proxy materials (Proxy Statement, Proxy Card, Annual Report on Form 10-K) and letter to shareholders
by providing access to these materials electronically on the Internet. As such, we are not mailing a printed copy of these proxy
materials to each shareholder of record or beneficial owner, and our shareholders will not receive printed copies of these proxy
materials unless they request this form of delivery. Printed copies will be provided upon request at no charge. We are delivering
a Notice of Meeting and a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) to
our shareholders on or about March 3, 2020. The Notice of Internet Availability is in lieu of mailing the printed proxy materials,
and contains instructions for our shareholders as to how they may: (1) access and review our proxy materials on the Internet; (2)
submit their proxy; and (3) request printed proxy materials. Shareholders may request to receive printed proxy materials by mail
or electronically by e-mail on an ongoing basis by following the instructions in the Notice of Internet Availability. We believe
that providing proxy materials electronically will enable us to save costs associated with printing and delivering the materials
and reduce the environmental impact of our annual meetings. A request to receive proxy materials in printed form will remain in
effect until such time as the shareholder elects to terminate it.
Voting and Revocability of Proxies
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: (1) the election of the three
director nominees to the Company’s Board of Directors for a term expiring in 2023; (2) auditor ratification; and (3) the
approval, in a non-binding vote, of the Company’s named executive officer compensation. 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 proxy will vote on such matter in their own discretion.
A shareholder executing a proxy 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:
Corporate Secretary.
Voting Procedure
Record Date. All holders of record of the common stock at
the close of business on February 21, 2020, 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 February 21, 2020, there were 49,828,581 shares
of common stock outstanding.
Quorum. 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 (which occur when a shareholder chooses
to abstain from voting on any or all proposals) 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 but will have no effect on the outcome of the proposals presented
in this proxy statement as discussed below.
When broker-dealers who hold their customers’ shares in street
name do not receive specific voting instructions from their customers, the broker-dealers 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 ratification of auditors, but cannot vote on “non-routine”
matters. A “broker non-vote” occurs with respect to any non-routine proposal when a broker is not permitted to vote
on that proposal without instruction from the beneficial owner of the shares. The ratification of KPMG LLP as our independent registered
public accounting firm for the year ending December 31, 2019 (Proposal No. 2) is considered a routine matter under applicable
rules, and no broker non-votes will occur in connection with this proposal. The election of directors (Proposal No. 1) and the
approval of the Company’s named executive officer compensation (Proposal No. 3) are considered non-routine matters under
applicable rules, and therefore broker non-votes may exist in connection with these proposals.
Approval Standards. The shareholder vote required to approve
each proposal is set forth below.
|
•
|
The election of directors (Proposal No. 1) requires the affirmative vote of a majority of the votes cast for the election of
directors. This means that a director nominee must receive more votes cast “for” than “against” his or
her election in order to be elected.
|
|
•
|
The proposal to ratify the Audit Committee’s selection of KPMG LLP as the Company’s independent registered public
accounting firm for 2019 (Proposal No. 2) requires the affirmative vote of a majority of the votes cast and will be approved if
the number of votes cast “for” the proposal exceeds the number of votes cast “against” the proposal.
|
|
•
|
The proposal to approve, in a non-binding vote, the Company’s named executive officer compensation (Proposal No. 3) requires
the affirmative vote of a majority of the votes cast and will be approved if the number of votes cast “for” the proposal
exceeds the number of votes cast “against” the proposal.
|
With respect to each of the proposals presented in this proxy statement, abstentions
and broker non-votes will have no effect on the outcome of the proposals because they are not considered “votes cast”
under the majority-of-votes-cast voting standard.
Annual Report on Form 10-K
The Company is required to file an Annual Report on Form 10-K for
the year ended December 31, 2019 with the SEC. Shareholders may obtain, free of charge, an additional copy of the 2019 Annual Report
on Form 10-K, without exhibits, by following the instructions in the Notice of Internet Availability or by writing to Shenandoah
Telecommunications Company, 500 Shentel Way, P.O. Box 459, Edinburg, Virginia 22824, Attention: Shareholder Services. The Annual
Report on Form 10-K is also available through the Company’s website at www.shentel.com. The Annual Report on Form
10-K and letter to shareholders are not part of the proxy-soliciting materials.
Important Notice Regarding Delivery of Shareholder Documents
The Company has taken advantage of the “householding”
rules of the SEC. For shareholders requesting to receive our Notice of Internet Availability or a full paper set of our proxy materials
in printed form, the householding rules permit the delivery of one set of the printed proxy materials to shareholders who have
the same address to conserve resources and achieve the benefit of reduced printing and mailing costs. If you wish to receive an
additional copy of our Annual Report on Form 10-K, this proxy statement, or the letter to shareholders, you may follow the instructions
on the Notice of Internet Availability or make a written request to Shenandoah Telecommunications Company, 500 Shentel Way, P.O.
Box 459, Edinburg, Virginia 22824, Attention: Shareholder Services, or call us at 540-984-5200. If you are receiving multiple copies
of our Annual Report on Form 10-K, proxy statement or letter to shareholders and would like to receive only one copy per household
in the future, or are receiving one copy and would like to receive separate copies, you can request householding or electronic
delivery by contacting Shareholder Services in the same manner.
SECURITY OWNERSHIP
Management Ownership of Common Stock
The following table presents, as of February 21, 2020, information
based upon the Company’s records and filings with the SEC regarding beneficial ownership of the common stock by the following
persons:
|
•
|
each director and each nominee to the Board of Directors;
|
|
•
|
each executive officer of the Company named in the summary compensation table under the “Executive Compensation”
section of this proxy statement; and
|
|
•
|
all directors and executive officers of the Company as a group.
|
As of February 21, 2020, there were 49,828,581 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.
Name of Beneficial Owner
(Directors,
Nominees and Executive Officers)
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of
Class (%)
|
Thomas A. Beckett
|
|
|
1,487
|
|
|
|
*
|
|
Tracy Fitzsimmons
|
|
|
19,903
|
|
|
|
*
|
|
John W. Flora
|
|
|
22,686
|
|
|
|
*
|
|
Christopher E. French
|
|
|
1,861,010
|
(a)
|
|
|
3.73
|
|
Richard L. Koontz, Jr.
|
|
|
28,004
|
(b)
|
|
|
*
|
|
Dale S. Lam
|
|
|
26,048
|
|
|
|
*
|
|
Kenneth L. Quaglio
|
|
|
4,293
|
|
|
|
*
|
|
Leigh Ann Schultz
|
|
|
4,923
|
(c)
|
|
|
*
|
|
David L. Heimbach
|
|
|
1,734
|
|
|
|
*
|
|
James J. Volk
|
|
|
708
|
|
|
|
*
|
|
William L. Pirtle
|
|
|
48,273
|
(d)
|
|
|
*
|
|
Edward H. McKay
|
|
|
33,878
|
(e)
|
|
|
*
|
|
James F. Woodward
|
|
|
1,881
|
(f)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All directors, nominees and executive officers as a group (19 persons)
|
|
|
2,126,192
|
(g)
|
|
|
4.27
|
|
*Less than 1%.
|
|
|
|
|
|
|
|
|
The percentage of beneficial ownership as to any person as of February
21, 2020, 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 21, 2020, 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.
|
(a)
|
The shares of common stock shown
as beneficially owned by Mr. French include 64,296 shares of common stock owned by his
wife, 13,668 shares owned by one of his adult children, 865,645 shares owned of record
by eight trusts for the benefit of Mr. French’s family members for which Mr. French
serves as trustee, and 345,000 shares of common stock owned of record by a trust for
the benefit of his family members for which one of his adult children serves as trustee.
Mr. French disclaims beneficial ownership of the shares owned of record by spouse, his
child and the trust for which his child serves as trustee. Of the shares shown as beneficially
owned by Mr. French, 23,000 shares are pledged as security for personal indebtedness.
|
|
(b)
|
The shares of common stock shown
as beneficially owned by Mr. Koontz include 52 shares owned of record by his son. Mr.
Koontz disclaims beneficial ownership of such shares.
|
|
(c)
|
The shares of common stock shown
as beneficially owned by Ms. Schultz include 38 shares owned of record by her spouse.
Ms. Schultz disclaims beneficial ownership of such shares.
|
|
(d)
|
The shares of common stock shown
as beneficially owned by Mr. Pirtle include options exercisable within 60 days of February
21, 2020 to purchase 6,792 shares of common stock.
|
|
(e)
|
The shares of common stock shown
as beneficially owned by Mr. McKay include options exercisable within 60 days of February
21, 2020 to purchase 12,372 shares of common stock.
|
|
(f)
|
Mr.
Woodward resigned as Senior Vice President and Chief Financial Officer effective June
28, 2019.
|
|
(g)
|
The shares of common stock shown
as beneficially owned by all directors, nominees and executive officers as a group include
options exercisable within 60 days of February 22, 2019 to purchase 19,164 shares of
common stock.
|
Principal Shareholders
The following table presents, as of February 21, 2020, information
based upon the Company’s records and filings with the SEC regarding beneficial ownership of the common stock by each person
known to the Company to be the beneficial owner of more than 5% of the common stock. The information is based on the most recent
Schedule 13G filed with the SEC on behalf of such persons.
|
Name and Address
|
|
Amount
and Nature of
Beneficial Ownership
|
|
Percent
of
Class (%)
|
|
|
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
|
|
|
6,850,721
|
|
|
|
13.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, PA 19355
|
|
|
5,045,268
|
|
|
|
10.13
|
|
|
The shares of common stock shown as beneficially owned by BlackRock,
Inc. were reported on Schedule 13G/A filed with the SEC on February 4, 2020. BlackRock, Inc. reported sole power to vote 6,761,117
shares and sole power to dispose of all 6,850,721 shares shown.
The shares of common stock shown as beneficially owned by The Vanguard
Group, Inc. were reported on Schedule 13G/A filed with the SEC on February 10, 2020. The Vanguard Group, Inc. reported sole voting
power of 101,544 shares, shared voting power of 8,591 shares, sole dispositive power of 4,942,061 shares, and shared dispositive
power of 103,207 shares.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees for Election as Directors for Terms Expiring in 2023
The Company’s articles of incorporation provide 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 2021 and at the annual meeting of shareholders in 2022, 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.
Tracy Fitzsimmons, John W. Flora and Kenneth L. Quaglio have been
nominated for election to the class with a three-year term that will expire at the annual meeting of shareholders in 2023. Dr.
Fitzsimmons, Mr. Flora and Mr. Quaglio are incumbent directors who have served on the Board of Directors since 2005, 2008 and 2017,
respectively, whose terms are set to expire at this annual meeting. Biographical information regarding each of the nominees is
available below under “Board and Board Committee Matters—Information About Nominees and Continuing Directors.”
Director Nomination Process
The Board of Directors has, by resolution, adopted a director nomination
policy. The purpose of the nomination policy is to describe the process by which candidates for possible inclusion in the Company’s
recommended slate of director nominees are selected. The nomination policy is administered by the Nominating and Corporate Governance
Committee of the Board of Directors.
The Nominating and Corporate Governance Committee takes a variety
of factors into account in selecting candidates for nomination as directors, including the Company’s current needs and the
qualities needed for Board service; experience and achievement in business, finance, technology or other areas relevant to the
Company’s activities; the candidate’s reputation, ethical character and maturity of judgment; the desirability of establishing
a diversity of viewpoints, backgrounds and experiences among Board members; the candidate’s independence under SEC and Nasdaq
listing rules; the candidate’s service on other Boards of Directors; the absence of conflicts of interest that might impede
the proper performance of the candidate’s responsibilities as a director; the candidate’s ability to devote sufficient
time to Board matters; and the candidate’s ability to work effectively and collegially with other Board members. The Committee
does not give particular weight to any one factor, but instead considers how the attributes of a candidate or nominee would enhance
the Board’s overall qualifications and effectiveness. In the case of an incumbent director whose term of office is set to
expire, the Nominating and Corporate Governance Committee will review such director’s overall service to the Company during
his or her term, including the number of meetings attended, level of participation, quality of performance, and any transactions
of such directors with the Company during the term. For those potential new director candidates who appear upon first consideration
to meet the Board’s selection criteria, the Nominating and Corporate Governance 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 effectiveness of the Nominating and Corporate Governance Committee’s candidate selection criteria
is assessed through the Committee’s annual review of policies regarding Board and committee membership.
The Nominating and Corporate Governance 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 and Corporate Governance 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
and Corporate Governance 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, Attention: Corporate Secretary.
The nomination policy is intended to provide a flexible set of guidelines
for the effective functioning of the Company’s director nomination process. The Nominating and Corporate Governance Committee
intends to review the nomination 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 and
Corporate Governance Committee may amend the nomination policy at any time, in which case the most current version will be available
on the Company’s website at www.shentel.com.
Approval of Nominees
Approval of the nominees requires the affirmative vote of a majority
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.
BOARD AND BOARD COMMITTEE MATTERS
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 Terms Expiring in 2023
|
Name
|
Age
|
Director Since
|
|
|
Tracy Fitzsimmons
|
53
|
2005
|
|
|
John W. Flora
|
65
|
2008
|
|
|
Kenneth L. Quaglio
|
61
|
2017
|
|
Tracy Fitzsimmons is President of Shenandoah University,
located in Winchester, Virginia, a position she has held since July 2008. She previously served as Senior Vice President for Academic
Affairs of Shenandoah University since October 2006 and Vice President of Academic Affairs from July 2002 to October 2006. Dr.
Fitzsimmons received Ph.D. and M.A. degrees from Stanford University and a B.A. degree from Princeton University. Dr. Fitzsimmons
brings to the Board additional qualifications, including her educational background, budgeting and financial experience with a
large diverse educational organization, overall leadership experience and responsibilities as president of a university that offers
undergraduate, masters and professional doctorate degrees and is considered a technology leader among higher education institutions.
