Schedule 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o |
|
Preliminary Proxy Statement |
o |
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
þ |
|
Definitive Proxy Statement |
o |
|
Definitive Additional Materials |
o |
|
Soliciting Material Pursuant to §240.14a-12 |
Chesapeake Utilities Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ |
|
No fee required. |
o |
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 or 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: |
|
|
|
|
|
|
|
|
|
o |
|
Fee paid previously with preliminary materials. |
|
o |
|
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: |
|
|
|
|
|
|
|
|
|
909 SILVER LAKE BOULEVARD
DOVER, DELAWARE 19904
March 27, 2009
DEAR STOCKHOLDERS:
You are cordially invited to attend the 2009 Annual Meeting of Stockholders of Chesapeake
Utilities Corporation. The following information provides you with details relating to the
meeting, including the matters to be considered and acted on by stockholders.
|
|
|
Time and Date
|
|
9:00 AM Eastern Daylight Time on Wednesday, May 6, 2009. |
|
|
|
Location
|
|
The Board Room of PNC Bank, Delaware, 222 Delaware Avenue, Wilmington,
Delaware 19801. |
|
|
|
Items of Business
|
|
1) To elect a Class III Director to serve a two-year term ending in 2011,
and until her successor is elected and qualified and to elect three Class
I Directors to serve three-year terms ending in 2012, and until their
successors are elected and qualified; |
|
|
|
|
|
2) To consider and vote on the ratification of the Companys independent
registered public accounting firm; and |
|
|
|
|
|
3) To transact such other business as may properly come before the
meeting. |
|
|
|
|
|
The Board of Directors recommends a vote FOR Items 1 and 2, and pursuant
to the discretion of the appointed proxies for Item 3. |
|
|
|
Record Date
|
|
If you are, or if a nominee through whom you hold shares is, a
stockholder of record at the close of business on Friday, March 13, 2009,
you will be entitled to vote at the meeting and at any adjourned meeting. |
It is important that all of the Companys shares of common stock that you own are represented
at the meeting. If you are unable to personally attend the meeting, we encourage you to vote your
shares using one of the three convenient voting methods available to our stockholders. You may
complete, properly sign and date your proxy card (included with these materials) and return it in
the enclosed envelope. Alternatively, you may vote by telephone or the internet by following the
instructions that are printed on your proxy card. Submitting your proxy by returning the enclosed
proxy card, by telephone or the internet, will not affect your right to attend the meeting and vote
in person. You may revoke any vote that you have submitted at any time before voting is declared
closed at the meeting by following the instructions in the accompanying Proxy Statement. If you
own stock beneficially through a bank, broker or otherwise, that institution will provide you with
voting instructions when sending our Proxy Statement to you.
Important Notice Regarding the Availability of Proxy Materials for the 2009 Annual
Meeting of Stockholders to be held on May 6, 2009. Pursuant to new rules promulgated by the
Securities and Exchange Commission, we have elected to provide access to our proxy materials both
by: (i) sending you this full set of proxy materials, including a proxy card; and (ii) notifying
you of the availability of our proxy materials on the internet. This Notice and Proxy Statement,
our Annual Report on Form 10-K, as well as directions to our meeting are available at
www.chpk.com/proxymaterials.
|
|
|
|
|
|
By Order of the Board of
Directors,
/s/ Beth W. Cooper
Beth W. Cooper
Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
Corporate Governance Guidelines on Director Independence |
|
|
A-1 |
|
|
|
|
|
|
909 SILVER LAKE BOULEVARD
DOVER, DELAWARE 19904
PROXY STATEMENT
GENERAL MATTERS
The Board of Directors of Chesapeake Utilities Corporation (we, us, our, or the
Company) is providing you with this Proxy Statement in connection with the solicitation by the
Board of Directors of proxies to be voted at the 2009 Annual Meeting of Stockholders and at any
adjournment thereof for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
Meeting Time and Date. The 2009 Annual Meeting of Stockholders will be held at 9:00 a.m.
Eastern Daylight Time on Wednesday, May 6, 2009, in the Board Room of PNC Bank, Delaware, 222
Delaware Avenue, Wilmington, Delaware 19801.
Solicitation of Proxies. Our directors, officers and regular employees may also solicit
proxies by personal interview, mail, telephone or e-mail. These individuals would not receive
additional compensation for their services in connection with the solicitation. In addition, we
may engage professional proxy solicitors or other consultants to solicit proxies. All costs of
preparing, printing, assembling and mailing this Proxy Statement and any other material used in the
solicitation, and all clerical and other expenses of solicitation will be borne by the Company.
The Notice of Annual Meeting of Stockholders, this Proxy Statement, and the enclosed proxy card are
being sent or given to stockholders on or about March 27, 2009.
Who May Vote. All stockholders of record at the close of business on Friday, March 13, 2009
will be entitled to vote. As of this date, 6,839,829 shares of our common stock, the only
outstanding class of voting equity securities, were outstanding. Each share of common stock is
entitled to one vote on each matter submitted to the stockholders for a vote. The executive
officers and directors of the Company have the power to vote approximately 4.67% of these shares.
We have been advised by the
executive officers and directors
that they intend to vote their
shares of common stock as follows:
|
|
|
Proposal
1: FOR the election of a Class
III Director to serve a two-year
term ending in 2011 and until her
successor is elected and qualified
and FOR the election of three Class
I Directors to serve three-year
terms ending in 2012 and until their
successors are elected and qualified |
|
|
|
|
Proposal
2: FOR the ratification of our
independent registered public
accounting firm |
|
|
|
|
Pursuant to the discretion
of the appointed Proxies for any
other action properly brought before
the meeting |
How To Vote. You may attend the meeting and deliver the completed proxy card in person before
voting is declared closed at the meeting. If you are unable to personally attend the meeting, we
encourage you to vote your shares using one of the three convenient voting methods available to our
stockholders. You may complete, properly sign and date your proxy card (included with these
materials) and return it in the enclosed envelope. Alternatively, you may vote by telephone or the
internet by following the instructions that are printed on your proxy card. Submitting your proxy
by returning the enclosed proxy card, by telephone, or by the internet, will not affect your right
to attend the meeting and vote in person.
Signature of Proxies. An authorized officer, partner or other agent voting shares on behalf
of a corporation, limited liability company, partnership or other legal entity should sign the
accompanying proxy card in the entity name and, immediately below this signature, indicate his or
her name and title at the entity. An agent, attorney, guardian or trustee submitting a proxy card
on behalf of a registered stockholder should also indicate his or her title following his or her
respective signature. Stock may be registered in the name of two or more trustees or other
persons. If you own stock with multiple parties, each party should sign the accompanying proxy
card where appropriate. If stock is registered in the name of a decedent and you are an executor,
or an administrator of the
decedents estate, you should sign the accompanying proxy card where appropriate, indicate
your title following your signature, and attach legal instruments showing your qualification and
authority to act in this capacity.
1
Voting Instructions. If your proxy is timely received, properly signed and not subsequently
revoked, it will be voted at the meeting according to your directions. If your proxy is incomplete
or if you do not provide instructions with respect to any of the items, the proxy will be voted FOR
proposals 1 and 2 and pursuant to the discretion of the appointed Proxies for any other action
properly brought before the meeting. If you abstain or withhold your vote, your shares will be
treated as not voted for purposes of determining the approval of any matter submitted to the
stockholders.
Revocation of Proxies. You may revoke any vote that you have submitted at any time before
voting is declared closed at the meeting. A proxy may be revoked by (i) attendance at the meeting
and voting in person; (ii) delivery of a subsequent proxy executed by the same person that executed
the prior proxy; (iii) submitting another timely and later dated proxy by telephone; (iv)
submitting another timely and later dated proxy over the internet; or (v) delivery of a written
statement to the Corporate Secretary of the Company stating that the proxy is revoked.
Beneficial Ownership. A beneficial owner holds shares of our common stock through a bank,
broker, trustee, nominee, or other institution. If you are a beneficial owner and the institution
held shares of our common stock, on your behalf, on the record date of March 13, 2009, you are
entitled to vote on the matters described in this Proxy Statement. We will request that the
institution provide you with our Proxy Statement and any other solicitation materials, as well as
voting instructions. We will reimburse the institution for reasonable expenses incurred in
connection with this solicitation. You will need to obtain a valid proxy from the institution if
you intend to vote your shares by personally attending our meeting. Your broker may submit a proxy
indicating that discretionary authority may not be used to vote on certain proposals in the absence
of instructions from you. These submissions, also called broker non-votes, will have no effect on
the results of the vote on any matter described in this Proxy Statement.
Quorum. In order for business to be conducted at the meeting, a quorum must be present. A
quorum consists of the holders of a majority of the shares of common stock outstanding on our
record date. Shares of common stock represented at the meeting in person or by proxy will be
counted for the purpose of determining whether a quorum exists. If you abstain or withhold your
vote, your shares will be treated as present and entitled to vote for purposes of determining the
presence of a quorum. Broker non-votes will be counted as present at the meeting for quorum
purposes, but not voted. The Companys Inspector of Elections will tabulate the votes and
determine whether a quorum is present.
Annual Report. The 2008 Summary Annual Report and Annual Report on Form 10-K covering our
fiscal year ended December 31, 2008, are enclosed with this Proxy Statement. These documents
provide financial information to our stockholders. They are not, and shall not be deemed to be,
soliciting material. The 2008 Summary Annual Report is not, and shall not be deemed to be,
filed with the Securities and Exchange Commission (SEC) or subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934.
PROPOSALS
ELECTION OF DIRECTORS (PROPOSAL 1)
At the conclusion of the meeting, the entire Board of Directors of the Company will consist of
ten directors. The Board is divided into three classes, with the directors of each class elected
to serve three-year terms.
In 2008, the size of our Board of Directors decreased to nine as a result of a director who
did not seek re-election due to his reaching the age of retirement as set forth in the Companys
Bylaws. The Company increased the size of the Board to ten which created a vacancy. The Board of
Directors, on September 11, 2008, appointed Dianna F. Morgan to fill the resulting vacancy,
effective September 15, 2008. Consistent with the Corporate Governance Committees Charter, Mrs.
Morgan was appointed to serve as a Class III director until this Annual Meeting of Stockholders.
The Board of Directors has nominated Dianna F. Morgan as a candidate for election to serve as a
director. If elected, she will serve until the 2011 Annual Meeting of Stockholders and until her
successor is elected and qualified. Also at this meeting, three Class I directors will be elected
to serve until the 2012 Annual Meeting of Stockholders and until their successors are elected and
qualified. The Board of Directors has nominated the
following candidates for election to serve as directors: Calvert A. Morgan, Jr., Eugene H.
Bayard and Thomas P. Hill, Jr. Each director was elected, or in the case of Mr. Morgan, re-elected
by the stockholders at the Companys 2006 Annual Meeting to serve on the Board of Directors.
2
Directors are elected by a plurality of the votes cast by the holders of the shares present in
person or represented by proxy at the meeting. A stockholder that is entitled to vote for the
election of directors may cast their vote in accordance with the instructions provided in this
Proxy Statement. A stockholder may authorize a proxy to vote their shares on the election of
directors. A proxy that withholds authority to vote for a particular nominee will not count either
for or against the nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
Information Concerning Nominees and Continuing Directors. The following information sets
forth the principal occupation and employment of each director and nominee, the name and principal
business of the organization, certain other affiliations, and additional business experience
attained by each director and nominee during the past five years. This information has been
provided to us by each nominee for election as a director and for each director whose term will
continue following the meeting.
Nominees for Election
|
|
|
Class III Director (Term Expires in 2011) |
|
|
|
Dianna F. Morgan
Director of the Company since
2008.
|
|
Mrs. Morgan, age 57, is the Chair of
the Board of Trustees for the
University of Florida. She was
originally appointed to the
Universitys Board in 2001. In
addition, Mrs. Morgan currently
serves on the Board of Directors of
CNL Bancshares, Inc. Prior to that,
she served on the Board of Directors
for CNL Hotels and Resorts, Inc.
Mrs. Morgan is also a member of the
Board of Directors of Orlando Health
(formerly Orlando Regional
Healthcare System) and serves as
Vice-Chair of the national board for
the Childrens Miracle Network.
Previously, Mrs. Morgan served as
Senior Vice President of Public
Affairs and Senior Vice President of
Human Resources for Walt Disney
World Company. She oversaw the
Disney Institute a recognized
leader in experiential training,
leadership development, benchmarking
and cultural change for business
professionals around the world. |
|
|
|
Class I Directors (Terms Expire in 2012) |
|
|
|
Calvert A. Morgan, Jr.
Director of the Company
since
2000.
|
|
Mr. Morgan, age 61, was elected as
Vice Chairman of the Board of
Wilmington Savings Fund Society, a
principal subsidiary of WSFS
Financial Corporation, in July of
2006. He also serves as a director
of and special advisor to WSFS
Financial Corporation. Mr. Morgan
is the retired Chairman of the
Board, President and Chief
Executive Officer of PNC Bank,
Delaware in Wilmington, Delaware.
He serves in numerous business and
community capacities, including: |
|
|
member of Delaware Business
Roundtable; advisory director of
the Wilmington Country Club; and
trustee of Christiana Care
Corporation. Mr. Morgan is a
member of the Delaware Economic and
Financial Advisory Council. |
|
|
|
Eugene H. Bayard
Director of the Company
since
2006.
|
|
Mr. Bayard, age 62, is a partner
with the law firm of Wilson,
Halbrook & Bayard in Georgetown,
Delaware. He has been a member of
the firm since 1974. Mr. Bayard
serves in numerous business and
community board capacities
including: Delaware Wild Lands,
Inc., Delaware State Fair, Inc.,
Harrington Raceway, Inc., Delaware
Volunteer Firemens Association,
the Southern Delaware Advisory
Board for the Delaware Community
Foundation, O.A. Newton & Son
Company and J.G. Townsend, Jr. &
Company. |
3
|
|
|
Thomas P. Hill, Jr.
Director of the Company
since
2006.
|
|
Mr. Hill, age 60, retired in 2002
from Exelon Corporation in
Philadelphia, Pennsylvania, where he
served as Vice President of Finance
and Chief Financial Officer of
Exelon Energy Delivery Company.
Exelon Corporation is an electric
utility, providing energy
generation, power marketing and
energy delivery. Exelons
electricity generation is
predominant in the Midwest and
Mid-Atlantic. Prior to the PECO
Energy and Unicom Corporation
merger, out of which Exelon
Corporation evolved, Mr. Hill was
Vice President and Controller for
PECO Energy, where he had been
employed since 1970 in various
senior financial and managerial
positions. Mr. Hill serves as a
trustee of Magee Rehabilitation
Hospital, Magee Rehabilitation
Foundation, and the Art Institute of
Philadelphia. He also serves as a
member of the Audit Committee for
Jefferson Health System. |
|
|
|
Continuing Directors |
|
|
|
|
|
Class II Directors (Terms Expire in 2010) |
|
|
|
Ralph J. Adkins
Director of the Company
since
1989.
|
|
Mr. Adkins, age 66, has served as
Chairman of the Board of Directors
of Chesapeake Utilities Corporation
since 1997. He previously served as
Chief Executive Officer of the
Company, a position he held from
1990 to 1999. During his tenure with
the Company, Mr. Adkins served as
President, Chief Executive Officer,
Chief Operating Officer, Executive
Vice President, Senior Vice
President, Vice President, Treasurer
and Chief Accountant. Mr. Adkins is
a former director of PNC Bank,
Delaware, former Chairman of
Bayhealth Foundation, and former
Chairman of the Board of Trustees of
the Delaware Public Employees
Retirement System. |
|
|
|
Richard Bernstein
Director of the Company
since
1994.
|
|
Mr. Bernstein, age 66, is the
President and Chief Executive
Officer of LWRC International, LLC,
the developer and manufacturer of
patented rifles and carbines. He
was owner, President, and Chief
Executive Officer of BAI
Aerosystems, Inc., a manufacturer of
lightweight, low-cost Unmanned
Aerial Vehicles, prior to BAIs
acquisition by L-3 Communications
Corporation in December 2004. Mr.
Bernstein was the major stockholder
in Lorch Microwave, which produces
microwave components for the
military and commercial
communications industries, prior to
its acquisition by Smiths Group PLC
in January 2006. Mr. Bernstein
continues to be active in the
oversight of several private
businesses in which he is a major
stockholder. These include: REB
Holdings, Inc., a technology
consulting company; Salisbury Inc.,
a manufacturer of pewter and silver
for the gift and premium markets;
and MaTech, Inc., a leading
machining company. He is also a
partner in the Waterside Village
development in Easton, Maryland.
Mr. Bernstein has served on boards
for several colleges and
universities and serves on the
advisory board of M&T Bank. |
|
|
|
J. Peter Martin
Director of the Company
since
2001.
|
|
Mr. Martin, age 69, is the retired
Founder, President and Chief
Executive Officer of Atlantic
Utilities Corporation, a Miami,
Florida diversified utility company
that provided water, wastewater,
natural gas and propane gas service
to residential, commercial and
industrial customers in several
Florida counties. Mr. Martin founded
Atlantic Utilities Corporation in
1980 and remained with the Company
until its sale to Southern Union Co.
in 1997. He is a Board of Governors
member of the Snapper Creek Lakes
Club, Inc. in Coral Gables, Florida.
Prior to founding Atlantic
Utilities Corporation, Mr. Martin
was President of Southern Gulf
Utilities, Inc. in Miami, Florida. |
4
|
|
|
Class III Directors (Terms Expire in 2011) |
|
|
|
Thomas J. Bresnan
Director of the Company
since
2001.
|
|
Mr. Bresnan, age 56, is majority
shareholder, President and Chief
Executive Officer of Schneider Sales
Management, LLC, a leading provider
of sales consulting and skills
assessment services and a publisher
of proprietary sales training
materials based in Greenwood
Village, Colorado. From 1999 to
2006, Mr. Bresnan was Chief
Executive Officer of New Horizons
Worldwide, Inc., an information
technology training company in
Anaheim, California. At New Horizons
Worldwide, Inc. he also served as
President from 1992 to 2006 and on
the Board of Directors from 1993 to
2006. Prior to his employment with
New Horizons Worldwide, Inc., he was
President of Capitol American Life
Insurance in Cleveland, Ohio. Mr.
