PERFORMANCE SHARE AGREEMENT
PURSUANT TO THE
CHESAPEAKE UTILITIES CORPORATION
PERFORMANCE INCENTIVE PLAN
AGREEMENT dated as of January 1, 2003, and entered into, in duplicate, by
and between Chesapeake Utilities Corporation, a Delaware corporation (the
"Company"), and [name of officer] (the "Grantee") who resides at [address of
officer].
WITNESSETH that:
WHEREAS, the Chesapeake Utilities Corporation Performance Incentive Plan
(the "Plan") has been duly adopted by action of the Company's Board of Directors
(the "Board") as of January 1, 1992; and
WHEREAS, the Committee of the Board of Directors of the Company referred to
in the Plan (the "Committee") has determined that it is in the best interests of
the Company to grant the Performance Share Award described herein pursuant to
the Plan; and
WHEREAS, the shares of the Common Stock of the Company that are subject to
this Agreement, when added to the other shares of Common Stock that are subject
to awards granted under the Plan, do not exceed the total number of shares of
Common Stock with respect to which awards are authorized to be granted under the
Plan;
NOW, THEREFORE, it is hereby covenanted and agreed by and between the
Company and the Grantee as follows:
Section 1. Performance Share Award
-------------------------
The Company hereby grants to the Grantee a Performance Share Award for the
year ending December 31, 2003 (the "Award Year"). As more fully described
herein, the Grantee may earn a maximum total of [number of shares awarded] (the
"Contingent Performance Shares") upon the Company's achievement of the
Performance Goals set forth in Section 2. Alternatively, the Grantee may elect
to receive [number of shares awarded] (the "Forfeitable Performance Shares"), as
detailed in Section 3, in lieu of receiving any Contingent Performance Shares.
The Forfeitable Performance Shares shall be subject to forfeiture conditions, as
set forth in Section 3(c).
Section 2. Contingent Performance Shares
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(a) As soon as practicable after the Company's independent auditors have
certified the Company's financial statements for the Award Year, the
Committee shall determine for purposes of this Agreement the Company's (1)
earnings growth ("EG"), (2) growth in non-regulated investments ("NRIG")
and (3) Shareholder Value as of the end of the Award Year. The EG, NRIG and
Shareholder Value shall be determined by the Committee based on financial
results reported to shareholders in the Company's annual reports and shall
be subject to adjustment by the Committee for extraordinary events during
the Award Year. The Committee shall promptly notify the Grantee of its
determination.
(b) The Grantee may earn up to [number of shares awarded] Contingent
Performance Shares (the "Maximum Award") as follows:
(1) The performance measured for Shareholder Value will be the value of
$10,000 invested in the Company stock compared to a Utility Index. If
the Company's performance exceeds the Utility Index, the Grantee will
be eligible to earn up to 30% of the Maximum Award for the Award Year.
If the value of $10,000 invested for the Award Year does not exceed
the Utility Index for the Award Year, the Grantee shall not earn any
Contingent Performance Shares under this Paragraph (b)(1).
[Note: Paragraphs (2) and (3) below apply to Messrs. Schimkaitis, McMasters and
Boyles]
(2) The performance measured for EG will be based upon the performance of
the Company's regulated natural gas operations and the Company's
Delmarva propane distribution operations.
a. The performance measured for EG for the Company's regulated
natural gas operations will be based upon achieving at least 90%
of the average allowed pre-tax return on investment ("target
return on investment") in the Award Year. If the Company's
regulated operations achieve the target return on investment in
the Award Year, the Grantee will be eligible to earn at least 25%
of the Maximum Award. If the target return on investment is not
achieved in the Company's regulated natural gas operations, the
Grantee shall not earn any Contingent Performance Shares under
this paragraph (b)(2)(a).
b. The performance measured for EG for the Company's Delmarva
propane distribution operation will be based upon generating at
least the target level of earnings, before interest expense and
income taxes ("target EBIT"), for the Award Year. If the Delmarva
propane distribution operation achieves the target EBIT, the
Grantee will be eligible to earn 20% of the Maximum Award. If the
target EBIT in the Company's Delmarva propane distribution
operation is not achieved, the Grantee will not be eligible to
any Contingent Performance Shares under this paragraph (b)(2)(b).
(3) The performance measured for growth in non-regulated investments
("NRIG") will be based upon execution of the Company's long-term
strategic plan, assuming attainment of pre-authorized milestones and
objectives. If the long-term strategy is executed, the Grantee will be
eligible to earn 25% of the Maximum Award. If the long-term strategic
plan is not executed, after approval from the Company's Board of
Directors, the Grantee shall not earn any Contingent Performance
Shares under this paragraph (b)(3).
