Form of Performance Share Agreement dated November 9, 2004




Exhibit
10.1




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].




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, 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





	(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] 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).




(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).





	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 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).








	c.  	
      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.







(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 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
[number of shares] Forfeitable Performance Shares, irrespective of whether the
Company meets any Performance Goals. The Grantee must make any such election on
or before September 30, 2005, 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, 2005, 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