Bresnan began his professional
career at Arthur Andersen and Co. |
|
|
|
Joseph E. Moore
Director of the Company
since
2001.
|
|
Mr. Moore, age 66, is a partner with
the law firm of Williams, Moore,
Shockley and Harrison, LLP. He has
previously served in numerous
business and community capacities in
the State of Maryland, including:
States Attorney for Worcester
County; Attorney for Worcester
County Board of Zoning Appeals;
Attorney for the Town of Berlin; and
as a member of the Board of
Governors of the State of Maryland
Bar Association. Mr. Moore is
currently a member of the Board of
Trustees of the Worcester
Preparatory School in Berlin,
Maryland and a director of the Ocean
City Museum Society, Inc. In
addition, Mr. Moore serves as a
director of Calvin B. Taylor Banking
Co., and the Chairman of the Board
of Zoning Appeals for the Town of
Berlin. He has been appointed by
the Maryland Court of Appeals as
Co-Chairman of the First Appellate
Circuit Character Committee of the
Maryland State Board of Law
Examiners. Mr. Moore is also a
Fellow of the American College of
Trial Lawyers. |
|
|
|
John R. Schimkaitis
Director of the Company
since
1996.
|
|
Mr. Schimkaitis, age 61, is
President and Chief Executive
Officer of Chesapeake Utilities
Corporation. He was appointed to
serve as Chief Executive Officer in
January 1999. He has served as
President of the Company since 1997.
Mr. Schimkaitis previously served
as Chief Operating Officer of the
Company, and prior thereto as
Executive Vice President, Senior
Vice President, Chief Financial
Officer, Vice President, Treasurer,
Assistant Treasurer, and Assistant
Secretary of the Company. |
If, prior to the election, any of the nominees become unable or unwilling to serve as a
director of the Company (an eventuality that we do not anticipate), all proxies will be voted for
any substitute nominee who may be designated by the Board of Directors on the recommendation of the
Corporate Governance Committee.
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL 2)
The Audit Committees Charter sets forth the Committees responsibility for the appointment
and oversight of our independent registered public accounting firm, as well as the approval of
their compensatory arrangements. On February 23, 2009, the Audit Committee approved the
reappointment of Beard Miller Company LLP (Beard Miller) to serve as our independent registered
public accounting firm for 2009.
Although the New York Stock Exchange (NYSE) listing standards require that the Audit
Committee be directly responsible for selecting and retaining the independent registered public
accounting firm, we are providing you with the means to express your view on this matter. While
this vote is not binding, in the event that stockholders fail to ratify the appointment of Beard
Miller, the Audit Committee will reconsider this appointment. Even if the appointment is ratified,
the Audit Committee, in its discretion may direct the appointment of a different independent
registered public accounting firm at any time during the year if the Audit Committee determines
that such a change would be in the best interests of the Company and its stockholders.
As reported in the 2007 Proxy Statement, on March 20, 2007, the Company notified
PricewaterhouseCoopers LLP that the firm was dismissed as its independent registered public
accounting firm effective as of that date. The
reports of PricewaterhouseCoopers LLP on the financial statements of the Company for the years
ended December 31, 2006 and 2005 did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting principle.
5
The Audit Committee solicited proposals from several public accounting firms to serve as the
Companys independent registered public accounting firm, interviewed the firms, and, on March 20,
2007 approved the selection of Beard Miller to serve as the Companys independent registered public
accounting firm for 2007. Prior to the appointment as its independent registered public accounting
firm, the Company had not consulted Beard Miller on any matters or events described in Item
304(a)(2)(i) and (ii) of Regulation S-K promulgated under the Securities and Exchange Act of 1934,
as amended.
For the fiscal years ended December 31, 2006 and 2005, and in the subsequent interim period
preceding the dismissal of PricewaterhouseCoopers LLP there were no (a) disagreements (as described
in Item 304(a)(1)(iv) of Regulation S-K) between the Company and PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP,
would have caused PricewaterhouseCoopers LLP to make reference thereto in their reports on our
consolidated financial statements for such periods, or (b) reportable events, as described under
Item 304(a)(1)(v) of Regulation S-K.
A representative from Beard Miller will be present at the Annual Meeting and available to
respond to appropriate questions. A formal statement will not be made.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF BEARD MILLER AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2009.
BOARD OF DIRECTORS AND ITS COMMITTEES
Nomination of Directors. Our Bylaws permit stockholders to nominate candidates for election
as directors. We will consider all stockholder nominations for directors provided that each such
nomination complies with the provisions of the Companys Bylaws and the Corporate Governance
Committees Charter. The Corporate Secretary of the Company must receive director nominations by
stockholders not less than 14 days nor more than 80 days prior to the annual meeting at which
directors are to be elected. Each nomination must be in writing and must include:
As to each nominee
|
|
|
Name, age, business address and, if known, residential address |
|
|
|
|
Principal occupation or employment |
|
|
|
|
Number of shares of our stock beneficially
owned |
|
|
|
|
Ownership and Rights Information (as described in our Bylaws) |
|
|
|
|
Consent to serve as a director of the Company if elected |
|
|
|
|
Description of all arrangements or understandings between (i) the stockholder and the nominee, and (ii)
any other person(s) pursuant to which the nomination is to be made |
|
|
|
|
A questionnaire that inquires as to, among other things, the nominees independence and eligibility |
|
|
|
|
Any other information required to be disclosed in solicitations of proxies for election of directors, or
otherwise required pursuant to Schedule 14A under the Securities Exchange Act of 1934, as amended |
As to the stockholder giving the notice
|
|
|
Name and address as they appear on our books |
|
|
|
|
Other information as requested by the Company |
|
|
|
|
Representation of the accuracy of the information in the notice |
|
|
|
|
Ownership and Rights Information (as described in our Bylaws) |
6
The Corporate Governance Committee, whose duties include that of a nominating committee, will
consider a recommendation from a stockholder only if the information specified above is complete.
The Committee will consider several factors prior to recommending a candidate that is provided by
the Board of Directors, management or by a stockholder for inclusion in the Boards slate of
recommended director nominees for election by the stockholders. Generally, the Committee will
consider the existing size and composition of the Board, evaluate biographical information and
other background material, and conduct an interview of each candidate selected. The Committee will
apply any director selection criteria adopted by the Committee based on the Companys circumstances
at the time. The Committee will also apply the criteria set forth in our Corporate Governance
Guidelines. This criteria relates to a candidates character, judgment, business experience or
professional background, knowledge of our business, community involvement, and availability and
commitment to carry out the responsibilities as a director of the Company (directors may not be
directors of more than two public companies in addition to the Company), as well as the candidates
independence under applicable regulations and listing standards. The specific director selection
criteria include, but may not in all instances be limited to, the following:
|
|
|
Leadership in a particular field of expertise |
|
|
|
Education or experience that enables the exercise of sound business judgment |
|
|
|
Background or experience that enables differing points of view |
|
|
|
Willingness to listen and work in a collegial manner |
|
|
|
Knowledge, experience and skills that enhance the mix of the Boards core competencies |
|
|
|
Professional achievement generally through service as a principal executive of a major
company; distinguished member of academia; partner in a law firm or accounting firm;
successful entrepreneur; or similar position of significant responsibility |
The Corporate Governance Committee does not assign specific weights to these criteria, and not
all of the criteria are necessarily applicable to all prospective nominees. We believe that the
backgrounds and qualifications of the directors, considered as a group, should provide a
significant composite mix of experience, knowledge and abilities that will allow the Board to
fulfill its responsibilities.
Committees of the Board. The standing Board committees of the Company are the Audit
Committee, Compensation Committee, and Corporate Governance Committee.
Audit Committee
Thomas J. Bresnan, Chairman
Ralph J. Adkins
Thomas P. Hill, Jr.
J. Peter Martin
The Committee held five
meetings in 2008.
A Board adopted Audit Committee Charter is available at www.chpk.com and in print to any
stockholder upon request. As reflected in its Charter, the Audit Committees responsibilities
include, but are not limited to:
|
|
|
Appointment, retention, termination and oversight of our independent registered public
accounting firm |
|
|
|
Compensation of our independent registered public accounting firm |
|
|
|
Approval of all non-audit engagements of our independent registered public accounting firm |
|
|
|
Review, along with management and the independent registered public accounting firm, of the
annual and quarterly financial statements |
|
|
|
Supervision of the annual audit and our internal audit function |
The composition of the Audit Committee is subject to independence and other requirements under
the rules and regulations promulgated by the SEC and the NYSE listing standards. The Board of
Directors has determined that all current members of the Committee are independent and
financially literate as those terms are defined in the NYSE listing standards, and that the
Committee meets the composition requirements of the SEC and the NYSE listing standards. Under the
rules of the SEC, each Committee member qualifies as an audit committee financial expert based on
his experience and knowledge. Mr. Adkins is the former Chief Executive Officer of the Company.
During his tenure with the Company, he held various executive positions, including serving as its
Treasurer. Mr. Bresnan is the Chief Executive Officer and President of Schneider Sales Management,
LLC. He previously served as Chief Executive Officer, President and Director of New Horizons
Worldwide, Inc. and as principal executive officer and principal financial officer of Capitol
American Life Insurance and Capitol American Financial, respectively. He has six years of public
accounting experience. Mr. Hill previously served as Vice President of Finance and Chief Financial
Officer of Exelon Energy Delivery Company. Prior to that, he held various senior financial and
managerial positions with PECO Energy. Mr. Martin is the retired Founder, President and Chief
Executive Officer of Atlantic Utilities Corporation. Prior to that, he was the President of
Southern Gulf Utilities, Inc. Messrs. Adkins, Bresnan, Hill and Martin each satisfy the
independence requirements for audit committee members under the NYSE listing standards. None of
the members of the Committee serve on audit committees of other public companies.
7
Compensation Committee
Richard Bernstein, Chairman
Joseph E. Moore
Calvert A. Morgan, Jr.
Dianna F. Morgan
The Committee held seven
meetings in 2008.
A Board adopted Compensation Committee Charter is available at www.chpk.com and in print to any
stockholder upon request. As reflected in its Charter, the Compensation Committees
responsibilities include, but are not limited to:
|
|
|
Administration of executive officer and director compensation policies and practices that
(i) are consistent with our business strategy and objectives, (ii) contribute to our ability
to attract, retain and motivate qualified executive officers and directors, and (iii)
appropriately link incentive compensation to our performance and the creation of stockholder
value |
|
|
|
Completion of actions necessary to ensure that required reports on compensation practices
are included in our respective filings with the SEC |
|
|
|
Administration of the Cash Bonus Incentive Plan, and the Performance Incentive Plan
under which cash and equity incentive awards are granted |
The Committee has sole authority to retain, terminate, and approve retention terms, including
fees, for any consultant or other advisor it deems necessary to assist in the evaluation of
executive and director compensation. The Committee may not delegate its responsibilities for the
oversight of executive and director compensation to any other person or entity.
The NYSE listing standards require that the Committee consist solely of independent directors.
The Board of Directors has determined that all current members of the Compensation Committee are
independent as that term is defined in the NYSE listing standards.
Corporate Governance Committee
Calvert A. Morgan, Jr., Chairman
Eugene H. Bayard
Joseph E. Moore
The Committee held four
meetings in 2008.
A Board adopted Corporate Governance Committee Charter is available at www.chpk.com and in print to
any stockholder upon request. As reflected in its Charter, the Corporate Governance Committees
responsibilities include, but are not limited to:
|
|
|
Periodic review of our Corporate Governance Guidelines |
|
|
|
Evaluation of the size and composition of the Board of Directors |
|
|
|
Development and recommendation to the Board of Directors of director eligibility guidelines |
|
|
|
Evaluation of director candidates |
|
|
|
Annual evaluation of the Board of Directors performance |
The NYSE listing standards require that the Committee consists solely of independent
directors. The Board of Directors has determined that all current members of the Corporate
Governance Committee are independent as that term is defined in the NYSE listing standards.
Meetings of the Board of Directors and Committees. The Board of Directors met seven times
during 2008. With the exception of Dianna F. Morgan who joined the Board of Directors in September
of 2008, each current director attended 75 percent or more of the aggregate of the total number of
meetings of (i) the Board of Directors, and (ii) each committee of the Board on which he served.
Mrs. Morgan has attended 100 percent of the Board meetings occurring after she joined the Board.
Directors are strongly encouraged to attend our Annual Meetings. All of the then current directors
attended the 2008 Annual Meeting of Stockholders.
Director Education. Newly elected directors participate in a director orientation program that
covers, among other things, our strategy, business structure, financial performance, and
competitive landscape. This program is designed to provide directors with an overview of the
Company, its operating environment and its businesses. As part of this program, directors are
invited to participate in a tour of selected facilities of the Company. To further familiarize
directors with our operations, we conduct at least one Board of Directors meeting each year at a
Company facility. Each director has access to publications that cover current Board and
Committee-related topics. Directors are encouraged to participate in continuing education
opportunities. Annually, in conjunction with its June strategic planning meeting, a third party
consultant provides information to the Board on a selected governance topic.
8
DIRECTOR COMPENSATION
The Compensation Committee reviews director compensation annually to ensure the appropriate
compensation arrangements for non-employee directors, including the proper allocation of cash and
non-cash compensation. The Committee subsequently reports its findings and any recommendations to
the Board of Directors to assist in fulfilling its responsibility to approve all director
compensation arrangements.
Prior to conducting its annual review for 2008, the Compensation Committee received an
internally prepared analysis of non-employee director compensation data from publicly available
proxy statements of peer companies and published survey data from nationally recognized
organizations that provide independent research. The Committee requested that Buck Consultants,
LLC (Buck), an independent compensation consultant, review the internally prepared analysis and
provide feedback on its conclusions. Buck prepared a memorandum after its review, including
commentary on the overall level of director compensation for non-employee directors, which includes
our Chairman, and specific elements of director compensation.
The Committee reviewed this analysis and other factors, including the responsibilities of the
non-employee directors, to assist in its determination of the appropriate compensation levels and
mix for 2008. The Committee considered the recommendation made by Buck to increase the director
compensation equity retainer and the Audit Committee Chairman equity retainer to better align the
Company with current industry practices. The Committee concluded that the cash portion of the
annual retainer; the meeting fee for Board meetings; the meeting fee for Committee meetings; and
the Compensation and Corporate Governance Committee chair retainers currently paid by the Company
are at or above the median of the peer group and are, therefore, still appropriate. The Committee
approved an increase in the equity retainer from 600 to 650 shares of common stock paid to each
non-employee director for serving as a director of the Company. The Compensation Committee also
approved an increase in the equity retainer from 150 to 250 shares of common stock paid to the
Chairman of the Audit Committee for his respective services. The Committee will likely utilize
internal resources and published survey information in evaluating director compensation for 2009.
The Board of Directors may modify director compensation as it deems appropriate.
The following table reflects compensation paid to non-employee directors for services
performed during 2008:
2008 Director Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
Stock |
|
|
|
|
|
|
or Paid in Cash |
|
|
Awards4,5 |
|
|
Total7,8 |
|
Name1 |
|
($) |
|
|
($) |
|
|
($) |
|
Ralph J. Adkins |
|
|
134,600 |
3 |
|
|
19,020 |
|
|
|
153,620 |
|
Eugene H. Bayard |
|
|
32,100 |
|
|
|
19,020 |
|
|
|
51,120 |
|
Richard Bernstein |
|
|
34,600 |
|
|
|
23,530 |
|
|
|
58,130 |
|
Thomas J. Bresnan |
|
|
32,600 |
|
|
|
25,491 |
6 |
|
|
58,091 |
|
Thomas P. Hill, Jr. |
|
|
34,600 |
3 |
|
|
19,020 |
|
|
|
53,620 |
|
J. Peter Martin |
|
|
34,600 |
3 |
|
|
19,020 |
|
|
|
53,620 |
|
Joseph E. Moore |
|
|
35,900 |
|
|
|
19,020 |
6 |
|
|
54,920 |
|
Calvert A. Morgan, Jr. |
|
|
37,100 |
|
|
|
23,530 |
|
|
|
60,630 |
|
Dianna F. Morgan2 |
|
|
15,600 |
|
|
|
5,696 |
|
|
|
21,296 |
|
|
|
|
1 |
|
Mr. Schimkaitis is an executive officer and does not receive any additional compensation for his services as a director. |
|
2 |
|
Mrs. Morgan joined the Board of Directors in September of 2008. She received a prorated cash ($11,700) and equity retainer for
services to be performed from September 15, 2008 through May 6, 2009. The stock has a grant date fair value of $12,205 (411
shares based upon a price per share of $29.695). Accordingly, the Stock Awards column reflects the value for 31/2 months of this
award for services performed in 2008. |
9
|
|
|
3 |
|
The M&A Committee was established in January of 2008 to oversee activities related to an unconsummated acquisition. Messrs.
