Cash Bonus Incentive Plan Dated January 1, 2005





Exhibit
10.3






CHESAPEAKE
UTILITIES CORPORATION




CASH
BONUS INCENTIVE PLAN




Effective
January 1, 2005




 

SECTION
1.  
INTRODUCTION

 


	1.01  	
      Purposes
      of the Plan.




 

The
purposes of the Chesapeake Utilities Corporation Cash Bonus Incentive Plan (the
“Plan”) are (a) to further the long-term growth and earnings of Chesapeake
Utilities Corporation (the “Company”) by providing incentives and rewards to
those executive officers and other key employees of the Company and its
subsidiaries who are in positions in which they can contribute significantly to
the achievement of that growth; (b) to encourage those employees to remain as
employees of the Company and its subsidiaries; and (c) to assist the Company and
its subsidiaries in recruiting able management personnel. To accomplish these
objectives, the Plan authorizes the grant of Awards, as further described
herein. 

 


	1.02  	
      Term
      of the Plan.




 

The Plan
shall be effective as of January 1, 2005. Unless the Plan is terminated earlier
in accordance with Section
8, the
Plan shall remain in full force and effect until the close of business on
December 31, 2014, at which time the Plan shall terminate and no further Awards
shall be granted under the Plan. Any Award granted before the termination of the
Plan shall continue to be governed thereafter by the terms of the Plan and its
terms as in effect on December 31, 2014.

 




 

 

SECTION
2.  
DEFINITIONS

 


	2.01  	
      Definitions.




 

Except
where otherwise indicated, the following terms shall have the definitions set
forth below for purposes of the Plan:

 


	(a)  	
      “Award”
      means a Contingent Cash Bonus Award granted under Section
      5 or
      a Cash Bonus Award granted under Section
      6.
      




 


	(b)  	
      “Beneficiary”
      means the person or persons entitled, in accordance with Section
      9.02,
      to receive any benefit payable because of the Participant’s
      death.




 


	(c)  	
      “Board”
      means the Board of Directors of the
Company.




 


	(d)  	
      “Cash
      Bonus Award”
      means the dollar amount granted by the Committee and payable to a
      Participant in accordance with Section 6.01.




 


	(e)  	
      “Change
      in Control”
      means the first of the following events
occurs:




 


	(1)  	
      Any
      one person, or group of owners of another corporation who acting together
      through a merger, consolidation, purchase, acquisition of stock or the
      like (a “group”), acquires ownership of stock of the Company (or a
      majority-controlled subsidiary of the Company) that, together with the
      stock held by such person or group, constitutes more than 50 percent of
      the total fair market value or total voting power of the stock of the
      Company. However, if such person or group is considered to own more than
      50 percent of the total fair market value or total voting power of the
      stock of the corporation before this transfer of the Company’s stock, the
      acquisition of additional stock by the same person or person shall not be
      considered to cause a Change in Control of the Company;
  or




 


	(2)  	
      Any
      one person or group (as described in subsection (e)(1), above) acquires
      (or has acquired during the 12-month period ending on the date of the most
      recent acquisition by such person or persons) ownership of stock of the
      Company (or a majority-owned subsidiary of the Company) possessing 35
      percent or more of the total voting power of the stock of the Company
      where such person or group is not merely acquiring additional control of
      the Company; or




 


	(3)  	
      A
      majority of members of the Company’s Board (other than the Board of a
      majority-controlled subsidiary of the Company) is replaced during any
      12-month period by directors whose appointment or election is not endorsed
      by a majority of the members of the Company’s Board prior to the date of
      the appointment or election; or




 


	(4)  	
      Any
      one person or group (as described in subsection (e)(1), above) acquires
      (or has acquired during the 12-month period ending on the date of the most
      recent acquisition by such person or group) assets from the Company (or a
      majority-controlled subsidiary of the Company) that have a total gross
      fair market value equal to or more than 40 percent of the total fair
      market value of all assets of the Company immediately prior to such
      acquisition or acquisitions. For this purpose, gross fair market value
      means the value of the assets of the Company, or the value of the assets
      being disposed of, determined without regard to any liabilities associated
      with such assets. A transfer of assets by the Company will not result in a
      Change in Control if the assets are transferred
to:




