SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(a)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 Chesapeake Utilities Corporation ________________________________________________________________________________ (Name of Registrant as Specified in Its Charter) Chesapeake Utilities Corporation ________________________________________________________________________________ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ___________________________________________________________________________ (2) Aggregate number of securities to which transaction applies: ___________________________________________________________________________ (3) Per unit price of other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ___________________________________________________________________________ (4) Proposed maximum aggregate value of transaction: ___________________________________________________________________________ (5) Total fee paid: ___________________________________________________________________________ [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ___________________________________________________________________________ (2) Form, Schedule or Registration Statement No.: ___________________________________________________________________________ (3) Filing Party: ___________________________________________________________________________ (4) Date Filed: 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, 1999 The Annual Meeting of Stockholders of Chesapeake Utilities Corporation will be held at 10:00 a.m. on Tuesday, May 18, 1999, in the Board Room, PNC Bank, Delaware, 222 Delaware Avenue, Wilmington, Delaware, for the following purposes: (a) to elect three Class III Directors for three-year terms ending in 2002 and until their successors are elected and qualified; (b) to consider and vote upon the ratification of the selection of PricewaterhouseCoopers, L.L.P. as independent auditors for the fiscal year ending December 31, 1999; and (c) to transact such other business as may properly come before the meeting. Stockholders of record at the close of business on March 22, 1999, will be entitled to vote at the meeting and any adjournment thereof. By Order of the Board of Directors, William C. Boyles Corporate 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. CHESAPEAKE UTILITIES CORPORATION 909 SILVER LAKE BOULEVARD DOVER, DELAWARE 19904 PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 1999 _____________________________________________ April 1, 1999 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 18, 1999, 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. ANNUAL REPORT The annual report to stockholders, covering the fiscal year of Chesapeake ended December 31, 1998, 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, 5,115,971 of which were outstanding as of March 22, 1999, 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 22, 1999, 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 22, 1999. Except as otherwise indicated, each individual named has sole investment and voting power with respect to the securities shown. 2
Amount and Nature of Beneficial Ownership/1/ Percent Name of Individual or Group of Class - --------------------------- ----------------------- -------- Ralph J. Adkins............................................... 67,287 1.30% Richard Bernstein............................................. 1,784 * Walter J. Coleman............................................. 2,600 * John W. Jardine, Jr........................................... 24,233 * Rudolph M. Peins, Jr.......................................... 3,415 * Robert F. Rider............................................... 4,565 * John R. Schimkaitis........................................... 34,134 * Jeremiah P. Shea.............................................. 3,760 * William G. Warden, III........................................ 17,348 * Michael P. McMasters.......................................... 5,005 * Stephen C. Thompson........................................... 6,199 * Philip S. Barefoot............................................ 9,193 * Executive Officers and Directors as a Group (13 persons)...... 185,228 3.57% ______________________ *Less than one percent (1%). /1/ Includes shares of common stock subject to options that are currently exercisable as follows: Mr. Adkins - 32,940; Mr. Schimkaitis - 20,280; Mr. McMasters 3,229; Mr. Thompson 3,229; and Mr. Barefoot 2,783. 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 10,741; Mr. Schimkaitis 5,180; Mr. McMasters - 1,696; Mr. Thompson - 2,769; and Mr. Barefoot 2,217. By Others The following table sets forth the number of shares of Chesapeake's common stock beneficially owned by the only party 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 264,312 5.17% 26491 Riverbank Road Salisbury, MD 21801 ELECTION OF DIRECTORS At the annual meeting to be held on May 18, 1999, three Class III Directors will be elected to serve until the Annual Meeting of Stockholders in 2002 and until their successors are elected and qualified. Chesapeake's nominees are Walter J. Coleman, John R. Schimkaitis and Jeremiah P. Shea, all of whom are currently Class III 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 Corporate Governance Committee. 