John W. Flora has been an attorney-at-law since 1980, and
currently is a shareholder of Flora Pettit PC in Harrisonburg, Virginia. Mr. Flora’s business and tax practice has ranged
from serving as lead counsel of a publicly-held Fortune 500 company to representing private companies and their owners from business
formation through succession. Mr. Flora brings to the Board additional qualifications, including his career as an attorney with
a regional law firm and his substantial experience in advising public companies, as well as his experience in assisting businesses
with a wide variety of legal and regulatory issues.
Kenneth L. Quaglio is currently CEO and President of Celerity
IT, LLC, a business acceleration consulting group that specializes in developing digital business solutions, including mobile applications,
which he joined in 2017. From 2014 through 2017, Mr. Quaglio was CEO and President of Siteworx, LLC, a leading digital marketing
consultancy. From 2012 through 2014, Mr. Quaglio served as Chief Operating Officer of 3Pillar Global, Inc., a global software product
development company. From 2009 through 2012 he was Partner/Principal, Advisory Services Performance Improvement for Ernst and Young,
LLP. Mr. Quaglio brings to the Board additional qualifications, including his experience as a CEO, and his expertise in strategy,
planning and execution, leadership and management, new business development, and technology services. Mr. Quaglio also serves as
an audit committee financial expert.
Directors Whose Terms Expire in 2021
|
Name
|
Age
|
Director Since
|
|
|
Thomas A. Beckett
|
52
|
2018
|
|
|
Richard L. Koontz, Jr.
|
62
|
2006
|
|
|
Leigh Ann Schultz
|
46
|
2016
|
|
Thomas A. Beckett has served as the Senior Vice President,
General Counsel and Secretary of American Public Education, Inc. (APEI), a publicly-traded provider of online and on-campus postsecondary
education headquartered in Charles Town, West Virginia since 2016. Mr. Beckett also serves as the General Counsel and Secretary
of American Public University System, Inc. (APUS), a wholly owned subsidiary of APEI, and has held various other positions with
APUS since joining the company in 2011. From 2007 to 2010, Mr. Beckett was the General Counsel and Chief Operating Officer of InnoZen,
Inc. (now CURE Pharmaceutical) and HealthSport, Inc., pharmaceutical and dietary supplement technology companies located in California.
Mr. Beckett also held various other leadership positions at these companies. Prior to this work, Mr. Beckett was an attorney at
the international law firms King & Spalding LLP and Holland & Knight LLP. Mr. Beckett began his career as a banking officer
with First Union National Bank. Mr. Beckett brings to the Board additional qualifications, including his significant experience
providing advice and guidance to Boards of Directors and executive management, his expertise in corporate governance, and his experience
as an executive officer of a public company.
Richard L. Koontz, Jr. has served as Vice President of Holtzman
Oil Corporation, a supplier and distributor of petroleum products located in Mt. Jackson, Virginia, since 1988. Mr. Koontz brings
to the Board additional qualifications, including his experience as a member of senior management of a successful regional business,
with substantial budget authority and finance responsibilities, his community service through membership on the Shenandoah County
Public Schools Board, and his knowledge of the Company’s extensive local shareholder base.
Leigh Ann Schultz has been CFO of Streetsense, LLC, a strategy
and design consultancy, since May 2017. From 2016 to May 2017, she was founder and CEO of Vintage Advisory, LLC, a strategic advisory
firm providing transaction, financial advisory and strategic planning support to start-up and growth companies, as well as non-profits.
From 2014 through 2016, she was Managing Director for MorganFranklin Consulting, a strategy and execution-focused business consulting
firm. From 2012 through 2014, she was Mid-Atlantic Managing Director of Riveron Consulting, a mergers and acquisition advisory
firm. From 2010 through 2012, Ms. Schultz served in the Division of Corporation Finance of the SEC, where she focused on the telecommunications
sector, among others. Her responsibilities at the SEC included examining complex filings made under the Securities Act of 1933
and the Securities Exchange Act of 1934, providing guidance on financial statement disclosure requirements and resolving accounting
and disclosure issues arising in filings. Ms. Schultz brings to the Board additional qualifications, including her financial background
and expertise in strategic planning, mergers and acquisitions, acquisition integration, SEC reporting and compliance, business
process improvement, and project management. Ms. Schultz also serves as an audit committee financial expert.
Directors Whose Terms Expire in 2022
|
Name
|
Age
|
Director Since
|
|
|
Christopher E. French
|
62
|
1996
|
|
|
Dale S. Lam
|
57
|
2004
|
|
Christopher E. French has served as President and Chief Executive
Officer of the Company and its subsidiaries since 1988 and has served as Chairman of the Board of Directors since 1996. 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 served on the Board of Directors of First National Corporation until May of 2018. Mr. French brings
to the Board additional qualifications, including his engineering and business education, telecommunications industry experience,
knowledge of and history with the Company, and public company knowledge, including knowledge gained from his past service as a
director of First National Corporation. In addition, his substantial ownership of the Company’s common stock serves to align
his interests with the Company’s shareholders.
Dale S. Lam has served as President of Strategent Financial,
LLC, a financial advisory firm, since November 2008. Mr. Lam previously served as Chief Financial Officer and member of the Board
of Directors of ComSonics, Inc., a cable television equipment manufacturer and repair operation headquartered in Harrisonburg,
Virginia, from April 2001 through October 2008. He is also a Certified Public Accountant. Mr. Lam brings to the Board additional
qualifications, including his industry knowledge gained through his prior employment in a business related to the telecommunications
industry, his prior experience serving as a chief financial officer of a public company (WLR Foods, Inc. from 1997 to 2001), his
financial education, and his work experience and qualification as a Certified Public Accountant. Mr. Lam also serves as an audit
committee financial expert.
Director Independence
The Board of Directors has determined that, with the exception of
Christopher E. French, each of the directors and director nominees is an “independent director,” as that term is defined
in Nasdaq Listing Rule 5605(a)(2).
Shareholder Communications with the Board of Directors
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, Attention: Corporate 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.
Meetings of the Board of Directors
The Board of Directors held sixteen meetings during 2019. During
2019 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. In addition, the independent directors, under the leadership
of the Lead Independent Director, met without management present thirteen times during 2019.
All of the Company’s directors attended the Company’s
annual meeting of shareholders in 2019. The Board of Directors has adopted a policy that all directors should attend the annual
meeting of shareholders.
Committees of the Board of Directors
The Board of Directors currently has a standing Audit Committee,
a standing Compensation Committee, and a standing Nominating and Corporate Governance Committee. Each committee has a written charter
that is available on our website at www.shentel.com.
Audit Committee. The Audit Committee, which held five meetings
during 2019, consists of Ms. Schultz, who is the Chair, Mr. Lam and Mr. Quaglio. The Board of Directors has determined that each
current Audit Committee member meets the independence requirements applicable to audit committee members under the Nasdaq listing
rules and rules of the SEC. The Board of Directors has also determined that Ms. Schultz , Mr. Lam, and Mr. Quaglio are “audit
committee financial experts,” as such term is defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC, and are
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 performance
of the Company’s internal audit department; reviewing the financial statements and other financial information included in
the Company’s annual and quarterly reports filed with the SEC; and, providing oversight of the Company’s enterprise
risk management process, including cybersecurity risk.
Compensation Committee. The Compensation Committee, which
held three meetings during 2019, consists of Mr. Flora, who is the chair, Dr. Fitzsimmons and Mr. Koontz, all of whom meet the
independence requirements prescribed by the Nasdaq listing rules. The Compensation Committee is responsible, among its other duties,
for establishing compensation philosophy, considering and making recommendations to the Board of Directors concerning the salaries
and incentive compensation awards for the top levels of management of the Company (including the Chief Executive Officer), considering
and making recommendations to the Board of Directors with respect to programs for human resource development and management organization
and succession, overseeing the Company’s employee benefit and incentive plans (including the Company’s stock incentive
plans) and for administering such plans, as well as overseeing the Company’s stock ownership guidelines for officers and
directors.
Nominating and Corporate Governance Committee. The Nominating
and Corporate Governance Committee, which held three meetings during 2019, presently consists of Dr. Fitzsimmons, who is Chair,
Mr. Beckett and Mr. Lam. The Board of Directors has determined each Nominating and Corporate Governance Committee member meets
the independence requirements prescribed by the Nasdaq listing rules. 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, director independence and membership qualifications. In addition, the Committee is responsible for new director orientation;
committee structure and membership; communications with shareholders; Board and committee self-evaluations; and exercising oversight
with respect to the Company’s code of conduct, insider trading policy, corporate governance guidelines and other policies
and procedures regarding adherence with legal requirements.
Leadership Structure
Leadership of the Board of Directors consists of two positions, the
Board’s Chairman and the Board’s Lead Independent Director. Mr. French serves as Chairman and Dr. Fitzsimmons serves
as Lead Independent Director.
The Company combines the roles of Chairman and Chief Executive Officer.
The Board has given careful consideration to the merits of separating the roles of Chairman and Chief Executive Officer and has
determined that the Company and its shareholders are best served by having Mr. French serve as both Chairman of the Board
of Directors and Chief Executive Officer. Mr. French’s combined role as Chairman and Chief Executive Officer promotes
unified leadership and direction for the Board and executive management and it allows for a single, clear focus for the chain of
command to execute the Company’s strategic initiatives and business plans. Mr. French receives assistance with his Board
and executive management responsibilities from the Lead Independent Director and the Chief Operating Officer, respectively. Requiring
that the Chairman of the Board be an independent director is not necessary to ensure that our Board provides independent and effective
oversight of the Company’s business and affairs. Such oversight is maintained through the composition of our Board, the strong
leadership of our independent directors and Board committees, and our corporate governance structures and processes.
The Board of Directors is composed of independent, active and effective
directors. Seven out of our current eight directors meet the independence requirements of the Nasdaq listing rules. Mr. French
is the only member of executive management who is also a director.
The Board of Directors and its committees vigorously oversee the
effectiveness of the Company’s policies and management’s decisions, including the execution of key strategic initiatives.
Each of the Board’s committees is composed entirely of independent directors. Consequently, independent directors directly
oversee such critical matters as the integrity of the Company’s financial statements, the compensation of executive management,
including Mr. French’s compensation, the selection and evaluation of directors, and the development and implementation
of corporate governance programs. The Compensation Committee, together with the other independent directors, conducts an annual
performance review of the Chief Executive Officer, assessing the Company’s financial and non-financial performance and the
quality and effectiveness of Mr. French’s leadership.
The Board designated Dr. Fitzsimmons as Lead Independent Director
in September 2016. The Lead Independent Director leads all meetings of independent directors, assists with ensuring the proper
functioning of the Board such as maintaining the Board’s focus on strategic issues, and ensures appropriate participation
in discussions and meetings by all Board members. In addition to their reliance upon the Lead Independent Director, the Board and
each Board committee have complete and open access to any member of management and the authority to retain independent legal, financial
and other advisors as they deem appropriate.
Board Size and Diversity
As set forth in the Company’s Corporate
Governance Guidelines, the Board considers its present size of eight members to be appropriate; however, it may consider expanding
or reducing its size if the Board determines a change is appropriate. The Nominating and Corporate Governance Committee periodically
reviews the size of the Board and recommends any proposed changes to the Board.
We believe the Board is most effective when
it embodies a diverse range of views, backgrounds and experience. Diversity is considered in the broadest sense, including, among
other attributes, age, leadership, experience, skills, perspectives, and gender. While the Nominating and Corporate Governance
Committee does not have a formal policy on diversity with regard to consideration of director nominees, the Nominating and Corporate
Governance Committee considers diversity in its selection of nominees and proactively seeks diverse director candidates to ensure
a representation of varied perspectives and experience in the boardroom.
We presently have two female directors which,
given the size of our board, represents 25% of the full Board and 29% of the non-employee directors. The current Board members’
ages range from 46 to 65. In addition, the current Board members represent a broad range of skills and experience:
Based on the foregoing, the Nominating and
Corporate Governance Committee concluded that our current Board members represent a broad range of viewpoints, backgrounds and
relevant expertise that aligns with the Company’s long-term strategy.
Board and Committee Self-Evaluations
As set forth in the Company’s Corporate
Governance Guidelines, the Board, led by the Nominating and Corporate Governance Committee, conducts an annual self-evaluation
to determine whether the Board and committees are functioning effectively. This process includes annual self-assessments by the
full Board and each Board committee with performance criteria for each committee established on the basis of its charter as well
as annual performance evaluations of the directors at the direction of the Nominating and Corporate Governance Committee. The Board
believes that this self-evaluation process is fundamental in supporting continued improvement through thoughtful and comprehensive
discussions.
Role of the Board of Directors in Risk Oversight
The Board discharges its risk oversight primarily through its committees,
each of which reports its activities to the Board. The Audit Committee has responsibility to monitor that the Company’s risk
management process is followed. The additional risk oversight responsibilities of the committees include:
Audit Committee. The Audit Committee has primary responsibility
for the integrity of the Company’s financial statements and financial reporting process and the Company’s systems of
internal accounting and financial controls; the performance of the Company’s internal audit department; the performance of
the third parties engaged to perform internal control testing to support management’s assessment of internal control; the
annual independent audit of the Company’s financial statements, including the engagement of, and the evaluation of the qualifications,
independence and performance of, the independent auditors; and the Company’s compliance with legal and regulatory requirements,
including the Company’s disclosure controls and procedures. As part of its duties, the Audit Committee discusses with management
the Company’s risk management process, including cybersecurity risk, and the steps management has taken to monitor and control
risk exposures. The Committee also reviews the Company’s risk assessment and risk management policies.
Compensation Committee. The Compensation Committee is responsible
for exercising oversight with respect to potential compensation-related risks, including management’s assessment of risks
related to employee compensation programs.
