<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1998
REGISTRATION NO. 33-
--------
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DELTA NATURAL GAS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
KENTUCKY 61-0458329
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(606) 744-6171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GLENN R. JENNINGS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DELTA NATURAL GAS COMPANY, INC.
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(606) 744-6171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RUTHEFORD B CAMPBELL, JR., ESQ. JOHN L. GILLIS, JR., ESQ.
STOLL, KEENON & PARK, LLP ARMSTRONG, TEASDALE, SCHLAFLY & DAVIS
201 E. MAIN STREET, SUITE 1000 ONE METROPOLITAN SQUARE
LEXINGTON, KY 40507 ST. LOUIS, MO 63102
(606) 231-3000 (314) 621-5070
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. / /
IF THE REGISTRANT ELECTS TO DELIVER ITS LATEST ANNUAL REPORT TO SECURITY
HOLDERS, OR A COMPLETE AND LEGIBLE FACSIMILE THEREOF, PURSUANT TO ITEM 11(A)(1)
OF THIS FORM, CHECK THE FOLLOWING BOX. / /
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /
--------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF BEING OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER DEBENTURE PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Debentures, due 2018.................. $25,000,000 100% $25,000,000 $7,375
=====================================================================================================================
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE> 2
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE *
* SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR *
* MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT *
* BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR *
* THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE *
* UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS *
* OF ANY SUCH STATE. *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
SUBJECT TO COMPLETION, DATED MARCH 11, 1998
PROSPECTUS
DELTA NATURAL GAS COMPANY, INC.
DELTA
LOGO $25,000,000 % DEBENTURES DUE 2018
The % Debentures due 2018 (the "Debentures") will be issued in the form
of one global security (the "Global Security") registered in the name of the
nominee of The Depository Trust Company (the "Depository"), and such nominee
will be the sole holder of the Debentures. An owner of an interest in the
Debentures ("Beneficial Owner") will not be entitled to the delivery of a
definitive security except in limited circumstances. A Beneficial Owner's
interest in the Global Security will be recorded on and transfers will be
effected only through records maintained by the Depository and its
participants. See "Description of Debentures".
Interest on the Debentures is payable semi-annually on April 1 and October
1 of each year, commencing on October 1, 1998. At the option of any deceased
Beneficial Owner's Representative (as defined below), interests in the
Debentures are redeemable at 100% of their principal amount, plus accrued
interest, at any time, subject to the maximum principal amounts of $25,000 per
deceased Beneficial Owner and $750,000 in the aggregate for all deceased
Beneficial Owners during the initial period ending April 1, 1999 and during
each twelve-month period thereafter, within 60 days after presentment to the
Depository of a satisfactory request for redemption by a deceased Beneficial
Owner's Representative. Otherwise, neither the Company nor a Beneficial Owner
can require redemption of the Debentures until April 1, 2003, although the
Company may, but is not required to, redeem interests in the Debentures
tendered in excess of the above limitations. After April 1, 2003, however,
interests in the Debentures will be redeemable at 100% of the principal amount
redeemed plus accrued interest to the redemption date, in whole or in part, at
the option of the Company. There can be no assurance that a Beneficial Owner's
or a deceased Beneficial Owner's interest in the Debentures will be redeemed
before maturity. The Debentures will be unsecured obligations of the Company
payable out of the Company's general operating funds, and no mandatory sinking
fund will exist to provide for the repayment of the indebtedness represented by
the Debentures. See "Description of Debentures".
The Debentures will be issued in denominations of $1,000 or integral
multiples thereof.
There is no market for the Debentures, and no assurance can be given that
one will develop.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
<TABLE>
<CAPTION>
=================================================================================================================
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSIONS<F1> COMPANY<F2>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture....................................... % % %
- -----------------------------------------------------------------------------------------------------------------
Total........................................... $ $ $
=================================================================================================================
<FN>
<F1> The Company has agreed to indemnify Edward D. Jones & Co., L.P. (the
"Underwriter") against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting".
<F2> Before deduction of expenses payable by the Company estimated at $85,000.
</TABLE>
--------------------------
The Debentures are offered by the Underwriter, subject to prior sale, when,
as and if issued to and accepted by the Underwriter, subject to its right to
reject any order in whole or in part and subject to certain other conditions.
The Debentures will bear interest from the date of delivery of the Global
Security to the Underwriter, which is expected to be on or about
, 1998.
EDWARD D. JONES & CO., L.P.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 with respect to the
securities offered hereby (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"). This Prospectus does not contain all of the
information set forth in such Registration Statement, certain parts of which
are omitted in accordance with the Rules and Regulations of the Commission. For
further information pertaining to these securities and the Company, reference
is made to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy and information statements, and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, 75 Park Place, New York, New York 10007; and Chicago Regional
Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an internet web site that contains reports,
proxy and information statements, and other information regarding the Company,
and the address of such site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have heretofore been filed by the Company
with the Commission pursuant to the Exchange Act, are incorporated by reference
into this Prospectus and shall be deemed to be a part hereof as of their
respective dates:
1. The annual report of the Company on Form 10-K for the fiscal year ended
June 30, 1997.
2. The quarterly reports of the Company on Form 10-Q for the fiscal
quarters ended September 30, 1997, and December 31, 1997.
Any statement contained in a document incorporated by reference herein or
deemed to be incorporated by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which is deemed to be
incorporated herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or
oral request of any such person, a copy of any or all documents incorporated by
reference into this Prospectus (without exhibits other than exhibits
specifically incorporated by reference into such documents). Requests should be
directed to: John F. Hall, Vice President - Finance, Secretary and Treasurer,
Delta Natural Gas Company, Inc., 3617 Lexington Road, Winchester, Kentucky
40391, telephone number (606) 744-6171, Fax number (606) 744-6552.
--------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF DEBENTURES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (and notes thereto) contained
elsewhere in this Prospectus and in the documents incorporated herein by
reference.
THE COMPANY
Delta Natural Gas Company, Inc. ("Delta" or the "Company"), a regulated
public utility organized in 1949, is engaged in the distribution and
transmission of natural gas to approximately 38,000 residential, commercial and
industrial customers in central and southeastern Kentucky. The Company also
owns and operates underground storage facilities and certain oil and gas
production properties and transports gas for others.
The Company plans to continue its efforts to increase its retail customer
base through continued expansion within its existing service areas and will
continue to consider acquisitions of other gas systems. The Company also
anticipates continuing activity in the gas storage, production and
transportation areas and plans to pursue and increase these activities whenever
practicable.
<TABLE>
THE OFFERING
<C> <S>
Debentures Offered..................... $25,000,000 in aggregate principal amount
Maturity............................... April 1, 2018
Interest............................... % payable, semi-annually on each April 1 and October 1, commencing
October 1, 1998
Beneficial Owner's Redemption
Privilege............................ At the option of any deceased Beneficial Owner's Representative,
interests in the Debentures are redeemable at 100% of their
principal amount, plus accrued interest, subject to the maximum
principal amounts of $25,000 per deceased Beneficial Owner and
$750,000 in the aggregate for all deceased Beneficial Owners
during the initial period ending April 1, 1999 and during each
twelve-month period thereafter. See "Description of
Debentures--Limited Right of Redemption upon Death of Beneficial
Owner".
Company's Redemption Privilege......... The Debentures can be redeemed by the Company, in whole or in part,
upon not less than 30 days notice, on or after April 1, 2003, at
100% of the principal amount to be redeemed plus accrued interest
to the redemption date. See "Description of
Debentures--Redemption at the Option of the Company".
Use of Proceeds........................ To redeem the Company's outstanding 9% Debentures due 2011 and to
reduce short-term notes payable.
</TABLE>
3
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain summary consolidated financial
information of the Company and its subsidiaries and the ratio of earnings to
fixed charges as of December 31, 1997 and for the twelve months then ended, and
as of and for each of the three fiscal years ended June 30, 1997. The summary
financial information is qualified by reference to the consolidated financial
statements and other information and data set forth elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE TWELVE FOR THE FISCAL YEARS ENDED JUNE 30,
MONTHS ENDED --------------------------------------------
DECEMBER 31, 1997 1997 1996 1995
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME DATA
Operating Revenues............................ $45,074,546 $42,169,185 $36,576,055 $31,844,339
Operating Income.............................. 6,096,993 5,315,582 5,437,055 4,255,088
Net Income.................................... 2,038,238 1,724,265 2,661,349 1,917,735
Basic Earnings per Common Share............... .87 .75 1.41 1.04
Diluted Earnings per Common Share............. .87 .75 1.41 1.04
Dividends Declared per Common Share........... 1.14 1.14 1.12 1.12
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
ACTUAL AS ADJUSTED<F1>
--------------------- ----------------------
<S> <C> <C> <C> <C>
CAPITALIZATION
Long-Term Debt (Including Current Portion).... $39,530,373 58.3% $54,530,373 65.9%
Common Shareholders' Equity................... 28,255,698 41.7 28,255,698 34.1
----------- ----- ----------- -----
Total Capitalization...................... $67,786,071 100.0% $82,786,071 100.0%
=========== ===== =========== =====
SHORT-TERM NOTES PAYABLE.......................... $19,395,000 $ 5,592,500
=========== ===========
<CAPTION>
FOR THE TWELVE FOR THE FISCAL YEARS ENDED JUNE 30,
MONTHS ENDED -----------------------------------
DECEMBER 31, 1997 1997 1996 1995
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES<F2>
Actual........................................ 1.78x 1.74x 2.50x 2.24x
Pro Forma<F1>................................. 1.75x
<FN>
- --------
<F1> Adjusted to reflect the issuance of the Debentures (at an assumed interest
rate of 7.1%) offered hereby and the application of the estimated net
proceeds of $24,102,500 therefrom. See "Use of Proceeds and Capital
Expenditures".
<F2> The ratio of earnings to fixed charges represents the number of times that
fixed charges are covered by earnings. Earnings for the calculation
consist of net income before income taxes and fixed charges. Fixed charges
consist of interest expense and amortization of debt expense.
</TABLE>
4
<PAGE> 6
RISK FACTORS
Prospective purchasers should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors before purchasing the Debentures offered hereby.
Prospective purchasers should note, in particular, that this Prospectus
contains forward-looking statements and that actual results could differ
materially from those contemplated by such statements. Prospective purchasers
should also refer to the factors discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors That May
Affect Future Results".
FACTORS AFFECTING THE GAS UTILITY INDUSTRY AND THE COMPANY'S OPERATIONS
The natural gas utility industry in general and the Company's operations in
particular are subject to numerous regulations and uncertainties. Issues which
have affected or may affect the Company from time to time include the following:
* Fluctuations in demand attributable to weather (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview");
* New business and operational requirements for gas supply resulting from
changes in federal regulation of interstate pipelines;
* Competition with other sources of gas supply;
* Competition with alternative sources of energy (see
"Business--Distribution and Transmission of Natural Gas");
* Uncertainty in achieving an adequate return on invested capital due to
inflation;
* Difficulty in obtaining rate increases from regulatory authorities in
adequate amounts and on a timely basis (see "Business--Regulatory
Matters");
* Uncertainty in recovery of gas cost (gas supply, pipeline capacity and
storage) through the Gas Cost Recovery clause of Delta's rates (see
"Business--Regulatory Matters");
* Attrition in earnings produced by the combination of increasing expenses
and the costs of new capital which may exceed allowed rates of return;
* The availability of pipeline transportation capacity necessary to secure
supplies of gas;
* Bypass of the Company's intrastate gas transportation system by customers
installing private transmission mains from the interstate transmission
system;
* Volatility in the price of natural gas;
* Increases in construction and operating costs;
* Environmental regulations and costs of environmental remediation;
* The possibility of state regulation requiring the unbundling of various
elements of gas distribution and service (see "Business--Regulatory
Matters");
* Rates and margin for gas transportation service and customer choice of
transportation service without gas sales service (see
"Business--Distribution and Transmission of Natural Gas");
* The possibility of change from cost-based rate regulation; and
* Uncertainty in the projected rate of growth of customers' energy
requirements.
ABSENCE OF PUBLIC MARKET FOR DEBENTURES
There is no public trading market for the Debentures, and the Company does
not intend to apply for listing of the Debentures on any national securities
exchange or for quotation of the Debentures on any automated dealer quotation
system. The Company has been advised by the Underwriter that it presently
intends to make a market in the Debentures after the consummation of the
offering contemplated hereby, although the Underwriter is under no
5
<PAGE> 7
obligation to do so, and may discontinue any market-making activities at any
time without any notice. No assurance can be given as to the liquidity of the
trading market for the Debentures or that an active public market for the
Debentures will develop. If an active public trading market for the Debentures
does not develop, the market price and liquidity of the Debentures may be
adversely affected. If the Debentures are traded, they may trade at a discount
from their initial offering price, depending on prevailing interest rates, the
market for similar securities, performance of the Company, and certain other
factors.
EFFECTS OF WEATHER
The Company's business is influenced by seasonal weather conditions. The
amount of gas sold and transported for central and space heating purposes and,
to a lesser extent, water heating is directly related to the ambient air
temperature. Consequently, more gas is sold and transported during the winter
months than during the summer months, resulting in seasonal differences in
revenues. Because the Company's rates are set based on normal temperatures,
warmer than normal temperatures will have an adverse impact on the Company's
revenues and earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
THE COMPANY
Delta is engaged primarily in the distribution, transmission and storage of
natural gas with its facilities which are located in 20 counties in central and
southeastern Kentucky. Delta serves 38,000 residential, commercial, industrial
and transportation customers and makes transportation deliveries to several
interconnected pipelines.
Unless the context requires otherwise, references to Delta include Delta's
wholly-owned subsidiaries, Delta Resources, Inc. ("Resources"), Delgasco,
Inc. ("Delgasco"), Deltran, Inc. ("Deltran"), Enpro, Inc. ("Enpro") and
TranEx Corporation ("TranEx"). Resources buys gas and resells it to
industrial customers on Delta's system and to Delta for system supply. Delgasco
buys gas and resells it to Resources and to customers not on Delta's system.
Deltran operates an underground natural gas storage field that it leases from
Delta. Enpro owns and operates production properties and undeveloped acreage.
TranEx owns a 43 mile intrastate pipeline. Delta and its subsidiaries are under
common executive management.
Delta's principal executive offices are located at 3617 Lexington Road,
Winchester, Kentucky 40391. Its telephone number is (606) 744-6171, its Fax
number is (606) 744-6552 and its internet address is www.deltagas.com.
SYSTEM MAP
This map displays Delta's service area. The map is an outline of the state
of Kentucky with symbols indicating the location of Delta's corporate office,
branch offices, communities served, storage facilities and transmission lines.
The map also indicates the location of interstate supply lines from which Delta
receives a portion of its supply.
[MAP]
APPEARING AT THIS POINT IS A MAP DISPLAYING DELTA'S SYSTEM. THE MAP IS AN
OUTLINE OF THE STATE OF KENTUCKY WITH SYMBOLS INDICATING THE LOCATION OF
DELTA'S CORPORATE OFFICE, BRANCH OFFICES, COMMUNITIES SERVED, STORAGE
FACILITIES AND TRANSMISSION LINES. THE MAP ALSO INDICATES THE LOCATION OF THE
MAJOR INTERSTATE SUPPLY LINES FROM WHICH DELTA RECEIVES A PORTION OF ITS
SUPPLY.
6
<PAGE> 8
USE OF PROCEEDS AND CAPITAL EXPENDITURES
The net proceeds to Delta from the sale of the Debentures, after deducting
the underwriter's commission and the other expenses of the offering, are
estimated to be approximately $24,102,500 and will be used to (i) redeem
Delta's 9% Debentures due 2011, the outstanding principal amount of which, as
of March 4, 1998, was $10,000,000; (ii) pay an early redemption premium of
$300,000 on the 9% Debentures; and (iii) reduce short-term notes payable, which
at March 4, 1998 were $16,425,000. The short-term notes payable were incurred
pursuant to Delta's bank credit line under a $25,000,000 revolving credit loan
agreement that expires November 15, 1998 and bears interest based, at the
option of the Company, on either the daily prime rate or certain certificate of
deposit rates, which interest rate as of March 4, 1998 was 6.835%. Delta's
short-term notes payable were incurred to provide funds for general operating
expenses and capital expenditures. The capital expenditures were made primarily
for replacement and upgrading of existing facilities, system extensions, and
development of an underground storage field. Delta's capital expenditures were
$16,649,000, $13,373,000 and $8,123,000 in fiscal years 1997, 1996 and 1995,
respectively. For the six months ended December 31, 1997, Delta's capital
expenditures were $7,660,000, and Delta estimates total capital expenditures
for fiscal 1998 at $11,600,000. Capital expenditures for fiscal 1999 are
estimated at $8,000,000 and will be primarily used for system extensions and
the replacement and improvement of existing facilities. Capital expenditures
are financed through internally generated funds and short-term borrowings. Such
borrowings are replaced from time to time with long-term debt and equity
financings, the amount and types of which depend upon the Company's capital
needs and market conditions.
CONSOLIDATED CAPITALIZATION
The following tables set forth the consolidated capitalization and
short-term debt of the Company as of December 31, 1997, and as adjusted to
reflect the issuance of the Debentures offered hereby and the application of
the net proceeds as described in "Use of Proceeds and Capital Expenditures".
This table should be read in conjunction with the Company's consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C> <C> <C>
LONG-TERM DEBT (INCLUDING CURRENT PORTION)
9% Debentures, due 2011........................................... $10,000,000 $ --
6 5/8% Debentures, due 2023....................................... 13,325,000 13,325,000
8.3% Debentures, due 2026......................................... 15,000,000 15,000,000
% Debentures, due 2018.......................................... -- 25,000,000
Other long-term debt.............................................. 1,205,373 1,205,373
----------- -----------
Total long-term debt.......................................... $39,530,373 58.3% $54,530,373 65.9%
----------- -----------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $1 per share
Authorized--6,000,000 shares
Outstanding--2,361,922 shares................................. $ 2,361,922 $ 2,361,922
Premium on common shares.......................................... 27,528,243 27,528,243
Capital stock expense............................................. (1,917,020) (1,917,020)
Retained earnings................................................. 282,553 282,553
----------- -----------
Total common shareholders' equity............................. $28,255,698 41.7% $28,255,698 34.1%
----------- ----- ----------- -----
Total capitalization...................................... $67,786,071 100.0% $82,786,071 100.0%
=========== ===== =========== =====
SHORT-TERM NOTES PAYABLE.............................................. $19,395,000 $ 5,592,500
=========== ===========
</TABLE>
7
<PAGE> 9
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain selected consolidated financial
information of the Company and the ratio of earnings to fixed charges as of
December 31, 1997 and for the twelve months then ended and as of and for each
of the five fiscal years ended June 30, 1997. The selected consolidated
financial information is qualified by reference to the consolidated financial
statements and other information and data set forth elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR
THE TWELVE
MONTHS ENDED AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30,
DECEMBER 31, -------------------------------------------------------------------
1997 1997<Fa> 1996<Fa> 1995 1994<Fb> 1993
------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS ($)
Operating revenues.................. 45,074,546 42,169,185 36,576,055 31,844,339 34,846,941 31,221,410
Operating income.................... 6,096,993 5,315,582 5,437,055 4,255,088 4,850,673 4,791,816
Net income.......................... 2,038,238 1,724,265 2,661,349 1,917,735 2,671,001 2,620,664
Basic earnings per common share..... .87 .75 1.41 1.04 1.50 1.60
Diluted earnings per common share... .87 .75 1.41 1.04 1.50 1.60
Dividends declared per common
share............................. 1.14 1.14 1.12 1.12 1.11 1.09
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING........................... 2,342,910 2,294,134 1,886,629 1,850,986 1,775,068 1,635,945
TOTAL ASSETS ($)........................ 105,259,338 96,681,165 81,140,637 65,948,716 61,932,480 55,129,912
CAPITALIZATION ($)
Common shareholders' equity......... 28,255,698 29,474,569 23,628,323 22,511,513 22,164,791 17,501,045
Long-term debt...................... 37,976,596 38,107,860 24,488,916 23,702,200 24,500,000 19,596,401
Notes payable refinanced subsequent
to year end....................... -- -- 18,075,000 -- -- --
---------- ----------- ---------- ---------- ---------- ----------
Total capitalization................ 66,232,294 67,582,429 66,192,239 46,213,713 46,664,791 37,097,446
========== =========== ========== ========== ========== ==========
SHORT-TERM DEBT ($) <Fc>................ 20,948,777 12,852,600 1,084,800 6,732,700 3,205,000 7,729,000
OTHER ITEMS ($)
Capital expenditures................ 14,236,815 16,648,994 13,373,416 8,122,838 7,374,747 6,289,508
Gross plant......................... 123,913,386 116,829,158 98,795,623 84,944,969 77,882,135 71,187,860
RATIO OF EARNINGS TO FIXED CHARGES<Fd>
Actual.............................. 1.78x 1.74x 2.50x 2.24x 2.89x 2.88x
Pro forma<Fe>....................... 1.75x
<FN>
- --------
<Fa> During July, 1996, $15,000,000 of debentures and 400,000 shares of common
stock were sold, and the proceeds were used to repay short-term debt and
for general corporate purposes. The balance of the note payable at June
30, 1996 ($18,075,000) is included in total capitalization as a result of
the subsequent refinancing.
<Fb> During October, 1993, $15,000,000 of debentures and 170,000 shares of
common stock were sold, and the proceeds were used to repay short-term
debt and to refinance certain long-term debt.
<Fc> Includes current portion of long-term debt.
<Fd> The ratio of earnings to fixed charges represents the number of times that
fixed charges are covered by earnings. Earnings for the calculation
consist of net income before income taxes and fixed charges. Fixed charges
consist of interest expense and amortization of debt expense.
<Fe> As adjusted to reflect the issuance of the Debentures (at an assumed rate
of 7.1%) offered hereby and the application of the net proceeds therefrom.
</TABLE>
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR COMPLETE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY,
SEE PAGES F-1 THROUGH F-13.
OVERVIEW
The Company's utility operations are subject to regulation by the Public
Service Commission of Kentucky ("PSC"), which plays a significant role in
determining the Company's return on equity. The PSC approves rates that are
intended to permit a specified rate of return on investment. The Company's rate
tariffs allow the cost of gas to be passed through to customers. See
"Business--Regulatory Matters".
The Company's business is temperature-sensitive. Accordingly, the Company's
operating results in any given period reflect, in addition to other factors,
the impact of weather, with colder temperatures generally resulting in
increased sales by the Company. The Company anticipates that this sensitivity
to seasonal and weather conditions will continue to be so reflected in the
Company's operating results in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Because of the seasonal nature of Delta's sales, the smallest proportion of
cash generated from operations is received during the warmer months when sales
volumes decrease considerably. Additionally, most construction activity takes
place during the non-heating season because of more favorable weather
conditions. During the warmer, non-heating months, therefore, cash needs for
operations and construction are partially met through short-term borrowings.
Capital expenditures for Delta for fiscal 1998 are expected to be
$11,600,000, of which $7,660,000 was expended during the six months ended
December 31, 1997. Delta generates internally only a portion of the cash
necessary for its capital expenditure requirements and finances the balance of
its capital expenditures on an interim basis through the use of its borrowing
capability under its short-term line of credit. The current available line of
credit is $25,000,000, of which $19,400,000 was borrowed at December 31, 1997.
The line of credit, which is with Bank One, Kentucky, NA, expires during
November, 1998. These short-term borrowings are periodically repaid with the
net proceeds from the sale of long-term debt and equity securities, as was done
in July, 1996 when the net proceeds of $20,400,000 from the sale of $15,000,000
of debentures and 400,000 shares of common stock were used to repay short-term
debt and for working capital.
The primary cash flows during the twelve months ended December 31, 1997 and
the fiscal years ended June 30, 1997, 1996 and 1995 are summarized below:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED FISCAL YEARS ENDED
DECEMBER 31, -----------------------------------------------
1997 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Provided by operating activities............................ $ 5,902,623 $ 6,209,226 $ 3,094,809 $ 6,943,183
Used in investing activities................................ (14,236,815) (16,648,994) (13,373,416) (8,122,838)
Provided by financing activities............................ 8,760,395 10,768,558 10,294,461 1,158,887
------------ ------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents........ $ 426,203 $ 328,790 $ 15,854 $ (20,768)
============ ============ ============ ===========
</TABLE>
Cash provided by operating activities consists of net income and noncash
items including depreciation, depletion, amortization and deferred income
taxes. Additionally, changes in working capital are also included in cash
provided by operating activities. The Company expects that internally generated
cash, coupled with short-term borrowings, will be sufficient to satisfy its
operating, normal capital expenditure and dividend requirements.
9
<PAGE> 11
RESULTS OF OPERATIONS
OPERATING REVENUES
The increase in operating revenues of $2,906,000 for the twelve months
ended December 31, 1997 over fiscal 1997 was due primarily to increases in the
cost of gas purchased that were reflected in rates billed to customers through
Delta's gas cost recovery clause and to the general rate increase effective
November 30, 1997. On-system transportation volumes for the twelve months ended
December 31, 1997 increased 431,000 Mcf, or 15.1% as compared with fiscal 1997.
