<PAGE>
CHESAPEAKE UTILITIES CORPORATION
909 SILVER LAKE BOULEVARD
DOVER, DELAWARE 19904
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF
CHESAPEAKE UTILITIES CORPORATION: April 1, 1997
The Annual Meeting of Stockholders of Chesapeake Utilities Corporation will
be held at 10:00 a.m. on Tuesday, May 20, 1997, in the Board Room, PNC Bank,
Delaware, 222 Delaware Avenue, Wilmington, Delaware, for the following purposes:
(a) to elect three Class I directors for three-year terms ending in 2000
and until their successors are elected and qualified;
(b) to consider and vote upon the ratification of the selection of Coopers
& Lybrand, L.L.P. as independent auditors for the fiscal year ending
December 31, 1997; and
(c) to transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 24, 1997, will be
entitled to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors,
Wayne L. Hart
Secretary
STOCKHOLDERS ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE, WHETHER OR NOT THEY ARE PERSONALLY ABLE TO ATTEND.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION
909 SILVER LAKE BOULEVARD
DOVER, DELAWARE 19904
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
April 1, 1997
SOLICITATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Chesapeake Utilities Corporation ("Chesapeake" or the "Company")
for use at the Annual Meeting of Stockholders of Chesapeake to be held in the
Board Room, PNC Bank, Delaware, 222 Delaware Avenue, Wilmington, Delaware at
10:00 a.m. on May 20, 1997, and at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders.
Solicitation of proxies may be made by personal interview, mail, telephone or
telegram by directors, officers and regular employees of Chesapeake. Chesapeake
may also request banking institutions, brokerage firms, custodians, trustees,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of capital stock held of record by such persons, and Chesapeake will
reimburse any such forwarding expenses. In addition, Chesapeake may engage
professional proxy solicitors, although it has no present plans to do so. All
costs of preparing, printing, assembling and mailing the form of proxy and the
material used in the solicitation thereof and all clerical and other expenses of
solicitation will be borne by Chesapeake. Regular employees of Chesapeake will
not receive additional compensation for soliciting proxies.
REVOCATION OF PROXY
The giving of a proxy does not preclude the right to vote in person should
the person giving the proxy so desire. In addition, the person giving the proxy
has the power to revoke the same at any time before it has been exercised by
simple notice in writing received by the Secretary of Chesapeake.
SIGNATURES OF PROXIES IN CERTAIN CASES
If a stockholder is a corporation, the accompanying proxy should be signed
in its corporate name by an authorized officer, and his or her title should be
indicated. If stock is registered in the name of two or more trustees or other
persons, the proxy should be signed by each of them. If stock is registered in
the name of a decedent, the proxy should be signed by an executor or an
administrator, there should be attached to the proxy appropriate instruments
showing his or her qualification and authority, and his or her title as such
should follow the signature. Proxies signed by a person as an agent, attorney,
administrator, executor, guardian or trustee should indicate such person's title
following his or her signature.
<PAGE>
ANNUAL REPORT
The annual report to stockholders, covering the fiscal year of Chesapeake
ended December 31, 1996, is enclosed herewith. The report, which includes
financial statements, does not form any part of the material for the
solicitation of proxies.
VOTING SECURITIES OUTSTANDING
Shares of common stock, 4,452,704 of which were outstanding as of
March 24, 1997, are the only outstanding voting securities of the Company.
Each share is entitled to one vote. Only holders of common stock of record at
the close of business on March 24, 1997, will be entitled to vote at the Annual
Meeting of Stockholders.
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
BY MANAGEMENT
The following table sets forth the number of shares of Chesapeake's common
stock beneficially owned by each of Chesapeake's directors and nominees for
director, by each executive officer named in the Summary Compensation Table, and
by all directors and executive officers as a group, as of March 24, 1997.
Except as otherwise indicated, each individual named has sole investment and
voting power with respect to the securities shown.
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL OR GROUP BENEFICIAL OWNERSHIP/1/ OF CLASS
- --------------------------- ----------------------- --------
Ralph J. Adkins 66,423 1.46%
Richard Bernstein 833 *
Walter J. Coleman 1,800 *
John W. Jardine, Jr. 25,442 *
Rudolph M. Peins, Jr. 2,491 *
Robert F. Rider 5,755 *
John R. Schimkaitis 31,996 *
Jeremiah P. Shea 2,613 *
William G. Warden, III 230,799/2/ 5.07%
Philip S. Barefoot 6,140 *
Jeremy D. West 22,528 *
Executive Officers and Directors
as a Group (13 persons) 399,684/1/ 8.78%
_______________
*Less than one percent (1%).
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/1/ Includes shares of common stock subject to options that are currently
exercisable as follows: Mr. Adkins - 45,714; Mr. Schimkaitis - 27,762; Mr.