Adkins, Hill and Martin served as members of the M&A Committee and received $1,000 for the first meeting and $500 for each of the
other two meetings held. |
|
4 |
|
Excluding Mrs. Morgan, pursuant to the Directors Stock Compensation Plan, each non-employee director received an award of stock on: |
|
|
|
May 2, 2007. The stock had a grant date fair value of $18,828 (600 shares based upon a price per share of $31.38). Each
of the three Committee Chairmen (Messrs. Bernstein, Bresnan and Morgan) received an additional award of stock on May 2, 2007, with
a grant date fair value of $4,707 (150 shares of common stock based upon a price per share of $31.38). Each non-employee director
received his applicable award for services performed from May 2, 2007 through May 1, 2008. Accordingly, the Stock Awards column
reflects the value of four months of this award for services performed in 2008. |
|
|
|
May 1, 2008. The stock had a grant date fair value of $19,117 (650 shares based upon a price per share of $29.41). Each
of the Compensation and Corporate Governance Committee Chairmen (Messrs. Bernstein and Morgan, respectively) received an
additional award of stock on May 1, 2008, with a grant date fair value of $4,412 (150 shares of common stock based upon a price
per share of $29.41). Mr. Bresnan, Chairman of the Audit Committee, received an additional award of stock on May 1, 2008, with a
grant date fair value of $7,353 (250 shares of common stock based upon a price per share of $29.41). Each non-employee director
received his applicable award for services performed from May 1, 2008 through May 6, 2009. Accordingly, the Stock Awards column
reflects the value of eight months of this award for services performed in 2008. |
These stock awards and all prior stock awards are fully vested in that they are not subject to forfeiture. The table shows the
expense recognized by the Company in 2008 pursuant to FAS 123R.
|
|
|
5 |
|
The aggregate number of director stock awards outstanding at December 31, 2008, by director, were as follows: Mr. Adkins 3,050
shares; Mr. Bayard 1,850 shares; Mr. Bernstein 8,600 shares; Mr. Bresnan 5,400 shares; Mr. Hill 1,850 shares; Mr. Martin
3,950 shares; Mr. Moore 4,550 shares; Mr. Morgan 5,900 shares; Mrs. Morgan 411 shares. Mr. Schimkaitis, as an executive
officer, does not receive any stock awards under the Directors Stock Compensation Plan. We provide beneficial ownership
information of Chesapeake stock for our directors under Security Ownership of Certain Beneficial Owners and Management. |
|
6 |
|
In 2008, two directors deferred their annual stock retainers via the Companys Deferred Compensation Plan. Mr. Bresnan deferred
900 shares and Mr. Moore deferred 650 shares. Each director received deferred stock units equal to his respective stock retainer.
Messrs. Bresnan and Moore will receive additional units on each date that a dividend is paid on our common stock. At all times,
each director has a 100 percent vested interest in his deferred stock units. |
|
7 |
|
Directors do not participate in a pension plan or non-equity incentive plan. |
|
8 |
|
All director compensation has been properly reported in the 2008 Director Compensation Table. There is no compensation that needs
to be included in an All Other Compensation column. |
For the period between our 2008 and 2009 Annual Meetings of Stockholders, the Chairman of the
Board, a non-employee director, was paid an annual cash retainer of $100,000 for his services in
that capacity. Each of the Companys non-employee directors that were serving as of our 2008
Annual Meeting of Stockholders, including the Chairman, received an annual cash retainer of $18,500
for his service as a director. Each non-employee director, including the Chairman, was also paid
$1,200 for each Board meeting and $1,000 for each Committee meeting attended in person or by
telephone. If however, a director attended more than one meeting on the same day, he or she was
paid as follows: (a) Board and Committee meeting on the same day $1,200 for the Board meeting
plus an additional $500 for each Committee meeting; or (b) more than one Committee meeting (without
a Board meeting) $1,000 for the first Committee meeting and an additional $500 for each
subsequent Committee meeting attended on that same day. Directors may not elect to receive their
cash compensation in stock. In addition, we reimbursed normal business expenses incurred by the
directors in connection with attending meetings and performing other Board-related services,
including external director education, of which the aggregate value was less than $10,000 per
director.
Directors Stock Compensation Plan. In 2005, stockholders approved a Directors Stock
Compensation Plan, which is a discretionary compensation plan that allows the issuance of shares of
our common stock to non-employee directors. We believe it is appropriate for each director to have
a proprietary interest in our growth and financial success. The Board of Directors has sole
authority to administer and interpret the Plan. The Board may approve the issuance of up to 1,200
shares of the Companys common stock annually for each director pursuant to the terms of the Plan.
On May 1, 2008, each non-employee director received 650 shares of common stock as compensation
for service to be performed for the period between our 2008 and 2009 Annual Meeting of
Stockholders. Messrs. Bernstein and Morgan each received an additional 150 shares of common stock
for serving as Chairman of the Compensation and Corporate Governance Committees, respectively.
Mr. Bresnan received an additional 250 shares of common stock for serving as Chairman of the Audit
Committee. Upon receipt of these shares, each director had the right to vote the shares and to
receive dividends on the shares. The directors could not sell or transfer these shares until six
months after the date that they were granted. Each director is individually responsible for
any tax obligations in connection with these shares.
10
Deferred Compensation Plan. The Deferred Compensation Plan, formerly known as the Deferred
Compensation Program, enables non-employee directors to voluntarily defer all or a portion of their
meeting fees and annual retainers on a pre-tax basis until their separation from service with the
Company and its affiliates or until such other date specified under the terms of the Plan. In
2008, the Board of Directors amended the Deferred Compensation Plan to comply with the Internal
Revenue Services recent guidance on Internal Revenue Code Section 409A. The Compensation Committee
has sole authority to administer this Plan and may allocate these responsibilities among its
members, among any subcommittee(s) it may appoint, or among persons other than its members.
When a director elects to defer cash compensation, such as meeting fees or annual cash
retainers, the deferral amount is allocated per the director to one or more rate of return indices
previously selected by the Compensation Committee. The director will receive the same investment
return(s) or loss(es) as he or she would achieve had it been individually invested in the same
indices. When a director elects to defer stock compensation, such as an annual stock retainer, he
or she receives deferred stock units equal to the number of shares of common stock that the
director otherwise would be entitled to receive as compensation. Additional units may be received
on each date that a dividend is paid on the Companys common stock. In 2008, Messrs. Bresnan and
Moore deferred their annual stock retainers under this Plan. At all times, each director has a 100
percent vested interest in the amount of cash or stock that is deferred.
In order to participate in this Plan, directors are required to submit their written form of
election to the Compensation Committee prior to the beginning of the year for which the
compensation will be earned. The director must indicate on the form whether he or she would like
to receive the deferred compensation upon: (i) separation from service, (ii) a fixed future date,
or (iii) the earlier or later of the separation from service or a fixed future date. The director
must also indicate whether he or she would like to receive the deferred compensation in: (i) a lump
sum, (ii) five annual installments, or (iii) ten annual installments. In the event that the
director chooses to receive the deferred compensation in five or ten annual installments, the
amount of the initial installment shall be the total amount deferred by the director, divided by
five or ten, as elected. Subsequent installments will each equal the remaining amount deferred
divided by the outstanding number of installments. In all cases, the election to defer compensation
will be made in accordance with the deferral election timing requirements of Internal Revenue Code
Section 409A and procedures established by the Compensation Committee. In the event of death,
disability, change in control, or unforeseeable emergency, deferred compensation may be paid on an
accelerated basis according to the terms of the Plan. Directors will be individually responsible
for any tax obligations related to deferring compensation under this Plan.
Director Stock Ownership. All non-management directors are required to hold at least 4,000
shares of our common stock while serving as a director of the Company. Directors have five years
after their initial election and incumbent directors had until December 10, 2007, if they were
serving as members of the Board of Directors on December 10, 2004, to attain this ownership
threshold. Directors may acquire their ownership through several means, including making purchases
on the open market, making optional cash investments through our Dividend Reinvestment and Direct
Stock Purchase Plan, and receiving a share award under the Directors Stock Compensation Plan.
Deferred stock units are applied toward achieving this ownership requirement. Each deferred stock
unit is equivalent to one share of the Companys common stock. Each director is currently in
compliance with the established ownership requirement.
CORPORATE GOVERNANCE
General. The Board of Directors maintains sound corporate governance standards and internal
controls, and is committed to promoting awareness and involvement of these standards throughout the
Company. To assist in its efforts, the Board has adopted various policies and procedures,
including those described below, that provide the framework for our governance.
Independence. The NYSE rules governing independence require that a majority of the members of
our Board of Directors be independent as defined by the NYSE. Members of the Board are independent
if it is determined that the director has no material relationship with the Company except in his
or her capacity as a director. To assist in making the determination of independence for each
director, the Company adopted its Corporate Governance Guidelines on Director Independence (the
Independence Guidelines). The Independence Guidelines adopted by
the Board are set forth in Appendix A to this Proxy Statement and are also available on our
website at www.chpk.com.
11
In accordance with the Independence Guidelines, the Board of Directors on February 24, 2009
conducted its annual review of director independence. During this review, the Board of Directors
examined all direct and indirect transactions or relationships between the Company or any of its
subsidiaries and each director and any immediate family member of such director and determined that
no material relationships with the Company existed during fiscal year 2008.
On the basis of this review, the Board of Directors determined that in accordance with the
standards set forth in the Independence Guidelines, each of the following directors qualifies as an
independent director as defined by the NYSE listing standards: Ralph J. Adkins, Eugene H. Bayard,
Richard Bernstein, Thomas J. Bresnan, Thomas P. Hill, Jr., J. Peter Martin, Joseph E. Moore,
Calvert A. Morgan, Jr. and Dianna F. Morgan. The Companys non-management Chairman, Mr. Adkins,
previously served as an executive officer of the Company. On May 14, 2007, it had been three years
since Mr. Adkins served as an executive officer of the Company. On such date, Mr. Adkins was
considered independent in accordance with the NYSE listing standards. The Companys Chief
Executive Officer, John R. Schimkaitis, is not an independent director due to his position with the
Company.
During its review, the Board noted that Mr. Bayard has an indirect relationship with a law
firm that has provided legal services to the Company within the last three years. Mr. Bayard is a
partner with the law firm Wilson, Halbrook & Bayard in Georgetown, Delaware. In addition, the
Board reviewed an indirect relationship involving an immediate family member of Mr. Bayard. Mr.
Bayards brother was previously Of Counsel for The Bayard Firm in Wilmington, Delaware, a law firm
that the Company retained for legal services within the last three years. Notwithstanding these
indirect relationships, the Board determined that, pursuant to the requirements specified in the
Legal Relationships section of our Independence Guidelines, Mr. Bayard qualifies as an
independent director.
Code of Ethics. The Board has adopted a Business Code of Ethics and Conduct (Code of
Ethics) that reflects our commitment to continuously promote professional conduct throughout the
organization, and that representatives of the Company demonstrate good ethical business practices.
The Code of Ethics applies to our directors, officers and employees generally and sets forth their
duty to act in the best interest of the Company. The Code of Ethics encourages directors, officers
and employees to avoid relationships that have the potential for creating a conflict of interest,
including any situation where the individual would receive monetary or other personal benefits from
a third party as a result of any transaction or business relationship between the Company and third
party. Depending on the employees position, such relationships are required to be promptly
reported to the Audit Committee, Chief Executive Officer, or Director of Internal Audit.
Directors are required to disclose any conflict of interest to the Companys non-management,
independent Chairman of the Board and to refrain from voting on any matter(s) in which they have a
conflict. In considering whether an actual conflict of interest exists, the appropriate Committee
or individual will consider factors that include, but are not limited to, the benefit to the
Company and the aggregate value of the transaction.
The Board has also adopted a Code of Ethics for Financial Officers which provides a framework for
honest and ethical conduct by our financial officers as they perform their financial management
responsibilities.
The Code of Ethics for Financial Officers is applicable to the following
individuals:
|
|
|
Chief Executive Officer |
|
|
|
|
Chief Financial Officer |
|
|
|
|
Treasurer |
|
|
|
|
Corporate Controller |
|
|
|
|
Others who are responsible for ensuring accurate and timely disclosures
of financial information within our filings with the SEC |
Other senior managers with accounting and financial reporting oversight must also annually
confirm compliance with the Code of Ethics for Financial Officers. The Business Code of Ethics and
Conduct, and the Code of Ethics
for Financial Officers may be viewed on our website at www.chpk.com and are available in print
to any stockholder upon request.
12
In 2008, the Company enhanced the methods by which employees and non-employees can anonymously
report suspected improper business conduct. Previously, individuals could report improper business
conduct by either calling a toll-free hotline that was administered by the Company or by submitting
written correspondence to the Director of Internal Audit. Effective in 2008, individuals have the
option of anonymously reporting improper business conduct via a toll-free hotline or a secure
website that is hosted by an independent organization. Individuals may continue to submit written
correspondence to the Director of Internal Audit.
Corporate Governance Guidelines. The Board has adopted Corporate Governance Guidelines, which
consist of a series of policies and principles that are adhered to when overseeing the corporate
governance of the Company. This document may be viewed on our website at www.chpk.com and is
available in print to any stockholder upon request.
Executive Sessions of the Non-Management Directors. The Board of Directors consists of nine
non-management, independent directors who meet periodically without the presence of Mr.
Schimkaitis, the only management director. These directors are not officers of the Company and
meet the independence standards set forth by the NYSE. The Chairman of the Board, Mr. Adkins,
presides over these meetings.
The Companys Corporate Governance Guidelines ensure the integrity of these meetings by
providing that the Chairman of the Corporate Governance Committee would preside over these meetings
in the event that the Chairman of the Board was a management director. The Corporate Governance
Guidelines also provide that if the non-management directors included any one director who did not
qualify as independent under the NYSE Listing Standards, these directors would meet annually
without the non-independent director(s). The Chairman of our Corporate Governance Committee would
preside over such meetings.
Stockholder Communications with the Board. Stockholders and other parties interested in
communicating directly with the Board of Directors, a committee of the Board of Directors, any
individual director, the director who presides at executive sessions of the non-management
directors, or the non-management directors as a group may do so by sending a written communication
to the attention of the intended recipient(s) in care of the Corporate Secretary at Chesapeake
Utilities Corporation, 909 Silver Lake Boulevard, Dover, Delaware 19904.
The Corporate Secretary will forward all communications to the appropriate person(s).
Communications relating to accounting, internal controls or auditing matters are handled in
accordance with procedures established by the Audit Committee with respect to such matters. These
communications procedures have been unanimously approved by the independent directors.
REPORT OF THE COMPENSATION COMMITTEE ON
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with the management of the Company. The Committee, based
on its review and discussions, has recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in this Proxy Statement and filed with the Securities and
Exchange Commission.
The information contained in this Report shall not be deemed to be soliciting material or to
be filed with the SEC, nor shall such information be incorporated by reference into any previous
or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent that the Company incorporated it by specific reference.
THE COMPENSATION COMMITTEE
Richard Bernstein (Chairman)
Joseph E. Moore
Calvert A. Morgan, Jr.
Dianna F. Morgan
13
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy. The Compensation Committee is composed entirely of
independent directors and is solely responsible for the oversight and administration of our
executive compensation program. The Committee designs, recommends to the Board of Directors for
adoption, and administers all of the policies and practices related to executive compensation. The
Committee believes that the most effective compensation program is one that is designed to ensure
that total compensation for an executive officer is fair, reasonable and competitive. The
Committee focuses on aligning total compensation with our business objectives and performance to
enable the Company to attract, retain and reward individuals who contribute to the long-term
success of the Company and thus, increase stockholder value.
Our primary objectives in creating an effective compensation program:
|
|
|
Structure our program to attract high-quality executive talent that
will complement our short and long-term goals |
|
|
|
|
Develop an appropriate mix of compensation to align the financial
interests of the executive officers with the interests of our stockholders |
|
|
|
|
Ensure effective utilization and development of talent through internal
processes such as performance evaluations, succession planning, and leadership
development |
The Committee annually reviews the executive compensation program to ensure the following: (i)
its current design corresponds to the Companys objectives; (ii) the mix provides competitive
compensation levels for each element of compensation; and (iii) the compensation remains
competitive relative to the compensation paid to executives in comparable positions at peer
companies.
Executive Compensation Program. The executive compensation program consists of a base salary
and performance-based incentive awards. A competitive base salary ensures that we attract and
recruit executive officers with knowledge and skills that are vital to achieving our established
goals. The annual cash incentive award (cash incentive) and multi-year equity incentive award
(equity incentive) provide a means to retain these executive officers and reward them for their
continuous efforts in our growth and the creation of stockholder value. The appropriate mix of
these components ensures that each executive officer is individually striving to meet overall
corporate objectives. The Committee reviews the roles and responsibilities of each executive
officer, his or her relationship to the Companys performance, and the likelihood of achieving
certain short and long-term goals, which are tied to our strategic plan. The Committee then sets
individual goals and competitive compensation levels accordingly. Individual goals were
established for each named executive officer for 2008. The focus was on business unit growth and
corporate development, performance / operational improvement, leadership, and strategic direction.
In January of 2009, each executive officer received similar goals that will assist in meeting our
initiatives for 2009. The Compensation Committee reserved the right to consider additional goals
for the Chief Executive Officer if necessary to fulfill upcoming strategic or operational
opportunities.
Role of Management. The Chief Executive Officer participates in the establishment of the
compensation targets and payout levels for the other named executive officers. He assesses the
performance for all named executive officers and recommends to the Committee the overall levels of
achievement, and the extent to which performance targets were attained. Upon request, executive
officers will provide supplemental material to the Committee to assist in making its determinations
under the executive compensation program. The Chief Executive Officer is not involved in any part
of the setting of any component of his compensation. The Chief Executive Officer and other members
of senior management attend Committee meetings at the invitation of the Committee.
Role of Independent Consultant. The Committee, from time to time, will engage an independent
compensation consultant to aid in carrying out its overall responsibilities. In November of 2007,
to assist in reviewing the Companys executive compensation program for 2008, the Committee engaged
Buck Consultants, LLC (Buck), an independent compensation consultant, to perform a comprehensive
study to determine whether current total compensation for each executive officer was competitive
with the market, and consistent with our short and long-term goals. In addition, Buck analyzed
each component of compensation and made recommendations to the Committee based on current
competitive practices. In connection with its study, Buck, with the input of the
Committee Chairman and the Chief Executive Officer, established a new peer group1
comprised of 16 utility companies of similar revenue size as compared to the Company. The peer
group included three electric utility companies and two water utility companies because of the
limited number of similarly sized gas utilities. Based on revenues, the Company is very close to
the median revenues of the peer group. Buck then reviewed and analyzed competitive data available
for the peer companies to develop ranges for each compensation element relevant to selected
positions. In addition to the industry peer group data, Buck considered published survey data from
several nationally recognized organizations that provide independent research based upon the
practices of companies with revenues between $200 million and $500 million, as well as the
practices of companies in the utilities industry.
|
|
|
1 |
|
The industry peer group included the following
companies: Central Vermont Public Service Corporation; Delta Natural Gas
Company, Inc.; Empire District Electric Company; Florida Public Utilities
Company; Energy West, Inc.; ITC Holdings Corporation; The Laclede Group, Inc.;
Northwest Natural Gas Company; RGC Resources, Inc.; SJW Corporation; South
Jersey Industries, Inc.; Southwest Gas Corporation; Southwest Water Company;
and Unitil Corporation. EnergySouth, Inc. and SEMCO Energy, Inc. were also
included in this group but each company has been subsequently sold. |
14
Buck, based on its study, concluded that our current compensation program and practices are
competitive and comparable to those companies in the industry peer group. Buck recommended a
modification of the Companys equity incentives to create longer term incentives by adopting a
multi-year performance period as opposed to a one-year performance period. Buck noted that many of
the peer companies had a multi-year performance plan, generally three years. Buck also recommended
that the Committee establish several well-defined performance metrics tied to the creation of
stockholder value. The Committee, based on the recommendation, decided to transition to a
multi-year, long-term performance plan beginning in 2008 as described under Long-Term Performance
Plan. The Committee also utilized the executive compensation study performed by Buck to assist in
establishing the levels and targets for each component of compensation as described below.
