CSK Chesapeake Cp

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Process for Setting Executive Compensation

The Corporation’s executive compensation program is administered by the Compensation Committee whose members are John W. Rosenblum (Chairman), Jeremy S. G. Fowden, Beverly L. Thelander and Harry H. Warner. The Compensation Committee recommends to the Committee of Independent Directors for approval the compensation of the CEO, approves the compensation for the Corporation’s other executive officers and administers the Corporation’s 2005 Incentive Plan (the “2005 Plan”) for the Corporation’s executive officers, including the Named Officers. The Compensation Committee utilizes independent compensation consultants for advice, information, research and projections on matters such as the identification of appropriate peer groups for comparison to the Corporation’s executive compensation program, the effects of the Corporation’s organizational structure on executive compensation, industry norms and competitive practices. In addition, consultants may evaluate information provided on these and related subjects to the Compensation Committee by management or by consultants engaged by management. The Compensation Committee provides instruction to the consultants regarding the scope of work to be performed, but does not direct how the consultants are to perform the work. The CEO regularly consults with and advises the Compensation Committee and the Board on the Corporation’s strategies, performance, operations and results, both during Compensation Committee and Board meetings and informally throughout the year. With respect to the executive compensation program, the CEO makes specific recommendations to the Compensation Committee regarding the design and elements of the program, and regarding allocations, awards, payments and other actions affecting individual executives. Other members of management assist the CEO by providing analysis, research and recommendations regarding the program, including Chesapeake’s current and past practices, industry norms and competitive practices, legal and regulatory requirements, financial projections and the expected impact of the executive compensation program on Chesapeake’s strategies, operations and results.

Overview of Compensation Philosophy

The Corporation’s executive compensation program is designed to attract, develop and retain executives and motivate them to attain the Corporation’s business goals. The Corporation’s executive compensation is designed to be externally competitive and internally equitable to reflect differences in job responsibility and individual’s contributions to the Corporation’s success. Base salaries are targeted at the mid-range of salaries offered to officers in comparable positions in the packaging industry, local competing industries and industry in general. Incentive programs provide executives the opportunity to earn total compensation that exceeds the targeted mid-range in return for superior Corporation, individual business unit and individual executive performance. The Corporation’s compensation program also encourages executive ownership of the Corporation’s Common Stock. The Corporation believes that stock ownership by employees, especially executives, creates an alignment of interests among employees and other stockholders. Stock ownership by executives is encouraged through stock ownership guidelines and by providing a portion of total compensation in shares of Common Stock. The stock ownership guidelines are expressed as a market value of the Corporation’s stock owned as a multiple of the executive’s base salary. The stock ownership guideline for the CEO and for Executive Vice Presidents is three times annual salary and for Vice Presidents is one and one-half times annual salary. Executives are expected to achieve their stock ownership guideline within five years of election and to maintain at least their ownership guideline level thereafter. The Corporation’s executive compensation program provides opportunities for executives to acquire the Corporation’s stock in order to meet the ownership guidelines. The Corporation also provides executives with a comprehensive benefits program, including health, retirement, savings and paid leave programs, to complete a total compensation program that enables the Corporation to compete successfully in the employment marketplace for executives with the abilities to achieve the Corporation’s goals.

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In the event of a restatement of or adjustment to the Corporation’s earnings, the Compensation Committee may consider the effect of the restatement or adjustment on compensation paid or to be paid to executives, including whether repayment of compensation to the Corporation, to the extent permitted by applicable law, may be required. Among the factors to be considered by the Compensation Committee will be the materiality of the restatement or adjustment and the role of executives, or any specific executive, in the restatement or adjustment or events leading to the restatement or adjustment.

The individual elements of the Corporation’s executive compensation program are (i) base salaries, which provide a consistent level of income reflecting the market value of a job, taking into account its level of responsibility, and compensate the executives for services rendered during the fiscal year, (ii) annual incentive opportunities, which focus on short-term objectives, including annual financial goals for the Corporation and individual performance goals for each executive, (iii) long-term incentive opportunities, normally in the form of stock options and stock awards, which focus on long-term objectives, promote stock ownership and serve to align the interests of executives with those of other stockholders, and (iv) benefit programs that meet the competitive employment practices and norms for industry and the local marketplace. In designing and administering the individual elements of the Corporation’s executive compensation program, the Corporation regularly reviews the total of base salaries, annual incentives, long-term incentive compensation and benefit programs and balances short- and long-term incentive objectives with an appropriate amount of compensation that is at risk. Depending on the level of the executive, approximately one-half to two-thirds of executive compensation is at risk. In the case of the Corporation’s CEO, approximately two-thirds of his expected total compensation will consist of short- and long-term incentive opportunities, with long-term elements being the more significant.

In designing and administering the Corporation’s executive compensation program, the Compensation Committee considers the accounting effects of the various elements on the Corporation and the tax effects on the Corporation and the executives. All other factors being equal, the Compensation Committee favors a compensation program with elements that are more favorable to the Corporation and to executives in terms of accounting and tax impact as compared to elements that are less favorable. However, accounting and tax considerations are not the primary determining factors in designing, implementing or modifying the executive compensation program. Other factors, as described above and including external competitiveness, internal equity and support of the Corporation’s strategies and operational goals, are primary and can override accounting and tax considerations. The Corporation’s policy on the tax deductibility of compensation for the executive officers is to maximize the deductibility, to the extent possible, while preserving the Corporation’s flexibility to maintain a competitive compensation program. The Corporation expects all executive compensation paid or awarded during fiscal 2007 to be fully deductible by the Corporation.

Elements of Executive Compensation

Base Salaries . The purpose of base salaries is to provide a consistent level of income during the year that approximates the market rate for a given job in the packaging industry, local competing companies and industry in general, taking into account factors such as the jobholder’s length of service, professional experience, level of responsibility compared to other employees and job performance. By providing base salaries in this manner, the Compensation Committee expects to encourage retention and length of service and a focus on duties and goals with the knowledge that base salaries are internally and externally appropriate and competitive.

For fiscal 2007, the Compensation Committee’s recommendations for the CEO and approval for the other Named Officers were informed by peer group data on base salaries, annual incentive targets and actual payments, and long-term incentive targets and actual payments as provided in a compensation study prepared by the executive compensation consulting firm Towers Perrin HR Services (“Towers Perrin”). Towers Perrin prepared an executive compensation competitive review using data from Towers Perrin and the executive compensation consulting firms Mercer Human Resource Consulting and Watson Wyatt Worldwide for firms within the manufacturing industry, taking into account differences in size and revenues, and compared the roles and responsibilities of the Corporation’s executives to those of executives with similar duties in other companies. The analysis also included a review of pay practices of companies in the packaging industry which included AptarGroup, Inc., Ball Corporation, Bemis Company, Inc., Crown Holdings Inc., Intertape Polymer Group Inc., MeadWestvaco Corporation, Owens-Illinois Inc., Packaging Corporation of America, Pactiv Corporation, Sealed Air Corporation, Smurfit-Stone Container Corporation, Sonoco Products Co., Temple-Inland Inc. and West Pharmaceutical Services Inc., all of

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which, at the time, were components of the Dow Jones Global Containers and Packaging Index, and AEP Industries, Inc., Bowne & Co., Inc., BWAY Holding Company, Caraustar Industries, Inc., Cenveo, Inc., Consolidated Graphics, Inc., Constar International Inc., P. H. Glatfelter Company, Graphic Packaging Corporation, Multi-Color Corporation, Myers Industries, Inc., Neenah Paper, Inc., Paxar Corporation, Rock-Tenn Company, Schawk, Inc., Silgan Holdings Inc. and Wausau Paper Corp.