Barefoot - 4,420; and Mr. West - 20,187. Includes shares acquired pursuant
to the Company's Retirement Savings Plan as to which executive officers
have the authority to direct voting of their shares as follows:
Mr. Adkins - 8,600; Mr. Schimkaitis - 3,607; Mr. Barefoot - 1,516; and
Mr. West - 2,056.
/2/ Includes (1) 1,286 shares as to which Mr. Warden has sole voting and
investment power and 15,262 shares as to which he shares voting and
investment power and (2) 214,251 shares (4.81% of Chesapeake's outstanding
common stock) held by SGI Investor Partners, a company that Mr. Warden may
be deemed to control. SGI Investor Partners is controlled by Superior
Group, Inc. through two wholly owned subsidiaries, Cawsl Enterprises, Inc.
and SGI Holdings, Inc. Mr. Warden disclaims beneficial ownership of the
shares held by SGI Investor Partners.
BY OTHERS
The following table sets forth the number of shares of Chesapeake's common
stock beneficially owned by the only parties known to Chesapeake's management to
own more than 5% of Chesapeake's common stock.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
William P. Schneider 319,500 7.18%
26491 Riverbank Road
Salisbury, MD 21801
James R. Schneider 319,500 7.18%
5518 Woodbine Lane
Salisbury, MD 21801
ELECTION OF DIRECTORS
At the annual meeting to be held on May 20, 1997, three Class I Directors
will be elected to serve until the Annual Meeting of Stockholders in 2000 and
until their successors are elected and qualified. Chesapeake's nominees are
Richard Bernstein, John W. Jardine, Jr. and Rudolph M. Peins, Jr., all of
whom are currently Class I Directors of Chesapeake whose present terms expire
this year.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
Unless you instruct otherwise, it is intended that properly executed
proxies in the enclosed form will be voted FOR the election of each of the
nominees listed below. If, when the election occurs, any of the nominees shall
not be a candidate (an eventuality not anticipated), it is intended that these
proxies will be voted for any substitute nominee who may be designated by the
Nominating Committee.
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INFORMATION REGARDING THE BOARD OF DIRECTORS AND NOMINEES
The following information with respect to the principal occupation and
employment of each director and nominee and the name and principal business of
the organization in which such occupation and employment is carried on, and
information with respect to certain other affiliations and to business
experience during the past five years, has been furnished to the Company by the
respective directors and nominees:
CLASS I DIRECTORS AND NOMINEES
RICHARD BERNSTEIN (age 54)
Mr. Bernstein is President and Chief Executive Officer of BAI Aerosystems, Inc.,
located in Easton, Maryland. BAI is a manufacturer of lightweight, low cost
Unmanned Aerial Vehicles (UAVs). Mr. Bernstein is the owner of several other
companies in which he is actively involved, including: Salisbury Pewter, a
manufacturer of pewter for the gift and premium markets; Frankoma Pottery, with
unique designs in sculptured earthenware; and Easton Mills, the home of several
lines of children's apparel. He has been a director of Chesapeake since 1994.
JOHN W. JARDINE, JR. (age 70)
Mr. Jardine is Chairman of the Board of Chesapeake, a position he has held since
1989. He served as Chesapeake's Chief Executive Officer from 1983 through 1990.
Mr. Jardine has also served as President, Executive Vice President, Vice
President, Secretary, Treasurer, Assistant Secretary and Assistant Treasurer of
Chesapeake. He has been a director of Chesapeake since 1972.
RUDOLPH M. PEINS, JR. (age 67)
Mr. Peins retired in February 1993 as Chief Financial Officer and Secretary of
Hunt Manufacturing Co. located in Philadelphia, Pennsylvania. Hunt is a leading
international manufacturer and distributor of art/craft and office supplies,
materials and equipment. He has been a director of Chesapeake since 1993.
CLASS II DIRECTORS (TERM EXPIRES 1998)
RALPH J. ADKINS (age 54)
Mr. Adkins is President and Chief Executive Officer of Chesapeake. He has
served as President and Chief Executive Officer since 1990. His present term as
President and Chief Executive Officer will expire on May 20, 1997. Prior to
holding his present position, Mr. Adkins served as President and Chief Operating
Officer, Executive Vice President, Senior Vice President, Vice President and
Treasurer of Chesapeake. Mr. Adkins is also Chairman and Chief Executive
Officer of Eastern Shore Natural Gas Company, Sharp Energy, Inc. and Tri-County
Gas Company, Inc. and Chairman, President and Chief Executive Officer of
Chesapeake Service Company, all wholly owned subsidiaries of Chesapeake. He has
been a director of Chesapeake since 1989.
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ROBERT F. RIDER (age 68)
Mr. Rider is Chairman of the Board and Chief Executive Officer of O. A. Newton &
Son Company located in Bridgeville, Delaware. The company engages in millwright
work and metal fabrication and sells farm equipment, modular homes and materials
handling systems. Mr. Rider is also a director of PNC Bank, Delaware, Blue
Cross Blue Shield of Wilmington, Delaware, and Burris Foods. He is a trustee of
the University of Delaware. Mr. Rider also serves as a Governor of the United
States Postal Service. He has been a director of Chesapeake since 1977.
