Document:

Exhibit 10.21

Exhibit 10.21

KONA GRILL, INC.

NOTE AND WARRANT PURCHASE AGREEMENT

THIS NOTE PURCHASE AGREEMENT (“Agreement”), is made and entered into as of the 5th day
of March, 2009, among KONA GRILL, INC., a Delaware corporation (“Company”), on the one
hand, and the investors named on the attached Schedule A (collectively the
“Investors” and each individually an “Investor”), on the other hand.

RECITALS

A. The Company wishes to issue and sell to the Investors up to $1.5 million aggregate
principal amount of 10% unsecured subordinated notes (“Notes”) and warrants
(“Warrants”) to purchase shares of the Company’s common stock, par value $0.01 per share
(“Common Stock”), the material terms of which are set forth on Exhibit A attached
hereto.

B. The Investors wish to purchase the Notes and Warrants on the terms and subject to the
conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this
Agreement and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the parties agree as follows:

ARTICLE I

SALE OF NOTES

1.01 Issuance, Sale and Delivery of the Notes and Warrants. Subject to the terms and
conditions hereof and in reliance upon the representations, warranties, covenants, and agreements
contained herein, the Company hereby agrees to issue and sell to the Investors, and each Investor
hereby severally agrees to purchase from the Company at the Closing (as hereinafter defined), (a)
the aggregate number of Notes set forth opposite the name of such Investor under the heading
“Principal Amount of Notes” on Schedule I attached hereto, and (b) Warrants to purchase the
number of Warrant Shares set forth opposite the name of such Investor under the heading “Warrant
Shares” on Schedule I attached hereto.

1.02 Closing.

(a) The sale and purchase of the Notes and Warrants shall take place at a closing (the
“Closing”) at the Company’s offices in Scottsdale, Arizona at 10:00 a.m. (local time) on
March 6, 2009 (the “Closing Date”), or at such other place, date and time as may be
mutually agreed upon by the Company and the Investors.

(b) Upon the Investors’ purchase of the Notes at the Closing, the Company shall issue and
deliver to each Investor (a) a promissory note evidencing the Notes purchased at the Closing in the
form attached hereto as Exhibit B, and (b) a Warrant exercisable for the Warrant Shares
attributable to such Investor in the form attached hereto as Exhibit C. As payment in full
for the Notes and Warrants being purchased by it at the Closing, and against delivery of the Notes
and Warrants as aforesaid on the Closing Date, each Investor shall deliver to the Company, by
official check or wire transfer, the “Aggregate Subscription Price” amount set forth opposite the
Investor’s name on Schedule I.

 

 

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to each Investor as follows:

2.01 Organization and Corporate Power. The Company is duly incorporated and in good
standing under the laws of the State of Delaware and has all requisite corporate power and
corporate authority for the ownership and operations of its properties and for the carrying on of
its business as now conducted. The Company has all requisite corporate power and corporate
authority to execute and deliver this Agreement, to perform all its obligations hereunder and
thereunder, and to issue, sell, and deliver the Notes and Warrants, and to issue and deliver the
shares of Common Stock issuable upon exercise of the Warrants (“Warrant Shares”).

2.02 Authorization of Agreements and Validity.

(a) The execution and delivery by the Company of this Agreement, the performance by the
Company of its obligations hereunder, the issuance, sale, and delivery of the Notes and Warrants,
and the issuance and delivery of the Warrant Shares shall, prior to the Closing, be duly authorized
by all requisite corporate action and will not (x) violate (i) any provision of any applicable law,
or any order of any court or other agency of government applicable to the Company, (ii) the
Certificate of Incorporation or Bylaws of the Company, or (iii) any provision of any material
agreement or other instrument to which the Company is bound, or (y) conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default under any such
material agreement or other instrument.

(b) This Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid, and binding obligation of the Company, enforceable in accordance with its terms
except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors’ rights generally.

(c) Prior to the Closing, the Notes and Warrants will be duly authorized, and when issued,
sold and delivered in accordance with this Agreement for the consideration expressed herein, will
be validly issued.

(d) Prior to the Closing, the Warrant Shares will be duly reserved for issuance upon exercise
of the Warrants, and, when so issued, will be duly authorized, validly issued, fully paid, and
nonassessable shares with no personal liability attaching to the ownership thereof and
will be free and clear of all liens, charges, and encumbrances of any nature whatsoever except
for restrictions on transfer under applicable federal and state securities laws.

(e) Neither the issuance, sale, or delivery of the Notes or Warrants, nor the issuance and
delivery of the Warrant Shares is subject to any preemptive right of stockholders of the Company,
or to any right of first refusal or other right in favor of any person.

 

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2.03 Authorized Capital Stock. The authorized capital stock of the Company consists
of (i) 2,000,000 shares of preferred stock, $.01 par value, none of which are issued or
outstanding, and (ii) 15,000,000 shares of Common Stock, of which 6,511,991 shares were issued and
outstanding as of January 31, 2009. All issued and outstanding shares of Common Stock of the
Company are authorized and validly issued, and are fully paid and nonassessable.

2.04 SEC Reports and Financial Statements. The Company has filed with the SEC, and
has heretofore made available to the Investors, true, and complete copies of, all forms, reports,
schedules, statements, and other documents required to be filed by the Company under the Securities
Exchange Act of 1934 (the “Exchange Act”), including, but not limited to, that certain Form
8-K, dated February 10, 2009, reporting the Company’s 2008 fourth quarter and fiscal year-end
financial results (such forms, reports, schedules, statements, and other documents, including any
financial statements or schedules included herein, are referred to as the “Company SEC
Documents”). The Company SEC Documents, at the time filed, (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act, and the applicable rules and regulations of the SEC thereunder.
The financial statements of the Company included in the Company SEC Documents complied as to form
in all material respects with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance with generally
accounting principles applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Rule
10-01 of Regulation S-X promulgated by the SEC) and fairly present (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments, none of which will be material) the
consolidated financial position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the periods then ended.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

Each Investor severally represents and warrants to the Company that:

(a) it is an “accredited investor” within the meaning of Rule 501 of Regulation D under the
Securities Act of 1933, as amended (the “Securities Act”);

(b) it has sufficient knowledge and experience in investing in companies similar to the
Company so as to be able to evaluate the risks and merits of its investment in the Company and it
is able financially to bear the risks thereof;

(c) the Notes and Warrants being purchased by the Investor are being acquired for the
Investor’s own account for the purpose of investment;

 

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(d) the Investor understands that (i) the neither the Notes, Warrants, or Warrant Shares, have
been registered under the Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 506
promulgated under the Securities Act, (ii) the Notes, Warrants, and Warrant Shares must be held
indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Notes, Warrants, and Warrant Shares will bear a legend to
such effect, and (iv) the Company will make a notation on its transfer books to such effect;

(e) no person has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest, or valid claim against or upon the Company for any commission, fee,
or other compensation as a finder or broker because of any act or omission of such Investor or any
agent for the Investor;

(f) the Investor has the power and authority to enter into and to perform this Agreement in
accordance with its terms;

(g) the execution of, and performance of the transactions contemplated by, this Agreement is
not in conflict with or will not result in any material breach of any terms, conditions, or
provisions of, or constitute a material default under, its governing documents or any material
agreement or other instrument to which the Investor is a party;

(h) the Investor understands the risks involved in the purchase of the Notes and Warrants,
including the “Risk Factors” described in the Company’s annual report on Form 10-K for the year
ended December 31, 2007 and its quarterly reports on Form 10-Q for the quarterly periods ended
March 31, 2008, June 30, 2008, and September 30, 2008; and

(i) the Investor has carefully reviewed the representations concerning the Company contained
in this Agreement, and to the extent desired by the Investor, has made inquiry regarding the
Company, its business, prospects, and personnel.

ARTICLE IV

COVENANTS

4.01 Reservation of Conversion Shares. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, for the purpose of
effecting the exercise of the Warrants, such number of its duly authorized shares of Common Stock
as shall be sufficient to effect the exercise of the Warrants from time to time outstanding. If at
any time the number of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the Warrants, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes. The Company will use reasonable efforts to obtain
any authorization, consent, approval, or other action by or make any filing with any court or
administrative body that may be required under applicable state securities laws in connection with
the issuance of shares of Common Stock upon exercise of the Warrants.

 

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4.02 Rights Offering. As soon as reasonably practicable after the filing with the SEC
of the Company’s annual report on Form 10-K for the year ended December 31, 2008, the Company will
file with the SEC a registration statement to reflect a rights offering with targeted gross
proceeds to the Company of at least $2.5 million (the “Rights Offering”) pursuant to which
each stockholder of the Company will have the right to purchase, at a per share subscription price
to be determined by the Company’s Board of Directors or a committee thereof (which subscription
price shall reflect a discount to the market price of the Company’s Common Stock on the date of
determination of such price by the Company’s Board of Directors or a committee thereof), a number
of shares of Common Stock for each share of Common Stock held as of the record date for the Rights
Offering (as determined by the Company’s Board of Directors or a committee thereof), and thereafter
use commercially reasonable efforts to cause such Rights Offering Registration Statement to become
and remain effective for the period of distribution contemplated thereby. The terms of the Rights
Offering shall provide that any shares of the Company’s Common Stock that are not subscribed for in
the Rights Offering shall be offered to the Investors on a pro rata basis based on the aggregate
principal amount of Notes outstanding. The shares of Common Stock offered to the Investors will be
offered at the same subscription price per share as offered to the existing stockholders in the
Rights Offering.

4.03 Further Assurances. Prior to and following the Closing, the Company and the
Investors shall execute and deliver such documents, and take such other action, as shall be
reasonably requested by any other party hereto to carry out the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing the Company shall cause its Board of
Directors (or a committee thereof) to approve this Agreement and the transactions contemplated
hereby.

ARTICLE V

MISCELLANEOUS

5.01 Expenses. Each party hereto will pay its own expenses in connection with the
transactions contemplated hereby, whether or not such transactions are consummated.

5.02 Brokerage. Each party hereto will indemnify and hold harmless the others against
and in respect of any claim for brokerage or other commissions relative to this Agreement or to the
transactions contemplated hereby, based in any way on agreements, arrangements, or understandings
made or claimed to have been made by such party with any third party.

5.03 Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware for all purposes and in all respects, without regard to the
conflict of law provisions of such state.

 

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5.04 Entire Agreement. This Agreement and the Notes constitute the sole and entire
agreement of the parties with respect to the subject matter hereof. The Exhibits and Schedule
hereto are hereby incorporated herein by reference.

5.05 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute the same instrument.

5.06 Amendments and Waivers. This Agreement may be amended or modified, and
provisions hereof may be waived, with the written consent of the Company and the Investors.

5.07 Titles and Subtitles. The titles and subtitles used in this Agreement are for
convenience only and are not to be considered in construing or interpreting any term or provision
of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the Company and the Investors have executed this Note Purchase Agreement
as of the date first above written.

	 	 	 	 	 
	 	THE COMPANY:

KONA GRILL, INC.

 	 
	 	By:  	/s/ Mark S. Robinow
 	 
	 	 	Mark S. Robinow, Chief Financial Officer 	 
	 	 	 	 
	 	THE INVESTORS:

BBS Capital Fund, LP

 	 
	 	By:  	BBS Capital GP, LP, its general partner
 	 
	 	By: BBS Capital, LLC, its general partner 	 
	 	 	 	 
	 	By:  	             /s/ Berke Bakay
 	 
	 	 	Berke Bakay, Manager 	 
	 	 	 	 
	 	             /s/ Mary Jane Hauser
 	 
	 	Mary Jane Hauser 	 
	 	 	 
	 	James Richard Jundt Irrevocable Trust — Mary Joann Jundt Trustee
 	 
	 	 	 
	 	By:  	            /s/ Mary Joann Jundt
 	 
	 	 	Mary Joann Jundt, Trustee 	 
	 	 	 	 
	 	            /s/ James Richard Jundt
 	 
	 	James Richard Jundt 	 

 

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Schedule I

Note Schedule

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Aggregate	 
	 	 	Principal Amount	 	 	 	 	 	 	Subscription	 
	Name of Investor	 	of Notes	 	 	Warrant Shares	 	 	Price	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	BBS Capital Fund, LP
	 	$	100,000.00	 	 	 	10,000	 	 	$	100,000.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Mary Jane Hauser
	 	$	100,000.00	 	 	 	10,000	 	 	$	100,000.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	James Richard Jundt
	 	 	 	 	 	 	 	 	 	 	 	 
	Irrevocable Trust —
Mary Joann Jundt
Trustee
	 	$	380,000.00	 	 	 	38,000	 	 	$	380,000.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	James Richard Jundt
	 	$	620,000.00	 	 	 	62,000	 	 	$	620,000.00	 
	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	1,200,000.00	 	 	 	120,000	 	 	$	1,200,000.00	 
	 
	 	 	 	 	 	 	 	 	 

 

 

 

EXHIBIT A

Summary of Terms

	 	 	 
	Issuer:
	 	Kona Grill, Inc. (or the “Company”).

	 	 	 

	Securities:
	 	$1.5 million principal amount of unsecured subordinated notes (the “Notes”).

	 	 	 

	Minimum investment:
	 	$ 100,000

	 	 	 

	Gross Proceeds:
	 	$1,500,000

	 	 	 

	Interest Rate:
	 	10.00% cash interest, payable on the last day of each month, in arrears.
Interest rate will increase to 16.0% after the Notes are outstanding 180
days and until the Notes are repaid.

	 	 	 

	Warrant Coverage:
	 	For each $100,000 invested in Notes, the Company will issue to the
noteholder three-year warrants to purchase 10,000 shares of the Company’s
common stock (the “Warrants”) at an exercise price per share equal to 120%
of the five-day average of the closing price of the Company’s common stock
as quoted on the Nasdaq OMX Market during the five trading days prior to
the date of issuance.

	 	 	 

	Priority:
	 	The Notes shall be unsecured general obligations of the Company,
subordinate in right and payment to any senior indebtedness of the Company
and senior to holders of the Company’s common stock.

	 	 	 

	Prepayment:
	 	The principal and accrued interest outstanding under the Notes may be
prepaid by the Company at any time without penalty.

	 	 	 

	Mandatory Redemption:
	 	The principal and accrued interest outstanding under the Notes shall be due
and payable immediately upon the closing of any offering of equity
securities by the Company generating gross proceeds to the Company of at
least $2,500,000 (the “Mandatory Redemption Amount”).

	 	 	 

	Stockholder Rights Offering:
	 	As soon as practicable following the issuance of the Notes, the Company
shall file with the SEC a registration statement covering a rights offering
to the Company’s stockholders for the purchase of the Company’s common
stock (the “Rights Offering”) with targeted gross proceeds to the Company
of at least $2,500,000. The Company shall use commercially reasonable
efforts to have the registration statement declared effective as soon as
practicable following the filing with the SEC.

	 	 	 

	Subscription Rights:
	 	Any shares of the Company’s common stock that are not subscribed for in the
rights offering shall be offered to the Noteholders on a pro rata basis
based on the aggregate principal amount of Notes outstanding. These shares
will be offered to the Noteholders at the same price per share offered to
existing stockholders in the rights offering. The shares of common stock
issued in the rights offering and issued to Noteholders participating in
the oversubscription amount shall apply towards the Mandatory Redemption
Amount.