In determining the base salaries of the Named Officers for 2007, the Compensation Committee first considered the competitive salary range for each position, then considered the individual officer’s responsibilities, duties and performance, and the position of each individual’s salary within the respective salary range. In determining Mr. Kohut’s base salary for 2007, the Compensation Committee recommended, and the Committee of Independent Directors approved, a salary of $570,000, effective January 1, 2007. The base salaries of the other Named Officers for fiscal 2007 were effective at the start of fiscal 2007 or, if later, as of the officer’s election to his current position. In evaluating the executive officers’ future salaries, it is anticipated that the Compensation Committee will evaluate the salaries based on each officer’s tenure in position, the Compensation Committee’s evaluation of the CEO’s recommendation as to the officer’s performance and the Corporation’s financial performance. In evaluating the Corporation’s financial performance, several measures related to stockholder value improvement are expected to be reviewed, including earnings, cash flow and stock price performance.

Annual Incentive Program . The purpose of the annual incentive program is to reward the achievement of, and provide an incentive to exceed, specific short-term goals established by the Compensation Committee. At the beginning of fiscal 2007, the Compensation Committee established award guidelines based on two components: the Corporation’s financial performance (75% of the total) and each Named Officer’s individual performance (25% of the total). Financial performance was based 70% on earnings per share (EPS), with a target of $0.36, and 30% on annualized cost savings achieved under a global cost savings program announced by the Corporation in November 2005, with a target of $15.4 million annualized savings in fiscal 2007. The Compensation Committee concluded that for fiscal 2007 the global cost savings program was a high priority for the Corporation strategically and for improving stockholder value. In order to achieve these goals, the Compensation Committee considered it critical to provide an incentive to executives and senior managers to have a strong performance on the global cost savings program. The Compensation Committee (or, in the case of the CEO, the Committee of Independent Directors) set each executive officer’s target award at either 50% or 60% of base salary, with the CEO having a 60% target. These target award percentages are consistent with prior practice and peer group data for annual incentive targets as part of total compensation for executives. Awards for the achievement of the financial goals could range from 0% of the target amount for performance less than 80% of each goal, to 200% of the target award for achieving 150% of each goal. The Compensation Committee decides whether to include the effects of extraordinary items, capital structure issues and other unusual items in evaluating the achievement of financial goals, taking into account the recommendation of the CEO, who provides the Compensation Committee with analysis and background information, including the Corporation’s past practice, industry norms, materiality and any related issues. Awards for achievement of individual goals could range from 90% to 100% of the target amount for individual performance meeting or exceeding expectations and lesser amounts, down to 0%, for performance below expectations. For exceptional individual performance, awards greater than 100% of target could be paid. The Named Officers’ individual performance goals for fiscal 2007 included business development in emerging markets, organizational development to meet the Corporation’s global business requirements, enhancements to financial reporting capabilities and improved capital structure utilization. For Messrs. Cheetham and Whitfield, who became Named Officers during fiscal 2007, the financial performance component of the annual incentive program included divisional performance goals in addition to the financial performance goals of the Corporation described above. The divisional goals included targeted improvements in costs savings, Earnings Before Interest, Depreciation and Amortization (EBITDA) and sales growth. The cost savings targets were the divisions’ budgeted portion of the corporate cost savings goals described above. The EBITDA targets were the higher of each division’s budgeted EBITDA for fiscal 2007 or actual EBITDA for fiscal 2006. The sales growth targets were equal to the budgeted sales increases for fiscal 2007 compared to fiscal 2006. For each of the divisional goals, the threshold amount was equal to 95% of the target, and the maximum amount was equal to 120% of the target. The divisional goals for Messrs. Cheetham and Whitfield for 2007 were pro-rated to take into account the changes in their divisional responsibilities during fiscal 2007. As of the end of fiscal 2007, the Compensation Committee reviewed the Corporation’s financial performance and determined the awards for that portion of the incentive. The portion of the awards based on individual performance was awarded based on the Compensation Committee’s evaluation, or in the case of the CEO, the Committee of Independent Directors’ evaluation, of the achievement of each Named Officer’s individual performance objectives for 2007. In 2007, actual financial performance awards for the Named Officers

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ranged from 0% to 200% of target, and individual performance awards for the Named Officers ranged from 100% to 130% of target.

Long-Term Incentive Program . The purpose of the long-term incentive program is to focus executives’ attention on the long-term growth and financial success of the Corporation through the achievement of specific goals established by the Compensation Committee. In addition, the long-term incentive program is designed to align executives’ financial interests with those of other stockholders by encouraging ownership of the Corporation’s stock. The long-term incentive program goals can be strategic goals, such as business expansion; financial goals, such as earnings per share and cash generation; or performance goals set in relation to peer performance. The goals are typically established for a three-year performance cycle. In each case, with a recommendation from the CEO, the Compensation Committee decides the most appropriate points of emphasis for the executives and senior managers over the upcoming three-year cycle and what are appropriate measures for success in those areas. As indicated below, those measures vary from year to year as part of a conscious decision to focus the executives and senior managers on specific goals that are important to the success of the Corporation at a given time. In evaluating the achievement of the goals, the Compensation Committee decides whether to include the effects of extraordinary items, capital structure issues and other unusual items, taking into account the recommendation of the CEO, who provides the Compensation Committee with analysis and background information, including the Corporation’s past practice, industry norms, materiality and any related issues. The long-term incentive goals and awards for the CEO are approved by the Committee of Independent Directors based upon the recommendation of the Compensation Committee. The Compensation Committee approves long-term incentive goals and awards to all other executive officers and other management employees. Long-term incentive awards may be in the form of stock options, performance shares, stock awards and other incentive opportunities under the 2005 Plan (and, prior to the approval by the Corporation’s stockholders of the 2005 Plan, under the Chesapeake Corporation 1997 Incentive Plan (the “1997 Incentive Plan”)). Awards are granted at the start of the performance cycle in early January. In determining the long-term incentive awards granted to Named Officers in fiscal 2007, the Compensation Committee, or in the case of the CEO, the Committee of Independent Directors, subjectively evaluated the relationship of various job classifications within the Corporation, contributions by each Named Officer to the overall performance of the Corporation and such officer’s potential to contribute to the Corporation’s overall performance in the future, as well as market data, as part of the compensation study described above, on the long-term incentive practices of firms within the Corporation’s industry, taking into account differences in size and revenues, for positions similar to those of the Named Officers.

In 2007, the Compensation Committee granted shares of performance-based restricted stock to a group of senior executives, including the Named Officers, under the 2005 Plan for the 2007-2009 performance cycle. In addition, during 2007, two other three-year performance cycles were in effect for the Named Officers and other executives, the 2006-2008 cycle and the 2005-2007 cycle, with shares of performance-based restricted stock having been granted in prior years under the 2005 Plan and the 1997 Incentive Plan, respectively.

Under the 2007-2009 performance cycle, the shares will vest, in whole or in part, based on Chesapeake’s total shareholder return (“TSR”) percentile ranking among the companies in the Dow Jones Global Containers and Packaging Index during the three-year cycle. The threshold level of performance is a TSR ranking in the 40-49 ^th percentile which would result in 50% of the shares vesting. The target level of performance is a TSR ranking in the 50-66 ^th percentile which would result in 100% of the shares vesting, and the maximum payout of 200% would be achieved for a TSR rank in the 90-100 ^th percentile, with awards above 100% paid in cash or additional shares at the discretion of the Compensation Committee.