 


	(A)  	
      A
      shareholder of the Company (immediately before the asset transfer) in
      exchange for or with respect to its stock;




 


	(B)  	
      An
      entity, 50 percent or more of the total value or voting power of which is
      owned, directly or indirectly, by the Company immediately after the
      transfer of assets;




 


	(C)  	
      A
      person, or more than one person acting as a group (as described in
      subsection (e)(1), above), that owns, directly or indirectly, 50 percent
      or more of the total value or voting power of all the outstanding stock of
      the Company; or




 


	(D)  	
      An
      entity, at least 50 percent of the total value or voting power of which is
      owned directly or indirectly, by a person described in subsection (e)(1),
      above.




 

However,
no Change in Control shall be deemed to have occurred with respect to a
Participant by reason of (i) any event involving a transaction in which the
Participant or a group of persons or entities with which the Participant acts in
concert, acquires, directly or indirectly, more than 30 percent of the common
stock or the business or assets of the Company; (ii) any event involving or
arising out of a proceeding under Title 11 of the United States Code (or the
provisions of any future United States bankruptcy law), an assignment for the
benefit of creditors or an insolvency proceeding under state or local law; or
(iii) any event constituting approval by the Company’s stockholders of a merger
or consolidation if a majority of the group consisting of the president and vice
presidents of the Company who are parties to agreements conferring rights upon a
Change in Control shall have agreed in writing prior to the approval that the
approval shall be deemed not to constitute a Change in Control.





	(f)  	
      “Code”
      means the Internal Revenue Code of 1986, as amended from time to
      time.




 


	(g)  	
      “Committee”
      means a committee of three or more persons appointed by the Board of
      Directors to administer the Plan, each member of whom shall be (1) an
      “independent director” as defined by the rules of the New York Stock
      Exchange, (2) a “non-employee director” within the meaning of Rule 16b-3
      and (3) an “outside director” within the meaning of section 162(m) of the
      Code and the regulations thereunder.




 


	(h)  	
      “Company”
      means Chesapeake Utilities Corporation or a Related
    Company.




 


	(i)  	
      “Contingent
      Cash Bonus Award”
      means a potential cash award that may be designated for a Participant in
      accordance with Section 5.01.




 


	(j)  	
      “Disability”
      means a medically determinable physical or mental impairment that can be
      expected to result in death or last for at least 12 months; and the
      impairment either (1) prevents the Participant from engaging in any
      substantial gainful activity, or (2) entitles the Participant to receive
      income replacement benefits for at least 3 months under an accident or
      health plan sponsored by the Company.




 


	(k)  	
      “Participant”
      means any person who has received an Award.




 


	(l)  	
      “Performance
      Goal”
      means a criterion established by the Committee with respect to a Plan Year
      in accordance with Section 5.02.




 


	(m)  	
      “Person”
      means any individual, firm, corporation, partnership, joint venture,
      association, trust, or other entity.




 


	(n)  	
      “Plan”
      means the Chesapeake Utilities Corporation Cash Bonus Incentive Plan, as
      set forth herein and as amended from time to
time.




 


	(o)  	
      “Plan
      Year”
      means the calendar year.




 


	(p)  	
      “Related
      Company”
      means a corporation, partnership, joint venture, or other entity in which
      the Company has a direct or indirect ownership or other proprietary
      interest of at least fifty percent.




 


	(q)  	
      “Rule
      16b-3”
      means Rule 16b-3 under the Securities Exchange Act of 1934, as amended
      from time to time, or any successor
thereto.




