Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant (x) Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material pursuant to Section 240.14a-11(c) or Section
240.14a-12
RGC Resources, Inc.
(Name of Registrant as Specified in its Charter)
Howard T. Lyon, Controller and Treasurer
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee Paid:
( ) Fee paid previously with preliminary materials
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
RGC RESOURCES, INC.
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
-----------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 27, 2003
-----------------------------------------------------------------------
NOTICE is hereby given that, pursuant to its Bylaws and call of its
directors, the Annual Meeting of the Shareholders of RGC Resources, Inc. will be
held at the Clarion Hotel, 3315 Ordway Drive, Roanoke, Virginia 24017, on
Monday, January 27, 2003, at 9:00 a.m., Eastern Standard Time, for the following
purposes:
1. To elect three new Class C directors.
2. To ratify the selection of Deloitte & Touche LLP as independent
auditors.
3. The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Your attention is directed to the Proxy Statement accompanying this Notice
for a more complete statement regarding matters proposed to be acted upon at the
meeting. Only those shareholders of record as of the close of business on
November 22, 2002 shall be entitled to notice of and to vote at the meeting.
You are urged to sign and date the enclosed form of proxy and return it
promptly in the enclosed self-addressed, stamped envelope. Should you decide to
attend the meeting and vote in person, you may withdraw your proxy.
By Order of the Board of Directors.
DALE P. MOORE
Secretary
December 27, 2002
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO BE PRESENT AT THE ANNUAL
MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY, NO MATTER HOW
SMALL YOUR HOLDINGS, TO ASSURE THAT YOUR SHARES ARE REPRESENTED. NO POSTAGE IS
REQUIRED ON THE ENCLOSED PROXY IF MAILED WITHIN THE UNITED STATES. IF YOUR
SHARES ARE HELD BY A BROKER, BANK OR NOMINEE, IT IS IMPORTANT THAT YOU GIVE THEM
YOUR VOTING INSTRUCTIONS.
------------------------------------
PROXY STATEMENT
------------------------------------
MAILED DECEMBER 27, 2002
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY 27, 2003
This Proxy Statement is furnished on December 27, 2002, in connection with
the solicitation of proxies to be used at the Annual Meeting of Shareholders of
RGC Resources, Inc. ("Resources" or the "Company") to be held on Monday, January
27, 2003, at 9:00 a.m., Eastern Standard Time, at the Clarion Hotel, 3315 Ordway
Drive, Roanoke, Virginia 24017, and any adjournments thereof.
Proxies in the form enclosed herewith are solicited by management at the
direction of the Company's Board of Directors. If the enclosed proxy is properly
signed and returned, the shares represented thereby will be voted at the Annual
Meeting in accordance with its terms. Any proxy given pursuant to this
solicitation may be revoked at any time prior to the vote of the shareholders.
An opportunity will be given to shareholders attending the meeting to withdraw
their proxies and to vote their shares in person.
The Company's Annual Report to Shareholders for the year ended September
30, 2002 is being sent to all shareholders concurrently with this Proxy
Statement. The Annual Report is not to be considered a part of the proxy
solicitation material.
VOTING SECURITIES
The close of business on November 22, 2002 has been fixed as the record
date for the determination of shareholders of the Company entitled to notice of
and to vote at the Annual Meeting of Shareholders. At the close of the record
date, there were 1,969,088 shares of common stock outstanding and each such
share is entitled to one vote. To the Company's knowledge, no person is the
beneficial owner of more than five percent of the issued and outstanding common
stock of the Company.
A majority of votes entitled to be cast on matters to be considered at the
Annual Meeting constitutes a quorum. If a share is represented for any purpose
at the Annual Meeting, it is deemed to be present for purposes of establishing a
quorum. Abstentions and shares held of record by a broker or its nominee
("Broker Shares") that are voted on any matter are included in determining the
number of votes present or represented at the Annual Meeting. Conversely, Broker
Shares that are not voted on any matter will not be included in determining
whether a quorum is present. If a quorum is established, directors will be
elected by a plurality of the votes cast by shares entitled to vote at the
Annual Meeting. Votes that are withheld and Broker Shares that are not voted in
the election of directors will not be included in determining the number of
votes cast.