Nominating and Corporate Governance Committee. The Nominating
and Corporate Governance Committee receives periodic reports with respect to compliance with the Company’s Code of Business
Conduct and Ethics, and acts upon any request by executive officers for waivers under the Code of Business Conduct and Ethics,
Insider Trading Policy and Corporate Governance Guidelines. The Committee periodically reviews and assesses the adequacy of the
Code of Business Conduct and Ethics, Insider Trading Policy and Corporate Governance Guidelines, and makes recommendations to the
Board regarding any desirable revisions.
Director Compensation
The Board believes that director fees paid by the Company should
be competitive with other similarly situated companies; therefore, the Board considered and adopted certain changes to the compensation
for non-employee directors. During 2019, each director who is not an employee of the Company received a cash retainer fee, which
increased from $3,333 to $5,000 per month effective February 1, 2019. Members of the Audit, Compensation and Nominating and Corporate
Governance Committees each received additional cash retainer fees of $625, $417 and $208 per month, respectively. Directors who
served as committee chairs for the Audit, Compensation, and Nominating and Corporate Governance Committees, and the Lead Independent
Director received additional monthly cash retainer fees of $1,041, $625, $417, and $1,417, respectively, which increased from $833,
$444, $333 and $611 effective February 1, 2019. It is the Company’s policy that directors will not receive per-meeting fees
unless the number of committee meetings in any given year exceeds a preset number of committee meetings expected to be held during
the year. If such a circumstance occurs, directors who are members of the Audit, Compensation and Nominating and Corporate Governance
committees would be paid $1,071, $1,000 and $833, respectively, per additional meeting. Additional meeting fees were paid for one
Audit Committee meeting during 2019. All directors’ fees are paid in arrears on a monthly basis. In addition to cash compensation,
the Board may determine, from time to time, to award stock options or restricted stock as compensation to non-employee directors.
On February 26, 2019, each non-employee director then serving on the Board was awarded a grant of 2,147 restricted stock units
with a fair value of $46.57 per share. All of such shares vest fully on the first anniversary of the grant date.
In lieu of receiving their fees in cash, each director can elect
to have some or all of his or her fees paid in unrestricted shares of the Company’s common stock, with such shares being
issued to the director out of the shares reserved for issuance under the Company’s 2014 Equity Incentive Plan. The award
of shares in lieu of cash uses the closing price as of the last trading day of the month for which the fees are being paid and
the shares are held in book entry. Any cash in lieu of fractional shares resulting from the transfer of whole shares is paid out
in accordance with the same methodology used in the Company’s Dividend Reinvestment Plan. A director’s election to
receive shares in lieu of cash must have been made by July 1 of each year, and may only be changed on an annual basis.
All directors are reimbursed for the out-of-pocket expenses they
incur in attending director education programs. Additionally, directors are reimbursed for documented mileage and other related
expenses incurred for travel to and from Board and committee meetings.
The following table sets forth the compensation paid to the non-employee
directors of the Company for their service in 2019.
2019 Director Compensation Table
Name
|
|
Fees Earned
or Paid In
Cash
($)
|
|
Stock
Awards
($)(a)
|
|
Total ($)
|
Thomas A Beckett
|
|
|
60,833
|
(b)
|
|
|
99,986
|
|
|
|
160,819
|
|
Tracy Fitzsimmons
|
|
|
89,972
|
(b)
|
|
|
99,986
|
|
|
|
189,958
|
|
John W. Flora
|
|
|
65,208
|
|
|
|
99,986
|
|
|
|
165,194
|
|
Richard L. Koontz, Jr.
|
|
|
63,333
|
(b)
|
|
|
99,986
|
|
|
|
163,319
|
|
Dale S. Lam
|
|
|
68,333
|
|
|
|
99,986
|
|
|
|
168,319
|
|
Kenneth L. Quaglio
|
|
|
65,833
|
(b)
|
|
|
99,986
|
|
|
|
165,819
|
|
Leigh Ann Schultz
|
|
|
78,125
|
|
|
|
99,986
|
|
|
|
178,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Director
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Zerkel II (c)
|
|
|
22,417
|
|
|
|
99,986
|
|
|
|
122,403
|
|
__________________
|
(a)
|
On February 26, 2019, each then
serving director was awarded a grant of 2,147 shares with a fair value of $46.57 per
share. All the shares awarded in 2019 vested fully on February 26, 2020.
|
|
(b)
|
For 2019 service, Mr. Beckett,
Dr. Fitzsimmons, Mr. Koontz, and Mr. Quaglio elected to receive $4,800, $15,444, $6,000,
and $7,500, respectively, of his or her cash compensation in the form of unrestricted
shares of common stock, which were valued at the closing price as of the last trading
day of the service month.
|
|
(c)
|
Mr. Zerkel retired from the Board
effective as of the 2019 annual meeting held on April 16, 2019.
|
CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
Our Company. The
Board of Directors of Shentel recognizes the importance of our corporate responsibility and sustainability policies and practices
and the need to provide effective oversight in these areas. Shentel strives to make a positive difference in the communities
we serve through our dedication to providing high quality and reliable services, our sincere commitment to being a good employer,
our efforts to minimize our impact on the environment, our ongoing engagement and support for the communities where we operate
and our unwavering and strict adherence to the highest ethical standards.
We specialize in providing state
of the art services to rural and underserved markets, and our vision is to ensure that the communities we serve have access to
the same level of telecommunications services as those found anywhere in the United States. Our mission is to enrich the
lives of the customers we serve with the highest quality telecommunications services by making investments in technology, using
innovative thinking and delivering high quality local customer service that makes using technology easy.
Our Communities. Shentel
is committed to developing partnerships with the communities we serve. We seek to strengthen the communities where
our customers, business partners and employees live and work through philanthropy, volunteerism and support of local community
initiatives. Shentel strives to be a good neighbor and encourages our employees to do the same by volunteering time and talent
to support causes. We support the philanthropic interests of our employees and empower them to be a positive influence in their
community, including through our Summer Backpack program (our summer food service program for local children) and The Big Give
during the holiday months. Shentel has a charitable contribution matching program, in which the Shentel Foundation matches employees’
charitable contributions dollar for dollar up to a specified amount to non-profit organizations of the employees’ choosing.
Significant donations of funds, time and materials are given to the communities we serve and are evidence of Shentel’s desire
and commitment to create deeper connections with our communities and between our team members.
Our Employees. Shentel
believes that the key to building a stronger company rests firmly with our employees. We are committed to creating a diverse
and inclusive workplace where our employees feel valued, respected and safe. We respect and encourage diverse viewpoints
and we are committed to diversity and equality in all areas of our business, including hiring, compensation, promotion and career
development. The Company does not tolerate or condone any type of discrimination prohibited by law, including harassment.
We seek to create a work environment in which our employees can grow their careers and offer continuous training and development
at all employee levels and career stages, including offering a tuition assistance program for full-time employees. Shentel
supports its employees’ well-being by hiring experienced and motivated personnel dedicated to the safety and wellness of
its employees and empowering its Safety Committee to continuously discuss and implement ways to improve safety conditions and programs.
Shentel also offers benefits programs that promote wellness, safety and a healthy work/life balance.
Our Environment. Shentel
is committed to minimizing our impact on the environment through thoughtful action. We strive to minimize our impact by balancing
environmental sustainability initiatives intended to reduce energy, waste and materials consumption with the needs of our employees,
customers, shareholders and the communities we serve. We pursue this balance by ensuring that our efforts support the financial
health of Shentel, the health and wellness of our employees, the quality and reliability of service we offer our customers, our
mission to ensure access to the same level of telecommunications for rural and underserved markets and the value we create for
our shareholders. In furtherance of this commitment, Shentel adopted an official Environmental Policy, which was distributed
to every employee of the Company.
Our Ethics. Our Code
of Business Conduct and Ethics lays the foundation of our ethics and compliance programs. Shentel has always subscribed
to the highest ethical standards, and our employees, officers and directors are expected to conduct business legally and ethically
and insist that our vendors and business associates do the same. Obeying the law, both in letter and in spirit, is one of
the foundations on which Shentel’s ethical policies are built. Our commitment to promoting the highest ethical standards
includes a responsibility to foster an environment that allows employees to report violations without the fear of retaliation or
retribution. We maintain a firm no-retaliation policy. To learn more about our commitment to ethical and responsible
business practices, please see our Code of Business Conduct and Ethics posted in the “Corporate Governance” section
of our website at www.shentel.com.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis
describes the Company’s compensation program for its executive officers, including its Chief Executive Officer and other
“named executive officers” identified in the 2019 Summary Compensation Table below, and explains how the Company’s
independent directors determined the levels and forms of the compensation that was earned by or paid to the executive officers
for 2019. In addition to the matters described below, the independent directors considered the results of the advisory vote by
shareholders on the “say-on-pay” proposal presented to shareholders at the May 1, 2018 Annual Meeting of Shareholders
in determining the levels and forms of compensation that were earned by or paid to the named executive officers in 2019. As reported
in the Company’s Current Report on Form 8-K, filed with the SEC on May 2, 2018, more than 90% of the votes cast on the say-on-pay
proposal were in favor of our named executive officer compensation. Accordingly, the Company did not make any changes to its executive
compensation program as a result of the vote.
For 2019, the Board of Directors did not delegate to the Compensation
Committee the authority to determine the overall compensation of the Company’s Chief Executive Officer or Chief Operating
Officer. Instead, in accordance with the Nasdaq listing rules, the compensation of the Chief Executive Officer and Chief Operating
Officer was determined by the Board of Directors upon the recommendation of the Compensation Committee. Compensation of all other
executive officers was determined in accordance with the Nasdaq listing rules by the Compensation Committee in consideration of
the advice and recommendations of the Chief Executive Officer.
Since 2015, the Compensation Committee has engaged Frederic W. Cook
& Co., Inc. (“Frederic Cook”), a company that consults on employee benefits and compensation issues, to provide
a review and assessment of the Company’s executive compensation practices and to recommend possible changes that should be
considered to those practices. Frederic Cook was also asked to make recommendations regarding the structure of executive compensation,
including the relative levels of base salaries, short-term incentive compensation, and long-term equity-based compensation. Frederic
Cook also provided advice regarding the composition of the peer group used in evaluating the Company’s executive compensation
practices. The Compensation Committee continues to consult with Frederic Cook from time to time as appropriate and did so in 2019.
The Company’s Chief Executive Officer is responsible for reviewing
the performance of the executive officers, which included each of the Company’s named executive officers identified in this
proxy statement, and bringing individual recommendations for those officers to the Compensation Committee, which then sends its
recommendations to the independent directors of the full Board for their review, consideration and approval. In addition, the Chief
Executive Officer is responsible for recommending to the Compensation Committee individual performance objectives for the payment
of annual incentive bonuses to the other executive officers.
The Company’s executive compensation program serves to attract
and retain the management talent needed to successfully lead our Company and increase shareholder value. It rewards executives
for using their knowledge and skill to meet defined objectives set by the Board, and motivates their behavior by rewarding desired
performance or the meeting of established corporate objectives.
The Company’s executive compensation program primarily consists
of base salary, annual incentive bonuses, long-term incentives in the form of equity-based compensation, and retirement compensation.
Base salary represents the fixed component of the Company’s executive compensation program and is designed to provide compensation
to executives based upon their experience, duties and scope of responsibilities. Annual incentive bonuses represent a variable
component of compensation, and are intended to compensate executives for specific achievements or improvements in the Company’s
performance and individual accomplishments toward specific objectives. Long-term, equity-based incentive compensation represents
a variable component which seeks to reward executives for performance that maximizes long-term shareholder value, while further
aligning the executives’ financial interests with those of our shareholders, and also serves as a retention tool. Retirement
compensation is a variable component of compensation and is designed to allow the participants to accumulate assets that will assist
in meeting their post-retirement needs.
All incentive compensation (both cash and equity compensation) received
by executive officers and certain other employees of the Company (“Senior Management”) is subject to reduction, cancellation,
forfeiture and recoupment under the Company’s Executive Compensation Recovery Policy (the “Recovery Policy”).
Currently, individual compensation is subject to recovery from a member of Senior Management who, as a result of his or her misconduct,
received incentive compensation in excess of compensation that would have been paid had such misconduct not occurred. For purposes
of the Recovery Policy, “misconduct” includes gross negligence, willful misconduct, fraudulent or deceitful activity,
as well as any failure to act (including a failure to adequately supervise other employees) in circumstances where such employee
knew, or reasonably should have known, that action was required. Excess compensation is subject to recovery by the Company if the
misconduct is identified or alleged within a period of three years from the later of the date of receipt of the subject compensation,
or the most recent date of misconduct. The Board of Directors has full discretion whether to seek recovery of incentive compensation
and to determine the amount of such compensation that is subject to recovery. The Recovery Policy is intended to supplement, but
not limit or constrain, any statutory or regulatory right or obligation of the Company to recover compensation from its employees
(including, without limitation, the requirements of the Sarbanes-Oxley Act of 2002 and Section 16(b) of the Securities Exchange
Act of 1934, as amended).
