Document:

Performance Share Agreement - S. Robert Zola

    
      Exhibit
        10.4

    

     

     

    
      
        

          PERFORMANCE
            SHARE AGREEMENT

          

          pursuant
            to the

          

          CHESAPEAKE
            UTILITIES CORPORATION

          PERFORMANCE
            INCENTIVE PLAN

          

          

          AGREEMENT
            dated as of December 26, 2005, and entered into, in duplicate, by and
            between
            Chesapeake Utilities Corporation, a Delaware corporation (the "Company"),
            and S.
            Robert Zola (the "Grantee") who resides at [address of executive].

          

          WITNESSETH
            that:

          

          WHEREAS,
            the Chesapeake Utilities Corporation Performance Incentive Plan (the
            "Plan"), to
            be effective January 1, 2006, has been duly adopted by action of the
            Company's
            Board of Directors (the "Board") on February 24, 2005 and by its shareholders
            on
            May 5, 2005; and

          

          WHEREAS,
            the Committee of the Board of Directors of the Company referred to in
            the Plan
            (the "Committee") has determined that it is in the best interests of
            the Company
            to grant the Performance Share Award described herein pursuant to the
            Plan;
            and

          

          WHEREAS,
            the shares of the Common Stock of the Company (“Shares”) that are subject to
            this Agreement, when added to the other shares of Common Stock that are
            subject
            to awards granted under the Plan, do not exceed the total number of shares
            of
            Common Stock with respect to which awards are authorized to be granted
            under the
            Plan;

          

          

          NOW,
            THEREFORE, it is hereby covenanted and agreed by and between the Company
            and the
            Grantee as follows:

          

          Section
            1. Performance
            Share Award

          

          The
            Company hereby grants to the Grantee a Performance Share Award for the
            year
            ending December 31, 2006 (the "Award Year") and the three years ending
            December
            31, 2008 (the “Award Period”). As more fully described herein, the Grantee may
            earn a maximum total of 9,600 Shares (the "Contingent Performance Shares")
            upon
            the Company's achievement of the Performance Goals set forth in Section
            2.
            Alternatively, the Grantee may elect to receive 2,400 Shares (the "Forfeitable
            Performance Shares"), as detailed in Section 3, in lieu of receiving
            any
            Contingent Performance Shares. The Forfeitable Performance Shares shall
            be
            subject to forfeiture conditions, as set forth in Section 3(c).

          

          Section
            2. Contingent
            Performance Shares

          

          	(a)  	
                  As
                    soon as practicable after the Company’s independent auditors have
                    certified the Company’s financial statements for the Award Year, the
                    Committee shall determine for purposes of this Agreement the
                    Company’s (1)
                    Shareholder Value and (2) earnings growth (“EG”) as of the end of the
                    Award Year. The Shareholder Value and EG shall be determined
                    by the
                    Committee in accordance with the terms of the Plan and this Agreement
                    based on financial results reported to shareholders in the Company’s
                    annual reports and shall be subject to adjustment by the Committee
                    for
                    extraordinary events during the Award Year. The Committee shall
                    promptly
                    notify the Grantee of its determination.

                

          

          	(b)  	
                  The
                    Grantee may earn up to 960 Contingent Performance Shares for
                    each Award
                    Year (the “Annual Award”) of the Award Period, as
                    follows:

                

          

          (1) The
            performance measured for Shareholder Value will be the value of $10,000
            invested
            in the Company stock compared to a Utility Index. If the Company’s performance
            exceeds the Utility Index, the Grantee will be eligible for the Annual
            Award. If
            the value of $10,000 invested for each Award Year does not exceed the
            Utility
            Index for the respective Award Year, the Grantee shall not earn any Contingent
            Performance Shares under this Paragraph (b)(1).

          

          	(c)  	
                  The
                    Grantee may earn up to 6,720 Contingent Performance Shares at
                    the end of
                    the Award Period (the “Three-Year Award”) as follows, subject to the
                    restrictions specified in Section 3(a), and further described
                    in Section
                    2(c)(2) below:

                

          

          (1) The
            performance measured for earnings growth will be based upon the Company’s
            Delmarva propane distribution operation generating at least the target
            level of
            earnings, before interest expense and income taxes (“target EBIT”), over the
            Award Period. If the Delmarva propane distribution operation achieves
            the target
            EBIT, the Grantee will be eligible for the Three-Year Award. If the target
            EBIT
            in the Company’s Delmarva propane distribution operation is not achieved for the
            Award Period, the Grantee will not be eligible to any Contingent Performance
            Shares under this Paragraph (c)(1).