WILLIAM G. WARDEN, III (age 65)
Mr. Warden is Chairman of the Board of Superior Group, Inc., a holding company
engaged through subsidiaries in the manufacture and distribution of metal tubing
and provision of financial services, located in Wynnewood, Pennsylvania. He has
been a director of Chesapeake since 1969.
CLASS III DIRECTORS (TERM EXPIRES 1999)
WALTER J. COLEMAN (age 62)
Mr. Coleman retired in December 1995 as the Chief Executive Officer of Pyramid
Realty and Mortgage Corporation, a diversified company involved in real estate,
mortgages, insurance and business brokerage. He is also the former Chairman of
Real Estate Title Services, Inc., a title insurance and trust company. Mr.
Coleman is a professor at Florida Southern College specializing in strategic and
human resources management. He has been a director of Chesapeake since 1992.
JOHN R. SCHIMKAITIS (49)
Mr. Schimkaitis is Executive Vice President and Chief Operating Officer of
Chesapeake. He has served as Executive Vice President and Chief Operating
Officer since February 1996. Prior to that, Mr. Schimkaitis served as Senior
Vice President and Chief Financial Officer since 1993. His present term will
expire on May 20, 1997. Mr. Schimkaitis has also served as Vice President,
Treasurer and Assistant Secretary of Chesapeake. He has been a director of
Chesapeake since 1996.
JEREMIAH P. SHEA (age 70)
Mr. Shea retired in February 1990 as the Chairman and Chief Executive Officer of
Bank of Delaware Corporation, located in Wilmington, Delaware. He is a director
of FCC National Bank located in Wilmington, Delaware. He has been a director of
Chesapeake since 1981.
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DIRECTORS' COMPENSATION
Directors who are not officers of the Company are awarded 400 shares of the
Company's common stock annually, in advance at the time of the Company's annual
meeting, pursuant to Chesapeake's Directors Stock Compensation Plan. Directors
are also paid an attendance fee of $600 for each Board and committee meeting
attended. No additional attendance fees are paid if a director attends more
than one meeting on the same day.
COMMITTEES OF THE BOARD
The Audit Committee was established in 1976. It must be comprised of
directors who are not employees of the Company or any of its subsidiaries. In
general, the Audit Committee is charged with reviewing the internal auditor's
reports of practices and procedures as well as the reports of Chesapeake's
independent auditors relating to the results of their audit and the adequacy of
internal controls. The Audit Committee has the responsibility to make
recommendations to management arising from the aforementioned reviews. The
Audit Committee held three meetings during 1996. The current members of the
Audit Committee are: Rudolph M. Peins, Jr., Robert F. Rider, and
William G. Warden, III, Chairman.
The Compensation Committee, established in 1979, has the responsibility of
fixing the salaries of officers and directors. The Compensation Committee held
four meetings during 1996. The current members of the Compensation Committee
are: John W. Jardine, Jr., Jeremiah P. Shea, Chairman, and
William G. Warden,III.
The Plan Committee was established in 1992 for the purpose of administering
the Chesapeake Utilities Corporation Performance Incentive Plan and Cash Bonus
Plan. The Plan Committee held one meeting during 1996. The members of the Plan
Committee are: John W. Jardine, Jr., Jeremiah P. Shea, Chairman, and
William G. Warden, III.
The Nominating Committee was established in 1979. The principal function of
the Nominating Committee is to identify candidates for election to and
membership on the Board of Directors. The Nominating Committee held one meeting
during 1996. The current members of the Nominating Committee are: Richard
Bernstein, Walter J. Coleman, John W. Jardine, Jr., Chairman, and Robert F.
Rider. The Nominating Committee will consider nominees recommended by
stockholders. Nominations by stockholders are required by the Company's bylaws
to be in the form of a notice which sets forth (a) as to each nominee (i) the
name, age, business address and, if known, residence address of such nominee
(ii) the principal occupation or employment of such nominee (iii) the number of
shares of stock beneficially owned by the nominee (iv) the consent of the
nominee to serve as a director of the Corporation if so elected (v) a
description of all arrangements or understandings among the stockholder and the
nominee and any other person or persons pursuant to which the nomination is to
be made by the stockholder and (vi) any other information relating to the
nominee required to be disclosed in solicitations of proxies for election of
directors, or otherwise required pursuant to Regulation 14A under the Securities
and Exchange Act of 1934, as amended, and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Company's books, of such
stockholder and (ii) the number of shares beneficially owned by such
stockholder. All recommendations received by the Secretary will be brought to
the attention of the Nominating Committee.
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The Corporate Governance Committee was established in 1994 for the purpose
of reviewing and advising the Board on general corporate governance and
structure issues. The Corporate Governance Committee held one meeting during
1996. The members of the Corporate Governance Committee are: Walter J. Coleman,
Chairman, Richard Bernstein, Rudolph M. Peins, Jr. and Jeremiah P. Shea.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met six times during 1996. Each director attended
75% or more of the aggregate of (1) the total number of meetings of the Board of
Directors and (2) the total number of meetings held by each committee of the
Board on which he served.