Under the 2006-2008 performance cycle, the shares will vest, in whole or in part, if specific cost savings goals are achieved during the cycle, subject to the achievement of minimum EPS goals. The cost savings target is $25 million in annualized savings, and the minimum EPS requirement is $0.75 for the then most recent four quarters.

Under the 2005-2007 performance cycle, the shares would have vested, in whole or in part, at the end of the cycle if specific EPS growth and cash generation goals were met or exceeded. The EPS growth target was 9% over the three-year cycle, and the cash generation target was average EBITDA-CapEx Margin (Earnings Before Interest, Taxes, Depreciation and Amortization minus Capital Expenses, divided by net sales) of 9% over the three-year cycle. Neither of the targets was achieved, and all shares issued for the 2005-2007 cycle were forfeited.

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For the performance-based restricted shares granted under the 2005-2007 and 2006-2008 performance cycles, executives received dividend equivalent payments on unvested restricted shares at the same rate and times as dividends were paid on all other shares of Common Stock. Dividend equivalents on performance-based restricted stock granted under the 2007-2009 performance cycle were credited as additional unissued shares of restricted stock, subject to the same vesting criteria and performance goals as the underlying shares. The purpose of providing for dividend equivalent payments is to align the interests of the executives with the interests of the other stockholders during the performance award vesting period.

Under each performance cycle, participants’ shares vest in the event of a “change in control” (as defined under the caption “Potential Payments upon Termination or Change in Control”). Because a change in control is typically accompanied by a period of uncertainty regarding the future strategy of a corporation, and of executives’ roles and employment, the provision to vest shares in the event of a change in control protects the Corporation against the loss of key management during such periods of uncertainty and allows executives to focus on the business issues relating to the change in control in fulfilling their duties in the best interests of stockholders. Shares that are unvested at the end of the performance cycle are forfeited. The value of the shares held by the Named Officers that would vest if a change in control had occurred on December 30, 2007 is presented in the Potential Payments upon Termination or Change in Control Table.

If a participant resigns or is terminated for cause, all unvested shares are forfeited. In the event of disability or death of a participant, because the end of the participant’s employment was not voluntary or for cause, the participant or beneficiary is entitled to awards that have been earned but not yet paid. If the death or disability occurs during a performance cycle, a pro rata award will be paid at the same time awards for other participants are paid. A participant who retires or is terminated without cause must have at least two years of service in a performance cycle to be eligible for a pro rata award at the completion of the relevant performance cycle; otherwise any unvested shares are forfeited.

In 2003, the Compensation Committee concluded that grants of performance-based restricted stock to executives was a more effective and financially efficient way to deliver long-term incentive compensation to executives and senior managers than stock options. Accordingly, in 2007 the Corporation did not grant stock options to the Named Officers; instead, as described above, the Named Officers participate in a long-term incentive program under which grants of performance-based restricted stock were made in 2007.

The Corporation, however, does recognize the benefits of aligning the interests of its employees, and not just the executive officers, with the interests of the stockholders. The Corporation’s recent practice has been to grant stock options to approximately 200 non-executive management and professional employees, consistent with the philosophy of aligning the financial interests of employees with those of the stockholders and of encouraging employees to work toward the long-term growth and success of the Corporation. Stock options are generally granted on January 7 or the first business day to follow January 7, with the option price equal to the closing price of the Corporation’s stock on that date. The Corporation’s practice and intention is to grant stock options on that date unless there is material nonpublic information that has not been properly disclosed. The options are typically granted with a term of ten years with one-third first exercisable after one year, an additional one-third first exercisable after two years and the balance first exercisable after three years, or in the event of the optionee’s retirement, death or disability, or a “change in control” (as defined under the caption “Potential Payments upon Termination or Change in Control”).

Benefit Programs . The Corporation offers benefit programs to executive officers and other employees based on competitive practices and norms for industries and local employment markets. The benefit programs include medical, dental, life and disability coverage, retirement and savings programs, and vacations and holidays. In general, the Named Officers are eligible to participate in the Corporation’s benefit programs on the same basis and cost as other employees, with the following exceptions:

Retirement Plans – Messrs. Kohut, Mostrom and Causey are participants in the Chesapeake Corporation Executive Supplemental Retirement Plan (the “Supplemental Plan”), a non-qualified, unfunded executive retirement plan with defined benefit and defined contribution provisions. During 2007, the Compensation Committee approved changes to the Supplemental Plan to complete a transition begun in 2005 of the Corporation’s defined benefit pension program to a defined contribution retirement program. The Corporation, after an evaluation, had concluded

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that a defined contribution retirement program represented a better match to the employment relationship expectations of the Corporation and its employees in terms of portability, flexibility and shared accountability. As a result, on December 31, 2005 the Corporation’s U.S. qualified defined benefit pension plans, including the Chesapeake Corporation Retirement Plan for Salaried Employees (the “Salaried Plan”), were closed to new entrants and participants’ benefits were frozen. Coinciding with these actions, enhancements were made to the Chesapeake Corporation Retirement & 401(k) Savings Plan (the “401(k) Plan”), including, for salaried participants, the addition of an annual non-elective company contribution of 5% of total pay (7.5% of pay for participants, other than participants in the Supplemental Plan, at least age 45 with at least 5 years of service on December 31, 2005) and an increase in company matching contributions from 60% of the first 6% of salary (a total match of 3.6% of pay) to 100% of the first 3% of salary and 50% of the next 2% of salary (a total match of 4% of pay). In its meeting on February 27, 2007, the Compensation Committee approved amendments to implement the following regarding the Supplemental Plan:

Deferred Compensation Programs – The Corporation’s U.S. executive officers can participate in either or both of two deferred compensation programs. Under the Chesapeake Corporation Officers’ Deferred Compensation Plan, executive officers can defer all or part of their annual bonus. Under the Chesapeake Corporation 401(k) Restoration Plan, executive officers can defer up to 10% of their base salary. Amounts deferred under either program are credited with interest at the prime rate established by the Corporation’s leading bank lender, subject to, in the Chesapeake Corporation Officers’ Deferred Compensation Plan, a limit of 120% of the Applicable Federal Rate as specified by the Internal Revenue Service, and are distributed to the executive officer only after the end of employment. The programs are non-qualified and unfunded, and amounts deferred represent unsecured claims by participating executive officers against the general assets of the Corporation. The interest rates are set to provide a competitive, market-based rate of return adjusted for the risk of being unfunded. The programs are provided to offer a select group of executives whose ability to participate in the Corporation’s broad-based retirement savings program is restricted by Internal Revenue Code limits the opportunity to defer a portion of their income in order to save toward retirement in a tax-advantaged vehicle. Mr. Rylance could, and Messrs. Cheetham and Whitfield can, elect to waive any bonus entitlement in return for an equivalent amount to be paid into the Additional Voluntary Contribution section of the Field Pension Plan. Because all contributions to the deferred compensation programs are voluntary contributions by the executives, the account balances are not taken into consideration with respect to executive compensation allocations and other compensation decisions. Details regarding the Named Officers’ participation in the Deferred Compensation Programs are available in the Non-qualified Deferred Compensation Table below.

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Financial Planning Services – The Corporation’s U.S. Named Officers are reimbursed for up to $2,000 annually for financial planning and tax preparation services and up to $4,000 every five years for development or review of a financial plan. The purpose of the financial planning services is to assist those Named Officers in optimizing their compensation package and minimize their distraction from their executive duties during tax preparation season.