3 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 (Term Expires 2000) Richard Bernstein (age 56) 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, a creator of unique designs in sculptured earthenware; and Lorch Microwave which produces microwave filters and electronic components. He has been a director of Chesapeake since 1994. John W. Jardine, Jr. (age 72) Mr. Jardine served as Chairman of the Board of Chesapeake from 1989 through 1997 and 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 69) 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 2001) Ralph J. Adkins (age 56) Mr. Adkins is Chairman of the Board of Directors of Chesapeake and its subsidiaries. He has served as Chairman since 1997. Prior to January 1, 1999, Mr. Adkins served as Chief Executive Officer, a position he had held since 1990. During his tenure with Chesapeake Mr. Adkins has also served as President and Chief Executive Officer, President and Chief Operating Officer, Executive Vice President, Senior Vice President, Vice President and Treasurer of Chesapeake. He has been a director of Chesapeake since 1989. Robert F. Rider (age 70) 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 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. 4 William G. Warden, III (age 67) Mr. Warden is Chairman of the Board of Superior Group, Inc., a holding company that is engaged through subsidiaries in metals distribution, furnace fabrication, metal tube and pipe manufacturing and pharmaceutical packaging, located in Radnor, Pennsylvania. He has been a director of Chesapeake since 1969. Class III Directors and Nominees Walter J. Coleman (age 64) 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 now a professor at Florida Southern College and an international business consultant specializing in strategic management. He has been a director of Chesapeake since 1992. John R. Schimkaitis (age 51) Mr. Schimkaitis is President and Chief Executive Officer of Chesapeake and its subsidiaries. Mr. Schimkaitis assumed the role of Chief Executive Officer on January 1, 1999. He has served as President since 1997. His present term will expire on May 18, 1999. Prior to his new post, Mr. Schimkaitis has also served as President and Chief Operating Officer, Executive Vice President and Chief Operating Officer, Senior Vice President and Chief Financial Officer, Vice President, Treasurer, Assistant Treasurer and Assistant Secretary of Chesapeake. He has been a director of Chesapeake since 1996. Jeremiah P. Shea (age 72) Mr. Shea retired in February 1990 as the Chairman and Chief Executive Officer of Bank of Delaware Corporation (PNC Bank Delaware), located in Wilmington, Delaware. He has been a director of Chesapeake since 1981. 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 $800 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 1998. The current members of the Audit Committee are: Rudolph M. Peins, Jr., Chairman, Robert F. Rider, and William G. Warden, III. 5 The Compensation Committee, established in 1979, has the responsibility of fixing the salaries of officers and fees for directors. The Compensation Committee held four meetings during 1998. 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 four meetings during 1998. 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, for the purpose of identifying candidates for election to and membership on the Board of Directors. The Committee held one meeting during 1998. On May 19, 1998, the functions of the Nominating Committee were transferred to the Corporate Governance Committee and the Nominating Committee was abolished. The Corporate Governance Committee was established in 1994 for the purpose of reviewing and advising the Board on general corporate governance and structure issues. On May 19, 1998, this Committee also adopted the functions of the Nominating Committee. The Corporate Governance Committee held two meetings during 1998. The members of the Corporate Governance Committee are: Richard Bernstein, Walter J. Coleman, Chairman, Rudolph M. Peins, Jr., and Jeremiah P. Shea. In connection with its nominating function, the Corporate Governance 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 Schedule 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 Corporate Governance Committee. MEETINGS OF THE BOARD OF DIRECTORS The Board of Directors met eight times during 1998. 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. 6 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. /1/ On January 1, 1999 Mr. Schimkaitis succeeded Mr. Adkins as Chief Executive Officer. /2/ Options to acquire shares of common stock pursuant to Stock Option Agreements under the Company's Performance Incentive Plan (the "Plan"), for the performance period beginning January 1, 1998 and ending December 31, 2000 (the "1997 Option Agreements"). With respect to each recipient, one- half of 7