The Company will appoint one or more inspectors to act as a Committee on
Credentials at the Annual Meeting and to make a written report thereof. The
inspectors will ascertain the number of shares outstanding and the voting power
of each, determine the shares represented at the meeting and the validity of
proxies and ballots, count all votes and ballots, and perform certain other
duties as required by law. As a matter of policy, proxies, ballots and voting
tabulations that identify individual shareholders are kept private by the
Company. Such documents are available for examination only by the inspectors of
election and certain personnel associated with processing proxy cards and
tabulating votes. The vote of any shareholder is not disclosed except as may be
necessary to meet legal requirements.
2
PROPOSAL 1 ELECTION OF DIRECTORS OF RESOURCES
The Company's Board of Directors is divided into three classes (A, B and C)
with staggered three-year terms. The current term of office of the Class C
directors expires at the 2003 Annual Meeting. The terms of the Class A and Class
B directors will expire in 2004 and 2005, respectively.
There are three management nominees for Class C directors, Frank T. Ellett,
Maryellen F. Goodlatte and George W. Logan, who currently serve on the Board and
are standing for reelection.
Unless authorization is withheld, the persons named as proxies will vote
for the election of the nominees named below. Each nominee has agreed to serve
if elected. In the event any nominee unexpectedly is unable to serve, the
proxies will be voted for such other persons as the Board may designate. The
present principal occupation and employment during the past five years and the
office, if any, held with the Company are set forth opposite the name of each
nominee and director. Proxies cannot be voted for a greater number of persons
than the number of nominees:
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR
CLASS C DIRECTOR.
Year In Which
Year In Director
Which First Assumed
Elected As Principal
Name and Age Director Principal Occupation Occupation
------------ -------- -------------------- ----------
NOMINEES FOR DIRECTOR
---------------------
CLASS C DIRECTORS (Currently serving until 2003 Annual Meeting with a three year term)
Frank T. Ellett 1983 President, Virginia Truck Center, Inc. & 1981
Age 64 Virginia Truck Center of Richmond
(Sale, lease and service of heavy trucks,
trailers and buses)
Maryellen F. Goodlatte 2001 Principal, law firm of Glenn, Feldmann, 1983
Age 50 Darby & Goodlatte
George W. Logan 2002 Chairman of the Board, Valley Financial 1993
Age 57 Corporation; Chairman of the Board,
Alliance Logistics Center (Warsaw,
Poland); Principal, Pine Street Partners,
LLC; Faculty, University of Virginia
Darden Graduate School of Business
DIRECTORS CONTINUING IN OFFICE
------------------------------
CLASS A DIRECTORS (Serving until 2004 Annual Meeting)
Abney S. Boxley, III 1994 President & CEO, Boxley Co., Inc. 1988
Age 44 (Construction Materials); Director, Valley
Financial Corporation
3
S. Frank Smith 1990 Vice President, Coastal Coal Co., LLC 1986
Age 54 (Coal mining)
John B. Williamson, III 1998 Chairman, President & CEO of RGC 2002
Age 48 Resources, Inc. and each of its affiliates;
President & CEO of the Company since
June 1999; President & CEO of Roanoke
Gas Company February 1998 to June
1999; Vice President-Rates & Finance
January 1993 to February 1998; Director,
NTELOS, Inc.
CLASS B DIRECTORS (Serving until 2005 Annual Meeting)
Lynn D. Avis 1986 Chairman of the Board, Avis 2000
Age 68 Construction Co., Inc. (Construction
company) since 2000; President, Avis
Construction Company, Inc. 1977 - 2000
J. Allen Layman 1991 Chairman of the Board & President, 2001
Age 50 NTELOS, Inc. (Telecommunications)
since Feb. 2001; President & CEO, R&B
Communications, Inc. 1991-2001;
Director, The Bank of Fincastle,
NTELOS, Inc. and mPhase Technologies,
Inc.
Thomas L. Robertson 1986 Chairman of Carilion Foundation and 2001
Age 59 Chairman of Carilion Biomedical
Institute; Retired 2001; President and
Chief Executive Officer, Carilion Health
System and Carilion Medical Center
(Health care) 1986-2001; Director,
Roanoke Electric Steel Corporation
PROPOSAL 2 RATIFICATION OF DELOITTE & TOUCHE AS INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Deloitte & Touche as independent public accountants to audit the
financial statements of the Company and its subsidiaries for the year ending
September 30, 2003. This appointment is subject to approval by the shareholders.
A representative of Deloitte & Touche is expected to attend the meeting with the
opportunity to make a statement and/or respond to appropriate questions from
shareholders. Deloitte & Touche has served as independent auditors of the
Company since fiscal year 1998.