 




 

SECTION
3.  
ADMINISTRATION

 


	3.01  	
      The
      Committee.




 

The Plan
shall be administered by the Committee. The Committee shall periodically
determine, in its sole discretion, the individuals who shall participate in the
Plan and the amounts and other terms and conditions of Awards to be granted to
such individuals under the Plan. The Committee shall administer the Plan in
accordance with applicable legal requirements. All questions of interpreta-tion
and administration with respect to the Plan shall be determined by the Committee
in its sole and absolute discretion. All determinations by the Committee shall
be final and conclusive upon all parties. The Committee shall act by vote or
written consent of a majority of its members and its actions shall be recorded
in the minutes of the Committee.

 


	3.02  	
      Additional
      Powers of the Committee.




 

In
addition to any implied powers and duties that are needed to carry out the
provisions of the Plan, the Committee shall have the following specific powers
and duties:

 


	(a)  	
      to
      make and enforce any rules and regulations it shall deem necessary or
      proper for the efficient administration of the
Plan;




 


	(b)  	
      to
      designate one or more officers of the Company to execute on behalf of the
      Company all agreements and other documents approved by the Committee under
      the Plan;




 


	(c)  	
      to
      appoint other persons to carry out any ministerial responsibilities under
      the Plan as it may determine consistent with applicable law;
      and




 


	(d)  	
      to
      employ one or more persons to render advice with respect to any of its
      responsibilities under the Plan.




 




 

SECTION
4.  
PARTICIPATION

 


	4.01  	
      Participation.




 

The
Committee may select to receive Awards under the Plan any key employees of the
Company (including officers or employees who are members of the Board, but
excluding directors who are not officers or employees) who the Committee
determines are in positions from which they can contribute significantly to the
achievement to the long-term growth, development, and financial success of the
Company or its subsidiaries. An individual who is not an employee of the Company
shall not be eligible to participate in the Plan. Because all Awards are granted
in the discretion of the Committee, no officer or employee of the Company shall
have any right to receive an Award under the Plan.

 

 

SECTION
5.   CONTINGENT
CASH BONUS AWARDS

 


	5.01  	
      Grant
      of Contingent Cash Bonus Awards.




 

The
Committee may, from time to time, grant to persons eligible to participate in
the Plan, as the Committee shall determine in its sole discretion, a Cash Bonus
Award the vesting of which is contingent on the achievement of established
Performance Goals or the occurrence of another specified event as determined by
the Committee in accordance with the terms of the Plan. In determining whether
to grant an Award and the nature and amount of the Award, the Committee shall
consider, among other factors, the eligible employee’s responsibility level,
performance, and potential cash compensation level. Designation of a Contingent
Cash Bonus Award will not create any right of the Participant to the Cash Bonus
Award, even if the Participant meets the Performance Goals.

 


	5.02  	
      Establishment
      of Performance Goals.




 

In
selecting the Performance Goals for the vesting of an Award the Committee may
choose from among any one or more of the following, in any case as measured in
absolute terms or relative to the performance of any group of companies or index
selected by the Committee: 

 


	(a)  	
      earnings
      per share or earnings per share growth, 




 


	(b)  	
      operating
      income or operating income growth, 




 


	(c)  	
      operating
      margin or operating margin growth, 




 


	(d)  	
      net
      income or net income growth,




 


	(e)  	
      revenue
      or revenue growth, 




 


	(f)  	
      return
      on equity, 




 


	(g)  	
      pre-tax
      return on investment,




 


	(h)  	
      total
      shareholder return, 




 


	(i)  	
      cash
      flow, 




 


	(j)  	
      earnings
      before interest, taxes, depreciation, and amortization,





 


	(k)  	
      one
      or more strategic goals for the Company; any segment of its business;
      and/or any company or group of companies or





 


	(l)  	
      any
      other criteria or event selected by the
Committee.




 

If during
a Plan Year there are significant changes in economic conditions that the
Committee did not foresee when it established the Performance Goals for that
Plan Year and that, in the Committee’s sole judgment, have or are expected to
have a substantial effect on the performance of the Company during the Plan
Year, the Committee may revise the Performance Goals in any manner that the
Committee may deem appropriate.