Club Membership – Mr. Causey is reimbursed for the cost of membership to a luncheon club. While usage is not limited to business purposes, the purpose of providing club membership is to provide executives, their guests and other Corporation employees access to suitable facilities for business functions such as board meetings, investor relations, employee activities and similar events.

Automobile – Mr. Rylance was, and Messrs. Cheetham and Whitfield are, provided with an automobile for business and personal use (or an automobile allowance). An automobile benefit is consistent with competitive practices in the U.K. market. No other executive officers receive an automobile benefit from the Corporation.

Agreements with Executive Officers

The Corporation’s U.S. executive officers, along with its other U.S. officers and a small number of other U.S. executives, are employed under the terms of employment agreements. The purpose of the agreements is to clarify, for executives expected to make substantial contributions to the success of the Corporation, conduct expected of the executive during and after employment and the terms applicable to certain potential terminations of the executive’s service.

The following description provides additional details regarding the Corporation’s employment agreements with Messrs. Kohut, Causey and Mostrom (the “Agreements”).

The current terms of the Agreements will expire on December 31, 2010, for Mr. Kohut, and on December 31, 2009, for Messrs. Causey and Mostrom. The terms of the Agreements with Messrs. Kohut and Mostrom will be extended automatically each year for an additional year, unless the Corporation advises the officer, before November 1 of each year, that it does not wish to extend the Agreement. On October 22, 2007, the Corporation advised Mr. Causey that it would not extend his agreement beyond its current expiration date based on the Corporation’s expectation that Mr. Causey may retire in the ordinary course at or before the expiration of his agreement.

No severance will be paid under the Agreements in the event of a resignation or a termination with cause. Following a “change in control” of the Corporation (as defined under the caption “Potential Payments upon Termination or Change in Control”) or the sale or other divestiture of the officer’s business unit, the Agreements provide for the payment of a lump sum severance benefit and continued participation in certain benefit plans if the officer (a) is terminated without cause (defined as conviction by a court of competent jurisdiction for, or pleading no contest to, a felony) or (b) resigns with good reason. Good reason is defined as a material reduction in the executive’s duties or responsibilities, the failure of the Corporation or its successor to permit the executive to exercise such responsibilities as are consistent with the executive’s position, a requirement that the executive relocate to a principal place of employment that is at least 50 miles farther from the executive’s current principal place of employment, the failure of the Corporation or its successor to award the executive annual incentive, long-term incentive or stock option opportunities consistent with those provided to similarly situated executives or the failure by the Corporation or its successor to make a payment when due to the executive.

The severance payment equals a multiple of three times, for Messrs. Kohut and Causey, and two times for Mr. Mostrom, the officer’s base salary as in effect on the date he ceases to be employed by the Corporation or, if greater, his highest annual rate of base salary during the twelve months preceding his cessation of employment, and target annual incentive payment for the year in which he ceases to be employed by the Corporation or, if greater, the year preceding his cessation of employment. The Agreements also provide for additional credit under the Supplemental Plan if the officer becomes entitled to benefits following a “change in control” or the sale or other divestiture of the officer’s business unit.

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Before a “change in control” or the sale or other divestiture of the officer’s business unit, the Agreements provide for the payment of a severance benefit and continued participation in certain benefit plans if the officer is terminated without cause. Cause is defined as conduct involving dishonesty or fraud or activities that may reasonably be expected to have a material adverse effect on the property, business or reputation of the Corporation, conviction or admission of, or a plea of guilty or no contest to, a felony, breach of any material obligation to the Corporation, or willful failure to perform duties to the Corporation which is not corrected within 30 days of prior written notice by the Corporation to the executive or willful misconduct in the performance of such duties. In such event, the severance benefit for Messrs. Kohut and Causey equals a multiple of two times the officer’s base salary and targeted annual incentive payment and, for Mr. Mostrom, a multiple of two times his base salary.

The Agreements also provide for indemnification of the officer for any excise taxes that may become due under Section 4999 of the Internal Revenue Code and the reimbursement of legal fees incurred by the officer in enforcing the Agreements. The Agreements include a covenant prohibiting the disclosure of confidential information by the officer and, if the officer is terminated before a “change in control,” a covenant restricting competition by the officer for a period of 12 months.

The Agreement with Mr. Kohut was amended and restated on April 22, 2003 and amended on January 3, 2005, August 12, 2005 and December 13, 2005. Mr. Kohut’s Agreement currently provides for his employment as President & Chief Executive Officer with a base salary not less than as last approved by the Committee of Independent Directors and an annual incentive target of not less than 60% of his base salary. The Agreements with Messrs. Causey and Mostrom were amended and restated on April 22, 2003 and amended on January 3, 2005 and August 12, 2005. Mr. Causey’s amended and restated Agreement currently provides for his employment as Executive Vice President, Secretary & General Counsel with a base salary not less than as last approved by the Compensation Committee and an annual incentive target of not less than 50% of his base salary. Mr. Mostrom’s amended and restated Agreement currently provides for his employment as Senior Vice President & Chief Financial Officer or a position of substantially similar or greater responsibilities and duties with a base salary not less than as last approved by the Compensation Committee and an annual incentive target of not less than 50% of his base salary.

Mr. Rylance was, and Messrs. Cheetham and Whitfield are, employed under the terms of Service Agreements (a “Service Agreement” or the “Service Agreements”). The Service Agreements are similar in structure to the agreements of the Corporation’s other U.K. management employees and are consistent with the prevailing practice of other employers in the U.K. The following description provides additional details regarding the Service Agreements.

In 1999, the Corporation entered into a Service Agreement with Mr. Rylance in connection with the acquisition of Field Group plc. The agreement was amended on May 26, 2000, April 29, 2003, September 16, 2003, October 24, 2003, January 5, 2005 and August 19, 2005, to more nearly conform to the terms of the agreements between the Corporation and other officers of the Corporation.

His Service Agreement provided for Mr. Rylance’s employment as Executive Vice President – European Packaging, or other capacity of like status as the Corporation may require, with a base salary of not less than £210,000 per year (approximately $420,000 per year, based on the average exchange rate for fiscal 2007) and a discretionary bonus. The base salary would be reviewed at least once each twelve months. The agreement provided that the Corporation could terminate Mr. Rylance’s employment with not less than 24 months’ notice and that Mr. Rylance could terminate his employment with not less than 12 months’ notice.

Following a “change in control” of the Corporation (as defined under the caption “Potential Payments upon Termination or Change in Control”) or the sale or other divestiture of Mr. Rylance’s business unit, the Service Agreement provided for the payment of a lump sum severance benefit and continued participation in certain benefit plans if Mr. Rylance (i) was terminated without cause (defined as conviction by a court of competent jurisdiction for, or pleading no contest to, a felony) or (ii) resigned with good reason. Good reason is defined as a material reduction in the executive’s duties or responsibilities, the failure of the Corporation or its successor to permit the executive to exercise such responsibilities as are consistent with the executive’s position, a requirement that the executive relocate to a principal place of employment that is at least 50 miles farther from the executive’s current principal place of employment, the failure of the Corporation or its successor to award the executive annual

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incentive, long-term incentive or stock option opportunities consistent with those provided to similarly situated executives or the failure by the Corporation or its successor to make a payment when due to the executive.