In the event shareholders do not ratify the selection of Deloitte & Touche
as independent auditors, the Audit Committee and the Board of Directors would
review their future selection of auditors.
4
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
DELOITTE & TOUCHE AS INDEPENDENT AUDITORS.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of November 22, 2002, certain
information regarding the beneficial ownership of the common stock of the
Company by each director, nominee and named executive officer and by all
directors and executive officers as a group. Where the persons listed have the
right to acquire additional shares of the Company's common stock through the
exercise of options within 60 days, such additional shares are deemed to be
outstanding shares owned by such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership interests of any other
person. Unless otherwise noted in the footnotes to the table, the named persons
have sole voting and investment power with respect to all outstanding shares of
common stock shown as beneficially owned by them.
Shares of Common
Name of Stock Beneficially Owned
Beneficial Owner As of 11/22/02 1 Percent of Class
------------------------------------------- -------------------------------- -----------------------
Lynn D. Avis 12,014 *
Abney S. Boxley, III 5,059 *
John S. D'Orazio 13,747 2 *
Frank T. Ellett 10,361 *
Frank A. Farmer, Jr. 42,108 3 2.14%
Maryellen F. Goodlatte 143 *
J. Allen Layman 8,879 *
George W. Logan 16,033 *
Howard T. Lyon 6,255 4 *
Dale P. Moore 5,233 5 *
Thomas L. Robertson 8,651 *
S. Frank Smith 8,530 *
John B. Williamson, III 29,825 6 1.51%
All Directors and Executive
Officers as a Group (13 persons) 166,838 7 8.47%
------------------
* Less than 1%
1 Includes restricted shares purchased by directors pursuant to Restricted
Stock Plan For Outside Directors.
2 Includes 12,000 shares that Mr. D'Orazio has the right to acquire through
the exercise of stock options.
3 Includes 9,405 shares owned by spouse.
4 Includes 5,000 shares that Mr. Lyon has the right to acquire through the
exercise of stock options.
5 Includes 5,000 shares that Ms. Moore has the right to acquire through the
exercise of stock options.
6 Includes 23,000 shares that Mr. Williamson has the right to acquire through
the exercise of stock options.
7 Includes an aggregate of 45,000 shares that executive officers have the
right to acquire through the exercise of stock options.
5
EXECUTIVE COMPENSATION
The following table contains information with respect to the individual
compensation of the following officers for services in all capacities to
Resources and its subsidiaries for fiscal years ended September 30, 2002, 2001
and 2000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------- --------------------------------------------
Name and Awards All Other
Principal Position Year Salary ($) Bonus($)1 Options/SARs (#) Compensation($)2
--------------------------- -------- ----------- ----------- ---------------------- ------------------
John B. Williamson, III 2002 184,546 10,000 6,000 6,822
Chairman, President & 2001 177,875 25,000 3,000 8,005
CEO of RGC 2000 165,568 20,000 4,000 6,938
Resources, Inc.
John S. D'Orazio 2002 100,150 10,000 2,000 4,620
Vice President 2001 93,934 10,000 3,000 4,359
Customer Service and 2000 82,906 6,000 4,000 3,728
Marketing of Roanoke
Gas Company
----------------
1 Bonus paid in current year for previous year's performance.
2 Consists entirely of the Company's contribution under the Employees' 401(k)
Plan.
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable
------------------------------------------------------------------ Value(1) at
Assumed
% of Total Annual Rates of
Number of Options Market Stock Price
Securities Granted To Exercise Price on Appreciation for
Underlying Employees or Base Date of Option Term
Options in Fiscal Price Grant Expiration --------------------
Name Granted(#) Year ($/Share)(2) ($/Share) Date 5%($) 10%($)
------------------------- ----------- ------------ ------------ ---------- ----------- --------- --------
John B. Williamson, III 6,000 46% $19.36 $19.36 12/19/11 189,212 301,289
John S. D'Orazio 2,000 15% $19.36 $19.36 12/19/11 63,071 100,430
----------------
1 The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of Resources' stock price. Additionally, these values do not take into
consideration the terms of the options providing for nontransferability or
termination of the options following termination of employment. Resources
did not use an alternative formula for a grant valuation, as it is not
aware of any formula that will determine with reasonable accuracy a present
value based on future unknown or volatile factors.
