FORM OF PERFORMANCE SHARE
AGREEMENT
pursuant to
the
CHESAPEAKE UTILITIES
CORPORATION
PERFORMANCE INCENTIVE
PLAN
AGREEMENT dated as of November 9, 2004, and
entered into, in duplicate, by and between Chesapeake Utilities
Corporation, a Delaware corporation (the "Company"), and [name of
executive] (the "Grantee") who resides at [address of
executive].
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, 2005 (the
"Award Year"). As more fully described herein, the Grantee may earn
a maximum total of [number of shares] shares (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] shares (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)
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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.
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(b)
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The Grantee may
earn up to [number of shares] Contingent Performance Shares (the
“Maximum Award”) as follows:
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(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).
(2) The performance measured for EG will be based
upon the performance of the Company’s regulated natural gas
operations, the Company’s Delmarva propane distribution
operations and the overall corporate results of
operation.
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 12.5% 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).
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b.
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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 12.5% 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).
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c.
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The performance
measured for overall corporate results of operation will be based
upon achieving a growth in earnings per share of 3% to 5% for the
award year. If the Company earnings per share for 2005 is equal to
or exceeds $1.65, the Grantee is eligible to earn 10% of the
maximum award. If the earnings per share is equal to or greater
than $1.68, the Grantee is eligible to earn an additional 10% of
the maximum award but in no event shall the Grantee earn more than
a 20% of the maximum award under this paragraph (b)(2)(c). If any
of the award under this paragraph is unearned in the current year,
the Grantee is eligible to earn those shares, if the accumulative
earnings per share for 2005 to 2007 equals or exceeds
$5.19.
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(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).
(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 S