The severance payment equaled a multiple of two times Mr. Rylance’s base salary as in effect on the date he ceased to be employed by the Corporation or, if greater, his highest annual rate of base salary during the twelve months preceding his cessation of employment with the Corporation, Field Group plc, each Chesapeake company, each associated company and their successors, and the target annual incentive payment for the year in which he ceased to be employed by the Corporation, Field Group plc, each Chesapeake company, each associated company and their successors, or, if greater, the year preceding his cessation of employment.

The Service Agreement provided that Mr. Rylance would participate in the Field Group Pension Plan, have the use of an automobile provided by Field Group plc, receive medical and life insurance coverage as the Corporation considered appropriate and be entitled to 26 vacation days per year. The agreement provided for reimbursement of legal fees incurred by Mr. Rylance in enforcing the agreement and also contained restrictions on competition for 12 months after employment and customary, non-solicitation, confidentiality and inventions and improvements provisions.

On August 24, 2007, the Corporation entered into a Compromise Agreement with Mr. Rylance which superseded his Service Agreement and specified that his employment with the Corporation would end on August 31, 2007. The amounts paid to Mr. Rylance under the Compromise Agreement are included in All Other Compensation in the Summary Compensation Table, and in Perquisites, Personal Benefits and Other Payments in the All Other Compensation Table. Under the Compromise Agreement, Mr. Rylance is eligible for an additional payment under certain conditions as described in Potential Payments upon Termination or Change in Control. Further, under the Compromise Agreement, two-thirds of the restricted shares granted to Mr. Rylance under the 2006-2008 Cycle of the Long-Term Incentive Program will vest to the extent the performance targets for that cycle are met, and such shares will also vest if there is a change in control of the Corporation or the sale or divestiture of Field Group plc before February 1, 2009.

Messrs. Cheetham and Whitfield are employed under the terms of their Service Agreements each entered into on December 20, 2007. The Service Agreements provide for Mr. Cheetham’s employment as Vice President – Pharmaceutical & Healthcare Packaging and Mr. Whtifield’s employment as Vice President – Branded Products Packaging, or other capacity of like status as the Corporation may require, with a base salary for Mr. Cheetham of not less than £180,000 per year (approximately $360,000 per year, based on the average exchange rate for fiscal 2007) and a discretionary bonus, and for Mr. Whitfield of not less than £146,400 per year (approximately $292,800 per year, based on the average exchange rate for fiscal 2007) and a discretionary bonus. The base salaries shall be reviewed at least once each twelve months. The Service Agreements provide that the Corporation may terminate Mr. Cheetham’s or Mr. Whitfield’s employment with not less than 12 months’ notice and that Mr. Cheetham and Mr. Whitfield may terminate their employment with not less than 6 months’ notice.

Following a “change in control” of the Corporation (as defined under the caption “Potential Payments upon Termination or Change in Control”), the sale or other divestiture of Field Group plc, or, for Mr. Whitfield, the sale of a significant portion of the Branded Division by December 31, 2008, the Service Agreements provide for the payment of a lump sum severance benefit and continued participation in certain benefit plans if Mr. Cheetham or Mr. Whitfield (i) is terminated without cause (defined as conviction by a court of competent jurisdiction for, or pleading no contest to, a felony) or (ii) resigns with good reason. Good reason is defined as a material reduction in the executive’s duties or responsibilities, the failure of the Corporation or its successor to permit the executive to exercise such responsibilities as are consistent with the executive’s position, a requirement that the executive relocate to a principal place of employment that is at least 50 miles farther from the executive’s current principal place of employment, the failure of the Corporation or its successor to award the executive annual incentive, long-term incentive or stock option opportunities consistent with those provided to similarly situated executives or the failure by the Corporation or its successor to make a payment when due to the executive.

The severance payments equal Mr. Cheetham’s or Mr. Whitfield’s base salary as in effect on the date he ceases to be employed by the Corporation or, if greater, the highest annual rate of base salary during the twelve months preceding the cessation of employment with the Corporation, Field Group plc, each Chesapeake company, each associated company and their successors, and the target annual incentive payment for the year in which Mr.

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Cheetham or Mr. Whitfield ceases to be employed by the Corporation, Field Group plc, each Chesapeake company, each associated company and their successors, or, if greater, the year preceding cessation of employment.

The Service Agreements provide that Mr. Cheetham and Mr. Whitfield shall participate in the Field Group Pension Plan, have the use of automobiles (or automobile allowances) provided by Field Group plc, receive medical and life insurance coverage as the Corporation considers appropriate and be entitled to 26 vacation days per year. The Service Agreements provide for reimbursement of legal fees incurred by Mr. Cheetham or Mr. Whitfield in enforcing their agreement and also contain restrictions on competition for 12 months after employment and customary, non-solicitation, confidentiality and inventions and improvements provisions.

As with the other executive compensation program elements, severance benefits under the executive agreements are based on competitive practices in the employment marketplace and are designed to be internally consistent based on level of responsibility and to achieve specific objectives. Appropriate severance benefits protect the Corporation from the loss of management talent during times of uncertainty, such as a potential change in control or other business restructuring. By providing executives with benefits in the event of job loss under certain conditions, executives are able to focus on their responsibilities to the Corporation and protect the interests of its stockholders.

The value of potential payments under the executive agreements described above is provided in the Potential Payments upon Termination or Change in Control Table.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

Executive Compensation Committee

John W. Rosenblum, Chairman

Jeremy S. G. Fowden

Beverly L. Thelander

Harry H. Warner

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Summary of Cash and Certain Other Compensation

The following table shows, for the fiscal year ended December 30, 2007, the cash compensation paid by the Corporation and its subsidiaries, as well as certain other compensation paid or accrued, to each person who served as the Corporation’s principal executive officer and principal financial officer, and to its three other most highly compensated executive officers during fiscal 2007, and to one other executive officer who would have been included among the most highly compensated officers but for the fact that he was not employed by the Corporation as of December 30, 2007.

Notes:

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Notes:

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Potential Payments Upon Termination or Change in Control

Definition of “Change in Control”

For purposes of the 1993 Incentive Plan, the 1996 Plan, the 1997 Incentive Plan, the 2005 Plan, the Agreements and the Service Agreements, “change in control” means, in general, the occurrence of any of the following events: (i) any person or group becomes the beneficial owner of 20% or more of the combined voting power of the then-outstanding voting securities of the Corporation entitled to vote generally in the election of directors; (ii) those persons who were members of the Corporation’s Board of Directors prior to the adoption of such plan, and those persons whose subsequent nominations were approved by such directors, cease to constitute a majority of the Board of Directors; (iii) the stockholders of the Corporation approve a reorganization, merger, share exchange or consolidation involving the Corporation unless immediately following such transaction all or substantially all of the persons who beneficially own Common Stock and any other then-outstanding voting securities of the Corporation beneficially own at least 80% of the common stock and voting securities, respectively, of the surviving entity in such transaction in substantially the same proportions as their ownership immediately prior to such transaction; or (iv) the stockholders of the Corporation approve a complete liquidation or dissolution of the Corporation or the sale of all or substantially all of its assets. The foregoing summary is qualified in its entirety by reference to the terms of the 1993 Incentive Plan, the 1996 Plan, the 1997 Incentive Plan, the 2005 Plan, the Agreements and the Service Agreements, copies of which will be provided promptly upon request and without charge to each person to whom a copy of this proxy statement is delivered. Requests should be directed to: J. P. Causey Jr., Secretary, Chesapeake Corporation, 1021 East Cary Street, P. O. Box 2350, Richmond, Virginia 23218-2350.