          

          (2) If
            the
            Grantee is eligible to receive the Three-Year Award, but has received
            Forfeitable Performance Shares for 2006 and/or 2007, the number of Contingent
            Performance Shares awarded at the end of the Award Period shall equal
            6,720 less
            any Forfeitable Performance Shares received.

          

          (d) Contingent
            Performance Shares that are earned by the Grantee pursuant to this Section
            2
            shall be issued promptly, without payment of consideration by the Grantee,
            within 2 1⁄2 months of the end of the Award Year. The Grantee shall have the right
            to vote the Contingent Performance Shares and to receive the dividends
            distributable with respect to such shares on and after, but not before,
            the date
            on which the Grantee is recorded on the Company's ledger as holder of
            record of
            the Contingent Performance Shares (the "Issue Date"). If, however, the
            Grantee
            receives Shares as part of any dividend or other distribution with respect
            to
            the Contingent Performance Shares, such Shares shall be treated as if
            they are
            Contingent Performance Shares, and such Shares shall be subject to all
            of the
            terms and conditions imposed by this Section 2. 

          

          (e) Sale,
            transfer, pledge, or hypothecation of the Contingent Performance Shares
            shall be
            prohibited for a period of three (3) years after the Issue Date (the
            "Limitation
            Period"), and the Performance Shares shall bear a restrictive legend
            to that
            effect. Any attempt to dispose of Contingent Performance Shares in contravention
            of this Agreement shall be ineffective. Upon expiration of the Limitation
            Period, the transfer restrictions imposed by this Section shall expire,
            and new
            certificates representing the Contingent Performance Shares, without
            the
            restrictive legend described in this paragraph (d), shall be issued,
            subject to
            the provisions of paragraph (e) of this Section 2.

          

          (f) The
            Performance Shares will be not registered for resale under the Securities
            Act of
            1933 or the laws of any state except when and to the extent determined
            by the
            Board pursuant to a resolution. Until a registration statement is filed
            and
            becomes effective, however, transfer of the Contingent Performance Shares
            after
            expiration of the Limitation Period shall require the availability of
            an
            exemption from such registration, and prior to the issuance of new certificates,
            the Company shall be entitled to take such measures as it deems appropriate
            (including but not limited to obtaining from the Grantee an investment
            representation letter and/or further legending the new certificates)
            to ensure
            that the Contingent Performance Shares are not transferred in the absence
            of
            such exemption.

          

          (g) In
            the
            event of a Change in Control, as defined in the Plan, during the Award
            Period,
            the Grantee shall earn at least the Maximum Award of Contingent Performance
            Shares set forth in this Section 2, as if all employment and performance
            criteria were satisfied, without any pro ration based on the proportion
            of the
            Award Period that has expired as of the date of such Change in
            Control.

          

          (h) If,
            during the Award Period, the Grantee is separated from employment, Contingent
            Performance Shares shall be deemed earned or forfeited as follows:

          

          (1) Upon
            voluntary termination by the Grantee (other than for retirement at age
            65 or as
            accepted by the Committee) or termination by the Company for failure
            of job
            performance or other just cause as determined by the Committee, all unearned
            Contingent Performance Shares shall be forfeited immediately;

          

          (2) If
            the
            Grantee separates from employment by reason of death or total and permanent
            disability (as determined by the Committee), the number of Contingent
            Performance Shares that would otherwise have been earned at the end of
            the Award
            Period shall be reduced by pro rating such Contingent Performance Shares
            based
            on the proportion of the Award Period during which the Grantee was employed
            by
            the Company, unless the Committee determines that the Contingent Performance
            Shares shall not be so reduced;

          

          (3) Retirement
            of the Grantee at age 65 or as accepted by the Committee shall not affect
            the
            Contingent Performance Shares, which shall continue to be earned through
            the
            remainder of the Award Period, as set forth above.