[Note: The criteria below applies to Mr. Thompson]
(c) The Grantee may earn up to [number of shares] Contingent Performance Shares
at the end of the Award Period (the "Three-Year Award") as follows, subject
to the restrictions specified in Section 3(a), and further described in
Section 2(c)(2) below:
(1) The performance measured for EG will be based upon the Company's
regulated natural gas operations achieving at least 90% of the average
allowed pre-tax return on investment ("target return on investment").
If the Company's regulated operations achieve the target return on
investment over the Award Period, the Grantee will be eligible for the
Three-Year Award. If the target return on investment is not achieved
in the Company's regulated natural gas operations, the Grantee shall
not earn any Contingent Performance Shares under this Paragraph
(c)(1).
(2) If the Grantee is eligible to receive the Three-Year Award, but has
received Forfeitable Performance Shares for 2003 and/or 2004, the
number of Contingent Performance Shares awarded at the end of the
Award Period shall equal [number of shares] less any Forfeitable
Performance Shares received.
[Note: The remainder of the agreement applies to all officers; however, in Mr.
Thompson's agreement, the paragraph lettering is different.]
(c) Contingent Performance Shares that are earned by the Grantee pursuant to
this Section 2 shall be issued promptly, without payment of consideration by the
Grantee. The Grantee shall have the right to vote the Contingent Performance
Shares and to receive the dividends distributable with respect to such shares on
and after, but not before, the date on which the Grantee is recorded on the
Company's ledger as holder of record of the Contingent Performance Shares (the
"Issue Date"). If, however, the Grantee receives shares of Common Stock as part
of any dividend or other distribution with respect to the Contingent Performance
Shares, such shares shall be treated as if they are Contingent Performance
Shares, and such shares shall be subject to all of the terms and conditions
imposed by this Section 2.
(d) Sale, transfer, pledge, or hypothecation of the Contingent Performance
Shares shall be prohibited for a period of three (3) years after the Issue Date
(the "Limitation Period"), and the Performance Shares shall bear a restrictive
legend to that effect. Any attempt to dispose of Contingent Performance Shares
in contravention of this Agreement shall be ineffective. Upon expiration of the
Limitation Period, the transfer restrictions imposed by this Section shall
expire, and new certificates representing the Contingent Performance Shares,
without the restrictive legend described in this paragraph (d), shall be issued,
subject to the provisions of paragraph (e) of this Section 2.
(e) The Performance Shares will be not registered for resale under the
Securities Act of 1933 or the laws of any state except when and to the extent
determined by the Board pursuant to a resolution. Until a registration statement
is filed and becomes effective, however, transfer of the Contingent Performance
Shares after expiration of the Limitation Period shall require the availability
of an exemption from such registration, and prior to the issuance of new
certificates, the Company shall be entitled to take such measures as it deems
appropriate (including but not limited to obtaining from the Grantee an
investment representation letter and/or further legending the new certificates)
to ensure that the Contingent Performance Shares are not transferred in the
absence of such exemption.
(f) In the event of a Change in Control, as defined in the Plan, during the
Award Year, the Grantee shall earn at least the Maximum Award of Contingent
Performance Shares set forth in this Section 2, as if all employment and
performance criteria were satisfied, pro rated based on the proportion of the
Award Year that has expired as of the date of such Change in Control.
(g) If, during the Award Year, the Grantee is separated from employment,
Contingent Performance Shares shall be deemed earned or forfeited as follows:
(1) Upon voluntary termination by the Grantee (other than for retirement
at age 65 or as accepted by the Committee) or termination by the
Company for failure of job performance or other just cause as
determined by the Committee, all unearned Contingent Performance
Shares shall be forfeited immediately;
(2) If the Grantee separates from employment by reason of death or total
and permanent disability (as determined by the Committee), the number
of Contingent Performance Shares that would otherwise have been earned
at the end of the Award Year shall be reduced by pro rating such
Contingent Performance Shares based on the proportion of the Award
Year during which the Grantee was employed by the Company, unless the
Committee determines that the Contingent Performance Shares shall not
be so reduced;
(3) Retirement of the Grantee at age 65 or as accepted by the Committee
shall not affect the Contingent Performance Shares, which shall
continue to be earned through the remainder of the Award Year, as set
forth above.