	 	 	 

	Transferability:
	 	The Notes and Warrants shall not be assignable or transferable.

	 	 	 

	Default Provisions:
	 	If interest payments due to the Noteholders are more than 30 days past due,
the Notes will be in default and become due and payable to the Noteholders.

 

A-1

 

EXHIBIT B

Form of Note

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND ANY APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR (II)
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT AND THE REGISTRATION OR
QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS ARE AVAILABLE.

$                    .00

KONA GRILL, INC.

PROMISSORY NOTE

March 6, 2009

Kona Grill, Inc., a Delaware corporation (the “Company”), the principal office of
which is located at 7150 East Camelback Road, Suite 220, Scottsdale, Arizona 85251, for value
received hereby promises to pay to                      (the “Holder”), the principal sum of
                     Dollars ($                    ), or such lesser amount as shall then be outstanding hereunder.
The principal amount hereof and any unpaid accrued interest hereon, as set forth below, shall be
due and payable on the earlier to occur of (i) September 2, 2009 (ii) an Equity Funding Event
(collectively, the “Maturity Date”), or (ii) when declared due and payable by the Holder
upon the occurrence of an Event of Default (as defined below). Payment for all amounts due
hereunder shall be made by mail to the registered address of the Holder.

This Note is being issued pursuant to a private offering of up to $1.5 million principal
amount of notes issued by the Company during March 2009 (the “Note Offering”).

The following is a statement of the rights of the Holder of this Note and the conditions to
which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

1. Definitions. As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:

(i) “Company” includes any corporation which shall succeed to or assume the
obligations of the Company under this Note.

(ii) “Equity Funding Event” shall mean the closing of an offering of equity
securities by the Company generating gross proceeds to the Company of at least $2.5 million.

(iii) “Holder,” when the context refers to a holder of this Note, shall mean
any person who shall at the time be the registered holder of this Note.

 

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2. Stated Interest Rate. Except as provided in Section 3 below, the
principal balance outstanding hereunder from time to time shall bear interest at rate of ten
percent (10.0%) per annum (the “Stated Rate”).

3. Additional Interest Rate. The “Additional Interest Rate” shall be an
aggregate of sixteen percent (16%) per annum. The principal balance outstanding hereunder from
time to time shall bear interest at the Additional Interest Rate from the date of the occurrence of
an Event of Default (as hereinafter defined) hereunder until the earlier of: (a) the date on which
the principal balance outstanding hereunder, together with all accrued interest and other amounts
payable hereunder, are paid in full; (b) the date on which such Event of Default is timely cured;
or (c) September 2, 2009.

4. Payments. This Note shall be payable as follows:

(a) Interest Payments. Monthly installments consisting of accrued interest on the
outstanding principal hereunder, commencing on April 30, 2009, and on the last day of each month
thereafter until the principal balance outstanding hereunder, together with all accrued interest
and other amounts payable hereunder, are paid in full.

(b) Final Payment. The principal balance outstanding hereunder, together with all
accrued interest and other amounts payable hereunder, if not sooner paid as provided herein shall
be due and payable on the Maturity Date.

5. Events of Default. If any of the events specified in this Section 5 shall
occur (each, an “Event of Default”), the Holder of this Note may, so long as such condition
exists, declare the entire principal and unpaid accrued interest hereon immediately due and
payable, by notice in writing to the Company:

(i) The Company has failed to pay interest under this Note when due and payable and
such default is not cured by the Company within thirty (30) days after the Holder has given
the Company written notice of such default; or

(ii) The Company has failed to pay the principal and all accrued, unpaid interest on
the Maturity Date; or

(iii) The institution by the Company of proceedings to be adjudicated as bankrupt or
insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings
against it or the filing by it of a petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee, or other similar official of the
Company, or of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the taking of corporate action by the Company in
furtherance of any such action; or

 

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(iv) If, within sixty (60) days after the commencement of an action against the Company
(and service of process in connection therewith on the Company) seeking any bankruptcy,
insolvency, reorganization, liquidation, dissolution, or similar relief under any present or
future statute, law, or regulation, such action shall not have been dismissed or all orders
or proceedings thereunder affecting the operations or the business of the Company stayed, or
if the stay of any such order or proceeding shall thereafter be set aside, or if, within
sixty (60) days after the appointment without the consent or acquiescence of the Company of
any trustee, receiver, or liquidator of the Company or of all or any substantial part of the
properties of the Company, such appointment shall not have been vacated; or

(v) Any declared default of the Company under any Senior Indebtedness (as defined
below) that gives the holder thereof the right to accelerate such Senior Indebtedness, and
such Senior Indebtedness is in fact accelerated by the holder.

6. Subordination. The indebtedness evidenced by this Note is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the
prior payment in full of all the Company’s Senior Indebtedness, as hereinafter defined.

6.1 Senior Indebtedness. As used in this Note, the term “Senior Indebtedness”
shall mean the principal of and unpaid accrued interest on: (i) all secured indebtedness of the
Company to banks, commercial finance lenders, insurance companies, or other financial institutions
regularly engaged in the business of lending money, which is for money borrowed by the Company, and
(ii) any such indebtedness or any debentures, notes, or other evidence of indebtedness issued in
exchange for or to refinance such Senior Indebtedness, or any indebtedness arising from the
satisfaction of such Senior Indebtedness by a guarantor; provided, however, that
the aggregate balance of all Senior Indebtedness outstanding at any given time shall not exceed
$25,000,000 in principal amount unless the Holder consents in writing to an amount of Senior
Indebtedness in excess of this amount.

6.2 Default on Senior Indebtedness. If there should occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements
with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation, or any other marshalling of the assets
and liabilities of the Company, or if this Note shall be declared due and payable upon the
occurrence of an event of default with respect to any Senior Indebtedness, then (i) no amount shall
be paid by the Company in respect of the principal of or interest on this Note at the time
outstanding, unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the Holder of this Note that shall assert any right to receive any
payments in respect of the
principal of and interest on this Note, except subject to the payment in full of the principal
of and interest on all of the Senior Indebtedness then outstanding.

 

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6.3 Effect of Subordination. Subject to the rights, if any, of the holders of Senior
Indebtedness under this Section 6 to receive cash, securities, or other properties
otherwise payable or deliverable to the Holder of this Note, nothing contained in this Section
6 shall impair, as between the Company and the Holder, the obligation of the Company, subject
to the terms and conditions hereof, to pay to the Holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent the Holder of this Note, upon default
hereunder, from exercising all rights, powers, and remedies otherwise provided herein or by
applicable law.

6.4 Subrogation. Subject to the payment in full of all Senior Indebtedness and until
this Note shall be paid in full, the Holder shall be subrogated to the rights of the holders of
Senior Indebtedness (to the extent of payments or distributions previously made to such holders of
Senior Indebtedness pursuant to the provisions of Section 6.2 above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the Company and its
creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment
by the Company to or on account of this Note; and for the purpose of such subrogation, no payments
or distributions to the holders of Senior Indebtedness to which the Holder would be entitled except
for the provisions of this Section 6 shall, as between the Company and its creditors, other
than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to
or on account of the Senior Indebtedness.

6.5 Undertaking. By its acceptance of this Note, the Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time by the Company or the
lender of any Senior Indebtedness in order to implement the foregoing provisions of this
Section 6.

7. Prepayment. Upon prior written notice to the Holder, the Company may at any time
prepay in whole or in part, without penalty, the principal sum, plus accrued interest to date of
payment, of this Note.

8. Assignment. Neither the Company nor Holder may assign or transfer this Note
without the consent of the other party. Subject to the receipt of such consent (which shall not be
unreasonably withheld), and subject to the restrictions on transfer described in Section 10
below, the rights and obligations of the Company and the Holder of this Note shall be binding upon
and benefit the successors, assigns, heirs, administrators, and transferees of the parties.

9. Waiver and Amendment. Any provision of this Note may be amended, waived, or
modified upon the written consent of (a) the Company and Holder, and (b) Holders of at least a
majority of the aggregate principal amount of Notes issued in the Note Offering.

 

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10. Transfer of This Note. In the event the Company and Holder consent to the
transfer of this Note as provided in Section 8, with respect to any offer, sale, or other
disposition
of this Note, the Holder will give written notice to the Company prior thereto, describing
briefly the manner thereof, together with a written opinion of such Holder’s counsel, to the effect
that such offer, sale, or other distribution may be effected without registration or qualification
(under any federal or state law then in effect). Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company shall notify such Holder that such
Holder may sell or otherwise dispose of this Note or such securities, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made pursuant to this
Section 10 that the opinion of counsel for the Holder is not reasonably satisfactory to the
Company, the Company shall so notify the Holder promptly after such determination has been made.
Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability
in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required.

11. Notices. Any notice, request, or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the date of service if
personally served on the party to whom such notice is to be given, on the date of transmittal of
service via telecopy to the party to whom notice is to be given (with a confirming copy delivered
within 24 hours thereafter), or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified mail, postage prepaid, or via a
recognized overnight courier providing a receipt for delivery and properly addressed at the
respective addresses of the parties as set forth herein. Any party hereto may by notice so given
change its address for future notice hereunder.

12. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of Delaware, excluding that body of law relating to conflict of laws.

13. Heading; References. All headings used herein are used for convenience only and
shall not be used to construe or interpret this Note. Except where otherwise indicated, all
references herein to Sections refer to Sections hereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

5

 

IN WITNESS WHEREOF, the Company has caused this Note to be issued this 6th day of March, 2009.

	 	 	 	 	 
	 	KONA GRILL, INC.

 	 
	 	By:  	 	 
	 	 	Mark S. Robinow, Chief Financial Officer 	 

	 	 	 	 	 
	Name of Holder:
	 	 	 	 
	 

	 	 	 	 
	Address:
	 	 	 	 
	 

	 	 

	 	 
	 

	 	 

	 	 

 

6

 

EXHIBIT C

Form of Warrant

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE
PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION
IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.

March 6, 2009

KONA GRILL, INC.

Warrant for the Purchase of Shares of Common Stock

No. CW-___

For value received, this Warrant is hereby issued by Kona Grill, Inc., a Delaware corporation
(the “Company”), to                                          (the “Holder”). Subject to the provisions of
this Warrant, the Company hereby grants to Holder the right to purchase from the Company
                                                             (                    )
fully paid and non-assessable shares of Common Stock, at
a price per share equal to the Exercise Price. The “Exercise Price” shall be equal to
$                    .                     per share.

The term “Common Stock” means the Common Stock, par value $.01 per share, of the
Company as set forth in the Company’s Amended and Restated Certificate of Incorporation, as
amended. The number of shares of Common Stock to be received upon the exercise of this Warrant may
be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter referred to as “Warrant
Stock.” The term “Other Securities” means any other equity or debt securities that may
be issued by the Company in addition thereto or in substitution for the Warrant Stock.

 

C-1

 

The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder
shall be held, subject to all of the conditions, limitations, and provisions set forth herein. The
date of this Warrant shall be referred to as the “Base Date”.

1. Exercise of Warrant. Subject to the terms and conditions set forth herein, this
Warrant may be exercised in whole or in part, pursuant to the procedures provided below, at any
time on or before March 6, 2012 (the “Expiration Date”) or, if such day is a day on which
banking institutions in Arizona are authorized by law to close, then on the next succeeding day
that shall not be such a day. To exercise this Warrant the Holder shall present and surrender this
Warrant to the Company at its principal office, with the Warrant Exercise Form attached hereto
duly executed by the Holder and accompanied by payment (either (a) in cash or by check,
payable to the order of the Company, (b) by cancellation by the Holder of indebtedness or other
obligations of the Company to the Holder, or (c) by a combination of (a) or (b)), of the aggregate
Exercise Price for the total aggregate number of shares for which this Warrant is exercised. Upon
receipt by the Company of this Warrant, together with the executed Warrant Exercise Form and
payment of the Exercise Price for the Warrant Stock to be acquired, in proper form for exercise,
and subject to the Holder’s compliance with all requirements of this Warrant for the exercise
hereof, the Holder shall be deemed to be the holder of record of the shares of Common Stock (or
Other Securities) issuable upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such shares of Common Stock shall
not then be actually delivered to the Holder; provided, however, that no exercise
of this Warrant shall be effective, and the Company shall have no obligation to issue any Common
Stock or Other Securities to the Holder upon any attempted exercise of this Warrant, unless the
Holder shall have first delivered to the Company, in form and substance reasonably satisfactory to
the Company, appropriate representations so as to provide the Company reasonable assurances that
the securities issuable upon exercise may be issued without violation of the registration
requirements of the Securities Act and applicable state securities laws, including without
limitation representations that the exercising Holder is an “accredited investor” as defined in
Regulation D under the Securities Act and that the Holder is familiar with the Company and its
business and financial condition and has had an opportunity to ask questions and receive documents
relating thereto to his reasonable satisfaction.

2. Net Issue Exercise. Notwithstanding any provisions herein to the contrary, if the
fair market value of one share of Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of the Company together with
the properly endorsed Notice of Exercise and notice of such election in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using the following formula:

	 	 	 	 	 	 	 
	 
	 	
X
	 	
=	 	Y
(A-B)

	 
	 	 	 	 
	 
	 	 	 	    A

	 	 	 	 	 	 	 
	 

	 	Where
	 	X =
	 	the number of shares of Common Stock to be issued to the Holder
	 
	 	 	 	 	 	 
	 

	 	 	 	Y =
	 	the number of shares of Common Stock
purchasable under the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being canceled (at the date
of such exercise)
	 
	 	 	 	 	 	 
	 

	 	 	 	A =
	 	the fair market value of one share of the
Company’s Common Stock (at the date of such exercise)
	 
	 	 	 	 	 	 
	 

	 	 	 	B =
	 	Exercise Price (as adjusted to the date of such exercise)

 

2

 

3. Reservation of Shares. The Company will at all times reserve for issuance and
delivery upon exercise of this Warrant all shares of Common Stock or other shares of capital stock
of the Company (and Other Securities) from time to time receivable upon exercise of this Warrant.
All such shares (and Other Securities) shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid, and non-assessable and free of all preemptive
rights.

4. Fractional Shares. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant, but the Company shall pay the Holder an amount
equal to the Fair Market Value (as defined below) of such fractional share of Common Stock in lieu
of each fraction of a share otherwise called for upon any exercise of this Warrant.

5. Fair Market Value. For purposes of this Warrant, the Fair Market Value of a share
of Common Stock (or Other Security) shall be determined as of any date (the “Value Date”)
by the Company’s Board of Directors in good faith; provided, however, that where
there exists a public market for the Company’s Common Stock on the Value Date, the fair market
value per share shall be either:

(a) If the Common Stock is listed on a national securities exchange or admitted to unlisted
trading privileges on such exchange, the Fair Market Value shall be the last reported sale price of
the security on such exchange or system on the last business day prior to the Value Date or if no
such sale is made on such day, the average of the closing bid and asked prices for such day on such
exchange or system; or

(b) If the Common Stock is not so listed or so admitted to unlisted trading privileges, the
Fair Market Value shall be the mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the Value Date.