Annual Compensation Long-Term Compensation ---------------------------- ------------------------------------ Awards Payouts ------------------ --------------- Shares Name and Underlying LTIP All Other Prinicipal Fiscal Salary Bonus Options/SARs Payments Compensation Position Year ($) ($) (#) ($) ($) - ------------------------------- ----------- ------------- ------------- ------------------ --------------- --------------- Ralph J. Adkins/1/............. 1998 300,000 0 0 21,052/3/ 12,300/5/ Chairman, Chief Executive 1997 251,250 0 0 354,546/4/ 12,200 Officer and Director 1996 235,250 87,088 0 0 11,228 John R. Schimkaitis/1/......... 1998 225,000 0 0 25,655/3/ 11,328/5/ President, Chief Operating 1997 179,000 0 0 220,297/4/ 11,214 Officer and Director 1996 166,000 53,884 0 0 10,481 Michael P. McMasters/6/........ 1998 135,000 0 0 0 8,549/5/ Vice President, Treasurer 1997 105,250 3,210 14,906/2/ 0 6,492 and Chief Financial Officer Stephen C. Thompson/6/......... 1998 135,000 0 0 0 8,390/5/ Vice President 1997 102,375 10,290 14,906/2/ 0 6,849 Philip S. Barefoot............. 1998 120,500 0 0 0 6,170/5/ Vice President 1997 114,750 9,860 12,848/2/ 125,010/4/ 5,165 1996 109,500 27,248 0 0 4,916 Jeremy D. West/7/.............. 1998 115,833 0 0 0 4,831/5/ Vice President 1997 138,000 1,390 14,288/2/ 148,706/4/ 5,386 1996 133,750 23,843 0 0 5,056 - ------------------------------- these options become exercisable in equal increments on each of December 31, 1998, 1999 and 2000. The second one-half of these options become exercisable in three annual increments based on the Company's achievement of certain annual performance goals (including earnings growth, growth in non-gas net income, and share price relative to book value). In the event of a change in control, as defined in the Plan, all options subject to time vesting that have not theretofore become exercisable will become exercisable in full and all options subject to performance vesting for the award year in which the change in control occurs will become exercisable as if all performance criteria were satisfied for such award year but only in proportion to the total number of days in the year that have elapsed prior to the change in control. /3/ Reflects performance shares earned under Performance Share Agreements with each of Messrs. Adkins and Schimkaitis under the Company's Performance Incentive Plan for the award period beginning January 1, 1998 and ending December 31, 2000 (the "1997 Performance Share Agreements"). At the end of each calendar year during the award period, each recipient is eligible to earn a maximum number of performance shares equal to one-third of the total number of performance shares granted plus the "Rollover Number" (the "Maximum Award"), based on the Company's achievement of certain performance goals (including earnings growth, growth in non-gas net income, and share price relative to book value). The "Rollover Number" is 75% of the difference between the Maximum Award for the prior calendar year and the number of Performance Shares actually earned during that year. (For 1998, the Rollover Number is 0.) Performance Shares, once earned and issued, may not be sold for a three-year period. In the event of a change in control, the Maximum Award for the fiscal year, prorated based on the proportion of the calendar year that has elapsed, is deemed earned. Performance shares earned for 1998 are valued as of February 26, 1999. /4/ Reflects performance shares earned under Tandem Stock Option and Performance Share Agreements covering the three-year performance period from January 1, 1995 through December 31, 1997, valued as of February 27, 1998. /5/ Consists of the Company's contribution to its Retirement Savings Plan on behalf of such officer (Mr. Adkins - $9,600; Mr. Schimkaitis - $9,600; Mr. McMasters - $8,100; Mr. Thompson - $8,100; Mr. Barefoot - $5,070; and Mr. West- $4,170) and term life insurance premiums paid by the Company on behalf of such officer (Mr. Adkins - $2,700; Mr. Schimkaitis - $1,728; Mr. McMasters -$449; Mr. Thompson - $290; Mr. Barefoot - $1,100; and Mr. West - $661). /6/ Messrs. McMasters and Thompson became executive officers of the Company on May 20, 1997. /7/ Mr. West ceased serving as an executive officer of the Company on April 26, 1998. 8 Aggregated Option/SAR Exercises During 1998 Fiscal Year and Fiscal Year End Option/SAR Values The following table sets forth information concerning options exercised by the named executive officers during the 1998 fiscal year and the number and value of options held by such officers at fiscal year end. Pension Plan Table
Number of Shares Value of Unexercised Underlying Unexercised In-the-Money Options/SARs Options/SARs Shares at FY-End (#) At FY-End ($) Acquired on Value ---------------------------- ---------------------------- Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable - -------------------- ------------ ------------ ----------- ------------- ----------- ------------- Ralph J. Adkins 0 0 32,940 0 183,229 0 John R. Schimkaitis 0 0 20,280 0 112,808 0 Michael P. McMasters 0 0 3,229 11,677 0 0 Stephen C. Thompson 0 0 3,229 11,677 0 0 Philip S. Barefoot 0 0 2,783 10,065 0 0 Jeremy D. West 0 0 14,925 0 83,020 0 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. 9