2 The exercise price of the options granted is equal to the closing sales
price of Resources' common stock on the Nasdaq National Market on the date
of grant. Options generally expire ten years from the date of grant.
6
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Value of
Number of Unexercised
Shares Unexercised In-the-money
Acquired on Value Options at Fiscal Options at Fiscal
Name Exercise (#) Realized ($) Year-End (#) Year-End ($)
---------------------------- --------------- --------------- ---------------------- ----------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
---------------------- ----------------------
John B. Williamson, III 0 0 23,000/0 $11,199/0
John S. D'Orazio 0 0 12,000/0 $ 0/0
RETIREMENT PLAN
Resources has in effect a noncontributory Retirement Plan. The costs of
benefits under the Plan, which are borne by Resources, are computed actuarially
and defrayed by earnings from the Plan's investments and/or Resources' annual
contributions. The Plan generally provides for the monthly payment, at normal
retirement age 65, of the greater of (a) the participant's accrued benefit as of
December 31, 1988 under the formula then in effect or (b) the sum of one-twelfth
of (1) plus (2) minus (3) as follows:
(1) 1.2% of the participant's average compensation for his highest
consecutive sixty months of service multiplied by years of credited
service up to thirty years,
(2) .65% of the participant's average compensation for his highest
consecutive sixty months of service in excess of covered compensation
(generally defined as the average of Social Security wage bases over a
participant's assumed working lifetime) multiplied by years of
credited service up to thirty years, and
(3) the participant's balance, if any, from the Company's former profit
sharing plan.
Early retirement with reduced monthly benefits is available at age 55 after
ten years' service. Provisions also are made for vesting of benefits after five
years of service and for disability and death benefits. All employees who have
completed one year of service to the Company and are credited with at least
1,000 hours of service in a Plan year are eligible to participate in the Plan.
At age 65, for Plan purposes, Mr. Williamson and Mr. D'Orazio will have 28 and
32 credited years of service, respectively.
The compensation covered by the Plan includes the total of all amounts paid
to a participant by the Company for personal services reported on the
participant's federal income tax withholding statement (Form W-2), up to certain
statutory limits. For plan years beginning January 1, 2002 and 2003, these
earnings are limited to $200,000.
7
Estimated Annual Pension For
Representative Years of Credited Service1
------------------------------------------------------------------------------
Highest Sixty Months
Average Compensation 15 20 25 30 35
------------------------------ ------------ ----------- ----------- ----------- -----------
$ 125,000 $ 30,900 $ 41,200 $ 51,500 $ 61,800 $ 61,800
150,000 37,800 50,400 63,000 75,600 75,600
175,000 44,800 59,700 74,600 89,500 89,500
200,000 51,700 68,900 86,200 103,400 103,400
225,000 51,700 68,900 86,200 103,400 103,400
------------------
1 The benefit amounts assume the employee is retiring at normal retirement
age (age 65). The benefit amounts listed in the table are computed as a
straight life annuity. No offset to pension benefits due to the
Profit-Sharing Plan (which has been converted into the 401(k) Plan) is
reflected. Benefits are not reduced by Social Security.
CHANGE-IN-CONTROL ARRANGEMENTS
On March 1, 2001, the Company and Mr. John B. Williamson, III entered into
a Change in Control Agreement that provides certain benefits to him in the event
of a "Change in Control." For purposes of this agreement, a "Change in Control"
occurs when (i) any person or entity becomes the beneficial owner of at least
50% of the combined voting power of the Company's voting securities; (ii) any
person or entity becomes the beneficial owner of at least 50% of the voting
securities of the surviving entity following a merger, recapitalization,
reorganization, consolidation or sale of assets by the Company; or (iii) the
Company is liquidated or sells substantially all of its assets. In the event
that Mr. Williamson's employment with the Company is terminated within three
years of the date of a Change in Control, unless the termination is (a) because
of his death or disability, (b) for Cause (as defined in the agreement) or (c)
by him other than for Good Reason (as defined in the agreement), then he will
receive a severance payment (the "Severance Payment") equal to 2.0 times his
average annual compensation over the prior five tax years. The Severance Payment
will be reduced to the extent necessary to avoid certain federal excise taxes.
Also in such event, the Company will continue his life insurance, medical,
health and accident and disability plans, programs or arrangements until the
earlier of two years after the date of the Change in Control, his death, or his
full-time employment. The agreement does not require Mr. Williamson to seek
employment to mitigate any payments or benefits provided thereunder. The Company
also entered into identical Change in Control Agreements with Mr. John S.