6. Assignment or Loss of Warrant. The Holder may not assign or transfer this Warrant
without the consent of the Company. Subject to receipt of such written consent by the Company and
subject to the transfer restrictions herein (including Section 9), upon surrender of this
Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment
Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be canceled. Upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant, and of reasonably satisfactory indemnification by the Holder, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and deliver a replacement
Warrant of like tenor and date.

7. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder
are limited to those expressed in this Warrant.

 

3

 

8. Adjustments.

8.1 Adjustment for Recapitalization. If the Company shall at any time after the Base
Date subdivide its outstanding shares of Common Stock (or Other Securities at the time receivable
upon the exercise of the Warrant) by recapitalization, reclassification, or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock to its
stockholders, the number of shares of Common Stock (or Other Securities) subject to this Warrant
immediately prior to such subdivision shall be proportionately increased, and if the Company shall
at any time after the Base Date combine the outstanding shares of Common Stock by recapitalization,
reclassification, or combination thereof, the number of shares of Common Stock subject to this
Warrant immediately prior to such combination shall be proportionately decreased. Any such
adjustment and adjustment to the Exercise Price pursuant to this Section 8.1 shall be
effective at the close of business on the effective date of such subdivision or combination or if
any adjustment is the result of a stock dividend or distribution then the effective date for such
adjustment based thereon shall be the record date therefor.

Whenever the number of shares of Common Stock purchasable upon the exercise of this Warrant is
adjusted, as provided in this Section 8.1, the Exercise Price shall be adjusted to the
nearest cent by multiplying such Exercise Price immediately prior to such adjustment by a fraction
(x) the numerator of which shall be the number of shares of Common Stock purchasable upon the
exercise immediately prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Common Stock so purchasable immediately thereafter.

8.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of any
reorganization of the Company (or any other corporation, the securities of which are at the time
receivable on the exercise of this Warrant) after the Base Date or in case after such date the
Company (or any such other corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation, then, and in each such case,
the Holder of this Warrant upon the exercise thereof as provided in Section 1 at any time
after the consummation of such reorganization, consolidation, merger, or conveyance, shall be
entitled to receive, in lieu of the securities and property receivable upon the exercise of this
Warrant prior to such consummation, the securities or property to which such Holder would have been
entitled upon such consummation if such Holder had exercised this Warrant immediately prior
thereto; in each such case, the terms of this Warrant shall be applicable to the securities or
property receivable upon the exercise of this Warrant after such consummation.

8.3 Certificate as to Adjustments. The adjustments provided in this Section 8
shall be interpreted and applied by the Company in such a fashion so as to reasonably preserve the
applicability and benefits of this Warrant (but not to increase or diminish the benefits
hereunder). In each case of an adjustment in the number of shares of Common Stock receivable on
the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in
accordance with the terms of the Warrant and prepare a certificate executed by two executive
officers of the Company setting forth such adjustment and showing in detail the facts upon which
such adjustment is based. The Company will forthwith mail a copy of each such certificate to each
Holder.

 

4

 

8.4 Notices of Record Date, Etc. In the event that:

(a) the Company shall declare any dividend or other distribution to the holders of Common
Stock, or authorizes the granting to Common Stock holders of any right to subscribe for, purchase,
or otherwise acquire any shares of stock of any class or any other securities; or

(b) the Company authorizes any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the assets of the Company to another
corporation or entity; or

(c) the Company authorizes any voluntary or involuntary dissolution, liquidation, or winding
up of the Company, then, and in each such case, the Company shall mail or cause to be mailed to the
holder of this Warrant at the time outstanding a notice specifying, as the case may be, (i) the
date on which a record is to be taken for the purpose of such dividend, distribution, or right, and
stating the amount and character of such dividend, distribution, or right, or (ii) the date on
which such reorganization, reclassification, consolidation, merger, conveyance, dissolution,
liquidation, or winding up is to take place, and the time, if any is to be fixed, as to which the
holders of record of Common Stock (or such other securities at the time receivable upon the
exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such Other
Securities) for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation, or winding up. Such
notice shall be mailed at least 20 days prior to the date therein specified.

8.5 No Impairment. The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying out of all the provisions
of this Section 8 and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder of this Warrant against impairment.

9. Transfer to Comply with the Securities Act. Subject to obtaining the written
consent of the Company as provided in Section 6, this Warrant and any Warrant Stock or
Other Securities may not be sold, transferred, pledged, hypothecated, or otherwise disposed of
except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to
whom this Warrant or the Warrant Stock or Other Securities may legally be transferred without
registration and without the delivery of a current prospectus under the Securities Act with respect
thereto and then only against receipt of an agreement of such person to comply with the provisions
of this Section 9 with respect to any resale or other disposition of such securities; or
(b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act
relating to such securities and the offering thereof for such sale or disposition, and thereafter
to all successive assignees.

 

5

 

10. Legend. Unless the shares of Warrant Stock or Other Securities have been
registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any
of the shares of Warrant Stock, all certificates representing shares shall bear on the face thereof
substantially the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT
ACT OR UNLESS AN OPINION OF COUNSEL TO THE CORPORATION IS OBTAINED
STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE
EXEMPTION FROM SUCH REGISTRATION.

11. Notices . All notices required hereunder shall be in writing and shall be deemed
given when telegraphed, delivered personally, or within two days after mailing when mailed by
certified or registered mail, return receipt requested, to the Company or the Holder, as the case
may be, for whom such notice is intended, if to the Holder, at the address of such party shown on
the books of the Company, or if to the Company, to 7150 East Camelback Road, Suite 220, Scottsdale,
AZ 85251, at the address set forth on the signature page hereof, Attn: President, or at such other
address of which the Company or the Holder has been advised by notice hereunder.

12. Applicable Law. The Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Delaware, without regard to
the conflict of laws provisions of such state.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

6

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its
corporate name, by its duly authorized officer, all as of the day and year first above written.

	 	 	 	 	 
	 	 	KONA GRILL, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Mark S. Robinow, Chief Financial Officer
	 
	 	 	 	 
	 	 	Address:
	 
	 	 	 	 
	 	 	7150 E. Camelback Road, Suite 220

Scottsdale, Arizona 85251

 

7

 

WARRANT EXERCISE FORM

The undersigned hereby irrevocably elects to (i) exercise the within Warrant to purchase
                     shares of the Common Stock of Kona Grill, Inc., a Delaware corporation, pursuant to the
provisions of Section 1 of the attached Warrant, and hereby makes payment of $                     in
payment therefor, or (ii) exercise this Warrant for the purchase of                      shares of Common Stock,
pursuant to the provisions of Section 2 of the attached Warrant. The undersigned’s
execution of this form constitutes the undersigned’s agreement to all the terms of the Warrant and
to comply therewith.

	 	 	 	 	 
	 	 	 
	 

	 	Signature	 	 
	 

	 	Print Name:	 	 
	 

	 	 	 	 
 
	 
	 	 	 	 
	 	 	 
	 	 	Signature, if jointly held
	 

	 	Print Name:	 	 
	 

	 	 	 	 
 
	 
	 	 	 	 
	 	 	 
	 

	 	Date	 	 

 

8

 

ASSIGNMENT FORM

FOR VALUE RECEIVED                                         (“Assignor”) hereby sells, assigns, and
transfers unto                                          (“Assignee”) all of Assignor’s right, title,
and interest in, to and under Warrant No. CW-                     issued by Kona Grill, Inc., dated March                     , 2009.

DATED:                                         

	 	 	 	 	 
	 	 	ASSIGNOR:
	 
	 	 	 	 
	 	 	 
	 

	 	Signature	 	 
	 

	 	Print Name:	 	 
	 

	 	 	 	 
 
	 
	 	 	 	 
	 	 	 
	 	 	Signature, if jointly held
	 	 	Print Name:
	 

	 	 	 	 
 
	 
	 	 	 	 
	 	 	ASSIGNEE:

The undersigned agrees to all of the terms of the Warrant and to comply therewith.

	 	 	 	 	 
	 	 	 
	 

	 	Signature	 	 
	 

	 	Print Name:	 	 
	 

	 	 	 	 
 
	 
	 	 	 	 
	 	 	 
	 	 	Signature, if jointly held
	 	 	Print Name:
	 

	 	 	 	 
 

Accepted and agreed (pursuant to Sections 6 and 9 of the Warrant):

	 	 	 	 	 	 	 
	KONA GRILL, INC.	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

 

9Exhibit 10.5

Exhibit 10.5

CHESAPEAKE UTILITIES CORPORATION

DEFERRED COMPENSATION PLAN

Amended and Restated as of January 1, 2009

 

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page No.	 
	Section 1. Establishment and Purpose
	 	 	1	 
	 
	 	 	 	 
	1.01. Establishment
	 	 	1	 
	1.02. Purpose
	 	 	1	 
	1.03. Effective Date
	 	 	1	 
	Section 2. Definitions and Construction
	 	 	2	 
	 
	 	 	 	 
	2.01. Definitions
	 	 	2	 
	2.02. Construction
	 	 	8	 
	Section 3. Participation
	 	 	9	 
	 
	 	 	 	 
	3.01. Election of Benefits
	 	 	9	 
	3.02. Election Requirements
	 	 	9	 
	3.03. Form and Time of Payment
	 	 	10	 
	3.04. Termination of Participation
	 	 	11	 
	Section 4. Accounts
	 	 	12	 
	 
	 	 	 	 
	4.01. Accounts
	 	 	12	 
	4.02. Deferred Cash Subaccount
	 	 	12	 
	4.03. DSU Subaccount
	 	 	12	 
	4.04. Investment Return for Deferred Cash Subaccount
	 	 	12	 
	4.05. Treatment of DSUs
	 	 	14	 
	4.06. Vesting of Accounts
	 	 	15	 
	Section 5. Distributions
	 	 	16	 
	 
	 	 	 	 
	5.01. Exclusive Entitlement to Payment
	 	 	16	 
	5.02. Payment
	 	 	16	 
	5.03. Death Benefits
	 	 	17	 
	5.04. Distributions Due to Unforeseeable Emergency
	 	 	17	 
	5.05. Disability
	 	 	18	 
	5.06. Change in Control
	 	 	18	 
	5.07. Acceleration of Payment
	 	 	18	 
	5.08. Delay of Payment
	 	 	19	 
	5.09. Assignment and Assumption of Liabilities
	 	 	20	 

 

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page No.	 
	Section 6. Nature of Participant’s Interest in Plan
	 	 	21	 
	 
	 	 	 	 
	6.01. No Right to Assets
	 	 	21	 
	6.02. No Right to Transfer Interest
	 	 	21	 
	6.03. No Right to Employment or Service
	 	 	21	 
	6.04. Withholding and Tax Liabilities
	 	 	22	 
	Section 7. Administration
	 	 	23	 
	 
	 	 	 	 
	7.01. Committee
	 	 	23	 
	7.02. Meetings
	 	 	23	 
	7.03. Quorum
	 	 	23	 
	7.04. Expenses
	 	 	23	 
	7.05. Responsibilities of the Committee
	 	 	23	 
	7.06. Finality of Committee Determinations
	 	 	24	 
	7.07. Benefit Claims Procedure
	 	 	25	 
	7.08. Arbitration of Denied Claims
	 	 	25	 
	Section 8. Amendment, Suspension, and Termination
	 	 	26	 
	 
	 	 	 	 
	8.01. By the Compensation Committee
	 	 	26	 
	8.02. By the Committee
	 	 	27	 
	Section 9. Miscellaneous
	 	 	28	 
	 
	 	 	 	 
	9.01. Participation by Affiliate
	 	 	28	 
	9.02. Designation of Beneficiary
	 	 	28	 
	9.03. Incapacity
	 	 	29	 
	9.04. Required Information
	 	 	29	 
	9.05. Inability to Locate Participants and Beneficiaries
	 	 	29	 
	9.06. Headings
	 	 	29	 
	9.07. Severability
	 	 	29	 
	9.08. Governing Law
	 	 	30	 
	9.09. Complete Statement of Plan
	 	 	30	 
	EXHIBIT A
	 	 	31	 

 

 

 

			
	Chesapeake
Utilities Corporation 

Deferred Compensation Plan
	 	Page 1

SECTION 1. ESTABLISHMENT AND PURPOSE

1.01. Establishment.

Effective September 1, 1998, the Company established for the benefit of certain Eligible
Employees an unfunded plan of deferred compensation known as the “Chesapeake Utilities
Corporation Executive Deferral Program,” as the same has been amended from time to time.
Effective January 1, 2007, the Company amended and restated the Plan to provide members of
the Company’s Board of Directors deferral opportunities and renamed the Plan the “Chesapeake
Utilities Corporation Deferred Compensation Program”. Effective January 1, 2009, the
Company hereby amends and restates the Plan to comply with the requirements of Section 409A
of the Internal Revenue Code of 1986, as amended, (the “Code”) and renames the Plan the
“Chesapeake Utilities Corporation Deferred Compensation Plan”.

1.02. Purpose.

The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management and highly compensated employees, as well as
members of the Company’s Board of Directors. The Plan permits Eligible Employees and
Directors to defer payment of part or all of certain specified types of compensation until
their Separation from Service with the Company and its Affiliates or until such other date
specified in accordance with the terms of the Plan.

1.03. Effective Date.

The Plan, as hereby amended and restated, is intended to meet the requirements of Code
Section 409A, and is effective with respect to amounts that were not deferred and vested
(within the meaning of Code Section 409A) before January 1, 2005, and any earnings on such
amounts. Except as otherwise specifically provided herein, amounts deferred and vested
(within the meaning of Code Section 409A) before January 1, 2005 (and earnings on such
amounts) remain subject to the terms of the September 1, 1998 Plan restatement, which are
set forth in Appendix A. For recordkeeping purposes, the Company established separate
accounts for each Participant for amounts deferred and vested before January 1, 2005, and
amounts deferred and vested on or after that date.

To the extent inconsistent with Code Section 409A or regulations issued thereunder, this
Plan shall be amended to conform to such requirements within applicable time limitations
established by the Internal Revenue Service.

 

 

 

			
	Chesapeake
Utilities Corporation 

Deferred Compensation Plan
	 	Page 2

SECTION 2. DEFINITIONS AND CONSTRUCTION

2.01. Definitions.

The following words and phrases as used in the Plan have the following meanings:

	 	(a)	 	“Account” means the bookkeeping account established for each Participant under
Section 4. Each Account shall include a Deferred Cash Subaccount and a Deferred Stock
Unit Subaccount. Additional subaccounts shall be maintained as necessary for the
administration of the Plan.

	 	(b)	 	“Affiliate” means any corporation included with Chesapeake Utilities
Corporation in a “controlled group of corporations,” as defined in Code Section 414(b),
or an unincorporated business included with Chesapeake Utilities Corporation in a group
of trades or business under “common control,” as defined by regulations prescribed by
the Secretary of the Treasury under Code Section 414(c).