          

          (i) The
            Grantee shall be solely responsible for any federal, state and local
            taxes of
            any kind imposed in connection with the delivery of Contingent Performance
            Shares. Prior to the transfer of any Contingent Performance Shares to
            the
            Grantee, the Grantee shall remit to the Company an amount sufficient
            to satisfy
            any federal, state, local and other withholding tax requirements. The
            Grantee
            may elect to have all or part of any withholding tax obligation satisfied
            by
            having the Company withhold Shares otherwise deliverable to the Grantee
            as
            Contingent Performance Shares, unless the Committee determines otherwise
            by
            resolution. If the Grantee fails to make such payments or election, the
            Company
            and its subsidiaries shall, to the extent permitted by law, have the
            right to
            deduct from any payments of any kind otherwise due to the Grantee any
            taxes
            required by law to be withheld with respect to the Contingent Performance
            Shares.

          

          Section
            3. Forfeitable
            Performance Shares

          

          (a) In
            lieu
            of earning Contingent Performance Shares, the Grantee may elect to receive
            2,400
            Forfeitable Performance Shares, irrespective of whether the Company meets
            any
            Performance Goals. For each of the three years of the Award Period, the
            Grantee
            may elect to receive 800 Forfeitable Performance Shares per year. The
            Grantee
            must make any such election on or before September 30, of the respective
            year,
            and the election must be made in writing, in a manner prescribed by the
            Committee. Once made, the election is irrevocable. If a Grantee makes
            such an
            election, he shall not receive any Contingent Performance Shares under
            this
            Agreement. 

          

          (b) Any
            Forfeitable Performance Shares received by the Grantee pursuant to this
            Section
            3 shall be issued as promptly as possible after December 31, of the year
            the
            respective election is made, without payment of consideration by the
            Grantee.
            The Grantee shall have the right to vote the Forfeitable Performance
            Shares and
            to receive the dividends distributable with respect to such Shares on
            and after,
            but not before, the date on which the Grantee is recorded on the Company's
            ledger as holder of record of the Forfeitable Performance Shares (the
            "Issue
            Date"). If, however, the Grantee receives Shares as part of any dividend
            or
            distribution with respect to the Forfeitable Performance Shares, such
            Shares
            shall be treated as if they are Forfeitable Performance Shares, and such
            Shares
            shall be subject to all of the terms and conditions imposed by this Section
            3.

          

          (c) The
            Forfeitable Performance Shares shall be subject to the following
            restrictions:

          

          (1) Sale,
            transfer, pledge or hypothecation of the Forfeitable Performance Shares
            shall be
            prohibited for a period of three (3) years after the Issue Date (the
            "Restriction Period"), and the certificates evidencing the Forfeitable
            Performance Shares shall bear an appropriate restrictive legend that
            refers to
            the terms, conditions, and restrictions set forth in this Agreement.
            Any attempt
            to dispose of Forfeitable Performance Shares in contravention of this
            Agreement
            shall be ineffective. Upon expiration of the Restriction Period, the
            transfer
            restrictions imposed by this Section shall expire, and new certificates
            representing the Forfeitable Performance Shares, without the restrictive
            legend
            described in this paragraph (c)(1), shall be issued, subject to the provisions
            of paragraph (f) of this Section 3.

          

          (2) If,
            during the Restriction Period, the Grantee separates from employment
            for any
            reason other than death, normal retirement, total and permanent disability
            (as
            determined by the Committee), or involuntary termination without cause
            (as
            determined by the Committee), all Forfeitable Performance Shares shall
            be
            forfeited immediately.

          

          (d) All
            restrictions under paragraph (c) of this Section 3 shall immediately
            expire on
            the earliest of: (A) the Grantee's separation from employment because
            of death,
            total and permanent disability (as determined by the Committee), or involuntary
            termination without cause (as determined by the Committee), (B) a Change
            in
            Control, as defined in the Plan, or (C) the end of the Restriction Period.
            