Retail sales volumes increased 109,000 Mcf, or 2.5%, as heating degree days
billed were 107% of the thirty year average ("normal") degree days for the
twelve months ended December 31, 1997 as compared with 103% for fiscal 1997.
The increase in operating revenues of $5,593,000 for fiscal 1997 was due
primarily to increases in the cost of gas purchased that were reflected in
rates billed to customers through Delta's gas cost recovery clause. This was
partially offset by a decrease in retail sales volumes of 406,000 Mcf as a
result of the warmer winter weather in fiscal 1997. Billed degree days were
103% of normal for fiscal 1997 as compared with 112% for fiscal 1996. In
addition, on-system transportation volumes for fiscal 1997 increased 293,000
Mcf, or 11.4%.
The increase in operating revenues of $4,732,000 for fiscal 1996 was due
primarily to an increase in retail sales volumes of 980,000 Mcf as a result of
the colder winter weather in fiscal 1996. Billed degree days were 112% of
normal for fiscal 1996 as compared with 89% for fiscal 1995. In addition,
on-system transportation volumes for fiscal 1996 increased 180,000 Mcf, or 8%.
These increases were partially offset by decreases in the cost of gas purchased
that were reflected in rates billed to customers through Delta's gas cost
recovery clause and by a decrease in off-system transportation volumes of
318,000 Mcf, or 22%, due primarily to reduced deliveries from local producers.
OPERATING EXPENSES
The increase in purchased gas expense of $1,298,000 for the twelve months
ended December 31, 1997 over fiscal 1997 was due primarily to increases in the
cost of gas purchased for retail sales and increased gas purchases for retail
sales resulting from the colder winter weather during the twelve months ended
December 31, 1997.
The increase in purchased gas expense of $5,875,000 for fiscal 1997 was due
primarily to increases in the cost of gas purchased for retail sales. The
increase was partially offset by the decreased gas purchases for retail sales
resulting from the warmer winter weather in fiscal 1997.
The increase in purchased gas expense of $1,893,000 for fiscal 1996 was due
primarily to the increased gas purchases for retail sales resulting from the
colder winter weather during fiscal 1996. The increase was partially offset by
decreases in the cost of gas purchased for retail sales.
The increase in operation and maintenance expenses of $640,000 during
fiscal 1996 was due primarily to increases in payroll and related benefit
costs.
The increases in depreciation expense during the twelve months ended
December 31, 1997, fiscal 1997 and fiscal 1996 of $266,000, $424,000 and
$327,000, respectively, were due primarily to additional depreciable plant.
The increases in taxes other than income taxes during the twelve months
ended December 31, 1997 over fiscal 1997 and fiscal 1996 over fiscal 1995 of
$105,000 and $173,000, respectively, were primarily due to increased property
taxes which resulted from increased plant and property valuations, and to
increased payroll taxes, which resulted from increased wages.
Changes in income taxes during the twelve months ended December 31, 1997,
fiscal 1997 and fiscal 1996 of approximately $189,000, $595,000 and $517,000,
respectively, were primarily due to changes in net income.
INTEREST CHARGES
The increase in interest on long-term debt during fiscal 1997 of $1,146,000
was due primarily to the issuance during July, 1996 of the $15,000,000 of 8.3%
Debentures due 2026.
The increase in other interest charges of $304,000 during the twelve months
ended December 31, 1997 over fiscal 1997 was due primarily to increased average
short-term borrowings.
10
<PAGE> 12
The decrease in other interest charges during fiscal 1997 of $348,000 was
due primarily to decreased average short-term borrowings as short-term debt was
repaid with the net proceeds from the sale of long-term debt and equity
securities during July, 1996.
The increase in other interest charges during fiscal 1996 of $448,000 was
due primarily to increased average short-term borrowings and increased average
interest rates.
BASIC EARNINGS PER COMMON SHARE
For the twelve months ended December 31, 1997 and fiscal 1997, basic
earnings per common share were diluted, as compared with previous periods, by
the increased average common shares outstanding that resulted from the
additional 400,000 shares of common stock issued in July, 1996, as well as the
common shares issued under Delta's dividend reinvestment plan and shares issued
to employees during the periods.
BALANCE SHEET
The Company experienced significant fluctuations in Balance Sheet line
items on December 31, 1997 compared with June 30, 1997. Those differences were
primarily the result of seasonal changes in Accounts Receivable, Gas in
Storage, Prepayments and Accounts Payable.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations and the other sections of this Prospectus to which it
refers, that are not statements of historical fact, are forward-looking
statements, which concern (among other things) the impact of changes in the
cost of gas, projected capital expenditures, sources of cash to fund
expenditures and regulatory recovery mechanisms. Such statements are
accordingly subject to important risks and uncertainties which could cause the
Company's actual results to differ materially from those expressed in any such
forward-looking statements made herein. The aforesaid uncertainties include,
but are not limited to: uncertainty as to the regulatory allowance of recovery
of changes in the cost of gas, uncertain demands for capital expenditures, the
availability of cash from various sources and uncertainty as to regulatory
approval of the full recovery of costs and regulatory assets. See "Risk
Factors".
THE "YEAR 2000" ISSUE
Many computer systems are currently based on storing two digits to identify
the year of a transaction (for example, "97" for 1997), rather than a full
four digits, and are not programmed to consider the start of a new century.
Significant processing inaccuracies and even inoperability could result in the
year 2000 and thereafter. The Company's principal computer systems are
currently capable of processing the year 2000, or are in the process of being
upgraded or replaced by systems that are similarly capable. The Company does
not expect that the costs of addressing the "Year 2000" issue will have a
material impact on the Company's financial position or results of operations.
11
<PAGE> 13
BUSINESS
SUMMARY OF BUSINESS DEVELOPMENT
In 1951, Delta established its first retail gas distribution system, which
provided service to 300 customers in Owingsville and Frenchburg, Kentucky. As a
result of acquisitions, as well as expansions of its customer base within its
existing service areas, Delta currently provides retail gas distribution
service to 38,000 customers in central and southeastern Kentucky and,
additionally, provides transportation service to industrial customers and
interconnected pipelines located in the area.
During fiscal 1996, Delta acquired leases for 8,000 acres on Canada
Mountain in Bell County, Kentucky, for the storage of natural gas. Delta has
completed the development of the property as an underground natural gas storage
facility with an estimated capacity to store 4,000,000 Mcf of natural gas. This
storage facility permits Delta to purchase and store gas during the non-heating
months and withdraw and sell the gas during the peak usage winter months.
DISTRIBUTION AND TRANSMISSION OF NATURAL GAS
The Company purchases and produces gas for distribution to its retail
customers and also provides transportation service to industrial customers and
inter-connected pipelines with its facilities that are located in 20
predominantly rural counties in central and southeastern Kentucky. The economy
of Delta's service area is based principally on coal mining, farming and light
industry. The communities in Delta's service area typically contain populations
of less than 20,000. The four largest service areas are Nicholasville, Corbin,
Berea and Middlesboro, where Delta serves 6,700, 6,500, 4,000 and 3,700
customers, respectively.
The communities served by Delta continue to expand, resulting in growth
opportunities for the Company. Industrial parks have been developed in certain
areas and have resulted in new industrial customers, some of which are
on-system transportation customers. As a result of this growth, Delta's total
customer count increased by 3.4% for the twelve months ended December 31, 1997.
Currently, over 99% of Delta's customers are residential and commercial.
Delta's remaining, light industrial customers purchased approximately 7% of the
total volume of gas sold by Delta at retail during the twelve months ended
December 31, 1997.
The Company's revenues are affected by various factors, including rates
billed to customers, the cost of natural gas, economic conditions in the areas
that the Company serves, weather conditions and competition. Delta competes for
customers and sales with alternative sources of energy, including electricity,
coal, oil, propane and wood. The Company's marketing subsidiaries, which
purchase gas and resell it to various industrial customers and others, also
compete for their customers with producers and marketers of natural gas. Gas
costs, which the Company is generally able to pass through to customers, may
influence customers to conserve, or, in the case of industrial customers, to
use alternative energy sources. Also, the potential bypass of Delta's system by
industrial customers and others is a competitive concern that Delta has
addressed and will continue to address as the need arises.
Delta's retail sales are seasonal and temperature-sensitive as the majority
of the gas sold by Delta is used for heating. This seasonality impacts Delta's
liquidity position and its management of its working capital requirements
during each twelve month period, and changes in the average temperature during
the winter months impact its revenues year-to-year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Retail gas sales for the twelve months ended December 31, 1997 were
4,408,000 Mcf, generating $34,951,000 in revenues, as compared to 4,299,000 Mcf
and $33,561,000 in revenues for fiscal 1997. Heating degree days billed during
the twelve months ended December 31, 1997 were 107% of normal as compared with
103% in fiscal 1997. Sales volumes increased by 109,000 Mcf, or 2.5%, for the
twelve months ended December 31, 1997 as compared to fiscal 1997.
Delta's transportation of natural gas during the twelve months ended
December 31, 1997 generated revenues of $4,124,000 as compared with $3,596,000
during fiscal 1997. Of the total transportation for the twelve months ended
December 31, 1997, $3,686,000 (3,294,000 Mcf) and $438,000 (1,372,000 Mcf) were
earned for transportation for on-
12
<PAGE> 14
system and off-system customers, respectively. Of the total transportation for
fiscal 1997, $3,214,000 (2,863,000 Mcf) and $382,000 (1,205,000 Mcf) were
earned for transportation for on-system and off-system customers, respectively.
As an active participant in many areas of the natural gas industry, Delta
plans to continue its efforts to expand its gas distribution system. Delta
continues to consider acquisitions of other gas systems, some of which are
contiguous to its existing service areas, as well as expansion within its
existing service areas. During November, 1996, Delta acquired the City of North
Middletown gas system in Bourbon County, consisting of 180 primarily
residential customers. During July, 1997, Delta purchased the gas system of
Annville Gas & Transmission Corporation in Jackson County, which serves several
industrial and residential customers. This system was expanded by Delta during
the first part of fiscal 1998 to provide gas service to customers in the City
of Annville.
The Company also anticipates continuing activity in gas production and
transportation and plans to pursue and increase these activities wherever
practicable. The Company will continue to consider the construction or
acquisition of additional transmission, storage and gathering facilities to
provide for increased transportation, enhanced supply and system flexibility.
During June, 1997, Delta acquired TranEx Corporation, which owns a 43 mile, 8
inch diameter steel pipeline that extends from Clay County to Madison County.
Delta is utilizing the pipeline to deliver natural gas for injection into its
Canada Mountain storage field as well as for a portion of Delta's system
supply.
13
<PAGE> 15
OPERATING STATISTICS
Set forth in the following table is information indicative of Delta's
business during the periods indicated.
<TABLE>
<CAPTION>
FOR THE
TWELVE MONTHS
ENDED FOR THE FISCAL YEARS ENDED JUNE 30,
DECEMBER 31, --------------------------------------------------
1997 1997 1996 1995 1994 1993
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
RETAIL CUSTOMERS SERVED, END OF PERIOD
Residential................................................ 32,637 31,380 29,840 29,029 27,939 27,293
Commercial................................................. 5,081 4,761 4,453 4,287 4,242 4,093
Industrial................................................. 71 74 75 72 76 75
------ ------- ------- ------- ------- -------
Total.................................................. 37,789 36,215 34,368 33,388 32,257 31,461
------ ------- ------- ------- ------- -------
OPERATING REVENUES ($000)
Residential sales.......................................... 20,526 19,694 16,540 14,772 16,597 14,578
Commercial sales........................................... 12,449 11,977 9,788 8,673 9,663 8,269
Industrial sales........................................... 1,976 1,890 1,483 1,248 1,671 1,383
On-system transportation................................... 3,686 3,214 2,913 2,588 2,310 2,451
Off-system transportation.................................. 438 382 418 461 623 836
Subsidiary sales........................................... 5,889 4,904 5,297 3,959 3,755 3,532
Other...................................................... 111 108 137 143 228 172
------ ------- ------- ------- ------- -------
Total.................................................. 45,075 42,169 36,576 31,844 34,847 31,221
------ ------- ------- ------- ------- -------
SYSTEM THROUGHPUT (MILLION CU. FT.)
Residential sales.......................................... 2,528 2,464 2,741 2,173 2,511 2,341
Commercial sales........................................... 1,591 1,557 1,673 1,328 1,506 1,368
Industrial sales........................................... 289 278 291 223 316 281
------ ------- ------- ------- ------- -------
Total retail sales..................................... 4,408 4,299 4,705 3,724 4,333 3,990
On-system transportation................................... 3,294 2,863 2,570 2,390 2,186 2,248
Off-system transportation.................................. 1,372 1,205 1,134 1,452 1,997 2,668
------ ------- ------- ------- ------- -------
Total.................................................. 9,074 8,367 8,409 7,566 8,516 8,906
------ ------- ------- ------- ------- -------
AVERAGE ANNUAL CONSUMPTION PER END
OF PERIOD RESIDENTIAL CUSTOMER
(THOUSAND CU. FT.)........................................... 77 79 92 75 90 86
LEXINGTON, KENTUCKY DEGREE DAYS
Actual..................................................... 5,073 4,869 5,280 4,215 4,999 4,688
Percent of 30 year average (4,727)......................... 107.3 103.0 111.7 89.2 105.8 99.2
AVERAGE REVENUE PER MCF SOLD AT RETAIL ($)..................... 7.93 7.81 5.91 6.63 6.44 6.07
AVERAGE GAS COST PER MCF SOLD AT RETAIL ($).................... 4.73 4.62 2.81 3.37 3.34 2.90
</TABLE>
14
<PAGE> 16
GAS SUPPLY
Delta receives its gas supply from a combination of interstate and Kentucky
sources.
Delta's interstate gas supply is transported and/or stored by Tennessee Gas
Pipeline Company ("Tennessee"), Columbia Gas Transmission Corporation
("Columbia"), Columbia Gulf Transmission Company ("Columbia Gulf") and
Texas Eastern Transmission Corporation ("Texas Eastern"). Delta acquires its
interstate gas supply from gas marketers.
Delta's agreements with Tennessee extend until 2000 and thereafter continue
on a year-to-year basis until terminated by either party. Tennessee is
obligated under the agreements to transport up to 17,600 Mcf per day for Delta.
Delta acquires its gas for transportation by Tennessee under an agreement with
a gas marketer. During the twelve months ended December 31, 1997, Delta
purchased 1,806,000 Mcf from the gas marketer under an agreement that extends
through April, 1999.
Delta's agreements with Columbia and Columbia Gulf extend until 2008 and
thereafter continue on a year-to-year basis until terminated by one of the
parties to the particular agreement. Columbia and Columbia Gulf are obligated
under the agreements to transport up to 12,000 Mcf per day and 4,000 Mcf per
day, respectively, for Delta. Delta acquires its gas for transportation by
Columbia and Columbia Gulf under agreements with a gas marketer. During the
twelve months ended December 31, 1997, Delta purchased a total of 909,000 Mcf
from the gas marketer under agreements that extend through April, 2000.
Delta has an agreement with The Wiser Oil Company ("Wiser") to purchase
natural gas from Wiser through October, 1999. Delta and Wiser annually
determine the daily deliverability from Wiser, and Wiser is committed to
deliver that volume. Wiser currently is obligated to deliver 9,900 Mcf per day
to Delta through October 31, 1998 and 8,910 Mcf per day on and after November
1, 1998. Delta purchased 1,670,000 Mcf from Wiser during the twelve months
ended December 31, 1997.
Delta has agreements with Enpro to purchase all the natural gas produced
from Enpro's wells on certain leases in Bell, Knox and Whitley Counties,
Kentucky. These agreements remain in force so long as gas is produced in
commercial quantities from the wells on the leases. Remaining proved, developed
natural gas reserves are estimated at 4,400,000 Mcf. Delta purchased a total of
198,000 Mcf from those properties during the twelve months ended December 31,
1997. Enpro also produces oil from certain of these leases, but oil production
has not been significant.
Delta purchases gas under agreements with various marketers and Kentucky
producers. The combined volumes of gas purchased from these sources during the
twelve months ended December 31, 1997 were 55,000 Mcf.
Resources and Delgasco purchase gas under agreements with marketers and
Kentucky producers. The gas is resold to industrial customers on Delta's
system, to Delta for system supply and to others. The combined volumes of gas
purchased by Resources and Delgasco from these sources during the twelve months
ended December 31, 1997 were 2,965,000 Mcf.
Delta has completed the development of an underground natural gas storage
field with an estimated eventual working capacity of 4,000,000 Mcf. See
"Business--Properties". This field has been used to provide a portion of
Delta's winter supply needs since 1996. This storage capability permits Delta
to purchase and store gas during the non-heating months, and then withdraw and
sell the gas during the peak usage months.
Although there are competitors for the acquisition of gas supplies, Delta
continues to seek additional new gas supplies from all available sources,
including those in the proximity of its facilities in southeastern Kentucky.
Also, Resources and Delgasco continue to pursue acquisitions of new gas
supplies from Kentucky producers and others.
Some producers in Delta's service area can access certain pipeline delivery
systems other than Delta, which provides competition from others for
transportation of such gas. Delta will continue its efforts to purchase or
transport any natural gas available that is produced in reasonable proximity to
its facilities. Delta will continue to maintain an active gas supply management
program that emphasizes long-term reliability and the pursuit of cost effective
sources of gas for its customers.
15
<PAGE> 17
REGULATORY MATTERS
Delta is subject to the regulatory authority of the Public Service
Commission of Kentucky ("PSC") with respect to various aspects of Delta's
business, including rates and service to retail and transportation customers.
The Company monitors the need to file a general rate case as a way to adjust
its sales prices. Delta currently has no general rate cases filed with the PSC.
The history of Delta's general rate cases since 1985 is as follows:
<TABLE>
<CAPTION>
ANNUAL
REVENUE ANNUAL REVENUE INCREASE APPROVED TEST YEAR AUTHORIZED
DATE OF INCREASE -------------------------------- (TWELVE MONTHS RETURN ON
APPLICATION REQUESTED DATE EFFECTIVE AMOUNT ENDED) COMMON EQUITY
- ------------------ ----------- ------------------ ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
May 31, 1985 $ 1,600,000 November 15, 1985 $ 452,000 March 31, 1985 15.0%
December 30, 1985 $ 77,000
January 28, 1986 $ 154,000
December 14, 1990 $ 2,937,000 May 23, 1991 $2,050,000 June 30, 1990 <Fa>
March 14, 1997 $ 2,962,000 November 30, 1997 $1,670,000<Fb> December 31, 1996 11.6%<Fc>
<FN>
- --------
<Fa> Delta requested a 14% return on common equity. The rate case was settled
with all intervenors and approved by the PSC. No specific return on common
equity was stated in the settlement.
<Fb> The PSC has granted a rehearing, scheduled for April 2, 1998, on
tax-related items that could result in $157,000 of additional annual
revenues.
<Fc> Delta requested a 13% return on common equity.
</TABLE>
Delta currently has a Gas Cost Recovery ("GCR") clause, which permits
changes in Delta's gas costs to be reflected in the rates charged to customers.
The GCR requires Delta to make quarterly filings with the PSC, but such
procedure does not require a general rate case. Although the PSC is allowing
Delta through its GCR clause to recover its costs in connection with its
recently developed storage facilities on Canada Mountain (see
"Business--Summary of Business Development"), this recovery through rates,
which amounts to approximately $0.56 per Mcf, is currently under review by the
PSC and thus is currently being billed to Delta's customers subject to refund.
Delta can currently predict neither the outcome of this review nor the impact on
Delta's rates, if any.
During 1997, the PSC established a proceeding to investigate affiliate
transactions. Delta is a party to this proceeding, and Delta responded to a PSC
data request relating to Delta's subsidiaries. Delta can currently predict
neither the outcome of this proceeding nor the impact on Delta's rates, if any.
The PSC convened meetings during 1997 with various regulated utilities and
other interested parties to discuss the potential unbundling of natural gas
rates and services in Kentucky. Delta participated actively in these meetings
and plans to continue to provide comments in future discussions concerning
regulatory and legislative issues relating to unbundling.
In addition to PSC regulation, Delta may obtain non-exclusive franchises
from the cities and communities in which it operates authorizing it to place
its facilities in the streets and public grounds. However, no utility may
obtain a franchise until it has obtained from the PSC a Certificate of
Convenience and Necessity authorizing it to bid on the franchise. Delta holds
franchises in four of the ten cities in which it maintains branch offices and
in seven other communities it serves. In the other cities and communities
served by the Company, either Delta's franchises have expired, the communities
do not have governmental organizations authorized to grant franchises, or the
local governments have not required or do not want to offer a franchise. Delta
attempts to acquire or reacquire franchises whenever feasible.
Without a franchise, a local government could require Delta to cease its
occupation of the streets and public grounds or prohibit Delta from extending
its facilities into any new area of that city or community. To date, the
absence of a franchise has had no adverse effect on Delta's operations.
16
<PAGE> 18
PROPERTIES
Delta owns its corporate headquarters in Winchester, Kentucky. In addition,
Delta owns buildings used for branch operations in nine of the cities it serves
and rents an office building in one other city. Also, Delta owns a building in
Laurel County used for training as well as equipment and materials storage.
The Company owns approximately 1,960 miles of natural gas gathering,
transmission, distribution and service lines. These lines range in size up to
twelve inches in diameter. There are no significant encumbrances on these
assets.
Delta holds leases for the storage of natural gas under approximately 8,000
acres located in Bell County, Kentucky. This property was developed for the
underground storage of natural gas and has an estimated capacity to store
4,000,000 Mcf of gas.
Delta owns the rights to any oil and gas underlying approximately 3,500
acres in Bell County. Portions of these properties are used by Delta for the
storage of natural gas. The maximum capacity of the storage facilities is
550,000 Mcf. These properties otherwise are currently non-producing, and no
reserve studies have been undertaken on the properties.
Enpro owns interests in certain oil and gas leases relating to
approximately 11,000 acres located in Bell, Knox and Whitley Counties. There
presently are 56 gas wells and 7 oil wells producing from these properties.
Enpro's remaining proved, developed natural gas reserves are estimated at
4,400,000 Mcf. Oil production from the property has not been significant. Also,
Enpro owns the oil and gas underlying 11,500 additional acres in Bell, Clay and
Knox Counties. These properties are currently non-producing, and no reserve
studies have been performed on the properties.
Under the terms of an agreement with a producer relating to approximately
14,000 acres of Enpro's undeveloped holdings, the producer is conducting
exploration activities on the acreage. Enpro reserved the option to participate
in wells drilled and also retained certain working and royalty interests in any
production from future wells.
There are no significant encumbrances on the Company's assets.
EMPLOYEES
On December 31, 1997, Delta had 181 full-time employees. Delta considers
its relationship with its employees to be satisfactory. Delta's employees are
not represented by unions or subject to any collective bargaining agreements.
LEGAL PROCEEDINGS
Delta and its subsidiaries are not parties to any legal proceedings which
are expected to have a materially adverse impact on the financial condition or
results of operations of the Company.
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<PAGE> 19
DESCRIPTION OF DEBENTURES
GENERAL
The Debentures are to be issued under an Indenture dated as of March 1,
1998 (the "Indenture"), by and between the Company and The Fifth Third Bank,
Cincinnati, Ohio, as Trustee. A copy of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
terms of the Debentures include those stated in the Indenture and those made a
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act") as in effect on the date of the Indenture. Potential
investors are referred to the Indenture and the Trust Indenture Act for a
statement of such terms. The following statements relating to the Debentures
and certain provisions of the Indenture are summaries, do not purport to be
complete, and are subject to and are qualified in their entirety by reference
to the provisions of the Indenture. Unless otherwise stated, capitalized terms
defined in the Indenture have the same meanings when used herein.
The Company does not intend to list the Debentures on a national securities
exchange. There is presently no trading market for the Debentures, and there
can be no assurance that such a market will develop or, if developed, that it
will be maintained.
BOOK-ENTRY ONLY SYSTEM
The Debentures will be issued in the aggregate initial principal amount of
$25,000,000 and will be represented by one certificate (the "Global
Security") to be registered in the name of the nominee of The Depository Trust
Company ("DTC") or any successor depository (the "Depository"). The
Depository will maintain the Debentures in denominations of $1,000 and integral
multiples thereof through its book-entry facilities. In accordance with its
normal procedures, the Depository will record the interests of each Depository
participating firm (e.g., brokerage firm) ("Participant") in the Debentures,
whether held for its own account or as a nominee for another person.
So long as the nominee of the Depository is the registered owner of the
Debentures, such nominee will be considered the sole owner or holder of the
Debentures for all purposes under the Indenture and any applicable laws, except
as noted below. A Beneficial Owner, as hereinafter defined, of interests in the
Debentures will not be entitled to receive a physical certificate representing
such ownership interest and will not be considered an owner or holder of the
Debentures under the Indenture, except as otherwise provided below. A
Beneficial Owner is the person who has the right to sell, transfer or otherwise
dispose of an interest in the Debentures and the right to receive the proceeds
therefrom, as well as interest and principal payable in respect thereof. A
Beneficial Owner's interest in the Debentures will be recorded, in integral
multiples of $1,000, on the records of the Participant that maintains such
Beneficial Owner's account for such purpose. In turn, the Participant's
interest in such Debentures will be recorded, in integral multiples of $1,000,
on the records of the Depository. Therefore, the Beneficial Owner must rely on
the foregoing arrangements to evidence its interest in the Debentures.