	 	(c)	 	“Beneficiary” means the person or persons (including a contingent beneficiary
except where the context indicates otherwise) designated by a Participant pursuant to
Section 9.02 to receive death benefits under the Plan.

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

	 	(e)	 	“Bonus Compensation” means compensation received under the Bonus Plan or other
compensation designated by the Committee as Bonus Compensation eligible for deferral
under the Plan as Performance Based Compensation.

	 	(f)	 	“Bonus Plan” means the “Chesapeake Utilities Corporation Cash Bonus Incentive
Plan,” as in effect and amended from time to time.

	 	(g)	 	“Change in Control” means the first of the following events to occur:

	 	(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 persons shall not be
considered to cause a Change in Control of the Company; or

 

 

 

			
	Chesapeake
Utilities Corporation 

Deferred Compensation Plan
	 	Page 3

	 	(2)	 	Any one person or group (as described in Section 2.01(g)(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 2.01(g)(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 gross 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 under this Section
2.01(g)(4), 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 2.01(g)(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 Section 2.01(g)(4)(C), above.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 4

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.

The term “Change in Control” is intended to comply with Code Section 409A and shall
be interpreted such that a Change in Control (1) shall occur for purposes of the
Plan in any circumstance that would constitute a “Change in Control Event” (within
the meaning of Treasury Regulations under Code Section 409A) and (2) shall not occur
for purposes of the Plan in any circumstance that would not constitute such a Change
in Control Event.

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

	 	(i)	 	“Committee” means the Employee Benefits Committee of the Company or such other
committee as may be appointed by the Board to administer the Plan.

	 	(j)	 	“Common Stock” means the common stock, $.4867 par value, of the Company,
including both treasury shares and authorized but unissued shares, or any security of
the Company issued in substitution, exchange, or in lieu thereof.

	 	(k)	 	“Company” means Chesapeake Utilities Corporation, a Delaware corporation, and
any Affiliate that may be authorized by the Compensation Committee and by its own board
of directors to participate in the Plan with respect to its employees.

	 	(l)	 	“Compensation Committee” means the Compensation Committee of the Board.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 5

	 	(m)	 	“Deferred Cash Subaccount” means the bookkeeping account to which Deferred Cash
Payments of a Participant and interest are credited pursuant to Section 4.

	 	(n)	 	“Deferred Cash Payment” means any Director Compensation, otherwise payable in
cash, or Bonus Compensation that a Participant elects to defer under the Plan.

	 	(o)	 	“Deferred Stock Units” or “DSUs” means hypothetical shares of Common Stock
(including hypothetical fractional shares).

	 	(p)	 	“Director” means a member of the Board of Directors of the Company.

	 	(q)	 	“Director Compensation” means amounts paid or payable by the Company to a
Director for a Plan Year which are includable in income for federal tax purposes,
including Director’s fees of all types, whether paid in cash or Common Stock.
Notwithstanding the foregoing, non-cash compensation and expense reimbursements are
excluded from Director Compensation.

	 	(r)	 	“Disabled” 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. The Company shall
determine whether a Participant is Disabled in its sole discretion (but in compliance
with Code Section 409A) and may require the Participant to submit to periodic medical
examinations at the Participant’s expense to confirm the existence and continuation of
the Participant’s disability.

	 	(s)	 	“DSU Subaccount” means the bookkeeping account to which DSUs of a Participant
and dividend equivalents are credited pursuant to Section 4.

	 	(t)	 	“Eligible Employee” means an employee of the Company who is designated by the
Compensation Committee, in its sole discretion, to be eligible to participate in the
Plan.

	 	(u)	 	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

	 	(v)	 	“Excessive Benefits” means an amount credited to a Participant’s Account or
paid on a Participant’s behalf in excess of the amount that properly should have been
credited to the Participant’s Account or paid on the Participant’s behalf.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 6

	 	(w)	 	“Fair Market Value” means the average of the high and low sales price of the
Common Stock, as reported on the New York Stock Exchange (or any other reporting system
as shall be selected by the Committee) on the relevant date, or if no sale of Common
Stock is reported for a date, on the date or dates that the Committee determines, in
its sole discretion, to be appropriate for purposes of valuation.

	 	(x)	 	“Participant” means an Eligible Employee or Director who becomes a participant
in the Plan in accordance with Section 3.01 and whose Account has a positive balance.

	 	(y)	 	“Performance Based Compensation” means a bonus or other payment of compensation
for which the amount of the payment or the entitlement thereto is contingent on the
satisfaction of organizational or individual performance criteria relating to a
performance period of at least 12 consecutive months. The organizational or individual
performance criteria shall be established in writing no later than 90 days after the
beginning of the period of service to which the criteria relate, and the outcome must
be substantially uncertain at the time the criteria are established. Notwithstanding
the above, a performance-based bonus may be based on subjective performance criteria,
provided that:

	 	(1)	 	the subjective performance criteria are bona fide and relate to
the performance of the Participant, a group of service providers that includes
the Participant, or a business unit for which the Participant provides services
(which may include the entire organization); and

	 	(2)	 	the determination that any subjective performance criteria have
been met is not to be made by the Participant or a family member of the
Participant (as defined in Code Section 267(c)(4) applied as if the family of
an individual includes the spouse of any member of the family), or a person
under the effective control of the Participant or such a family member, and no
amount of the compensation of the person making such determination is
effectively controlled in whole or in part by the Participant or such a family
member.

	 	(z)	 	“Performance Share Award” means a performance share award granted under the PIP
which qualifies as Performance Based Compensation.

	 	(aa)	 	“Performance Shares” means shares of Common Stock awardable under a Performance
Share Award in accordance with the terms of the PIP.

	 	(bb)	 	“PIP” means the “Chesapeake Utilities Corporation Performance Incentive Plan,”
as in effect and as amended from time to time.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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	 	(cc)	 	“Plan” means the “Chesapeake Utilities Corporation Deferred Compensation
Program,” as set forth herein and as amended from time to time.

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

	 	(ee)	 	“Separation from Service” occurs when an Eligible Employee separates from
service with the Company if the Eligible Employee dies, retires or otherwise has a
termination of employment with the Company. Whether a termination of employment has
occurred is determined based on whether the facts and circumstances indicate that the
Company and the Eligible Employee reasonably anticipated that no further services would
be performed after a certain date or that the level of bona fide services the Eligible
Employee would perform after such date (as an employee or independent contractor) would
permanently decrease to no more than 20 percent of the average level of bona fide
services performed over the immediately preceding 36-month period (or the full period
in which the Eligible Employee provided services to the Company if the Eligible
Employee has been providing services for less than 36 months). An Eligible Employee
will not be deemed to have experienced a Separation from Service if such Eligible
Employee is on military leave, sick leave, or other bona fide leave of absence, to the
extent such leave does not exceed a period of six months or, if longer, such longer
period of time during which a right to re-employment is protected by either statute or
contract. If the period of leave exceeds six months and the individual does not retain
a right to re-employment under an applicable statute or by contract, the employment
relationship is deemed to terminate on the first date immediately following such
six-month period. In the case of a Director, a separation from service occurs upon
the termination of the Director’s service on the Board, provided, however, that a
Director who is also providing services to the Company as an independent contractor,
does not have a Separation from Service until he has separated from service both as a
Director and as an independent contractor. If an Eligible Employee provides services
both as an employee and as a member of the Board, the services provided as a Director
are generally not taken into account in determining whether the Eligible Employee has a
Separation from Service as an employee for purposes of the Plan, in accordance with
final regulations under Code Section 409A.

	 	(ff)	 	“Valuation Date” means the last business day of each calendar month.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 8

2.02. Construction.

For purposes of the Plan, unless the contrary is clearly indicated by the context,

	 	(a)	 	the use of the masculine gender shall also include within its meaning the
feminine and vice versa,

	 	(b)	 	the use of the singular shall also include within its meaning the plural and
vice versa, and

	 	(c)	 	the word “include” shall mean to include without limitation.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 9

SECTION 3. PARTICIPATION

3.01. Election of Benefits.

An Eligible Employee or Director shall become a Participant in the Plan by electing to
participate in the Plan in accordance with Section 3.02 and procedures established by the
Committee.

3.02. Election Requirements.

	 	(a)	 	Election Filing Deadline. Except as provided in subsection (b), below,
an election to defer an amount equal to all or part of an Eligible Employee’s Bonus
Compensation earned with respect to, or Performance Shares awarded during, a Plan Year
shall be filed by the Eligible Employee with the Committee at least six months before
the Plan Year ends (i.e., by June 30th), unless the Bonus Compensation or Performance
Shares do not qualify as Performance-Based Compensation, in which case an election with
respect to such compensation shall be filed by the Eligible Employee with the Committee
before the beginning of the Plan Year for which the compensation will be earned, or at
such other time that complies with the deferral election requirements of Code Section
409A. Except as provided in subsection (b) below, a Director shall file an election
with the Committee to defer an amount equal to all or part of his Director Compensation
before the beginning of the Plan Year for which the Director Compensation will be
earned. In all cases, a Participant’s election to defer Bonus Compensation, Director
Compensation or Performance Shares, as applicable, shall be made in accordance with the
deferral election timing requirements of Code Section 409A and procedures established
by the Committee from time to time.

	 	(b)	 	Initial Election. A newly hired or otherwise newly Eligible Employee
may file the requisite election to defer Bonus Compensation or Performance Shares
earned thereafter before the expiration of 30 days either from, as applicable, (1) his
initial date of employment (if the Eligible Employee is a new hire) or (2) his initial
date of eligibility (if the Eligible Employee is newly eligible to participate in the
Plan). A newly eligible Director may file the requisite election to defer Director
Compensation earned thereafter before the expiration of 30 days from the Director’s
initial date of eligibility to participate in the Plan. Initial elections shall apply
only to compensation (of whatever kind) to be earned after the date of the timely
initial election.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 10

	 	(c)	 	Irrevocable Election. Except as provided in Sections 5.03, 5.04, 5.05
and 5.06, a deferral election described in this Section 3.02, once filed, shall be
irrevocable and shall remain in effect until the end of the Plan Year to which it
pertains. Six months before the end of each subsequent Plan Year (or prior to the
beginning of each subsequent Plan Year if the Bonus Compensation or Performance Shares do not
qualify as Performance-Based Compensation), the Participant shall file a new
election with the Committee in accordance with the preceding provisions of this
Section 3.02. The new election shall apply only to deferrals for that Plan Year.
An Eligible Employee or Director who does not make a deferral election in one Plan
Year may make a deferral election for any subsequent Plan Year, provided he remains
an Eligible Employee or Director, by making a deferral election in accordance with
this Section 3.02.

	 	(d)	 	Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election may designate any whole
percentage (from 1% to 100%) of the Bonus Compensation or Performance Shares awarded to
an Eligible Employee, or Director Compensation awarded to a Director, to be deferred
for a calendar year.

	 	(e)	 	Treatment of Performance Shares and Common Stock. A Participant who
elects to defer Performance Shares or other compensation payable in the form of Common
Stock shall be credited with DSUs rather than with shares of Common Stock. Such DSUs
shall equal the number of shares of Common Stock that the Participant otherwise would
be entitled to receive as compensation or under the Performance Share Award
(irrespective of any taxes that would have otherwise been withheld on such compensation
or Performance Share Award).

3.03. Form and Time of Payment.

	 	(a)	 	General. Except as provided in Sections 5.03, 5.04, 5.05, and 5.06, an
amount deferred under this Section 3 shall be paid in a lump sum as of the Valuation
Date coincident with or next following the date elected by the Participant. A
Participant may elect a different form or time of payment for his deferrals for each
Plan Year, but may not divide his deferrals for a single Plan Year among different
forms or times of payment. If, however, a Participant who is an Eligible Employee
elects to receive payment upon Separation from Service, no amount shall be distributed
earlier than six months after the Valuation Date coincident with or next following the
Participant’s Separation from Service. Such six month delay shall not apply to a
distribution made to a Participant who is a Director. A Participant may elect to
receive his distribution as of the earlier or later of two dates (including Separation
from Service), to the extent permitted by Code Section 409A.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 11

	 	(b)	 	Modification of Time and Form. After making his first election, a
Participant may file an election with the Committee, in a form satisfactory to the
Committee, to modify the payment date with respect to a deferral election or to irrevocably
specify that the amount credited to his Account is to be paid in the form of five or
ten annual installments; provided, however, that, to the extent required by Code
Section 409A, such election:

	 	(1)	 	is filed with the Committee at least twelve months prior to the
date of the first scheduled payment;

	 	(2)	 	is not effective until at least twelve months after the date on
which the election is made;

	 	(3)	 	defers the lump sum payment or the first installment payment
with respect to which such election is made for a period of not less than five
years from the date such payment would otherwise have been made;

	 	(4)	 	does not accelerate payment of the deferred amount; and
	 
	 	(5)	 	does not request other than five or ten annual installments.

For purposes of the Plan, an election to receive benefits as five or ten annual
installments shall be treated as the entitlement to a single payment as further
described in Treas. Reg. Section 1.409A-2(b)(iii).

3.04. Termination of Participation.

Once an Eligible Employee or Director becomes a Participant, such individual shall continue
to be a Participant until such individual (a) ceases to be described as an Eligible Employee
or Director, as applicable, and (b) ceases to have any vested interest in the Plan (as a
result of distributions made to such Participant or his Beneficiary, if applicable, or
otherwise).

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 12

SECTION 4. ACCOUNTS

4.01. Accounts.

The Company shall maintain for bookkeeping purposes an Account in the name of each
Participant. Each Account shall have a Deferred Cash Subaccount and a DSU Subaccount, as
applicable, to which shall be credited amounts deferred under Section 3.

4.02. Deferred Cash Subaccount.

The Company shall maintain a Deferred Cash Subaccount in the name of each Participant.
During each Plan Year, each Deferred Cash Subaccount shall be credited with the
Participant’s Bonus Compensation or Director Compensation, otherwise payable in cash, as
applicable, deferred under Section 3.

4.03. DSU Subaccount.

The Company shall maintain a DSU Subaccount in the name of each Participant. During each
Plan Year, each DSU Subaccount shall be credited with the Participant’s Performance Shares
or Common Stock, as applicable, deferred under Section 3.

4.04. Investment Return for Deferred Cash Subaccount.

	 	(a)	 	Rate of Return Indices. The Compensation Committee shall select and
maintain one or more rate of return indices as specified on Exhibit A attached hereto
as amended from time to time. A Deferred Cash Payment shall be allocated among one or
more of the rate of return indices and shall be credited with the applicable investment
return (or loss) that such Deferred Cash Payment would have achieved if it were
invested in the specified index or indices. Allocations to one or more of the rate of
return indices may be modified during the Plan Year to the extent permitted by the
Committee, in its sole discretion. Amounts in the Deferred Cash Subaccount that were
deferred and vested as of January 1, 2005, may be allocated among one or more of the
rate of return indices on Exhibit A attached hereto to the extent the Committee so
provides and to the extent such provision is not a material modification (within the
meaning of Code Section 409A and Treasury Regulations issued thereunder) to the terms
of the September 1, 1998 Plan restatement, which are set forth in Appendix A.