The Company also provides various benefit programs to executive officers
and to other employees. The following table generally identifies such benefit plans and identifies those employees who may be eligible
to participate:
Benefit Plan
|
Executive
Officers
|
Full-time
Employees
|
401(k) Plan (a)
|
X
|
X
|
Medical/Dental/Vision Plans (a)
|
X
|
X
|
Life and Disability Insurance (a)
|
X
|
X
|
Annual Incentive Plan (Bonus)
|
X
|
X
|
Equity Incentive Plan (Stock Awards)
|
X
|
X
|
Severance Arrangements
|
X
|
X
|
Deferred Compensation Plan (b)
|
X
|
Not offered
|
Defined Benefit Pension Plan
|
Not offered
|
Not offered
|
Defined Benefit Executive Supplemental Retirement Plan
|
Not offered
|
Not offered
|
Employee Stock Purchase Plan
|
Not offered
|
Not offered
|
Employment Contracts
|
Not offered
|
Not offered
|
__________________
|
(a)
|
All full-time employees meeting
certain eligibility requirements are eligible to participate in these plans on essentially
the same terms (except for certain differences resulting from differences in annual base
compensation).
|
|
(b)
|
The Company maintains an Executive
Supplemental Retirement Plan for certain of its executive officers, but discontinued
contributions to the Plan as of June 2010.
|
The Company further believes that perquisites for executive officers
should be extremely limited in scope and value, and has historically provided few perquisites. The following table lists the perquisites
offered, and which employees are eligible to receive them:
Type of Perquisites
|
Executive
Officers
|
Full-time
Employees
|
Employee Discounts (a)
|
X
|
X
|
Spousal Travel Reimbursements (b)
|
X
|
X
|
Automobile Allowance
|
Not offered
|
X
|
Financial Planning Allowances
|
Not offered
|
Not offered
|
Country Club Memberships
|
Not offered
|
Not offered
|
Personal Use of Company Aircraft (c)
|
Not offered
|
Not offered
|
Security Services
|
Not offered
|
Not offered
|
Dwellings for Personal Use (d)
|
Not offered
|
Not offered
|
__________________
|
(a)
|
All employees are eligible for
discounts on Company services.
|
|
(b)
|
The Company encourages the spouses
of executive officers and certain employees to accompany them to certain Company-sponsored
events (such as industry association conventions and conferences). The Company reimburses
the executive or employee for the cost of the spouse’s travel and expenses, and
adds such reimbursements to taxable pay for W-2 purposes. The Company does not gross
up pay to cover the taxes on such reimbursements.
|
|
(c)
|
The Company does not own, lease,
or use private aircraft.
|
|
(d)
|
The Company does, under certain
circumstances, provide hiring/relocation bonuses to newly hired employees and executive
officers that may, in whole or in part, be used for temporary living expenses.
|
Base Salaries
Base salaries reflect the scope of an executive’s responsibilities
and his or her performance in directing and managing the efforts of the Company or the business unit for which the executive is
responsible. Base salaries are initially determined by evaluating the responsibilities of the position, the experience and knowledge
of the executive, and the competitive marketplace for recruiting executive talent. Base salaries are reviewed annually by the Compensation
Committee, taking into consideration such factors as individual performance and responsibilities, changes to cost of living, the
executive’s potential overall compensation package and general economic conditions. Comparisons to base salaries for comparable
positions at public companies considered to be peers of the Company are also taken into consideration. For decisions made regarding
changes to executive compensation in 2019, the Compensation Committee reviewed compensation data disclosed in the proxy filings
of the following companies: ATN International, Inc.; Boingo Wireless, Inc.; Cable One, Inc.; Cincinnati Bell, Inc.; Cogent Communications
Holdings, Inc.; Consolidated Communications Holdings Inc.; GCI Liberty, Inc.; GTT Communications Holdings, Inc.; Hawaiian Telcom
Holdco, Inc.; IDT Corp; Iridium Communications Inc.; NII Holdings, Inc.; Viasat, Inc.; Vonage Holdings Corp.; WideOpenWest, Inc.;
and Zayo Group Holdings, Inc. These companies were selected for comparison because they reflect similar company attributes and
core competencies for executive talent, and reflect the labor market for the Company’s executive talent, in terms of both
industry and organizational complexity. Although the Compensation Committee generally believes that the target total compensation
should be at the median of the peer group, the Company does not specifically “benchmark” compensation for specific
executives or strive to pay our executive officers, including the named executive officers, at a particular level of compensation.
Instead, the Compensation Committee used the information to understand the range of compensation among these comparison companies
and to obtain a general understanding of compensation practices.
Annual Incentive Bonuses
Annual bonuses are intended to focus the executive’s energy
into improving corporate performance based on priorities set by the Board, and to reward the executives for the achievement of
specific objectives that are deemed to be important to the ongoing success of the Company. Annual bonuses are calculated as a percentage
of base pay. Target bonuses for named executives were 85%, 70%, 60%, 60%, and 50% for Christopher E. French, the Chief Executive
Officer; David L. Heimbach, Chief Operating Officer; James J. Volk, Chief Financial Officer; William L. Pirtle, Senior Vice President
- Sales and Marketing; Edward H. McKay, Senior Vice President – Engineering and Operations, respectively. In order to be
eligible to receive the annual incentive bonus, every eligible employee of the Company, including named executive officers, must
remain employed through December 31 of the performance year except in the case of retirement. The target bonus for James F. Woodward,
the Company’s former Chief Financial Officer was 60% of his base salary, but Mr. Woodward was not eligible to receive a bonus
for 2019 because of his resignation on June 28, 2019.
Annual bonuses for salaried employees, including the named executive
officers, have been based upon the achievement of a combination of company-wide financial and service performance goals and achievement
of individual objectives. For 2019, the company-wide objectives represented 80% of the total target, and individual objectives
represented 20% of the total target, for each of the named executive officers. Individual objectives for the Chief Executive Officer
and Chief Operating Officer were established by the Board of Directors, based on recommendation by the Compensation Committee.
The annual bonus targets for the Chief Financial Officer and other named executive officers were approved by the Compensation Committee,
based on recommendations from our Chief Executive Officer. Each officer’s actual bonus can range up to 150% of the target
bonus for exceeding all of the goals and objectives reflected in a given year’s plan. The actual bonus can also range as
low as zero in the event there is a failure to achieve any of the goals or objectives in a given year’s plan.
For 2019, company-wide performance goals consisted of three components
for salaried Company employees, including the named executive officers. The first component, representing 70% of the total target
for the Chief Executive Officer and the Chief Operating Officer, and 60% of the total target for the Chief Financial Officer, the
Senior Vice President - Sales and Marketing, and the Senior Vice President – Engineering & Operations was a financial
objective based on adjusted operating income, which the Company believes is a key driver to creating long-term shareholder value.
Adjusted operating income was defined as operating income before depreciation and amortization (OIBDA), excluding accrued expenses
for the current year’s incentive plan and expenses relating to the Executive Supplemental Retirement Plan.
The target levels of adjusted operating income for the named executive
officers were: a minimum of approximately $251.7 million (below which no bonus would be earned on this component); a goal of approximately
$271.6 million (which represented 100% achievement toward this component); and a high of approximately $291.5 million (which represented
150% achievement, and beyond which no additional bonus would be earned on this component). The maximum threshold of $291.5 million
represented 110% of budgeted adjusted operating income for 2019, and was viewed as evidencing high achievement.
Calculated with the exclusions described above, the 2019 adjusted
operating income was approximately $272.6 million. Based upon these results and after considering whether any unusual items impacted
the financial accomplishments in 2019, the Company’s independent directors determined that the $271.6 million goal threshold
had been exceeded, resulting in a 102.5% achievement for the financial objective.
The other two company-wide performance goals for 2019 for the named
executive officers were growth in the number of revenue generating units (RGUs) in the Cable business, and progress in the Company’s
emerging fiber to the home (FTTH) business. The Cable RGU growth measure was chosen as a performance objective because of the Company’s
focus on increasing the legacy Cable segment’s contribution to overall operating income and the belief that customer growth
is a good measure of how well the Company’s legacy Cable segment was performing against alternative providers. The FTTH performance
objectives were split into two categories of equal weight: growth of the Company’s FTTH business evidenced by new homes and
businesses passed, and average capital cost per home or business passed. These objectives were chosen to reflect the Company’s
performance in and promote commitment to growing and diversifying its network and service offerings on a sustainable, cost-minded
basis.
The Cable RGU growth component represented 5% of the total target
bonus for the Chief Executive Officer and the Chief Operating Officer, and 10.0% of the total target bonus for each of the Chief
Financial Officer, the Senior Vice President - Sales and Marketing, and the Senior Vice President – Engineering and Operations.
Achievement levels for the Cable RGU growth component were: a minimum of 2,916 net additional Cable Segment RGUS (below which no
bonus would be earned), a target goal of approximately 3,146 net additional RGUs (which represented 100% achievement toward this
component), and a high of approximately 3,376 net additional RGUS (which represented 150% achievement, and beyond which no additional
bonus would be earned on this component). In 2019, the Company did not reach the minimum threshold for this component, so no bonus
was earned for this portion of the Company-wide objectives.
The FTTH segment growth objective represented 5% of the total target
bonus for the Chief Executive Officer and Chief Operating Officer, and 10.0% of the total target bonus for each of the Chief Financial
Officer, the Senior Vice President - Sales and Marketing, and the Senior Vice President – Engineering and Operations. The
FTTH objective was based on two equally weighted components: growth of the Company’s FTTH network evidenced by new homes
and businesses passed, and average capital cost per home or business passed. The target levels for these components were determined
by analyzing national and regional averages and historical Company performance. The Company considers specific targets and achievement
levels for each of these components confidential and proprietary, and therefore does not disclose such figures publicly. The target
goals (representing 100% achievement) were set at a challenging level without certainty of achievement when established and required
rigorous effort by management to accomplish. In 2019, the Company did not reach its threshold target, resulting in 0% achievement
for the first component of the FTTH segment growth objective. The Company achieved 137.4% of target for the average cost per home/business
passed, for a combined total achievement of 68.7% of target for the FTTH growth objective component of the Company-wide performance
goals.
For 2019, individual objectives represented 20% of the total potential
achievement toward the incentive bonuses of the each of the named executive officers. The individual objectives of the Chief Executive
Officer were to continue to strengthen and develop the executive management team, including recruitment of senior executive talent,
and to work to maximize the Company’s strategic positioning in relation to the potential outcomes of the proposed merger
between Sprint and T-Mobile. As a result of exceeding expectations with respect to those goals, the Compensation Committee determined
the Chief Executive Officer achieved a weighted performance of 150% of his individual goal.
The Executive Vice President -Chief Operating Officer’s individual
objective portion of the 2019 incentive bonus was made up of three components: growth of Wireless postpaid net additions, growth
of Wireless prepaid net additions, each representing 35% of his individual objective, and successful launch of the FTTH initiative,
representing 30% of his individual objective. The targets for Wireless postpaid net additions were a minimum of 20,168 (below which
no bonus would be earned on this component), a goal of 22,409 (which represented 100% achievement toward this component) and a
high of 24,650 (which represented 150% achievement, and beyond which no additional bonus would be earned on this component). Actual
postpaid net additions exceeded the maximum threshold with 49,018, resulting in 150% achievement for this component. The targets
for Wireless prepaid net additions were a minimum of 18,149 (below which no bonus would be earned on this component), a goal of
20,165 (which represented 100% achievement toward this component) and a high of 22,182 (which represented 150% achievement, and
beyond which no additional bonus would be earned on this component). Actual prepaid net additions were 15,308 resulting in 0% achievement
for this component. Achievement of the third component, successful launch of the FTTH initiative, was based on the relative achievements
of the leadership team in charge of such initiative that report to the Executive Vice President - Chief Operating Officer. Based
on his team’s achievement levels relating to the FTTH launch, the Executive Vice President – Chief Operating Officer
earned 75% achievement for this component. As a result of his achievement on these components, the Executive Vice President –
Chief Operating Officer achieved a weighted performance of 75% of his individual goal.
The individual objectives of the Chief Financial Officer were to
improve the accounting and internal control environment and to develop the technical knowledge and experience of the accounting
and finance staff. As a result of exceeding expectations with respect to those goals, the Chief Financial Officer achieved a weighted
performance of 125% of his individual goal.
The individual objective portion of the annual incentive bonus for
the Senior Vice President - Sales and Marketing was made up of three components: growth of Wireless postpaid net additions, growth
of Wireless prepaid net additions, each representing 35% of his individual objective, and increase in revenue from the Company’s
commercial and wholesale (collectively referred to as “enterprise”) fiber business, representing 30% of his individual
objective. The targets for Wireless postpaid net additions were a minimum of 20,168 (below which no bonus would be earned on this
component), a goal of 22,409 (which represented 100% achievement toward this component) and a high of 24,650 (which represented
150% achievement, and beyond which no additional bonus would be earned on this component). Actual postpaid net additions exceeded
the maximum threshold with 49,018, resulting in 150% achievement for this component. The targets for Wireless prepaid net additions
were a minimum of 18,149 (below which no bonus would be earned on this component), a goal of 20,165 (which represented 100% achievement
toward this component) and a high of 22,182 (which represented 150% achievement, and beyond which no additional bonus would be
earned on this component). Actual prepaid net additions were 15,308 resulting in 0% achievement for this component. The Senior
Vice President – Sales and Marketing’s targets for the enterprise fiber component of his individual objective were
$23.7 million (below which no bonus would be earned on this component), a goal of $26.4 million (which represented 100% achievement
toward this component), and a high of $27.7 million (which represented 150% achievement, and beyond which no additional bonus would
be earned on this component). Enterprise fiber revenues for 2019 were $24.1 million, resulting in 13% achievement for this component.
As a result of his achievement on these components, the Senior Vice President - Sales and Marketing achieved a weighted performance
of 56.4% of his individual goal.
The individual objective portion of the Senior Vice President –
Engineering and Construction was made up of four components of equal weight: fiber to the tower (FTTT) site construction, new cell
site construction, cell site upgrades, and total company capital budget. The target levels for the FTTT site construction component
were a minimum of 83 sites (below which no bonus would be earned), target goal of 93 sites (which represented 100% achievement
toward this component), and a maximum of 98 sites (which represented 150% achievement, and beyond which no additional bonus would
be earned). The number of FTTT sites constructed in 2019 was 99, resulting in 150% achievement for this component. The target levels
for cell site construction were a minimum of 88 sites (below which no bonus would be earned), target goal of 99 sites (which represented
100% achievement toward this component), and a maximum of 104 sites (which represented 150% achievement, and beyond which no additional
bonus would be earned). The number of cell sites constructed in 2019 was 104, resulting in 150% achievement for this component.