D'Orazio on March 1, 2001 and with Mr. Howard T. Lyon and Ms. Dale P. Moore on
May 1, 2000, except that the Severance Payment equal to 1.5 times his applicable
average annual compensation and payable only if his or her employment is
terminated within 24 months of a Change in Control.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee"), which is made up of six
members of the Board of Directors who are not officers or employees of
Resources, is responsible for setting and administering the policies that govern
the annual compensation paid to the executive officers of the Company, including
the Chief Executive Officer.
In fiscal 2002, annual salary continued to be the primary component of
compensation for executive officers of the Company. This is based in large part
on concern that external factors beyond the control of Company executives, such
as weather and regulatory decisions, may have a significant impact on corporate
performance.
8
The Committee recommends, for approval by the Board of Directors, the
annual salaries of executive officers. Salaries are based on the respective
positions held by the executive officers, including their accomplishments, level
of responsibility and experience and the relationship of such salaries to the
salaries of other Company managers and employees. In this regard, the Committee
reviews the Chief Executive Officer's recommendations on compensation of the
other executive officers and information concerning executive compensation at
other companies in the American Gas Association. Such other companies are
included in (but do not solely comprise) both of the peer indices reflected in
the Performance Graph on page 10. The Committee also considers overall corporate
performance, customer service and satisfaction, relationships with regulatory
agencies and the ability to manage and maintain a competent work force in
preparing its compensation recommendations.
Pursuant to the Company's Stock Bonus Plan, the Committee approved the
payment in fiscal 2002 of bonuses to the CEO and other executive officers of the
Company for outstanding performance during the fiscal year 2001. The Stock Bonus
Plan is intended to allow the Board of Directors to award individual or
collective superior performance that has resulted in enhanced shareholder value
or returns and to encourage increased ownership of Company common stock by
officers and management. The Stock Bonus Plan is administered by the Committee,
which considers recommendations from the Company's President. The Company's
bonus award proposals are subject to approval of the Board of Directors. Under
the Stock Bonus Plan, executive officers are encouraged to own a position in the
Company's common stock of at least 50% of the value of their annual salary. To
promote this policy, the Plan provides that all officers with stock ownership
positions below 50% of the value of their annual salaries must, unless approved
by the Committee, receive no less than 50% of any performance bonus in the form
of Company common stock. Bonus amounts, if any, for a fiscal year will generally
be determined in the January following that fiscal year end. Bonus award
determinations under the Stock Bonus Plan for performance in the 2001 fiscal
year were based on the performance of the Company, combined with an analysis of
the individual contributions of officers receiving the bonuses to the overall
performance of the Company.
The Company has a Key Employee Stock Option Plan, which is intended to
provide the Company's executive officers with long-term (ten-year) incentives
and rewards tied to the price of Resources' common stock. The Committee believes
that stock options will assist the Company in attracting, maintaining and
motivating officers and other key employees of the Company, upon whose judgment,
initiative and efforts the Company depends, by providing such persons with the
opportunity to acquire an equity interest in Resources. Stock options are used
to provide executive officers additional incentive to use their best efforts and
superior performances to promote the best interest of Resources and the
shareholders.
In making its recommendation regarding the 2002 compensation of the Chief
Executive Officer, the Committee considered all of the criteria above. Specific
consideration also was given to the Chief Executive Officer's efforts toward
cost containment, the Company's earnings and shareholder and customer growth in
the preceding fiscal year. During 2002, Mr. Williamson received a bonus of
$10,000 for his performance during the fiscal year 2001, which he invested in
Company common stock through a payroll deduction program over a seven- month
period. The amount of the bonus was determined based upon Mr. Williamson's
success during fiscal 2001 in monitoring operational and capital budgets for
maximum cost efficiency and monitoring his management team's performance in
regard to corporate objectives. The control of costs, operational and financing,
helped to stabilize earnings for Resources.