(b) Election of Rate of Return Indices.

	 	(1)	 	Each Participant shall specify in writing, at the time he
completes his election to participate under Section 3, and in a form acceptable
to the Committee, how any Deferred Cash Payment shall be allocated among the
indices specified on Exhibit A attached hereto.

	 	(2)	 	The Committee may, in its discretion and from time to time,
permit a Participant to change any election previously made with respect to the
allocation of any Deferred Cash Payment, subject to such conditions and such
limitations as the Committee may prescribe. Any such change in election shall
be in writing and in a form acceptable to the Committee.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 13

	 	(3)	 	The Committee may, in its discretion and from time to time,
permit a Participant to elect to reallocate the amounts in such Participant’s
Deferred Cash Subaccount from one rate of return index to another, subject to
such conditions and such limitations as the Committee may prescribe; provided
that a Participant shall be permitted, at least once per calendar month, to
reallocate amounts previously allocated. Any such reallocation election shall
be in writing and in a form acceptable to the Committee.

	 	(4)	 	The Committee may require that any election under this Section
4.04 apply to the entire amount to which it pertains (e.g., 100% of the
Participant’s future contributions) or to such percentage or percentages of
that amount as the Committee may specify (e.g., increments of 5%).

	 	(5)	 	If a Participant fails to specify a rate of return index with
respect to his Deferred Cash Payments, the Participant shall be presumed to
have specified that his entire Deferred Cash Subaccount be allocated to the
index determined by the Committee to represent the lowest risk of principal
loss.

	 	(c)	 	Crediting of Investment Return. The balance credited to the
Participant’s Deferred Cash Subaccount as of the last day of the prior month shall be
credited with the applicable investment return (or loss) as of the last day of the
month of crediting. All references herein to Deferred Cash Payments shall be deemed to
include such Deferred Cash Payments plus any investment return (or loss) credited
pursuant to this Section 4.04.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 14

4.05. Treatment of DSUs.

	 	(a)	 	Deemed Reinvestment of Dividends on DSUs. The DSUs credited to a
Participant’s DSU Subaccount pursuant to Section 3.02 shall be increased on each date
that a dividend is paid on Common Stock. The number of additional DSUs credited to a
Participant’s DSU Subaccount as a result of such increase shall be determined first by
multiplying the number of DSUs credited to the Participant’s DSU Subaccount on the
dividend record date by the amount of the dividend
declared per share of Common Stock on the dividend declaration date, and then by
dividing the product so determined by the Fair Market Value of the Common Stock on
the dividend payment date.

	 	(b)	 	Conversion Out of DSUs. Amounts credited to the DSU Subaccount
generally will be paid in the corresponding number of shares of Common Stock. In the
event, however, that it becomes necessary to determine the dollar value of DSUs
credited to a Participant’s DSU Subaccount as of any date, the dollar value shall be
determined by multiplying the number of DSUs on that date by the Fair Market Value of
the Common Stock on that date.

	 	(c)	 	Effect of Recapitalization. In the event of a transaction or event
described in this Section 4.05(c), the number of DSUs credited to a Participant’s DSU
Subaccount shall be adjusted in such manner as the Committee, in its sole discretion,
deems equitable. A transaction or event is described in this Section 4.05(c), if and
only if:

	 	(1)	 	it is a dividend or other distribution (whether in the form of
cash, shares, other securities, or other property), extraordinary cash
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other securities, the issuance of warrants
or other rights to purchase shares or other securities, or other similar
corporate transaction or event; and

	 	(2)	 	the Committee determines that such transaction or event affects
the Common Stock such that an adjustment pursuant to this Section 4.05(c) is
appropriate to prevent dilution or enlargement of the benefits made available
under the Plan.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 15

4.06. Vesting of Accounts.

	 	(a)	 	Deferred Cash Subaccount. A Participant shall at all times have a 100%
vested and nonforfeitable interest in the balance in his Deferred Cash Subaccount.

	 	(b)	 	DSU Subaccount. Any Performance Share in a Participant’s DSU
Subaccount shall vest and become nonforfeitable only to the extent such Performance
Share would have vested and become nonforfeitable under the terms of the PIP had it not
been deferred. Any Common Stock in a Director’s DSU Subaccount shall be 100% vested at
all times.

	 	(c)	 	Dividend DSUs. A Participant shall have a vested and nonforfeitable
interest in any dividend DSUs only to the extent the Participant has a vested and
nonforfeitable interest in the underlying Performance Share or Common Stock to which
the dividend DSU relates.

Notwithstanding the foregoing, a Participant’s Account shall be subject to the claims of the
Company’s creditors as provided in Section 6.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 16

SECTION 5. DISTRIBUTIONS

5.01. Exclusive Entitlement to Payment

A Participant’s deferral election pursuant to Section 3 shall constitute a waiver of his
right to receive the amount deferred and an agreement to receive in lieu thereof the amounts
payable to him at the times and in the methods specified in this Section 5. No other
amounts shall be due under the Plan or otherwise as a result of a Participant’s deferral
election under Section 3.

5.02. Payment.

	 	(a)	 	Time of Payment. Subject to Sections 5.03, 5.04, 5.05, and 5.06, the
Participant shall receive an amount equal to the sum of the balances in his Account at
the time(s) and in the manner specified or elected by him in accordance with Section
3.03. If the deferred amounts are subject to more than one distribution election made
in accordance with Section 3.03, then the portion of the Participant’s Account that is
subject to each election shall be distributed in accordance with the applicable
election. The Participant’s Account shall be debited to reflect each distribution
pursuant to this Section 5.

	 	(b)	 	Payment Medium. All amounts credited to the Deferred Cash Subaccount
shall be paid in cash. All amounts credited to the DSU Subaccount shall be paid solely
in shares of Common Stock, except that cash shall be paid in lieu of fractional shares.
Any reference in the Plan to a payment of DSUs shall refer to a distribution of shares
of Common Stock equal to the number of DSUs, except that it shall refer to a payment of
cash in lieu of a fractional share. For this purpose, the cash value of a fractional
share shall be determined in accordance with Section 4.05(b).

	 	(c)	 	Installment Payments. If the Participant receives installments, the
amount of the first installment shall be equal to the value of the Participant’s
Deferred Cash Subaccount plus the value of the Participant’s DSU Subaccount (determined
in accordance with Section 4.05(b)) determined as of the Valuation Date as of which the
installments commence (the “applicable Valuation Date”) pursuant to Section 5.02(a),
divided by five (if five installments are elected) or ten (if ten installments are
elected). The amount of each succeeding installment shall be equal to the value of the
Participant’s Deferred Cash Subaccount and the value of the Participant’s DSU
Subaccount (determined in accordance with Section 4.05(b)) on the next succeeding
anniversary of the applicable Valuation Date, divided by the remaining number of
installments to be paid. The form of each installment payment shall be determined in
accordance with Section 5.02(b).

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 17

	 	(d)	 	Effect of Deferral on Restriction or Vesting Period. If a share of
Common Stock would have been subject to any restriction or vesting period upon transfer
to a Participant under a Performance Share Award in the absence of a deferral election,
such share shall be subject to such restriction or vesting period upon payment from the
Plan; provided however, that any period of deferral under the Plan shall be credited
toward the satisfaction of any such restriction or vesting period.

5.03. Death Benefits.

	 	(a)	 	Amount and Form of Death Benefit. Any amount credited to a
Participant’s Account that is unpaid at the time of the Participant’s death shall be
paid in a single lump sum to the Beneficiary (or the contingent Beneficiary if the
Beneficiary predeceases the Participant) designated by the Participant pursuant to
Section 9.02.

	 	(b)	 	Time of Payment. A distribution pursuant to this Section 5.03 shall be
paid to the Participant’s Beneficiary within 30 days after the Valuation Date that is
coincident with or next follows the date of the Participant’s death, together with any
additional information or documentation that the Committee determines to be necessary
or appropriate before it makes the distribution.

5.04. Distributions Due to Unforeseeable Emergency.

Notwithstanding Sections 3.02 and 3.03, upon the occurrence of an unforeseeable emergency, a
Participant shall be eligible to receive payment of the amount necessary to satisfy such
emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such hardship is or may be
relieved through reimbursement or compensation by insurance or otherwise or by liquidation
of the Participant’s assets (to the extent such liquidation would not itself cause severe
financial hardship), or by cessation of deferrals under the Plan. The amount determined to
be properly distributable under this Section and applicable regulations under Code Section
409A shall be payable in a single lump sum only. For the purposes of this Section, the term
“unforeseeable emergency” means a severe financial hardship to the Participant resulting
from an illness or accident of the Participant, the Participant’s spouse, or a dependent of
the Participant (as defined in Code Section 152, without regard to Sections 152(b)(1),
(b)(2) and (d)(1)(B)); loss of the Participant’s property due to casualty, including the
need to rebuild a home following damage not otherwise covered by insurance, for example, not
as a result of a natural disaster; or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Participant, including
imminent foreclosure of or eviction from the Participant’s primary residence, the need to
pay for medical expenses, including non-refundable

 

 

 

			
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Utilities Corporation 

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deductibles, the cost of prescription drugs, and the need to pay for funeral
expenses of a spouse, Beneficiary, or dependent. It shall be the responsibility of the
Participant seeking to make a withdrawal under this Section to demonstrate to the Committee
that an unforeseeable emergency has occurred and to document the amount properly
distributable hereunder. After a distribution on account of an unforeseeable emergency, a
Participant’s deferral elections shall cease and such Participant will not be permitted to
participate in the Plan or elect additional deferrals until the next enrollment following
one full year from the date of the distribution on account of an unforeseeable emergency.
Such future deferral elections following a distribution on account of an unforeseeable
emergency will be treated as an initial deferral election and subject to the rules
applicable thereto under the Plan and Code Section 409A.

5.05. Disability.

Notwithstanding any election made pursuant to Sections 3.02 and 3.03, upon the written
application of the Participant in accordance with the requirements of Section 3, the
Committee shall accelerate and pay in a lump sum to the Participant all of the balance of
the Participant’s Account, if the Committee finds that such person has become Disabled
(within the meaning of Code Section 409A).

5.06. Change in Control.

Notwithstanding any election made pursuant to Sections 3.02 and 3.03, upon a Change in
Control, the Participant shall receive amounts credited to his Account in the form of a lump
sum payment. Such payment shall be made within 90 days after the date the Change in Control
occurred.

5.07. Acceleration of Payment.

The acceleration of the time and/or form of any payment determined in accordance with the
provisions of this Section 5 shall not be made except due to unforeseeable emergency, as
described above, or as set forth below and otherwise permitted by Code Section 409A and the
Treasury Regulations and other guidance issued thereunder:

	 	(a)	 	Domestic Relations Order. A payment of all or part of the
Participant’s Account may be made to a spouse, former spouse or other dependent under
the terms of a domestic relations order (as defined in Code Section 414(p)(1)(B)). The
Administrative Committee shall determine whether a payment should be made pursuant to
the terms of a domestic relations order and the time and form of such payment.

	 	(b)	 	Employment Taxes. A payment of all or part of the Participant’s
Account may be made to the extent necessary to pay the Federal Insurance Contributions
Act (“FICA”) tax imposed under Code Sections 3101, 3121(a), and 3121(v)(2) on amounts
deferred under the Plan (the “FICA Amount”), income tax at source on wages imposed
under Code Section 3401 or the corresponding withholding provisions of applicable
state, local, or foreign tax laws as a result of the payment of the FICA Amount, and
to pay the additional income tax at source on wages attributable to the pyramiding
Code Section 3401 wages and taxes. The total payment under this Section shall not
exceed the aggregate of the FICA Amount and the income tax withholding related to
such FICA Amount.

 

 

 

			
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Utilities Corporation 

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	 	(c)	 	Payment of State, Local or Foreign Taxes. Payment may be made to
reflect payment of state, local or foreign tax obligations arising from participation
in the Plan that apply to an amount deferred under the Plan before the amount is paid
or made available to the Participant, plus the income tax at source on wages imposed
under Code Section 3401 as a result of such payment; provided, however, that the
amount of the payment may not exceed the amount of the taxes due, and the income tax
withholding related to such state, local and foreign tax amount.

	 	(d)	 	Income Inclusion under Code Section 409A. Payment may be made at any
time the Plan fails to meet the requirements of Code Section 409A and the Treasury
Regulations issued thereunder; provided, however, that payment cannot exceed the amount
required to be included in income as a result of the failure to comply.

	 	(e)	 	Certain Offsets. Payment may be made as satisfaction of a debt of the
Participant to the Company where: (1) the debt is incurred in the ordinary course of
the employment relationship; (2) the entire amount of the offset in any of the
Participant’s taxable years does not exceed $5,000; and (3) the reduction is made at
the same time and in the same amount as the debt otherwise would have been due and
collected from the Participant.

5.08. Delay of Payment.

A Participant who is a “specified employee” (as defined in Code Section 409A and the
regulations thereunder) and is entitled to a distribution due to a Separation from Service
may not receive a distribution under the Plan until a date that is at least six months after
the date of the Separation from Service. In addition, the Company may in its discretion
delay any payment due under the Plan to the extent permitted by Code Section 409A and the
regulations thereunder.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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5.09. Assignment and Assumption of Liabilities.

In the discretion of the Company, upon the cessation of participation in the Plan by any
Participant solely due to the employer of that Participant no longer qualifying as a member
of the controlled group of Chesapeake Utilities Corporation within the meaning
of Code Sections 414(b) and (c), all liabilities associated with the Account of such Participant
may be transferred to and assumed by the Participant’s employer under a deferred compensation plan
established by such employer that is substantially identical to this Plan and that preserves the
deferral and payment elections in effect for the Participant under this Plan to the extent required
by Code Section 409A. Any such Participant shall not be deemed to have incurred a Separation from
Service for purposes of the Plan by virtue of his employer’s ceasing to be a member of the
controlled group of Chesapeake Utilities Corporation The foregoing provision shall be interpreted
and administered in compliance with the requirements of Code Section 409A.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 21

SECTION 6. NATURE OF PARTICIPANT’S INTEREST IN PLAN

6.01. No Right to Assets.

Participation in this Plan shall not create, in favor of any Participant or Beneficiary, any
interest in or lien against any of the assets of the Company. All payments hereunder shall
be paid from the general funds of the Company, and no special or separate fund shall be
established and no other segregation of assets shall be made to assure the payments of
benefits hereunder; provided, however, that in order to provide a source of payment for its
obligations under the Plan, the Company may establish a grantor trust commonly known as a
“Rabbi” trust. Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and a Participant or any other person, and the promise of
the Company to pay benefits hereunder shall, at all times, remain unfunded as to the
Participant or Beneficiary, whose rights hereunder shall be limited to those of a general
and unsecured creditor of the Company.