The target levels for cell site upgrades were a minimum of 235 upgraded sites (below which no bonus would be earned), target goal
of 262 upgraded sites (which represented 100% achievement toward this component), and a maximum of 276 upgraded sites (which represented
150% achievement, and beyond which no additional bonus would be earned). The number of cell site upgrades in 2019 was 262, resulting
in 100% achievement for this component. The target levels for the Company capital budget component were: a minimum target of capital
expenditures below $120.7 million in capital expenditures (below which no bonus would be earned), target goal of capital expenditures
below $109.7 million (which represented 100% achievement toward this component), and a maximum target of capital expenditures under
$98.7 million (which represented 150% achievement, and beyond which no additional bonus would be earned). Capital expenditures
for 2019 were approximately $100 million, resulting in 144.3% achievement for this component. As a result of his achievement on
these components, the Senior Vice President – Engineering and Operations achieved a weighted performance of 136.1% of his
individual goal.
Based on these assessments and results the Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Senior Vice President - Sales and Marketing, Senior Vice President – Engineering
and Operations achieved 150%, 75%, 125%, 56% and 136% of target, respectively, for their personal objectives. Along with the combined
performance on the company-wide objectives, the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Senior
Vice President -Sales and Marketing, and Senior Vice President – Engineering and Operations achieved 105.2%, 90.2%, 93.4%,
79.7%, and 95.6%, respectively, of their total targeted bonus.
Long-Term Equity-Based Compensation
Equity-based compensation is intended to focus each of the executives
on the long-term, overall impact of their decisions on the Company as a whole, as opposed to the shorter, annual time frame associated
with the annual incentive bonuses. Equity-based compensation also aligns the executives’ interests more closely to those
of the Company’s shareholders by generally rewarding executives in proportion to increases in value seen by the entire shareholder
base. Due to the long-term nature of this component of compensation, it also serves as a retention tool, helping the Company retain
desired management talent.
As part of their overall review of executive compensation, and based
on the history of prior equity grants, the Compensation Committee recommended, and the Board of Directors approved, a grant made
up of a 50/50 combination of restricted stock units and Relative Total Shareholder Return (“RTSR” or “RSTR Awards”)
performance units in February 2019 to the named executive officers and other management employees. Details relating to the long-term
equity grants can be found in the “Grants of Plan-Based Awards” table located on page 23 of this proxy statement.
The Company does not have a program, plan or practice to time equity
awards, including option grants, to its executive officers or employees in coordination with the release of material non-public
information. The grant date of long-term equity awards for our executive officers is the date of the Board of Directors meeting
at which the award determinations are made. The exercise price of stock options issuable under the Company’s 2014 Equity
Incentive Plan is the last closing price of the common stock as reported on the Nasdaq Global Select Market prior to the grant.
Retirement Compensation
The Company maintains a defined contribution Executive Supplemental
Retirement Plan. Vesting in the Executive Supplemental Retirement Plan is subject to a ten-year service requirement. The Company
discontinued contributions to the Executive Supplemental Retirement Plan during 2010.
Summary Compensation Table
The following table presents details about compensation paid or earned
by the Company’s Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executive officers
serving with the Company at December 31, 2019. The table also includes compensation paid to James F. Woodward (Former Senior Vice
President - Chief Financial Officer), who announced his resignation on April 24, 2019, but remained employed by the Company through
June 28, 2019 to assist in the transition of the Company’s current Chief Financial officer, James J. Volk.
|
Year
|
Salary
|
Stock
Awards
(a)
|
Non-Equity
Incentive
Plan Comp
(b)
|
All Other
Compensation
(c)
|
Total
|
|
|
|
|
|
|
|
Christopher E. French
President and CEO
|
2019
|
$663,565
|
$1,245,759
|
$590,642
|
$24,500
|
$2,524,467
|
2018
|
631,134
|
712,009
|
591,941
|
$24,000
|
1,959,084
|
2017
|
597,739
|
576,532
|
644,836
|
23,600
|
1,842,707
|
|
|
|
|
|
|
|
David L. Heimbach
EVP & COO
|
2019
|
404,884
|
629,420
|
255,274
|
16,100
|
1,305,678
|
2018
|
238,462
|
250,000
|
164,918
|
312,686
|
966,066
|
2017
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
James J. Volk (d)
SVP–Finance & CFO
|
2019
|
189,289
|
389,795
|
101,012
|
56,415(e)
|
727,511
|
2018
|
-
|
-
|
-
|
-
|
-
|
2017
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
William L. Pirtle
Senior VP–Sales and Marketing
|
2019
|
309,660
|
230,880
|
146,109
|
25,215
|
711,864
|
2018
|
296,224
|
179,170
|
122,654
|
25,162
|
623,210
|
2017
|
277,206
|
175,683
|
147,604
|
23,600
|
624,093
|
|
|
|
|
|
|
|
Edward H. McKay
SVP–Engineering and Operations
|
2019
|
276,053
|
208,485
|
131,673
|
22,222
|
638,432
|
2018
|
259,032
|
160,419
|
107,687
|
20,376
|
548,352
|
2017
|
245,521
|
157,142
|
118,673
|
20,376
|
541,712
|
|
|
|
|
|
|
|
James F. Woodward (d)
Former SVP & CFO
|
2019
|
180,289
|
591,675(f)
|
-
|
19,064
|
849,182
|
2018
|
391,594
|
507,815
|
234,626
|
14,673
|
1,148,708
|
2017
|
15,385
|
249,991
|
9,576
|
-
|
274,952
|
|
(a)
|
For
all periods shown, amounts represent grant date fair values for awards of share-based
compensation. See Note 12, Stock Compensation, included with the Company’s consolidated
financial statements included in our Annual Report on Form 10-K for the year ended December
31, 2019, for additional details.
|
|
(b)
|
Amounts
for each year were earned for performance in that year and were paid in the first fiscal
quarter of the following year.
|
|
(c)
|
Amounts
for all years include employer and matching contributions to the Company’s 401(k)
plan and employer contributions to health spending accouts for each named officer. The
tax-deferred 401(k) contributions for the Company’s named executive officers were
as follows for 2019: $22,400 to Mr. French, $14,000 to Mr. Heimbach, $5,769 for Mr. Volk,
$22,400 for Mr. Pirtle, and $20,122 for Mr. McKay, and $17,489 to Mr. Woodward.
|
|
(d)
|
Mr.
Volk became Senior Vice President and Chief Financial Officer on June 24, 2019. Mr. Woodward
served as Senior Vice President and Chief Financial Officer until his resignation effective
June 28, 2019.
|
|
(e)
|
Amount
includes a one-time signing bonus of $50,000.
|
|
(f)
|
The
stock awards granted to Mr. Woodward on February 26, 2019, were forfeited on June 28,
2019.
|
The Company’s executive officers do not have employment agreements,
and thus are not entitled to any additional benefits upon separation from the Company or following a change in control except as
set forth in the sections below titled “Severance Arrangements with our Named Executive Officers” and “Potential
Payments Upon Termination or Change in Control”. Vested stock options must be exercised before separation from the Company
(except in the case of retirement) and unvested stock and options at separation are forfeited upon separation (except in the case
of retirement). If an employee reaches retirement, his or her award will continue to vest according to the vesting schedule set
forth in the award. For awards granted prior to 2019, an employee reaches retirement when such employee is at least fifty-five
years of age with not less than ten years of continuous service with the Company. For awards granted in 2019, retirement is reached
when an employee voluntarily resigns from active employment with the Company after completing ten years of continuous service,
and the the sum of the employee’s age and years of service is greater than seventy-five.
Grants of Plan-Based Awards
The following table presents information with respect to the grants
of plan-based awards by the Company to the named executive officers during 2019.
All executive officers were granted RTSR awards on February 26, 2019.
Pursuant to the terms of the RTSR awards, the Company’s stock performance over a three-year period ended December 31, 2021
will be compared to a group of 33 peer companies, and the actual number of shares to be issued will be determined based upon the
performance of the company’s stock as compared with that of the peer group. A target number of performance units (as shown
in the 2019 Grants of Plan-Based Awards Table, below) was established for each executive officer at the time of the grant. The
actual number of shares to be issued ranges from 0 shares (if the Company’s stock performance is in the bottom 25% of the
peer group) to 150% of the target shares (if the Company’s stock performance is in the top 25% of the peer group). Subject
to requirements relating to continued employment with the Company through the performance period (ending on December 31, 2021),
and to special vesting provisions in case of a change of control, death, disability or retirement, the shares will be delivered
on the date (which will be no earlier than January 1, 2022 and no later than March 15, 2022) that the Compensation Committee makes
the determination of the Company’s performance relative to the peer group.
All executive officers were also granted restricted stock unit awards
(“RSU Awards”) in the amounts reflected in the “2019 Grants of Plan-Based Awards Table” under the 2014
Equity Incentive Plan. The RSU Awards vest ratably on each anniversary of the grant date over a period of four years. The RSU Awards
are subject to forfeiture in the case of death, termination (for any reason), or resignation, but will continue to vest along the
normal vesting schedule in the case of retirement.
The performance goals and targets for the Non-Equity Incentive Plan
Awards, which the Company also refers to as “Incentive Bonuses” is more fully described in the Compensation Discussion
and Analysis.
2019 Grants of Plan-Based Awards Table
|
|
|
|
Estimated
Future Payouts Under
Non-Equity Incentive Plan Awards
|
|
Estimated
Future Payouts Under
Equity Incentive Plan Awards
|
|
All Other
Stock
Awards:
Number
of Shares
of Stock
|
|
All other
option
awards:
Number of
securities
underlying
|
|
Exercise
or base
price of
option
|
|
Grant
Date Fair
Value of
Stock
and
Option
|
Name
|
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
or
Units
(#)
|
|
options
(#)
|
|
awards
($/Sh)
|
|
Awards
($)
|
Christopher E. French
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,286
|
|
|
|
12,572
|
|
|
|
18,858
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
660,281
|
(a)
|
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12,572
|
|
|
|
--
|
|
|
|
--
|
|
|
|
585,478
|
(b)
|
|
|
2/26/2019
|
|
|
0
|
|
|
|
630,387
|
|
|
|
945,581
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
David L. Heimbach
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
3,176
|
|
|
|
6,352
|
|
|
|
9,528
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
333,607
|
|
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,352
|
|
|
|
--
|
|
|
|
--
|
|
|
|
295,813
|
|
|
|
2/26/2019
|
|
|
0
|
|
|
|
283,418
|
|
|
|
425,128
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
James J. Volk
|
|
6/24/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,105
|
|
|
|
4,209
|
|
|
|
6,314
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
221,057
|
(c)
|
|
|
6/24/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,209
|
|
|
|
--
|
|
|
|
--
|
|
|
|
168,739
|
(c)
|
|
|
6/24/2019
|
|
|
0
|
|
|
|
143,066
|
|
|
|
214,599
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
William L. Pirtle
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,165
|
|
|
|
2,330
|
|
|
|
3,495
|
|
|
|
--
|
|
|
|
--
|
|
|
|
122,372
|
(a)
|
|
|
|
|
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,330
|
|
|
|
--
|
|
|
|
--
|
|
|
|
108,508
|
(b)
|
|
|
2/26/2019
|
|
|
0
|
|
|
|
154,830
|
|
|
|
232,245
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Edward H. McKay
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,052
|
|
|
|
2,104
|
|
|
|
3,156
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
110,502
|
(a)
|
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,104
|
|
|
|
--
|
|
|
|
--
|
|
|
|
97,983
|
(b)
|
|
|
2/26/2019
|
|
|
0
|
|
|
|
138,026
|
|
|
|
207,039
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
James F. Woodward (d)
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,986
|
|
|
|
5,972
|
|
|
|
8,958
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
313,649
|
(a)(e)
|
|
|
2/26/2019
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,972
|
|
|
|
--
|
|
|
|
--
|
|
|
|
278,116
|
(b)(e)
|
|
|
2/26/2019
|
|
|
0
|
|
|
|
143,066
|
|
|
|
214,599
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
(a)
|
The
fair value of the RTSRs was calculated using a combination of a Monte Carlo simulation
model and the closing stock price as of the day before the grant which resulted in a
grant date fair value of approximately $52.52 per unit.
|
|
(b)
|
The
closing stock price as of the day before the grant of the RSU Awards, which also represents
the fair value of a share of restricted stock units, was $46.57 per share
|
|
(c)
|
On
June 24, 2019, Mr. Volk was granted 4,209 restricted stock units (RSUs) that will vest
one-fourth on each of the first through fourth anniversaries of the grant; the closing
price as of the day before the grant of restricted stock units, which also represents
the fair value of a share of restricted stock unit, was $46.50 per share. Mr. Volk was
also granted 4,209 RSTR performance units with a grant date fair value of $52.52.
|
|
(d)
|
Mr.