Summary of Potential Payments upon Termination or Change in Control

The table below reflects the amounts payable to each Named Officer in the event of termination of employment without cause or with good reason (as described above in Agreements with Executive Officers), whether before or after a change in control. In addition, the table provides the amount payable to each Named Officer upon a change in control whether or not his employment is terminated. The amounts shown assume that the termination or change in control occurred on December 30, 2007, and thus include amounts earned through that date and are estimates of the amounts which would be paid to the Named Officers upon each circumstance. The actual amounts to be paid can only be determined at the time of each executive’s actual termination from the Corporation or at the time of a change in control.

The severance benefits shown are the amounts payable in a lump sum for termination without cause or with good reason calculated under the terms of each Named Officer’s employment or service agreement as described above in Agreements with Executive Officers. The amount shown for Mr. Rylance is payable if there is a change in control of the Corporation or a sale or divestiture of Field Group plc before July 31, 2009.

The welfare benefits shown represent the estimated present value of health and welfare coverage under the terms of each Named Officer’s employment or service agreement for termination without cause or with good reason as described above in Agreements with Executive Officers, under the assumptions provided in a footnote to the table. The table does not include amounts resulting from health and welfare benefits or other programs generally available to the Corporation’s employees in the event of resignation, retirement, death or disability.

Other than the pension credit payable following termination without cause or with good reason after a change in control, the table does not include amounts payable as retirement benefits under the Corporation’s pension plans. Information about the Corporation’s pension plans, including the Corporation’s philosophy regarding its retirement program and recent changes in the Corporation’s retirement plans, is provided in the Compensation Discussion and Analysis under the caption “Retirement Plans.” The value of accumulated pension benefits of each Named Officer is provided in the Pension Benefits table, and the change in the value of accumulated pension benefits from 2006 to 2007 is provided in the Summary Compensation Table.

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As described above in Long-Term Incentive Program, stock options issued by the Corporation generally vest in the event of retirement, death or disability, or in the event of a change in control. All of the stock options currently held by the Named Officers are vested, and therefore, no additional benefits or payments will result from termination or a change in control.

As described above in Long-Term Incentive Program, performance-based restricted shares granted to the Named Officers vest in the event of a change in control, and the value of the shares that would have vested if a change in control occurred on December 30, 2007 is provided in the table based on the share price of the Common Stock of $5.53 on that date. If a Named Officer resigns or is terminated for cause, all unvested performance-based restricted shares are forfeited. In the event of death or disability, a Named Officer (or beneficiary) will be eligible for a pro rata award at the completion of the relevant performance cycle, otherwise any unvested shares are forfeited. In the event of retirement or termination without cause, a Named Officer with at least two years of service in a performance cycle will be eligible for a pro rata award at the completion of the relevant performance cycle, otherwise any unvested shares are forfeited. As of December 30, 2007, it could not be determined whether any unvested performance-based restricted shares would vest under the terms of the outstanding performance cycles of the long-term incentive program.

The table does not include amounts that would be payable to a Named Officer upon termination under the Corporation’s non-qualified deferred compensation programs or under the 401(k) Plan, both as described in the Compensation Discussion and Analysis under the caption “Benefit Programs.”

The table does not include any estimate of payments that may be due to a Named Officer for indemnification of the Named Officer for any excise taxes that may become due under Section 4999 of the Internal Revenue Code, as described above in Agreements with Executive Officers.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE

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Notes:

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Notes:

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Notes:

OPTION EXERCISES AND STOCK VESTED

During fiscal 2007, no Named Officer exercised any stock options, SARs or similar instruments, and no stock, including restricted stock, restricted stock units and similar instruments, granted in prior years to any Named Officer became vested in the Named Officer.

PENSION BENEFITS

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Notes:

The Chesapeake Corporation Retirement Plan resulted from the merger, on December 28, 2006, of the Salaried Plan and the Chesapeake Corporation Retirement Plan for Hourly Employees Plan. The information provided in this footnote refers to the provisions of the Salaried Plan, whose participants include Messrs. Kohut, Mostrom and Causey. The participants in the Salaried Plan are full-time salaried employees who were at least age 20 and had at least one year of service on December 31, 2005, in addition to retirees, beneficiaries and former employees eligible for a future benefit. The benefits formula under the Salaried Plan is (a) .88% of final average earnings times years of service, plus (b) .65% of the amount final average earnings exceed Social Security Covered Compensation times years of service up to 35, plus (c) up to $4 per month, depending on service, times years of service. “Final average earnings” is the highest average base salary during any period of 60 consecutive months within the last 120 months of employment. Benefits are vested after five years of service and are payable as an annuity starting at age 65 or as a reduced amount starting as early as age 55 with at least 10 years of service. The benefit described in (a) and (c) above will be reduced by four percent for each of the first three years and five percent for the next seven years by which the starting date of benefits precedes age 65, and the benefit described in (b) above will be reduced by eight percent for each of the first three years and five percent for the next seven years by which the starting date of benefits precedes age 65. Optional forms of actuarially equivalent annuities are available. The Salaried Plan was amended effective December 31, 2005 so that no participants earned any benefits after that date and no employee could begin participation after that date. Mr. Causey has met the criteria for retirement before age 65 under the provisions of the Salaried Plan.

The Supplemental Plan is a non-qualified, unfunded executive retirement plan with defined benefit and defined contribution provisions. Under the defined benefit provisions, the Supplemental Plan replaces benefits reduced under the Salaried Plan due to Internal Revenue Code (“IRC”) limits, and for specific executives selected by the Compensation Committee, including Messrs. Kohut, Mostrom and Causey, provides additional benefits under the formula: 2% of final average earnings times years of service up to 20 years, plus 1.6% of final average earnings times years of service in excess of 20, less 1.6% of primary Social Security benefits times years of service, less any benefit payable under the Salaried Plan. “Final average earnings” has the same definition as described above for the Salaried Plan. Benefits limited due to IRC limits are vested after five years of service, upon termination due to disability or death, or after a change in control and the additional benefits are vested at age 55 with at least 10 years of service, upon termination due to disability or death, or after a change in control. Benefits are payable as an annuity starting at age 62, or as a reduced amount starting as early as age 55 with at least 10 years of service. For purposes of calculating the benefit payable before age 62, the participant’s primary Social Security benefit is computed assuming that the participant will not continue to receive until age 65 earnings which would be treated as wages for purposes of the Federal Social Security Act, and the amount of retirement benefit will be further reduced by one-half of one percent for each month that the participant’s age at retirement is less than 62. Optional forms of actuarially equivalent annuity payment, including annual installments over a five-year period, are available. Mr. Causey is eligible to retire under the provisions of the Supplemental Plan. As described in the Compensation Discussion and Analysis in the Benefits Programs section, under changes made to

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the Supplemental Plan in 2007, Mr. Causey will receive benefits under the defined benefit provisions of the Supplemental Plan, with the benefits offset by benefits from the Salaried Plan, non-elective contributions to the 401(k) Plan and matching contributions to the 401(k) Plan in excess of 60% of the first 6% of salary. Mr. Kohut’s and Mr. Mostrom’s benefits under the defined benefit provisions of the Supplemental Plan were frozen as of December 31, 2006, with the benefit calculated using Mr. Kohut’s and Mr. Mostrom’s base salary as of December 31, 2006 and 2006 target annual incentive amount. Messrs. Kohut and Mostrom began receiving benefits effective January 1, 2007 under the defined contribution provisions of the Supplemental Plan that restore non-elective and matching contributions to the 401(k) Plan limited by IRC restrictions on company contributions and provide an annual supplemental non-elective company contribution of 2.5% of base salary and annual incentive.