6.02. No Right to Transfer Interest.

A Participant’s or Beneficiary’s rights to benefits payable under the Plan are not subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or
encumbrance. However, the Committee may permit a Participant or Beneficiary to enter into a
revocable arrangement to pay all or part of his benefits under the Plan to a revocable
grantor trust (a so-called “living trust”). In addition, the Committee may recognize the
right of an alternate payee named in a domestic relations order to receive all or part of a
Participant’s benefits under the Plan, but only if (a) the domestic relations order would be
a “qualified domestic relations order” (within the meaning of Code Section 414(p) (if Code
Section 414(p) applied to the Plan)), (b) the domestic relations order does not attempt to
give the alternate payee any right to any asset of the Company, (c) the domestic relations
order does not attempt to give the alternate payee any right to receive payments under the
Plan at a time or in an amount that the Participant could not receive under the Plan to the
extent such a payment would violate Code Section 409A, and (d) the amount of the
Participant’s benefits under the Plan are reduced to reflect any payments made or due the
alternate payee.

6.03. No Right to Employment or Service.

No provisions of the Plan and no action taken by the Company, the Board, the Compensation
Committee, or the Committee will give any person any right to be retained in the employ of
the Company or as a member of the Board. The Company specifically reserves the right and
power to dismiss or discharge any Eligible Employee.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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6.04. Withholding and Tax Liabilities.

The amount of any withholdings required to be made by any government or government agency
will be deducted from benefits paid under the Plan to the extent deemed necessary by the
Committee. In addition, the Participant or Beneficiary (as the case may be) will bear the
cost of any taxes not withheld on benefits provided under the Plan, regardless of whether
withholding is required. The income tax consequences to Participants of compensation
reductions under the Plan shall be determined under applicable federal, state and local tax
laws and regulations and neither the Company, the Committee, the Board, nor any officer or
employee of the Company makes any representations as to the tax consequences of
participation in the Plan.

In accordance with Code Section 409A and the regulations issued thereunder, the Plan shall permit
the withholding and payment of any amounts necessary to (a) satisfy federal and applicable state or
city employment tax withholding obligations that arise under the Plan prior to the date that
payment may otherwise be made under the Plan and/or (b) satisfy the excise tax or underpayment
penalties owed under Code Section 409A in the event of a violation of Code Section 409A under the
Plan.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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SECTION 7. ADMINISTRATION

7.01. Committee.

The Plan shall be administered by the Committee that shall serve at the pleasure of the
Board. The Committee may allocate its responsibilities for the administration of the Plan
among its members or among any subcommittee(s) it may appoint and may designate persons
other than its members to carry out its responsibilities under the Plan.

7.02. Meetings.

The Committee shall hold meetings upon such notice, at such place or places, and at such
intervals as are required to carry out its functions.

7.03. Quorum.

A majority of the members of the Committee at any time in office shall constitute a quorum
for the transaction of business. All resolutions or other actions taken by the Committee
shall be by vote of a majority of members present at a meeting of the Committee; or without
a meeting by an instrument in writing signed by all the members of the Committee at such
time in office.

7.04. Expenses.

The expenses incident to the operation of the Plan, including the compensation of attorneys,
advisors, actuaries, and such other persons providing technical and clerical assistance as
may be required, shall be paid directly by the Company.

7.05. Responsibilities of the Committee.

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

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

	 	(b)	 	to interpret the Plan and to decide any and all matters arising hereunder,
including the right to remedy possible ambiguities, inconsistencies, or omissions;
provided that all such interpretations and decisions shall be applied in a uniform and
non-discriminatory manner to all persons similarly situated;

	 	(c)	 	to compute the amount of benefits that shall be payable to any Participant or
Beneficiary in accordance with the provisions of the Plan, and in the event that
the Committee determines that Excessive Benefits have been paid to any person, the
Committee may suspend payment of future benefits to such person or his Beneficiary
or reduce the amount of such future benefits until the Excessive Benefits and any
interest thereon determined by the Committee have been recovered;

 

 

 

			
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Utilities Corporation 

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

	 	(e)	 	to employ one or more persons to render advice with respect to any of its
responsibilities under the Plan; and

	 	(f)	 	to amend the Plan from time to time by written resolution for the limited
purpose of meeting the requirements of Code Section 409A.

The members of the Committee and the Company and its officers and Directors shall be
entitled to rely upon all valuations, certificates and reports furnished by any funding
agent or service provider, upon all certificates and reports made by an accountant, and upon
all opinions given by any legal counsel selected or approved by the Committee (who may be
counsel to the Company) and the members of the Committee and the Company and its officers
and Directors shall, except as otherwise provided by law, be fully protected with respect to
any action taken or suffered by them in good faith in reliance upon any such valuations,
certificates, reports, opinions or other advice of a funding agent, service provider,
accountant or counsel.

7.06. Finality of Committee Determinations.

Subject to the provisions of Section 7.08, determinations by the Committee and any
interpretation, rule, or decision adopted by the Committee under the Plan or in carrying out
or administering the Plan shall be final and binding for all purposes and upon all
interested persons, their heirs, and their personal representatives.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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7.07. Benefit Claims Procedure.

A claim for a benefit under the Plan by any person shall be filed in the manner and governed
by the procedures set forth below:

Upon Separation from Service, death, or any and all types of claims regarding benefits under
the Plan, the Participant or his representative may make application to the Committee
requesting payment of benefits due. If no application for benefits is made, the Committee
shall automatically pay any benefit due pursuant to Section 5. If an application for
benefits is made, the Committee shall accept, deny, or modify such
request and shall notify the Participant in writing setting forth the Committee’s response
and in the case of a denial or modification, the Committee shall:

	 	(a)	 	state the specific reason or reasons for the denial,

	 	(b)	 	provide specific reference to pertinent Plan provisions on which the denial or
modification is based,

	 	(c)	 	provide a description of any additional material or information necessary for
the Participant or his representative to perfect the claim and an explanation of why
such material or information is necessary, and

	 	(d)	 	explain the Plan’s claim review procedure as contained in this Plan.

In the event the request is rejected or modified, the Participant or his representative may
within 60 days following receipt by the Participant or representative of such rejection or
modification, submit a written request for review by the Committee of its initial decision.
Within 60 days following such request for review (120 days if extraordinary circumstances
exist), the Committee shall render its final decision in writing to the Participant or
representative stating specific reasons for such decision. If the Participant or
representative is not satisfied with the Committee’s final decision, the Participant or
representative can institute an action in a Federal court of competent jurisdiction; for
this purpose, process would be served on the Company.

7.08. Arbitration of Denied Claims.

Any controversy or claim arising out of or relating to a final decision, upon review pursuant to
the procedures set forth in Section 7.07, that denies a claim for benefits under the Plan may be
settled by arbitration under three arbitrators in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. Any such arbitration shall be subject to
the statute of limitations that would apply if the claim on which the arbitration is based were
brought as a suit in a United States district court under ERISA. The site of any such arbitration
shall be Delaware.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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SECTION 8. AMENDMENT, SUSPENSION, AND TERMINATION

8.01. By the Compensation Committee.

	 	(a)	 	Authority to Amend. The Compensation Committee of the Board may
modify, amend, suspend, or terminate the Plan at any time; provided that no such
modification, amendment, suspension, or termination shall reduce a Participant’s
accrued benefits under the Plan as of the date of such modification, amendment,
suspension, or termination, except to the extent that the affected Participants consent
in writing to the modification, amendment, suspension, or termination; and provided
further that the Plan may be amended at any time and without the consent of the
Participants to provide that DSUs shall be paid in cash rather than in shares of Common
Stock; and provided further that no such modification, amendment, suspension, or
termination shall eliminate, restrict, or modify any of the following provisions of the
Plan, except to the extent that the affected Participants consent in writing to the
modification, amendment, suspension, or termination:

	 	(1)	 	the provision in Section 2.01(g) that defines “Change in
Control”;

	 	(2)	 	the provision in Section 5.06 that provides for a lump sum
payment following a Change in Control;

	 	(3)	 	the provision in Section 7.08 that permits submission of denied
claims for benefits to arbitration; and

	 	(4)	 	the provisions of this Section 8 that protect accrued benefits
and limit modification, amendment, suspension, or termination of the Plan.

Except as provided in the preceding sentence, any modification, amendment,
suspension, or termination of the Plan may reduce or eliminate a benefit under the
Plan. Although the Plan is not subject to ERISA Section 204(g), the accrued
benefits that are protected by this Section 8 shall include those accrued benefits
that would be protected by ERISA Section 204(g) if the Plan were subject to said
Section 204(g) and the rights specified in items (1) through (4), above.

	 	(b)	 	Authority to Delegate. The Board may, in its sole discretion, delegate
to any person or persons all or part of its authority and responsibility under the
Plan, including, without limitation, the authority to amend the Plan.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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8.02. By the Committee.

The Committee shall have the right by written resolution to amend the Plan from time to
time, for the limited purpose of meeting the requirements of Code Section 409A.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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SECTION 9. MISCELLANEOUS

9.01. Participation by Affiliate.

Subject to the consent of the Compensation Committee, an Affiliate may participate in the
Plan by delivering to the Compensation Committee a resolution of its board of directors
approving such action. Such Affiliate shall begin participating in the Plan as of an
effective date approved by the Compensation Committee and shall be subject to the provisions
of the Plan.

9.02. Designation of Beneficiary.

	 	(a)	 	Each Participant may designate a Beneficiary. Such 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.

	 	(b)	 	If a Participant designates his spouse as his Beneficiary, that designation
shall not be revoked or otherwise altered or affected by any:

	 	(1)	 	change in the marital status of the Participant and such
spouse,

	 	(2)	 	agreement between the Participant and such spouse, or

	 	(3)	 	judicial decree (such as a divorce decree) affecting any rights
that the Participant and such spouse might have as a result of their marriage
separation, or divorce,

until and unless the Participant revokes and designates a Beneficiary in accordance
with this Section 9.02, it being the intent of the Plan that any change in the
designation of a Beneficiary under the Plan may be made by the Participant only in
accordance with the provision of this Section 9.02.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
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9.03. Incapacity.

If the Committee determines that any person entitled to benefits under the Plan is unable to
care for his affairs because of illness or accident, any payment due (unless a duly
qualified guardian or other legal representative has been appointed) may be paid for the
benefit of such person to his spouse, parent, brother, sister, or other party deemed by the
Committee to have incurred expenses for such person. Any such payment or application of
benefits made in good faith in accordance with the provisions of this Section shall be a
complete discharge of any liability of the Committee and the Company with respect to such
payment or application of benefits.

9.04. Required Information.

Any person eligible to receive benefits under the Plan shall furnish to the Committee any
information or proof requested by the Committee and reasonably required for the proper
administration of the Plan. Failure on the part of any person to comply with any such
request within a reasonable period of time shall be sufficient grounds for delay in the
payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false
statement that is material to such person’s claim for benefits, the Committee may offset
against future payments any amount paid to such person to which such person was not entitled
under the provisions of the Plan.

9.05. Inability to Locate Participants and Beneficiaries.

Each Participant and each Beneficiary entitled to receive a benefit under the Plan shall
keep the Committee advised of his current address. If the Committee is unable to locate a
Participant or Beneficiary to whom a benefit is payable under the Plan for a period of 36
months, commencing with the first day of the month as of which such benefit becomes payable,
the total amount payable to such Participant or Beneficiary shall be forfeited, subject to
being restored (without any intervening investment gains) only if the Participant and
Beneficiary provide evidence sufficient to satisfy the Committee that the Participant or
Beneficiary is entitled to such forfeited amount.

9.06. 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.

9.07. Severability.

If any provision of the Plan shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan
shall be construed and enforced as if such illegal or invalid provision had never been
included in the Plan. In addition, if any provision of the Plan shall be found to violate
Code Section 409A or otherwise result in any portion of a Participant’s or Beneficiary’s
benefits under
the Plan being subject to income tax prior to distribution, such provision shall be void and
unenforceable, and the Plan shall be administered without regard to such provision.

 

 

 

			
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Utilities Corporation 

Deferred Compensation Plan
	 	Page 30

9.08. Governing Law.

The Plan shall be construed, administered, and regulated in accordance with the laws of the
State of Delaware (not including its conflict of law rules), except to the extent that such
laws are preempted by Federal law.

9.09. Complete Statement of Plan.

This Plan contains a complete statement of its terms. The Plan may be amended, suspended,
or terminated only in writing and then only as provided in Section 8. A Participant’s right
to any benefit of a type provided under the Plan will be determined solely in accordance
with the terms of the Plan. No other evidence, whether written or oral, will be taken into
account in interpreting the provisions of the Plan.

	 	 	 	 	 
	 	CHESAPEAKE UTILITIES CORPORATION

 	 
	 	By:  	 	 
	 	 	Its: 	 	 
	 	 	Date: 	 	 
	 

 

 

 

			
	Chesapeake
Utilities Corporation 

Deferred Compensation Plan
	 	Page 31

EXHIBIT A

Rate of Return Indices

Effective January 1, 2009

	1.	 	The Fidelity Spartan U.S. Equity Index Fund
	 
	2.	 	The BlackRock Total Return II Portfolio
	 
	3.	 	The BlackRock Money Market Portfolio

 

 

 

APPENDIX A

GRANDFATHERED PROVISIONS

TO THE

CHESAPEAKE UTILITIES CORPORATION

DEFERRED COMPENSATION PROGRAM

 

 

 

APPENDIX A

The following Plan provisions apply only to amounts deferred and vested (within the meaning of Code
Section 409A) before January 1, 2005, and any earnings on such amounts, to the full extent
permitted by Code Section 409A. Amounts deferred or vested after December 31, 2004, and any
earnings thereon, are subject to the provisions of the Plan as amended and restated, effective
January 1, 2005, or any subsequent amendment and restatement of the Plan.

Section 1. Establishment and Purpose

1.1 Establishment.

Effective September 1, 1998, the Company established the Chesapeake Utilities
Corporation Executive Deferral Program (the “Plan”) for the benefit of the Participants.

1.2 Purpose.

The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management and highly compensated employees. The Plan
permits Participants to elect to defer payment of part or all of certain specified types of
compensation until their termination of employment with the Company or until such other date
specified in accordance with the terms of the Plan.

Section 2. Definitions

2.1 Gender and Number.

In order to shorten and to improve the understandability of the Plan document by
eliminating the repeated usage of such phrases as “his or her” and “Executive or
Executives,” any masculine terminology herein shall also include the feminine and neuter,
and the definition of any term herein in the singular shall also include the plural, except
when otherwise indicated by the context.

2.2 Definitions.

The following words and phrases as used in the Plan have the following meanings:

“Account” means the bookkeeping account established for each Participant under Section
5.1 hereof. Each Account shall include a Deferred Cash Subaccount and a DSU Subaccount.
Additional subaccounts shall be maintained as necessary for the administration of the Plan.

 

 

 

“Beneficiary” means the person designated by a Participant to receive benefits under
the Plan after the Participant’s death. Such a designation shall be in writing in a
form acceptable to the Committee, and shall be effective as of the date the form is filed
with the Committee. If a Participant dies before receiving the entire amount due to him
under the Plan, and he has failed to designate a Beneficiary or his designated Beneficiary
fails to survive him, his Beneficiary will be the person to whom he is married at the time
of his death, or if he is not married at that time, his Beneficiary will be the executor of
his will or the administrator of his estate. A Participant may revoke a prior designation
of a Beneficiary at any time before the Participant’s death by filing a new form with the
Committee.