Base Salary. Base salaries for the Chief Executive Officer and the other named executive
officers were reviewed and adjusted by the Compensation Committee in February of 2008. In November
of 2007, Buck compared the base salaries established in 2007 to data from the industry peer group
and the published surveys, weighted one-third and two-thirds, respectively. The results showed two
named executive officers base salaries were in line with the median; two were above the median;
and one was below the median. At that time, the Committee reviewed total cash and total direct
compensation and concluded that because total direct compensation was generally within the
competitive ranges, base salary ranges were reasonable. Generally, base salaries for 2008 were set
to approximate the 50th percentile of the data from the 2007 study. The Committee
considered the following prior to adjusting base salaries: results of a 2007 study performed by
Buck, an independent compensation consultant; functional role of the position; scope of the
individuals responsibilities; and competitive nature of our business.
Except as described below, the increase in base salary for each executive officer for 2008
ranged from 3.6 percent to 3.9 percent. The Compensation Committee separately reviewed the
performance and responsibilities of Mrs. Cooper and determined that in light of her consistent
performance in achieving individual and corporate goals, as well as her increased responsibilities,
a 9.6 percent increase in Mrs. Coopers base salary was warranted. Effective September 15, 2008,
Mr. McMasters was promoted to Executive Vice President and Chief Operating Officer and Mrs. Cooper
was promoted to Senior Vice President and Chief Financial Officer of the Company. Effective with
their promotions, base salaries of Mr. McMasters and Mrs. Cooper increased by $9,000 and $10,000,
respectively.
The Compensation Committee engaged Buck in 2008 to review and update an analysis that it had
previously prepared. The analysis was on the Companys position and salary scale for key
executives in relation to its peer group. Buck provided new data for the Chief Operating Officer
and Chief Financial Officer positions, which included information on base salary and typical
targets for short-term and long-term awards. In addition, Buck provided updated base salary
information for the three remaining named executive officers. Buck presented this information to
the Committee at its meeting held in November of 2008.
In February of 2009, the Committee reviewed base salaries for each executive officer for the
ensuing year. In connection with this review, the Committee received an updated analysis prepared
by Buck. For the Chief Operating Officer and Chief Financial Officer positions, Buck compared the
base salaries to data from the industry peer group and published surveys, weighted two-thirds and
one-third, respectively. For the Chief Executive Officer
and Senior Vice President positions, Buck aged the weighted average at a rate of four percent
per annum. The Committee reviewed Bucks analysis and related factors and determined that each of
Messrs. Schimkaitis, McMasters, and Thompson and Mrs. Cooper would receive a three percent increase
in their base salaries effective April 1, 2009. Future increases to Mr. Zolas base salary will be
determined, as appropriate, by the Chief Executive Officer and/or Chief Operating Officer.
15
Cash Incentive. The Board of Directors has adopted the Cash Bonus Incentive Plan under which
cash incentives are payable to participating executives, including the named executive officers, if
they achieve certain financial and non-financial goals relative to pre-established performance
goals. Prior to the beginning of each year, the Committee selects the executives that are eligible
to participate in the Plan for the upcoming year. This selection is based on the individuals
position and related responsibilities. The Committee establishes target bonus awards for each
participant, and lower (50 percent of the bonus opportunity) and upper (150 percent of the bonus
opportunity) limits of the target bonus amounts. The Committee may adjust the limits and bonus
opportunity based on unknown and/or extraordinary events, thereby enabling the Committee to award
bonuses above and below the upper and lower limits. Generally, the target bonus amounts for the
Chief Executive Officer and each named executive officer are set at an amount that approximates, or
falls slightly below the median prevailing practices for individuals in comparable positions in the
industry peer group. In addition, the Committee establishes aggressive financial targets and
performance goals for each executive officer for the relevant performance period.
2008 Award. For 2008, the Committee established performance targets, which varied
based on individual responsibilities.
Performance targets established by the Committee:
|
|
|
Growth and expansion of existing service territories |
|
|
|
|
Margin growth |
|
|
|
|
Communications and leadership initiatives |
|
|
|
|
Long-term strategic initiatives |
|
|
|
|
Growth and expansion of business unit or a division of a business
unit |
|
|
|
|
Sustained earnings performance |
In addition, the Committee established for each executive officer, an aggressive earnings per
share target, or an aggressive target income range or return for a designated segment, as
appropriate for each executives role and responsibilities. In January of 2008, the Committee
approved a pre-determined earnings per share target for Messrs. Schimkaitis and McMasters and Mrs.
Cooper for 2008. For Messrs. Thompson and Zola, the earnings target was based upon achieving a
pre-tax return on average investment on our natural gas segment, and pre-tax, pre-interest
operating income for the Companys Delmarva propane distribution operation, respectively.
Cash incentives are earned by the executive officer upon the successful attainment of his or
her pre-established goals and the extent to which the relevant income or return target meets or
exceeds the respective pre-established targets, adjusted by applying a payout factor. For 2008,
the following were the target bonus award opportunities and goals weighting criteria.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goals Weighting |
|
|
Annual Cash |
|
|
|
|
|
Earnings Per Share |
|
|
Bonus |
|
|
|
|
|
or Target |
|
|
Opportunity of |
|
Individual |
|
Income/Return for |
|
|
Base Salary1 |
|
Performance |
|
Segment |
|
|
(%) |
|
(%) |
|
(%) |
John R. Schimkaitis |
|
|
40 |
|
|
|
20 |
|
|
|
80 |
|
Michael P. McMasters |
|
|
30 |
|
|
|
20 |
|
|
|
80 |
|
Stephen C. Thompson |
|
|
25 |
|
|
|
50 |
|
|
|
50 |
|
S. Robert Zola |
|
|
30 |
|
|
|
25 |
|
|
|
75 |
|
Beth W. Cooper |
|
|
25 |
|
|
|
25 |
|
|
|
75 |
|
|
|
|
1 |
|
The payout opportunity ranges from 50 percent to 150
percent, generating an overall cash incentive opportunity
of 12.5 percent to 60 percent of base salary. |
In February of 2009, the Committee determined that the achievement of the individual
performance goals for 2008 ranged from 92 percent to 94 percent for Messrs. Schimkaitis, McMasters
and Thompson, and Mrs. Cooper. For Messrs. Schimkaitis and McMasters, as well as Mrs. Cooper, the
Companys 2008 earnings per share was slightly below the earnings per share target and resulted in
a 90 percent bonus factor. In regards to Mr. Thompson, the actual 2008 pre-tax return on average
investment for the utility operations translated into an 88 percent bonus factor. Mr. Zola did not
meet his respective earnings target and as a result, did not receive a bonus.
Amounts earned by the named executive officers for 2008 performance have been reflected in the
Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.
16
2009 Award Opportunity. On January 7, 2009, the Compensation Committee reviewed
targets and goals, potential cash award ranges and payout amounts for each executive officer for
2009 performance. The Committee determined that the range of payouts (12.5 percent to 60 percent)
as a percentage of base salary and the types of performance targets should remain the same as those
established for 2008. For 2009, the earnings target for Messrs. Schimkaitis and McMasters, and
Mrs. Cooper will be based upon earnings per share. For Mr. Thompson, the earnings target will
remain a pre-tax return on investment target for our natural gas segment. In considering Mr.
Zolas change in reporting responsibilities, the Committee did not grant a discretionary short-term
bonus award to him for 2009. Future awards granted to Mr. Zola under the Cash Bonus Incentive Plan
shall be determined, as appropriate, by the Chief Executive Officer and/or Chief Operating Officer.
For 2009, the target bonus award opportunities and goals weighting remained the same for each
executive officer that was granted an award under the Plan, except that Mrs. Coopers earnings per
share component weighting was increased to 80 percent, with the individual performance component
being decreased to 20 percent of her potential award.
Equity Incentives. Each executive officer participates in our equity incentive program and is
entitled to receive equity awards pursuant to our Performance Incentive Plan.
2008 Award Opportunity. The Compensation Committee has historically established
equity awards in the month of November of the year that precedes the beginning of the performance
period for which the awards apply. In February of the year succeeding the respective award year,
the Compensation Committee reviews, and if appropriate, approves the awards to be issued.
Prior to issuing the awards, the Compensation Committee:
|
|
|
Ensures that the Audit Committee has reviewed the financial results for
the respective award year, including earnings per share and business unit
income |
|
|
|
|
Compares actual performance results against established goals and
determines the extent to which the targets have been achieved |
|
|
|
|
Considers any significant circumstances that would have altered
achievement of the goals |
After consideration of these factors, the Compensation Committee will perform an overall
assessment of each executive officer in relation to his or her targets. This assessment assists
the Committee in determining the applicable percentage of the target award to be paid to the
executive officer.
There were no grants made in November of 2007 for 2008 because the Compensation Committee was
in the process of designing a new multi-year, long-term performance plan.
Long-Term Performance Plan. In January of 2008, the Committee considered the
recommendation of Buck and adopted a multi-year, long-term performance plan for the equity
incentive award component of our executive compensation program. The multi-year plan will provide
incentives based upon the achievement of long-term goals, development and success of the Company,
while the annual cash plan will continue to be focused on short-term goals. The Plan is designed
to reward executive officers for improving stockholder value by achieving growth in earnings while
investing in the future growth of both our regulated and unregulated business units. The Committee
focused on three core objectives in designing the plan as shown in the table below. The first
metric, maximizing stockholder value, is a primary objective and ensures that we are generating
additional value for our stockholders. The Committee chose the second metric, growth in long-term
earnings, because of the capital intensive nature of our business. Long-term earnings growth is
dependent upon an increase in assets. The third metric provides a gauge of earnings performance.
The Companys total stockholder return and growth in long-term earnings over the relevant
performance periods will be compared to companies in the Edward Jones Natural Gas Distribution
Group2, a composite group of selected gas distribution utilities whose performance is
benchmarked by Edward Jones.
|
|
|
2 |
|
The peer group presently includes some but not all of
the companies in the peer group used for compensatory benchmarking. The
Committee chose to use this peer group for performance metrics comparison
because the business operations of these companies are more closely aligned
with those of the Company than with the compensation benchmarking peer group.
The peer group includes AGL Resources, Inc., Atmos Energy Corporation, Corning
Natural Gas Corporation, Delta Natural Gas Company, Inc., Energy West, Inc.,
The Laclede Group, Inc., New Jersey Resources Corp., Northwest Natural Gas
Company, Piedmont Natural Gas Company, Inc., RGC Resources, Inc., South Jersey
Industries, Inc. and WGL Holdings, Inc. |
17
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
Performance Metric |
|
Benchmark |
|
Target Award |
|
Maximizing Stockholder Value |
|
Total stockholder return
compared to the total
stockholder returns of
companies included in the
Edward Jones Natural Gas Distribution Group |
|
|
30 |
% |
Growth in Long-Term Earnings |
|
Total capital expenditures
as a percent of total
capitalization as compared
to companies in the Edward
Jones Natural Gas Distribution Group |
|
|
35 |
% |
Earnings Performance |
|
Average return on equity
compared to pre-determined return on equity targets |
|
|
35 |
% |
Participants under the Plan are granted performance shares in the beginning of the applicable
performance period. Messrs. Schimkaitis, McMasters, Thompson and Zola and Mrs. Cooper are each
participants in the Plan for the 2008-2009 and 2008-2010 performance periods. The number of
performance shares earned will range from 0 to 125 percent of the target performance shares
depending on actual performance as compared to the performance goals. To transition to the
long-term performance plan, in January of 2008, the Committee made one grant for the 2008-2009
performance period and one grant for the 2008-2010 performance period. The 2008-2009 award equates
to double the traditional annual award amount, to transition the Company to a long-term
compensatory agreement beyond one year. The grants made to each named executive officer are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2009 Performance Period |
|
|
2008-2010 Performance Period |
|
Named Executive Officer |
|
Minimum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Minimum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
John R. Schimkaitis |
|
|
0 |
|
|
|
9,600 |
|
|
|
19,200 |
|
|
|
24,000 |
|
|
|
0 |
|
|
|
4,800 |
|
|
|
9,600 |
|
|
|
12,000 |
|
Michael P. McMasters |
|
|
0 |
|
|
|
5,120 |
|
|
|
10,240 |
|
|
|
12,800 |
|
|
|
0 |
|
|
|
2,560 |
|
|
|
5,120 |
|
|
|
6,400 |
|
Stephen C. Thompson |
|
|
0 |
|
|
|
4,000 |
|
|
|
8,000 |
|
|
|
10,000 |
|
|
|
0 |
|
|
|
2,000 |
|
|
|
4,000 |
|
|
|
5,000 |
|
S. Robert Zola |
|
|
0 |
|
|
|
3,200 |
|
|
|
6,400 |
|
|
|
8,000 |
|
|
|
0 |
|
|
|
1,600 |
|
|
|
3,200 |
|
|
|
4,000 |
|
Beth W. Cooper |
|
|
0 |
|
|
|
3,200 |
|
|
|
6,400 |
|
|
|
8,000 |
|
|
|
0 |
|
|
|
1,600 |
|
|
|
3,200 |
|
|
|
4,000 |
|
Effective September 15, 2008, Mr. McMasters was promoted to Executive Vice President and Chief
Operating Officer and Mrs. Cooper was promoted to Senior Vice President and Chief Financial Officer
of the Company. The Committee engaged Buck to review the appropriateness of their long-term award
levels given their change in responsibilities. In November of 2008, consistent with Bucks
recommendation, the Committee made no changes to the previously established award levels. They
concluded that future award levels would be adjusted upward for the change in responsibilities.
2009-2011 Award Opportunity. In January of 2009, the Committee established equity
incentives to be paid in the form of restricted stock to the executive officers as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-2011 Performance Period |
|
Named Executive Officer |
|
Minimum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
John R. Schimkaitis |
|
|
0 |
|
|
|
4,800 |
|
|
|
9,600 |
|
|
|
12,000 |
|
Michael P. McMasters |
|
|
0 |
|
|
|
2,750 |
|
|
|
5,500 |
|
|
|
6,875 |
|
Stephen C. Thompson |
|
|
0 |
|
|
|
2,000 |
|
|
|
4,000 |
|
|
|
5,000 |
|
Beth W. Cooper |
|
|
0 |
|
|
|
2,000 |
|
|
|
4,000 |
|
|
|
5,000 |
|
Each executive officer is entitled to earn the entire allotment of performance shares at the
end of the performance period, or a portion thereof, depending on the extent to which
pre-established performance goals were achieved. The targets and associated weightings for the
awards granted to Messrs. Schimkaitis, McMasters and Thompson, and Mrs. Cooper for the performance
period of January 1, 2009 to December 31, 2011 are the same as those adopted by the Committee in
connection with the 2008-2009 and 2008-2010 awards.
18
A maximum award opportunity is available for Messrs. Schimkaitis, McMasters and Thompson, and
Mrs. Cooper for the attainment of the upper limit of these performance metrics. The potential
payout ranges from 50 percent to 125 percent of the bonus opportunity for each of these performance
metrics, after achieving threshold performance. For the average return on equity performance
metric, our performance will be compared to pre-determined return on equity thresholds established
by the Committee. In considering Mr. Zolas change in reporting responsibilities, the Committee
authorized that the granting of any long-term bonus award would be at the discretion of the Chief
Executive Officer and/or Chief Operating Officer.
All Other Compensation. In addition to the primary components of the compensation program, we
offer certain other benefits to the named executive officers. During 2008, the Company provided
each executive officer with a Company-owned vehicle. The aggregate incremental cost of the
personal use of the vehicle is calculated by summing the depreciation, insurance expense, and fuel
cost. Each executive officers Form W-2 that is filed with the Internal Revenue Service is
grossed-up to include imputed income on the personal use of the Company-owned vehicle. This
gross-up amount has no effect on the Companys revenues or expenses. We do, however, pay payroll
taxes on this fringe benefit and those costs are included in the calculation as Company expenses.
On behalf of each executive, we also pay an annual premium to provide each executive with term life
insurance. Each executive officer who participates in the qualified 401(k) Retirement Savings Plan
receives matching contributions based upon a graduated schedule that considers age and years of
service. This is the same benefit available to other employees of the Company. The Internal
Revenue Service limits the amount of contributions that a participant may make to his or her
qualified 401(k) Retirement Savings Plan. The Companys nonqualified 401(k) Supplemental Executive
Retirement Savings Plan enables executive officers to continue to make pre-tax deferrals of
compensation after they have reached that limit. We match these contributions in the same manner
as the qualified 401(k) Retirement Savings Plan. The aggregate value of these benefits for each
executive officer is more than $10,000 and, consistent with the rules of the SEC, is reflected in
the All Other Compensation column of the Summary Compensation Table.
Compliance with Internal Revenue Code Section 162(m). Internal Revenue Code Section 162(m)
prohibits any public corporation from taking a deduction on its annual federal income tax return
for certain compensation that exceeds $1 million. In determining whether a deduction may be taken,
the Company considers compensation paid in any taxable year to its Chief Executive Officer or to
any one of its three most highly compensated executive officers (other than the Chief Financial
Officer) and whether such compensation would be considered performance-based as defined under
Section 162(m). Compensation qualifying as performance-based compensation within the meaning of
Section 162(m) is exempted from the deduction limit. Awards under our Performance Incentive Plan
are considered performance-based compensation and would be exempt from the Section 162(m)
deduction limit; awards under our Cash Bonus Incentive Plan would not be considered
performance-based compensation and would be considered in determining the ability to take this
deduction. We do not anticipate that compensation paid to any of the executive officers in 2009
will exceed the $1 million deduction limit.