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and other executive officers for each of
the Company's last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
NAME AND ------------------- SHARES UNDERLYING
PRINCIPAL FISCAL SALARY BONUS OPTIONS/SARS ALL OTHER
POSITION YEAR ($) ($) (#) COMPENSATION ($)
- --------------------------------- --------- --------- ------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Ralph J. Adkins................................... 1996 235,250 87,088 0 11,228/2/
President, Chief................................ 1995 219,500 91,494 0 10,968
Executive Officer............................... 1994 212,500 53,986 19,161/1/ 7,271
and Director
John R. Schimkaitis............................... 1996 166,000 53,884 0 10,481/2/
Executive Vice President,....................... 1995 152,250 56,017 0 10,021
Chief Operating Officer......................... 1994 145,250 31,421 11,223/1/ 6,045
and Director
Philip S. Barefoot /3/............................ 1996 109,500 27,248 0 4,916/2/
Senior Vice President............................ 1995 102,000 27,562 0 4,208
1994 84,859 10,703 6,630/1/ 2,846
Jeremy D. West.................................... 1996 133,750 22,723 0 5,056/2/
Vice President.................................. 1995 128,500 33,488 0 5,346
1994 123,000 20,758 7,892/1/ 4,979
</TABLE>
7
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_______________
/1/ Options to acquire shares of common stock pursuant to Tandem Stock Option
and Performance Share Agreements dated November 18, 1994 under the
Company's Performance Incentive Plan (the "Plan"), for the award period
beginning January 1, 1995 and ending December 31, 1997 (the "1994 Tandem
Agreements"). The option exercise price may be paid in cash, in shares of
common stock or in any other form of consideration approved by the
Company's Plan Committee. With respect to each recipient, one-third of
these options will become exercisable on each of January 1, 1996, 1997 and
1998. In the event of a change in control, as defined in the Plan, all
options become immediately exercisable. The options listed were granted in
tandem with the right to receive, without any additional payment, certain
performance shares if, during the period from January 1, 1995 through
December 31, 1997 (the "Award Period"), the Company meets certain
performance goals (including specified target levels of net income and
return on equity) which were set at the time the 1994 Tandem Agreements
were entered into. If the target levels are met or exceeded, the number of
performance shares received would be as follows: Mr. Adkins - 9,724 to
18,418; Mr. Schimkaitis -6,019 to 11,444; Mr. Barefoot -3,431 to 6,494; and
Mr. West - 4,081 to 7,725. In the event of a change in control, as defined
in the Plan, the minimum number of performance shares set forth above,
prorated based on the proportion of the Award Period expired, shall be
deemed earned. The performance shares remain unissued until, after the
Award Period, it is determined that the performance goals have been
achieved. Thus the named executive officers currently have no dividend or
voting rights with respect to such shares. Exercise of the options and
receipt of the performance shares are mutually exclusive; exercise of any
portion of the option will cancel the right to receive a proportionate
number of performance shares, while issuance of the performance shares will
cancel any unexercised portion of the option.
/2/ Consists of the Company's contribution to its Retirement Savings Plan on
behalf of such officer (Mr. Adkins - $9,500; Mr. Schimkaitis - $9,500; Mr.
Barefoot - $3,942; and Mr. West - $4,299) and term life insurance premiums
paid by the Company on behalf of such officer (Mr. Adkins - $1,728; Mr.
Schimkaitis -$981; Mr. Barefoot - $974; and Mr. West - $757).
/3/ Mr. Barefoot became an executive officer of the Company on May 17, 1994.
AGGREGATED OPTION/SAR EXERCISES DURING 1996 FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning options exercised by
the named executive officers during the 1996 fiscal year and the number and
value of options and warrants held by such officer at fiscal year end.
8
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<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SAR'S OPTIONS/SAR'S
AT FY-END (#) AT FY-END ($)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----- -------------- ----------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Ralph J. Adkins 0 0 39,327 12,774 163,022 54,290
John R. Schimkaitis 0 0 24,021 7,482 99,554 31,798
Philip S. Barefoot 0 0 2,210 4,420 9,392 18,785
Jeremy D. West 0 0 17,556 5,261 72,747 22,359
</TABLE>
PENSION PLAN TABLE
FINAL YEARS OF SERVICE AT NORMAL RETIREMENT AGE
AVERAGE -------------------------------------------------------------------
EARNINGS 15 20 25 30 35 40
- -------- ------- -------- -------- -------- -------- ---------
$100,000 $26,290 $ 35,053 $ 43,816 $ 52,580 $ 61,343 $ 61,343
$125,000 $33,509 $ 44,678 $ 55,848 $ 67,017 $ 78,187 $ 78,187
$150,000 $40,727 $ 54,303 $ 67,879 $ 81,455 $ 95,030 $ 95,030
$175,000 $47,946 $ 63,928 $ 79,910 $ 95,892 $111,874 $111,874
$200,000 $55,165 $ 73,553 $ 91,941 $110,330 $128,718 $128,718
$225,000 $62,384 $ 83,178 $103,973 $124,767 $145,562 $145,562
$250,000 $69,602 $ 92,803 $116,004 $139,205 $162,405 $162,405
$275,000 $76,821 $102,428 $128,035 $153,642 $179,249 $179,249
$300,000 $84,040 $112,053 $140,066 $168,080 $196,093 $196,093
The above table sets forth the estimated annual retirement benefits payable
under the Company's retirement plan to its regular employees, including
officers, in the final average earnings and years of service classifications
indicated. The retirement plan is funded solely by the Company. Benefits
normally are paid in the form of a straight life annuity or joint and survivor
annuity and are not subject to any deduction for Social Security or other offset
amounts.