Submitted by the Compensation Committee of the
Board of Directors of Resources:
Lynn D. Avis (Chair), Abney S. Boxley, III, Frank T. Ellett,
Maryellen F. Goodlatte, J. Allen Layman, S. Frank Smith
9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John B. Williamson, III, President and Chief Executive Officer of
Resources, serves as a director of NTELOS, Inc. J. Allen Layman, who is a
director of Resources and serves on the Compensation Committee of the Board of
Directors of Resources, is Chairman of the Board & President of NTELOS, Inc.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change and the
cumulative total of shareholder return on Resources' common stock with the
cumulative return on the Standard and Poor's Utilities Index (the "S&P Utilities
Index") and the Media General Gas Index for the five-year period commencing on
September 30, 1997 and ending on September 30, 2002. The Media General Gas
Index, published as Industry Group Index No. 912 by Media General Finance
Services of Richmond, VA, is being substituted for the Edward Jones Natural Gas
Index, which is no longer being prepared. These comparisons assume the
investment of $100 in the Company's common stock and each of the indices on
September 30, 1997 and the reinvestment of dividends.
[Performance Graph Appears Here.]
1997 1998 1999 2000 2001 2002
RGC Resources, Inc. $100 114 124 125 135 132
S&P Utilities Index $100 131 128 184 138 89
MG Group Index $100 104 109 142 142 138
10
TRANSACTIONS WITH MANAGEMENT
Highland Propane Company purchased transportation equipment in the amount
of $210,236 from Virginia Truck Center in fiscal 2002. Mr. Frank T. Ellett, a
director of the Company, is President of Virginia Truck Center. It is not
anticipated that Highland Propane Company will purchase additional
transportation equipment from Virginia Truck Center in fiscal 2003.
Resources and its subsidiaries purchased beeper, internet and telephone
services in the amount of $82,857 from NTELOS, Inc. in fiscal 2002. J. Allen
Layman, a director of the Company, is Chairman of the Board and President of
NTELOS, Inc., as well as a substantial shareholder. It is anticipated that
Resources and its subsidiaries will purchase beeper, internet and telephone
services from NTELOS, Inc. in fiscal 2003.
REMUNERATION OF DIRECTORS
Directors not chairing committees are compensated $7,200 per year in
addition to receiving fees for meetings of Resources' Board of Directors and of
Committees of the Board that they attend. The chair of the Audit Committee
receives an additional $1,200 annually, and the chairs of the other committees
receive an additional $800 annually. Mr. Williamson is not compensated for
attendance at Board and Committee meetings and does not receive $7,200 per year
for service as a Board member. The schedule of fees paid to directors for each
such meeting attended is as follows:
Board of Directors....................................$ 500
Executive & Nominating Committee......................$ 500
Audit Committee.......................................$ 500
Compensation Committee................................$ 500
However, the fee for any Committee meeting held the same day as a Board
meeting is $350.
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
The Board of Directors of the Company implemented the Restricted Stock Plan
for Outside Directors effective January 27, 1997. The Plan is applicable to not
more than 50,000 shares of Resources' common stock.
Under the Plan, a minimum of 40% of the monthly retainer fee paid to each
non-employee director of Resources is paid in shares of common stock
("Restricted Stock"). The number of shares of Restricted Stock is calculated
each month based on the closing sales price of Resources' common stock on the
Nasdaq National Market on the first day of the month, if the first day of the
month is a trading day, or if not, the first trading day prior to the first day
of the month. Beginning in fiscal 1998, a participant can, subject to approval
of the Board, elect to receive up to 100% of his retainer fee for the fiscal
year in Restricted Stock. Such election cannot be revoked or amended during the
fiscal year.
The shares of Restricted Stock of Resources issued under the Plan will vest
only in the case of a participant's death, disability, retirement (including not
standing for reelection to the Board), or in the event of a change in control of
Resources. There is no option to take cash in lieu of stock upon vesting of
shares under the Plan. The Restricted Stock may not be sold, transferred,
assigned or pledged by the participant until the shares have vested under the
terms of the Plan. At the time the Restricted Stock vests, a certificate for
vested shares will be delivered to the participant or the participant's
beneficiary.
11
The shares of Restricted Stock will be forfeited to Resources by a
participant's voluntary resignation during his term on the Board or removal for
cause as a director. Subject to the terms of the Plan, a participant, as owner
of the Restricted Stock, has all rights of a shareholder, including but not
limited to, voting rights, the right to receive cash or stock dividends, and the
right to participate in any capital adjustment of Resources. Resources requires
that all dividends or other distributions paid on shares of Restricted Stock be
automatically sequestered and reinvested on an immediate or deferred basis in
additional Restricted Stock.
All directors, except Mr. Williamson (who does not qualify as an outside
director), participated in the Plan in fiscal 2002. The directors received a
total of 2,531.874 shares of Restricted Stock in fiscal 2002, valued at
$45,748.43. (This value was calculated using the closing price of $18.069 per
share of Company's common stock on September 30, 2002).