Beneficial ownership of the Debentures may be transferred only by compliance
with the procedures of a Beneficial Owner's Participant (e.g., brokerage firm)
and the Depository.
All rights of ownership must be exercised through the Depository and the
book-entry system, except that a Beneficial Owner is entitled to exercise
directly its rights under Section 316(b) of the Trust Indenture Act with
respect to the payment of interest and principal on the Debentures. Notices
that are to be given to registered owners by the Company or the Trustee will be
given only to the Depository. It is expected that the Depository will forward
the notices to the Participants by its usual procedures, so that such
Participants may forward such notices to the Beneficial Owners. Neither the
Company nor the Trustee will have any responsibility or obligation to assure
that any notices are forwarded by the Depository to the Participants or by any
Participants to the Beneficial Owners.
DTC has advised the Company and the Underwriter as follows: DTC is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities of Participants and facilitates the clearance and settlement
of securities transactions among Participants in such securities transactions
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers (including the
Underwriter), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks,
18
<PAGE> 20
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by DTC only through
Participants.
INTEREST AND PAYMENT
The Debentures will mature on April 1, 2018. The Debentures will bear
interest from the date of issuance at the rate per annum stated on the cover
page hereof, calculated on the basis of a 360-day year of twelve 30-day months,
payable semi-annually on April 1 and October 1 of each year, commencing October
1, 1998 to the Persons in whose names the Debentures are registered at the
close of business on the 15th day of the month prior to such Interest Payment
Date. If any payment date would otherwise be a day that is a Legal Holiday, the
payment will be postponed to the next day that is not a Legal Holiday, and no
interest on such payment shall accrue for the period from and after such
otherwise scheduled payment date for the purposes of the payment to be made on
such next succeeding day.
So long as the nominee of the Depository is the registered owner of the
Debentures, payments of interest and principal in respect of the Debentures
will be made to the Depository. The Depository will be responsible for
crediting the amount of such distributions to the accounts of the Participants
entitled thereto, in accordance with the Depository's normal procedures. Each
Participant will be responsible for disbursing such distributions to the
Beneficial Owners of the interests in Debentures that it represents. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to, notices to, or payments made on account of,
beneficial ownership interests in the Debentures; maintaining, supervising or
reviewing any records relating to such beneficial ownership interests; the
selection of any Beneficial Owner to receive payment in the event of a partial
redemption of the Global Security; or consents given or other action taken on
behalf of any Beneficial Owner.
REDEMPTION AT THE OPTION OF THE COMPANY
The Debentures will be redeemable at any time on or after April 1, 2003, as
a whole or in part, at the election of the Company, at a Redemption Price equal
to 100% of the principal amount thereof plus accrued interest to the Redemption
Date.
If less than all the Debentures are redeemed, the particular Debentures to
be redeemed will be selected by the Trustee by lot.
Notice of redemption will be mailed at least 30 days before the Redemption
Date to each holder of Debentures to be redeemed at the holder's registered
address. The Company has the right to rescind any notice of redemption at any
time at least five days prior to the Redemption Date.
On and after the Redemption Date, interest will cease to accrue on
Debentures or portions thereof called for redemption, unless the Company shall
default in the payment of the Redemption Price.
LIMITED RIGHT OF REDEMPTION UPON DEATH OF BENEFICIAL OWNER
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Beneficial Owner has the right to request redemption at
par of all or part of his interest expressed in integral multiples of $1,000
principal amount, in the Debentures for payment prior to maturity, and the
Company will redeem the same subject to the limitations that the Company will
not be obligated to redeem during the period from the original issuance of the
Debentures through and including April 1, 1999 (the "Initial Period"), and
during any twelve-month period which ends on and includes each April 1
thereafter (each such twelve-month period being hereinafter referred to as a
"Subsequent Period") (i) on behalf of a deceased Beneficial Owner any
interest in the Debentures which exceeds an aggregate principal amount of
$25,000 or (ii) interests in the Debentures in an aggregate principal amount
exceeding $750,000. A request for redemption may be presented to the Trustee by
the Representative of a Deceased Beneficial Owner at any time and in any
principal amount. Representatives of deceased Beneficial Owners must make
arrangements with the Participant through whom such interest is owned in order
that timely presentation of redemption requests can be made by the Participant
and, in turn, by the Depository to the Trustee. If the Company, although not
obligated to do so, chooses to redeem interests of a deceased Beneficial Owner
in the Debentures in the Initial Period or in any Subsequent Period in excess
of the $25,000 limitation, such redemption, to the extent that it exceeds the
$25,000
19
<PAGE> 21
limitation for any deceased Beneficial Owner, shall not be included in the
computation of the $750,000 aggregate limitation for such Initial Period or
such Subsequent Period, as the case may be, or for any succeeding Subsequent
Period.
Subject to the $25,000 and the $750,000 limitations, the Company will upon
the death of any Beneficial Owner redeem the interest of the Beneficial Owner
in the Debentures within 60 days following receipt by the Trustee of a
Redemption Request, as hereinafter defined, from such Beneficial Owner's
personal representative, or surviving joint tenant(s), tenant(s) by the
entirety or tenant(s) in common, or other persons entitled to effect such a
Redemption Request (each, a "Representative"). If Redemption Requests exceed
the aggregate principal amount of interests in Debentures required to be
redeemed during the Initial Period or any Subsequent Period, then such excess
Redemption Requests will be applied to successive Subsequent Periods,
regardless of the number of Subsequent Periods required to redeem such
interests.
A request for redemption of an interest in the Debentures may be made by
delivering a request to the Participant through whom the deceased Beneficial
Owner owned such interest, in form satisfactory to the Participant, together
with evidence of the death of the Beneficial Owner and evidence of the
authority of the Representative satisfactory to the Participant and Trustee. A
Representative of a deceased Beneficial Owner may make the request for
redemption and shall submit such other evidence of the right to such redemption
as the Participant or Trustee shall require. The request shall specify the
principal amount of interest in the Debentures to be redeemed. A request for
redemption in form satisfactory to the Participant and accompanied by the
documents relevant to the request as above provided, together with a
certification by the Participant that it holds the interest on behalf of the
deceased Beneficial Owner with respect to whom the request for redemption is
being made (a "Redemption Request"), shall be provided to the Depository by a
Participant, and the Depository will forward the request to the Trustee.
Redemption Requests shall be in form satisfactory to the Trustee.
The price to be paid by the Company for an interest in the Debentures to be
redeemed pursuant to a request on behalf of a deceased Beneficial Owner is one
hundred percent (100%) of the principal amount thereof plus accrued but unpaid
interest to the date of payment. Subject to arrangements with the Depository,
payment for interests in the Debentures which are to be redeemed shall be made
to the Depository upon presentation of Debentures to the Trustee for redemption
in the aggregate principal amount specified in the Redemption Requests
submitted to the Trustee by the Depository which are to be fulfilled in
connection with such payment. Any acquisition of Debentures by the Company or
its Subsidiaries other than by redemption at the option of any Representative
of a deceased Beneficial Owner shall not be included in the computation of
either the $25,000 or the $750,000 limitation for the Initial Period or for any
Subsequent Period.
Interests in the Debentures held in tenancy by the entirety, joint tenancy
or by tenants in common will be deemed to be held by a single Beneficial Owner,
and the death of a tenant in common, tenant by the entirety or joint tenant
will be deemed the death of a Beneficial Owner. The death of a person who,
during such person's lifetime, was entitled to substantially all of the rights
of a Beneficial Owner of an interest in the Debentures will be deemed the death
of the Beneficial Owner, regardless of the recordation of such interest on the
records of the Participant, if such rights can be established to the
satisfaction of the Participant and the Trustee. Such interest shall be deemed
to exist in typical cases of nominee ownership, ownership under the Uniform
Gifts to Minors Act or the Uniform Transfers to Minors Act, community property
or other joint ownership arrangements between a husband and wife (including
individual retirement accounts or Keogh [H.R.10] plans maintained solely by or
for the decedent or by or for the decedent and any spouse), and trust and
certain other arrangements where one person has substantially all of the rights
of a Beneficial Owner during such person's lifetime.
In the case of a Redemption Request which is presented on behalf of a
deceased Beneficial Owner and which has not been fulfilled at the time the
Company gives notice of its election to redeem the Debentures, the interests in
the Debentures which are the subject of such Redemption Request shall not be
eligible for redemption pursuant to the Company's option to redeem but shall
remain subject to redemption pursuant to such Redemption Request.
Subject to the provisions of the immediately preceding paragraph, any
Redemption Request may be withdrawn upon delivery of a written request for such
withdrawal given to the Trustee by the Depository prior to payment for
redemption of the interest in the Debentures by reason of the death of a
Beneficial Owner.
20
<PAGE> 22
The Company is legally obligated to redeem Debentures and interests of
Beneficial Owners therein properly presented for redemption pursuant to a
Redemption Request in accordance with and subject to the terms, conditions and
limitations of the Indenture, as summarized above. The Company's redemption
obligation is not cumulative. Nothing in the Indenture prohibits the Company
from redeeming, in fulfillment of Redemption Requests made pursuant to the
Indenture, Debentures or interests therein of Beneficial Owners in excess of
the principal amount the Company is obligated to redeem, nor does anything in
the Indenture prohibit the Company from purchasing any Debentures or interests
therein in the open market. However, the Company may not use any Debentures
redeemed or purchased as described in the immediately preceding sentence as a
credit against its redemption obligation.
Because of the limitations of the Company's requirement to redeem, no
Beneficial Owner can have any assurance that its interest in the Debentures
will be paid prior to maturity.
SINKING FUND; NON-CONVERTIBILITY
The Debentures are not subject to a sinking fund and are not convertible.
DEBENTURES UNSECURED
The Debentures will be unsecured obligations and will rank on a parity with
all of the other unsecured and unsubordinated Indebtedness of the Company
outstanding from time to time. Subject only to the restrictive covenants
described below (see "Restrictive Covenants"), the Indenture does not limit
the amount of Indebtedness which the Company or its Subsidiaries may incur.
RESTRICTIVE COVENANTS
The Company covenants in the Indenture that neither the Company nor any of
its Subsidiaries will create, issue, incur, guarantee or assume any Funded
Indebtedness which ranks prior to or on a parity with the Debentures in right
of payment, unless immediately thereafter, and after giving effect thereto and
to the application of the proceeds thereof, Consolidated Net Utility Fixed
Assets are at least equal to Consolidated Funded Indebtedness. Consolidated Net
Utility Fixed Assets is defined in the Indenture to include the net book value
(determined in accordance with generally accepted accounting principles) of all
physical property of the Company and any Subsidiary used or useful to the
Company or such Subsidiary in the business of furnishing or distributing, as a
public utility, gas service. Funded Indebtedness is defined in the Indenture as
all Indebtedness other than Current Indebtedness and would include the
Debentures. Consolidated Funded Indebtedness is defined to include Funded
Indebtedness of the Company and Funded Indebtedness of Consolidated
Subsidiaries. At December 31, 1997, after giving effect to the issuance of the
Debentures offered hereby, and the application of the proceeds therefrom,
Consolidated Net Utility Fixed Assets would have exceeded Consolidated Funded
Indebtedness by $36,131,000.
The Company also covenants that it will not declare or pay any dividends or
make any other distribution upon its Common Stock (other than dividends and
distributions payable only in shares of Common Stock) and will not directly or
indirectly apply any of the assets of the Company to the redemption,
retirement, purchase or other acquisition of any stock of the Company of any
class, except purchases or redemptions in compliance with any mandatory sinking
fund or purchase fund or redemption requirement in respect of any preferred
stock of the Company, whether now or hereafter authorized or issued, unless
after giving effect to such declaration, payment, distribution or application
of assets the Consolidated Tangible Net Worth of the Company shall be at least
equal to $21,500,000 as reflected on the Company's latest available balance
sheet. Consolidated Tangible Net Worth is defined in the Indenture as the
shareholders' equity of the Company, less intangible assets. At December 31,
1997, after giving effect to the issuance of the Debentures, the Consolidated
Tangible Net Worth of the Company would have been $28,255,698.
Subject to certain exceptions described in the Indenture (including Liens
to secure Indebtedness having an outstanding principal balance aggregating not
more than $4,000,000), the Company also covenants that it will not issue,
assume or guarantee any Indebtedness secured by a Lien (as defined in the
Indenture) on any property or asset at any time owned by it, without
effectively securing, prior to or concurrently with the issuance, assumption or
guarantee of any such Indebtedness, the Debentures equally and ratably with
(or, at the Company's option, prior to) such Indebtedness.
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<PAGE> 23
Except as described in the preceding three paragraphs, the Indenture does
not afford any protection to holders of Debentures solely on account of the
Company's involvement in highly leveraged transactions.
SUCCESSOR CORPORATION
The Company covenants in the Indenture that it will not consolidate with,
merge into or transfer or lease all or substantially all of its assets to
another Person, unless immediately after such transaction no Default will
exist, such Person assumes all the obligations of the Company under the
Debentures and the Indenture, and certain other requirements are met.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following constitute events of default under the Indenture: (a) default
in the payment of principal of the Debentures when due; (b) default in the
payment of any interest on the Debentures when due, continued for 30 days; (c)
default in the performance of any other agreement of the Company in the
Debentures or the Indenture, continued for 60 days after written notice; (d)
acceleration of certain indebtedness of the Company or its Subsidiaries for
borrowed money under the terms of any instrument under which indebtedness of
$100,000 or more is issued or secured; and (e) certain events in bankruptcy,
insolvency or reorganization.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, give the holders of Debentures notice of all
continuing defaults (as defined) known to it; but, except in the case of a
default in the payment of the principal or interest in respect of any of the
Debentures, the Trustee shall be protected in withholding such notice if it in
good faith determines that the withholding of such notice is in the interests
of such holders.
If any event of default shall occur and be continuing, the Trustee or the
holders of at least 25% in principal amount of then outstanding Debentures may
declare the Debentures immediately due and payable. Any such acceleration may
be rescinded by the holders of a majority in principal amount of the Debentures
then outstanding, upon the conditions provided in the Indenture.
An existing default and its consequences may be waived by the holders of a
majority in principal amount of the Debentures, upon the conditions provided in
the Indenture, other than an uncured default in payment of principal or
interest in respect of the Debentures, an uncured failure to make any
redemption payment or an uncured default with respect to a provision which
cannot be modified under the terms of the Indenture without the consent of each
holder affected.
The Indenture includes a covenant that the Company will file annually with
the Trustee, within 120 days after the end of each fiscal year, a statement
regarding compliance by the Company with the terms thereof and specifying any
defaults by the Company of which the signers may have knowledge.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture which materially affect the
rights of the holders of the Debentures may be made by the Company and the
Trustee only with the consent of the holders of not less than a majority in
principal amount of the Debentures then outstanding; provided that no such
modification or amendment may change the stated maturity of any Debenture, or
reduce the principal amount of or interest rate on any Debenture or change the
interest payment date or otherwise modify the terms of payment of the principal
of or interest on the Debentures, or reduce the percentage required for any
consent, waiver or modification, or modify certain other provisions of the
Indenture, without the consent of each holder of any Debenture affected
thereby.
DISCHARGE OF THE INDENTURE
The Indenture will be discharged and canceled upon payment of all the
Debentures or upon deposit with the Trustee, within no more than one year prior
to the maturity or the redemption of all the Debentures, of funds or U.S.
Government Obligations sufficient to pay the principal of and premium, if any,
and interest on the Debentures.
TRUSTEE
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during default to act with the required standard of care,
to be indemnified by the holders of Debentures before proceeding to exercise
any right or power under the Indenture at the request of the holders of
Debentures. The Indenture provides that the holders of a majority in principal
amount of the outstanding Debentures may direct the time, method and place of
22
<PAGE> 24
conducting any proceeding and any remedy available to the Trustee or exercising
any trust or power conferred upon the Trustee.
The Fifth Third Bank ("Fifth Third"), the Trustee and Debenture Registrar
under the Indenture, has its corporate trust office in Cincinnati, Ohio. Fifth
Third serves as Registrar, Transfer Agent and Dividend Disbursement Agent for
Delta's Common Stock, Agent for Delta's Dividend Reinvestment and Stock
Purchase Plan, as well as Trustee and Debenture Registrar for Delta's 8.3%
Debentures due 2026.
UNDERWRITING
Edward D. Jones & Co., L.P. (the "Underwriter") has agreed, subject to
the terms and conditions of the Underwriting Agreement, the form of which is
filed as an exhibit to the Registration Statement, to purchase from the Company
the Debentures.
The Underwriting Agreement provides that the obligations of the Underwriter
to pay for and accept delivery of the Debentures are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter is obligated to take and pay for all of the Debentures offered
hereby if any are taken.
The Underwriter has advised the Company that it proposes to offer the
Debentures being purchased by it directly to the public at the initial public
offering price set forth on the cover page of this Prospectus.
Until the distribution of the Debentures is completed, rules of the
Commission may limit the ability of the Underwriter to bid for and purchase the
Debentures. As an exception to these rules, the Underwriter is permitted to
engage in certain transactions that stabilize the price of the Debentures. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Debentures.
If the Underwriter creates a short position in the Debentures in connection
with the Offering, i.e., if it sells more Debentures than are set forth on the
cover page of this Prospectus, the Underwriter may reduce that short position
by purchasing Debentures in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the securities.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Debentures. In addition, neither
the Company nor the Underwriter makes any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced,
will not be discontinued without notice.
The offering of the Debentures is made for delivery when, as and if
accepted by the Underwriter and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriter
reserves the right to reject any order for the purchase of Debentures in whole
or in part.
The Company has agreed to indemnify the Underwriter and persons who control
the Underwriter against certain liabilities that may be incurred in connection
with the offering contemplated hereby, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriter may be required to make in respect thereof.
EXPERTS
The audited consolidated financial statements and schedules of the Company
included or incorporated by reference in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
LEGAL OPINIONS
The validity of the Debentures will be passed upon for the Company by its
special counsel, Stoll, Keenon & Park, LLP, Lexington, Kentucky, and certain
matters will be passed upon for the Underwriter by Armstrong, Teasdale,
Schlafly & Davis, St. Louis, Missouri.
Attorneys in the firm of Stoll, Keenon & Park, LLP who have participated in
the firm's representation of Delta and members of such attorneys' immediate
families own collectively 6,056 shares of Delta's Common Stock.