Annual compensation used to determine final average earnings under the plan
includes salary, as set forth in the Summary Compensation Table, commissions,
and, with respect to employees earning a salary less than a stated amount (which
for 1996 was $66,000), bonus payments. Compensation covered by the plan for
1996 was as follows: Mr. Adkins - $235,250; Mr. Schimkaitis - $166,000; Mr.
Barefoot - $109,500; and Mr. West -$133,750. The calculation of benefits under
the plan generally is based on average earnings for the highest five consecutive
years of the ten years preceding retirement.
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For 1996, the Internal Revenue Code of 1986, as amended, generally limits
the annual benefits which may be paid under the plan to $120,000 and limits the
amount of annual compensation that may be taken into account in determining
final average earnings to $150,000. The table above does not reflect these
limits. However, these limits may increase in future years. Furthermore,
benefits earned before the limits went into effect generally are not affected by
the limits. The Company has adopted a plan that is not a tax-qualified plan to
provide the benefits that would have been provided under the Company's
retirement plan but for these limits. The plan was effective January 1, 1995.
The plan is unfunded but is required to be funded in the event of a change in
control of the Company.
As of December 31, 1996, the number of years of credited service under the
retirement plan for each of the named executive officers were as follows: Ralph
J. Adkins - 34 years; John R. Schimkaitis - 11 years; Philip S. Barefoot - 8
years; and Jeremy D. West - 7 years.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS
Chesapeake has entered into employment agreements with Messrs. Adkins,
Schimkaitis, Barefoot, and West. These agreements are designed to help retain
such officers who are essential to the proper supervision of Chesapeake's
business by assuring them of equitable treatment in the event of a termination
of employment following a change in control of the Company. Under the
agreements, if a change in control occurs, the failure to elect or re-elect the
officer to, or the removal of the officer from, the office held by the officer,
or the failure to elect or re-elect the officer to, or the removal of the
officer from, the Board of Directors of the Company (if the officer shall have
been a member of the Board immediately prior to a change in control) would
entitle the officer to terminate his employment and to receive certain
termination payments as described below. An officer's good faith determination
that the nature or scope of his duties has been significantly altered subsequent
to a change in control would also entitle him to terminate his employment and to
receive the termination payments provided in the agreement.
The agreements with Mr. Adkins and Mr. Schimkaitis were entered into on
March 26, 1997, and provide for the employment of Mr. Adkins as the Company's
President and Chief Executive Officer and of Mr. Schimkaitis as the Company's
Executive Vice President and Chief Operating Officer at salaries of $255,000 and
$182,000, respectively, or such greater or lesser amounts as the Company's Board
of Directors may determine. These agreements are operative for an initial term
of five years, ending March 26, 2002, and provide that if a change in control
occurs prior to that date, the agreements will be automatically extended for a
maximum of five years commencing on the date the change in control occurred (the
"extension period"). The agreements with Messrs. Barefoot and West were entered
into on March 26, 1997, and provide for the employment of Mr. Barefoot as Senior
Vice President and of Mr. West as Vice President of the Company, also at
salaries determined by the Company's Board of Directors. These agreements expire
on March 26, 2000, and provide that if a change in control occurs prior to that
date, an extension period of three years will automatically be effectuated.
Currently, all other vice presidents of the Company have employment agreements.
Actual compensation for each of the officers is described in the Summary
Compensation Table.