Woodward resigned from the Company effective June 28, 2019.
|
|
(e)
|
The
stock awards granted to Mr. Woodward on February 26, 2019 were forfeited on June 28,
2019.
|
Outstanding Equity Awards at Fiscal Year-End
The following table presents information with respect to the outstanding
equity awards at 2019 fiscal year-end for the named executive officers.
|
|
Option
Awards
|
|
Stock
Awards
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested (#)
|
|
Market
Value of
Shares or
Units of
Stock
That
Have
Not
Vested (a)($)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Units
That Have
Not
Vested (#)
|
|
Equity
Incentive
Plan
Awards:
Market
Value of
Unearned
Units
That Have
Not
Vested ($) (b)
|
Christopher E. French
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12,572
|
(c)
|
|
|
523,121
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
8,002
|
(d)
|
|
|
332,963
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,742
|
(e)
|
|
|
197,315
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,473
|
(f)
|
|
|
102,902
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12,572
|
(g)
|
|
|
523,121
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
10,670
|
(h)
|
|
|
443,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David L. Heimbach
|
|
|
--
|
|
|
|
6,864
|
(i)
|
|
|
31.05
|
|
|
|
5/15/2028
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,352
|
(c)
|
|
|
264,307
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
3,020
|
(j)
|
|
|
125,662
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,352
|
(g)
|
|
|
264,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J. Volk
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,209
|
(k)
|
|
|
175,136
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,209
|
(l)
|
|
|
175,136
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William L. Pirtle
|
|
|
3,998
|
|
|
|
--
|
|
|
|
6.92
|
|
|
|
2/18/2023
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
2,794
|
|
|
|
--
|
|
|
|
5.41
|
|
|
|
2/19/2022
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,330
|
(c)
|
|
|
96,951
|
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,014
|
(d)
|
|
|
83,803
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,445
|
(e)
|
|
|
60,126
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
907
|
(f)
|
|
|
37,740
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,330
|
(g)
|
|
|
96,951
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,685
|
(h)
|
|
|
111,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward H. McKay
|
|
|
8,082
|
|
|
|
--
|
|
|
|
6.92
|
|
|
|
2/18/2023
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
4,290
|
|
|
|
--
|
|
|
|
8.29
|
|
|
|
2/21/2021
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,104
|
(c)
|
|
|
87,547
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,803
|
(d)
|
|
|
75,023
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,293
|
(e)
|
|
|
53,802
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
813
|
(f)
|
|
|
33,829
|
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,104
|
(g)
|
|
|
85,547
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,404
|
(h)
|
|
|
100,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James F. Woodward (m)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
__________________
|
(a)
|
The
market value of the RSU Awards is based on the closing price of the Company’s common
stock ($41.61) as of December 31, 2019.
|
|
(b)
|
The market value of the RTSR Awards
is based on the target number of shares under the award times the closing price of the
Company’s stock ($41.61) on December 31, 2019.
|
|
(c)
|
The RSU Awards granted on February
26, 2019 vest ratably each year for four years.
|
|
(d)
|
The RSU Awards granted on February
20, 2018 vest ratably each year for four years.
|
|
(e)
|
The RSU Awards granted on February
22, 2017 vest ratably each year for four years.
|
|
(f)
|
The RSU Awards granted on February
16, 2016 vest ratably each year for four years.
|
|
(g)
|
The RSTR awards awards granted February
26, 2019 will vest as of December 31, 2021; provided, however, that the actual number
of shares that vest will be certified by the Compensation Committee after review of the
Company’s stock price performance relative to the peer group. The table above represents
payout at the target amount for these performance-based awards.
|
|
(h)
|
The RSTR awards granted February
20, 2018 will vest as of December 31, 2020; provided, however, that the actual number
of shares that vest will be certified by the Compensation Committee after review of the
Company’s stock price performance relative to the peer group. The table above represents
payout at the target amount for these performance-based awards.
|
|
(i)
|
The option award granted to Mr. Heimbach
on May 15, 2018 will vest ratably on each of the third through seventh anniversaries
of the grant date.
|
|
(j)
|
The RSU award granted to Mr. Heimbach
on May 15, 2018 will vest ratably each year for four years.
|
|
(k)
|
The RSU award granted to Mr. Volk
on June 24, 2019 will vest ratably each year for four years
|
|
(l)
|
The RSTR awards granted to Mr. Volk
on June 24, 2019 will vest as of December 31, 2021; provided, however, that the actual
number of shares that vest will be certified by the Compensation Committee after review
of the Company’s stock price performance relative to the peer group. The table
above represents payout at the target amount for these performance-based awards
|
|
(m)
|
Mr.
Woodward resigned from the Company effective June 28, 2019 and as a result, all oustanding
and unvested awards were forfeited.
|
Option Exercises and Stock Vested
The following table presents information with respect to the options
exercised and stock awards vested during the 2018 fiscal year for the named executive officers.
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number
of Shares Acquired
Upon Exercise
|
|
Value
Realized
Upon Exercise
|
|
Number
of Shares Acquired
Upon Vesting
|
|
Value
Realized
Upon Vesting
|
|
|
|
|
|
|
|
|
|
Christopher E. French
|
|
|
--
|
|
|
|
--
|
|
|
|
24,449
|
|
|
$
|
1,108,040
|
|
David L. Heimbach
|
|
|
--
|
|
|
|
--
|
|
|
|
1,006
|
|
|
|
51,095
|
|
James J. Volk
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
William L. Pirtle
|
|
|
--
|
|
|
|
--
|
|
|
|
7,625
|
|
|
|
346,525
|
|
Edward H. McKay
|
|
|
10,778
|
|
|
|
435,970
|
|
|
|
6,831
|
|
|
|
310,503
|
|
James F. Woodward (a)
|
|
|
--
|
|
|
|
--
|
|
|
|
1,092
|
|
|
|
96,603
|
|
|
(a)
|
Mr.
Woodward resigned from the Company effective June 28, 2019.
|
Nonqualified Deferred Compensation
In March 2007, effective January 1, 2007, the Company amended the
Executive Supplemental Retirement Plan to convert it from a defined benefit plan to a defined contribution plan. The Company discontinued
contributions to the plan effective June 2010. Participants may direct their balances to a variety of investment options, and returns
on these investment options will be reflected as gains or losses in the participants’ accounts under this plan. The Company
will also reflect those gains or losses as investment gains or losses on its financial statements. The Company elected to establish
a rabbi trust and to contribute amounts to the rabbi trust equal to the participants’ opening balances in the plan, as well
as Company contributions required under the plan, and to make investments under the rabbi trust as directed by the participants’
election choices.
|
|
|
Aggregate
Earnings
|
|
Aggregate
Balance
at
|
|
|
Name
|
|
in
Last FY
|
|
Last
FY
|
|
|
|
|
|
|
|
|
|
Christopher E. French
|
|
$
|
360,629
|
|
|
$
|
1,598,702
|
|
|
|
David L. Heimbach
|
|
|
--
|
|
|
|
--
|
|
|
|
James J. Volk
|
|
|
--
|
|
|
|
--
|
|
|
|
William L. Pirtle
|
|
|
121,441
|
|
|
|
612,559
|
|
|
|
Edward H. McKay
|
|
|
--
|
|
|
|
--
|
|
|
|
James F. Woodward (a)
|
|
|
--
|
|
|
|
--
|
|
|
|
(a)
|
Mr.
Woodward resigned from the Company effective June 28, 2019.
|
Severance Arrangements with our Named Executive Officers
On February 7, 2020, we entered into severance agreements with Mr.
French, Mr. Heimbach, Mr. Pirtle and Mr. McKay (the “Severance Agreements”), each of which terminate on the earlier
of (i) prior to a change in control, December 31, 2021 (which will be extended automatically by additional one-year periods unless
either party gives written notice that that the Severance Agreement will not be extended) or (ii) after a change in control, the
date that is 18 months after such change in control (or, if more than one change in control occurs during the term, the date of
the last change in control).
Each Severance Agreement provides that should the executive officer’s
employment be terminated for any reason, the executive officer is entitled to each of the following as of the date the executive
officer’s employment ends: (i) payment of any compensation (including base salary and cash bonus for the year immediately
preceding the year of termination) that is earned but unpaid, (ii) payment for any vacation or paid time off that is earned but
unused, (iii) reimbursement of expenses in accordance with the Company’s expense reimbursement policy for expenses incurred
and unpaid, and (iv) the rights, if any, under any outstanding stock options or other equity awards. The benefits described in
clauses (i) through (iii) shall be paid in a single cash payment within thirty days after the date the executive officer’s
employment ends.
In the event of an involuntary termination of the executive officer’s
employment by the Company for a reason other than “cause” (as defined in the Severance Agreements) or, on or after
a change in control, the executive officer’s resignation with “good reason” (as defined in the Severance Agreements),
the executive officer is entitled to receive (a) if a change in control has not occurred before the date of termination, (i) an
amount equal to one times the executive officer’s annual base salary as in effect on the date the executive officer’s
employment ends (but disregarding any reduction in base salary that constitutes “good reason”), payable in installments
in accordance with the Company’s regular payroll policy, and (ii) if the executive officer elects to continue coverage under
the Company’s health insurance plan under COBRA, reimbursement in an amount equal to the monthly premium that the Company
pays for active employees for the same type and level of such coverage for up to 12 months, unless such obligation terminates earlier
in accordance with the terms of the Severance Agreement, payable in the month after the month in which the executive officer paid
the COBRA premium, or (b) if a change in control has occurred on or before the date of termination, (1) the benefits described
in clauses (a)(i) and (ii) above and (2) an amount equal to one times the executive officer’s “target” annual
incentive bonus for the year in which the executive officer’s employment ends (the benefits described in (a) and (b) of this
paragraph are the “Severance Benefits”). Notwithstanding the foregoing, the Severance Benefits are not applicable in
the event of a termination (a) in the event of death or disability or (b) (i) if such employment ends in connection with, or related
to, a “transaction” (as defined in the Severance Agreements) and (ii) the executive officer accepts an offer of employment
or becomes an employee or otherwise provides services to a purchaser or acquirer in a “transaction.”
The Severance Benefits will be provided to the executive officer
only if (i) the executive officer remains continuously employed until the date of termination, (ii) the date of termination is
during the term of the Severance Agreement, (iii) the executive officer provides the Company the general release and waiver of
claims contemplated by the Severance Agreement, and (iv) the executive officer complies with the covenants in the Severance Agreement,
including with respect to non-competition, non-solicitation, confidentiality and non-disparagement. No further Severance Benefits
will be provided to the executive officer after the date that the executive officer becomes employed by, or provides services to,
a purchaser or acquirer in a “transaction.” In the event that the executive officer breaches certain covenants in the
Severance Agreement, the executive officer is obligated to repay to the Company the Severance Benefits previously paid to the executive
officer on or after the date of the breach.
If the benefits or payments payable under the Severance Agreement
would subject the executive officer to tax under Section 4999 of the Internal Revenue Code, as amended, such payments will be reduced
as provided in, and to the extent required by, Section 14.04 of the Shenandoah Telecommunications Company 2014 Equity Incentive
Plan. If any provision of the Severance Agreement is found not to comply with, or otherwise not be exempt from, Section 409A of
the Internal Revenue Code, such provision shall be modified, in the sole discretion of the Company, to comply with, or to effectuate
an exemption from, Section 409A of the Internal Revenue Code.
Potential Payments Upon Termination or Change in Control
As discussed in the section above titled “Severance Arrangements
with Our Named Executive Officers,” the Company is required to pay or provide certain compensation and benefits to each of
the named executive officers in the event of certain terminations of employment or a change in control of the Company. In addition
to such compensation and benefits, our named executive officers are eligible (i) to receive lump-sum distributions of their vested
accumulated benefits under the Executive Supplemental Retirement Plan upon termination of employment, whether by resignation, change
of control, severance, retirement, or other reason and (ii) for accelerated vesting of equity awards upon certain terminations
of employment or a change in control of the Company.
Pursuant to certain equity award agreements under the 2014 Equity
Incentive Plan, our named executive officers are eligible for accelerated vesting in the amounts and under the circumstances discussed
below:
|
•
|
Death or Disability. Outstanding awards vest on a pro-rated basis based on the amount of time the named executive officer
was employed during the vesting or measurement period and, with respect to RTSR Awards, in accordance with the achievement levels
determined as of the date of termination.
|
|
•
|
Retirement. In the event of retirement, vesting of equity awards will not accelerate, but rather will continue to vest
in accordance with the original vesting schedule determined at the date of grant. For outstanding equity awards granted in 2016,
2017 and 2018, named executive officers are eligible for retirement at 55 years of age with 10 years of continuous service. For
outstanding equity awards granted in 2019, named executive officers are eligible for retirement after completing 10 years of continuous
service as long as the sum of the named executive officer’s age and years of service is not less than 75.
|
|
•
|
Change in Control. In the event a change in control occurs during their respective vesting periods, certain equity awards
provide for accelerated vesting. Unless the surviving entity in a change in control substitutes the awards with a grant of equivalent
value, the RSU Awards granted in 2019 vest automatically upon a change in control, but RSU Awards granted in 2016, 2017, and 2018
do not provide for acceleration in the event of a change in control. With respect to RTSR Awards, the named executive officer will
be entitled to compensation equal to the lesser of the maximum payout for such award or the fair market value of the earned shares
on the date of the change of control.
|
In consideration for the foregoing compensation, our named executive
officers generally agree to certain restrictive covenants, including non-competition, non-solicitation, confidentiality, and non-disparagement.
The following tables describe estimated amounts of compensation and
benefits that could be payable to each named executive officer upon certain terminations or a change in control. All amounts assume
the named executive officers terminated employment as of December 31, 2019 and, where applicable, elected to continue COBRA coverage
under the Company’s health insurance plan for 12 months (with reimbursement levels equal to the 2019 Company-paid portion
of the officer’s health insurance premium); the value of the accelerated vesting is based on the closing price of our common
stock as reported on NASDAQ on December 31, 2019, which was $41.61. The actual amounts that would be paid to each named executive
officer upon termination of employment or a change in control can only be determined at the time the actual triggering event occurs.
The estimated amounts of compensation and benefits described below do not include certain equity-based compensation, which does
not accelerate but continues to vest following retirement for executive officers who are eligible, or amounts payable under the
Executive Supplemental Retirement Plan, which are set forth in the section above titled “Nonqualified Deferred Compensation.”