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<PAGE> 25
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Statements of Income for the Twelve Months Ended December 31, 1997
(unaudited) and the Years Ended June 30, 1997, 1996 and 1995 (audited).............. F-3
Consolidated Statements of Cash Flows for the Twelve Months Ended December 31, 1997
(unaudited) and the Years Ended June 30, 1997, 1996 and 1995 (audited).............. F-4
Consolidated Balance Sheets as of December 31, 1997 (unaudited) and June 30, 1997 and
1996 (audited)...................................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the Twelve Months Ended
December 31, 1997 (unaudited) and the Years Ended June 30, 1997, 1996 and 1995
(audited)........................................................................... F-6
Consolidated Statements of Capitalization as of December 31, 1997 (unaudited) and June
30, 1997 and 1996 (audited)......................................................... F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Delta Natural Gas Company, Inc.:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of Delta Natural Gas Company, Inc. (a Kentucky corporation)
and subsidiary companies as of June 30, 1997 and 1996, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Delta Natural Gas Company,
Inc. and subsidiary companies as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
August 15, 1997
F-2
<PAGE> 27
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
FOR THE
TWELVE MONTHS FOR THE FISCAL YEARS ENDED JUNE 30,
ENDED -------------------------------------------
DECEMBER 31, 1997 1997 1996 1995
----------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUES.......................................... $45,074,546 $42,169,185 $36,576,055 $31,844,339
----------- ----------- ----------- -----------
OPERATING EXPENSES
Purchased gas........................................... $24,562,876 $23,265,222 $17,389,755 $15,497,156
Operation and maintenance (Note 1)...................... 8,896,894 8,631,635 8,642,511 8,002,797
Depreciation and depletion (Note 1)..................... 3,201,585 2,935,257 2,510,952 2,183,558
Taxes other than income taxes........................... 1,161,923 1,056,689 1,036,282 863,340
Income taxes (Note 2)................................... 1,154,275 964,800 1,559,500 1,042,400
----------- ----------- ----------- -----------
Total operating expenses............................ $38,977,553 $36,853,603 $31,139,000 $27,589,251
----------- ----------- ----------- -----------
OPERATING INCOME............................................ $ 6,096,993 $ 5,315,582 $ 5,437,055 $ 4,255,088
OTHER INCOME AND DEDUCTIONS, NET............................ 28,794 40,874 32,503 50,582
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES.............................. $ 6,125,787 $ 5,356,456 $ 5,469,558 $ 4,305,670
----------- ----------- ----------- -----------
INTEREST CHARGES
Interest on long-term debt.............................. $ 3,152,939 $ 2,997,393 $ 1,851,768 $ 1,879,442
Other interest.......................................... 823,010 519,432 867,641 419,693
Amortization of debt expense............................ 111,600 115,366 88,800 88,800
----------- ----------- ----------- -----------
Total interest charges.............................. $ 4,087,549 $ 3,632,191 $ 2,808,209 $ 2,387,935
----------- ----------- ----------- -----------
NET INCOME.................................................. $ 2,038,238 $ 1,724,265 $ 2,661,349 $ 1,917,735
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........ 2,342,910 2,294,134 1,886,629 1,850,986
BASIC EARNINGS PER COMMON SHARE............................. $ .87 $ .75 $ 1.41 $ 1.04
DILUTED EARNINGS PER COMMON SHARE........................... $ .87 $ .75 $ 1.41 $ 1.04
DIVIDENDS DECLARED PER COMMON SHARE......................... $ 1.14 $ 1.14 $ 1.12 $ 1.12
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-3
<PAGE> 28
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE TWELVE
MONTHS ENDED FOR THE FISCAL YEARS ENDED JUNE 30,
DECEMBER 31, ----------------------------------------------
1997 1997 1996 1995
-------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 2,038,238 $ 1,724,265 $ 2,661,349 $ 1,917,735
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion and amortization............. 3,436,840 3,049,229 2,663,475 2,272,358
Deferred income taxes and investment tax credits..... 473,275 485,400 1,762,500 (77,000)
Other--net........................................... 688,134 666,798 484,474 602,180
(Increase) decrease in assets
Accounts receivable.................................. (1,396,817) (318,178) (860,255) (118,237)
Gas in storage....................................... 3,995,951 (782,007) 63,546 (138,138)
Advance (deferred) recovery of gas cost.............. (3,385,041) 495,751 (3,788,143) 2,583,128
Materials and supplies............................... (69,636) (120,969) (124,697) 173,319
Prepayments.......................................... (213,592) (346,532) 53,702 (105,903)
Other assets......................................... (582,623) (541,669) (31,723) (71,087)
Increase (decrease) in liabilities
Accounts payable..................................... (587,907) (439,721) 871,207 (178,609)
Refunds due customers................................ 379,087 554,520 (456,283) 83,572
Accrued taxes........................................ 776,972 1,038,761 (270,394) (72,210)
Other current liabilities............................ 354,593 744,054 56,951 69,742
Advances for construction and other.................. (4,851) (476) 9,100 2,333
------------ ------------ ------------ ------------
Net cash provided by operating activities.......... $ 5,902,623 $ 6,209,226 $ 3,094,809 $ 6,943,183
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... $(14,236,815) $(16,648,994) $(13,373,416) $ (8,122,838)
------------ ------------ ------------ ------------
Net cash used in investing activities.............. $(14,236,815) $(16,648,994) $(13,373,416) $ (8,122,838)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on common stock.............................. $ (2,671,093) $ (2,651,073) $ (2,113,414) $ (2,073,374)
Issuance of common stock, net.......................... 639,809 6,773,054 568,875 502,361
Issuance of long-term debt, net........................ -- 14,334,833 -- --
Repayment of long-term debt............................ (813,321) (478,256) (561,000) (240,100)
Issuance of short-term debt............................ 35,280,000 30,975,000 25,955,000 19,495,000
Repayment of short-term debt........................... (23,675,000) (38,185,000) (13,555,000) (16,525,000)
------------ ------------ ------------ ------------
Net cash provided by financing activities.......... $ 8,760,395 $ 10,768,558 $ 10,294,461 $ 1,158,887
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... $ 426,203 $ 328,790 $ 15,854 $ (20,768)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 18,201 151,633 135,779 156,547
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 444,404 $ 480,423 $ 151,633 $ 135,779
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest........................................... $ 4,008,286 $ 3,019,881 $ 2,491,091 $ 2,253,472
Income taxes....................................... $ 366,032 $ (432,163) $ 193,560 $ 1,264,942
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-4
<PAGE> 29
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
AS OF AS OF JUNE 30,
DECEMBER 31, -------------------------------
1997 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
GAS UTILITY PLANT, at cost............................................ $123,913,386 $116,829,158 $ 98,795,623
Less--Accumulated provision for depreciation...................... (33,251,728) (31,734,976) (26,749,774)
------------ ------------ ------------
Net gas plant................................................. $ 90,661,658 $ 85,094,182 $ 72,045,849
------------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents......................................... $ 444,404 $ 480,423 $ 151,633
Accounts receivable, less accumulated provisions for doubtful
accounts of $83,647, $113,945 and $105,756 as of December 31,
1997 and June 30, 1997 and 1996, respectively................... 3,615,358 2,414,632 2,096,454
Gas in storage, at average cost................................... 1,855,202 1,209,171 427,164
Deferred gas costs (Note 1)....................................... 3,796,666 2,180,606 2,676,357
Materials and supplies, at first-in, first-out cost............... 710,358 773,108 652,139
Prepayments....................................................... 388,449 716,076 369,544
------------ ------------ ------------
Total current assets.......................................... $ 10,810,437 $ 7,774,016 $ 6,373,291
------------ ------------ ------------
OTHER ASSETS
Cash surrender value of officers' life insurance
(face amount of $1,036,009)..................................... $ 329,913 $ 321,339 $ 304,339
Note receivable from officer...................................... 122,000 134,000 126,000
Unamortized debt expense and other (Note 6)....................... 3,335,330 3,357,628 2,291,158
------------ ------------ ------------
Total other assets............................................ $ 3,787,243 $ 3,812,967 $ 2,721,497
------------ ------------ ------------
Total assets.............................................. $105,259,338 $ 96,681,165 $ 81,140,637
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION (SEE CONSOLIDATED STATEMENTS
OF CAPITALIZATION)
Common shareholders' equity....................................... $ 28,255,698 $ 29,474,569 $ 23,628,323
Long-term debt (Note 6)........................................... 37,976,596 38,107,860 24,488,916
Notes payable refinanced subsequent to year end................... -- -- 18,075,000
------------ ------------ ------------
Total capitalization.......................................... $ 66,232,294 $ 67,582,429 $ 66,192,239
------------ ------------ ------------
CURRENT LIABILITIES
Notes payable (Note 5)............................................ $ 19,395,000 $ 10,865,000 $ --
Current portion of long-term debt (Note 6)........................ 1,553,777 1,987,600 1,084,800
Accounts payable.................................................. 4,391,125 2,386,717 2,826,438
Accrued taxes..................................................... 592,850 1,132,315 93,554
Refunds due customers............................................. 461,147 577,874 23,354
Customers' deposits............................................... 498,566 368,561 304,246
Accrued interest on debt.......................................... 1,081,096 1,033,220 637,596
Accrued vacation.................................................. 516,032 516,032 485,847
Other accrued liabilities......................................... 385,701 492,501 238,571
------------ ------------ ------------
Total current liabilities................................. $ 28,875,294 $ 19,359,820 $ 5,694,406
------------ ------------ ------------
DEFERRED CREDITS AND OTHER
Deferred income taxes............................................. $ 8,393,000 $ 7,921,100 $ 7,318,500
Investment tax credits............................................ 673,500 708,400 779,400
Regulatory liability (Note 2)..................................... 867,675 892,100 938,300
Advances for construction and other............................... 217,575 217,316 217,792
------------ ------------ ------------
Total deferred credits and other.............................. $ 10,151,750 $ 9,738,916 $ 9,253,992
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
Total liabilities and shareholders' equity................ $105,259,338 $ 96,681,165 $ 81,140,637
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-5
<PAGE> 30
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
FOR THE TWELVE
MONTHS ENDED FOR THE FISCAL YEARS ENDED JUNE 30,
DECEMBER 31, -------------------------------------------
1997 1997 1996 1995
-------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
COMMON SHARES
Balance, beginning of year............................... $ 2,325,333 $ 1,903,580 $ 1,868,734 $ 1,839,340
$1.00 par value of 36,589, 438,643, 34,846 and 29,394
shares issued during the twelve months ended December
31, 1997 and fiscal years 1997, 1996 and 1995,
respectively
Public issuance of common shares..................... -- 400,000 -- --
Dividend reinvestment and stock purchase plan........ 29,843 31,187 28,024 25,802
Employee stock purchase plan and other............... 6,746 7,456 6,822 3,592
----------- ----------- ----------- -----------
Balance, end of year..................................... $ 2,361,922 $ 2,342,223 $ 1,903,580 $ 1,868,734
=========== =========== =========== ===========
PREMIUM ON COMMON SHARES
Balance, beginning of year............................... $26,924,496 $20,572,132 $20,022,643 $19,532,909
Premium on issuance of common shares
Public issuance of common shares..................... -- 6,000,000 -- --
Dividend reinvestment and stock purchase plan........ 491,113 519,478 440,621 425,357
Employee stock purchase plan and other............... 112,634 111,701 108,868 64,377
----------- ----------- ----------- -----------
Balance, end of year..................................... $27,528,243 $27,203,311 $20,572,132 $20,022,643
=========== =========== =========== ===========
CAPITAL STOCK EXPENSE
Balance, beginning of year............................... $(1,916,493) $(1,620,252) $(1,604,792) $(1,588,025)
Issuance of common shares............................ (527) (296,768) (15,460) (16,767)
----------- ----------- ----------- -----------
Balance, end of year..................................... $(1,917,020) $(1,917,020) $(1,620,252) $(1,604,792)
=========== =========== =========== ===========
RETAINED EARNINGS
Balance, beginning of year............................... $ 915,408 $ 2,772,863 $ 2,224,928 $ 2,380,567
Net income........................................... 2,038,238 1,724,265 2,661,349 1,917,735
Cash dividends declared on common shares (See
Consolidated Statements of Income for rates)....... (2,671,093) (2,651,073) (2,113,414) (2,073,374)
----------- ----------- ----------- -----------
Balance, end of year..................................... $ 282,553 $ 1,846,055 $ 2,772,863 $ 2,224,928
=========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-6
<PAGE> 31
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
AS OF AS OF JUNE 30,
DECEMBER 31, -----------------------------
1997 1997 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $1.00 per share (Notes 3 and 4)
Authorized--6,000,000 shares
Issued and outstanding--2,361,922, 2,342,223 and 1,903,580 shares as
of December 31, 1997 and June 30, 1997 and 1996, respectively....... $ 2,361,922 $ 2,342,223 $ 1,903,580
Premium on common shares.................................................. 27,528,243 27,203,311 20,572,132
Capital stock expense..................................................... (1,917,020) (1,917,020) (1,620,252)
Retained earnings (Note 6)................................................ 282,553 1,846,055 2,772,863
------------ ----------- -----------
Total common shareholders' equity..................................... $ 28,255,698 $29,474,569 $23,628,323
------------ ----------- -----------
LONG-TERM DEBT (NOTES 6 AND 7)
Debentures, 8.3%, due 2026................................................ $ 15,000,000 $15,000,000 $ --
Debentures, 6 5/8%, due 2023.............................................. 13,325,000 13,505,000 14,000,000
Debentures, 9%, due 2011.................................................. 10,000,000 10,000,000 10,000,000
Promissory note payable, due through 2001................................. 1,151,596 1,502,901 1,401,581
Other..................................................................... 53,777 87,559 172,135
------------ ----------- -----------
Total long-term debt.................................................. $ 39,530,373 $40,095,460 $25,573,716
Less--Amounts due within one year, included in current liabilities........ (1,553,777) (1,987,600) (1,084,800)
------------ ----------- -----------
Net long-term debt.................................................... $ 37,976,596 $38,107,860 $24,488,916
------------ ----------- -----------
NOTES PAYABLE REFINANCED SUBSEQUENT TO YEAR END (NOTE 5)...................... $ -- $ -- $18,075,000
------------ ----------- -----------
Total capitalization.............................................. $ 66,232,294 $67,582,429 $66,192,239
============ =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-7
<PAGE> 32
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION--Delta Natural Gas Company, Inc. ("Delta"
or the "Company") has five wholly-owned subsidiaries. Delta Resources, Inc.
("Resources") buys gas and resells it to industrial customers on Delta's
system and to Delta for system supply. Delgasco, Inc. buys gas and resells it
to Resources and to customers not on Delta's system. Deltran, Inc. operates
underground natural gas storage facilities that it leases from Delta. Enpro,
Inc. owns and operates production properties. TranEx Corporation owns a 43 mile
intrastate pipeline. All subsidiaries of Delta are included in the consolidated
financial statements. Intercompany balances and transactions have been
eliminated.
(b) CASH EQUIVALENTS--For the purposes of the Consolidated Statements of
Cash Flows, all temporary cash investments with a maturity of three months or
less at the date of purchase are considered cash equivalents.
(c) DEPRECIATION--The Company determines its provision for depreciation
using the straight-line method and by the application of rates to various
classes of utility plant. The rates are based upon the estimated service lives
of the properties and were equivalent to composite rates of 3.1%, 3.0%, 2.9%
and 2.8% of average depreciable plant for the twelve months ended December 31,
1997, fiscal 1997, 1996 and 1995, respectively.
(d) MAINTENANCE--All expenditures for maintenance and repairs of units of
property are charged to the appropriate maintenance expense accounts. A
betterment or replacement of a unit of property is accounted for as an addition
and retirement of utility plant. At the time of such a retirement, the
accumulated provision for depreciation is charged with the original cost of the
property retired and also for the net cost of removal.
(e) GAS COST RECOVERY--Delta has a Gas Cost Recovery ("GCR") clause which
provides for a dollar-tracker that matches revenues and gas costs and provides
eventual dollar-for-dollar recovery of all gas costs incurred. The Company
expenses gas costs based on the amount of gas costs recovered through revenue.
Any differences between actual gas costs and those estimated costs billed are
deferred and reflected in the computation of future billings to customers using
the GCR mechanism.
(f) REVENUE RECOGNITION--The Company records revenues as billed to its
customers on a monthly meter reading cycle. At the end of each month, gas
service which has been rendered from the latest date of each cycle meter
reading to the month-end is unbilled.
(g) REVENUES AND CUSTOMER RECEIVABLES--The Company supplies natural gas to
38,000 customers in central and southeastern Kentucky. Revenues and customer
receivables arise primarily from sales of natural gas to customers and from
transportation services for others. Provisions for doubtful accounts are
recorded to reflect the expected net realizable value of accounts receivable.
(h) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(i) NEW ACCOUNTING PRONOUNCEMENTS--In March, 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", effective for fiscal years beginning
after December 15, 1995. The Company adopted the provisions of SFAS No. 121 in
the first quarter of fiscal 1997. The new standard requires that long-lived
assets and certain identified intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing such impairment reviews, companies
will be required to estimate the sum of future cash flows from an asset and
compare such amount to the asset's carrying amount. Any excess of carrying
amount over expected cash flows will result in a possible write-down of an
asset to its fair value. Adoption of SFAS No. 121 did not have a material
adverse impact on the Company's financial position or results of operations.
F-8
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For companies with June 30 fiscal yearends, SFAS No. 123, "Accounting for
Stock-Based Compensation", was required to be adopted as of June 30, 1997.
This standard is currently inapplicable to Delta because the Company has no
stock based compensation arrangements.
Delta adopted SFAS No. 128, "Earnings per Share", during the second
quarter of fiscal 1998. The adoption of this standard had no effect upon
current or prior period earnings per share.
(2) INCOME TAXES
The Company provides for income taxes on temporary differences resulting
from the use of alternative methods of income and expense recognition for
financial and tax reporting purposes. The differences result primarily from the
use of accelerated tax depreciation methods for certain properties versus the
straight-line depreciation method for financial purposes, differences in
recognition of purchased gas cost recoveries and certain other accruals which
are not currently deductible for income tax purposes. Investment tax credits
were deferred for certain periods prior to fiscal 1987 and are being amortized
to income over the estimated useful lives of the applicable properties. The
Company utilizes the liability method for accounting for income taxes, which
requires that deferred income tax assets and liabilities are computed using tax
rates that will be in effect when the book and tax temporary differences
reverse. The change in tax rates applied to accumulated deferred income taxes
may not be immediately recognized in operating results because of ratemaking
treatment. A regulatory liability has been established to recognize the future
revenue requirement impact from these deferred taxes. The temporary differences
which gave rise to the net accumulated deferred income tax liability for the
periods are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------
1997 1996
----------- ----------
<S> <C> <C>
Deferred Tax Liabilities
Accelerated depreciation.................................................... $ 9,018,800 $8,091,500
Deferred gas cost........................................................... 860,100 1,055,700
Accrued pension............................................................. 433,000 252,900
Debt expense................................................................ 384,900 399,200
----------- ----------
Total................................................................... $10,696,800 $9,799,300
----------- ----------
Deferred Tax Assets
Alternative investment tax credit........................................... $ 1,534,100 $1,305,600
Regulatory liabilities...................................................... 339,400 370,000
Unbilled revenue............................................................ 327,500 236,100
Investment tax credit....................................................... 279,400 307,400
Other....................................................................... 295,300 261,700
----------- ----------
Total................................................................... $ 2,775,700 $2,480,800
----------- ----------
Net accumulated deferred income tax liability....................... $ 7,921,100 $7,318,500
=========== ==========
</TABLE>
The components of the income tax provision are comprised of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------------------------
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Components of income tax expense
Payable currently
Federal....................................................... $242,200 $ 52,100 $ 453,900
State......................................................... (31,300) (255,100) 194,500
-------- ---------- ----------
Total..................................................... $210,900 $ (203,000) $ 648,400
Deferred.......................................................... 753,900 1,762,500 394,000
-------- ---------- ----------
Income tax expense........................................ $964,800 $1,559,500 $1,042,400
======== ========== ==========
</TABLE>
F-9
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of the statutory federal income tax rate to the effective
income tax rate is shown in the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate..................................... 34.0% 34.0% 34.0%
State income taxes net of federal benefit............................. 5.0 5.2 5.2
Amortization of investment tax credit................................. (2.6) (1.7) (2.4)
Other differences--net................................................ -- -- (.9)
---- ---- ----
Effective income tax rate......................................... 36.4% 37.5% 35.9%
==== ==== ====
</TABLE>
(3) EMPLOYEE BENEFIT PLANS
(a) DEFINED BENEFIT RETIREMENT PLAN--Delta has a trusteed, noncontributory,
defined benefit pension plan covering all eligible employees. Retirement income
is based on the number of years of service and annual rates of compensation.
The Company makes annual contributions equal to the amounts necessary to fund
the plan adequately. The funded status of the pension plan at March 31, the
plan year end, and the amounts recognized in the Company's consolidated balance
sheets at June 30 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Plan assets at fair value............................................. $6,835,393 $6,058,458 $5,358,108
---------- ---------- ----------
Actuarial present value of benefit obligation
Vested benefits................................................... $4,505,619 $2,789,736 $3,605,363
Non-vested benefits............................................... 11,025 9,346 21,742
---------- ---------- ----------
Accumulated benefit obligation.................................... $4,516,644 $2,799,082 $3,627,105
Additional amounts related to projected salary increases.............. 1,828,856 2,811,907 1,638,014
---------- ---------- ----------
Total projected benefit obligation................................ $6,345,500 $5,610,989 $5,265,119
---------- ---------- ----------
Plan assets in excess of projected benefit obligation................. $ 489,893 $ 447,469 $ 92,989
Unrecognized net assets at date of initial application being amortized
over 15 years....................................................... (211,972) (254,365) (296,759)
Unrecognized net (gain) loss.......................................... 125,777 (13,481) 286,557
---------- ---------- ----------
Accrued pension asset............................................. $ 403,698 $ 179,623 $ 82,787
========== ========== ==========
</TABLE>
The assets of the plan consist primarily of common stocks, bonds and
certificates of deposit. Pension expense for the twelve months ended December
31, 1997 was approximately $262,000. Net pension costs for the years ended June
30 included the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost for benefits earned during the year...................... $ 405,386 $ 382,751 $ 432,546
Interest cost on projected benefit obligation......................... 392,539 356,897 382,167
Actual return on plan assets.......................................... (407,965) (886,211) (623,972)
Net amortization and deferral......................................... (136,843) 444,044 185,660
---------- ---------- ----------
Net periodic pension cost......................................... $ 253,117 $ 297,481 $ 376,401
========== ========== ==========
</TABLE>
The weighted average discount rates and the assumed rates of increase in
future compensation levels used in determining the actuarial present values of
the projected benefit obligation at June 30, 1997, 1996 and 1995 were 7.0%
(discount rates), and 4% (rates of increase). The expected long-term rates of
return on plan assets were 8%.
SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits", and
SFAS No. 112, "Employers' Accounting for Post-Employment Benefits", do not
affect the Company, as Delta does not provide benefits for post-retirement or
post-employment other than the pension plan for retired employees.
F-10
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(b) EMPLOYEE SAVINGS PLAN--The Company has an Employee Savings Plan
("Savings Plan") under which eligible employees may elect to contribute any
whole percentage between 2% and 15% of their annual compensation. The Company
will match 50% of the employee's contribution up to a maximum Company
contribution of 2.5% of the employee's annual compensation. For the twelve
months ended December 31, 1997 and the fiscal years ended June 30, 1997, 1996
and 1995, Delta's Savings Plan expense was approximately $140,000, $151,000,
$111,000 and $112,000, respectively.
(c) EMPLOYEE STOCK PURCHASE PLAN--The Company has an Employee Stock
Purchase Plan ("Stock Plan") under which qualified permanent employees are
eligible to participate. Under the terms of the Stock Plan, such employees can
contribute on a monthly basis 1% of their annual salary level (as of July 1 of
each year) to be used to purchase Delta's common stock. The Company issues
Delta common stock, based upon the fiscal year contributions, using an average
of the last sale price of Delta's stock as quoted in NASDAQ's National Market
System at the close of business for the last five business days in June and
matches those shares so purchased. Therefore, stock equivalent to approximately
$101,000 was issued in July, 1997. The continuation and terms of the Stock Plan
are subject to approval by Delta's Board of Directors on an annual basis.
Delta's Board has continued the Stock Plan through June 30, 1998.
(4) DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company's Dividend Reinvestment and Stock Purchase Plan (Reinvestment
Plan) provides that shareholders of record can reinvest dividends and also make
limited additional investments of up to $50,000 per year in shares of common
stock of the Company. Shares purchased under the Reinvestment Plan are
authorized but unissued shares of common stock of the Company, and 29,843,
31,187, 28,024 and 25,802 shares were issued during the twelve months ended
December 31, 1997 and the fiscal years ended June 30, 1997, 1996 and 1995.
Delta reserved 200,000 shares under the Reinvestment Plan in December, 1994,
and as of December 31, 1997 there were 109,651 shares still available for
issuance.
(5) NOTES PAYABLE AND LINE OF CREDIT
Substantially all of the cash balances of Delta are maintained to
compensate the respective banks for banking services and to obtain lines of
credit; however, no specific amounts have been designated as compensating
balances, and Delta has the right of withdrawal of such funds. The available
line of credit was $25,000,000, $20,000,000 and $20,000,000 at December 31,
1997, June 30, 1997 and June 30, 1996, of which $19,395,000, $10,865,000 and
$18,075,000 had been borrowed at an interest rate of 6.935%, 6.785% and 6.285%,
respectively. The maximum amount borrowed during the twelve months ended
December 31, 1997 and the fiscal years ended June 30, 1997 and 1996 was
$20,160,000, $10,865,000 and $18,075,000, respectively. The interest on this
line is, at the option of Delta, either at the daily prime rate or is based upon
certificate of deposit rates. The current line of credit expires during
November, 1998.
Short-term borrowings at June 30, 1996 were repaid in July, 1996, with the
net proceeds of approximately $20,400,000 from the sale of $15,000,000 of
debentures and 400,000 shares of common stock.
(6) LONG-TERM DEBT
On July 19, 1996, Delta issued $15,000,000 of 8.3% Debentures that mature
in July, 2026. Redemption on behalf of deceased holders within 60 days of
notice of up to $25,000 per holder will be made annually, subject to an annual
aggregate limitation of $500,000. The 8.3% Debentures can be redeemed by the
Company beginning in August, 2001 at a 5% premium, such premium declining
ratably until it ceases in August, 2006. Restrictions under the indenture
agreement covering the 8.3% Debentures include, among other things, a
restriction whereby dividend payments cannot be made unless consolidated
shareholders' equity of the Company exceeds $18,000,000. No retained earnings
are restricted under the provisions of the indenture.
On October 18, 1993, Delta issued $15,000,000 of 6 5/8% Debentures that
mature in October, 2023. Each holder may require redemption of up to $25,000
annually, subject to an annual aggregate limitation of $500,000. Such
redemption will also be made on behalf of deceased holders within 60 days of
notice, subject to the annual aggregate $500,000 limitation. The 6 5/8%
Debentures can be redeemed by the Company beginning in October, 1998 at a 5%
premium, such premium declining ratably until it ceases in October, 2003.
F-11
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 1, 1991, Delta issued $10,000,000 of 9% Debentures that mature in
April, 2011. Each holder may require redemption of up to $25,000 annually,
subject to an annual aggregate limitation of $500,000. Such redemption will
also be made on behalf of deceased holders within 60 days of notice, subject to
the annual aggregate $500,000 limitation. The 9% Debentures can be redeemed by
the Company at a 3% premium, such premium declining ratably until it ceases in
April, 2001. The Company may not assume any additional mortgage indebtedness in
excess of $1 million without effectively securing the 9% Debentures equally to
such additional indebtedness.
Debt issuance expenses are deferred and amortized over the terms of the
related debt. In addition, losses on extinguishment of debt are deferred and
amortized over the terms of the related debt, consistent with regulatory
treatment.
A non-interest bearing promissory note was issued by Delta on November 10,
1995 in the amount of $1,800,000, and remaining installments are due in the
amounts of $700,000 in 2000 and $700,000 in 2002. The note was issued when
Delta purchased leases and depleted gas wells to develop them for the
underground storage of natural gas. The promissory note installments are
secured by escrow of 80,000 shares of Delta's common stock. These shares will
be issued to the holder of the promissory note only in the event of default in
payment by Delta.
Other long-term debt requires principal payments of $54,000 for the twelve
months ending December 31, 1998, at which time other long-term debt will be
fully repaid.
(7) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's debentures is estimated using discounted
cash flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The fair value of the Company's
debentures at December 31, 1997, June 30, 1997 and 1996 was estimated to be
$40,402,000, $37,723,000 and $22,073,000, respectively. The carrying amount in
the accompanying consolidated financial statements as of December 31, 1997,
June 30, 1997 and 1996 is $38,325,000, $38,505,000 and $24,000,000,
respectively.
The carrying amount of the Company's other financial instruments including
cash equivalents, accounts receivable, notes receivable, accounts payable and
the non-interest bearing promissory note approximate their fair value.
(8) COMMITMENTS AND CONTINGENCIES
The Company has entered into individual employment agreements with its five
officers. The agreements expire or may be terminated at various times. The
agreements provide for continuing monthly payments or lump sum payments and
continuation of certain benefits over varying periods in the event employment
is altered or terminated following certain changes in ownership of the Company.
(9) RATES
Reference is made to "Regulatory Matters" herein with respect to rate
matters.
F-12
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly data reflects, in the opinion of management, all normal
recurring adjustments necessary to present fairly the results for the interim
periods.
<TABLE>
<CAPTION>
BASIC DILUTED
EARNINGS EARNINGS
OPERATING NET (LOSS) PER (LOSS) PER
OPERATING INCOME INCOME COMMON COMMON
QUARTER ENDED REVENUES (LOSS) (LOSS) SHARE<Fa> SHARE<Fa>
- ------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FISCAL 1996
September 30.............. $ 3,774,849 $ (147,522) $ (760,662) $ (.41) $ (.41)
December 31............... 8,406,787 1,331,803 649,089 .34 .34
March 31.................. 16,023,581 3,421,608 2,725,444 1.44 1.44
June 30................... 8,370,838 831,166 47,478 .03 .03
FISCAL 1997
September 30.............. $ 4,074,332 $ 36,149 $ (734,296) $ (.33) $ (.33)
December 31............... 10,023,399 1,090,513 198,153 .09 .09
March 31.................. 18,651,406 3,034,844 2,050,318 .88 .88
June 30................... 9,420,048 1,154,076 210,090 .09 .09
FISCAL 1998
September 30.............. $ 5,215,272 $ 181,905 $ (813,982) $ (.35) $ (.35)
December 31............... 11,787,820 1,726,169 591,312 .25 .25
<FN>
- --------
<Fa> Quarterly earnings per share may not equal annual earnings per share due
to changes in shares outstanding.
</TABLE>
F-13
<PAGE> 38
===============================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE OR JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE OR
JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME OR ANY SALES MADE
HEREUNDER SHALL NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
--------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................. 2
Incorporation of Certain Documents by Reference........ 2
Prospectus Summary..................................... 3
Risk Factors........................................... 5
The Company............................................ 6
System Map............................................. 6
Use of Proceeds and Capital Expenditures............... 7
Consolidated Capitalization............................ 7
Selected Consolidated Financial Information............ 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 9
Business............................................... 12
Description of Debentures.............................. 18
Underwriting........................................... 23
Experts................................................ 23
Legal Opinions......................................... 23
Index to Consolidated Financial Statements............. F-1
Report of Independent Public Accountants............... F-2
Consolidated Financial Statements...................... F-3
</TABLE>
===============================================================================
===============================================================================
DELTA NATURAL GAS
COMPANY, INC.