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The agreements are intended to maintain compensation and benefits following
a change in control at levels generally comparable to those that such officers
could reasonably have expected in the absence of a change in control. The
agreements provide for the payment of compensation during the extension period
at a level equal to the rate existing immediately prior to the change in
control, adjusted throughout such period to reflect increases in the consumer
price index. Each agreement also provides for the officer's continued
eligibility during such extension period under the Company's employee benefit
plans. In the event of a termination of employment other than for cause, an
officer would receive under his agreement a termination payment equal to an
amount approximating the compensation and the value of certain benefits under
the Company's retirement, savings and stock option plans that he would have
received had he continued to be employed by the Company for the lesser of 24
months (12 in the case of Mr. Barefoot and Mr. West) or the number of months
remaining under the extended term of the agreement. However, such termination
payment could not exceed the maximum amount that the Company could pay the
officer without some part of the amount being nondeductible by the Company under
Section 280G of the Internal Revenue Code. Each agreement also provides that the
Company will indemnify the officer for any expenses he incurs in successfully
enforcing his right to payments or benefits under his agreement and that the
Company, upon the request of the officer, will provide the officer with an
irrevocable letter of credit from a bank in the amount of $100,000 against which
the officer may draw to pay any expenses he incurs in attempting to enforce any
of his rights under his agreement following a change in control.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors hereby provides the
following report on executive compensation for the year ended December 31, 1996.
POLICIES AND GOALS
The Company's compensation goal is to enhance the profitability of the
Company, and thus increase stockholder value, by attracting high-quality
executive talent and closely aligning the financial interests of its senior
managers with those of its stockholders. To this end, the Company's executive
compensation program has been designed to provide competitive compensation
levels based upon the successful achievement of specific annual and long-term
objectives drawn from the Company's strategic plan.
COMPONENTS
The Company's executive compensation program relies on three interrelated
components, consisting of base salary, annual bonus and long-term equity-based
rewards.
BASE SALARY
The base salary structure for the Chief Executive Officer and the other
executives is determined by means of a study prepared by independent
compensation consultants, using comparison data from the same group
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of diversified natural gas organizations which the Company uses in its
stock performance review (the "Industry Peer Group"), we also make a
comparison against the general industry using companies of a similar size
and nature to Chesapeake. The midpoints of the recommended structure are
set at or reasonably close to comparison averages, thereby providing
marketplace priced compensation guidelines for executives. Annual salary
adjustments are subjectively made after giving consideration to the
individual's performance and contributions to the success of the Company.
Executive base salaries generally fall below, but close to, the comparison
averages. Salaries for the Chief Executive, Chief Financial, and other
Executive Officers named in the Summary Compensation Table are originally
set by employment contracts (see "Management Compensation - Employment
Contracts and Change in Control Provisions"), but are adjusted annually
pursuant to the process described above.
ANNUAL INCENTIVE BONUS
Annual bonuses are paid under the Company's performance-based cash bonus
plan, adopted in January, 1992, based on the attainment of financial and
non-financial objectives relative to pre-established performance targets.
At the beginning of each year, the Committee selects the executives
eligible to receive bonuses based on the executives' seniority and
responsibilities. The Committee designates a target bonus amount for each
executive, which is a percentage of that executive's base salary ranging
from 20% to 30%. Target bonus amounts are determined separately for each of
the Chief Executive Officer and other selected executives to conform with
the median prevailing practices for individuals in similar positions in a
group of approximately 1,000 organizations of comparable size. Because size
was the primary consideration in choosing this group it includes some but
not all of the companies in the Industry Peer Group. The Committee also
identifies performance goals for the year for each selected executive,
relating to one or more business segments, to the Company as a whole, or
both, and an aggressive target net income range for the Company or
designated segments. Bonus awards for the year are made to each selected
executive, based on successful attainment of the relevant goals, adjusted
by applying a payout factor (which may vary for each executive) that is
determined by the relationship between the actual net income of the Company
or relevant segments and the relevant aggressive target net income range.
For 1996, most of the performance goals were achieved, either entirely or
to a significant extent, including, approximately in order of relative
weight: (1) Implementation of strategic planning process and objectives;
(2) Specific customer and volume growth goals; (3) Completion of specific
regulatory initiatives; (4) Relocation and installation of information
systems and facilities; (5) Completion of certain system expansion
projects; and (6) Completion of various other operating goals. Based on
these achievements, the Committee determined that between 83% and 90% of
the goals have been met. The Company exceeded the aggressive target net
income range and a payout factor of 55% to 150% was applied, depending upon
each executive's responsibilities.
LONG-TERM PERFORMANCE INCENTIVE PLAN
Long-term equity-based awards are granted under the Company's Long-Term
Performance Incentive Plan, adopted in 1992, which permits the Committee
flexibility in providing different forms and levels of equity-based awards
to key employees. In 1994, the Company granted tandem option and
performance share awards designed to provide equity-based rewards for its
executives keyed to corporate performance for the
12
<PAGE>
three-year award period ending December 31, 1997. Each award consists of a
tandem (i.e. mutually exclusive) grant of (1) options to purchase the
Company's common stock and (2) the right to receive, upon achievement at
the end of the three-year period of pre-established aggressive goals for
return on equity and net income for the Company, a certain number of
performance shares. The number of options and performance shares were
determined separately for each of the Chief Executive Officer and other
selected executives to conform with the median prevailing practices for
individuals in similar positions in the group of organizations used to
determine target bonus amounts. The options and performance shares are more
fully described in the Summary Compensation Table.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During 1996, the compensation of the Company's Chief Executive Officer,
Ralph J. Adkins, was determined based on the three-part program described above.