Stock Ownership Guidelines. In 2006, the Corporate Governance Committee approved stock
ownership guidelines for the following corporate officer positions: Chief Executive Officer -
30,000 shares; Chief Operating Officer 10,000 shares; Senior Vice President 7,500 shares; and
Vice President 5,000 shares. Each executive officer has five years from December 7, 2006 or his
or her date of hire or promotion into the role, whichever is later, to meet these ownership
requirements. The Committee believes that ownership in the Companys common stock by executive
officers demonstrates a commitment to the long-term profitability of the Company and aligns
managements interest with those of stockholders. The Corporate Governance Committee is
responsible for the development, oversight and monitoring of executive officer stock ownership
guidelines. All of the named executive officers currently meet their applicable threshold
guideline.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides information on compensation earned
for the fiscal years ended December 31, 2008, December 31, 2007 and December 31, 2006 by the Chief
Executive Officer, Chief Financial Officer, and the three additional most highly compensated
executive officers employed by the Company at year-end (collectively the named executive
officers). In determining the individuals to be included in this table, we considered the roles
and responsibilities, as well as total compensation (reduced by the change in pension value and
nonqualified deferred compensation earnings), for all officers of the Company for the fiscal year
ended December 31, 2008.
19
2008 Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Incentive Plan |
|
|
Compensation |
|
|
All Other |
|
|
|
|
|
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
|
|
|
|
|
($) |
|
|
($)2 |
|
|
($) |
|
|
($)8 |
|
|
($)10,11 |
|
|
($)12 |
|
|
($) |
|
John R. Schimkaitis1 |
|
|
2008 |
|
|
|
386,250 |
|
|
|
0 |
|
|
|
192,192 |
3 |
|
|
138,154 |
|
|
|
174,352 |
|
|
|
87,983 |
|
|
|
978,931 |
|
President, Chief Executive |
|
|
2007 |
|
|
|
371,875 |
|
|
|
0 |
|
|
|
343,200 |
4 |
|
|
222,750 |
|
|
|
69,565 |
|
|
|
83,006 |
|
|
|
1,090,396 |
|
Officer and Director |
|
|
2006 |
|
|
|
356,250 |
|
|
|
0 |
|
|
|
208,320 |
5 |
|
|
166,219 |
|
|
|
53,001 |
|
|
|
77,514 |
|
|
|
861,304 |
|
Michael P. McMasters |
|
|
2008 |
|
|
|
266,125 |
|
|
|
0 |
|
|
|
148,032 |
3 |
|
|
73,062 |
|
|
|
63,871 |
|
|
|
53,623 |
|
|
|
604,713 |
|
Executive Vice President and |
|
|
2007 |
|
|
|
253,917 |
|
|
|
0 |
|
|
|
183,051 |
4 |
|
|
111,744 |
|
|
|
60,671 |
|
|
|
60,464 |
|
|
|
669,847 |
|
Chief Operating Officer |
|
|
2006 |
|
|
|
244,000 |
|
|
|
0 |
|
|
|
111,104 |
5 |
|
|
84,133 |
|
|
|
13,036 |
|
|
|
43,519 |
|
|
|
495,792 |
|
Stephen C. Thompson |
|
|
2008 |
|
|
|
260,500 |
|
|
|
0 |
|
|
|
115,650 |
3 |
|
|
59,833 |
|
|
|
45,361 |
|
|
|
36,861 |
|
|
|
518,205 |
|
Senior Vice President |
|
|
2007 |
|
|
|
250,917 |
|
|
|
0 |
|
|
|
205,920 |
6 |
|
|
60,000 |
|
|
|
59,769 |
|
|
|
35,716 |
|
|
|
612,322 |
|
|
|
|
2006 |
|
|
|
241,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
57,733 |
|
|
|
11,573 |
|
|
|
36,364 |
|
|
|
346,670 |
|
S. Robert Zola |
|
|
2008 |
|
|
|
143,750 |
|
|
|
0 |
|
|
|
92,520 |
3 |
|
|
0 |
|
|
|
0 |
|
|
|
22,695 |
|
|
|
258,965 |
|
President of Sharp Energy, Inc. |
|
|
2007 |
|
|
|
138,958 |
|
|
|
0 |
|
|
|
179,520 |
7 |
|
|
125,443 |
9 |
|
|
321 |
|
|
|
21,918 |
|
|
|
466,160 |
|
|
|
|
2006 |
|
|
|
133,750 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9,888 |
|
|
|
729 |
|
|
|
24,981 |
|
|
|
169,348 |
|
Beth W. Cooper |
|
|
2008 |
|
|
|
169,167 |
|
|
|
0 |
|
|
|
92,520 |
3 |
|
|
39,690 |
|
|
|
9,525 |
|
|
|
27,284 |
|
|
|
338,186 |
|
Senior Vice President, |
|
|
2007 |
|
|
|
149,792 |
|
|
|
0 |
|
|
|
114,411 |
4 |
|
|
57,399 |
|
|
|
19,305 |
|
|
|
35,416 |
|
|
|
376,323 |
|
Chief
Financial Officer and
Corporate Secretary |
|
|
2006 |
|
|
|
128,750 |
|
|
|
0 |
|
|
|
69,440 |
5 |
|
|
38,211 |
|
|
|
3,223 |
|
|
|
31,852 |
|
|
|
271,476 |
|
|
|
|
1 |
|
Mr. Schimkaitis received no additional compensation for serving as a director of the Company. |
|
2 |
|
No bonus was paid to a named executive officer except as part of a non-equity incentive plan. |
|
3 |
|
For the 2008-2009 and 2008-2010 performance periods, the Company evaluated the performance-based awards (Growth in Long-Term
Earnings and Earnings Performance) based on results to date. We estimated that through December 31, 2008, 100 percent of the
award is likely to be earned. These awards have been recorded at the grant date fair value of $28.60 per share for both
performance periods. The Company also evaluated the likelihood of earning the market-based award (Maximizing Stockholder
Value) for each of these performance periods. We first determined the fair value of the award using a Black-Scholes model.
The Companys total stockholder return was then compared to its peers using a Monte Carlo stock simulation. The Monte Carlo
simulation estimated a percentile ranking for these market-based awards of less than 40 percent for the 2008-2009 award and
55-60% for the 2008-2010 award. For the 2008-2010 performance period, the performance share fair value of $25.38 was
generated from the Black-Scholes model. |
|
4 |
|
The restricted stock awards are valued based upon the grant date fair value computed in accordance with FAS 123R based upon an
estimated market price of $33.00 per share as of December 31, 2007, multiplied by the number of shares awarded to each
executive officer by the Compensation Committee on February 19, 2008. These shares are granted under our Performance
Incentive Plan and are fully vested. The shares were subsequently issued to the executives at a price per share of $30.585.
A discussion of the assumptions used in calculating the values may be found in Note L to our 2007 audited financial statements
in the Form 10-K on page 52.
|
|
|
|
The following number of shares of restricted stock were awarded to the named executive officers under our Performance
Incentive Plan based on performance results for the award period of January 1, 2007 to December 31, 2007: Mr. Schimkaitis
10,400 shares; Mr. McMasters 5,547 shares; and Mrs. Cooper 3,467 shares. The shares may not be sold for a three-year
period beginning February 20, 2008. During this three-year period, the holder is entitled to receive all dividends paid on
the shares. |
|
5 |
|
The restricted stock awards are valued based upon the grant date fair value computed in accordance with FAS 123R based upon an
estimated market price of $31.00 per share as of December 31, 2006, multiplied by the number of shares awarded to each
executive officer by the Compensation Committee on February 20, 2007. These shares are granted under our Performance
Incentive Plan and are fully vested. These shares were subsequently awarded to the executives at a price per share of $30.89.
A discussion of the assumptions used in calculating the values may be found in Note L to our 2006 audited financial
statements in the Form 10-K on page 71.
|
|
|
|
The following number of shares of restricted stock were awarded to the named executive officers under our Performance
Incentive Plan based on performance results for the award period of January 1, 2006 to December 31, 2006: Mr. Schimkaitis
6,720 shares; Mr. McMasters 3,584 shares; and Mrs. Cooper 2,240 shares. The shares may not be sold for a three-year
period beginning March 1, 2007. During this three-year period, the holder is entitled to receive all dividends paid on the
shares. |
|
6 |
|
Mr. Thompson is eligible to participate in the new long-term performance plan described in the Compensation Discussion and
Analysis herein. As a result of his participation in this new plan, the Compensation Committee terminated Mr. Thompsons
previous 2006-2008 bonus plan. After review of Mr. Thompsons performance and whether he achieved the established average
pre-tax return on investment for the Companys natural gas segment for the pro-rated portion of the January 1, 2006 to
December 31, 2008 award period, the Committee determined that Mr. Thompson is entitled to 5,040 shares. Based upon total
stockholder return, Mr. Thompson also earned the 1,200 shares associated with 2007s performance. |
20
|
|
|
7 |
|
Mr. Zola is eligible to participate in the new long-term performance plan described in the Compensation Discussion and
Analysis herein. As a result of his participation in this new plan, the Compensation Committee terminated Mr. Zolas previous
2006-2008 bonus plan. After review of Mr. Zolas performance and whether he achieved the established target earnings before
interest and taxes amount for the Delmarva propane distribution operation for the pro-rated portion of the January 1, 2006 to
December 31, 2008 award period, the Committee determined that Mr. Zola is entitled to 4,480 shares. Based upon total
stockholder return, Mr. Zola also earned the 960 shares associated with 2007s performance. |
|
8 |
|
Payment for performance was made in March of 2009, 2008 and
2007, respectively, under the Cash Bonus Incentive Plan. |
|
9 |
|
The Company has a 10 percent sharing arrangement with Mr. Zola for any excess above the upper limit of the pre-tax,
pre-interest operating income target for Sharp Energy Delmarva. The amount reflected in the Non-Equity Incentive Plan
Compensation column includes $65,278 that Mr. Zola earned in accordance with this arrangement. |
|
10 |
|
The present value increased for each of Messrs. Schimkaitis, McMasters and Thompson and Mrs. Cooper in the Pension Plan for
2006, 2007 and 2008. The present value of the accrued pension benefits has been calculated using the same assumptions as for
the FAS 158 disclosures, including the following discount rates: December 31, 2008 5.25%; December 31, 2007 5.50%; and
December 31, 2006 5.50%.
|
|
|
|
The present value increased for each of Messrs. Schimkaitis, McMasters and Thompson in the Pension Supplemental Executive
Retirement Plan from December 31, 2005 to December 31, 2006. This increase was prior to changing the discount rate
(previously 5.25 percent), since each person is one year closer to receiving the benefit. When the discount rate was
increased to 5.50 percent as of December 31, 2006, all of the present values decreased. Depending on the age of the executive
officer and the plan, the net change in the present value from 2005 to 2006 was generally a positive number. However, the net
present value decreased slightly for Messrs. McMasters and Thompson in the Pension SERP (which, unlike the Pension Plan, does
not assume pre-retirement mortality). |
|
|
|
The present value increased for each of Messrs. Schimkaitis, McMasters and Thompson in the Pension Supplemental Executive
Retirement Plan from December 31, 2006 to December 31, 2007, and also from December 31, 2007 to December 31, 2008. |
|
11 |
|
Dividends on deferred stock units (which are settled on a one for one basis in shares of common stock) are the same as
dividends paid on the Companys outstanding shares of common stock. Compensation deferred under the nonqualified 401(k)
Supplemental Executive Retirement Plan earned the returns by funds available at the time. For 2008, the funds are shown on
page 27. Accordingly, the following reflects the above-market earnings for each named executive officer for 2006 and 2007,0
respectively: Mr. Schimkaitis $12,503 and $673; Mr. McMasters $4,489 and $0; Mr. Thompson $6,004 and $2,038; Mr. Zola
$729 and $321; and Mrs. Cooper $2,664 and $0. The above-market earnings can vary based upon the dollars under
investment, the fund mix, and the funds results. For 2008, each executive officers interest on his or her deferred
compensation was a negative amount and therefore not included in the Change in Pension Value and Nonqualified Deferred
Compensation Earnings column. |
|
12 |
|
The following table includes payments that were made by the Company on behalf of the executive officers in 2006, 2007 and 2008. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and |
|
|
|
|
|
|
|
|
|
Nonqualified 401(k) Plan |
|
|
Term Life Insurance |
|
|
Vehicle |
|
|
|
Matching Contributions |
|
|
Premiums |
|
|
Allowance |
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
John R. Schimkaitis |
|
|
58,800 |
|
|
|
64,425 |
|
|
|
73,080 |
|
|
|
930 |
|
|
|
848 |
|
|
|
825 |
|
|
|
17,784 |
|
|
|
17,733 |
|
|
|
14,078 |
|
Michael P. McMasters |
|
|
23,100 |
|
|
|
34,825 |
|
|
|
39,676 |
|
|
|
905 |
|
|
|
845 |
|
|
|
825 |
|
|
|
19,514 |
|
|
|
24,794 |
|
|
|
13,122 |
|
Stephen C. Thompson |
|
|
28,061 |
|
|
|
30,082 |
|
|
|
33,652 |
|
|
|
894 |
|
|
|
843 |
|
|
|
825 |
|
|
|
7,409 |
|
|
|
4,791 |
|
|
|
2,383 |
|
S. Robert Zola |
|
|
14,599 |
|
|
|
12,346 |
|
|
|
13,740 |
|
|
|
496 |
|
|
|
472 |
|
|
|
474 |
|
|
|
9,886 |
|
|
|
9,100 |
|
|
|
8,481 |
|
Beth W. Cooper |
|
|
16,928 |
|
|
|
16,920 |
|
|
|
15,666 |
|
|
|
477 |
|
|
|
511 |
|
|
|
559 |
|
|
|
14,447 |
|
|
|
17,985 |
|
|
|
11,059 |
|
Grants of Plan-Based Awards. The following table reflects, for each named executive officer,
dollar amounts for annual cash incentive awards for the 2008 performance period. The table also
reflects the number of restricted stock awards established by the Compensation Committee on January
23, 2008 for the 2008-2009 performance period and the 2008-2010 performance period. The threshold
(minimum amount payable for a certain level of performance), target (amount payable if the targets
are reached), and maximum (maximum payout possible) award levels are provided for each award.
There were no restricted stock awards issued in 2009 for performance during 2008 because the
Compensation Committee was in the process of designing the new multi-year long-term performance
plan as further discussed in the Compensation Discussion and Analysis herein.
21
Grants of Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant |
|
|
|
|
|
Grant Date / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Fair |
|
|
|
|
|
Date of |
|
|
Estimated Future Payouts |
|
|
Estimated Future Payouts |
|
|
Value of |
|
|
|
|
|
Compensation |
|
|
Under Non-Equity |
|
|
Under Equity |
|
|
Stock |
|
|
|
|
|
Committee |
|
|
Incentive Plan Awards1 |
|
|
Incentive Plan Awards2 |
|
|
Awards |
|
Name |
|
Plan |
|
Action |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
($)3 |
|
|
|
|
|
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
# |
|
|
# |
|
|
# |
|
|
|
|
John R. Schimkaitis |
|
Cash Bonus
Incentive Plan |
|
|
1/23/2008 |
|
|
|
75,000 |
|
|
|
150,000 |
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
|
Performance
Incentive Plan
2008-2009
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
19,200 |
|
|
|
24,000 |
|
|
|
536,506 |
|
|
|
|
2008-2010
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,800 |
|
|
|
9,600 |
|
|
|
12,000 |
|
|
|
265,286 |
|
Michael P. McMasters |
|
Cash Bonus
Incentive Plan |
|
|
1/23/2008 |
|
|
|
38,700 |
|
|
|
77,400 |
|
|
|
116,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
|
Performance
Incentive Plan
2008-2009
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,120 |
|
|
|
10,240 |
|
|
|
12,800 |
|
|
|
286,136 |
|
|
|
|
2008-2010
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,560 |
|
|
|
5,120 |
|
|
|
6,400 |
|
|
|
141,486 |
|
Stephen C. Thompson |
|
Cash Bonus
Incentive Plan |
|
|
1/23/2008 |
|
|
|
32,000 |
|
|
|
64,000 |
|
|
|
96,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
|
Performance
Incentive Plan
2008-2009
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
8,000 |
|
|
|
10,000 |
|
|
|
223,544 |
|
|
|
|
2008-2010
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
4,000 |
|
|
|
5,000 |
|
|
|
110,536 |
|
S. Robert Zola4 |
|
Cash Bonus
Incentive Plan |
|
|
1/23/2008 |
|
|
|
21,000 |
|
|
|
42,000 |
|
|
|
63,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
|
Performance
Incentive Plan
2008-2009
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,200 |
|
|
|
6,400 |
|
|
|
8,000 |
|
|
|
178,835 |
|
|
|
|
2008-2010
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
|
3,200 |
|
|
|
4,000 |
|
|
|
88,429 |
|
Beth W. Cooper |
|
Cash Bonus
Incentive Plan |
|
|
1/23/2008 |
|
|
|
19,375 |
|
|
|
38,750 |
|
|
|
58,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
|
Performance
Incentive Plan
2008-2009
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,200 |
|
|
|
6,400 |
|
|
|
8,000 |
|
|
|
178,835 |
|
|
|
|
2008-2010
Performance Period |
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
|
3,200 |
|
|
|
4,000 |
|
|
|
88,429 |
|
|
|
|
1 |
|
These columns show the range of payouts targeted for 2008
performance under the Cash Bonus Incentive Plan as
described under Cash Incentives in the Compensation
Discussion and Analysis. |
|
2 |
|
These columns separately show the range of payouts targeted
for the 2008-2009 performance period, and the 2008-2010
performance period as described under Equity Incentives in
the Compensation Discussion and Analysis. As discussed on
page 16 of this Proxy Statement, in January of 2008, the
Company transitioned to a three-year performance plan. The
award that was granted for the 2008-2009 performance period
equates to double an annual award amount, to transition the
Company to an award payout beyond one year. |
|
3 |
|
The value of the 2008-2009 award for the market based
component (30%) issued on January 23, 2008 under our
Performance Incentive Plan is based on the price of $26.41.