          

          (e) 
            If,
            after the Grantee has made an election to receive Forfeitable Performance
            Shares
            pursuant to Section 3(a), a Change in Control, as defined in the Plan,
            occurs
            during the Award Period, the Grantee shall receive at least the total
            number of
            Forfeitable Performance Shares due under this Agreement, without any
            pro ration
            based on the proportion of the Award Period that has expired as of the
            date of
            such Change in Control. Pursuant to Section 3(d), such Shares shall not
            be
            subject to any of the restrictions imposed by this Section.

          

          (f) The
            Forfeitable Performance Shares shall be not registered for resale under
            the
            Securities Act of 1933 or the laws of any state except when and to the
            extent
            determined by the Board pursuant to a resolution. Until a registration
            statement
            is filed and becomes effective, however, transfer of the Forfeitable
            Performance
            Shares after expiration of the Restriction Period shall require the availability
            of an exemption from such registration, and prior to the issuance of
            new
            certificates, the Company shall be entitled to take such measures as
            it deems
            appropriate (including but not limited to obtaining from the Grantee
            an
            investment representation letter and/or further legending the new certificates)
            to ensure that the Forfeitable Performance Shares are not transferred
            in the
            absence of such exemption.

          

          (g) The
            Grantee shall be solely responsible for any federal, state and local
            taxes of
            any kind imposed in connection with receipt of the Forfeitable Performance
            Shares:

          

          (1) The
            Grantee agrees that, no later than the date that the restrictions set
            forth in
            Section 3(c) lapse, he shall remit to the Company an amount sufficient
            to
            satisfy any federal, state, local and other withholding tax requirements.
            

          

          (2) The
            Grantee may elect to have all or part of any withholding tax obligation
            satisfied by having the Company withhold Shares otherwise deliverable
            to the
            Grantee in connection with the Award of Restricted Stock, unless the
            Committee
            determines otherwise by resolution.

          

          (3) If
            the
            Grantee properly elects, within 30 days of the Issue Date, to include
            in gross
            income for federal income tax purposes an amount equal to the fair market
            value
            of the Forfeitable Performance Shares, he shall make arrangements satisfactory
            to the Committee to remit in the year of issue an amount sufficient to
            satisfy
            any federal, state, local and other withholding tax requirements with
            respect to
            such Forfeitable Performance Shares. 

          

          (4) If
            the
            Grantee fails to make satisfactory arrangements to meet all withholding
            tax
            obligations, the Company and its subsidiaries shall, to the extent permitted
            by
            law, have the right to deduct from any payments of any kind otherwise
            due to the
            Grantee any taxes required by law to be withheld with respect to the
            Forfeitable
            Performance Shares.

          

          Section
            4. Additional
            Conditions to Issuance of Shares

          

          Each
            transfer of Contingent Performance Shares or Forfeitable Performance
            Shares
            (together, the "Award Shares") shall be subject to the condition that
            if at any
            time the Committee shall determine, in its sole discretion, that it is
            necessary
            or desirable as a condition of, or in connection with, transfer of Award
            Shares
            (i) to satisfy withholding tax or other withholding liabilities, (ii)
            to effect
            the listing, registration or qualification on any securities exchange
            or under
            any state or federal law of any Shares deliverable in connection with
            such
            exercise, or (iii) to obtain the consent or approval of any regulatory
            body,
            then in any such event such transfer shall not be effective unless such
            withholding, listing, registration, qualification, consent or approval
            shall
            have been effected or obtained free of any conditions not acceptable
            to the
            Company.

          

          Section
            5. Adjustment
            of Shares

          

          (a) If
            the
            Company shall become involved in a merger, consolidation or other
            reorganization, whether or not the Company is the surviving corporation,
            any
            right to earn Contingent Performance Shares or to elect to receive Forfeitable
            Performance Shares shall be deemed a right to earn or to elect to receive
            the
            consideration into which the Shares represented by the Contingent Performance
            Shares or by the Forfeitable Performance Shares would have been converted
            under
            the terms of the merger, consolidation or other reorganization. If the
            Company
            is not the surviving corporation, the surviving corporation (the "Successor")
            shall succeed to the rights and obligations of the Company under this
            Agreement.

          

          (b) If
            any
            subdivision or combination of Shares or any stock dividend, capital
            reorganization or recapitalization occurs after the adoption of the Plan,
            the
            Committee shall make such proportionate adjustments as are appropriate
            to the
            number of Contingent Performance Shares to be earned and/or to the number
            of
            Forfeitable Performance Shares to be received in order to prevent the
            dilution
            or enlargement of the rights of the Grantee.