Final Years of Service at Normal Retirement Age Average -------------------------------------------------------------------------------------------------------- Earnings 15 20 25 30 35 40 - ----------- --------------- --------------- -------------- --------------- --------------- --------------- $100,000 $25,957 $ 34,609 $ 43,261 $ 51,913 $ 60,566 $ 60,566 $125,000 $33,175 $ 44,234 $ 55,292 $ 66,351 $ 77,409 $ 77,409 $150,000 $40,394 $ 53,859 $ 67,324 $ 80,788 $ 94,253 $ 94,253 $175,000 $47,613 $ 63,484 $ 79,355 $ 95,226 $111,097 $111,097 $200,000 $54,832 $ 73,109 $ 91,386 $109,663 $127,941 $127,941 $225,000 $62,050 $ 82,734 $103,417 $124,101 $144,784 $144,784 $250,000 $69,269 $ 92,359 $115,449 $138,538 $161,628 $161,628 $275,000 $76,488 $101,984 $127,480 $152,976 $178,472 $178,472 $300,000 $83,707 $111,609 $139,511 $167,413 $195,316 $195,316 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 1998 was $80,000), bonus payments. Compensation covered by the plan for 1998 was as follows: Mr. Adkins - $300,000; Mr. Schimkaitis - $225,000; Mr. McMasters - - $135,000; Mr. Thompson - $135,000; Mr. Barefoot - $120,500; and Mr. West - $115,833. 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. For 1998, the Internal Revenue Code of 1986, as amended, generally limits the annual benefits which may be paid under the plan to $130,000 and limits the amount of annual compensation that may be taken into account in determining final average earnings to $160,000. 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, 1998, the number of years of credited service under the retirement plan for each of the named executive officers were as follows: Mr. Adkins - 36 years; Mr. Schimkaitis - 13 years; Mr. McMasters - 17 years; Mr. Thompson - 15 years; Mr. Barefoot - 10 years; and Mr. West - 8 years. As of December 31, 1998, the Company amended its pension plan so that current participants in the plan, including executive officers, could elect either (1) to continue their participation in the plan or, alternatively, (2) to receive a one-time payout, plus an increase in the Company's matching contributions to the employee's account in the Company's Section 401(k) retirement savings plan. Based on these elections, Mr. Adkins and Mr. Barefoot ceased accruing benefits under the plan after December 31, 1998. Employment Contracts and Change in Control Provisions Chesapeake has entered into employment agreements with Messrs. Schimkaitis, McMasters, Thompson and Barefoot. 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. 10 The agreement with Mr. Schimkaitis was entered into on March 26, 1997, and provides for his employment as the Company's Executive Vice President and Chief Financial Officer at a salary of $182,000 or such greater or lesser amounts as the Company's Board of Directors may determine. This agreement is operative for an initial term of five years, ending March 26, 2002, and provides that if a change in control occurs prior to that date, the agreement 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. McMasters, Thompson and Barefoot were entered into on March 26, 1997, and provide for the employment of Messrs. McMasters, Thompson and Barefoot as Vice Presidents 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. 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 Messrs. McMasters, Thompson and Barefoot) 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. Prior to January 1, 1999, Chesapeake had an agreement with Mr. Adkins providing for his employment as President and Chief Executive Officer. This agreement was substantially the same as the current agreement with Mr. Schimkaitis except that the initial salary specified in Mr. Adkins' agreement was $255,000. As of January 1, 1999, Mr. Adkins assumed a new executive office entitled Chairman of the Board of Directors and signed a new agreement with the Company employing him in that capacity on a part-time basis until December 31, 2000. This agreement does not provide for an extension of Mr. Adkins' term of employment in the event of a change in control of the Company, but the agreement does provide for a significantly narrower set of circumstances that would permit his termination for cause following any change in control. The agreement also provides a severance payment for Mr. Adkins if he is terminated without cause, either before or after a change 11 in control, equal to the balance of the base compensation that he would have earned if he had remained employed with the Company pursuant to the agreement until December 31, 2000. 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, 1998. 