“Blackout Period” means the period prescribed by Section 3.3(b) hereof following a
deferral election during which an Option or SAR subject to the deferral election may not be
exercised.

“Board” means the Board of Directors of the Company.

“Bonus Compensation” means compensation received under the Bonus Plan.

“Bonus Plan” means the “Chesapeake Utilities Corporation Cash Bonus Incentive Plan,” as
in effect and amended from time to time.

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

(a) The registration of the Company’s voting securities under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), terminates or the
Company shall have fewer than 300 stockholders of record; or

(b) any person or group (within the meaning of Sections 13(d) and 14(d) of the
1934 Act), other than the Company, becomes the beneficial owner (within the meaning
of Rule 13d-3 under the 1934 Act) of 30 percent or more of the combined voting power
of the Company’s then outstanding voting securities; or

(c) a tender offer or exchange offer, other than an offer by the Company,
pursuant to which 30 percent or more of the combined voting power of the Company’s
then outstanding voting securities was purchased, expires; or

(d) the stockholders of the Company approve an agreement to merge or
consolidate with another corporation (other than a majority-controlled subsidiary of
the Company) unless the stockholders of the Company immediately before the merger or
consolidation are to own more than 70 percent of the combined voting power of the
resulting entity’s voting securities; or

 

2

 

(e) the Company’s stockholders approve an agreement (including, without
limitation, a plan of liquidation) to sell or otherwise dispose of all or
substantially all of the business or assets of the Company; or

(f) during any period of two consecutive years, individuals who, at the
beginning of the period, constituted the Board cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for election by the
Company’s stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the beginning
of the period; or

(g) the acquisition of direct or indirect beneficial ownership of more than 15
percent of the Company’s then outstanding voting securities by any person or group
is approved over the formal objection of the Company by the Securities and Exchange
Commission pursuant to Section 9 of the Public Utility Holding Company Act of 1935,
as amended.

However, no Change in Control shall be deemed to have occurred with respect to a
Participant by reason of any event involving a transaction in which (i) 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 present 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.

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

“Committee” means the committee appointed by the Board to administer the Plan.

“Common Stock” means the common stock, $.4867 par value, of the Company, including both
treasury shares and authorized but unissued shares, or any security of the Company issued in
substitution, exchange, or in lieu thereof.

“Company” means Chesapeake Utilities Corporation or a Related Company.

“Compensation Committee” means the Compensation Committee of the Board.

“Deferred Cash Subaccount” means the subaccount within the Participant’s Account to
which amounts deferred under Section 3 hereof are credited as described in Section 5.1
hereof.

 

3

 

“Deferred Cash Payment” means an any Bonus Compensation or SAR Spread payable in cash
that a Participant elects to defer under the Plan.

“Deferred Stock Units” or “DSUs” means hypothetical shares of Common Stock (including
hypothetical fractional shares).

“Disability” means total and permanent disability as determined by the Committee in its
sole discretion.

“DSU Subaccount” means the subaccount within the Participant’s Account to which amounts
deferred under Section 3 hereof are credited as described in Section 5.3 hereof.

“Effective Date” means September 1, 1998.

“Eligible Executive” means an employee of the Company who is eligible to participate in
the Bonus Plan or the PIP and who is designated by the Compensation Committee in its sole
discretion; provided that, on and after a Change in Control, each employee of the Company
who was an Eligible Executive immediately before the Change in Control shall remain an
Eligible Executive as long as the employee is employed by the Company or any successor
thereto.

“Fair Market Value” means the average of the high and low sales price of the Common
Stock, as reported on the New York Stock Exchange (or any other reporting system as shall be
selected by the Committee) on the relevant date, or if no sale of Common Stock is reported
for a date, on the date or dates that the Committee determines, in its sole discretion, to
be appropriate for purposes of valuation.

“Option” means a stock option granted under the PIP, other than an incentive stock
option under Section 422 of the Code or such other stock option as the Committee may exclude
from the Plan.

“Option Shares” means shares of Common Stock issuable upon exercise of an Option in
accordance with the terms of the Option.

“Participant” means an Eligible Executive who becomes a participant in the Plan in
accordance with Section 3.1 hereof and whose Account hereunder has a positive balance.

“Performance Share Award” means a performance share award granted under the PIP.

“Performance Shares” means shares of Common Stock awardable under a Performance Share
Award in accordance with the terms of the Performance Share Award.

 

4

 

“PIP” means the “Chesapeake Utilities Corporation Performance Incentive Plan,” as in
effect and as amended from time to time.

“Plan” means the “Chesapeake Utilities Corporation Executive Deferral Program,”
as set forth herein and as amended from time to time.

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

“Retirement” means termination of employment with the Company at or after attaining age
65, or at such earlier age as accepted by the Committee in its sole discretion.

“SAR” means an award of stock appreciation rights granted under the PIP.

“SAR Spread” means the cash or shares of Common Stock payable to an Eligible Executive
or Beneficiary upon exercise of stock appreciation rights in accordance with the terms of
the applicable stock appreciation rights agreement, disregarding any withholding taxes due
with respect to said exercise.

 

5

 

Section 3. Participation by Eligible Executives

3.1 Election of Benefits.

An Eligible Executive may become a Participant in the Plan by electing to defer Bonus
Compensation, Performance Shares, SAR Spread, or Option Shares in accordance with this
Section 3.2 or 3.3, as applicable.

3.2 Election Requirements for Bonus Compensation and Performance Shares.

(a) Election Filing Deadline. Except as provided in subsection (b), below, an
election to defer receipt of Bonus Compensation or Performance Shares earned with respect to
a calendar year shall be filed with the Committee before the calendar year begins.

(b) Initial Elections. An Eligible Executive may file the requisite deferral
elections before the expiration of 30 days from the initial effective date of the Plan, and
a newly hired or otherwise newly eligible Eligible Executive may file the requisite
elections before the expiration of 30 days from either (i) his initial date of employment,
if the Eligible Executive is a new hire, or (ii) his initial date of eligibility, if the
Eligible Executive is newly eligible to participate in the Plan.

(c) Irrevocable Election. Except as provided in Section 6.4 hereof, a deferral
election described in this Section 3.2, once filed, shall be irrevocable and shall remain in
effect until the end of the calendar year to which it pertains. Elections under this
Section 3.2 shall automatically apply to each subsequent calendar year unless the
Participant, before the beginning of the calendar year, revokes his prior election, and in
that event, he may file a new election with the Committee before the beginning of the
calendar year in accordance with this Section 3. An Eligible Executive who does not make
deferral elections in one calendar year may make deferral elections for any subsequent
calendar year, provided he remains an Eligible Executive, by making a deferral election in
accordance with this Section 3.

(d) Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election with respect to Bonus
Compensation may specify any whole percentage of the Bonus Compensation (from 1% to 100%).
A deferral election with respect to Performance Shares must specify 100% of the Performance
Shares awarded for a calendar year.

(e) Treatment of Performance Shares. A Participant who elects to defer
Performance Shares shall be credited with DSUs rather than with shares of Common Stock.
Such DSUs shall be equal in number to the shares of Common Stock that the Participant
otherwise would be entitled to receive under the Performance Share Award without taking into
account any applicable withholding taxes that otherwise would have been due with respect to
the performance Share Award.

 

6

 

3.3 Election Requirements for Option Shares and for SAR Spread

(a) Election Filing Deadline. An election to defer receipt of Option Shares or
of the SAR Spread that would be received upon the exercise of an Option or an SAR may be
made only within the thirty-six (36) months immediately preceding the scheduled expiration
date of the Option or SAR and must be filed with the Committee at least twelve (12) months
before the exercise of the Option or the SAR.

(b) Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election with respect to an Option may
be made only with respect to 100% of the shares covered by the Option on the date the
deferral election is made. A deferral election with respect to an SAR may be made only
with respect to 100% of the shares on which the SAR gives stock appreciation rights on the
date the deferral election is made. A deferral election with respect to an Option or SAR
shall not have the effect of permitting the exercise of an Option or SAR that is not
otherwise exercisable under the terms of the PIP and the applicable stock option or stock
appreciation rights agreement. Except as provided in Sections 3.3(c), (d) and (e) hereof,
an Option or SAR subject to a deferral election shall not be exercisable during the 12
months immediately following the date on which the deferral election is made (the “Blackout
Period”).

(c) Hardship.

(i) A Participant who has made a deferral election with respect to an
Option or SAR may request that the Committee allow him to revoke all of his
outstanding Option and/or SAR deferral elections. The Committee may grant
such request in its discretion only if the Committee makes the determination
specified in Section 3.3(c)(ii) hereof.

(ii) If the Committee determines that a Participant who has made a
deferral election with respect to one or more Options and/or SARs has
incurred or will incur a severe financial hardship resulting from an
accident or illness with respect to the Participant, his spouse, or his
dependent (as defined in section 152 of the Code), or other event beyond the
Participant’s control, the Committee may grant the Participant’s request to
revoke all of his outstanding Option and/or SAR deferral elections.

(iii) If the Committee grants a Participant’s request to revoke his
outstanding Option and/or SAR deferral elections, all of the participant’s
then outstanding Option and/or SAR deferral elections shall be revoked, and
the Options and/or SARs to which such deferral elections applied shall be
thereafter governed by the applicable terms of the Options and/or SARs
without regard to the deferral elections.

 

7

 

(d) Termination of Employment.

(i) If the Participant makes a deferral election with respect to an
Option or SAR, and the Participant’s employment with the Company is
terminated before the Option or SAR governed by the deferral elections have
been exercised in full, such Option or SAR shall be subject to the
provisions of this Section 3.3(d).

(ii) If the Participant terminates employment with the Company by
reason of voluntary termination (for a reason other than Retirement),
Disability or death, the Participant’s deferral election shall be
automatically revoked and the Option or SAR to which the deferral election
applied shall thereafter be governed by the applicable terms of the Option
or SAR, determined without regard to the deferral election.

(iii) If the Participant terminates employment with the Company by
reason of Retirement, any Blackout Period then in effect shall be
immediately terminated and the Participant’s deferral election thereupon
become effective. Notwithstanding the previous sentence, after giving
notice to the Company of his intention to retire, a Participant may request
that the Committee allow him to revoke all of his then outstanding Option or
SAR deferral elections. The Committee may grant any such request in its
discretion. If such a request is made and granted, the Participant’s
Options and/or SARs subject to deferral elections shall not be exercisable
during the 60-day period beginning on the date of the request, and such
Options and/or SARs shall become exercisable after the end of the 60-day
period in accordance with the applicable terms of the Options and/or SARs,
determined without regard to the Participant’s deferral elections. If the
Participant’s request is not granted, the Participant’s deferral elections
shall remain in effect, and any Blackout period shall terminate upon the
Participant’s Retirement.

(iv) If the Participant’s employment with the Company is involuntarily
terminated by the Company, any Blackout Period then in effect shall be
immediately terminated, and the deferral elections shall thereupon become
effective. Notwithstanding the preceding sentence, after receiving notice
from the Company that his employment will be terminated, a Participant may
request that the Committee allow him to revoke all of his then outstanding
Option and/or SAR deferral elections. The Committee may grant any such
request in its discretion. If such a request is made and granted, the
Participant’s Options and/or SARs subject to the deferral elections shall
not be exercisable during the 60-day period beginning on the date of the
request, and such Options and/or SARs shall become exercisable after the end
of the 60-day period in accordance with the applicable terms of the Options
and/or SARs, determined without regard to the Participant’s deferral
elections. If the Participant’s request is
not granted, the Participant’s deferral elections shall remain in effect,
and any Blackout period shall terminate upon the termination of the
Participant’s employment.

 

8

 

(e) Change in Control. If a Change in Control occurs during a Blackout period,
the Blackout Period shall immediately terminate and the Participant’s deferral election
shall thereupon become effective. No elections to defer Option Shares or SAR Spreads under
this Section 3.3 may be made following a Change in Control.

3.4 Form and Time of Payment.

(a) General. An amount deferred under this Section 3 shall be paid in a lump
sum as of the date elected by the Participant. An election of the time of payment hereunder
shall be in writing in a form acceptable to the Committee, and shall be effective as of the
date the form is filed with the Committee, and, subject to Sections 3.3, 3.4(b) and 6.4
hereof, shall be irrevocable.

(b) Modification of Time . A Participant may submit a request at any time to
the Committee to modify the payment date with respect to a deferral election subject to the
following requirements:

(i) Only one such request may be made in any Plan Year.

(ii) A request must be made before any payment is made with respect to
the deferral election (except a hardship payment under Section 6.4 hereof).

(iii) The Committee may grant or deny the request in its sole
discretion.

(iv) A request to accelerate payment may not have an accelerated
payment date that is less than one year from the date the request is
submitted.

(v) A request to delay payment must be made at least 60 days before the
start of the calendar year in which payment otherwise would have been made.

 

9

 

Section 4. Exercise of Options and SARs Subject to Deferral Elections

4.1 General.

If, after a deferral election is made with respect to an Option or SAR and the
resulting Blackout Period terminates, the Participant exercises an Option or SAR to which
the deferral election applies, the exercise shall be governed by the provisions of this
Section 4.

4.2 Exercise of Option.

(a) General. When he exercises an Option, the Participant shall pay the
exercise price either by paying cash or by surrendering shares of previously owned Common
Stock which shares have been owned by the Participant for at least six months (including a
surrender that is effected by attestation).

(b) Payment in Shares. If the Participant pays the exercise price by
surrendering previously-owned shares of Common Stock, the Participant shall receive in
return shares of Common Stock equal in number to the shares of Common Stock he surrendered.

(c) Crediting with DSUs. Except for any shares the Participant receives in
accordance with Section 4.2(b) hereof, the Participant shall be credited with DSUs rather
than with shares of Common Stock. Such DSUs shall be equal in number to the shares of
Common Stock that the Participant otherwise would be entitled to receive upon the exercise
of the Option, less any shares described in Section 4.2(b) hereof, and without taking into
account any applicable withholding taxes that otherwise would have been due with respect to
said exercise.

4.3 Exercise of SAR.

(a) General. When a Participant exercises an SAR, the SAR Spread shall not be
paid to him. Instead, the SAR Spread shall be credited to the Participant’s Account as
provided in Section 4.3(b) or 4.3(c) hereof.

(b) Crediting of Deferred Cash Subaccount. If the applicable stock
appreciation rights agreement provides that the SAR Spread is due the Participant in cash,
the SAR Spread shall be credited to the Participant’s Deferred Cash Subaccount.

(c) Crediting of DSU Subaccount. If the applicable stock appreciation rights
agreement provides that the SAR Spread is due the Participant in shares of Common Stock, the
Participant’s DSU Subaccount shall be credited with DSUs equal in number to the shares of
Common Stock that the Participant would otherwise be entitled to receive upon exercise of
the SAR.

 

10

 

Section 5. Accounts

5.1 Accounts.

(a) General. The Company shall maintain for bookkeeping purposes an Account in
the name of each Participant. Each Account shall have a Deferred Cash Subaccount and a DSU
Subaccount, as applicable, to which shall be credited amounts deferred under Section 3
hereof.