(h) The Grantee shall be solely responsible for any federal, state and local
income taxes imposed in connection with the delivery of Contingent Performance
Shares. Prior to the transfer of any Contingent Performance Shares to the
Grantee, the Grantee shall remit to the Company an amount sufficient to satisfy
any federal, state, local and other withholding tax requirements. The Grantee
may elect to have all or part of any withholding tax obligation satisfied by
having the Company withhold shares otherwise deliverable to the Grantee as
Contingent Performance Shares, unless the Committee determines otherwise by
resolution. If the Grantee fails to make such payments or election, the Company
and its subsidiaries shall, to the extent permitted by law, have the right to
deduct from any payments of any kind otherwise due to the Grantee any taxes
required by law to be withheld with respect to the Contingent Performance
Shares.
Section 3. Forfeitable Performance Shares
--------------------------------
(a) In lieu of earning Contingent Performance Shares, the Grantee may elect to
receive 2,400 Forfeitable Performance Shares, irrespective of whether the
Company meets any Performance Goals. The Grantee must make any such election on
or before September 30, 2003, and the election must be made in writing, in a
manner prescribed by the Committee. Once made, the election is irrevocable. If a
Grantee makes such an election, he shall not receive any Contingent Performance
Shares under this Agreement.
(b) Any Forfeitable Performance Shares received by the Grantee pursuant to this
Section 3 shall be issued as promptly as possible after December 31, 2003,
without payment of consideration by the Grantee. The Grantee shall have the
right to vote the Forfeitable Performance Shares and to receive the dividends
distributable with respect to such shares on and after, but not before, the date
on which the Grantee is recorded on the Company's ledger as holder of record of
the Forfeitable Performance Shares (the "Issue Date"). If, however, the Grantee
receives shares of Common Stock as part of any dividend or distribution with
respect to the Forfeitable Performance Shares, such shares shall be treated as
if they are Forfeitable Performance Shares, and such shares shall be subject to
all of the terms and conditions imposed by this Section 3.
(c) The Forfeitable Performance Shares shall be subject to the following
restrictions:
(1) Sale, transfer, pledge or hypothecation of the Forfeitable Performance
Shares shall be prohibited for a period of three (3) years after the
Issue Date (the "Restriction Period"), and the certificates evidencing
the Forfeitable Performance Shares shall bear an appropriate
restrictive legend that refers to the terms, conditions, and
restrictions set forth in this Agreement. Any attempt to dispose of
Forfeitable Performance Shares in contravention of this Agreement
shall be ineffective. Upon expiration of the Restriction Period, the
transfer restrictions imposed by this Section shall expire, and new
certificates representing the Forfeitable Performance Shares, without
the restrictive legend described in this paragraph (c)(1), shall be
issued, subject to the provisions of paragraph (f) of this Section 3.
(2) If, during the Restriction Period, the Grantee separates from
employment for any reason other than death, normal retirement, total
and permanent disability (as determined by the Committee), or
involuntary termination without cause (as determined by the
Committee), all Forfeitable Performance Shares shall be forfeited
immediately.
(d) All restrictions under paragraph (c) of this Section 3 shall immediately
expire on the earliest of: (A) the Grantee's separation from employment because
of death, total and permanent disability (as determined by the Committee), or
involuntary termination without cause (as determined by the Committee), (B) a
Change in Control, as defined in the Plan, or (C) the end of the Restriction
Period.
(e) If, after the Grantee has made an election to receive Forfeitable
Performance Shares pursuant to Section 3(a), a Change in Control, as defined in
the Plan, occurs during the Award Year, the Grantee shall receive at least the
total number of Forfeitable Performance Shares due under this Agreement, pro
rated based on the proportion of the Award Year that has expired as of the date
of such Change in Control. Pursuant to Section 3(d), such Shares shall not be
subject to any of the restrictions imposed by this Section.
(f) The Forfeitable Performance Shares shall be not registered for resale under
the Securities Act of 1933 or the laws of any state except when and to the
extent determined by the Board pursuant to a resolution. Until a registration
statement is filed and becomes effective, however, transfer of the Forfeitable
Performance Shares after expiration of the Restriction Period shall require the
availability of an exemption from such registration, and prior to the issuance
of new certificates, the Company shall be entitled to take such measures as it
deems appropriate (including but not limited to obtaining from the Grantee an
investment representation letter and/or further legending the new certificates)
to ensure that the Forfeitable Performance Shares are not transferred in the
absence of such exemption.
(g) The Grantee shall be solely responsible for any federal, state and local
income taxes imposed in connection with receipt of the Forfeitable Performance
Shares:
(1) The Grantee agrees that, no later than the date that the restrictions
set forth in Section 3(c) lapse, he shall remit to the Company an
amount sufficient to satisfy any federal, state, local and other
withholding tax requirements.
(2) The Grantee may elect to have all or part of any withholding tax
obligation satisfied by having the Company withhold shares otherwise
deliverable to the Grantee in connection with the Award of Restricted
Stock, unless the Committee determines otherwise by resolution.