[DELTA LOGO]
$25,000,000
% DEBENTURES DUE 2018
----------------
PROSPECTUS
----------------
EDWARD D. JONES & CO., L.P.
, 1998
===============================================================================
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses in connection with the issuance
and distribution of the securities being registered. Except for the
registration fee, NASD filing fee and initial Trustee fee, all the amounts
shown are estimates.
<TABLE>
<S> <C>
Registration Fee................................................... $ 7,375
NASD Filing Fee.................................................... 3,000
Blue Sky Fees and Expenses......................................... 3,000
Accounting Fees.................................................... 21,000
Legal Fees......................................................... 25,000
Printing........................................................... 20,000
Initial Trustee Fee................................................ 5,000
Miscellaneous Expenses............................................. 625
-------
Total.......................................................... $85,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Kentucky law permits a corporation to provide insurance for directors and
officers against claims arising out of their services in those capacities and
permits a corporation to provide indemnification in certain instances for
claims arising out of actions undertaken by directors and officers. Under
agreements with its Officers, Delta has agreed to indemnify the Officers
against liability for actions taken by them in good faith while performing
services for Delta and has agreed to pay legal expenses arising from any such
proceedings. Delta's By-Laws provide for such indemnification by Delta for all
Directors and Officers. Delta also provides Directors and Officers with
indemnification insurance coverage with limits up to $10,000,000.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
1(a) Form of Underwriting Agreement.
4(a) The Indenture dated April 1, 1991 in respect of 9% Debentures, due 2011, is incorporated herein by reference to Exhibit
4(d) to Delta's Form S-2 dated April 24, 1991.
4(b) The Indenture dated September 1, 1993, in respect of 6 5/8% Debentures, due 2023, is incorporated herein by reference to
Exhibit 4(d) to Delta's Form S-2 dated September 2, 1993.
4(c) The Indenture dated July 1, 1996, in respect of 8.3% Debentures, due 2026, is incorporated herein by reference to
Exhibit 4(c) to Delta's Form S-2 dated June 21, 1996.
4(d) Form of Indenture between Delta and Fifth Third, as Trustee (including the Form of Debenture).
5 Opinion of Stoll, Keenon & Park, LLP concerning legality.
10(a) Certain of Delta's material natural gas supply contracts are incorporated herein by reference to Exhibit 10 to Delta's
Form 10 for the year ended June 30, 1978 and by reference to Exhibits (C) and (D) to Delta's Form 10-K for the year
ended June 30, 1980.
10(b) Gas Purchase Contract between Delta and Wiser is incorporated herein by reference to Exhibit 2(C) to Delta's Form 8-K
dated February 9, 1981.
II-1
<PAGE> 40
<CAPTION>
EXHIBIT
-------
<S> <C>
10(c) Assignment to Delta by Wiser of its Columbia Service Agreement, including a copy of the Service Agreement, is
incorporated herein by reference to Exhibit 2(D) to Delta's Form 8-K dated February 9, 1981.
10(d) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for
Nicholasville and Wilmore Service Areas) is incorporated herein by reference to Exhibit 10(d) to Delta's Form 10-Q for
the period ended September 30, 1990.
10(e) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for
Jeffersonville Service Area) is incorporated herein by reference to Exhibit 10(e) to Delta's Form 10-Q for the period
ended September 30, 1990.
10(f) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for Salt Lick
Service Area) is incorporated herein by reference to Exhibit 10(f) to Delta's Form 10-Q for the period ended September
30, 1990.
10(g) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for Berea
Service Area) is incorporated herein by reference to Exhibit 10(g) to Delta's Form 10-Q for the period ended September
30, 1990.
10(h) Service agreements between Columbia and Delta for the sale of gas by Columbia to Delta (amends earlier service
agreements for Cumberland, Stanton and Owingsville Service Areas) are incorporated herein by reference to Exhibit
10(h) to Delta's Form 10-Q for the period ended September 30, 1990.
10(i) Amendment to Gas Purchase Contract between Delta and Wiser is incorporated herein by reference to Exhibit 10(c) to
Delta's Form 10-Q for the period ended December 31, 1988.
10(j) Second amendment to Gas Purchase Contract between Delta and Wiser is incorporated herein by reference to Exhibit 10(j)
to Delta's Form 10-K for the year ended June 30, 1993.
10(k) Employment agreement between Delta and Alan L. Heath, an officer, is incorporated herein by reference to Exhibit 10(k)
to Delta's Form 10-Q for the period ended December 31, 1985.
10(l) Employment agreements between Delta and two officers, those being John F. Hall and Robert C. Hazelrigg, are incorporated
herein by reference to Exhibit 10(m) to Delta's Form 10-Q for the period ended December 31, 1988.
10(m) Employment agreement dated May 31, 1995 between Delta and Glenn R. Jennings, an officer, is incorporated herein by
reference to Exhibit 10(m) to Delta's Form 10-K for the year ended June 30, 1995.
10(n) Employment agreement dated June 19, 1995 between Delta and Johnny L. Caudill, an officer, is incorporated herein by
reference to Exhibit 10(n) to Delta's Form 10-K for the year ended June 30, 1995.
12 Computation of the consolidated ratio of earnings to fixed charges.
13(a) Delta's Form 10-K for the period ended June 30, 1997 is incorporated herein by reference.
13(b) Delta's Form 10-Q for the period ended September 30, 1997 is incorporated herein by reference.
13(c) Delta's Form 10-Q for the period ended December 31, 1997 is incorporated herein by reference.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Stoll, Keenon & Park, LLP is contained in its opinion letter filed as Exhibit 5.
24 Power of Attorney is included with the signature page in Part II of this filing.
25 Statement of eligibility of Trustee (bound separately).
</TABLE>
II-2
<PAGE> 41
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, Officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 15, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a Director, Officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such Director, Officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Winchester, State of Kentucky, on the 11th day of
March, 1998.
DELTA NATURAL GAS COMPANY, INC.
By: /s/ GLENN R. JENNINGS
-------------------------------------
Glenn R. Jennings
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Glenn R. Jennings, John F. Hall, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, and to make any and all state
securities law or blue sky filings, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ H. D. PEET Chairman of the Board March 11, 1998
- -------------------------------------
H. D. Peet
/s/ GLENN R. JENNINGS President and Chief Executive Officer and March 11, 1998
- ------------------------------------- Director, Principal Executive Officer
Glenn R. Jennings
/s/ JOHN F. HALL Vice President--Finance, Secretary and March 11, 1998
- ------------------------------------- Treasurer, Principal Financial Officer
John F. Hall and Principal Accounting Officer
/s/ DONALD R. CROWE Director March 11, 1998
- -------------------------------------
Donald R. Crowe
/s/ JANE HYLTON GREEN Director March 11, 1998
- -------------------------------------
Jane Hylton Green
/s/ BILLY JOE HALL Director March 11, 1998
- -------------------------------------
Billy Joe Hall
/s/ JOHN D. HARRISON Director March 11, 1998
- -------------------------------------
John D. Harrison
/s/ VIRGIL E. SCOTT Director March 11, 1998
- -------------------------------------
Virgil E. Scott
/s/ HENRY C. THOMPSON Director March 11, 1998
- -------------------------------------
Henry C. Thompson
- ------------------------------------- Director March , 1998
Arthur E. Walker, Jr.
</TABLE>
II-4
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1(a) Form of Underwriting Agreement.
4(a) The Indenture dated April 1, 1991 in respect of 9% Debentures, due 2011, is incorporated herein by reference to
Exhibit 4(d) to Delta's Form S-2 dated April 24, 1991.
4(b) The Indenture dated September 1, 1993, in respect of 6 5/8% Debentures, due 2023, is incorporated herein by
reference to Exhibit 4(d) to Delta's Form S-2 dated September 2, 1993.
4(c) The Indenture dated July 1, 1996, in respect of 8.3% Debentures, due 2026, is incorporated herein by reference
to Exhibit 4(c) to Delta's form S-2 dated June 21, 1996.
4(d) Form of Indenture between Delta and Fifth Third, as Trustee (including the Form of Debenture).
5 Opinion of Stoll, Keenon & Park, LLP concerning legality.
10(a) Certain of Delta's material natural gas supply contracts are incorporated herein by reference to Exhibit 10 to
Delta's Form 10 for the year ended June 30, 1978 and by reference to Exhibits (C) and (D) to Delta's Form 10-K
for the year ended June 30, 1980.
10(b) Gas Purchase Contract between Delta and Wiser is incorporated herein by reference to Exhibit 2(C) to Delta's
Form 8-K dated February 9, 1981.
10(c) Assignment to Delta by Wiser of its Columbia Service Agreement, including a copy of the Service Agreement, is
incorporated herein by reference to Exhibit 2(D) to Delta's Form 8-K dated February 9, 1981.
10(d) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for
Nicholasville and Wilmore Service Areas) is incorporated herein by reference to Exhibit 10(d) to Delta's Form
10-Q for the period ended September 30, 1990.
10(e) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for
Jeffersonville Service Area) is incorporated herein by reference to Exhibit 10(e) to Delta's Form 10-Q for the
period ended September 30, 1990.
10(f) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for Salt
Lick Service Area) is incorporated herein by reference to Exhibit 10(f) to Delta's Form 10-Q for the period
ended September 30, 1990.
10(g) Contract between Tennessee and Delta for the sale of gas by Tennessee to Delta (amends earlier contract for
Berea Service Area) is incorporated herein by reference to Exhibit 10(g) to Delta's Form 10-Q for the period
ended September 30, 1990.
10(h) Service agreements between Columbia and Delta for the sale of gas by Columbia to Delta (amends earlier service
agreements for Cumberland, Stanton and Owingsville Service Areas) are incorporated herein by reference to
Exhibit 10(h) to Delta's Form 10-Q for the period ended September 30, 1990.
10(i) Amendment to Gas Purchase Contract between Delta and Wiser is incorporated herein by reference to Exhibit 10(c)
to Delta's Form 10-Q for the period ended December 31, 1988.
10(j) Second amendment to Gas Purchase Contract between Delta and Wiser is incorporated herein by reference to Exhibit
10(j) to Delta's Form 10-K for the year ended June 30, 1993.
10(k) Employment agreement between Delta and Alan L. Heath, an officer, is incorporated herein by reference to Exhibit
10(k) to Delta's Form 10-Q for the period ended December 31, 1985.
10(l) Employment agreements between Delta and two officers, those being John F. Hall and Robert C. Hazelrigg, are
incorporated herein by reference to Exhibit 10(m) to Delta's Form 10-Q for the period ended December 31, 1988.
II-5
<PAGE> 44
EXHIBIT INDEX (CONTINUED)
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10(m) Employment agreement dated May 31, 1995 between Delta and Glenn R. Jennings, an officer, is incorporated herein
by reference to Exhibit 10(m) to Delta's Form 10-K for the year ended June 30, 1995.
10(n) Employment agreement dated June 19, 1995 between Delta and Johnny L. Caudill, an officer, is incorporated herein
by reference to Exhibit 10(n) to Delta's Form 10-K for the year ended June 30, 1995.
12 Computation of the consolidated ratio of earnings to fixed charges.
13(a) Delta's Form 10-K for the period ended June 30, 1997 is incorporated herein by reference.
13(b) Delta's Form 10-Q for the period ended September 30, 1997 is incorporated herein by reference.
13(c) Delta's Form 10-Q for the period ended December 31, 1997 is incorporated herein by reference.
13(d) Delta's Form 10-Q for the period ended March 31, 1996, is incorporated herein by reference.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Stoll, Keenon & Park, LLP is contained in its opinion letter filed as Exhibit 5.
24 Power of Attorney is included with the signature page in Part II of this filing.
25 Statement of eligibility of Trustee.
</TABLE>
II-6
<PAGE> 1
$-------------PRINCIPAL AMOUNT OF
---% DEBENTURES DUE 2018
OF
DELTA NATURAL GAS COMPANY, INC.
UNDERWRITING AGREEMENT
----------------------
----------------------, 1998
Edward D. Jones & Co., L.P.
12555 Manchester Road
St. Louis, Missouri 63131
Dear Sirs:
Delta Natural Gas Company, Inc., a Kentucky corporation (the "Company")
confirms its agreement with Edward D. Jones & Co., L.P. (the "Underwriter")
as follows:
1. DESCRIPTION OF DEBENTURES. The Company proposes to issue
and sell to the Underwriter $25,000,000 aggregate principal amount of ---%
Debentures due 2018 (the "Debentures") described in the Indenture (as defined
below). The Debentures are more fully described in the Registration
Statement and Prospectus hereinafter defined. The Debentures will be issued
by the Company under its Trust Indenture dated March 1, 1998 (the
"Indenture") between the Company and The Fifth Third Bank, as trustee (the
"Trustee"). No amendments to the Indenture will be made prior to the Closing
Date hereinafter referred to without your prior approval.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents, warrants and agrees that:
(a) The Company meets the requirements for use of Form S-2
under the Securities Act of 1933, as amended (the "Act") and has
prepared and filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (Registration
Statement No. - ) relating to $25,000,000 aggregate
--- --------
principal amount of its Debentures, and the offering thereof in
accordance with the Act as amended and the Trust Indenture Act of 1939
as amended (the "Trust Indenture Act") and has filed such amendments
thereto as may have been required to the date hereof. The
registration statement has been prepared in conformity with the
requirements of the Act and the rules and regulations thereunder (the
"Rules and Regulations") and the Trust Indenture Act and the rules and
regulations thereunder. Copies of that registration statement as
amended to date have been delivered by the Company to you as the
Underwriter. As used in this Agreement, "Preliminary Prospectus"
means each
<PAGE> 2
prospectus included in that registration statement, or amendments of
such registration statement or prospectus, before that registration
statement, as so amended, became effective under the Act and any
prospectus filed by the Company with the consent of the Underwriter
pursuant to Rule 424(a) of the Rules and Regulations and the documents
incorporated by reference in such preliminary prospectus.
"Registration Statement" means that registration statement including
the prospectus, exhibits and financial statements, and all documents
incorporated by reference therein, including any information deemed by
virtue of Rule 430A(a)(3) of the Rules and Regulations to be part of
such Registration Statement, as of the time such registration
statement or post-effective amendment became effective under the Act
and the Trust Indenture Act; and "Prospectus" means the prospectus
filed with the Commission by the Company with the consent of the
Underwriter pursuant to Rule 424(b) of the Rules and Regulations,
unless no such Rule 424(b) Prospectus is filed, in which case it shall
mean the Prospectus filed as part of the last Registration Statement
filed on or before the effective date thereof. The Commission has not
issued any order preventing or suspending the use of any Preliminary
Prospectus.
(b) Each Preliminary Prospectus, at the time of the filing
thereof, did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which made, not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from any Preliminary Prospectus in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Underwriter specifically for inclusion therein. The
Registration Statement has been declared effective by the Commission.
(c) The Registration Statement and the Prospectus in all
material respects: (i) complied as of the date the Registration
became effective, (ii) comply as of the date hereof and (iii) will
comply as of the Closing Date, as hereinafter defined, with
the requirements of the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the Trust Indenture Act and the
rules and regulations of the Commission under such Acts; the
Registration Statement and any amendment thereof, at the time it
became effective, did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and the
Prospectus, at the time the Registration Statement became effective
did not, as of the date hereof does not and as of the Closing Date
will not, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this Paragraph 2.(c) shall not apply to (A) that part
of the Registration Statement which constitutes the Statement of
Eligibility and Qualification (Form T-1) of the Trustee under the
Trust Indenture Act or (B) statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by
the Underwriter expressly for use in the Registration Statement or
the Prospectus.
2
<PAGE> 3
(d) The documents incorporated by reference into the Prospectus
pursuant to Item 12 of Form S-2 under the Act, at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder (the "Exchange Act Rules and Regulations"),
comply in all materials respects with the requirements of the Exchange
Act and the Exchange Act Rules and Regulations and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements
therein, in the light of the circumstances under which they are made,
not misleading.
(e) Arthur Andersen LLP, the accountants whose report appears
in the Prospectus, are independent public accountants as required by
the Act and the Rules and Regulations.
(f) The consolidated financial statements of the Company and
its subsidiaries filed as part of the Registration Statement or
included in any Preliminary Prospectus or the Prospectus present
fairly, and the financial statements included in any amendment or
supplement to the Prospectus will present fairly, the financial
condition and results of operations of the Company and its
subsidiaries, at the dates and for the periods indicated, and have
been, and in the case of financial statements included in any
amendment or supplement to the Prospectus will be, prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. No other financial
statements are required to be set forth in the Registration Statement
or the Prospectus under the Act or the Rules and Regulations
thereunder.
(g) Except as described in or contemplated by the Registration
Statement and the Prospectus, subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries (as
defined in Paragraph 12) has incurred any material liability or
obligation, direct or contingent, or entered into any material
transaction, whether or not in the ordinary course of business, and
there has not been any material change on a consolidated basis in the
Company's capital stock, or any material increase in the long-term
debt of the Company or any of its subsidiaries, or any issuance of
options, warrants, convertible securities or other rights to purchase
capital stock of such entity, or any material adverse change in, or
any adverse development which materially affects, the business,
properties, financial condition, results of operations, or prospects
of the Company and its subsidiaries taken as a whole.
(h) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing and in good standing under the laws
of its jurisdiction of incorporation, and the Company and each of its
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which their respective
ownership of property or the conduct of their respective businesses
requires such qualification and wherein the failure to be so qualified
would have a material adverse effect on the business of the Company
and each of its subsidiaries, and have all power and authority
necessary to own or hold their properties and to conduct the business
in
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<PAGE> 4
which they are engaged. All outstanding shares of capital stock of
the subsidiaries of the Company are owned directly or indirectly by
the Company and are validly authorized, issued and outstanding, fully
paid and non-assessable with no personal liability attaching to the
ownership thereof, and all of such shares are owned free and clear of
any lien, pledge or encumbrance or any claim of any third party.
(i) The authorized and outstanding capitalization of the
Company as of December 31, 1997 was as set forth in the Registration
Statement and the Prospectus, and there have been no changes in the
authorized or outstanding capitalization of the Company since December
31, 1997 except as contemplated by the Registration Statement and the
Prospectus. All corporate action required to have been taken by the
Company for the due and proper authorization, execution and delivery
of the Indenture and the due and proper authorization, issuance, sale
and delivery of the Debentures have been validly and sufficiently
taken. When the Debentures have been executed, issued, delivered and
paid for in the manner herein described, the Debentures will be duly
issued and will constitute valid and legally binding obligations of
the Company entitled to the benefits provided by the Indenture, and
the Debentures will be enforceable in accordance with their terms
(except insofar as enforcement may be limited by applicable
bankruptcy, reorganization, insolvency or other laws affecting
creditors' rights and remedies generally, as may from time to time be
in effect, and by the availability of specific performance or of other
equitable relief which is subject to the discretion of the court
before which any proceeding may be brought); the Debentures conform to
all statements relating thereto in the Registration Statement, and
holders of the Debentures will not be entitled to preemptive rights.
(j) The Indenture is in due and proper form, has been duly and
validly executed and delivered and is a valid and enforceable
instrument in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and to the extent that general equitable principles may
limit the right to obtain the remedy of specific performance of
certain of the obligations thereunder.
(k) The filing of the Registration Statement and the execution
and delivery by the Company of this Agreement, and the consummation of
the transactions contemplated hereby and thereby, have been duly
authorized by the board of directors of the Company, and all necessary
corporate action to authorize and approve the same has been taken.
This Agreement has been duly executed and delivered by the Company and
is a valid and legally binding obligation of the Company.
(l) The Company, and its subsidiaries have good and marketable
title to, or valid and enforceable leasehold interests in, all items
of real and personal property which are material to the business of
the Company and its subsidiaries taken as a whole, free and clear of
all liens, encumbrances and claims (other than the liens disclosed in
the Prospectus) which might materially interfere with the conduct of
the business of the Company and its subsidiaries taken as a whole.
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<PAGE> 5
(m) Except to the extent disclosed in the Prospectus, neither
the Company, nor any of its subsidiaries, is in violation of its
corporate charter or bylaws or in default under any obligation,
agreement, covenant or condition contained in any mortgage or other
material contract, lease, note, indenture or instrument to which it is
a party or by which it may be bound, the effect of which violation or
default would be material to the Company and its subsidiaries taken as
a whole, or is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it
or its property may be subject the effect of which violation would be
material to the Company and its subsidiaries taken as a whole, or has
failed to obtain any material license, permit, certificate, franchise
or other governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business; and the
execution, delivery and performance of this Agreement by the Company,
the sale of the Debentures, compliance by the Company with the
provisions of the Debentures and the Indenture, and the consummation
of the transactions contemplated by this Agreement will not conflict
with, result in the creation or imposition of any lien, charge or
encumbrance upon any of the properties or assets of the Company
pursuant to the terms of, or constitute a breach of or default under,
any agreement, indenture or instrument to which the Company is a
party, or by which the Company is bound, or result in a violation of
the corporate charter or bylaws of the Company or, except to the
extent disclosed in the Prospectus, any law or ordinance to which the
Company or its properties may be subject or of any order, rule or
regulation of any court or governmental agency having jurisdiction
over the Company or its properties, except for conflicts, breaches,
violations or defaults which would be immaterial to the business and
operations of the Company and its subsidiaries taken as a whole and
which would not affect the validity or enforceability of the
Debentures, the Indenture or this Agreement or otherwise adversely
affect the rights, duties or obligations of the Trustee, the
Underwriter or the holders of the Debentures.
(n) No approval or consent of any governmental body other than
(i) as may be required under the Act or the Trust Indenture Act or in
connection or compliance with the provisions of the securities or
"blue sky" laws of any jurisdiction, and (ii) approval by the Kentucky
Public Service Commission which has been obtained, is legally required
for the carrying out by the Company of the provisions of this
Agreement.
(o) Except as described in the Registration Statement and the
Prospectus, there is no litigation or governmental proceeding pending
or, to the knowledge of the Company threatened against the Company or
any of its subsidiaries which, if adversely resolved, could reasonably
be expected to result in any material adverse change in the business,
properties, financial condition, results of operations or prospects of
the Company and its subsidiaries taken as a whole or which is required
to be disclosed in the Registration Statement or the Prospectus.
(p) There are no contracts or other documents which are
required to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations which have not been filed as
exhibits to the Registration Statement.
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<PAGE> 6
(q) Except as disclosed in the Prospectus, the Company and each
of its subsidiaries have sufficient authority under statutory
provisions or by grant of franchises or permits by municipalities or
counties to conduct in all material respects their respective
businesses as presently conducted and as described in the Registration
Statement and Prospectus.
(r) Except as set forth in the Registration Statement and the
Prospectus, the Company and its subsidiaries are in compliance with
all applicable existing federal, state and local laws and regulations
relating to protection of human health or the environment or imposing
liability or standards of conduct concerning any Hazardous Material
("Environmental Laws"), except for such instances of noncompliance
which, either singly or in the aggregate, would not have a material
adverse effect on the condition (financial or otherwise), results of
operations or properties of the Company and its subsidiaries, taken as
a whole. The term "Hazardous Material" means (i) any "hazardous
substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (ii) any
"hazardous waste" as defined by the Resource Conservation and Recovery
Act, as amended, (iii) any petroleum or petroleum product, (iv) any
polychlorinated biphenyl and (v) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other law relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical, material, waste or
substance.
(s) No material labor dispute with the employees of the Company
or any of its subsidiaries exists or, to the knowledge of the Company,
is imminent; and the Company knows of no existing or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors which might reasonably be expected to
result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company and its subsidiaries taken as a whole.
(t) Each of the Company and its subsidiaries owns, possesses or
has the right to use all material licenses, trademarks, patents,
patent rights, inventions, copyrights, service marks and trade names
presently employed by it in connection with the businesses now
operated by it, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing.
(u) The Company and its subsidiaries maintain insurance covering
their properties, operations, personnel and businesses which insures
against such losses and risks as are adequate in accordance with its
reasonable business judgment to protect the Company and its subsidiaries
and their businesses. Neither the Company nor any of its subsidiaries
has received notice from any insurer or agent of such insurer that
substantial capital improvements or other expenditures will have to be
made in order to continue such insurance. All such insurance is
outstanding and duly in force on the date hereof and will be outstanding
and duly in force on the Closing Date.
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<PAGE> 7
(v) Neither the Company nor any of its subsidiaries is an
"investment company" or an entity "controlled" by an "investment
company," as such terms are defined in the Investment Company Act of
1940, as amended.
(w) Except as otherwise disclosed in the Prospectus, the
Company and each of its subsidiaries have all necessary consents,
authorizations, approvals, orders, certificates and permits of and
from, and have made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease,
license and use their respective properties and assets and to conduct
their respective businesses in the manner described in the Prospectus,
except to the extent that the failure to obtain or file would not have
a material adverse effect on the Company and its subsidiaries, taken
as a whole.
Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriter shall be deemed a representation and
warranty by the Company to the Underwriter as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF DEBENTURES. On the basis
of the representations and warranties contained in, and subject to the terms
and conditions of, this Agreement, the Company agrees to sell to the
Underwriter, and the Underwriter agrees to purchase the Debentures from the
Company. The purchase price for the Debentures will be ---% of the principal
amount thereof.
Delivery of the Debentures, in definitive form, and payment therefor,
shall be made at 10:00 A.M., St. Louis time, on the third business day after
the Registration Statement shall have been declared effective by the
Commission, or on such later date and time as may be agreed upon in writing
between the Underwriter and the Company, such day and time of delivery and
payment being herein called the "Closing Date." On the Closing Date, the
Debentures shall be delivered by the Company to the Underwriter at The
Depository Trust Company in New York, New York, against payment of the
purchase price therefor in funds immediately available to the order of the
Company. The Company agrees to make available to the Underwriter for
inspection and packaging in New York, New York, at least one full business
day prior to the Closing Date, certificates for the Debentures so to be
delivered in good delivery form and in such denominations and registered in
such names as the Underwriter shall have requested, all such requests to have
been made in writing at least one full business day prior to the Closing
Date.
4. COVENANTS. The Company covenants and agrees with the
Underwriter:
(a) To furnish promptly to the Underwriter and counsel for the
Underwriter one signed copy of the Registration Statement as
originally filed, and of each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith.
(b) To deliver promptly to the Underwriter such number of
conformed copies of the Registration Statement as originally filed and
each amendment thereto (excluding exhibits other than this Agreement)
and of each Preliminary Prospectus, the Prospectus
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<PAGE> 8
and any amended or supplemented Prospectus as the Underwriter may
reasonably request.
(c) To file promptly with the Commission the Prospectus pursuant
to Rule 424(b) of the Rules and Regulations and to file with the
Commission any amendment to the Registration Statement or the
Prospectus or any supplement to the Prospectus that may, in the
reasonable judgment of the Company or the Underwriter, be required by
the Act or requested by the Commission and approved by the Underwriter
(which approval will not be unreasonably withheld).
(d) Prior to filing with the Commission any amendment to the
Registration Statement or amendment or supplement to the Prospectus,
or to filing any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Underwriter and counsel
for the Underwriter and obtain the consent of the Underwriter to the
filing (which consent will not be unreasonably withheld).
(e) To use its best efforts to cause any required
post-effective amendment to the Registration Statement to become
effective and to advise the Underwriter promptly (i) when any
post-effective amendment to the Registration Statement becomes
effective, (ii) of any request or proposed request by the Commission
for an amendment to the Registration Statement, an amendment or a
supplement to the Prospectus or for any additional information, (iii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation or
threat of any stop order proceeding, (iv) of receipt by the Company of
any notification with respect to the suspension of the qualification
of the Debentures for sale in any jurisdiction or the initiation or
threat of any proceeding for that purpose, and (v) of the happening of
any event which makes untrue any statement of a material fact made in
the Registration Statement or the Prospectus, or which requires the
making of a change in the Registration Statement or the Prospectus in
order to make any material statement therein not misleading.
(f) If, at any time when a prospectus relating to the
Debentures is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if
it shall be necessary to amend or supplement the Registration
Statement or the Prospectus to comply with the Act or the Exchange Act
or the rules and regulations of the Commission under such Acts, the
Company promptly will prepare and file with the Commission, subject to
Paragraph 4.(d), an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance.
(g) If the Commission shall issue a stop order suspending the
effectiveness of the Registration Statement, to make every reasonable
effort to obtain the lifting of that order at the earliest possible
time.
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<PAGE> 9
(h) As soon as practicable after the effective date of the
Registration Statement, to make generally available to its security
holders and to deliver to the Underwriter an earnings statement,
conforming with the requirements of Section 11(a) of the Act, covering
a period of at least twelve months beginning after the effective date
of the Registration Statement, provided that the Company may comply
with this Paragraph 4.(h) by complying with the safe harbor provisions
of Rule 158 of the Rules and Regulations.
(i) For a period of three years from the effective date of the
Registration Statement, to furnish to the Underwriter copies of all
reports to shareholders and all reports, filings and financial
statements furnished by the Company to any securities exchange
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder.
(j) To endeavor to qualify the Debentures for offer and sale
under the securities laws of such jurisdictions as the Underwriter may
reasonably request, provided that no such qualification shall be
required if as a result thereof the Company would be required to
qualify as a foreign corporation, subject itself to general taxation
or would be made subject to service of general process, in each case
in any jurisdiction in which it is not so qualified or subject; and to
maintain such qualifications in effect so long as required for
the distribution of the Debentures and to arrange for the
determination of the legality of the Debentures for purchase by
institutional investors.
(k) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company
will pay (i) the costs incident to the sale and delivery of the
Debentures and any taxes payable in that connection; (ii) the costs
incident to the preparation, printing and filing under the Act of the
Registration Statement, any Preliminary Prospectus, the Prospectus and
any amendments, supplements and exhibits thereto; (iii) the costs of
distributing the Registration Statement as originally filed and each
amendment thereto and any post-effective amendments thereof (including
exhibits), any Preliminary Prospectus, the Prospectus, and any
amendment or supplement to the Prospectus; (iv) the costs, if any, of
printing and distributing this Agreement; (v) the costs of filings
incident to securing any required review by the National Association
of Securities Dealers, Inc.; (vi) the fees and expenses of qualifying
the Debentures under the securities laws of the several jurisdictions
as provided in this Paragraph 4 and of preparing and printing a Blue
Sky Memorandum (including related fees and expenses of counsel to the
Underwriter); (vii) the cost of printing the Indenture, the Debentures
and the fees of the Trustee; (viii) the fees and expenses of the
Company's accountants and counsel; and (ix) all other costs and
expenses incident to the performance of the obligations of the Company
under this Agreement; provided, however, that except as provided in
sub-parts (v) and (vi) of this Paragraph 4.(k) and in Paragraph 9, the
Underwriter shall pay its own costs and expenses, including the fees
and expenses of its counsel, any transfer taxes on the Debentures
which it may sell and the expenses of advertising any offering of the
Debentures made by the Underwriter.
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<PAGE> 10
(l) Until the termination of the offering of the Debentures, to
file timely all documents, and any amendments to previously filed
documents, required to be filed by it pursuant to the Exchange Act.
(m) To apply the net proceeds of the Debentures as set forth in
the Prospectus.
5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations
of the Underwriter hereunder are subject to the accuracy, when made and on
the Closing Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed to the extent
required; at or before the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued,
and prior to that time no stop order proceeding nor any order directed
at any document incorporated by reference in the Prospectus shall have
been initiated or, to the knowledge of the Company, threatened by the
Commission, and no challenge shall have been made to any document
incorporated by reference in the Prospectus; any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied
with; and the Company shall not have filed with the Commission the
Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus without the consent of the Underwriter.
(b) The Underwriter shall not have discovered and disclosed to
the Company on or prior to the Closing Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the reasonable
opinion of the Underwriter or Armstrong, Teasdale, Schlafly, & Davis,
counsel for the Underwriter, is material or omits to state a fact
that, in the reasonable opinion of the Underwriter or such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the
Debentures, the form of the Registration Statement and the Prospectus,
other than financial statements and other financial data, and all
other legal matters relating to this Agreement and the transactions
contemplated hereby shall be satisfactory in all reasonable respects
to Armstrong, Teasdale, Schlafly, & Davis, counsel for the
Underwriter; and the Company shall have furnished to such counsel all
documents and information that such counsel may reasonably request to
enable them to pass upon such matters.
(d) Stoll, Keenon & Park, as counsel to the Company, shall have
furnished to the Underwriter their opinion, addressed to the
Underwriter and dated the Closing Date, to the effect that:
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<PAGE> 11
(i) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing and in good standing
under the laws of its jurisdiction of incorporation, is duly
qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which its ownership of
property or conduct of business requires such qualification and
wherein the failure to be so qualified would have a material
adverse effect on the business of the Company or such
subsidiary, and has all corporate power and authority necessary
to own or hold its properties and conduct the business in which
it is engaged as described in the Prospectus.
(ii) The Indenture has been duly authorized, qualified
under the Trust Indenture Act, executed and delivered; the
Debentures have been duly authorized, executed, authenticated,
issued and delivered; and the Indenture and the Debentures
constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(iii) All corporate action required to have been taken by
the Company for the due and proper authorization, issuance, sale
and delivery of the Debentures has been validly and sufficiently
taken.
(iv) The Indenture and the Debentures conform in all
material respects to the statements concerning them in the
Prospectus.
(v) To the knowledge of such counsel based upon
communications with representatives of the Commission, (A) the
Registration Statement is effective under the Act, and (B) the
Prospectus was timely filed with the Commission as required. To
the knowledge of such counsel, (C) no stop order suspending the
effectiveness of the Registration Statement has been issued, and
(D) no proceeding for that purpose is pending or threatened by
the Commission.
(vi) To the knowledge of such counsel, (A) no order
directed to any document incorporated by reference in the
Prospectus has been issued, and (B) no challenge has been made
to the accuracy or adequacy of any such document.
(vii) The Registration Statement and the Prospectus and
each amendment or supplement, if any, thereto comply as to form
in all material respects with the requirements of the Act and
the Rules and Regulations thereunder and the Trust Indenture Act
and the rules and regulations of the Commission under such act
(except that no opinion need be expressed as to the Trustee's
statement of Qualification and as to the financial statements or
financial data contained therein).
(viii) The statements made in the Prospectus, insofar as
they purport to summarize the provisions of statutes, legal and
governmental proceedings,
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<PAGE> 12
contracts or other documents specifically referred to therein
are accurate and fairly present the information called for with
respect thereto by Form S-2 under the Act (except that no
opinion need be expressed as to financial statements or
financial date continued therein).
(ix) To such counsel's knowledge, except as disclosed in
the Prospectus, there is no litigation or any governmental
proceeding pending or threatened against the Company or any of
its subsidiaries which could have a material adverse effect on
the Company and its subsidiaries taken as a whole or which is
required to be disclosed in the Registration Statement or the
Prospectus.
(x) To such counsel's knowledge, there are no contracts
or other documents which are required to be filed as exhibits to
the Registration Statement by the Act or by the Rules and
Regulations which have not been filed as exhibits to the
Registration Statement as permitted by the Rules and
Regulations.
(xi) To such counsel's knowledge, neither the Company
nor any of its subsidiaries is in violation of its corporate
charter or bylaws, or in default under any agreement, indenture
or instrument, the effect of which violation or default would be
material to the Company and its subsidiaries taken as a whole,
or is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to
which it or its property may be subject or, except as disclosed
in the Prospectus, has failed to obtain any material license,
permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its
property or to the conduct of its business.
(xii) This Agreement has been duly authorized, executed
and delivered by the Company. The Agreement and the
transactions contemplated by this Agreement will not conflict
with any agreement of the Company or its subsidiaries known to
counsel, will not create a lien or encumbrance upon any property
of the Company or its subsidiaries, will not violate the
articles of incorporation or bylaws of the Company or its
subsidiaries and will not violate any law or governmental
ordinance, order or regulation, except to the extent that such
conflict, lien, encumbrance or violation would have a no
material adverse effect on the Company and its subsidiaries
taken as a whole.
(xiii) No approval or consent of any governmental body,
other than (i) as may be required under the Act or the Trust
Indenture Act of 1939 or in connection or compliance with the
provisions of the securities or "blue sky" laws of any
jurisdiction, and (ii) approval by the Public Service Commission
of Kentucky ("PSC"), which approval by the PSC has been
obtained, is legally required for the issue and sale of the
Debentures by the Company or for the carrying out by the Company
of the provisions of this Agreement.
Such counsel also shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel has participated in
conferences with your representatives and
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<PAGE> 13
counsel for the Underwriter, and with officers and representatives of the
Company, at which conferences the contents of the Registration Statement and
Prospectus were discussed, reviewed and revised. On the basis of the
information which was developed in the course thereof, considered in light of
such counsel's understanding of applicable law and the experience gained by
such counsel thereunder, such counsel shall confirm that nothing came to such
counsel's attention that would lead such counsel to believe that either the
Registration Statement or Prospectus or any amendment or supplement thereto
(other than the financial statements and notes thereto, or any related
schedules therein, as to which such counsel need express no opinion) contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(e) On the Closing Date, there shall have been furnished to you
a certificate, dated such date, from the Company, signed on behalf of
the Company by the President and Chief Executive Officer and the
Treasurer, stating that to the knowledge of the officers signing such
certificate:
(i) The representations, warranties and agreements of
the Company in Paragraph 2 are true and correct as of such date;
the Company has complied with all its agreements contained
herein; and the conditions set forth in Paragraph 5.(a) have
been fulfilled;
(ii) Neither the Registration Statement, as of its
effective date, nor the Prospectus, as of its date, included any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which
should have been set forth in a supplement to or amendment of
the Prospectus which has not been set forth in such a supplement
or amendment; and
(iii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for
that purpose have been instituted or are pending or threatened,
under the Act.
(f) On the date of this Agreement and on the Closing Date,
Arthur Andersen LLP, shall have furnished to you letters dated such
dates substantially in the form of a draft of such letter previously
delivered to you.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall
not have been any change specified in the letter referred to in
Paragraph 5.(f) which makes it impractical or inadvisable in the
reasonable judgment of the Underwriter to proceed with the public
offering or delivery of the Debentures as contemplated by the
Prospectus.
(h) The Underwriter shall have received from Armstrong,
Teasdale, Schlafly & Davis, counsel for the Underwriter, such opinion
or opinions, dated the Closing Date,
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<PAGE> 14
with respect to the issuance and sale of the Debentures, the
Indenture, the Registration Statement, the Prospectus, and other
related matters as the Underwriter may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to the Underwriter and Armstrong, Teasdale, Schlafly & Davis,
counsel for the Underwriter.
If any of the conditions specified in this Paragraph 5 shall not have
been fulfilled when and as provided in this Agreement, or if any of the
opinions or certificates mentioned above or elsewhere in this Agreement shall
not be in all material respects reasonably satisfactory in form and substance
to the Underwriter and its counsel, this Agreement and all obligations of the
Underwriter hereunder may be canceled at, or at any time prior to, the
Closing Date by the Underwriter.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act from and against any loss, claim, damage or liability,
joint or several, and any action in respect thereof, to which the Underwriter
or any such controlling person may become subject, under the Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement of
a material fact contained in any Preliminary Prospectus, the Registration
Statement, the Prospectus, or the Registration Statement or Prospectus as
amended or supplemented, or arises out of, or is based upon, the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse the Underwriter and each such controlling person for any legal and
other expenses reasonably incurred by the Underwriter or such controlling
person for any legal and other expenses reasonably incurred by the
Underwriter or such controlling person in investigating or defending or
preparing to defend against any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus
or in the Registration Statement or the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for
inclusion therein; and provided further that as to any Preliminary Prospectus
this indemnity agreement shall not inure to the benefit of the Underwriter or
any person controlling the Underwriter on account of any loss, claim, damage,
liability or action arising from the sale of Debentures to any person by the
Underwriter if the Underwriter failed to send or give a copy of any
Prospectus, as the same may be amended or supplemented, to that person within
the time required by the Act, and the untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact in such Preliminary Prospectus was corrected in such
Prospectus, unless such failure resulted from non-compliance by the Company
with Paragraph
14
<PAGE> 15
4.(b) hereof. The foregoing indemnity is in addition to any liability which
the Company may otherwise have to the Underwriter or any controlling person
of the Underwriter.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, its directors and officers who signed the Registration Statement and
any person who controls the Company within the meaning of the Act from and
against any loss, claim, damage or liability, joint or several, or any action
in respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement, the
Prospectus or the Registration Statement or Prospectus as amended or
supplemented,or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for inclusion
therein, and shall reimburse the Company for any legal and other expenses
reasonably incurred by the Company or any such director, officer or
controlling person in investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action. The foregoing
indemnity agreement is in addition to any liability which the Underwriter may
otherwise have to the Company.
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Paragraph 6, notify the indemnifying party
in writing of the claim or the commencement of that action, provided that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Paragraph 6. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the
extent that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel
to assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not
be liable to the indemnified party under this Paragraph 6 for any legal or
other expenses subsequently incurred by the indemnified party in connection
with the defense other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
party and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying party shall not have the
15
<PAGE> 16
right to direct the defense of such action on behalf of the indemnified
party), (iii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action or
(iv) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(d) If the indemnification provided for in this Paragraph 6
shall for any reason be unavailable to an indemnified party under Paragraph
6.(a) or 6.(b) in respect of any loss, claim, damage or liability, or any
action in respect thereof, referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriter on the other from the
offering of the Debentures or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one hand
and the Underwriter on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter
on the other hand with respect to such offering shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Debentures
(before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriter with
respect to such offering, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriter, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriter agree
that it would not be just and equitable if contributions pursuant to this
Paragraph 6.(d) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Paragraph 6.(d) shall be
deemed to include, for purposes of this Paragraph 6.(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Paragraph 6.(d), the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at
which the Debentures underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which the Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The Underwriter confirms that the statements with respect
to the public offering of the Debentures set forth on the cover page of, and
under the caption "Underwriting"
16
<PAGE> 17
in, the Prospectus are correct and were furnished in writing to the Company
by the Underwriter for inclusion in the Registration Statement and the
Prospectus.
(f) The agreements contained in this Paragraph 6 and the
representations, warranties and agreements of the Company contained in
Paragraphs 2 and 4 shall survive the delivery of the Debentures and shall
remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of
any indemnified party.
7. TERMINATION BY THE UNDERWRITER. The obligations of the
Underwriter hereunder may be terminated by the Underwriter, in its absolute
discretion, by notice given to and received by the Company prior to delivery
of and payment for the Debentures, if prior to that time (a)(i) the Company
shall have failed, refused or been unable to perform any agreement on its
part to be performed hereunder, (ii) any other condition to the Underwriter's
obligations hereunder is not fulfilled, (iii) the Company sustains a loss,
whether or not insured, by reason of fire, flood, accident or other calamity,
which, in the reasonable opinion of the Underwriter, substantially affects
the value of the properties of the Company or which materially interferes
with the operation of the business of the Company, (iv) trading generally
shall have been suspended or materially limited on or by the New York Stock
Exchange or American Stock Exchange or the National Association of Securities
Dealers or trading in any securities of the Company shall have been suspended
by any securities exchange or in the over the counter market, (v) a banking
moratorium is declared by the United States, or by New York, Missouri or
Kentucky state authorities, (vi) an outbreak of major hostilities or other
national or international calamity occurs, (vii) any action is taken by any
government in respect of its monetary affairs which, in the reasonable
opinion of the Underwriter, has a material adverse effect on the United
States securities markets, or (viii) there is a pending or threatened
material legal or governmental proceeding against the Company, other than
proceedings described in the Registration Statement or amendments or
supplements thereto delivered to the Underwriter prior to the execution of
this Agreement, which in the reasonable opinion of the Underwriter has a
material adverse effect upon the Company, and (b) with respect to the events
specified in clauses (a)(i) through (a)(iii) hereof, such event singly or
together with other such events makes it, in your reasonable judgment,
impractical to market the Debentures on the terms and in the manner
contemplated in the Prospectus.
8. TERMINATION BY THE COMPANY. The obligation of the Company
to deliver the Debentures upon payment therefor shall be subject to the
following conditions:
On the Closing Date the orders of the Kentucky Public Service
Commission referred to in Paragraph 2.(n) and Paragraph 5.(d)(xiii) hereof
shall be in full force and effect substantially in the form in which
originally entered; the Indenture shall be qualified under the Trust
Indenture Act as and to the extent required by such Act; and no stop order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for that purpose shall then be pending before, or
threatened by, the Commission.
In case any of the conditions specified above in this Paragraph 8 shall
not have been fulfilled, this Agreement may be terminated by the Company by
delivering written notice of
17
<PAGE> 18
termination to the Underwriter. Any such termination shall be without
liability of any party to any other party except to the extent provided in
Paragraph 4.(k) and Paragraph 9 hereof.
9. EXPENSES FOLLOWING TERMINATION. If the sale of Debentures
provided for herein is not consummated because of any refusal, inability or
failure on the part of the Company to comply with any of the terms or to
fulfill any of the conditions of this Agreement, or if for any reason the
Company shall be unable to perform all its obligations under this Agreement,
the Company shall not be liable to the Underwriter for damages arising out of
the transactions covered by this Agreement, provided however that (i) the
Company shall remain liable to the extent provided in Paragraphs 4.(k), 6.(a)
and 6.(d) hereof and (ii) except where termination occurs pursuant to Section
8 hereof, the Company shall pay the out-of-pocket expenses incurred by the
Underwriter in contemplation of the performance by it of its obligations
hereunder, including the fees and disbursements of its counsel and travel,
postage, telegraph and telephone expenses, up to a maximum amount of $40,000.
10. NOTICES. The Company shall be entitled to act and rely upon
any request, consent, notice or agreement given or made by the Underwriter.
Any notice to the Underwriter shall be sufficient if given in writing or by
telecopy addressed to Edward D. Jones & Co., 12555 Manchester Road,
St. Louis, Missouri 63131, Attention: James A. Krekeler; any notice to the
Company shall be sufficient if given in writing or by telecopy addressed to
the Company at: 3617 Lexington Road, Winchester, Kentucky 40391 (Attention:
Glenn R. Jennings).
11. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors.
This Agreement and the terms and provisions hereof are for the sole benefit
of only those persons, except that (a) the representations, warranties,
indemnities and agreements of the Company contained in this Agreement shall
also be deemed to be for the benefit of the person or persons, if any, who
control the Underwriter within the meaning of Section 15 of the Act, and (b)
the indemnities and agreements of the Underwriter contained in Paragraph 6 of
this Agreement shall be deemed to be for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement
and any person controlling the Company. Nothing in this Agreement is
intended or shall be construed to give any person other than the persons
referred to in this paragraph any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
12. DEFINED TERMS. For purposes of this Agreement, (a) "business
day" means any day on which the New York Stock Exchange is open for trading,
and (b) "subsidiary" shall have the meaning set forth in Rule 405 of the
Rules and Regulations.
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns
and the officers and directors and controlling persons referred to in
Paragraph 6 hereof, and no other person will have any right or obligation
hereunder. The term "successors and assigns" as used in this Agreement shall
not include any purchaser, as such purchaser, of any of the Debentures from
the Underwriter.
18
<PAGE> 19
14. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, all of which, when taken together, shall constitute one and the
same agreement among the parties to such counterparts.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri.
If the foregoing correctly sets forth the agreement between the Company
and the Underwriter, please indicate your acceptance in the space provided
for that purpose.
Very truly yours,
DELTA NATURAL GAS COMPANY, INC.