BOARD OF DIRECTORS AND COMMITTEES
AUDIT COMMITTEE
The Audit Committee of the Board of Directors, composed of Messrs. Boxley,
Ellett, Layman, Logan, Robertson and Smith, meets at least annually with
Resources' chief financial officer, the independent auditors, and certain
appropriate officers of Resources. The basic functions of this Committee include
reviewing significant financial information, reviewing accounting procedures and
internal controls and recommending the selection of independent auditors. The
Audit Committee met three times during the 2002 fiscal year.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the RGC Resources, Inc. Board of Directors (the
"Committee") is composed of six independent directors and operates under a
written charter adopted by the Board of Directors.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants of the Company,
Deloitte & Touche LLP, are responsible for performing an independent audit of
the Company's consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon. The Committee's
responsibility is to monitor and oversee these processes.
12
In this context, the Committee has met and held discussions with management
and the independent accountants. Management represented to the Committee that
the Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated audited financial statements with management and the
independent accountants. The Committee discussed with the independent
accountants matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees), which includes, among other
things:
o methods used to account for significant unusual transactions;
o the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative
guidance or consensus;
o the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditors'
conclusions regarding the reasonableness of these estimates; and
o disagreements with management over the application of accounting
principles, the basis for management's accounting estimates, and
the disclosures in the financial statements.
The independent accountants also provided to the Committee the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and the Committee discussed
with the independent accountants that firm's independence from RGC Resources,
Inc. and its management.
Based on the Committee's discussion with management and the independent
accountants and the Committee's review of the representation of management
regarding the audited financial statements and of the report of the independent
accountants to the Committee, the Committee recommended to the Board of
Directors, and the Board has approved, that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2002, for filing with the Securities and Exchange Commission.
Frank T. Ellett, Chair J. Allen Layman Thomas L. Robertson
Abney S. Boxley, III George W. Logan S. Frank Smith
AUDIT FEES
The following table sets forth the amount of audit fees, financial
information systems design and implementation fees, and all other fees billed or
expected to be billed by Deloitte & Touche LLP, the Company's principal
accountant, for the year ended September 30, 2002:
Audit Fees $ 72,000
Financial Information Systems,
Design, and Implementation Fees $ -0-
All Other Fees $ 50,500
--------
Total Fees $122,500
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The Audit Committee has reviewed the provision of non audited services,
which include corporate income tax return preparation and benefit plan audits,
and determined that the auditor's performance of these services did not
interfere with its independence from RGC Resources, Inc.
EXECUTIVE & NOMINATING COMMITTEE
The Executive & Nominating Committee of the Board of Directors, which is
composed of Messrs. Avis, Ellett, Farmer, Layman (Chair) and Robertson is
empowered to exercise all authority of the Board of Directors, except with
respect to matters reserved for the Board by Virginia law. Thus, in the absence
of nominations by the Board of Directors, this Committee may nominate persons as
management's nominees for election to the Board of Directors by the shareholders
at Resources' annual meeting. This Committee met one time during fiscal year
2002. The Board of Directors does not have a standing nominating committee as
such.
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is composed of Messrs.
Avis (Chair), Boxley, Ellett, Goodlatte, Layman and Smith. This Committee meets
as necessary to consider and make recommendations to the Board of Directors
concerning the salaries of certain executive officers and management employees
of the Company. This Committee met one time during the 2002 fiscal year.
MEETINGS OF THE BOARD AND COMMITTEES
The Board of Directors met twelve times during the 2002 fiscal year. The
incumbent members of the Board attended in fiscal year 2002 at least 75 percent
of the aggregate of the total number of meetings of the Board and the total
number of meetings held by all Committees of the Board on which each served.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange act of 1934 requires the Company's
directors, executive officers and owners of more than 10% of its common stock to
file certain reports of initial ownership and changes in ownership (Forms 3, 4
and 5) with the Securities and Exchange Commission. Based solely on a review of
certain written representations of its directors and executive officers
regarding Form 5's and of copies of such Forms 3, 4, and 5 (including amendments
thereto) furnished to the Company, the Company believes that its executive
officers and directors complied with Section 16(a)'s filing requirements during
fiscal 2002. (The Company does not have any such 10% owners.)