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 was determined by means of a study prepared by independent compensation consultants, using comparison data from the same group of diversified natural gas organizations which the Company uses in its stock performance review (the "Industry Peer Group") and from 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 Operating, 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 12 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 peer group of approximately 1,000 organizations of comparable size. Because size rather than line of business 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 1998, most of the performance goals were achieved, either entirely or to a significant extent, including, approximately in order of relative weight: (1) expansion of current franchise territories; (2) implementation of changes in rate design; (3) achievement of certain customer growth goals; (4) successful Year 2000 compliance testing; (5) development of new service offerings; and (6) implementation of certain strategies that reduce expenses. However, since the Company's net income did not come within the aggressive target net income range, the payout factor was zero, and therefore, no payouts were made. Long-Term Performance Incentive Plan Long-term equity-based awards are granted under the Company's Performance Incentive Plan, adopted in 1992, which permits the Plan Committee flexibility in providing different forms and levels of equity-based awards to key employees. In 1997 the Company granted performance share awards to Messrs. Adkins and Schimkaitis and option awards to Messrs. McMasters, Thompson, Barefoot, and West, among others, under the Performance Incentive Plan. These awards are intended to align the interests of the executives with those of the Company's stockholders by providing the executives with equity-based incentives. The performance period for the 1997 grants commences January 1, 1998 and ends December 31, 2000. The Performance Share Agreements and the Option Agreements under which these awards were made are described in notes 2 and 3 to the Summary Compensation Table, which appears earlier in this Proxy Statement. Under each Performance Share Agreement, at the end of each calendar year during the performance period, the recipient is entitled to earn one-third of the total number of performance shares specified in the Agreement, based on the Company's achievement of certain performance goals including earnings growth, growth in non-gas net income and share price relative to book value plus a carryover amount of shares in the second and third years of the performance period. Under each Option Agreement, one-half of the options vest automatically, and the remaining half become exercisable in three annual increments based on the Company's achievement of the same three goals. A certain number of performance shares 13 and options are allocated to the achievement of each goal. In 1998, the Company achieved the performance goal relating to growth in non-gas net income, but did not achieve the other two performance goals. Accordingly, the performance shares allocated to the achievement of the non-gas net income goal were awarded, and the options allocated to that goal became exercisable. Compensation of the Chief Executive Officer During 1998, the compensation of the Company's Chief Executive Officer, Ralph J. Adkins, was determined pursuant to the three-part program described above. First, Mr. Adkins' base salary was set to approximate the midpoint of chief executive salaries paid by companies in the Industry Peer Group. Second, Mr. Adkins' target bonus was $90,000 or 30% of salary. The Committee determined that although a significant percentage of his performance goals had been met by virtue of the accomplishment of goals set forth for executive officers under "Annual Incentive Bonus" above, the Company's net income did not come within the aggressive target net income range, and therefore no bonus was paid. Finally, the long-term performance incentive component of Mr. Adkins' compensation was determined as described under "Long-Term Performance Incentive Plan" above. Mr. Adkins received 1,204 performance shares based on the Company's achievement of its performance goal related to non-gas net income. 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 compensation paid to any of its executive officers in 1999 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, 1998, with the cumulative total return on the S&P 500 Index and an industry index consisting of 19 diversified natural gas companies as published by Edward D. Jones & Co. The 19 companies in the Edward D. Jones & Co. industry index are as follows: Chesapeake Utilities Corporation, Columbia Energy Group, Inc., Consolidated Natural Gas Company, Eastern Enterprises, Energen Corporation, Equitable Resources, Inc., KN Energy, Inc., MCN Energy Group, Inc., MDU Resources Group, Inc., National Fuel Gas Company, NICOR, Inc., Oneok, Inc., Questar Corporation, SEMCO Energy, Inc., Southwest Gas Corporation, Southwestern Energy Company, UGI Corporation, Valley Resources, Inc., and WICOR, Inc. The comparison assumes $100 was invested on December 31, 1993 in the Company's common stock and in each of the foregoing indices and assumes reinvestment of dividends. 14 [STOCK PERFORMANCE GRAPH APPEARS HERE] Stock Performance 15