By:
-------------------------------------
President and Chief Executive Officer
Accepted:
EDWARD D. JONES & CO., L.P.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
19
<PAGE> 1
DELTA NATURAL GAS COMPANY, INC.
and
THE FIFTH THIRD BANK,
TRUSTEE
-----------------------
INDENTURE
Dated as of March 1, 1998
-----------------------
$25,000,000
% Debentures
----
Due April 1, 2018
-------------------------------------------
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
<C> <C> <S> <C>
1 DEFINITIONS AND INCORPORATION
BY REFERENCE 1
1.01 Definitions 1
1.02 Other Definitions 5
1.03 Incorporation by Reference of
Trust Indenture Act 5
1.04 Rules of Construction 6
2 THE DEBENTURES 6
2.01 Form and Dating 6
2.02 Execution and Authentication 6
2.03 Registrar and Paying Agent 7
2.04 Paying Agent to Hold Money in
Trust 7
2.05 Debentureholder Lists 8
2.06 Transfer and Exchange 8
2.07 Replacement Debentures 9
2.08 Outstanding Debentures 9
2.09 Treasury Debentures 9
2.10 Temporary Debentures 10
2.11 Cancellation 10
2.12 Defaulted Interest 10
2.13 Persons Deemed Owners 10
3 REDEMPTION OF DEBENTURES AT
CORPORATION'S OPTION 11
3.01 Redemption Right at
Corporation's Option 11
3.02 Notices to Trustee 11
3.03 Selection of Debentures to be
Redeemed 11
3.04 Notice of Redemption 12
3.05 Effect of Notice of Redemption 12
3.06 Deposit of Redemption Price 12
3.07 Debentures Redeemed in Part 12
3.08 Corporation's Right to Withdraw
Redemption Election 13
<PAGE> 3
<CAPTION>
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
<C> <C> <S> <C>
4 REDEMPTION OF DEBENTURES AT
DEBENTUREHOLDER'S OPTION 13
4.01 Redemption Right at Debenture-
holder's Option 13
5 COVENANTS 13
5.01 Payment of Debentures 13
5.02 Reporting 13
5.03 Corporate Existence 14
5.04 Payment of Taxes and Other
Claims 14
5.05 Limitation on Certain Funded
Indebtedness 14
5.06 Limitations on Dividends and
Other Payments on Stock 14
5.07 Limitation on Secured
Indebtedness 15
5.08 Compliance Certificate 16
5.09 Default Certificate 17
6 SUCCESSORS 17
6.01 When Corporation May Merge, etc. 17
7 DEFAULTS AND REMEDIES 17
7.01 Events of Default 17
7.02 Acceleration 19
7.03 Other Remedies 20
7.04 Waiver of Past Defaults 20
7.05 Control by Majority 20
7.06 Limitation on Suits 20
7.07 Rights of Holders to Receive
Payment 21
7.08 Collection Suit by Trustee 21
7.09 Trustee May File Proofs of
Claim 21
7.10 Priorities 22
7.11 Undertaking for Costs 22
7.12 Waiver of Stay or Extension
Laws 22
7.13 Restoration of Rights and
Remedies 23
7.14 Record Date for Vote of
Debentureholders 23
<PAGE> 4
<CAPTION>
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
<C> <C> <S> <C>
8 TRUSTEE 23
8.01 Duties of Trustee 23
8.02 Rights of Trustee 24
8.03 Individual Rights of Trustee 25
8.04 Trustee's Disclaimer 25
8.05 Notice of Defaults 25
8.06 Reports by Trustee to Holders 25
8.07 Compensation and Indemnity 26
8.08 Replacement of Trustee 26
8.09 Successor Trustee by Merger, etc. 27
8.10 Eligibility; Disqualification 27
8.11 Preferential Collection of
Claims Against Corporation 28
8.12 Appointment of Co-Trustee 28
9 DISCHARGE OF INDENTURE 29
9.01 Termination of Corporation's
Obligations 29
9.02 Application of Trust Money 30
9.03 Repayment to Corporation 30
10 AMENDMENTS, SUPPLEMENTS AND
WAIVERS 30
10.01 Without Consent of Holders 30
10.02 With Consent of Holders 31
10.03 Compliance with Trust Indenture
Act 31
10.04 Revocation and Effect of
Consents 31
10.05 Notation on or Exchange of
Debentures 31
10.06 Trustee Protected 32
11 MISCELLANEOUS 32
11.01 Trust Indenture Act Controls 32
11.02 Notices 32
11.03 Communication by Holders with
Other Holders 33
11.04 Certificate and Opinion as to
Conditions Precedent 33
11.05 Statements Required in Certifi-
cate or Opinion 33
11.06 Rules by Trustee and Agent 34
11.07 Legal Holidays 34
11.08 No Recourse Against Others 34
11.09 Duplicate Originals 34
11.10 Governing Law 34
<PAGE> 5
<CAPTION>
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
<C> <C> <S> <C>
11.11 Table of Contents, Headings, etc. 34
SIGNATURES 35
<S> <C>
EXHIBIT A -- FORM OF GLOBAL SECURITY A-1
EXHIBIT B -- FORM OF DEBENTURE B-1
</TABLE>
<PAGE> 6
INDENTURE dated as of March 1, 1998, between DELTA NATURAL GAS COMPANY,
INC., a Kentucky corporation ("CORPORATION"), and THE FIFTH THIRD BANK, an
Ohio banking corporation ("TRUSTEE").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Corporation's %
----
Debentures Due April 1, 2018 ("Debentures"):
ARTICLE 1 - DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"AFFILIATE" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the
Corporation.
"AGENT" means any Registrar, Paying Agent or co-registrar or agent for
service of notices and demands. See Section 2.03 hereof.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation or
any authorized committee of the Board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Corporate Secretary of the Corporation to have been duly adopted by the Board
of Directors and to be in full force and effect.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"COMMON STOCK" means the common stock, par value $1 per share, of the
Corporation as the same exists at the date of this Indenture or as such stock
shall be constituted from time to time.
"CONSOLIDATED", when used in connection with any accounting terms,
means the Corporation and its Subsidiaries, the financial statements of which
are consolidated in accordance with generally accepted accounting principles.
"CONSOLIDATED FUNDED INDEBTEDNESS" means the outstanding Funded
Indebtedness of the Corporation and its Consolidated Subsidiaries (excluding
in all cases Funded Indebtedness owing to the Corporation or Consolidated
Subsidiaries); provided, however, that if the Corporation owns, directly or
indirectly, less than all of the voting stock of a Consolidated Subsidiary,
only that portion of the Funded Indebtedness of such Consolidated Subsidiary
equal to the proportion of its outstanding voting stock owned by the
Corporation shall be included in determining Consolidated Funded
Indebtedness.
"CONSOLIDATED NET UTILITY FIXED ASSETS" means the aggregate value of
Utility Fixed Assets of the Corporation and its Consolidated Subsidiaries
less accumulated depreciation, determined on a consolidated basis in
accordance with generally accepted accounting principles applied in a manner
consistent with the most recent audited financial statements included in
reports delivered to the Trustee pursuant to Section 5.02 hereof; provided,
however, that if the Corporation owns, directly or indirectly, less than all
of the outstanding voting stock of a Consolidated Subsidiary, only that
portion of the Utility Fixed Assets of such Consolidated Subsidiary equal to
the proportion of its outstanding voting stock owned by the Corporation shall
be included in determining Consolidated Net Utility Fixed Assets.
<PAGE> 7
"CONSOLIDATED TANGIBLE NET WORTH" means an amount equal to the
stockholders' ownership of the Corporation and its Consolidated Subsidiaries
(including capital stock, capital in excess of par value and retained
earnings, but eliminating any unpaid amounts due for sale of stock) less
intangible assets, all determined on a consolidated basis in accordance with
generally accepted accounting principles applied in a manner consistent with
the most recent audited financial statements included in reports delivered to
the Trustee pursuant to Section 5.02 hereof.
"CORPORATE TRUST OFFICE" means the office of the Trustee located in
Cincinnati, Ohio, at which at any time its corporate trust business shall be
principally administered, which office at the date of execution of this
Indenture is located at 38 Fountain Square Plaza, Cincinnati, Ohio 45263,
Attention: Corporate Trust Administration.
"CORPORATION" means the party named as such above until a successor
replaces it pursuant to the applicable provisions of the Indenture and
thereafter means the successor.
"CURRENT INDEBTEDNESS" of a Person means, as of the date of
determination thereof, all Indebtedness maturing on demand or not more than
one year after the date as of which such determination is made (excluding any
Indebtedness renewable or extendible at the option of the debtor, absolutely
or conditionally, for a period or periods ending more than one year after the
date of such determination, whether or not theretofore extended or renewed),
fixed sinking fund payments (except to the extent that funds for the payment
thereof shall have been deposited with a trustee for the application thereof)
and other prepayments required to be made with respect to any Indebtedness
not more than one year after such date, and all other items (including taxes
accrued as estimated) which in accordance with generally accepted accounting
principles would be included as current indebtedness.
"DEBENTURE" means the Debentures described above as issued under this
Indenture.
"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"DEPOSITORY" means The Depository Trust Company in the City of New York
and any successor to such Person.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as from time
to time amended.
"FUNDED INDEBTEDNESS" means all Indebtedness other than Current
Indebtedness.
"GLOBAL SECURITY" means a security evidencing all of the Debentures
issued to the Depository or its nominee and registered in the name of the
Depository or its nominee.
"HOLDER" OR "DEBENTUREHOLDER" means a person in whose name a Debenture
is registered; provided, however, that for purposes of Sections 7.06 and 7.07
hereof, such terms shall also include the Beneficial Owner (as defined in the
Debentures) of any Debenture.
"INDEBTEDNESS" of a Person means (i) all items of indebtedness or
liability which in accordance with generally accepted accounting principles
would be included in determining total liabilities as shown on the liability
side of a balance sheet as at the date as of which indebtedness is to be
determined, (ii) indebtedness upon which the Person whose indebtedness is
being determined customarily pays interest charges and indebtedness secured
by any mortgage, pledge or lien existing on property owned by such Person,
whether or not the indebtedness secured thereby shall have been assumed but,
if (a) any such indebtedness shall not have been assumed or guaranteed by
such Person, (b) such Person customarily does not pay any interest thereon,
and (c) such mortgage, pledge or lien was created by others upon lands over
which such Person has an
<PAGE> 8
easement or right of way, such indebtedness shall not be deemed to be
Indebtedness of such Person except to the extent of the larger of the fair value
or cost to such Person of such property (including any improvements thereon)
covered by such mortgage, pledge or lien, and (iii) guaranties, endorsements
(other than for purposes of collection in the ordinary course of business) and
other contingent obligations in respect of, or in respect to the purchase
or other acquisition of, indebtedness of others.
"INDENTURE" means this Indenture as amended from time to time.
"INTEREST PAYMENT DATE" means April 1 and October 1 of each year
commencing October 1, 1998 through and including April 1, 2018.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
other encumbrance of any kind.
"OFFICER" means the principal executive officer, principal financial
officer, principal accounting officer or President of the Corporation.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of
the Corporation. See Sections 11.04 and 11.05 hereof.
"OPINION OF COUNSEL" means a written opinion from legal counsel who may
be an employee of or counsel to the Corporation or the Trustee and who is
reasonably acceptable to the Trustee. See Sections 11.04 and 11.05 hereof.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PRINCIPAL" of the Debenture means the principal of the Debenture plus
the Premium, if any, on the Debenture.
"QUALIFIED INSTITUTION" means a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company located in the United States.
"RECORD DATE" means March 15 and September 15.
"REDEMPTION DATE" when used with respect to any Debenture to be
redeemed means the date fixed for such redemption pursuant to this Indenture.
"REDEMPTION PRICE" when used with respect to any Debenture to be
redeemed means the price at which it is to be redeemed pursuant to this
Indenture and the Debenture.
"SEC" means the Securities and Exchange Commission.
"SPECIAL RECORD DATE" means the date set by the Corporation for
determination of Debentureholders of record for purposes of paying any
defaulted interest.
"SUBSIDIARY" means a corporation at least the majority of whose voting
stock is owned by the Corporation or a Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date shown above except as provided
in Section 10.03 hereof.
<PAGE> 9
"TRUSTEE" means the party named as such above until a successor
replaces it pursuant to the applicable provisions of this Indenture and
thereafter means this successor.
"TRUST OFFICER" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"UNITED STATES" means the United States of America.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof.
"UTILITY FIXED ASSETS" means all physical property owned by the
Corporation and any Consolidated Subsidiaries and used or useful to the
Corporation in the business of furnishing or distributing, as a public
utility, gas service, the cost of which is charged and properly chargeable to
plant or plant addition account on the books of the Corporation or such
Consolidated Subsidiary in accordance with sound accounting practices and
generally accepted accounting principles. Utility Fixed Assets need not
consist of a specific or complete accession, addition or improvement or
complete new property, but may include construction work in progress or any
work such as is carried in fixed property accounts in accordance with sound
accounting practices and generally accepted accounting principles, whether
capable of complete description and identification or not.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
"BANKRUPTCY LAW" 7.01
"CUSTODIAN" 7.01
"EVENT OF DEFAULT" 7.01
"LEGAL HOLIDAY" 11.07
"PAYING AGENT" 2.03
"REGISTRAR" 2.03
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Debentures.
"INDENTURE SECURITY HOLDER" means a Debentureholder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee.
"OBLIGOR" on the indenture securities means the Corporation.
<PAGE> 10
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "Section" shall refer to a Section of this Indenture.
ARTICLE 2 - THE DEBENTURES
SECTION 2.01. FORM AND DATING.
The form of the Debentures to be originally issued as a Global Security
shall be substantially in the form of Exhibit A, which is part of this
Indenture. The form of the Debentures to be issued in exchange for a Global
Security shall be substantially in the form of Exhibit B, which is part of
this Indenture. The terms of such Exhibits A and B are hereby incorporated
herein by reference. The Debentures may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Debenture
shall be dated the date of its authentication.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Debentures for the Corporation by manual or
facsimile signature. The Corporation's seal shall be reproduced on the
Debentures.
If an Officer whose signature is on a Debenture no longer holds that
Office at the time the Debenture is authenticated, the Debenture shall
nevertheless be valid.
A Debenture shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that
the Debenture has been authenticated under this Indenture.
The Trustee shall authenticate Debentures for original issue up to the
aggregate principal amount of $25,000,000 upon a written order of the
Corporation signed by one officer. The aggregate principal amount of
Debentures outstanding at any time may not exceed that amount except as
provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Corporation to authenticate Debentures. An authenticating agent may
authenticate Debentures whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent to deal
with the Corporation or an Affiliate.
<PAGE> 11
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Corporation shall maintain an office or agency where Debentures may
be presented for registration or transfer or for exchange ("REGISTRAR"), an
office or agency where Debentures may be presented for payment ("PAYING
AGENT") and an office or agency where notices and demands to or upon the
Corporation in respect of the Debentures and this Indenture may be served.
The Registrar shall keep a register of the Debentures and of their transfer
and exchange. The Corporation may appoint one or more co-registrars and one
or more additional paying agents. The Corporation or any Subsidiary may act
as Registrar or Paying Agent. The term "Paying Agent" includes any
additional paying agent.
The Corporation shall notify the Trustee in writing of the name and
address of any Agent not a party to this Indenture. If the Corporation fails
to maintain a Registrar, Paying Agent or agent for service of notices and
demands or fails to give the foregoing notice, the Trustee shall act as such.
The Corporation initially appoints The Fifth Third Bank as Registrar,
Paying Agent and agent for service of notices and demands.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Corporation shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit
of Debentureholders or the Trustee all money held by the Paying Agent for the
payment of Principal or interest on the Debentures, and will notify the
Trustee of any Default by the Corporation in making any such payment. While
any such Default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. The Corporation at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over
to the Trustee, the Paying Agent shall have no further liability for the
money. If the Corporation (or any Subsidiary) acts as Paying Agent, it shall
segregate and hold as a separate trust fund all money held by it as Paying
Agent.
SECTION 2.05. DEBENTUREHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Debentureholders. If the Trustee is not the Registrar, the Corporation
shall furnish to the Trustee on or before each Interest Payment Date and at
such other times as the Trustee may request in writing a list of the names
and addresses of Debentureholders in such form and as of such date as the
Trustee may reasonably require.
SECTION 2.06. TRANSFER AND EXCHANGE.
When Debentures are presented to the Registrar or a co-registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Debentures of other denominations, the Registrar shall register the
transfer or make the exchange, provided that every Debenture presented or
surrendered for registration of transfer or exchange shall be duly endorsed
or be accompanied by a written instrument of transfer in form satisfactory to
the Registrar duly executed by the Holder thereof or by his attorney duly
authorized in writing. To permit registrations of transfer and exchanges,
the Trustee shall authenticate Debentures at the Registrar's written request
(which written request may be waived by the Trustee so long as the Trustee
and Registrar are one and the same). No service charge shall be made for any
registration of transfer or exchange of Debentures to the Debentureholders,
but the Corporation may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto, other
than exchanges pursuant to Section 2.10 or 3.07 hereof.
<PAGE> 12
A Global Security shall be exchangeable pursuant to this Section for
Debentures registered in the names of Persons other than the Depository or
its nominee only as provided in this paragraph. A Global Security shall be
exchangeable pursuant to this Section if (i) such Depository notifies the
Corporation that it is unwilling or unable to continue as Depository for such
Debentures or at any time ceases to be a clearing agency registered as such
under the Exchange Act, (ii) the Corporation executes and delivers to the
Trustee an Officers' Certificate providing that such Global Security shall be
so exchangeable, or (iii) there shall have occurred and be continuing an
Event of Default. Debentures so issued in exchange for a Global Security
shall be of like tenor, in authorized denominations of $1,000 or integral
multiples thereof and in the aggregate having the same principal amount as
the Global Security to be exchanged, and shall be registered in such names as
the Depository shall direct.
Notwithstanding any other provision of this Section, a Global Security
may not be transferred except as a whole by the Depository to a nominee of
such Depository or by a nominee of such Depository to such Depository or
another nominee of such Depository.
SECTION 2.07. REPLACEMENT DEBENTURES.
If the Holder of a Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Corporation shall issue and the Trustee
shall authenticate a replacement Debenture if the Trustee's requirements are
met. If required by the Trustee or the Corporation, an indemnity bond must
be obtained and be sufficient in the judgment of both to protect the
Corporation, the Trustee, any Agent or any authenticating agent from any loss
which any of them may suffer if a Debenture is replaced. The Corporation and
the Trustee may charge for their expenses in replacing a Debenture.
Every replacement Debenture is an additional obligation of the
Corporation.
SECTION 2.08. OUTSTANDING DEBENTURES.
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, and those described in this Section as not
outstanding.
If a Debenture is replaced pursuant to Section 2.07 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that
the replaced Debenture is held by a bona fide purchaser.
If Debentures are considered paid under Section 5.01 hereof, they
cease to be outstanding and interest on them ceases to accrue.
Except with the limitations set forth in Section 2.09 hereof, a
Debenture does not cease to be outstanding because the Corporation or an
Affiliate holds the Debenture.
SECTION 2.09. TREASURY DEBENTURES.
In determining whether the Holders of the required principal amount of
Debentures have concurred in any direction, waiver or consent, Debentures
owned by the Corporation or an Affiliate shall be disregarded, except for
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent. Only Debentures which the Trustee
knows are so owned shall be disregarded.
<PAGE> 13
SECTION 2.10. TEMPORARY DEBENTURES.
Until definitive Debentures are ready for delivery, the Corporation may
prepare and the Trustee shall authenticate temporary Debentures. Temporary
Debentures shall be substantially in the form of definitive Debentures but
may have variations that the Corporation considers appropriate for temporary
Debentures. Without unreasonable delay, the Corporation shall cause to be
issued and the Trustee shall authenticate definitive Debentures in exchange
for temporary Debentures.
SECTION 2.11. CANCELLATION.
The Corporation at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Debentures surrendered to them for registration of transfer,
exchange or payment. The Trustee shall cancel all Debentures surrendered for
registration of transfer, exchange or payment and shall dispose of canceled
Debentures as the Corporation directs. The Corporation may not issue new
Debentures to replace Debentures that it has paid for or delivered to the
Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Corporation defaults in a payment of interest on the Debentures,
it shall pay the defaulted interest in any lawful manner. It may pay the
defaulted interest, plus any interest payable on the defaulted interest, to
the Persons who are Debentureholders on a subsequent Special Record Date.
The Corporation shall fix the Special Record Date and payment date in a
manner satisfactory to the Trustee. At least 15 days before the Special
Record Date, the Corporation shall mail to Debentureholders a notice that
states the Special Record Date, the payment date and the amount of interest
to be paid.
SECTION 2.13. PERSONS DEEMED OWNERS.
Prior to due presentment of a Debenture for registration of transfer,
the Corporation, the Trustee and any Agent of the Corporation or the Trustee
may treat the Person in whose name such Debenture is registered as the owner
of such Debenture for the purpose of receiving payment of Principal of (and
premium, if any) and (subject to Section 2.12 hereof) interest, if any, on
such Debenture and for all other purposes whatsoever, whether or not such
Debenture be overdue, and neither the Corporation, the Trustee nor any Agent
of the Corporation or the Trustee shall be affected by notice to the
contrary. All such payments so made to any such Person, or upon such
Person's order, shall be valid, and, to the extent of the sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Debenture.
Except to the extent provided in Sections 7.06 and 7.07 hereof, no
holder of any beneficial interest in any Global Security held on its behalf
by a Depository shall have any rights under this Indenture with respect to
such Global Security, and such Depository may be treated by the Corporation,
the Trustee, and any Agent of the Corporation or the Trustee as the owner of
such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall impair, as between a Depository and such
holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depository as Holder of any
Debenture.
<PAGE> 14
ARTICLE 3 - REDEMPTION OF DEBENTURES AT
CORPORATION'S OPTION
SECTION 3.01. REDEMPTION RIGHT AT CORPORATION'S OPTION.
The Corporation has the right to redeem the Debentures at its sole
option, in whole or in part, at any time and from time to time on or after
April 1, 2003, at the Redemption Prices specified in paragraph 5 of the
Debenture, subject to the terms and conditions set forth in this Article 3.
The election of the Corporation to redeem any Debenture shall be evidenced by
a Board Resolution.
SECTION 3.02. NOTICES TO TRUSTEE.
If the Corporation wishes to redeem Debentures pursuant to paragraph 5
of the Debenture, it shall notify the Trustee in writing of the Redemption
Date and the principal amount of Debentures to be redeemed. The Corporation
shall give the notice provided for in this Section not less than 60 days
prior to the Redemption Date or such shorter time as may be satisfactory to
the Trustee.
SECTION 3.03. SELECTION OF DEBENTURES TO BE REDEEMED.
If less than all the Debentures are to be redeemed, the Trustee shall
select the Debentures to be redeemed by lot. The Trustee shall, not less
than 45 days before the Redemption Date or such shorter time as may be
mutually satisfactory to the Trustee and the Corporation, inform the
Corporation in writing of those specific Debentures selected for redemption.
The Trustee may select for redemption portions of the principal of Debentures
that have denominations larger than $1,000. Debentures and portions of
Debentures that the Trustee selects shall be in amounts of $1,000 or integral
multiples of $1,000. Provisions of this Indenture that apply to Debentures
called for redemption also apply to portions of Debentures called for
redemption.
SECTION 3.04. NOTICE OF REDEMPTION.
At least 30 days before a Redemption Date, the Corporation shall mail
notice of redemption to each Holder whose Debentures are to be redeemed. A
copy of each such notice shall be mailed to the Trustee.
The notice shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) that interest on Debentures called for redemption ceases to
accrue on and after the Redemption Date (unless the Corporation
shall default in the payment of the Redemption Price); and
(6) if less than all of the Debentures outstanding are to be
redeemed, the identification (and, in the case of partial
redemption, the respective principal amounts) of the Debentures
to be redeemed.
At the Corporation's written request, the Trustee shall give notice of
redemption in the Corporation's name and at the expense of the Corporation.
<PAGE> 15
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed as provided in Section 3.04 hereof,
Debentures called for redemption become due and payable on the Redemption
Date at the Redemption Price, subject, however to the provisions of Section
3.08 hereof.
SECTION 3.06. DEPOSIT OF REDEMPTION PRICE.
On or before the Redemption Date, the Corporation shall deposit with
the Paying Agent cash sufficient to pay the Redemption Price and accrued
interest on all Debentures to be redeemed.
SECTION 3.07. DEBENTURES REDEEMED IN PART.
Upon surrender of a Debenture that is redeemed in part, the Trustee
shall authenticate for the Holder a new Debenture equal in principal amount
to the unredeemed portion of the Debenture surrendered.
SECTION 3.08. CORPORATION'S RIGHT TO WITHDRAW REDEMPTION
ELECTION.
Notwithstanding any other provision of this Article 3, the Corporation
shall have the right, at its option, to withdraw, in whole or in part, its
election and notice of redemption pursuant to this Article 3 by written
notice of such withdrawal given by the Corporation to the Trustee and to each
Holder affected thereby at least five (5) days prior to the Redemption Date.
At the Corporation's request, the Trustee shall give such notice of
withdrawal to such Holders in the Corporation's name and at the expense of
the Corporation. Upon the giving of such notice of withdrawal, the
Corporation's redemption election and all notices given pursuant thereto
shall be deemed rescinded to the extent set forth in such notice of
withdrawal and all parties affected thereby shall be restored to their
respective former positions hereunder as if no redemption election had been
made by the Corporation and no such redemption notices had been given.
ARTICLE 4 - REDEMPTION OF DEBENTURES AT
DEBENTUREHOLDER'S OPTION
SECTION 4.01. REDEMPTION RIGHT AT DEBENTUREHOLDER'S OPTION.
Representatives of deceased Debentureholders and, in the case of a
Global Security, representatives of deceased beneficial owners of such Global
Security, have certain optional redemption rights all as set forth in the
forms of Debenture attached hereto as Exhibits A and B.
ARTICLE 5 - COVENANTS
SECTION 5.01. PAYMENT OF DEBENTURES.
The Corporation shall pay the Principal of and interest on the
Debentures on the dates and in the manner provided in the Debentures.
Principal and interest shall be considered paid on the date due if the
Trustee or any Paying Agent holds on that date money sufficient to pay all
Principal and interest then due, provided that, if Debentures are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made.
The Corporation shall pay interest on overdue Principal at the rate
borne by the Debentures; it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
<PAGE> 16
SECTION 5.02. REPORTING.
The Corporation shall file with the Trustee within 15 days after it
files them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the
Corporation is required to file with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act. The Corporation also shall comply with the other
provisions of TIA Sec. 314(a).
SECTION 5.03. CORPORATE EXISTENCE.
Subject to Article 6 hereof, the Corporation will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the rights (articles and statutory) of the
Corporation; provided, however, that the Corporation shall not be
-------- -------
required to preserve any such right if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Corporation taken as a whole and that the loss thereof is
not, and will not be, adverse in any material respect to the Holders.
SECTION 5.04. PAYMENT OF TAXES AND OTHER CLAIMS.
The Corporation will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Corporation or any
Subsidiary and (ii) all material lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of
the Corporation or any of its Subsidiaries; provided, however, that the
Corporation shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 5.05. LIMITATION ON CERTAIN FUNDED INDEBTEDNESS.
Neither the Corporation nor a Subsidiary will create, issue, incur,
guarantee or assume any Funded Indebtedness which ranks prior to or on a
parity with the Debentures in right of payment unless immediately thereafter,
and after giving effect thereto and to the application of the proceeds
thereof, Consolidated Net Utility Fixed Assets shall be at least equal to
Consolidated Funded Indebtedness.