The value of the 2008-2010 award for the market based
component (30%) issued on January 23, 2008 under our
Performance Incentive Plan is based on the price of $25.38.
The performance based components of the 2008-2009 and
2008-2010 awards were priced at the grant date fair value
of $28.60 per share. The grant date fair value has been
calculated in accordance with FAS 123R. |
|
4 |
|
In addition to the award established pursuant to the Cash
Bonus Incentive Plan, Mr. Zola is entitled to receive 10
percent of Earnings Before Interest and Taxes after
exceeding the upper Earnings Before Interest and Taxes
target as determined by the Compensation Committee. |
Outstanding Equity Awards. The following table shows outstanding equity awards for each named
executive officer at December 31, 2008. These awards are described under Equity Incentives in the
Compensation Discussion and Analysis.
22
Outstanding Equity Awards at Fiscal Year-End 2008
|
|
|
|
|
|
|
|
|
|
|
Stock Awards1,2 |
|
|
Equity Incentive Plan Awards: |
|
Equity Incentive Plan Awards: |
|
|
Number of Unearned Shares, |
|
Market or Payout Value of Unearned |
|
|
Units or Other Rights |
|
Shares, Units, or Other Rights |
|
|
That Have Not Vested3 |
|
That Have Not Vested |
|
|
(#) |
|
($)4 |
John R. Schimkaitis |
|
|
28,800 |
|
|
$ |
906,624 |
|
Michael P. McMasters |
|
|
15,360 |
|
|
$ |
483,533 |
|
Stephen C. Thompson |
|
|
12,000 |
|
|
$ |
377,760 |
|
S. Robert Zola |
|
|
9,600 |
|
|
$ |
302,208 |
|
Beth W. Cooper |
|
|
9,600 |
|
|
$ |
302,208 |
|
|
|
|
1 |
|
No awards have been transferred. |
|
2 |
|
Stock awards were established by the Compensation Committee on January 23, 2008. |
|
3 |
|
The share amount shown represents the target award levels. |
|
4 |
|
The market value represents the unearned shares multiplied by $31.48, the
closing market price per share of the Companys common stock on December 31,
2008. These shares will be earned to the extent that certain performance
targets are achieved for the award period January 1, 2008 through December 31,
2009, and January 1, 2008 through December 31, 2010. The award levels for each
performance period are shown above in the Grants of Plan-Based Awards Table. |
Stock Vested During 2008. The following table shows the shares of restricted stock that were
issued to the named executive officers in 2008. The shares issued were based upon the attainment of
certain performance targets in 2007. These shares may not be sold for a three-year period
beginning February 20, 2008. During this three-year period, the holder is entitled to receive all
dividends paid on the shares.
Stock Vested During 2008
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Acquired during the most recent |
|
Value Realized on |
|
|
fiscal year upon the vesting of restricted stock |
|
Vesting5 |
|
|
(#)2 |
|
($) |
John R. Schimkaitis |
|
|
10,400 |
|
|
$ |
318,084 |
|
Michael P. McMasters |
|
|
5,547 |
|
|
$ |
169,655 |
|
Stephen C. Thompson |
|
|
6,240 |
3 |
|
$ |
190,850 |
|
S. Robert Zola1 |
|
|
5,440 |
4 |
|
$ |
166,382 |
|
Beth W. Cooper |
|
|
3,467 |
|
|
$ |
106,038 |
|
|
|
|
1 |
|
Mr. Zola did not receive 896 shares of restricted stock;
instead, pursuant to a deferral election, the shares were
credited to his account under the Deferred Compensation
Plan in the form of deferred stock units. |
|
2 |
|
The shares awarded and corresponding value realized,
reflect shares received in February of 2008 by each named
executive officer pursuant to the Performance Incentive
Plan for the performance period January 1, 2007 to December
31, 2007. |
|
3 |
|
For Mr. Thompson, the amount includes 5,040 shares that
were earned on a pro-rata basis for the January 1, 2006 to
December 31, 2008 award period. This bonus plan was
terminated prior to the end of the performance period as a
result of Mr. Thompsons eligibility to participate in the
new long-term performance plan as further described in the
Compensation Discussion and Analysis herein. |
|
4 |
|
For Mr. Zola, the amount includes 4,480 shares that were
earned on a pro-rata basis for the January 1, 2006 to
December 31, 2008 award period. This bonus plan was
terminated prior to the end of the performance period as a
result of Mr. Zolas eligibility to participate in the new
long-term performance plan as further described in the
Compensation Discussion and Analysis herein. |
|
5 |
|
The value realized represents the weighted average market
price on February 19, 2008, the date the Compensation
Committee approved the issuance of the shares associated
with the awards. The price per share was $30.585. |
23
Pension Plan. We maintain a tax-qualified defined benefit Pension Plan that was previously
available to all eligible employees; however, as of December 31, 1998, no new participants were
permitted to participate in the Pension Plan. The Pension Plan was also amended to allow all
participants as of that date to make a one-time election to either (i) continue participation in
the Pension Plan; or (ii) leave the Pension Plan and receive their vested benefit and an increase
in the rate of matching contributions by the Company in our existing qualified 401(k) Retirement
Savings Plan. Messrs. Schimkaitis, McMasters and Thompson, and Mrs. Cooper elected to continue to
participate in the Pension Plan. Mr. Zola joined the Company after December 31, 1998 and therefore
was not eligible to participate in the Pension Plan. As of December 31, 1998, all benefits not
paid out under the Pension Plan were 100 percent vested.
Effective January 1, 1995, we adopted a nonqualified Supplemental Executive Retirement Plan to
pay pension benefits that are earned, pursuant to the Pension Plan, but not payable due to limits
imposed by the Internal Revenue Service. The Internal Revenue Code of 1986, as amended, generally
limits the annual benefits that may be paid under the Pension Plan and limits the amount of annual
compensation that may be taken into account in determining final average earnings as described
below.
Effective January 1, 2005, the Pension Plan and the Supplemental Executive Retirement Plan
were each amended to (i) freeze any further benefit accruals after December 31, 2004; and (ii)
increase the years of credited service for each participant by the lesser of (a) two years or (b)
such additional credited service as would increase the participants years of credited service to
35. Because the Pension Plan is now frozen, the annual benefits that may be paid and the amount of
annual compensation that will be considered in connection with the Supplemental Executive
Retirement Plan provided to Messrs. Schimkaitis, McMasters and Thompson are based on limitations
for 2004 which are $165,000 and $205,000, respectively. Mr. Zola and Mrs. Cooper do not
participate in the Supplemental Executive Retirement Plan. The liability and expense for this Plan
is discussed in our Annual Report on Form 10-K (Note L) for the year ended December 31, 2008.
The following table sets forth the actuarial present value of each named executive officers
total accumulated benefit under the Pension Plan and Supplemental Executive Retirement Plan.
Because the Plans were frozen effective January 1, 2005, the calculation of benefits will be based
on average earnings for the highest five consecutive years of the ten years ended December 31,
2004. Changes in participants earnings after 2004 will not affect their Pension Plan benefits.
Compensation (salary and cash incentive) for 2004 used to compute final average earnings was as
follows: Mr. Schimkaitis $439,470; Mr. McMasters $293,565; Mr. Thompson $273,815; and Mrs.
Cooper $116,342. The valuation methodology and material actuarial assumptions, including the
interest rate and mortality table, used in the calculation of the present value of the benefits
under these Plans as shown in the table are described in detail in the Note Employee Benefit
Plans in our Annual Report on Form 10-K (Note L) for the year ended December 31, 2008. Benefits
from the Pension Plan are paid from the Pension Plans trust, which is funded solely by the
Company. The Supplemental Executive Retirement Plan is unfunded, but is required to be funded in
the event of a change in control of the Company.
2008 Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years |
|
|
Present Value of |
|
|
Payments during |
|
|
|
|
|
Credited Service1 |
|
|
Accumulated Benefits |
|
|
the Last Fiscal Year |
|
|
|
Plan Name |
|
(#) |
|
|
($) |
|
|
($) |
|
John R. Schimkaitis |
|
Pension Plan |
|
|
23 |
|
|
|
741,905 |
|
|
|
0 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
23 |
|
|
|
672,470 |
|
|
|
0 |
|
Michael P. McMasters |
|
Pension Plan |
|
|
25 |
|
|
|
455,956 |
|
|
|
0 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
25 |
|
|
|
113,128 |
|
|
|
0 |
|
Stephen C. Thompson |
|
Pension Plan |
|
|
24 |
|
|
|
386,720 |
|
|
|
0 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
24 |
|
|
|
78,265 |
|
|
|
0 |
|
Beth W. Cooper |
|
Pension Plan |
|
|
17 |
|
|
|
89,817 |
|
|
|
0 |
|
|
|
|
1 |
|
On January 1, 2005 each employee participating in the
Pension Plan was credited an additional two years of
service as described above. Since the Pension Plan is now
frozen, service on or after January 1, 2005 will not affect
the benefits available to any participants in the Pension
Plan. Due to the additional two years of credited service,
the monthly accrued benefit payable at normal retirement
age from the Pension Plan increased as follows: Mr.
Schimkaitis, $540.34; Mr. McMasters, $522.46; Mr. Thompson,
$520.47; and Mrs. Cooper, $236.42. The monthly accrued
benefits at normal retirement age under the Executive
Excess Retirement Plan increased as follows: Mr.
Schimkaitis, $489.77; Mr. McMasters, $129.63; and Mr.
Thompson, $117.44. |
24
Under the Pension Plan, participants are entitled to receive benefits based upon final average
earnings and credited years of service. Messrs. Schimkaitis, McMasters and Thompson and Mrs.
Cooper have each been employed with us for more than five years. The final average earnings for
these executive officers is based on the average adjusted W-2 earnings for the five consecutive
calendar years of the ten calendar years of employment prior to January 1, 2005, that produce the
highest average.
The accrued monthly benefit for each named executive officer is determined by calculating
one-twelfth of the annual amount of (i) plus (ii), multiplied by (iii):
(i) |
|
1.3 percent of the final average earnings as described above (including elective
contributions under qualified cash or deferred arrangements) |
(ii) |
|
0.625 percent of the final average earnings as described above (including elective
contributions under qualified cash or deferred arrangements) in excess of Covered
Compensation, as defined by the Internal Revenue Service |
(iii) |
|
Credited years of service (but not more than 35 years) |
A participant may receive all of his or her retirement benefits under the Pension Plan at age
65. A participant may, however, elect to receive a reduced early retirement benefit beginning at
age 55. If a participant elected to receive the early retirement benefit, he or she would receive
the normal retirement benefit that would have been received at age 65 reduced by one-fifteenth for
each of the first five years, and one-thirtieth for each of the next five years by which the
annuity start date precedes the normal retirement date. Currently, Mr. Schimkaitis is the only
named executive officer eligible to retire and receive early retirement benefits under the Pension
Plan; however, he does not intend to exercise these benefits at this time. If Mr. Schimkaitis had
retired on December 31, 2008, his monthly early retirement pension payment under the Pension Plan
would have been $4,660.41 and his payment under the Supplemental Executive Retirement Plan would
have been $4,224.25. Mr. Schimkaitis would receive monthly normal retirement pension payments
commencing at age 65 of $6,078.80 under the Pension Plan and $5,509.89 under the Supplemental
Executive Retirement Plan.
Each named executive officer would normally receive his or her benefits in the form of a joint
and survivor annuity. Alternatively, if the participant elects to waive the joint and survivor
annuity, he or she could elect to receive benefits in any of the following forms: (i) a life
annuity ceasing upon death; (ii) an annuity for ten years certain and for life; or (iii) a joint
and survivor annuity payable for the life of the participant and continued upon his or her death
for the life of his or her surviving beneficiary, with the beneficiarys monthly benefit to being
either 50 percent, 66-2/3 percent, or 100 percent (as elected by the participant) of the benefit
paid or payable for each month for life. Messrs. Schimkaitis, McMasters and Thompson and Mrs.
Cooper may elect to receive his or her benefit under the Pension Plan in a lump sum. In December
of 2008, the Compensation Committee amended the Supplemental Executive Retirement Plan to allow
participants to elect a lump sum payment and to also add the other optional forms of benefit
payments currently available under the qualified Pension Plan. Benefits under the qualified
Pension Plan are not subject to any deduction for Social Security or other offset amounts. The
Pension Plan also includes provisions for benefits that the participants beneficiary or spouse
would be entitled to in the event of death or disability.
Nonqualified Deferred Compensation. We maintain two programs, the Deferred Compensation Plan
and the 401(k) Supplemental Executive Retirement Plan, that allow for the deferral of certain
income taxes on compensation. Messrs. Schimkaitis, McMasters and Zola, and Mrs. Cooper participate
in the Deferred Compensation Plan. All of the named executive officers participate in the
nonqualified 401(k) Supplemental Executive Retirement Plan. The following table reflects the
aggregate balance of nonqualified deferred compensation for each executive officer.
25
Nonqualified Deferred Compensation for the 2008 Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Registrant |
|
|
Aggregate |
|
|
Aggregate |
|
|
Aggregate |
|
|
|
Contributions in |
|
|
Contributions in |
|
|
Earnings in |
|
|
Withdrawals / |
|
|
Balance at |
|
|
|
2008 |
|
|
20081 |
|
|
20082,3 |
|
|
Distributions in 2008 |
|
|
December 31, 2008 |
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
John R. Schimkaitis |
|
$ |
22,665 |
|
|
$ |
45,330 |
|
|
$ |
(70,927 |
) |
|
$ |
0 |
|
|
$ |
1,084,531 |
|
Michael P. McMasters |
|
$ |
8,777 |
|
|
$ |
15,360 |
|
|
$ |
(7,181 |
) |
|
$ |
0 |
|
|
$ |
833,297 |
|
Stephen C. Thompson |
|
$ |
18,969 |
|
|
$ |
9,046 |
|
|
$ |
(27,614 |
) |
|
$ |
0 |
|
|
$ |
150,818 |
|
S. Robert Zola |
|
$ |
27,404 |
|
|
$ |
0 |
|
|
$ |
(3,442 |
) |
|
$ |
0 |
|
|
$ |
254,396 |
|
Beth W. Cooper |
|
$ |
775 |
|
|
$ |
1,163 |
|
|
$ |
(16,956 |
) |
|
$ |
0 |
|
|
$ |
112,469 |
|
|
|
|
1 |
|
The Registrant Contributions in 2008 column represents the
Companys matching contributions associated with the
nonqualified 401(k) Supplemental Executive Retirement Plan.
These dollars are included in the All Other Compensation
column of the Summary Compensation Table. |
|
2 |
|
The funds available under the nonqualified 401(k)
Supplemental Executive Retirement Plan and their annual
rate of return for the calendar year ended December 31,
2008, as reported by the administrator of the 401(k)
Supplemental Executive Retirement Plan is as follows:
|
|
|
|
|
|
Name of Fund |
|
Rate of Return |
|
BlackRock Money Market |
|
|
2.59 |
% |
Investment Co. of America |
|
|
-34.74 |
% |
EuroPacific Growth Fund |
|
|
-40.53 |
% |
Growth Fund of America |
|
|
-39.07 |
% |
Federated Mid-Cap Index |
|
|
-36.35 |
% |
BlackRock Intermediate Government |
|
|
4.96 |
% |
BlackRock Total Return II |
|
|
-8.31 |
% |
AIM Small Cap Growth |
|
|
-38.77 |
% |
American Balanced Fund |
|
|
-25.73 |
% |
Fidelity Spartan US Equity Index Fund |
|
|
-37.03 |
% |
Federated Kaufmann |
|
|
-42.22 |
% |
Calvert Income |
|
|
-12.00 |
% |
American Century Small Cap Value |
|
|
-27.75 |
% |
American Capital World Growth & Income |
|
|
-38.38 |
% |
T. Rowe Price Equity Income |
|
|
-36.05 |
% |
T. Rowe Price Mid Cap Value |
|
|
-34.86 |
% |
T. Rowe Price Retirement 2010 |
|
|
-27.06 |
% |
|
|
|
|
|
Name of Fund |
|
Rate of Return |
|
T. Rowe Price Retirement 2020 |
|
|
-33.77 |
% |
T. Rowe Price Retirement 2030 |
|
|
-38.15 |
% |
T. Rowe Price Retirement 2040 |
|
|
-39.18 |
% |
T. Rowe Price Retirement Income |
|
|
-18.80 |
% |
T. Rowe Price Retirement 2050 |
|
|
-39.17 |
% |
American Century Small Cap Value Inv |
|
|
-27.63 |
% |
BlackRock Total Return II |
|
|
-8.20 |
% |
BlackRock Intermediate Government Bond |
|
|
5.09 |
% |
T. Rowe Equity Income Adv |
|
|
-35.88 |
% |
T. Rowe Mid Cap Value Adv |
|
|
-34.73 |
% |
T. Rowe Retirement 2010 Adv |
|
|
-26.88 |
% |
T. Rowe Retirement 2020 Adv |
|
|
-33.62 |
% |
T. Rowe Retirement 2030 Adv |
|
|
-38.01 |
% |
T. Rowe Retirement 2040 Adv |
|
|
-39.02 |
% |
T. Rowe Retirement 2050 Adv |
|
|
-39.03 |
% |
T. Rowe Retirement Income Adv |
|
|
-18.58 |
% |
|
|
|
3 |
|
Dividends on deferred stock units in the Deferred
Compensation Plan are paid at the same rate as dividends on
shares of the Companys common stock. No annual bonus
compensation under the Cash Bonus Incentive Plan has been
deferred by the executive officers. |
The Executive Contributions in 2008 column includes amounts that were also reported as Stock
Awards in the Summary Compensation Table in the 2008 Proxy Statement. Those amounts, as well as
similar awards reported in the Summary Compensation Tables in prior years and matching
contributions into the Companys 401(k) Supplemental Executive Retirement Plan previously reported
in the Summary Compensation Tables in prior years under All Other Compensation, are included in the
Aggregate Balance at December 31, 2008 column and quantified below:
|
|
|
|
|
|
|
|
|
|
|
Amount included in both Nonqualified |
|
Amount included in both Nonqualified Deferred |
|
|
Deferred Compensation Table and |
|
Compensation Table and previously reported in |
|
|
2008 Summary Compensation Table |
|
Prior Years Summary Compensation Tables |
|
|
($) |
|
($) |
John R. Schimkaitis |
|
$ |
62,370 |
|
|
$ |
468,104 |
|
Michael P. McMasters |
|
$ |
20,617 |
|
|
$ |
579,772 |
|
Stephen C. Thompson |
|
$ |
25,116 |
|
|
$ |
51,233 |
|
S. Robert Zola |
|
$ |
27,404 |
|
|
$ |
171,043 |
|
Beth W. Cooper |
|
$ |
0 |
|
|
$ |
89,087 |
|
26
Deferred Compensation Plan. Participants may elect to defer any percentage of their
eligible compensation under the Deferred Compensation Plan, including performance-based
compensation (as further defined in the Plan document). Performance-based shares are awarded
pursuant to our Performance Incentive Plan depending on the extent to which pre-established
performance goals are met. Participants are entitled to deferred stock units on the deferred
performance-based shares, to the extent earned. Dividends are paid on the deferred stock units in
the same proportion and amount as dividends on the Companys common stock. These dividends are
then reinvested into additional deferred stock units. The deferred stock units will then be
settled on a one-for-one basis in shares of the Companys common stock.