(3) If the Grantee properly elects, within 30 days of the Issue Date, to
include in gross income for federal income tax purposes an amount
equal to the fair market value of the Forfeitable Performance Shares,
he shall make arrangements satisfactory to the Committee to remit in
the year of issue an amount sufficient to satisfy any federal, state,
local and other withholding tax requirements with respect to such
Forfeitable Performance Shares.
(4) If the Grantee fails to make satisfactory arrangements to meet all
withholding tax obligations, the Company and its subsidiaries shall,
to the extent permitted by law, have the right to deduct from any
payments of any kind otherwise due to the Grantee any taxes required
by law to be withheld with respect to the Forfeitable Performance
Shares.
Section 4. Additional Conditions to Issuance of Shares
------------------------------------------------
Each transfer of Contingent Performance Shares or Forfeitable Performance
Shares (together, the "Award Shares") shall be subject to the condition that if
at any time the Committee shall determine, in its sole discretion, that it is
necessary or desirable as a condition of, or in connection with, transfer of
Award Shares (i) to satisfy withholding tax or other withholding liabilities,
(ii) to effect the listing, registration or qualification on any securities
exchange or under any state or federal law of any Shares deliverable in
connection with such exercise, or (iii) to obtain the consent or approval of any
regulatory body, then in any such event such transfer shall not be effective
unless such withholding, listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
Section 5. Adjustment of Shares
----------------------
(a) If the Company shall become involved in a merger, consolidation or other
reorganization, whether or not the Company is the surviving corporation, any
right to earn Contingent Performance Shares or to elect to receive Forfeitable
Performance Shares shall be deemed a right to earn or to elect to receive the
consideration into which the shares of Common Stock represented by the
Contingent Performance Shares or by the Forfeitable Performance Shares would
have been converted under the terms of the merger, consolidation or other
reorganization. If the Company is not the surviving corporation, the surviving
corporation (the "Successor") shall succeed to the rights and obligations of the
Company under this Agreement.
(b) If any subdivision or combination of shares of Common Stock or any stock
dividend, capital reorganization or recapitalization occurs after the adoption
of the Plan, the Committee shall make such proportionate adjustments as are
appropriate to the number of Contingent Performance Shares to be earned and/or
to the number of Forfeitable Performance Shares to be received in order to
prevent the dilution or enlargement of the rights of the Grantee.
Section 6. No Right to Employment
-------------------------
Nothing contained in this Agreement shall be deemed by implication or
otherwise to confer upon the Grantee any right to continued employment by the
Company or any affiliate of the Company.
Section 7. Notice
------
Any notice to be given hereunder by the Grantee shall be sent by mail
addressed to Chesapeake Utilities Corporation, 909 Silver Lake Boulevard, Dover,
Delaware 19904, for the attention of the Committee, c/o the Secretary, and any
notice by the Company to the Grantee shall be sent by mail addressed to the
Grantee at the address of the Grantee shown on the first page hereof. Either
party may, by notice given to the other in accordance with the provisions of
this Section, change the address to which subsequent notices shall be sent.
Section 8. Assumption of Risk
--------------------
It is expressly understood and agreed that the Grantee assumes all risks
incident to any change hereafter in the applicable laws or regulations or
incident to any change in the market value of the Award Shares.
Section 9. Terms of Plan
---------------
This Agreement is entered into pursuant to the Plan (a copy of which has
been delivered to the Grantee). This Agreement is subject to all of the terms
and provisions of the Plan, which are incorporated into this Agreement by
reference, and the actions taken by the Committee pursuant to the Plan. In the
event of a conflict between this Agreement and the Plan, the provisions of the
Plan shall govern. All determinations by the Committee shall be in its sole
discretion and shall be binding on the Company and the Grantee.
Section 10. Governing Law; Amendment
--------------------------
This Agreement shall be governed by, and shall be construed and
administered in accordance with, the laws of the State of Delaware (without
regard to its choice of law rules) and the requirements of any applicable
federal law. This Agreement may be modified or amended only by a writing signed
by the parties hereto.
Section 11. Terms of Agreement
--------------------
This Agreement shall remain in full force and effect and shall be binding
on the parties hereto for so long as any Award Shares issued to the Grantee
under this Agreement continue to be held by the Grantee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
its corporate name, and the Grantee has executed the same in evidence of the
Grantee's acceptance hereof, upon the terms and conditions herein set forth, as
of the day and year first above written.
CHESAPEAKE UTILITIES CORPORATION
By: ___________________________________
___________________________________
Grantee