OTHER MATTERS
Management does not know of any matters to be presented at the Annual
Meeting of Shareholders other than the election of directors. However, if any
other matters properly come before the meeting, proxies received pursuant to
this solicitation will be voted thereon in the discretion of the proxyholder.
14
SHAREHOLDERS PROPOSALS
Proposals of shareholders intended to be presented at Resources' 2004
Annual Meeting must be received by Resources' Corporate Secretary at its office,
519 Kimball Avenue, N.E., Roanoke, Virginia 24016, no later than August 29, 2003
in accordance with Rule 14a-8 of the Exchange Act, in order to be considered for
inclusion in the Company's Proxy Statement relating to that meeting.
Resources' Bylaws limit the business that may be transacted at a meeting of
shareholders to that specified in the notice of the meeting, those otherwise
properly presented by the Board of Directors and those presented by a
shareholder of record of Resources who provided notice in writing to the
President not less than sixty days nor more than ninety days prior to the
meeting. Proposals not meeting the requirements of the Bylaws will not be
entertained at the shareholders' meeting.
EXPENSES OF SOLICITATION
The entire expense of preparing, assembling, printing and mailing the form
of proxy and Proxy Statement will be paid by Resources. Resources will request
banks and brokers to solicit their customers who beneficially own common stock
of Resources listed in the names of nominees and will reimburse said banks and
brokers for the reasonable out-of-pocket expense of such solicitation. In
addition to the use of the mails, solicitation may be made by employees of
Resources by any and all means available. Resources does not expect to pay any
compensation for the solicitation of proxies.
By Order of the Board of Directors.
JOHN B. WILLIAMSON, III
Chairman, President & CEO
December 27, 2002
RESOURCES' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2002 IS
AVAILABLE WITHOUT CHARGE TO ANY SHAREHOLDER REQUESTING THE SAME. WRITTEN
REQUESTS SHOULD BE ADDRESSED TO THE ATTENTION OF MS. DALE P. MOORE, SECRETARY,
RGC RESOURCES, INC., P.O. BOX 13007, ROANOKE, VIRGINIA 24030.
15
Dear Shareholder,
The RGC Resources, Inc. Annual Meeting of Shareholders will be held at 9:00
a.m. on Monday, January 27, 2003 at the Clarion Hotel, 3315 Ordway Drive,
Roanoke, Virginia.
As in prior years, I want to extend to you an invitation to attend a light
shareholder breakfast beginning at 8:15 a.m. on the morning of the Annual
Meeting. The breakfast will be followed by the formal shareholder meeting at
9:00 a.m. If you plan to attend, please call Susan Miller at 540.777.3853 with
your confirmation by Friday, January 17, 2003.
We thank you for your interest in Company operations and activities, and
encourage you to complete and return the enclosed proxy card and to review our
annual report in detail.
Sincerely,
John B. Williamson, III
President and CEO
P R O X Y RGC RESOURCES, INC.
519 KIMBALL AVENUE, N.E.
ROANOKE, VIRGINIA 24016
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John H. Parrott and W. Bolling Izard, or
either of them, with full power of substitution, to vote all common stock of RGC
Resources, Inc. held of record by the undersigned as of November 22, 2002, at
the Annual Meeting of Shareholders of RGC Resources, Inc. to be held on January
27, 2003, and at any adjournments thereof, as follows:
The Board of Directors recommends a vote "FOR" items 1, 2 and 3.
1. ELECTION OF CLASS B DIRECTORS (SERVING UNTIL 2005 ANNUAL MEETING):
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees listed
contrary below) below
Frank T. Ellett, Maryellen F. Goodlatte and George W. Logan
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE LINE BELOW:
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(Over)
FOR AGAINST ABSTAIN
2. To ratify the selection of Deloitte & [ ] [ ] [ ]
Touche LLP as independent auditors.
3. Authorize proxies to vote on such
other business, if any, that may properly [ ] [ ] [ ]
come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. IF NO CHOICE IS SPECIFIED,
THE PROXY WILL BE VOTED FOR PROPOSALS NO. 1, 2
AND 3 ABOVE.
The undersigned hereby acknowledges receipt of
the Proxy Statement dated December 27, 2002.
Dated:
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Signature of Shareholder
Please sign your name(s) exactly as shown
imprinted hereon. Executors, administrators,
trustees and other fiduciaries, and persons
signing on behalf of corporations or
partnerships, should so indicate when signing.
(This proxy is revocable at any time prior to
exercise hereof.)