Cumulative Total Stockholder Return ---------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 ----------- ----------- ----------- ----------- ----------- ----------- Chesapeake 100.0 88.4 108.2 131.9 169.0 159.5 S&P 500 100.0 101.3 139.3 171.3 228.5 293.9 Industry Index 100.0 88.6 117.3 147.8 185.2 170.6 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. CERTAIN TRANSACTIONS William P. Schneider (see "Beneficial Ownership of the Company's Securities By Others") and his brother James R. Schneider serve as executive officers of Tri-County Gas Company, Inc., a subsidiary of the Company which they formerly owned, pursuant to a five-year employment agreement entered into on March 6, 1997 that provides for a salary of $100,000 per year (which has been increased by approximately seven percent per year), together with retirement and other benefits. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors, following the recommendation of the Audit Committee, appointed PricewaterhouseCoopers, L.L.P. (formerly Coopers & Lybrand, L.L.P.) to serve as Chesapeake's independent accountants for the year ending December 31, 1998, to perform audits of the financial statements of Chesapeake and its subsidiaries. The Board's selection of PricewaterhouseCoopers, L.L.P. was ratified by the stockholders at the Company's 1998 Annual Meeting. PricewaterhouseCoopers, L.L.P. was also retained during 1998 to render certain non-audit professional services. It is not expected that a representative from PricewaterhouseCoopers, 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 PricewaterhouseCoopers, L.L.P. to serve as the independent auditors of Chesapeake and its consolidated subsidiaries for the fiscal year ending December 31, 1999. The Board is submitting the selection of PricewaterhouseCoopers, L.L.P. for ratification by stockholders. 16 PricewaterhouseCoopers, 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. PricewaterhouseCoopers, 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 PricewaterhouseCoopers, 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 PricewaterhouseCoopers, 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 1999, subject to ratification by the stockholders, in the belief that PricewaterhouseCoopers, L.L.P. is well qualified. Should the selection of PricewaterhouseCoopers, L.L.P. as independent auditors of Chesapeake not be ratified by the stockholders, the Board of Directors will reconsider the matter. 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 2, 1999. Written proposals should be directed to William C. Boyles, Corporate Secretary, Chesapeake Utilities Corporation, 909 Silver Lake Boulevard, Dover, Delaware 19904. If the proposal is received by the Company on or before February 15, 2000, the persons named as proxies in the Company's 2000 proxy material will have the discretionary authority to vote on the matter in accordance with their best judgment without disclosure of such matter in that proxy material and without disclosure of how the proxy holders intend to exercise their discretionary authority to vote on such matter. 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, 1998. WRITTEN REQUESTS SHOULD BE DIRECTED TO WILLIAM C. BOYLES, CORPORATE SECRETARY, CHESAPEAKE UTILITIES CORPORATION, 909 SILVER LAKE BOULEVARD, DOVER, DELAWARE 19904. 17 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 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, 1997, the following persons each filed late reports on Form 4 as indicated: Mr. Rider 1 report, 1 transaction; Mr. Warden 3 reports, 38 transactions. 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, William C. Boyles Corporate Secretary 18 Chesapeake Utilities Corporation April 1, 1999 A Diversified Utility Company 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 18, 1999, 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/ Ralph J. Adkins RALPH J. ADKINS Chairman of the Board DETACH HERE 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. 1. Election of Directors Nominees: Walter J. Coleman, John R. Schimkaitis, Jeremiah P. Shea FOR WITHHELD [_] [_] [_] ______________________________________ For all nominees except as noted above 2. For ratification of the selection of independent auditors. FOR AGAINST ABSTAIN [_] [_] [_] 3. In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournments thereof. MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_] PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. Please sign exactly as name appears hereon. Joint owners should each sign. When signing a 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: ____________________ DETACH HERE PROXY CHESAPEAKE UTILITIES CORPORATION 909 SILVER LAKE BOULEVARD DOVER, DELAWARE 19904 SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 18, 1999 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. [SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE] SIDE]