This section identifies and quantifies the extent to which those retirement benefits are enhanced or accelerated upon the triggering
events described below.
The following table shows the potential payments upon a hypothetical
termination or change in control of the Company effective as of December 31, 2019 for Christopher E. French.
Type of
Payment
|
|
Termination
without
Cause prior to
a Change in
Control
|
|
Resignation
for Good
Reason prior to
a Change in
Control
|
|
Termination
without
Cause or Resignation for Good Reason after
a Change in
Control
|
|
Change in
Control
with no
Termination
|
|
Termination
with
Cause or
Resignation
without Good
Reason
|
|
Death or
Disability
|
Severance Benefit
|
|
$
|
669,100
|
|
|
|
-
|
|
|
$
|
1,237,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Healthcare continuation
|
|
|
8,950
|
|
|
|
-
|
|
|
|
8,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accelerated Vesting of RSU Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
523,121
|
|
|
|
523,121
|
|
|
|
-
|
|
|
|
507,808
|
|
Accelerated Vesting of RTSR Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
1,110,621
|
|
|
|
1,110,621
|
|
|
|
-
|
|
|
|
633,402
|
|
Total
|
|
$
|
678,050
|
|
|
|
-
|
|
|
$
|
2,880,527
|
|
|
$
|
1,633,742
|
|
|
|
-
|
|
|
$
|
1,141,210
|
|
The following table shows the potential payments upon a hypothetical
termination or change in control of the Company effective as of December 31, 2019 for David L. Heimbach.
Type of
Payment
|
|
Termination
without
Cause prior to
a Change in
Control
|
|
Resignation
for Good
Reason prior to
a Change in
Control
|
|
Termination
without
Cause or Resignation for Good Reason after
a Change in
Control
|
|
Change in
Control
with no
Termination
|
|
Termination
with
Cause or
Resignation
without Good
Reason
|
|
Death or
Disability
|
Severance Benefit
|
|
$
|
408,000
|
|
|
|
-
|
|
|
$
|
816,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Healthcare continuation
|
|
|
10,391
|
|
|
|
-
|
|
|
|
10,391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accelerated Vesting of RSU Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
264,307
|
|
|
|
264,307
|
|
|
|
-
|
|
|
|
178,590
|
|
Accelerated Vesting of RTSR Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
224,661
|
|
|
|
224,661
|
|
|
|
-
|
|
|
|
132,350
|
|
Accelerated Vesting of Option Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101,653
|
|
Total
|
|
$
|
418,391
|
|
|
|
-
|
|
|
$
|
1,192,959
|
|
|
$
|
488,968
|
|
|
|
-
|
|
|
$
|
412,593
|
|
The following table shows the potential payments upon a hypothetical
termination or change in control of the Company effective as of December 31, 2019 for William L. Pirtle.
Type of
Payment
|
|
Termination
without
Cause prior to
a Change in
Control
|
|
Resignation
for Good
Reason prior to
a Change in
Control
|
|
Termination
without
Cause or Resignation for Good Reason after
a Change in
Control
|
|
Change in
Control
with no
Termination
|
|
Termination
with
Cause or
Resignation
without Good
Reason
|
|
Death or
Disability
|
Severance Benefit
|
|
$
|
310,000
|
|
|
|
-
|
|
|
$
|
496,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Healthcare continuation
|
|
|
10,391
|
|
|
|
-
|
|
|
|
10,391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accelerated Vesting of RSU Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
96,951
|
|
|
|
96,951
|
|
|
|
-
|
|
|
|
119,546
|
|
Accelerated Vesting of RTSR Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
249,993
|
|
|
|
249,993
|
|
|
|
-
|
|
|
|
146,829
|
|
Total
|
|
$
|
320,391
|
|
|
|
-
|
|
|
$
|
853,335
|
|
|
$
|
346,944
|
|
|
|
-
|
|
|
$
|
266,375
|
|
The following table shows the potential payments upon a hypothetical
termination or change in control of the Company effective as of December 31, 2019 for Edward H. McKay.
Type of
Payment
|
|
Termination
without
Cause prior to
a Change in
Control
|
|
Resignation
for Good
Reason prior to
a Change in
Control
|
|
Termination
without
Cause or Resignation for Good Reason after
a Change in
Control
|
|
Change in
Control
with no
Termination
|
|
Termination
with
Cause or
Resignation
without Good
Reason
|
|
Death or
Disability
|
Severance Benefit
|
|
$
|
280,000
|
|
|
|
-
|
|
|
$
|
420,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Healthcare continuation
|
|
|
10,391
|
|
|
|
-
|
|
|
|
10,391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accelerated Vesting of RSU Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
87,547
|
|
|
|
87,547
|
|
|
|
-
|
|
|
|
107,354
|
|
Accelerated Vesting of RTSR Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
224,461
|
|
|
|
224,461
|
|
|
|
-
|
|
|
|
131,732
|
|
Total
|
|
$
|
290,391
|
|
|
|
-
|
|
|
$
|
742,399
|
|
|
$
|
312,008
|
|
|
|
-
|
|
|
$
|
239,086
|
|
The Company’s Chief Financial Officer, James. J. Volk, has
severance benefits with the Company as outlined in his offer letter and which went into effect on June 24, 2019. If Mr. Volk is
terminated without cause, or he resigns for good reason, within the first year of his employment, the Company will pay to him an
amount equal to the sum of his annual base salary, $375,000, and his target annual cash incentive bonus, $225,000, for a total
of $600,000. If such termination occurs during the second year of Mr. Volk’s employment, the Company will pay to him an amount
equal to one-half of the sum of his annual base salary and target annual cash bonus. If such termination occurs after the second
year of Mr. Volk’s employment, the Company will pay to him a severance payment in accordance with the Company’s then-current
policy or practice.
The following table shows the potential payments upon a hypothetical
termination or change in control of the Company effective as of December 31, 2019 for James J. Volk.
Type of
Payment
|
|
Termination
without
Cause prior to
a Change in
Control
|
|
Resignation
for Good
Reason prior to
a Change in
Control
|
|
Termination
without
Cause or Resignation for Good Reason after
a Change in
Control
|
|
Change in
Control
with no
Termination
|
|
Termination
with
Cause or
Resignation
without Good
Reason
|
|
Death or
Disability
|
Severance Benefit
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Healthcare continuation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accelerated Vesting of RSU Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
175,136
|
|
|
|
175,136
|
|
|
|
-
|
|
|
|
63,081
|
|
Accelerated Vesting of RTSR Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
148,866
|
|
|
|
148,866
|
|
|
|
-
|
|
|
|
46,751
|
|
Total
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
924,002
|
|
|
$
|
324,002
|
|
|
|
-
|
|
|
$
|
109,839
|
|
Stock Ownership Guidelines and Anti-Hedging Policy
The Compensation Committee has implemented stock ownership guidelines
for the Company’s directors and executive officers in order to reinforce the importance of stock ownership and long-term
focus. The guidelines apply to all members of the Board of Directors and executive officers of the Company. Stock ownership is
the sum of the shares of the Company’s stock beneficially owned in addition to unvested restricted stock units. Pledged shares
and shares from awards of stock options that are unvested or vested but unexercised are not included in the ownership amount. Expected
ownership levels are: (i) five times base salary for the Chief Executive Officer; (ii) three times base salary for the Chief Operating
Officer and Chief Financial Officer; (iii) two times base salary for all other executive officers; and (iv) sixty times the monthly
retainer fee for members of the Board. Additionally, to emphasize the importance of sharing the same objectives as all shareholders
of the Company, the Company’s Insider Trading policy prohibits directors, senior executives, and other designated employees
from engaging in hedging transactions.
Pay Ratio Disclosure
In 2015, the SEC adopted rules (as required by the Dodd-Frank Act)
requiring disclosure of: (i) the annual total compensation of our median employee (excluding our Chief Executive Officer) (ii)
the annual total compensation of our Chief Executive Officer; and (iii) the ratio of the annual total compensation of our median
employee to the annual total compensation of our Chief Executive Officer. The annual total compensation of our Chief Executive
Officer for fiscal year 2019, as reported in the Summary Compensation Table included in this Proxy Statement, was $2,524,467. The
median of the annual total compensation of all employees, excluding our Chief Executive Officer, for fiscal year 2019 was $58,410.
As a result, we estimate that the annual total compensation of our CEO was 43.2 times that of the annual total compensation of
the median employee for fiscal year 2019.
We identified the median employee by using the actual compensation
paid during 2019, as reported on IRS Form W-2, to our employees as of December 29, 2019. Compensation for employees who joined
the Company after January 1, 2019 was annualized for purposes of identifying the median employee. After identifying the median
employee, we calculated annual total compensation for such employee using the same methodology used for calculating the total compensation
of our Chief Executive Officer as set forth in the Summary Compensation Table.
Compensation Committee Report
We have reviewed and discussed with management the Compensation Discussion
and Analysis for the year ended December 31, 2019 to be included in the proxy statement for the Company’s 2020 annual meeting
of shareholders (the “Proxy”). Based on the reviews and discussions referred to above, we have recommended to the Board
of Directors, and the Board of Directors has approved, that the Compensation Discussion and Analysis referred to above be included
in the Company’s Proxy and incorporated by reference into the Company’s Annual Report on Form 10-K.
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Respectfully submitted,
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THE COMPENSATION COMMITTEE
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John W. Flora, Chair
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Tracy Fitzsimmons
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Richard L. Koontz, Jr.
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Compensation
Committee Interlocks and Insider Participation
The members of the Compensation Committee for the 2019 fiscal year
were Mr. Flora, who is the Chair, Dr. Fitzsimmons and Mr. Koontz. During 2019, none of our executive officers served on the compensation
committee (or its equivalent) or board of directors of another entity whose executive officer served on either our Compensation
Committee or our Board of Directors. With the exception of Mr. Koontz, no member of the Compensation Committee serving during 2019
had any relationship requiring disclosure under the section titled “Certain Relationships and Related Transactions”
set forth below.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As set forth in the Audit Committee charter, the Audit Committee
is responsible for reviewing and approving all related party transactions required to be disclosed pursuant to Item 404 of Regulation
S-K of the SEC. Accordingly, the Audit Committee does not approve any related party transaction unless it is (a) deemed commercially
reasonable, fair and in, or not inconsistent with, the best interest of the Company, and (b) determined to have terms comparable
to those that could be obtained in an arm's-length transaction with an unrelated third party. During 2019, the Company and its
subsidiaries made numerous purchases of fuel from Holtzman Oil Corporation and entities affiliated with Holtzman Oil Corporation.
The Company also leases a small parcel of land to Holtzman Oil Corporation, and sells telephone and internet services to Holtzman
Oil Corporation. Mr. Koontz is a Vice President of Holtzman Oil Corporation. For the period from January 1, 2019 through December
31, 2019, total purchases of fuel by the Company were approximately $161 thousand. For the period from January 1, 2019 through
December 31, 2019, the Company received rent in the amount of approximately $504, and received payment for services in the amount
of approximately $71 thousand, from Holtzman Oil Corporation. All transactions with Holtzman Oil Corporation and its affiliates
were at market or tariffed rates pursuant to arms-length agreements.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee of the Board of Directors has appointed KPMG
LLP (“KPMG”), as the Company’s independent registered public accounting firm for the Company’s fiscal year
ending December 31, 2020. Our shareholders are asked to ratify that appointment at the annual
meeting. In accordance with its charter, the Audit Committee will periodically assess the suitability of our incumbent independent
registered public accounting firm taking into account all relevant facts and circumstances, including the possible consideration
of the qualifications of other accounting firms. If the shareholders do not ratify the appointment of KPMG, the Audit Committee
will reconsider whether or not to retain KPMG as the Company’s independent registered public accounting firm. Even if the
appointment of KPMG is ratified by the shareholders, the Audit Committee may change the appointment at any time if it determines
that a change would be in the best interests of the Company and its shareholders.
Representatives of KPMG are expected to attend the annual meeting,
will have the opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions from
shareholders.
KPMG served as the Company’s independent registered public
accounting firm for the Company’s fiscal years ended December 31, 2018 and 2019. The following sets forth the aggregate fees
billed by KPMG to the Company for the audit of our annual financial statements for the years ended December 31, 2018 and 2019,
and fees billed for other services rendered by KPMG during those periods (in thousands).
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2018
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2019
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Audit fee (1)
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$
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4,242
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5,200
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Audit-related fee (2)
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5
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--
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Tax fee (3)
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--
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--
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All other fee (4)
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--
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--
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Total
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$
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4,247
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5,200
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(1)
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Fees
for services in connection with the audit of our financial statements and review of our
quarterly financial statements.
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(2)
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Fees
for services provided in connection with financial due diligence.
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(3)
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Fees
for tax compliance, tax planning, and tax advice, including tax return preparation and
requests for rulings or technical advice from tax authorities.
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(4)
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Fees
for services provided, excluding the services described above, if any.
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In making its appointment of KPMG as the Company’s independent
registered public accounting firm for the Company’s fiscal year ending December
31, 2020, the Audit Committee considered whether KPMG’s provision of non-audit services
is compatible with maintaining KPMG’s independence. KPMG does not presently provide any non-audit services to the Company.
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 registered public accounting firm. The
Audit Committee pre-approves all audit and permissible non-audit services provided by such firm.
For both types of pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s
rules on auditor independence.
The Board of Directors unanimously recommends that the shareholders
of the Company vote FOR the ratification of the appointment of KPMG LLP.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Company’s Board of Directors is
a standing committee composed of three non-employee directors who meet the independence and expertise requirements of the listing
standards of the Nasdaq Stock Market.