 


	5.03  	
      Payment
      of Contingent Cash Bonus Awards.




 

Contingent
Cash Bonus Awards as determined by the Committee shall be paid in cash on or
before March 15 of the Plan Year following the Plan Year for which the
Contingent Cash Bonus Awards were granted.

 




 

 

SECTION
6.   CASH
BONUS AWARDS

 


	6.01  	
      Additional
      Cash Bonus Awards.




 

The
Committee may also grant and pay Cash Bonus Awards at any other time during a
Plan Year as the Committee, in its discretion, determines to be
appropriate.

 


	6.02  	
      Payment
      of Cash Bonus Awards.




 

After the
Company’s financial results for a Plan Year become available, the Committee may,
but shall not be required to, grant Cash Bonus Awards to one or more
Participants, including but not limited to a Participant as to whom Contingent
Cash Bonus Awards have been designated pursuant to Section 5.01. Cash
Bonus Awards as determined by the Committee shall be paid in cash on or before
March 15 of the Plan Year following the Plan Year for which the Cash Bonus Award
was granted.

 




 

 

SECTION
7.   PAYMENTS
OF AWARDS

 


	7.01  	
      Awards
      Solely from General Assets.




 

The
Awards under the Plan shall be paid solely from the general assets of the
Company. Nothing herein shall be construed to require the Company or the Board
to maintain any fund or to segregate any amount for the benefit of any
Participant, and no Participant or other person shall have any right against,
right to, or security or other interest in, any fund, account, or asset of the
Company from which the payment pursuant to the Plan may be made.

 


	7.02  	
      Plan
      Expenses.




 

All
reasonable expenses of administering the Plan shall be paid by the
Company.

 




 

 

SECTION
8.   AMENDMENT
AND TERMINATION

 


	8.01  	
      Amendment
      of Plan.




 

Except as
otherwise provided in Section 8.02, the
Board may, at any time and from time to time, alter, amend, suspend or terminate
the Plan as it shall deem advisable.

 


	8.02  	
      Change
      in Control.




 

Notwithstanding
Section 8.01, above,
on or after the occurrence of a Change in Control, no direct or indirect
alteration, amendment, suspension, termination or discontinuance of the Plan, no
establishment or modification of rules, regulations or procedures under the
Plan, no interpretation of the Plan or determination under the Plan, and no
exercise of authority or discretion vested in the Committee under any provision
of the Plan (collectively or individually, a “Change”) shall be made if the
Change (i) is not required by applicable law or necessary to meet the
requirements of Rule 16b-3 or section 409A of the Code and (ii) would have the
effect of:

 


	(a)  	
      eliminating,
      reducing or otherwise adversely affecting a Participant’s, former
      Participant’s or beneficiary’s rights with respect to any Award granted
      prior to the Change in Control,




 


	(b)  	
      altering
      the meaning or operation of the definition of “Change in Control” in
      Section 2.01(e)
      (and of the definition of all the defined terms that appear in the
      definition of “Change in Control”), the provisions of this Section
      8,
      or any rule, regulation, procedure, provision or determination made or
      adopted prior to the Change in Control pursuant to this Section
      8 or
      any provision in any rule, regulation, procedure, provision or
      determination made or adopted pursuant to the Plan that becomes effective
      upon the occurrence of a Change in Control (collectively, the “Change in
      Control Provisions”), or




 


	(c)  	
      undermining
      or frustrating the intent of the Change in Control Provisions to secure
      for Participants, former Participants and beneficiaries the maximum rights
      and benefits that can be provided under the
Plan.