(b) Deferred Cash Payments. All amounts of Bonus Compensation and SAR Spread
due in cash (as described in Section 4.3(b) hereof) deferred under the Plan shall be
credited to the Participant’s Deferred Cash Subaccount, as shall be any amounts provided
under Section 5.2 hereof.

(c) DSUs. All DSUs with which a Participant is credited pursuant to Sections
3.2, 4.2, and 4.3(c) hereof shall be credited to the Participant’s DSU Subaccount, as shall
any amounts provided under Section 5.3 hereof.

5.2 Investment Return for Deferred Cash Subaccount.

(a) Rate of Return Indices. The Committee shall select and maintain one or
more rate of return indices as specified on Exhibit A attached hereto as amended from time
to time. A Deferred Cash Payment shall be allocated to one or more of the rate of return
indices and shall be credited with the applicable investment return (or loss) that such
Deferred Cash Payment would have achieved if it were invested in the specified index or
indices.

(b) Election of Rate of Return Indices.

(i) Each Participant shall specify in writing, at the time he completes
his election to participate under Section 3 hereof, and in a form acceptable
to the Committee, how any Deferred Cash Payment shall be allocated among the
indices specified on Exhibit A attached hereto.

(ii) The Committee may, in its discretion and from time to time, permit
a Participant to change any election previously made with respect to the
allocation of any Deferred Cash Payment, subject to such conditions and such
limitations as the Committee may prescribe. Any such change in election
shall be in writing and in a form acceptable to the Committee.

(iii) The Committee may, in its discretion and from time to time,
permit a Participant to elect to reallocate the amounts in such
Participant’s Deferred Cash Subaccount from one rate of return index to
another, subject to such conditions and such limitations as the Committee
may prescribe; provided that a Participant shall be permitted, at least once
per calendar month, to reallocate amounts previously allocated. Any such
reallocation election shall be in writing and in a form acceptable to
the Committee.

 

11

 

(iv) The Committee may require that any election under this Section 5.2
apply to the entire amount to which it pertains (e.g., 100% of the
Participant’s future contributions) or to such percentage or percentages of
that amount as the Committee may specify (e.g., increments of 5%).

(v) If a Participant fails to specify a rate of return index with
respect to his Deferred Cash Payments, the Participant shall be presumed to
have specified that his entire Deferred Cash Subaccount be allocated to the
index determined by the Committee to represent the lowest risk of principal
loss.

(c) Crediting of Investment Return. The balance credited to the Participant’s
Deferred Cash Subaccount as of the last day of the prior month shall be credited with the
applicable investment return (or loss) as of the last day of the month of crediting. All
references herein to Deferred Cash Payments shall be deemed to include such Deferred Cash
Payments plus any investment return (or loss) credited pursuant to this Section 5.2.

5.3 Treatment of DSUs.

(a) Deemed Reinvestment of Dividends on DSUs. The DSUs credited to a
Participant’s DSU Subaccount pursuant to Sections 3.2, 4.2, and 4.3(c) hereof shall be
increased on each date that a dividend is paid on Common Stock. The number of additional
DSUs credited to a Participant’s DSU Subaccount as a result of such increase shall be
determined first by multiplying the number of DSUs credited to the Participant’s DSU
Subaccount on the dividend record date by the amount of the dividend declared per share of
Common Stock on the dividend declaration date, and then by dividing the product so
determined by the Fair Market Value of the Common Stock on the dividend declaration date.

(b) Conversion Out of DSUs. Amounts credited to the DSU Subaccount generally
will be paid in the corresponding number of shares of Common Stock. In the event, however,
that it becomes necessary to determine the dollar value of DSUs credited to a Participant’s
DSU Subaccount as of any date, the dollar value shall be determined by multiplying the
number of DSUs on that date by the Fair Market Value of the Common Stock on that date.

 

12

 

(c) Effect of Recapitalization. In the event of a transaction or event
described in this Section 5.3 (c), the number of DSUs credited to a Participant’s DSU
Subaccount shall be adjusted in such manner as the Committee, in its sole discretion, deems
equitable. A transaction or event is described in this Section 5.3 (c), if and only if

(i) it is a dividend or other distribution (whether in the form of
cash, shares, other securities, or other property), extraordinary cash
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other securities, the issuance of
warrants or other rights to purchase shares or other securities, or other
similar corporate transaction or event; and

(ii) the Committee determines that such transaction or event affects
the Common Stock such that an adjustment pursuant to this Section 5.3(c) is
appropriate to prevent dilution or enlargement of the benefits made
available under the Plan

5.4 Vesting of Accounts.

Subject to the limitations of Section 7 hereof, balances credited to Participants’
Accounts shall be nonforfeitable.

 

13

 

Section 6. Distributions

6.1 Exclusive Entitlement to Payment.

A Participant’s deferral election pursuant to Section 3 hereof shall constitute a
waiver of his right to receive the amount deferred and an agreement to receive in lieu
thereof the amounts payable to him at the times and in the methods specified in this Section
6. No other amounts shall be due under the Plan or otherwise as a result of a Participant’s
deferral election under Section 3 hereof.

6.2 Payment.

(a) Time of Payment. The amount credited to a Participant’s Account pursuant
to Section 5 hereof shall be paid at the time(s) specified by the Participant. If the
deferred amounts are subject to more than one distribution election made in accordance with
Section 3.4 hereof, then the portion of the Account that is subject to each election shall
be distributed in accordance with the applicable election.

(b) Form of Payment. All amounts credited to the Deferred Cash Subaccount
shall be paid in cash. All amounts credited to the DSU Subaccount shall be paid solely in
 shares of Common Stock, except that cash shall be paid in lieu of fractional shares. Any
reference in the Plan to a payment of DSUs shall refer to a distribution of shares of Common
Stock equal to the number of DSUs, except that it shall refer to a payment of cash in lieu
of a fractional share. For this purpose, the cash value of a fractional share shall be
determined in accordance with Section 5.3(b) hereof.

(c) Effect of Deferral on Restriction or Vesting Period. If a share of Common
Stock would have been subject to any restriction or vesting period upon transfer to a
Participant under an Option or Performance Share Award in the absence of a deferral
election, such share shall be subject to such restriction or vesting period upon payment
from the Plan; provided however, that any period of deferral under the Plan shall be
credited toward the satisfaction of any such restriction or vesting period.

6.3 Death of Participant.

(a) Amount of Death Benefit. Any amount credited to a Participant’s Account
hereunder that is unpaid at the time of the Participant’s death shall be paid in a single
lump sum to the Beneficiary designated by the Participant.

(b) Payment of Death Benefits. A distribution pursuant to this Section 6.3
shall be made to the Participant’s Beneficiary within 90 days after the Committee receives
written notification of the Participant’s death, together with any additional information or
documentation that the Committee determines to be necessary or appropriate before it makes
the distribution.

 

14

 

6.4 Hardship Distributions.

At any time, upon the written application of the Participant, the Committee may (i)
reduce or eliminate the Participant’s future deferrals of Bonus Compensation or Performance
Shares hereunder, (ii) revoke all of the Participant’s outstanding deferral elections with
respect to Options and/or SARs in accordance with Section 3.3(c) hereof, or (iii) accelerate
and pay in a lump sum to the Participant all or part of the balance of the Participant’s
Account hereunder, or all of the above, if the Committee finds, in its sole discretion, that
the Participant has incurred or will incur a severe financial hardship resulting from an
accident or illness with respect to the Participant, his spouse, or his dependent (as
defined in Section 152 of the Code), or other event beyond the Participant’s control. In
such circumstances, the Committee shall reduce or eliminate the future deferrals, revoke all
Option and/or SAR deferral elections and/or accelerate the payment only to the extent
reasonably necessary to eliminate or to avoid the severe financial hardship.

 

15

 

Section 7. Nature of Participant’s Interest in Plan

7.1 No Right to Assets.

Participation in the Plan does not create, in favor of any Participant or Beneficiary,
any right or lien in or against any asset of the Company. Nothing contained in the Plan,
and no action taken under its provisions, will create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and a Participant or any other
person. Each account and investment established under the Plan shall be hypothetical in
nature and shall be maintained for bookkeeping purposes only. The accounts established
under the Plan shall hold no actual funds or assets. The Company’s promise to pay benefits
under the Plan will, at all times remain unfunded as to each Participant and Beneficiary,
whose rights under the Plan are limited to those of a general and unsecured creditor of the
Company.

7.2 No Right to Transfer Interest.

Rights to benefits payable under the Plan are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. However, the
Committee may permit a Participant or Beneficiary to enter into a revocable arrangement to
pay all or part of his benefits under the Plan to a revocable grantor trust (a so-called
“living trust”) In addition, the Committee may recognize the right of an alternate payee
named in a domestic relations order to receive all or part of a Participant’s benefits under
the Plan, but only if (a) the domestic relations order would be a “qualified domestic
relations order”) within the meaning of Section 414(p) of the Code (if Section 414(p)
applied to the Plan), (b) the domestic relations order does not attempt to give the
alternate payee any right to any asset of the Company, (c) the domestic relations order does
not attempt to give the alternate payee any right to receive payments under the Plan at a
time or in an amount that the Participant could not receive under the Plan, and (d) the
amount of the Participant’s benefits under the Plan are reduced to reflect any payments made
or due the alternate payee.

7.3 No Employment Rights.

No provisions of the Plan and no action taken by the Company, the Board, the
Compensation Committee, or the Committee will give any person any right to be retained in
the employ of the Company, and the Company specifically reserves the right and power to
dismiss or discharge any Participant.

7.4 Withholding and Tax Liabilities.

The amount of any withholdings required to be made by any government or government
agency will be deducted from benefits paid under the Plan to the extent deemed necessary by
the Committee. In addition, the Participant or Beneficiary (as the case may be) will bear
the cost of any taxes not withheld on benefits provided under the Plan, regardless of
whether withholding is required.

 

16

 

Section 8. Administration, Interpretation, and Modification of Plan

8.1 Plan Administrator.

The Committee will administer the Plan.

8.2 Powers of Committee.

The Committee’s powers include, but are not limited to, the power to adopt rules
consistent with the Plan; the power to decide all questions relating to the interpretation
of the terms and provisions of the Plan; the power to determine the number and nature of the
rate of return indices specified on Exhibit A attached hereto; the power to compute the
amount of benefits that shall be payable to any Participant or Beneficiary in accordance
with the provisions of the Plan, and in the event that the Committee determines that
excessive benefits have been paid to any person, the Committee may suspend payment of future
benefits to such person or his Beneficiary or reduce the amount of such future benefits
until the excessive benefits and any interest thereon determined by the Committee have been
recovered; and the power to resolve all other questions arising under the Plan (including,
without limitation, the power to remedy possible ambiguities, inconsistencies, or omissions
by a general rule or particular decision). The Committee has discretionary authority to
exercise each of the foregoing powers.

8.3 Finality of Committee Determinations.

Determinations by the Committee and any interpretation, rule, or decision adopted by
the Committee under the Plan or in carrying out or administering the Plan will be final and
binding for all purposes and upon all interested persons, their heirs, and their personal
representatives.

8.4 Required Information.

Any person eligible to receive benefits hereunder shall furnish to the Committee any
information or proof requested by the Committee and reasonably required for the proper
administration of the Plan. Failure on the part of any person to comply with any such
request within a reasonable period of time shall be sufficient grounds for delay in the
payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false
statement that is material to such person’s claim for benefits, the Committee may offset
against future payments any amount paid to such person to which such person was not entitled
under the provisions of the Plan.

8.5 Incapacity.

If the Committee determines that any person entitled to benefits under the Plan is
unable to care for his affairs because of illness or accident, any payment due (unless a
duly qualified guardian or other legal representative has been appointed) may be paid for
the benefit of such person to his spouse, parent, brother, sister, or other party
deemed by the Committee to have incurred expenses for such person.

 

17

 

8.6 Amendment, Suspension, and Termination.

(a) Board. The Board has the right by written resolution to amend, suspend, or
terminate the Plan at any time provided that no such amendment, suspension, or termination
of the Plan shall divest any Participant of the balance credited to his Account as of the
effective date of such amendment, suspension, or termination, except to the extent that an
affected Participant consents in writing to the amendment, suspension, or termination, and
provided further, however, that the Plan may be amended at any time and without the consent
of the Participants to provide that DSUs shall be paid in cash rather than in shares of
Common Stock.

(b) Committee. The Board delegates to the Committee the right by written
resolution to amend the Plan for the limited purpose of amending Exhibit A of the Plan.

8.7 Change in Control.

Notwithstanding Section 8.6 hereof, 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, 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 deferred amounts,

(b) altering the meaning or operation of the definition of “Change in Control” in
Section 2 hereof (and of the definition of all the defined terms that appear in the
definition of “Change in Control”), the provisions of Section 8.6 hereof or this Section
8.7, or any rule, regulation, procedure, provision or determination made or adopted prior to
the Change in Control pursuant to Section 8.6 hereof 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.

 

18

 

Upon and after the occurrence of a Change in Control, all rights of all Participants,
former Participants and Beneficiaries under the Plan (including, without limitation, any
rules, regulation or procedures promulgated under the Plan) shall be contractual rights
enforceable against the Company and any successor to all or substantially all of the
Company’s business or assets. 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.

8.8 Power to Delegate Authority.

(a) Board. The Board may, in its sole discretion, delegate to any person or
persons all or part of its authority and responsibility under the Plan, including, without
limitation, the authority to amend the Plan.

(b) Administrative. The Committee may, in its sole discretion, delegate to any
person or persons all or part of its authority and responsibility under the Plan.

8.9 Inability to Locate Participants and Beneficiaries.

Each Participant or Beneficiary entitled to receive payment under the Plan shall keep
the Committee advised of his current address. If the Committee is unable for a period of
thirty-six (36) months to locate a Participant or Beneficiary to whom a payment is due, the
total amount payable shall be forfeited. Should the Participant or Beneficiary request
payment thereafter, the Committee shall, upon satisfaction of its requests for any
corroborating documentation, restore and pay the forfeited amount in a lump sum, the value
of which shall not be adjusted for any earnings or gains during the period of forfeiture.

8.10 Headings.

The 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.

8.11 Severability.

If any provision of the Plan is held illegal or invalid for any reason, the illegality
or invalidity of that provision will not affect the remaining provisions of the Plan, and
the Plan will be construed and enforced as if the illegal or invalid provision had never
been included in the Plan.

 

19

 

8.12 Governing Law.

The Plan will be construed, administered, and regulated in accordance with the laws of
the State of Delaware, except to the extent that those laws are preempted by federal law.

8.13 Complete Statement of Plan.

This Plan contains a complete statement of its terms. This Plan and elections made
pursuant to this Plan supersede any conflicting terms of the Bonus Plan, the PIP, or any
agreement executed pursuant to the Bonus Plan or the PIP. The Plan may be amended,
suspended, or terminated only in writing and then only as provided in Section 8.6 hereof. A
Participant’s right to any benefit of a type provided under the Plan will be determined
solely in accordance with the terms of the Plan. No other evidence, whether written or
oral, will be taken into account in interpreting the provisions of the Plan.

 

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