Also under the Deferred Compensation Plan, a named executive officer may elect to defer any or
all of his or her annual bonus compensation granted under the Cash Bonus Incentive Plan.
Participants will receive earnings on deferred bonus compensation based on their selection of one
or more indices. The indices were previously selected by the Compensation Committee. The deferred
compensation will earn the applicable investment return(s) or loss(es) that it would have earned if
the dollars had actually been invested in the funds.
In order to participate in this Plan, executive officers are required to submit their written
form of election to the Compensation Committee prior to the beginning of the year for which the
compensation will be earned. The executive officer must indicate on the form whether he or she
would like to receive the deferred compensation upon: (i) separation from service, (ii) a fixed
future date, or (iii) the earlier or later of the separation from service or a fixed future date.
The executive officer must also indicate whether he or she would like to receive the deferred
compensation in: (i) a lump sum, (ii) five annual installments, or (iii) ten annual installments.
In the event that the executive officer chooses to receive the deferred compensation in five or ten
annual installments, the amount of the initial installment shall be the total amount deferred by
the executive officer, divided by five or ten, as elected. Subsequent installments will each equal
the remaining amount deferred divided by the outstanding number of installments. In all cases, the
election to defer compensation will be made in accordance with the deferral election timing
requirements of Internal Revenue Code Section 409A and procedures established by the Compensation
Committee. Also in accordance with Section 409A, certain officers will not be entitled to receive
any payments until six months after his or her date of separation except under certain
circumstances. For example, payments to the executive officers may be accelerated according to the
terms of the Plan, in the event of death, disability, change in control, or an unforeseeable
emergency. Executive officers will be individually responsible for any tax obligations related to
deferring compensation under this Plan. Distributions of deferrals of annual bonus compensation
will be paid in cash, while distributions of deferrals of performance and non-performance shares
will be paid in common stock.
Nonqualified 401(k) Supplemental Executive Retirement Plan. Participants in the nonqualified
401(k) Supplemental Executive Retirement Plan may elect to contribute a specified percentage of
their compensation to the Plan. The participant may also contribute any amount that exceeds the
maximum contribution permitted under the Companys qualified 401(k) Retirement Savings Plan.
Participants may allocate their contributions and the Companys matching contributions on these
deferral amounts to one or more investment funds that mirror the various investment funds available
under the Companys qualified 401(k) Retirement Savings Plan.
At the time a participant elects to defer compensation in the nonqualified 401(k) Supplemental
Executive Retirement Plan, the participant makes a corresponding distribution election. A
participant may elect to receive the funds from his or her account upon separation from service.
If a participant elects this form of payment, he or she would not be entitled to receive any
payments until six months after his or her date of separation, unless the separation was a result
of death or disability. A participant may also elect to receive funds on a fixed future date, or
the earlier or later of the separation from service or a fixed future date. In all elections, a
participant may request such funds to be paid in a lump sum, or five or ten annual installments.
The amount of each installment, if elected, shall be equal to the value of the deferred amounts at
the time each such payment is to be made, divided by the number of remaining installments.
Termination Provisions. The Company has entered into employment agreements with Messrs.
Schimkaitis, McMasters, Thompson and Zola and Mrs. Cooper. These agreements provide for certain
benefits if an executive officers employment with us is voluntarily or involuntarily terminated.
27
In 2008, the Compensation Committee engaged Buck to provide an overview of severance and
change-in-control provisions that are employed at our peer companies. At its meeting held in
November of 2008, the Committee received internally prepared research on these provisions, as well
as information presented by Buck. The Committee considered the information and determined, at that
time, that no changes to the employment agreements were necessary.
In 2008, each executive officer executed an amendment to his or her employment agreement in
order to comply with the Treasury Regulations issued under Section 409A of the Internal Revenue
Code of 1986, as amended. Generally, Section 409A regulates the time and manner of payment or
provision of any benefits that may constitute deferred compensation, meaning any amount to which
an employee has a legally binding right in one year but is payable in a later year. The required
amendments impacted employment agreement provisions relating to: severance payments, certain
expense reimbursement and tax gross-up provisions, and payment of legal fees. Under Section 409A,
there can only be one time and form of payment for each permissible distribution event (separation
from service, death, disability, specified date, unforeseen emergency or a change in control). In
addition, certain expense reimbursements or benefits must be provided within limited periods of
time. As a general rule, amounts payable after a separation from service may be paid in a
different time or form from other separation payments
provided that the change in control meets the definition under Section 409A, and the
separation from service occurs within two years of the change in control. Each executive officers
agreement was amended to provide that if a separation from service occurs: (i) within two years of
a change in control, benefits will be paid in a lump sum, or (ii) more than two years after the
change in control, the benefits will be paid in equal installments over a one year period. In
addition, language was added to each agreement to provide that benefits paid upon a separation from
service will be subject to a six-month delay in the commencement of payment if required by Section
409A. The executive will pay the full amount for benefits extended during the six-month delay
period (to be reimbursed by the Company with interest) if this delay provision applies.
Absent a change in control, each executive officer, under his or her agreement, is entitled to
receive annually base compensation, which may be increased from time to time. The executive
officers compensation may also be decreased provided that the decrease is made on a good faith
basis and with reasonable justification. In addition, executive officers are entitled to
participate in all bonus, incentive compensation and performance-based compensation plans; all
profit-sharing, savings and retirement benefit plans; all insurance, medical, health and welfare
plans; all vacation and other employee fringe benefit plans; and other similar policies, plans or
arrangements of the Company; all on a basis that is commensurate with his or her position and no
less favorable than those generally applicable or made available to other executives of the
Company.
All of the employment agreements include provisions that protect our goodwill and other
business interests. These provisions are effective during the time that the executive officer is
employed with us and after termination of the agreement. These provisions relate to
confidentiality of information; non-solicitation of employees; non-solicitation of third parties;
non-competition; post-termination cooperation; and non-disparagement. The non-solicitation and
non-competition covenants remain effective for one year after an executive officer terminates
employment with us. If the executive officer resigns for certain acts of the Company after a
change in control, these provisions would remain effective for fifteen months after the
resignation. If any of these provisions are violated, payments to the executive officer would not
be reduced; however, the Company would be entitled to seek appropriate legal remedies.
Without Good Reason or Cause; Death. Generally, when the Company, acting in good faith,
decreases an executive officers position or compensation, the executive officer may terminate his
or her employment for good reason. This may not be related to a company-wide compensation
reduction. In addition, the Company may terminate the executive officer without cause. This
means that the executives termination was not related to a crime involving moral turpitude, theft
from the Company, violation of non-competition or confidentiality obligations, or, following a cure
period, gross negligence in fulfilling his or her responsibilities. Pursuant to his or her
respective employment agreement, if an executive officers employment was terminated for good
reason by the officer, without cause by the Company or as a result of death, the executive
officer (or the estate) would receive severance benefits equal to one year of his or her base
salary. Based upon a hypothetical termination date of December 31, 2008 under any one of these
scenarios, the severance benefits for our executive officers would have been as follows: John R.
Schimkaitis $390,000; Michael P. McMasters $275, 000; Stephen C. Thompson $263,000; S. Robert
Zola $145,000; and Beth W. Cooper $180,000.
28
Change in Control. The employment agreements include provisions that are designed to help
retain the executive officers in the event of a change in control of the Company. The Board of
Directors believes that these provisions are appropriate to address the uncertainties and potential
distractions resulting from any threatened or actual change in control. In accordance with the
agreements, a change in control occurs upon one of several events involving the replacement of a
majority of the members of our Board of Directors, the acquisition of ownership of our stock, or
the acquisition of significant assets from the Company.
If an executive officers employment was terminated, after a change in control, by the
executive officer for good reason or by the Company without cause, as described above, he or
she would be entitled to receive severance payments (subject to the following limitations):
Each executive officer would receive a single lump sum payment in cash based on the sum of the
following:
|
|
|
Current monthly base compensation, adjusted annually by the Consumer
Price Index as described below, multiplied by 36 (multiplied by 24 for Mr. Zola
and Mrs. Cooper) |
|
|
|
|
Average of the cash and equity incentive awards paid over the prior
three calendar years, multiplied by three (multiplied by two for Mr. Zola and
Mrs. Cooper) |
|
|
|
|
Payment equal to the value of the benefits foregone over 36 months
(over 24 months for Mr. Zola and Mrs. Cooper) as a result of the termination,
including the present value of additional Company contributions that would have
been made to savings and deferred compensation plans over the period |
Each executive officers base compensation would increase annually on the anniversary of the
execution of the employment agreement. This increase would be no less than his or her current base
compensation multiplied by the increase in the preceding calendar year of the Consumer Price Index,
an index published by the U.S. Bureau of Labor Statistics. In no event would an executive
officers base compensation be decreased. Each executive officer would continue to receive health
and other insurance benefits for the remainder of the term of his or her employment agreement. All
unearned equity compensation is also immediately earned. In addition, each executive officer would
receive any benefits that he or she otherwise would have been entitled to receive under our 401(k)
Retirement Savings Plan and 401(k) Supplemental Executive Retirement Savings Plan, as of the date
of termination, although these benefits are not increased.
The total severance amount payable to an executive officer following a change in control is
capped at one dollar less than the amount that would be subject to Internal Revenue Code Section
280G. As a result, no excise tax would be levied on the executive officer nor would there be any
loss of tax deductibility to us as a result of making the severance payment to the executive
officer. If the severance as computed exceeds this limitation, the amount payable will be
unilaterally reduced to the amount necessary to avoid exceeding the limitations under Internal
Revenue Code Section 280G.
Based upon a hypothetical termination date of December 31, 2008, under the terms and
conditions of the employment agreements, estimated payments or benefits in connection with a change
in control, using $31.48, the closing market price per share of our common stock on December 31,
2008, would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. |
|
|
Michael P. |
|
|
Stephen C. |
|
|
S. Robert |
|
|
Beth W. |
|
|
|
Schimkaitis |
|
|
McMasters |
|
|
Thompson |
|
|
Zola |
|
|
Cooper |
|
Base Salary
(Based upon severance multiple) |
|
$ |
1,170,000 |
|
|
$ |
825,000 |
|
|
$ |
789,000 |
|
|
$ |
290,000 |
|
|
$ |
360,000 |
|
Annual Cash Bonus
(Based upon severance multiple)1 |
|
$ |
523,672 |
|
|
$ |
272,824 |
|
|
$ |
169,433 |
|
|
$ |
109,191 |
|
|
$ |
103,295 |
|
Equity Incentive Compensation
(Based upon severance multiple)2 |
|
$ |
761,743 |
|
|
$ |
406,273 |
|
|
$ |
412,309 |
|
|
$ |
259,588 |
|
|
$ |
112,536 |
|
Healthcare and other insurance benefits3 |
|
$ |
45,764 |
|
|
$ |
44,680 |
|
|
$ |
44,471 |
|
|
$ |
23,597 |
|
|
$ |
24,558 |
|
Retirement Plan benefits4 |
|
$ |
203,241 |
|
|
$ |
115,272 |
|
|
$ |
100,635 |
|
|
$ |
35,927 |
|
|
$ |
41,697 |
|
Unpaid Equity Incentive Compensation5 |
|
$ |
1,133,280 |
|
|
$ |
604,416 |
|
|
$ |
472,200 |
|
|
$ |
377,760 |
|
|
$ |
377,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,837,700 |
|
|
$ |
2,268,464 |
|
|
$ |
1,988,049 |
|
|
$ |
1,096,063 |
|
|
$ |
1,019,846 |
|
Reduced by IRC 280G Limit6 |
|
$ |
(1,697,766 |
) |
|
$ |
(1,192,405 |
) |
|
$ |
(902,084 |
) |
|
$ |
(383,419 |
) |
|
$ |
(504,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount Payable to Executive |
|
$ |
2,139,933 |
|
|
$ |
1,076,059 |
|
|
$ |
1,085,966 |
|
|
$ |
712,644 |
|
|
$ |
515,588 |
|
29
|
|
|
1 |
|
For each executive officer, the average of the cash incentives under the Cash Bonus Incentive Plan for the fiscal years
2005-2007, multiplied by the respective severance multiple. In addition, each executive officer is entitled to receive his or
her applicable annual cash bonus that was earned in 2008 as set forth in the Non-Equity Incentive Plan Compensation column of
the Summary Compensation Table. |
|
2 |
|
For each executive officer, represents the average of the equity incentives under the Performance Incentive Plan for the
fiscal years 2005-2007, multiplied by the respective severance multiple. |
|
3 |
|
Based upon the expected healthcare cost per employee for 2008, as provided by the Companys administrator, as well as the term
life insurance paid by the Company, and continued coverage for life, accidental death and dismemberment, and long-term
disability insurance. |
|
4 |
|
Based upon the respective matching contribution levels forgone for each respective executive officer (based upon age and years
of service) under the Companys qualified 401(k) Retirement Savings Plan and nonqualified 401(k) Supplemental Executive
Retirement Savings Plan. |
|
5 |
|
These represent the maximum awards under the 2008-2009 and 2008-2010 performance periods, valued at the year-end closing price. |
|
6 |
|
The total severance amount payable to an executive officer following a change in control is capped at one dollar less than the
amount that would be subject to Internal Revenue Code Section 280G. Pursuant to Section 280G, this amount is calculated by
multiplying three times the five-year average of the executive officers W-2 compensation. |
Upon a change in control, each executive officer would be entitled to receive the amounts
deferred under the Deferred Compensation Plan, in the form of a lump sum payment. Under the 401(k)
Supplemental Executive Retirement Plan, each executive officer would likewise be entitled to a lump
sum payment equal to the value in his or her account upon a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Richard Bernstein, Chairman, Joseph E. Moore, Calvert A. Morgan, Jr. and Dianna F. Morgan
serve as members of the Compensation Committee of the Board of Directors. Each member of the
Committee is solely independent of the Company as required by the NYSE listing standards. No
member of the Committee, at any time, has been employed by the Company, or been a participant in a
related party transaction with the Company.
There were no Compensation Committee interlocks or insider (employee) participation during
2008.
(remainder of page left intentionally blank)
30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below provides the number of shares of our common stock beneficially owned as of
March 13, 2009 by each director, by each executive officer named in the Summary Compensation Table,
as well as the number of shares beneficially owned by all of the directors and executive officers
as a group. The table shows shares held in the qualified 401(k) Retirement Savings Plan, deferred
stock units credited under the Deferred Compensation Plan, and total shares beneficially owned by
each individual, including the shares in the respective plans. There have been no shares of our
common stock pledged as security by a director, executive officer, or all directors and executive
officers as a group. The table also provides information for each other person known to us to
beneficially own five percent or more of our common stock.
Beneficial Ownership as of March 13, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified 401(k) |
|
|
Deferred |
|
|
Total Shares |
|
|
|
|
Name of Beneficial Owner |
|
Retirement Savings Plan |
|
|
Compensation Plan1 |
|
|
Owned Beneficially2,3 |
|
|
Percent of Class |
|
Ralph J. Adkins |
|
|
|
|
|
|
|
|
|
|
58,227 |
|
|
|
* |
|
Eugene H. Bayard |
|
|
|
|
|
|
|
|
|
|
10,155 |
|
|
|
* |
|
Richard Bernstein |
|
|
|
|
|
|
|
|
|
|
37,495 |
|
|
|
* |
|
Thomas J. Bresnan |
|
|
|
|
|
|
1,731 |
|
|
|
5,481 |
|
|
|
* |
|
Beth W. Cooper |
|
|
5,049 |
|
|
|
2,420 |
|
|
|
10,905 |
|
|
|
* |
|
Thomas P. Hill, Jr. |
|
|
|
|
|
|
|
|
|
|
3,980 |
|
|
|
* |
|
J. Peter Martin |
|
|
|
|
|
|
|
|
|
|
9,550 |
|
|
|
* |
|
Michael P. McMasters |
|
|
9,282 |
|
|
|
24,544 |
|
|
|
40,235 |
|
|
|
* |
|
Joseph E. Moore |
|
|
|
|
|
|
1,313 |
|
|
|
8,737 |
|
|
|
* |
|
Calvert A. Morgan, Jr. |
|
|
|
|
|
|
|
|
|
|
10,600 |
|
|
|
* |
|
Dianna F. Morgan |
|
|
|
|
|
|
|
|
|
|
418 |
|
|
|
* |
|
John R. Schimkaitis |
|
|
14,979 |
|
|
|
25,687 |
|
|
|
83,163 |
|
|
|
1.22 |
% |
Stephen C. Thompson |
|
|
10,380 |
|
|
|
|
|
|
|
25,761 |
|
|
|
* |
|
S. Robert Zola |
|
|
2,164 |
|
|
|
7,131 |
|
|
|
14,698 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers and Directors as a Group |
|
|
41,854 |
|
|
|
62,826 |
|
|
|
319,405 |
|
|
|
4.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than one percent. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Investment Advisor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Global Investors,
N.A.4
Barclays Global Fund Advisors
|
|
|
|
|
|
|
|
|
|
|
412,996 |
|
|
|
6.06 |
% |
400 Howard Street
San Francisco, CA 94105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Deferred Compensation Plan enables non-employee
directors to defer all or a portion of their meeting fees
and annual retainers on a pre-tax basis. The named
executive officers can also defer cash incentives and
equity incentives on a pre-tax basis under this Plan. See
the descriptions of this Plan on pages 11 and 27. |
|
2 |
|
Unless otherwise indicated in a footnote, each director or
executive officer possesses sole voting and sole investment
power with respect to his or her shares shown in the table.