During the fiscal year ended December 31, 2019, the Audit Committee
reviewed with the Company’s management, internal audit department, and KPMG (the Company’s independent registered public
accounting firm), the scope of the annual audit and audit plans, the results of internal control testing and external audit examinations,
the evaluation of the Company’s system of internal controls, the quality of the Company’s financial reporting, and
the Company’s process for legal and regulatory compliance. The Audit Committee also monitored the progress and results of
the testing of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as described
in greater detail in the section titled “Review of Internal Control Over Financial Reporting” in the proxy statement
for the 2020 annual meeting of shareholders.
Management is responsible for the Company’s system of internal
controls, the financial statements and the financial reporting process, and the assessment of the effectiveness of internal control
over financial reporting. KPMG is responsible for performing an integrated audit and issuing reports on the following: (1) the
Company’s consolidated financial statements; and (2) the Company’s internal controls over financial reporting. As provided
in its charter, the Audit Committee’s responsibilities include monitoring and overseeing these processes.
Consistent with this oversight responsibility, KPMG reports directly
to the Audit Committee. The Audit Committee appointed KPMG as the Company’s independent registered public accounting firm
and approved the firm’s fees. The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting
or other advisors as the Audit Committee deems necessary to carry out its duties and receives appropriate funding, as determined
by the Audit Committee, from the Company for such advice and assistance.
In the performance of its oversight function, the Audit Committee
has reviewed and discussed with management and KPMG the audited financial statements for the year ended December 31, 2019, management’s
assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019,
and KPMG’s evaluation of the Company’s internal control over financial reporting as of that date. The Committee has
also discussed with KPMG the matters that the independent public accountants must communicate to the Committee under applicable
requirements of the Public Company Accounting Oversight Board (“PCAOB”).
With respect to the Company’s independent public accountants,
the Audit Committee, among other things, discussed with KPMG matters relating to its independence and has received the written
disclosures and the letter from KPMG required by applicable provisions of the PCAOB regarding the independent public accountants’
communications with the Audit Committee concerning independence. The Audit Committee reviews and approves the annual audit fees
in advance. The Audit Committee or its Chairman, to whom authority has been delegated by the Committee, reviews and approves in
advance all non-audit services provided to the Company by KPMG, as well as any changes in annual audit fees. Any fee
approvals made by the Chairman pursuant to such delegation of authority are subsequently ratified by the full Audit Committee at
its next meeting.
The Audit Committee annually reviews the independence and performance
of KPMG, including its lead audit partner and engagement team, in connection with the Committee’s responsibility for the
appointment and oversight of the Company’s independent public accountants and determines whether to re-engage KPMG
or consider other audit firms. In doing so, the Committee considers, among other things, the quality and efficiency of KPMG’s
historical and recent performance on the Company’s audit, KPMG’s capability and expertise, the quality and candor of
communications and discussions with KPMG, the ability of KPMG to remain independent, external data relating to audit quality and
performance (including recent PCAOB reports on KPMG and its peer firms), and the appropriateness of fees charged. The Committee
also considers KPMG’s tenure as the Company’s independent public accountant and its representatives’ familiarity
with our operations, businesses, accounting policies and practices, and internal control over financial reporting. KPMG has been
the Company’s independent public accountant since fiscal year 2001, during which time several lead engagement partners have
served on the Company’s account. In conjunction with the rotation of the public accountants’ lead engagement partner,
which occurs at least every five years, the Audit Committee is involved in the selection of KPMG’s lead engagement partner.
Based upon the foregoing considerations, the Audit Committee believes that the continued retention of KPMG to serve as the Company’s
independent public accountants is in the best interests of the Company and its shareholders.
In reliance on the review and discussions referred to above, the
Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, the inclusion of the audited consolidated
financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the
Securities and Exchange Commission.
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Respectfully submitted,
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THE AUDIT COMMITTEE
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Leigh Ann Schultz, Chair
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Dale S. Lam
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Kenneth L. Quaglio
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REVIEW OF INTERNAL CONTROL OVER FINANCIAL REPORTING
The Audit Committee, the other
members of the Board of Directors and the Company’s management are committed to maintaining a strong and sustainable internal
control environment. In this section, we would like to share facts about the material weaknesses in the Company’s
internal control over financial reporting, our plan for remediation and our progress to date and the Audit Committee’s oversight
role over the Company’s financial reporting process generally and the remediation process specifically. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely
basis.
Changes in Internal Control over Financial Reporting
As disclosed in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, the Company previously identified material weaknesses that extended to all process areas and all components
of internal control over financial reporting, as defined by the Committee of Sponsoring Organizations of the Treadway Commission.
Management believes that a remediation effort of this magnitude will most likely extend over multiple years.
We therefore revised our remediation strategy during 2019 to prioritize
a manageable number of process areas, and implemented the following changes and improvements during 2019, including in the fourth
quarter, under this phased approach:
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•
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We increased the number of resources with skills and expertise in technical accounting and internal control over financial
reporting, and leveraged external consultants to provide needed capacity in these areas.
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•
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Within each priority process area, we performed risk assessment procedures and designed and implemented control activities
to address identified risks. The new control activities were designed to address the completeness and accuracy of the data used
as well as other information and communication considerations. We further implemented new monitoring controls to verify that new
controls in these priority process areas were consistently executed.
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•
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We successfully executed this remediation strategy on the priority process areas of revenue, leases, journal entries, income
taxes, segment reporting, impairment, and intangible assets.
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•
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We implemented new software solutions and tools in the areas of leases, customer life estimation, asset capitalization, bank
reconciliations, and asset retirement obligations.
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•
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We enhanced our monitoring activities by performing more rigorous period-over-period variance analyses of the Company’s
financial results.
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•
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We enhanced our information and communication activities by having more frequent discussions with operational personnel regarding
significant business transactions and the potential impact of these transactions on the Company’s financial reporting, and
improving communication to employees regarding their responsibilities for ensuring that effective internal controls are maintained.
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•
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We performed and documented a detailed review of key accounting policies.
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As a result of the changes described above, management identified
various immaterial errors, some of which were corrected during 2019. We also commenced risk assessment activities in other process
areas and have designed and implemented new control activities; however, our evaluation and documentation of key accounting policies,
risk assessment activities, and related design and implementation of control activities in those processes is on-going.
Further, resource constraints, as described below, could impact our
ability to simultaneously maintain the improvements in our priority process areas and effectively continue our phased remediation
strategy.
Management’s Report on Internal Control Over Financial Reporting
In order to evaluate the effectiveness of internal control over financial
reporting, under the direction of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer (the “certifying
officers”), we conducted an assessment using the criteria established in Internal Control - Integrated Framework (2013),
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, our certifying officers concluded that
the Company’s internal control over financial reporting was not effective as of December 31, 2019 due to a material weakness
in our control environment whereby the Company did not have a sufficient number of trained resources with expertise in technical
accounting, internal control over financial reporting, and the design and implementation of information technology solutions. As
a result, we were unable to maintain effective risk assessment and information and communication processes, placed excess reliance
on third party consultants, and did not have effective process-level control activities over the following areas:
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•
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Property, plant, and equipment and depreciation expense
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•
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Purchasing (current liabilities and operating expenses)
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•
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Treasury (cash, debt, interest expense, derivatives, and benefit obligations)
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The control deficiencies described above created a reasonable possibility
that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis and
therefore we concluded that the deficiencies represent material weaknesses in the Company’s internal control over financial
reporting and our internal control over financial reporting was not effective as of December 31, 2019.
Management’s Remediation Plan
The Company is committed to making further progress in its remediation
efforts during 2020. The following steps will continue to be executed until remediation of the material weaknesses is achieved:
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•
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Hire, train, and retain individuals with the appropriate skills and experience related to technical accounting, internal control
over financial reporting, and the design and implementation of information technology solutions.
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•
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Enhance risk assessment and prioritize remediation activities that most significantly reduce the risk that a material misstatement
to the consolidated financial statements would not be prevented or detected on a timely basis.
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•
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Implement and monitor our phased approach to remediation of control activities in additional process areas.
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•
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Enhance information and communication processes through information technology solutions to ensure that information needed
for financial reporting is accurate, complete, relevant and reliable, and communicated in a timely manner.
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•
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Report regularly to the audit committee on the progress and results of the remediation plan, including the identification,
status, and resolution of internal control deficiencies.
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Reports of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, KPMG LLP, audited
the Company’s internal control over financial reporting as of December 31, 2019 based on the criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
KPMG evaluated and concurred with our disclosure of “Controls and Procedures” on Item 9A in our Annual Report on Form
10-K for the fiscal year ended December 31, 2019, including Management’s Report on Internal Control over Financial Reporting
in which we assess and define our material weakness in internal control over financial reporting. Accordingly, and based upon its
audit, KPMG expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
KPMG LLP also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the
related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2019, and the related notes and financial statement Schedule II – Valuation and qualifying
accounts (collectively, the consolidated financial statements). KPMG’s report expressed an unqualified opinion on those consolidated
financial statements.
Fair Presentation Not Affected
A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. While
hypothetical material misstatements could arise under our current control environment, no such material misstatements have, in
fact arisen. As a result, it has not been necessary to restate our financial reports since December 31, 2016, when the Company’s
ineffective internal control over financial reporting was first identified and reported.
Accordingly, notwithstanding our ineffective
internal control over financial reporting, our consolidated financial statements as of and for the three year period ended December
31, 2019 are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles (“GAAP”).
Audit Committee Member Qualifications
Each of our director nominees standing for
election at the annual meeting is eminently qualified and warrants reelection. This proxy statement contains detailed information
about the qualifications of all of our directors and director nominees, including the members of our Audit Committee.
The Audit Committee members are Ms. Schultz,
who is the Chair, Mr. Lam and Mr. Quaglio. Mr. Quaglio is standing for reelection at the annual meeting. The Board of Directors
has determined that all members of the Audit Committee are able to read and understand financial statements in accordance with
Nasdaq listing rules and are “financially literate” in accordance with the Nasdaq listing rules and that all Audit
Committee members are “audit committee financial experts” within the meaning of the SEC regulations and have financial
sophistication in accordance with Nasdaq listing rules.
Audit Committee Oversight
The Audit Committee has been vigilant in
its oversight of the Company’s financial reporting process generally and the remediation process specifically. This proxy
statement discloses that the Audit Committee met five times during 2019. The Audit Committee has met two times thus far in 2020.
During the course of one of the meetings, the Audit Committee devoted considerable time to oversight of the Company’s ongoing
financial reporting process, including review of the Company’s quarterly earnings reports and regular quarterly and annual
SEC filings.
Because of the importance that the Audit
Committee places on effective and sustainable remediation of the material weakness, between January of 2018 and December of 2019,
the Audit Committee met thirteen times with management and/or leadership of our internal accounting function to discuss remediation.
During those meetings, management and the Audit Committee discussed, among other topics, the internal accounting function’s
structure, processes, information management systems, staffing and skills.
PROPOSAL NO. 3
NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
In accordance with Section 14A of the Securities Exchange Act of
1934, as amended, and the SEC’s rules thereunder, the Board of Directors is asking shareholders to approve, in a non-binding
vote, the Company’s named executive officer compensation as disclosed in this proxy statement. This proposal, commonly known
as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our named executive officers’
compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our
named executive officers and the philosophy, policies and practices described in this proxy statement.
As described above in the “Compensation Discussion and Analysis”
section of this proxy statement, the Compensation Committee has structured our executive compensation program to attract and retain
the management talent needed to successfully lead our Company and increase shareholder value.
The Board urges shareholders to read the Compensation Discussion
and Analysis beginning on page 17 of this proxy statement, which describes in more detail how the Company’s executive compensation
policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table
appearing on page 22 and other related compensation tables and narratives of this proxy statement, which provide detailed information
on the compensation of our named executive officers. The Compensation Committee and the Board of Directors believe that the policies
and procedures articulated in the Compensation Discussion and Analysis are effective in achieving our goals and that the compensation
of our named executive officers reported in this proxy statement reflects and supports these compensation policies and procedures.
A vote on this resolution, commonly referred to as a “say-on-pay”
resolution, is not binding on the Board of Directors or the Company, nor will it create or imply any change in the fiduciary duties
of the Board or the Compensation Committee. Although the vote is non-binding, the Board and the Compensation Committee will review
and consider the voting results when evaluating our executive compensation program.
This proposal will be approved if the number of votes cast in favor
of the proposal exceeds the number of votes cast against the proposal.
The Company's current policy is to provide
shareholders with an opportunity to approve the compensation of the Company’s named executive officers each year at the annual
meeting of shareholders. Accordingly, the next such vote is expected to occur at the 2021 annual meeting of shareholders.
The Board of Directors unanimously recommends that shareholders
vote FOR the approval of the compensation of the Company’s named executive officers.
SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING IN
2021
Shareholders who intend to present proposals at the 2021 annual meeting
of shareholders (the “2021 Annual Meeting”), and who wish to have those proposals included in the Company’s proxy
statement for the 2021 Annual Meeting, must ensure that those proposals are received at the Company’s principal executive
offices located at 500 Shentel Way, P.O. Box 459, Edinburg, Virginia 22824, Attention: Corporate Secretary, no later than November
4, 2020. Such proposals must meet the requirements set forth in the rules and regulations of the SEC in order to be eligible for
inclusion in the proxy statement for the 2021 Annual Meeting.
In addition, the Company’s bylaws require that notice of proposals
by shareholders to be brought before any annual meeting (other than matters properly brought under Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and included in the company’s notice of meeting) must
be received by the Company’s Corporate Secretary at the address set forth above no more than 150 days prior to, and not less
than 120 days before, the first (1st) anniversary of the 2020 annual meeting. The shareholder notice must comply with
the information requirements set forth in the Company's bylaws. The provisions in the Company’s bylaws concerning notice
of proposals by shareholders are not intended to affect any rights of shareholders to request inclusion of proposals in the Company’s
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
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,
|
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Raymond B. Ostroski
|
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Secretary
|
Dated: March 3, 2020
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