          

          Section
            6. No
            Right to Employment

          

          Nothing
            contained in this Agreement shall be deemed by implication or otherwise
            to
            confer upon the Grantee any right to continued employment by the Company
            or any
            affiliate of the Company.

          

          Section
            7. Notice

          

          Any
            notice to be given hereunder by the Grantee shall be sent by mail addressed
            to
            Chesapeake Utilities Corporation, 909 Silver Lake Boulevard, Dover, Delaware
            19904, for the attention of the Committee, c/o the Secretary, and any
            notice by
            the Company to the Grantee shall be sent by mail addressed to the Grantee
            at the
            address of the Grantee shown on the first page hereof. Either party may,
            by
            notice given to the other in accordance with the provisions of this Section,
            change the address to which subsequent notices shall be sent.

          

          Section
            8. Assumption
            of Risk

          

          It
            is
            expressly understood and agreed that the Grantee assumes all risks incident
            to
            any change hereafter in the applicable laws or regulations or incident
            to any
            change in the market value of the Award Shares.

          

          Section
            9. Terms
            of Plan

          

          This
            Agreement is entered into pursuant to the Plan (a copy of which has been
            delivered to the Grantee). This Agreement is subject to all of the terms
            and
            provisions of the Plan, which are incorporated into this Agreement by
            reference,
            and the actions taken by the Committee pursuant to the Plan. In the event
            of a
            conflict between this Agreement and the Plan, the provisions of the Plan
            shall
            govern. All determinations by the Committee shall be in its sole discretion
            and
            shall be binding on the Company and the Grantee.

          

          Section
            10. Governing
            Law; Amendment

          

          This
            Agreement shall be governed by, and shall be construed and administered
            in
            accordance with, the laws of the State of Delaware (without regard to
            its choice
            of law rules) and the requirements of any applicable federal law. This
            Agreement
            may be modified or amended only by a writing signed by the parties
            hereto.

          

          Section
            11. Terms
            of Agreement

          

          This
            Agreement shall remain in full force and effect and shall be binding
            on the
            parties hereto for so long as any Award Shares issued to the Grantee
            under this
            Agreement continue to be held by the Grantee.

          

          IN
            WITNESS WHEREOF, the Company has caused this Agreement to be executed
            in its
            corporate name, and the Grantee has executed the same in evidence of
            the
            Grantee's acceptance
            hereof, upon the terms and conditions herein set forth, as of the day
            and year
            first above written.

          

          CHESAPEAKE
            UTILITIES CORPORATION

          

          

          By: ___________________________________

          

          

          ___________________________________

          S.
            Robert
            Zola, GranteeExecutive Officer Compensation Arrangements

    
      

        Exhibit
          10.5

      

    

    

      EXECUTIVE
        OFFICER COMPENSATION ARRANGEMENTS

      

      The
        following table sets forth for each named executive officer of Chesapeake
        Utilities Corporation (“Chesapeake”) (which officers were determined by
        reference to Item 402(a)(3) of SEC Regulation S-K based on 2005 compensation)
        information concerning determinations made with respect to the compensation
        paid
        or payable for services in all capacities to Chesapeake and its subsidiaries,
        which compensation decisions may be deemed the entry into or the amendment
        of a
        material contract within the meaning of Item 601(b)(10) of SEC Regulation
        S-K.
        These decisions consisting of (i) the establishment of the executive’s base
        salary for 2006, (ii) the determination of the executive’s annual bonus for 2005
        under the Cash
        Bonus Incentive Plan,
        (iii)
        the establishment of the executive’s 2006 target cash bonus (as a percentage of
        salary) under the Cash Bonus Incentive Plan, (iv) determination of the
        executive’s restricted stock award for 2005 under the Performance Incentive Plan
        and (v) the establishment of the executive’s target restricted stock award for a
        performance cycle ending December 31, 2006 under the Performance Incentive
        Plan.