 

 

Upon and
after the occurrence of a Change in Control, (i) all rights of all Participants,
former Participants and beneficiaries under the Plan (including without
limitation any rules, regulations or procedures promulgated under the Plan)
shall be contractual rights enforceable against Chesapeake and any successor to
all or substantially all of Chesapeake’s business or assets and (ii) any
Contingent Cash Bonus Award (1) shall be deemed to have been earned at the
maximum annual target amount, regardless of whether the specified performance
criteria have been satisfied and (2) shall be payable immediately following the
Change in Control. The Change in Control Provisions may be altered, amended or
suspended at any time before the date on which a Change in Control occurs;
provided that any alteration, amendment or suspension of the Change in Control
Provisions that is made before the date on which a Change in Control occurs, and
at the request of a person who effectuates the Change in Control, shall be
treated as though it occurred after the Change in Control and shall be subject
to the restrictions and limitations imposed by the preceding provisions of the
immediately preceding paragraph. 

 





	8.03  	
      Other
      Plans.




 

Nothing
herein shall preclude the Committee from authorizing or approving other plans or
forms of incentive compensation. The Committee shall have the right to determine
the extent to which any Participant shall participate in this Plan in addition
to any other plan or plans of the Company in which he shall
participate.

 

 

SECTION
9.  
MISCELLANEOUS

 


	9.01  	
      No
      Right To Employment.




 

The
receipt of an Award under the Plan shall not give any employee any right to
continued employment by the Company, and the right to dismiss any employee is
specifically reserved to the Company. The receipt of an Award shall not give an
employee the right to receive any subsequent Award.

 


	9.02  	
      Designation
      of Beneficiary.




 

Each
Participant may designate a Beneficiary to receive the Participant’s awards in
the event of the Participant’s death. The designation shall be in writing, shall
be made in the form and manner prescribed by the Committee, and shall be
effective only if filed with the Committee prior to the Participant’s death. A
Participant may, at any time prior to his death, and without the consent of his
Beneficiary, change his designation of Beneficiary by filing a written notice of
such change with the Committee in the form and manner prescribed by the
Committee. In the absence of a designated Beneficiary, or if the designated
Beneficiary and any designated contingent Beneficiary predecease the
Participant, the Beneficiary shall be the Participant’s surviving spouse, or if
the Participant has no surviving spouse, the Participant’s estate.

 


	9.03  	
      Recipient
      of Payment.




 


	(a)  	
      Except
      as otherwise provided in paragraph (b), below, any Award under the Plan
      shall be paid to the Participant, or to the Beneficiary of a deceased
      Participant.




 


	(b)  	
      If
      the Committee determines that a Participant or Beneficiary is not
      competent, the Committee may pay any amount otherwise due to the
      Participant or Beneficiary to the court-appointed legal guardian of the
      Participant or Beneficiary, to an individual who has become the legal
      guardian of the Participant or Beneficiary by operation of state law, or
      to another individual whom the Committee determines to be entitled to
      receive the payment on behalf of the Participant or
      Beneficiary.




 


	(c)  	
      If
      a payment is made under the Plan to a third party pursuant to paragraph
      (b), above, the Plan, the Committee, and the Company shall be relieved, to
      the fullest extent permitted by law, of any obligation to make a duplicate
      payment to or on behalf of the Participant or
  Beneficiary.




 


	9.04  	
      Taxes.




 

The
Committee may make any appropriate arrangements to deduct from amounts otherwise
payable to a Participant any taxes that the Committee believes to be required to
be withheld by any government or governmental agency in respect of an Award. The
Participant and/or his Beneficiary shall bear all taxes on amounts paid under
the Plan to the extent that no taxes are withheld, irrespective of whether
withholding is required.

 


	9.05  	
      Headings.




 

Any
headings used in this document are for convenience of reference only and may not
be given any weight in interpreting any provision of the Plan.

 


	9.06  	
      Severability.




 

If any
provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been inserted herein. In addition, if any provision of the Plan
inadvertently causes an Award granted under the Plan to be “nonqualified
deferred compensation” within the meaning of section 409A of the Code, then such
Award shall be construed and enforced as if the provision had never been
inserted therein.

 


	9.07  	
      Governing
      Law.




 

The Plan
shall be construed, administered, and regulated in accordance with the laws of
the State of Delaware (excluding the choice of law provisions thereof) and any
applicable requirements of federal law.