First, Mr. Adkins' base salary was determined to approximate the midpoint of
chief executive salaries paid by companies in the Industry Peer Group. Second,
Mr. Adkins was awarded a bonus of $87,088 or 36% of his base salary, determined
in accordance with the policies described under "Annual Incentive Bonus" above.
Mr. Adkins' target bonus was $72,000 or 30% of salary. The Committee determined
that 83% of his performance goals had been met by virtue of the accomplishment
of goals set forth for executive officers under "Annual Incentive Bonus" above.
This percentage was applied to the target bonus of $72,000 and a payout factor
of 146% was applied, representing the payout factor achieved as a result of
exceeding the high end of the aggressive target net income range for the year.
Finally, the long-term performance incentive component of Mr. Adkins'
compensation was determined as described under "Long-Term Performance Incentive
Plan" above.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Internal Revenue Code Section 162(m), enacted in 1993, precludes any public
corporation from taking a deduction for compensation in excess of $1 million
paid to its chief executive officer and any of its other named executive
officers. Certain performance-based compensation is specifically exempted from
the deduction limit. No formal policy has been adopted by the Company with
respect to qualifying compensation paid to its executive officers from the
deduction limit. The Company does not anticipate that any compensation paid to
its executive officers in 1996 will exceed the dollar limit.
THE COMPENSATION COMMITTEE
John W. Jardine, Jr.
Jeremiah P. Shea (Chairman)
William G. Warden, III
STOCK PERFORMANCE CHART
The following chart compares the yearly percentage change in the cumulative
total stockholder return on the Company's common stock during the five fiscal
years ended December 31, 1996, with the cumulative total return
13
<PAGE>
on the S&P 500 Index and an industry index consisting of 23 diversified natural
gas companies as published by Edward D. Jones & Co. The 23 companies in the
Edward D. Jones & Co. industry index are as follows: Atrion Corp., Chesapeake
Utilities Corporation, Columbia Gas System, Inc., Consolidated Natural Gas
Company, Eastern Enterprises, Energen Corporation, ENSERCH Corporation,
Equitable Resources, Inc., KN Energy, Inc., MCN Corporation, MDU Resources
Group, Inc., National Fuel Gas Company, National Gas & Oil Company, NORAM Energy
Corp., Oneok, Inc., Questar Corporation, South Jersey Industries, Inc.,
Southeastern Michigan Gas Ent., Southwest Gas Corporation, Southwestern Energy
Company, UGI Corporation, Valley Resources, Inc., and WICOR, Inc. The comparison
assumes $100 was invested on December 31, 1990 in the Company's common stock and
in each of the foregoing indices and assumes reinvestment of dividends.
[GRAPH APPEARS HERE]
CUMULATIVE TOTAL STOCKHOLDER RETURN
---------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Chesapeake 100.0 101.0 126.4 111.8 136.9 166.9
S&P 500 100.0 107.6 118.4 119.8 164.6 202.3
Industry Index 100.0 110.4 123.2 107.8 140.9 177.5
14
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Board's Compensation Committee and Plan Committee are
Mr. Jardine, Mr. Shea and Mr. Warden. Mr. Jardine was formerly Chief Executive
Officer of the Company from 1983 to 1990.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, following the recommendation of the Audit Committee,
appointed Coopers & Lybrand, L.L.P. to serve as Chesapeake's independent
accountants for the year ending December 31, 1996, to perform audits of the
financial statements of Chesapeake and its subsidiaries. The Board's selection
of Coopers & Lybrand, L.L.P. was ratified by the stockholders at the Company's
1996 Annual Meeting. Coopers & Lybrand, L.L.P. was also retained during 1996 to
render certain non-audit professional services.
It is not expected that a representative from Coopers & Lybrand, L.L.P. will
be present at the Annual Meeting of Stockholders.
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Coopers & Lybrand, L.L.P. to
serve as the independent auditors of Chesapeake and its consolidated
subsidiaries for the fiscal year ending December 31, 1997. The Board is
submitting the selection of Coopers & Lybrand, L.L.P. for ratification by
stockholders.
Coopers & Lybrand, L.L.P. has served as independent auditors of Chesapeake and
its subsidiaries since 1982 (See "Relationship with Independent Public
Accountants"). The firm has wide experience in accounting and auditing for
public utilities and other companies. Coopers & Lybrand, L.L.P. is a member of
the Securities and Exchange Commission Practice Section of the American
Institute of Certified Public Accountants. By virtue of their membership in
this Section, they have agreed to undergo a review by an independent accounting
firm once every three years. Neither Coopers & Lybrand, L.L.P. nor any of its
partners has any direct or indirect financial interest in or any connection
(other than as independent auditors or with respect to non-audit professional
services) with Chesapeake or any of its subsidiaries. All of the professional
services provided by Coopers & Lybrand, L.L.P. are furnished at customary rates
and terms.