       

      

        
          	
                  Name
                    and Pricipal Position

                	 	
                  2006
                    Base Salary

                	 	
                  2005
                    Cash Bonus

                	 	
                  2006
                    Cash Bonus Target (1)

                	 	
                  2005
                    Restricted Stock Awards (3)

                	 	
                  2006
                    Restricted Stock Awards Target (4)

                	 	 	 
	
                  John
                    R. Schimkaitis, President, CEO and Director

                	 	
                  $

                	
                  360,000

                	 	
                  $

                	
                  134,703

                	 	 	
                  40%

                	
                   

                	 	
                  8,400
                    

                	 	 	
                  9,600
                    

                	 	 	 
	
                  Paul
                    M. Barbas, Executive Vice President and COO

                	 	
                  $

                	
                  290,000

                	 	
                  $

                	
                  81,032

                	 	 	
                  35%

                	
                   

                	 	
                  4,480
                    

                	 	 	
                  6,820
                    

                	 	 	 
	
                  Michael
                    P. McMasters, Sr. Vice President and CFO

                	 	
                  $

                	
                  246,000

                	 	
                  $

                	
                  76,947

                	 	 	
                  30%

                	
                   

                	 	
                  4,480
                    

                	 	 	
                  5,120
                    

                	 	 	 
	
                  Stephen
                    C. Thompson, Sr. Vice President

                	 	
                  $

                	
                  243,000

                	 	
                  $

                	
                  55,202

                	 	 	
                  25%

                	
                   

                	 	
                  7,680
                    

                	 	 	
                  3,200
                    (5)

                	 	 	 
	
                  S.
                    Robert Zola, President, Sharp Energy, Inc.

                	 	
                  $

                	
                  135,000

                	 	
                  $

                	
                  28,456

                	 	 	
                  30%
                    (2)

                	 	 	
                  7,680
                    

                	 	 	
                  3,200
                    (5)

                	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  (1)
                    Up
                    to 150% of this cash bonus target can be earned to the extent
                    certain
                    performance targets are achieved. The performance targets are
                    based upon
                    the following performance criteria: (i) earnings per share, (ii)
                    pretax
                    return on average investment of the Company’s
regulated
                    natural gas operations and (iii) earnings before interest and
                    taxes of the
                    Company’s
                    Delmarva
                    propane distribution operations.

                	 	 	 
	
                  (2)
                    Mr. Zola has an additional cash bonus arrangement under which
                    he can earn
                    a cash bonus equal to 10% of actual propane distribution net
                    income in
                    excess of the upper end of a target income range.

                	 	 	 
	
                  (3)
                    Represents the shares of Chesapeake stock awarded to each executive
                    for
                    2005 under the Performance Incentive Plan.

                	 	 	 
	
                  (4)
                    Represents a target restricted share award granted to each executive
                    under
                    the Performance Incentive Plan for the performance period ending
                    December
                    31, 2006. Messrs. Schimkaitis, Barbas and McMasters can earn
                    up to 100% of
                    the target restricted stock award to the extent the following
performance
                    criteria are attained: (i) earnings growth based on the achievement
                    of
                    targeted measures of earnings for the Company’s
                    regulated
                    natural gas operations, Delmarva propane distribution operations,
                    and
                    overall corporate results, (ii) growth in non-regulated investments
                    based
                    upon the achievement of established milestones and objectives
                    under the
                    Company’s long-term strategic plan, and (iii) shareholder value as
                    measured by the performance of the Company’s stock price (including the
                    reinvestment of dividends), in relationship to an index of industry
                    peers.

                	 	 	 
	
                  (5)
                    For 2006, Messrs. Thompson and Zola can earn up to 960 shares
                    of
                    restricted stock , contingent upon Chesapeake achieving specified
                    performance goals relative to the Industry Peer Group relating
                    to
                    stockholder value performance.
                    Mr. Thompson is also entitled to earn 2,240 shares of restricted
                    stock if
                    the Company’s
                    natural
                    gas segment achieves at least 90% of the target pre-tax return
                    on
                    investment over the three-year period January 1, 2006 to December
                    31,
                    2008. Mr. Zola is also entitled to earn
                    2,240 shares of restricted stock if the Company’s
                    propane
                    distribution income exceeds the income target for the three-year
                    period
                    January 1, 2006 to December 31, 2008.

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