The Field Pension Plan is a U.K. registered defined benefit pension plan sponsored by Field Group plc, a subsidiary of the Corporation, for employees aged between 18 and 65 and directly employed in the U.K. on a permanent basis at a qualifying Field Group business unit. The objective of the Field Pension Plan is to provide an annual retirement benefit at normal retirement age, which is age 60 for Messrs. Rylance, Cheetham and Whitfield, based on agreed formula, restricted to approximately 67% of pensionable earnings. Pensionable earnings approximates base salary, capped at a maximum level as set out in the Rules of the Field Pension Plan. In the case of Mr. Cheetham, part of the pension will be provided by the Boxmore Group Pension Scheme (described below). At each participant’s option, part of the benefit may be exchanged for a lump sum cash payment at retirement. Retirement can be granted, with the consent of the Trustees of the Field Pension Plan, from age 55, subject to a reduction determined by the Trustees after considering actuarial advice. Field Group plc contributes an amount equal to approximately 22% of pensionable earnings for Messrs. Rylance, Cheetham and Whitfield, and Messrs. Rylance, Cheetham and Whitfield each contribute approximately 12% of his pensionable earnings to the Field Pension Plan. Mr. Rylance ceased to accrue further benefits on August 31, 2007, and with effect from that date his, and Field Group plc’s, pension contributions ceased. Post-retirement increases to pension payments are provided, up to 5% annually for pension benefits earned before December 31, 2005, and up to 2.5% annually for pension benefits earned after December 31, 2005. The Field Pension Plan allows for Additional Voluntary Contributions by participants and provides certain benefits in the event of disability or death. The Field Pension Plan was closed to new entrants as of November 30, 2005.

The Boxmore Group Pension Scheme (the “Scheme”) is a U.K. registered defined benefit pension plan (with a defined contribution section) in which Field Group plc is a participating employer, sponsored by Boxmore International Limited, a subsidiary of the Corporation, for employees aged between 18 and 65 and directly employed in the U.K. on a permanent basis at a qualifying business unit. The objective of the Scheme is to provide an annual retirement benefit at normal retirement age, which is age 62 for Mr. Cheetham, based on an agreed formula, restricted to approximately 67% of pensionable earnings. Pensionable earnings approximates base salary, capped at a maximum level as set out in the Rules of the Scheme. At each member’s option, part of the benefit may be exchanged for a lump sum cash payment at retirement. Retirement can be granted, with the consent of the Trustees of the Scheme, from age 55, subject to a reduction determined by the Trustees after considering actuarial advice. Mr. Cheetham ceased to accrue future benefits on October 31, 2002 (when he joined the Field Group Pension Plan), and with effect from that date his, and the Corporation’s, pension contributions to the Scheme ceased. Mr. Cheetham has a deferred pension in the Scheme for his period of pensionable service up to October 31, 2002. Post-retirement increases to pension payments are provided, up to 5% annually. The Scheme allows for Additional Voluntary Contributions by participants and provides certain benefits in the event of disability or death. The defined benefit section of the Scheme was closed to new entrants as of August 31, 1997.

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Notes:

DIRECTOR COMPENSATION

Employee directors of the Corporation are not paid for their service on the Board of Directors or any Board committee. Each non-employee director receives an annual retainer of $32,000 for Board service; an attendance fee of $1,800 for each day attending a Board meeting, a committee meeting or meetings or an organized Board of Directors business activity; and reimbursement of expenses. A non-employee director traveling across the Atlantic or Pacific Ocean for a Board or Board committee meeting receives an additional meeting fee of $1,800. The Chairmen of the Compensation and the Corporate Governance and Nominating Committees each receive an additional annual retainer of $6,000. The Chairman of the Audit Committee receives an additional annual retainer

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of $10,000. Where there is not an employee Chairman of the Board, the non-employee Chairman of the Board receives an additional annual retainer of $125,000.

In July 2004, the Board of Directors approved a provision that allows non-U.S. resident directors of the Corporation a one-time election to fix an exchange rate for their director fees in the local currency of the country in which they reside, based on the exchange rate of that currency with the U.S. dollar on the date of their first election as a director. Sir David Fell and Mr. Decaluwé made such elections and their directors’ retainers and meeting fees are set in British pounds sterling and euros, respectively, at the exchange rates of those currencies with the U.S. dollar as of the respective dates of their first election as directors of the Corporation. The cash fees of directors are paid in U.S. dollars, except that the cash fees for Mr. Buchan are paid in British pounds sterling and the cash fees for Mr. Decaluwé are paid in euros, both converted to the respective local currency at an approximate foreign currency exchange market rate at the time of payment. In the Director Compensation Table, the fees paid in cash to Messrs. Buchan and Decaluwé are reported in U.S. dollars valued as of the date the payments were made.

The Corporation also has an unfunded Outside Directors’ Retirement Plan (the “Outside Directors’ Plan”). Under the Outside Directors’ Plan, non-employee directors retiring at or after age 65 after at least five years of service or prior to age 65 after at least ten years of service are paid an amount equal to their retainer at the time of their retirement for a period equal to their period of service, up to ten years. The Outside Directors’ Plan was terminated in 1997 and is not available to directors taking office after 1997. Messrs. Rosenblum, Viviano and Warner and Dr. Royal are the only participants in the Outside Directors’ Plan. They have each reached the maximum benefit payable and, upon their respective retirements as directors, each (or his beneficiary) will receive a quarterly benefit payment of $7,162.50 for forty quarters.

Non-employee directors are eligible to receive awards of common stock, stock options or other equity awards under the 2005 Plan. As part of an annual review of compensation for non-employee directors based on market data, including cash compensation and compensation paid in some form of equity, the directors concluded that, in lieu of the stock options previously awarded under the Chesapeake Corporation Directors’ Stock Option and Deferred Compensation Plan, awards of unrestricted shares of common stock were more appropriate to provide competitive total compensation to the non-employee directors and to assist them in increasing their stock ownership, thus aligning their interests with those of other stockholders. On May 1, 2007, each of the then current non-employee directors received an award of 2,000 shares of common stock of the Corporation. The awards were valued based on the average trading price on the date of the award of $15.01 a share.

Each non-employee director is eligible to participate in the Chesapeake Corporation Directors’ Stock Option and Deferred Compensation Plan, which, as of March 1, 2006, was renamed the Chesapeake Corporation Directors’ Deferred Compensation Plan (the “1996 Plan”). The 1996 Plan was approved by the stockholders at the 1996 annual meeting. On March 1, 2006, the Board amended the 1996 Plan to (i) eliminate the provisions authorizing annual option grants to non-employee directors, (ii) allow the deferral of the portion of the retainer fee payable in Common Stock and (iii) comply with the requirements of Section 409A of the Internal Revenue Code (relating to deferred compensation plans). The last options granted under the 1996 Plan were awarded on May 1, 2004.