Based upon the recommendation of the Audit Committee, the Board of Directors
selected this firm to act as Chesapeake's independent auditors for the year
1997, subject to ratification by the stockholders, in the belief that Coopers &
Lybrand, L.L.P. is well qualified. Should the selection of Coopers & Lybrand,
L.L.P. as independent auditors of Chesapeake not be ratified by the
stockholders, the Board of Directors will reconsider the matter.
15
<PAGE>
SUBMISSION OF STOCKHOLDERS PROPOSALS
Any stockholder who wishes to submit a proposal for possible inclusion in
Chesapeake's proxy statement for the next annual meeting must submit the
proposal in writing to the Board of Directors on or before December 7, 1997.
Written proposals should be directed to Wayne L. Hart, Secretary, Chesapeake
Utilities Corporation, 909 Silver Lake Boulevard, Dover, Delaware 19904.
ANNUAL REPORT TO SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K
CHESAPEAKE WILL PROVIDE WITHOUT CHARGE TO ANY PERSON, UPON THE WRITTEN REQUEST
OF SUCH PERSON, A COPY OF CHESAPEAKE'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER THE SECURITIES
EXCHANGE ACT OF 1934 FOR CHESAPEAKE'S FISCAL YEAR ENDED DECEMBER 31, 1996.
WRITTEN REQUESTS SHOULD BE DIRECTED TO WAYNE L. HART, SECRETARY, CHESAPEAKE
UTILITIES CORPORATION, 909 SILVER LAKE BOULEVARD, DOVER, DELAWARE 19904.
COMPLIANCE WITH CERTAIN REGULATORY REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires each of the Company's directors and executive
officers, and any beneficial owner of more than 10% of the Company's common
stock, to file with the Securities and Exchange Commission (the "SEC") initial
reports of beneficial ownership of Chesapeake's common stock and reports of
changes in such beneficial ownership. Such persons also are required by SEC
regulations to furnish Chesapeake with copies of such reports. To Chesapeake's
knowledge, based solely on its review of the copies of such reports furnished to
Chesapeake and on the written representations made by such persons that no other
reports were required, during the fiscal year ending December 31, 1996, no
director, officer or 10% beneficial owner failed to file on a timely basis the
reports required by Section 16(a).
OTHER MATTERS
The Board of Directors knows of no other matter to be presented at the
meeting. If, however, any other business properly comes up for action at the
meeting or any adjournment thereof, it is intended that the persons acting under
the proxies in the form enclosed will vote in regard thereto according to their
discretion.
By Order of the Board of Directors,
Wayne L. Hart
Secretary
16
<PAGE>
CHESAPEAKE UTILITIES CORPORATION
A DIVERSIFIED UTILITY COMPANY
April 1, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Chesapeake Utilities Corporation to be held at 10:00 A.M. on May 20, 1997, in
the Board Room, PNC Bank, Delaware, 222 Delaware Avenue, Wilmington, Delaware.
Your Board of Directors looks forward to greeting personally those stockholders
able to attend. The Secretary's formal Notice of Annual Meeting of Stockholders
and the Proxy Statement appear on the enclosed pages and describe the matters
that will be submitted to a vote of stockholders at the meeting.
Whether or not you plan to attend, it is important that your shares are
represented at the meeting. Accordingly, you are requested to promptly sign,
date and mail the attached proxy in the envelope provided.
Thank you for your consideration and continued support.
Sincerely,
/s/ John W. Jardine, Jr.
JOHN W. JARDINE, JR.
Chairman of the Board
DETACH HERE
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" PROPOSALS 1 AND 2.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of Directors FOR AGAINST ABSTAIN
Nominees: Richard Bernstein, John W. Jardine, Jr., 2. For ratification of the selection [ ] [ ] [ ]
Rudolph M. Peins, Jr. of independent auditors.
FOR WITHHELD 3. In their discretion, the Proxies are authorized to vote
[ ] [ ] upon such other matters as may properly come before the
______________________________________ meeting.
For all nominees except as noted above
[ ] MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
NOTE: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give
the full title as such. If a corporation, please
sign in full corporate name by President or other
authorized officer. If a partnership, please sign in
partnership name by authorized person.
Signature: _________________________________ Date: ______________ Signature: ________________________________ Date: ______________
</TABLE>
<PAGE>
DETACH HERE
CHESAPEAKE UTILITIES CORPORATION
P 909 SILVER LAKE BOULEVARD
R DOVER, DELAWARE 19904
O
X SOLICITED BY THE BOARD OF DIRECTORS
Y FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997 IN THE BOARD ROOM
PNC BANK, DELAWARE
222 DELAWARE AVENUE
WILMINGTON, DELAWARE 19899
The undersigned stockholder hereby appoints Ralph J. Adkins and
John R. Schimkaitis and each one of them, with power of substitution and
revocation, the attorneys of the undersigned to vote all shares in the name of
the undersigned on all matters set forth in the proxy statement and such other
matters as may properly come before the Annual Meeting and all adjournments
thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED FOR ITEMS 1 AND 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