No director or executive officer owns more than 1.22
percent of the outstanding common stock of the Company.
All directors and executive officers as a group own 4.67
percent of the Companys outstanding shares. |
|
3 |
|
Voting rights are shared with spouses in certain accounts
for Thomas J. Bresnan (1,500 shares), Beth W. Cooper (901
shares) and Calvert A. Morgan, Jr. (5,900 shares).
Independent accounts are held by the spouses of Ralph J.
Adkins (3,034 shares), Thomas P. Hill, Jr. (2,000 shares)
and Michael P. McMasters (29 shares). |
|
4 |
|
According to their report on Schedule 13G, as of December
31, 2008, Barclays Global Investors, N.A. and Barclays
Global Fund Advisors (collectively Barclays) were deemed
to beneficially own 412,996 shares, or 6.06 percent, of our
common stock. Under the ownership reporting rules of the
Securities Exchange Act of 1934, an entity is deemed to
beneficially own shares if it has the power to vote or
dispose of the shares even if it has no economic interest
in the shares. According to the Schedule 13G, Barclays had
sole power to vote 406,250 shares, no power to vote 6,746
shares, and sole power to dispose of 412,996 shares.
Barclays Schedule 13G, as filed with the Securities and
Exchange Commission, certified that it acquired the shares
of our common stock in the ordinary course of business and
not for the purpose of changing or influencing the control
of the Company. |
31
EQUITY COMPENSATION PLAN INFORMATION
Equity Compensation Plans. The following table sets forth the remaining number of shares
authorized for issuance under the equity compensation plans of the Company as of December 31, 2008
which were approved by the stockholders:
|
|
|
|
|
|
|
Number of Securities Remaining |
|
Equity Compensation Plans |
|
Available for Future Issuance |
|
Approved by Stockholders |
|
under Equity Compensation Plans |
|
|
2005 Performance Incentive Plan |
|
|
371,293 |
|
2005 Directors Stock Compensation Plan |
|
|
51,289 |
|
2005 Employee Stock Award Plan |
|
|
24,050 |
|
Total |
|
|
446,632 |
|
There are no equity plans that were not previously approved by the Companys stockholders.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors hereby provides the following report with
respect to the Companys audited financial statements for the year ended December 31, 2008.
The Audit Committee has reviewed and discussed the Companys audited financial statements with
the management of the Company. The Audit Committee has discussed with Beard Miller Company LLP,
the Companys independent registered public accounting firm, the matters required to be discussed
by Statement of Auditing Standards No. 61, Communication with Audit Committees, as amended, which
includes, among other items, matters related to the conduct of the audit of the Companys financial
statements. The Audit Committee has also received the written disclosures and the letter from
Beard Miller Company LLP required by applicable requirements of the Public Company Accounting
Oversight Board regarding communications with the Audit Committee concerning the independence of
Beard Miller Company LLP, and has discussed with Beard Miller Company LLP its independence. Based
on this review and these discussions, the Audit Committee recommended to the Board of Directors
that the Companys audited financial statements be included in our Summary Annual Report, as well
as our Annual Report on Form 10-K for the year ended December 31, 2008.
The information contained in this Report shall not be deemed to be soliciting material or to
be filed with the SEC, nor shall such information be incorporated by reference into any previous
or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent that the Company incorporated it by specific reference.
THE AUDIT COMMITTEE
Thomas J. Bresnan (Chairman)
Ralph J. Adkins
Thomas P. Hill, Jr.
J. Peter Martin
FEES AND SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On February 23, 2008, Beard Miller was appointed by the Audit Committee as the Companys
independent registered public accounting firm for the year ended December 31, 2008.
Audit Fees. The aggregate fees billed to the Company and its subsidiaries by Beard Miller in
2008 and 2007 totaled $453,410 and $442,270, respectively. These fees were all related to
professional services rendered by Beard Miller in conjunction with the audit of our financial
statements included in our Annual Report on Form 10-K; the reviews of the financial statements
included in our Quarterly Reports on Form 10-Q; and the audits of internal control over financial
reporting. In addition, PricewaterhouseCoopers LLP (PwC), our former independent auditors,
performed professional services in conjunction with providing their consent to re-issue their audit
opinion on our financial statements for the year ended December 31, 2006. The aggregate fees
billed by PwC for this service were $35,618.
32
Beard Miller and PwC each performed services in conjunction with the accountants consents and
comfort letters associated with the registration statement filed in December of 2008 to re-register
the remaining authorized, but unissued, shares of common stock reserved under the Companys
Dividend Reinvestment and Direct Stock Purchase Plan. The fees related to these services were
approximately $10,000 for Beard Miller and $14,288 for PwC. These fees are included in the
aggregate amounts billed above. In addition, the Company engaged Beard Miller in 2008 to provide
services in connection with a comment letter received from the Securities and Exchange Commission.
The aggregate fees billed for this service were $10,514. These fees are included in the $453,410
total amount.
Audit-Related Fees. The Company engaged Beard Miller in 2008 to perform an annual audit on
our benefit plans. The audit covered the plan period of January 1, 2007 through December 31, 2007.
The aggregate fees billed for this service, as well as fees related to a due diligence review and
other services in connection with an unconsummated acquisition totaled $56,435. The Company did
not engage Beard Miller or PwC to provide any audit-related services in 2007.
Tax Fees. The Company did not engage Beard Miller to provide any tax services in 2008.
Although PwC was no longer the independent registered public accounting firm for the Company in
2008, the firm did provide tax compliance, tax advice and tax planning services and assisted in the
preparation of the Companys federal and state income tax returns. The aggregate fees billed to
the Company and its subsidiaries by PwC for tax compliance, tax advice and tax planning totaled
$134,249 in 2008 and $46,025 in 2007.
All Other Fees. The Company did not engage Beard Miller or PwC to provide any services in
2008 or 2007 other than those identified above.
Audit Committees Pre-Approval Policies and Procedures. Under the policy adopted by the Audit
Committee, all audit and non-audit services provided to the Company by its independent registered
public accounting firm must be approved in advance by the Audit Committee. The Audit Committee
approved 100 percent of all audit and non-audit services provided to the Company. The Audit
Committee has delegated to the Chairman of the Audit Committee (and may delegate authority to any
other member of the Audit Committee) authority to pre-approve up to $40,000 in audit and non-audit
services, which authority may be exercised when the Audit Committee is not in session. Any
approvals granted pursuant to delegated authority must be reported to the Audit Committee at the
next regularly scheduled meeting.
SUBMISSION OF STOCKHOLDER PROPOSALS
In order to be considered for inclusion in our Proxy Statement for the Annual Meeting to be
held in 2010, stockholder proposals must be submitted in writing and received at our principal
executive offices on or before November 30, 2009. Written proposals should be directed to the
following: Corporate Secretary, Chesapeake Utilities Corporation, 909 Silver Lake Boulevard, Dover,
Delaware 19904.
Under the Companys Bylaws, as amended on December 11, 2008, a stockholder wishing to bring an
item of business before an annual meeting of stockholders must provide timely notice in writing to
the Corporate Secretary of the Company. To be timely, the stockholders notice must be received by
the Company at its principal executive offices not earlier than the close of business on the
90th day and not later than the close of business on the 60th day prior to
the first anniversary of the preceding years annual meeting. The Companys Bylaws also provide
for certain requirements in the event our annual meeting is more than 30 days before or more than
60 days after such anniversary date. A stockholders notice to the Corporate Secretary must
contain the information set forth in the Companys Bylaws. This information includes, but is not
limited to, a description of the business to be brought before the meeting, Ownership and Rights
Information (as defined in the Bylaws), and any other information that would be required to be made
in connection with the solicitation of proxies. The stockholder is also required to include a
representation as to the accuracy of the information that is being provided. With respect to
stockholder proposals for director nominees, please see the additional requirements set forth under
NOMINATION OF DIRECTORS on page 6 herein.
33
HOUSEHOLDING RULES
Under these SEC rules, brokers and banks that hold stock for the account of their customers
are permitted to deliver single copies of proxy statements and annual reports to two or more
stockholders that share the same address, if the stockholders at the address have the same last
name or the broker or bank reasonably believes that the stockholders are members of the same
family. If a stockholder who holds shares through a broker or bank, received from the broker or
bank, a notice stating that the broker or bank intends to send only one copy of such material to
the stockholders household, and none of the members of the household objected, they are deemed to
have consented to this arrangement. A stockholder who, in accordance with these rules, received
only a single copy of this Proxy Statement or the 2008 Annual Report and would like to receive a
separate copy of these materials, or separate copies of future proxy statements and annual reports,
should submit a written or oral request to the Corporate Secretary, Chesapeake Utilities
Corporation, 909 Silver Lake Boulevard, Dover, Delaware 19904 or (888) 742-5275.
Stockholders sharing the same address who hold shares through a broker or bank and who are
receiving multiple copies of our proxy statements and annual reports may request a single copy by
contacting their broker or bank.
ANNUAL REPORT TO SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K
THE COMPANY FILED ITS ANNUAL REPORT ON FORM 10-K FOR OUR FISCAL YEAR ENDED DECMEBER 31, 2008
(INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO) WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 13a -1 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WE WILL PROVIDE YOU
WITH A COPY OF THIS DOCUMENT, FREE OF CHARGE, UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY,
CHESAPEAKE UTILITIES CORPORATION, 909 SILVER LAKE BOULEVARD, DOVER, DELAWARE 19904.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each of the
Companys directors and executive officers, and any beneficial owner of more than 10 percent of our
common stock, to file reports with the SEC. These include initial reports and reports of changes
in the individuals beneficial ownership of the Companys common stock. Such persons are also
required by SEC regulations to furnish the Company with copies of such reports. To our knowledge,
based solely on the review of such reports furnished to the Company and on the written
representations made by such persons that no other reports were required, the Company believes that
during the year ended December 31, 2008 all directors and executive officers filed on a timely
basis the reports required by Section 16(a). We are not aware of any person or entity that
beneficially owns more than ten percent of the Companys common stock.
OTHER MATTERS
The Board of Directors is not aware of any other matter to be presented at the Annual Meeting.
In accordance with our Bylaws, other business may be properly brought before the meeting or at any
adjournment meeting. The individuals that have been designated as Proxies will vote pursuant to
their discretion on any matter that is properly brought before the meeting.
By Order of the Board of Directors,
/s/ Beth W. Cooper
Beth W. Cooper
Corporate Secretary
34
Appendix A
CORPORATE GOVERNANCE GUIDELINES ON DIRECTOR INDEPENDENCE
Adopted November 11, 2008
It is the policy of the Board of Directors that a majority of directors be independent as that
term is defined by the Listing Standards of the New York Stock Exchange (NYSE). In order to
qualify as independent under the NYSE Listing Standards:
|
(i) |
|
the Board of Directors must affirmatively determine that a director has no
material relationship with the listed company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the listed
company), other than being a director of the Company; and |
|
|
(ii) |
|
neither the director, nor any member of the directors immediate family (as
defined below), may have any of the disqualifying relationships set forth in Section
303A.02(b) of the NYSE Listed Company Manual. |
In accordance with the NYSE Listing Standards, material relationships can include, but are not
limited to, commercial, industrial, banking, consulting, legal, accounting, charitable and family
relationships. Where a director has such a relationship, or the company employing the director has
such a relationship, with Chesapeake or any of its subsidiaries, the Board of Directors has adopted
for purposes of the application of clause (i) above the following categorical standards to
determine whether the directors relationship with the listed company is material:
|
|
Commercial Relationships. A director of Chesapeake who is associated with another
company that has a commercial relationship with Chesapeake or any of its subsidiaries will not
be deemed to have a material relationship with Chesapeake unless: |
|
(i) |
|
the director is an executive officer of the other company or the director,
alone or in combination with members of the directors immediate family, owns in excess
of a 10% equity interest in the other company; and |
|
|
(ii) |
|
either: |
|
a. |
|
total sales to (other than sales in the ordinary course of business at
published rates), or purchases from, the other company by Chesapeake and its
subsidiaries in any of the other companys last three fiscal years exceeded (i) 3%
of such other companys consolidated revenues, if the other companys consolidated
revenues were less than $20 million, or (ii) the greater of (x) $600,000 and (y) 2%
of the other companys consolidated revenues, if the entitys consolidated revenues
were equal to or greater than $20 million; or |
|
|
b. |
|
any of the commercial transactions between the other company and
Chesapeake or any of its subsidiaries within the preceding three fiscal years were
not entered into on an arms length basis. |
|
|
Banking Relationships. A director of Chesapeake who is associated with a bank or
other financial institution that provides loans or other financial services to Chesapeake or
any of its subsidiaries will not be deemed to have a material relationship with Chesapeake
unless: |
|
(i) |
|
the director is an executive officer of the bank or other financial institution
or the director, alone or in combination with members of the directors immediate
family, owns in excess of a 10% equity interest in the bank or other financial
institution; and |
A-1
|
a. |
|
the average outstanding balance on loans from the bank or other
financial institution to Chesapeake and its subsidiaries in any of the banks or
other financial institutions last three fiscal years exceeded 3% of the
outstanding loans of the bank or other financial institution as of the end of that
fiscal year; or |
|
|
b. |
|
total payments by Chesapeake and its subsidiaries to the bank or other
financial institution for services in any of the banks or other financial
institutions last three fiscal years exceeded (i) 3% of the banks or other
financial institutions consolidated revenues, if its consolidated revenues were
less than $20 million, or (ii) the greater of (x) $600,000 and (y) 2% of the banks
or other financial institutions consolidated revenues, if its consolidated
revenues were equal to or greater than $20 million. |
|
|
Legal Relationships. A director of Chesapeake who is an attorney will not be
deemed independent if, in any of Chesapeakes preceding three fiscal years, Chesapeake and its
subsidiaries made aggregate payments for legal services to that attorney, or to any law firm
of which that attorney was a partner or of counsel, in excess of $120,000. |
|
|
|
Charitable Relationship. If a director of Chesapeake or a member of the directors
immediate family is a director, officer, trustee or employee of a foundation, college or
university or other not-for-profit organization, the director will not be deemed independent
if, in any of Chesapeakes preceding three fiscal years, Chesapeake and its subsidiaries made
aggregate charitable contributions to that entity in excess of the lesser of (i) $25,000 and
(ii) 2% of such entitys total receipts, unless the contribution was approved in advance by
the Board of Directors, but in no event will the director be deemed independent if the
aggregate charitable contributions to that entity by Chesapeakes and its subsidiaries in any
of the three preceding fiscal years exceeded $50,000. |
For purposes of these Guidelines, the terms:
Immediate family member means spouse, parent, stepparent, child, stepchild, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and any
person (other than a tenant or employee) sharing the household of any director, or nominee for
director. This excludes any person who is no longer an immediate family member as a result of legal
separation or divorce, or death or incapacitation.
A-2
NNNNNNNNNNNN NNNNNNNNNNNNNNN C123456789 000004 000000000.000000 ext 000000000.000000 ext
NNNNNNNNN 000000000.000000 ext 000000000.000000 ext MR A SAMPLE DESIGNATION (IF ANY)
000000000.000000 ext 000000000.000000 ext ADD 1 Electronic Voting Instructions ADD 2 ADD 3 You can
vote by Internet or telephone! ADD 4 Available 24 hours a day, 7 days a week! ADD 5 Instead of
mailing your proxy, you may choose one of the two voting ADD 6 methods outlined below to vote your
proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or
telephone must be received by 12:00 a.m., Eastern Daylight Time, on May 6, 2009. Vote by Internet
Log on to the Internet and go to www.investorvote.com Follow the steps outlined on the secured
website. Vote by telephone Call toll free 1-800-652-VOTE (8683) within the United States, Canada
& Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the call. Using a
black ink pen, mark your votes with an X as shown in X Follow the instructions provided by the
recorded message. this example. Please do not write outside the designated areas. Annual Meeting
Proxy Card 123456 C0123456789 12345 3 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 3 A Company
Proposals The Board of Directors recommends a vote FOR all the nominees listed below and FOR
Proposal 2. 1. Election of Directors: For Withhold For Withhold For Withhold + 01 Dianna F.
Morgan 02 Calvert A. Morgan, Jr. 03 Eugene H. Bayard 04 Thomas P. Hill, Jr. For Against
Abstain 2. Ratification of the selection of Beard Miller Company LLP as the Companys independent
registered public accounting firm. In their discretion, the proxies are authorized to vote upon
such other matters as may properly come before the Meeting and at any adjourned meeting. B
Non-Voting Items Change of Address Please print new address below. C Authorized Signatures This
section must be completed for your vote to be counted. Date and Sign Below Please sign exactly as
name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date
(mm/dd/yyyy) Please print date below. Signature 1 Please keep signature within the box.
Signature 2 Please keep signature within the box. C 1234567890 J N T MR A SAMPLE (THIS AREA IS
SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE
AND MR A SAMPLE AND NNNNNNN4 1 A V 0 2 1 1 9 9 1 MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +
<STOCK#> 010Y4B |
Dear Stockholder: March 27, 2009 You are cordially invited to attend the Annual Meeting of
Stockholders of Chesapeake Utilities Corporation to be held at 9:00 a.m. on May 6, 2009, 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 Corporate Secretarys
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 be 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, RALPH J. ADKINS
Chairman of the Board 3 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 3 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 6, 2009 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 proxies 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 at any adjourned meeting. 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. The Board of Directors recommends a vote FOR Proposals 1 and 2.
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. CONTINUED
AND TO BE SIGNED ON REVERSE SIDE |