As amended, the 1996 Plan allows non-employee directors to elect to defer all or part of their annual retainer (including any portion paid in Common Stock) or meeting fees, or both. The deferred compensation may be held, at the election of the participant, in either a deferred cash account or a deferred stock account (except that deferred Common Stock must be held in the deferred stock account). Deferred cash accounts are not funded and are maintained for recordkeeping purposes only. Interest will be credited to a participant’s deferred cash account based on the prime rate established from time to time by the Corporation’s principal lender. Deferred cash fees that are credited to the participant’s deferred stock account will be recorded by reference to the number of whole and fractional shares of Common Stock that could have been purchased with the deferred amount. Additional credits will be made to the deferred stock account, in whole and fractional shares of Common Stock, based on the value of dividends paid on the Common Stock and the fair market value of the Common Stock on the date that the dividends are paid. Deferred stock accounts are not funded and no actual shares of Common Stock are purchased or held by or on behalf of the accounts; such accounts are maintained for recordkeeping purposes only. Mr. Rosenblum has deferred certain cash fees and Dr. Royal and Mr. Viviano deferred receipt of their 2006 stock awards under the amended 1996 Plan.

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The cash retainer and meeting fees described above, the deferred compensation benefit of the 1996 Plan and the awards of shares of Common Stock that are approved under the 2005 Plan represent the Corporation’s standard arrangements for compensation of its non-employee directors. The compensation of the non-employee directors is reviewed annually by the Corporate Governance and Nominating Committee, which committee makes a recommendation as to compensation, and the form in which it is delivered, for approval by the Board of Directors.

Notes:

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors is composed of three directors, each of whom is “independent” under the independence standards for audit committee members set forth in the rules promulgated under the Securities Exchange Act of 1934, the listing standards of the New York Stock Exchange and the Corporation’s Corporate Governance Concepts and Policies. The Audit Committee operates under a written charter approved by the Board of Directors. The members of the Audit Committee are Messrs. Decaluwé (Chairman) and Buchan, and Ms. Thelander. Dr. Royal was a member of the Audit Committee from January 1, 2007, to December 11, 2007. The Audit Committee held five meetings during fiscal 2007.

The Audit Committee assists the Board in its oversight of (i) the integrity of the Corporation’s financial statements, (ii) the Corporation’s compliance with legal and regulatory requirements, (iii) the independent registered public accounting firm’s qualifications and independence and (iv) the performance of the Corporation’s internal audit function and independent registered public accounting firm. In fulfilling its responsibility, the Audit Committee appoints the Corporation’s independent registered public accounting firm.

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The Audit Committee discussed with the internal auditor and the independent registered public accounting firm the overall scope and specific plans for their respective audits, as well as the Corporation’s consolidated financial statements and the adequacy of the Corporation’s internal controls. The Audit Committee met regularly with each of the Corporation’s internal auditor and independent registered public accounting firm, without management present, to discuss the results of their examinations and their evaluations of the Corporation’s internal controls. The meetings also were designed to facilitate any private communication with the Audit Committee desired by the internal auditor or independent registered public accounting firm.

In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent registered public accounting firm a formal written statement describing all relationships between the independent registered public accounting firm and the Corporation that might bear on the independent registered public accounting firm’s independence (consistent with Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”), discussed with the independent registered public accounting firm any relationships that may impact their objectivity and independence and satisfied itself as to the independent registered public accounting firm’s independence. The Audit Committee also reviewed and discussed with the independent registered public accounting firm all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees.”

Management has the primary responsibility for the system of internal controls and the financial reporting process described in the Report of Management with respect to the financial statements included in the Corporation’s Annual Report to Stockholders for fiscal 2007. The Audit Committee reviewed and discussed with management and the independent registered public accounting firm, which is responsible for expressing opinions on the conformity of those financial statements with generally accepted accounting principles and on the effectiveness of the Corporation’s internal controls over financial reporting, the audited financial statements and their judgments as to the quality of accounting principles, effectiveness of the design and operation of internal controls, reasonableness of the significant judgments and clarity of disclosures in the financial statements.

In reliance on the above-mentioned reviews and discussions, the Audit Committee recommended to the Board of Directors that the Corporation’s audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 30, 2007, for filing with the SEC.

The Audit Committee completed an annual review of its written charter and determined that it complied with its charter during fiscal 2007.

Audit Committee Pre-Approval Policy

The Audit Committee has adopted procedures for pre-approving certain audit and permitted non-audit services provided by the independent registered public accounting firm. These procedures include reviewing specific services subject to a fee range for each fiscal year for audit and permitted non-audit services. The Audit Committee reviews descriptions of, and an estimated fee range for, particular categories of non-audit services that are recurring in nature and therefore anticipated at the time the schedule is submitted. Audit Committee approval is also required when the pre-approved amount is exceeded for a particular category of non-audit services and to engage the independent registered public accounting firm for any non-audit services not previously approved. For both types of pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s rules on independent registered public accounting firm independence. The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, due to its familiarity with the Corporation’s business, personnel, culture, accounting systems and risk profile, and whether the services enhance the Corporation’s ability to manage or control risks and improve audit quality. The Audit Committee may delegate pre-approval authority to one or more members of the Audit Committee who then report any pre-approved services to the Audit Committee at its next scheduled meeting. The Audit Committee periodically monitors the services rendered and actual fees paid to the independent registered public accounting firm to ensure that such services are within the parameters approved by the Audit Committee.

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Audit Fees include fees for services performed to comply with generally accepted auditing standards, including the audit of the Corporation’s annual consolidated financial statements and internal controls and review of the Corporation’s quarterly consolidated unaudited financial statements.

Audit-Related Fees include fees associated with assurance and related services that are reasonably related to the performance of the audit or review of the financial statements. This category includes fees related to consultations regarding generally accepted accounting principles, and reviews and evaluations of the impact of new regulatory pronouncements. Audit-Related fees also include audits of pension and other employee benefit plans.

Tax Fees primarily include fees associated with tax audits, tax compliance and tax consulting, as well as domestic and international tax planning. This category also includes tax planning for restructurings, as well as other services related to tax disclosure and filing requirements.

The Audit Committee has concluded the provision of the non-audit services listed above as “All Other Fees” is compatible with maintaining the independent registered public accounting firm’s independence.

Audit Committee

Rafaël C. Decaluwé, Chairman

Brian J. Buchan

Beverly L. Thelander

TRANSACTIONS WITH RELATED PERSONS

During fiscal 2007, the Corporation did not engage in any transaction, or series of similar transactions, of the type required to be disclosed under the caption “Transactions with Related Persons.”

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed of Messrs. Rosenblum (Chairman), Fowden and Warner and Ms. Thelander. No member of the Compensation Committee had relationships, or engaged in transactions, with the Corporation during fiscal 2007 of the type required to be disclosed under the caption “Compensation Committee Interlocks and Insider Participation.”

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation’s executive officers and directors, and persons who own more than 10% of the Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange. Executive officers, directors and owners of more than 10% of the Common Stock are required by regulation to furnish the Corporation with copies of all Forms 3, 4 and 5 they file.

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Based solely on the Corporation’s review of the copies of such forms it has received and written representations from certain reporting persons who were not required to file a Form 5 for fiscal 2007, the Corporation believes that all of its executive officers, directors and owners of more than 10% of the Common Stock complied with all Section 16(a) filing requirements with respect to transactions during fiscal 2007.

APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(PROPOSAL 3)

The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP to serve as the independent registered public accounting firm for the Corporation for fiscal 2008. PricewaterhouseCoopers LLP served as the Corporation’s independent registered public accounting firm for fiscal 2007.

Stockholders are requested to ratify this appointment. Although ratification is not required by the Corporation’s bylaws or otherwise, the Board of Directors is submitting the appointment of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice. If the appointment is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm.

Representatives of PricewaterhouseCoopers LLP are expected to be present at the meeting and will be given an opportunity to make a statement and to respond to appropriate questions.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 3 TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE CORPORATION FOR FISCAL 2008.