SECTION 5.06. LIMITATIONS ON DIVIDENDS AND OTHER
PAYMENTS ON STOCK.
The Corporation will not declare or pay any dividends or make any
distributions upon any Common Stock of the Corporation (other than dividends
and distributions payable only in shares of Common Stock of the Corporation)
and will not directly or indirectly apply any of the assets of the
Corporation to the redemption, retirement, purchase or other acquisition of
any stock of the Corporation of any class, except purchases or redemptions in
compliance with any mandatory sinking fund or purchase fund or redemption
requirement in respect of any preferred stock of the Corporation, whether now
or hereafter authorized or issued, unless after giving effect to such
declaration, payment, distribution or application of assets the Consolidated
Tangible Net Worth of the Corporation shall be at least equal to $21,500,000
as reflected on the Corporation's latest available balance sheet, which in no
event shall be as of a date more than three months prior to the date of
declaration of a dividend or application of assets.
SECTION 5.07. LIMITATION ON SECURED INDEBTEDNESS.
Neither the Corporation nor a Subsidiary will issue, assume or
guarantee any Indebtedness secured by a Lien on any property or asset at any
time owned by it, without effectively securing, prior to or concurrently with
the issuance, assumption or guarantee of any such Indebtedness, the
Debentures equally and ratably with (or, at the Corporation's option, in a
prior position to) such
<PAGE> 17
Indebtedness. The foregoing described restriction does not apply to or prevent
the creation of:
(i) existing Liens on property or Indebtedness of a corporation
which is merged with or into or consolidated with the
Corporation or a Subsidiary provided that the Liens do not
apply to any property theretofore owned by the Corporation;
(ii) any Lien existing on the effective date of this Indenture, and,
if the Corporation purchases in fee real property and acquires
or constructs improvements thereon to be used by the
Corporation as office space, a Lien on such real property and
improvements to secure Indebtedness incurred for the purchase
of such real property and improvements, so long as such Lien is
limited to such real property and improvements and such
Indebtedness does not exceed 75% of the purchase price thereof;
(iii) Liens on moneys or U.S. Government Obligations deposited with
the Trustee pursuant to this provisions of this Indenture
summarized under Article 9 hereof:
(iv) Liens (which term for purposes of this Subsection 5.07 (iv)
shall include conditional sale agreements or other title
retention agreements and leases in the nature of title
retention agreements) upon motor vehicles or office equipment
acquired by the Corporation or a Subsidiary after the effective
date of this Indenture, under credit terms customarily extended
to purchasers by the manufacturers or other sellers, provided
that no such Lien shall extend to or cover any property of the
Corporation or any Subsidiary, as the case may be, other than
the property then being acquired;
(v) Liens for the sole purpose of extending, renewing or replacing,
in whole or in part, Liens securing Indebtedness of the type
referred to in the foregoing Subsections 5.07 (i) through (iv)
above, provided, however, that the principal amount of the
Indebtedness so secured at the time of such extension, renewal
or replacement shall not be increased and that such extension,
renewal or replacement shall be limited to all or part of the
property or Indebtedness which secured the Lien so extended,
renewed or replaced (plus improvements on such property);
(vi) Liens for taxes or assessments or other governmental charges or
levies not yet due and payable;
(vii) Materialmen's, mechanics', workmen's, repairmen's or other like
Liens arising in the ordinary course of business so long as the
obligations giving rise to such Liens are satisfied in a timely
manner;
(viii) Liens created by or existing from any litigation or legal
proceeding which is currently being contested in good faith by
appropriate proceedings, and as to which execution is
effectively stayed; or
(ix) Liens to secure Indebtedness having an outstanding principal
balance aggregating not more than $4,000,000 exclusive of
Indebtedness described in the foregoing Subsections 5.07 (i)
through (viii) above.
The Corporation further covenants that it will not incur any such Lien
unless the instruments and collateral documents equally and ratably securing
the Debentures are approved by the Trustee, and in the opinion of independent
counsel selected by the Trustee, the transaction creating such Lien complies
with the requirements of this Section.
<PAGE> 18
SECTION 5.08. COMPLIANCE CERTIFICATE.
The Corporation shall deliver to the Trustee within 120 days after the
end of each fiscal year of the Corporation an Officers' Certificate as to the
Corporation's compliance with all conditions and covenants under the
Indenture, and further stating whether or not the signers know of any Default
that occurred during the fiscal year. If the signers know of any such
Default, the Officers' Certificate shall describe the Default and its status,
and the Corporation's compliance shall be determined without regard to any
grace period or notice requirements under this Indenture. The certificate
need not comply with Section 11.05 hereof.
SECTION 5.09. DEFAULT CERTIFICATE.
The Corporation shall deliver to the Trustee, within seven (7) days of
obtaining knowledge of the existence of a Default hereunder, or within seven
(7) days of any event of default as described in Section 7.01(4) hereof, a
certificate signed by one of its Officers, setting forth the nature of the
Default and the steps taken, if any, to cure such Default.
ARTICLE 6 - SUCCESSORS
SECTION 6.01. WHEN CORPORATION MAY MERGE, ETC.
The Corporation shall not consolidate or merge into, or transfer or
lease all or substantially all of its assets to, any Person unless:
(1) the Person is a corporation organized and existing under the Laws
of the United States, or any State thereof or the District of
Columbia;
(2) the Person assumes by supplemental indenture all the obligations
of the Corporation under the Debentures and this Indenture;
(3) immediately after the transaction no Default exists; and
(4) the Corporation has delivered to the Trustee an Officers'
Certificate and Opinion of Counsel each stating that the
transaction and supplemental indenture comply with this Article.
The surviving transferee or lessee corporation shall be the successor
Corporation and deemed to and be substituted for the Corporation under this
Indenture, and the predecessor Corporation in the case of a transfer or lease
shall be released from all obligations and covenants under this Indenture and
the Debentures.
<PAGE> 19
ARTICLE 7 - DEFAULTS AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" occurs if:
(1) the Corporation defaults in the payment of interest on any
Debenture when the same becomes due and payable and the Default
continues for a period of 30 days;
(2) the Corporation defaults in the payment of the Principal of any
Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) the Corporation fails to comply with any of its other agreements
in the Debentures or this Indenture and the Default continues for
the period and after the notice specified below;
(4) an event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may
be secured or evidenced, any Indebtedness for money borrowed for
which the Corporation or any Consolidated Subsidiary is
responsible or liable as obligor, guarantor or otherwise or
obligations of the Corporation or any Consolidated Subsidiary as a
lessee under leases required to be capitalized under generally
accepted accounting principles, in an aggregate principal amount
of $100,000 or more, whether such Indebtedness or obligation now
exists or shall hereafter be created, shall happen and shall
result in such Indebtedness or obligation becoming or being
declared due and payable prior to the date on which it would
otherwise become due and payable, and such acceleration shall not
be rescinded or annulled, or such Indebtedness or obligation shall
not have been discharged, within a period of 10 days after written
notice has been given to the Corporation by the Trustee or to the
Corporation and the Trustee by the Holders of at least 25% in
principal amount of the Debentures then outstanding, specifying
such event of default and requiring the Corporation to cause such
acceleration to be rescinded or annulled or to cause such
Indebtedness or obligation to be discharged and stating that such
notice is a "Notice of Default" hereunder;
(5) the Corporation pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
or
(6) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law, and the order or decree remains unstayed and
in effect for 60 days, that:
(A) is for relief against the Corporation in an
involuntary case,
(B) appoints a Custodian of the Corporation for all or
substantially all of its property, or
(C) orders the liquidation of the Corporation.
<PAGE> 20
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar
Federal or State law for the relief of debtors. The term "CUSTODIAN" means
any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under Section 7.01(3) above is not an Event of Default until
(i) the Trustee or the Holders of at least 25% in principal amount of the
Debentures then outstanding notify the Corporation of the Default, or (ii)
the Corporation provides notice to the Trustee pursuant to the provisions of
Section 5.08 hereof, and the Corporation does not cure the Default within 60
days after receipt of such respective notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default." The Trustee shall, if requested to do so by the Holders of 25% in
principal amount of the Debentures, notify the Corporation of the Default
pursuant to this Section.
Subject to the provisions of Sections 8.01 and 8.02 hereof, the Trustee
shall not be charged with knowledge of any Event of Default unless written
notice thereof shall have been given to a Trust Officer of the Trustee at the
Corporate Trust Office by the Corporation, the Paying Agent, the Holder of a
Debenture or an agent of such Holder or, in the case of an Event of Default
under Section 7.01(4) above, by the trustee acting under any mortgage,
indenture or other instrument under which the event of default shall have
occurred or by the holder or the agent of any holder of such Indebtedness.
SECTION 7.02. ACCELERATION.
If an Event of Default occurs and is continuing, the Trustee, by notice
to the Corporation, or the Holders of at least 25% in principal amount of the
Debentures then outstanding, by notice to the Corporation and the Trustee,
may declare the Principal of, and accrued interest on, all the Debentures to
be due and payable. Upon such declaration the Principal and interest shall
be due and payable immediately.
<PAGE> 21
The Holders of a majority in principal amount of the Debentures then
outstanding, by notice to the Trustee, may rescind an acceleration of all the
Debentures and its consequences if (i) all existing Events of Default have
been cured or waived except nonpayment of the principal and interest that has
become due solely because of the acceleration and (ii) if the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. No such rescission shall affect any subsequent default or
impair any right consequent thereon.
SECTION 7.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of Principal or interest on the
Debentures or to enforce the performance of any provision of the Debentures
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Debentureholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in such Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 7.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in principal amount of the Debentures, by
notice to the Trustee, on behalf of all Debentureholders, may waive a past
Default and its consequences, except a Default in the payment of the
Principal of or interest on any Debenture, an uncured failure to make any
redemption payment or an uncured Default with respect to a provision which
cannot be modified under the terms of this Indenture without the consent of
each Holder affected.
SECTION 7.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Debentures then
outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, is unduly prejudicial to
the rights of other Debentureholders, or would involve the Trustee in
personal liability; provided, that the Trustee may take any other action
--------
deemed proper by the Trustee which is not inconsistent with such direction.
However, the Trustee is under no duty or obligation to exercise its
discretion in determining whether such directions may conflict with law or
this Indenture, or are unduly prejudicial to the rights of Debentureholders.
SECTION 7.06. LIMITATION ON SUITS.
A Debentureholder may pursue a remedy with respect to this Indenture or
the Debentures only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the Debentures
then outstanding make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request by Debentureholders
pursuant to Section 7.06(2) above, within 60 days after receipt of
the request and the offer of indemnity; and
<PAGE> 22
(5) during such 60-day period the Holders of a majority in principal
amount of the Debentures then outstanding do not give the Trustee
a direction inconsistent with the request.
A Debentureholder may not use this Indenture to prejudice the rights of
another Debentureholder or to obtain a preference or priority over another
Debentureholder.
SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Debenture to receive payment of Principal and interest on the
Debenture, on or after the respective due dates expressed in the Debenture,
or to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
SECTION 7.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of interest or Principal specified in
Section 7.01(1) or (2) hereof occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against
the Corporation for the whole amount of unpaid Principal and accrued interest
remaining unpaid.
SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Debentureholders
allowed in any judicial proceedings relative to the Corporation upon the
Debentures, its creditors or its property, and shall be entitled and
empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian
in any such judicial proceeding is hereby authorized by each Debentureholder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Debentureholders, to
pay to the Trustee any amount due to it for the reasonable compensation,
expenses and disbursements and advances of the Trustee, its agents and
counsel, and any other amounts due the Trustee under Section 8.07 hereof.
SECTION 7.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 8.07 hereof;
-----
Second: to Debentureholders for amounts due and unpaid on the
------
Debentures for Principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Debentures for Principal and interest, respectively; and
Third: to the Corporation.
-----
The Trustee may fix a record date and payment date for any payment to
Debentureholders pursuant to this Article.
<PAGE> 23
SECTION 7.11. UNDERTAKING FOR COSTS.
Subject to the provisions of Section 8.02 hereof, in any suit for the
enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken or omitted by it as Trustee, a court
in its discretion may require the filing by any party litigant in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees, against
any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section
does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 7.07 hereof or a suit by Holders of more than 10% in principal amount
of the Debentures.
SECTION 7.12. WAIVER OF STAY OR EXTENSION LAWS.
The Corporation covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law wherever enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Indenture; and the Corporation (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
<PAGE> 24
SECTION 7.13. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under the Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Corporation,
the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
SECTION 7.14. RECORD DATE FOR VOTE OF DEBENTUREHOLDERS.
The Corporation may set a record date for purposes of determining the
identity of Debentureholders entitled to vote or consent to any action by
vote or consent authorized or permitted by Sections 7.04 and 7.05 hereof.
Such record date shall be the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee pursuant to Section 2.05 hereof prior to such
solicitation.
ARTICLE 8 - TRUSTEE
SECTION 8.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own gross negligent failure to act or its
own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 7.05 hereof.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this
Section 8.01.
<PAGE> 25
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against
any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as otherwise agreed with the Corporation. Money held
in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 8.02. RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 8.01 hereof:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good
faith in reliance on the Officers' Certificate or Opinion of
Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within
its rights or powers.
SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Corporation or
an Affiliate with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
the requirements set forth in Sections 8.10 and 8.11 hereof.
SECTION 8.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Debentures, it shall not be accountable for the
Corporation's use of the proceeds from the Debentures, and it shall not be
responsible for any statement in the Debentures other than its
authentication.
SECTION 8.05. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to Debentureholders, in the manner and to the
extent provided in TIA Sec. 313(c), a notice of the Default within 90 days
after it occurs. Except in the case of a Default in payment of the Principal
of or interest on any Debenture, the Trustee may withhold the notice if and
so long as the Board of Directors, the Executive Committee or a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of Debentureholders.
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS.
On or before each June 15 beginning with the June 15 following the date
of this Indenture, the Trustee shall mail to each Debentureholder a brief
report, dated as of such reporting date, with respect to any of the events
listed in TIA Sec. 313(a) which may have occurred within the previous 12
months, but if no such event has occurred within such period no such report
need be mailed. The
<PAGE> 26
Trustee also shall comply with TIA Sec. 313(b)(2).
A copy of each report required in this Section shall be mailed to such
Debentureholders as required by TIA Sec. 313(c) and shall, at the time of its
mailing to such Debentureholders, be filed with the Corporation, the SEC and
each stock exchange on which the Debentures are listed. The Corporation
shall notify the Trustee when the Debentures are listed on any stock
exchange.
SECTION 8.07. COMPENSATION AND INDEMNITY.
The Corporation shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. If an
Event of Default should occur, the Trustee shall be entitled to reasonable
additional compensation for all additional or extraordinary services rendered
and expenses (including counsel fees) incurred in connection with said Event
of Default.
The Corporation shall indemnify the Trustee against any loss or
liability incurred by it. The Trustee shall notify the Corporation promptly
of any claim for which it may seek indemnity. The Corporation shall defend
the claim and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel, and the Corporation shall pay the reasonable fees and
expenses of such counsel. The Corporation need not pay for any settlement
made without its consent.
The Corporation need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Debentures on all money or property
held or collected by the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 7.01(5) or (6) hereof occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 8.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance
of appointment as provided in this Section.
The Trustee may resign by so notifying the Corporation. The Holders of
a majority in principal amount of the Debentures may remove the Trustee by so
notifying the Trustee and the Corporation. The Corporation may remove the
Trustee if:
(1) the Trustee fails to comply with Section 8.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or public officer takes charge of the Trustee or its
property;
(4) the Trustee becomes incapable of acting; or
(5) the Trustee fails to comply with TIA Sec. 310(b) after an Event of
Default.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Corporation shall promptly appoint a
successor Trustee. Within one year after the successor Trustee assumes
office, the Holders of a majority in principal amount of the Debentures
<PAGE> 27
may appoint a successor Trustee to replace the successor Trustee appointed by
the Corporation.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation
or the Holders of at least 10% in principal amount of the Debentures then
outstanding may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 8.10 hereof, any
Debentureholder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Debentureholders. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, subject
to the lien provided for in Section 8.07 hereof.
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the resulting, surviving or transferee corporation without any further act
shall be the successor Trustee.
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sec. 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $15,000,000 as set forth in its most recent
published annual report of condition. Neither the Corporation nor any
Affiliate shall serve as Trustee upon the Debentures or pursuant to this
Indenture. The Trustee is subject to TIA Sec. 310(b).
SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS
AGAINST CORPORATION.
The Trustee is subject to TIA Sec. 311(a), excluding any creditor
relationship listed in TIA Sec. 311(b). A Trustee who has resigned or been
removed is subject to TIA Sec. 311(a) to the extent indicated.
SECTION 8.12. APPOINTMENT OF CO-TRUSTEE.
It is the purpose of this Indenture that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as trustee in such
jurisdiction. It is recognized that in case of litigation under this
Indenture, and in particular in case of the enforcement of an Event of
Default, or in case the Trustee deems that by reason of any present or future
law of any jurisdiction it may not exercise any of the powers, rights or
remedies herein granted to the Trustee in trust, as herein granted, or take
any other action which may be desirable or necessary in connection therewith,
it may be necessary that an additional individual or institution be appointed
as a separate or Co-Trustee.
At any time or times, for the purpose of meeting the legal requirements
of any jurisdiction, the Trustee and the Corporation may appoint an
additional individual or institution as a separate or Co-Trustee, in which
event each and every remedy, power, right, claim, demand, cause of action,
immunity, estate, title, interest and lien expressed or intended by this
Indenture, to be exercised by
<PAGE> 28
or vested in or conveyed to the Trustee with respect thereto shall be
exercisable by and vest in such separate or Co-Trustee but only to the extent
necessary to enable such separate or Co-Trustee to exercise such powers, rights
and remedies, and every covenant and obligation necessary to the exercise
thereof by such separate or Co-Trustee shall run to and be enforceable by either
of them. If the Corporation does not join in such appointment within 15 days
after receipt by it of a request so to do, or in case an Event of Default has
occurred and is continuing, the Trustee alone shall have power to make such
appointment.
Should any deed, conveyance or instrument in writing from the
Corporation be required by the separate or Co-Trustee so appointed by the
Trustee for more fully and certainly vesting in and confirming to it such
properties, rights, powers, trusts, duties and obligations, including
particularly the right to be paid its fees for services rendered, any and all
such deeds, conveyances and instruments in writing shall, on request, be
executed, acknowledged and delivered by the Corporation. In case any
separate or Co-Trustee, or a successor to either, shall die, become incapable
of acting, resign or be removed, all the estates, properties, rights, powers,
trusts, duties and obligations of such separate or Co-Trustee, so far as
permitted by law, shall vest in and be exercised by the Trustee until the
appointment of a new Trustee or successor to such separate or Co-Trustee.
The rights, powers, duties and obligations hereby conferred or imposed
upon the Trustee in respect of this Indenture shall be conferred or imposed
upon and exercised or performed by the Trustee or by the Trustee and such
separate or Co-Trustee jointly, as shall be provided in the instrument
appointing such separate or Co-Trustee, except to the extent that under any
law of any jurisdiction in which any particular act is to be performed, the
Trustee shall be incompetent or unqualified to perform such act, in which
event such rights, powers, duties and obligations shall be exercised and
performed by such separate or Co-Trustee
ARTICLE 9 - DISCHARGE OF INDENTURE
SECTION 9.01. TERMINATION OF CORPORATION'S OBLIGATIONS.
The Corporation may at any time terminate all of its obligations under
this Indenture if:
(1) the Corporation provides written notice to the Trustee of the
Corporation's intent to terminate its obligation under this
Indenture;
(2) the Debentures mature within one year of the Corporation's written
notice of its intent to terminate or all of the Debentures are to
be called for redemption within one year of the Corporation's
written notice of its intent to terminate under arrangements
satisfactory to the Trustee for giving the notice of redemption;
and
<PAGE> 29
(3) the Corporation irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations sufficient to pay Principal
and interest on the Debentures at maturity or on redemption, as
the case may be. The Corporation may make the deposit only during
the one-year period referred to in paragraph (2) above.
However, the Corporation's obligations in Sections 2.03, 2.04, 2.05,
2.06, 2.07, 5.01, 8.07, 8.08 and 9.03 hereof shall survive until the
Debentures are no longer outstanding. Thereafter, the Corporation's
obligations in Sections 8.07 and 9.03 hereof shall survive.
After a deposit the Trustee upon request shall acknowledge in writing
the discharge of the Corporation's obligations under this Indenture except
for those surviving obligations specified above.
In order to have money available on a payment date to pay Principal or
interest on the Debentures, the U.S. Government Obligations shall be payable
as to principal or interest on or before such payment date in such amounts as
will provide the necessary money. The U.S. Government Obligations shall not
be callable at the issuer's option.
SECTION 9.02. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 9.01 hereof. It shall apply the
deposited money and the money from the U.S. Government Obligations through
the Paying Agent and in accordance with this Indenture to the payment of
Principal and interest on the Debentures.
SECTION 9.03. REPAYMENT TO CORPORATION.
The Trustee and the Paying Agent shall promptly pay to the Corporation
upon request any excess money or securities held by the Trustee as a result
of the Corporation's making payments to the Trustee and Paying Agent in
excess of that required under the provisions of this Indenture. The
obligation of the Trustee and the Paying Agent to pay such excess money or
securities to the Corporation shall survive the payment and/or cancellation
of all of the Debentures until all such excess funds or securities have been
so paid.
The Trustee and the Paying Agent shall pay to the Corporation annually
as of April 1 of each year any money held by them for the payment of
Principal or interest that remains unclaimed for two years. After payment to
the Corporation, Debentureholders entitled to the money must look to the
Corporation for payment as general creditors unless an applicable abandoned
property law designates another person.
ARTICLE 10 - AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. WITHOUT CONSENT OF HOLDERS.
The Corporation and the Trustee may amend or supplement this Indenture
or the Debentures without notice to or consent of any Debentureholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Section 6.01 hereof;
(3) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures; or
<PAGE> 30
(4) to make any change that does not materially adversely affect the
rights of any Debentureholder.
SECTION 10.02. WITH CONSENT OF HOLDERS.
The Corporation and the Trustee may amend or supplement this Indenture
or the Debentures with the written consent of the Holders of at least a
majority in principal amount of the Debentures then outstanding. Without the
consent of each Debentureholder affected, however, an amendment under this
Section may not:
(1) reduce the amount of Debentures whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or change the time for payment of interest on
any Debenture;
(3) reduce the Principal of or change the maturity of any Debenture;
(4) waive a Default in the payment of the Principal of or interest on
any Debenture;
(5) make any Debenture payable in money other than that stated in the
Debenture; or
(6) modify the provisions of Sections 7.04, 7.07 and 10.02 (second
sentence) hereof.
After an amendment or supplement under this Section becomes effective,
the Corporation shall mail to Debentureholders a notice briefly describing
the amendment.
SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Debentures
shall be set forth in a supplemental indenture that complies with the TIA as
then in effect.
SECTION 10.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Debenture is a continuing consent by the Holder and
every subsequent Holder of a Debenture or portion of a Debenture that
evidences the same debt as the consenting Holder's Debenture, even if
notation of the consent is not made on any Debenture. However, any such
Holder or subsequent Holder may revoke the consent as to his Debenture or
portion of a Debenture if the Trustee receives the notice of revocation
before the date the amendment, supplement or waiver becomes effective.
SECTION 10.05. NOTATION ON OR EXCHANGE OF DEBENTURES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Debenture thereafter authenticated. The
Corporation in exchange for all Debentures may issue and the Trustee shall
authenticate new Debentures that reflect the amendment, supplement or waiver.
SECTION 10.06. TRUSTEE PROTECTED.
The Trustee need not sign any supplemental indenture that adversely
affects its rights.
<PAGE> 31
ARTICLE 11 - MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by operation of TIA Sec. 318(c), the duties imposed by TIA
Sec. 318(c) shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Corporation or the Trustee to the
other is duly given if in writing and when delivered in person or mailed by
first-class mail addressed as follows:
if to the Corporation:
DELTA NATURAL GAS COMPANY, INC.
3617 Lexington Road
Winchester, Kentucky 40391
Attention: Treasurer
if to the Trustee:
THE FIFTH THIRD BANK
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Corporate Trust Administration
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to a Debentureholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Debentureholder or any defect
in it shall not affect its sufficiency with respect to other
Debentureholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Corporation mails a notice or communication to Debentureholders,
it shall mail a copy to the Trustee and each Agent at the same time.
All notices or communications shall be in writing, except as set forth
below.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Debentureholders may communicate pursuant to TIA Sec. 312(b) with other
Debentureholders with respect to their rights under this Indenture or the
Debentures. The Corporation, the Trustee, the Registrar and anyone else
shall have the protection of TIA Sec. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.
Upon any request or application by the Corporation to the Trustee to
take any action under this Indenture, the Corporation shall furnish to the
Trustee:
<PAGE> 32
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel addressed to the Trustee and upon which the
Trustee may rely, stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that the persons making such Officers' Certificate or
Opinion of Counsel have read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in
such Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such persons,
such condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE AND AGENT.
The Trustee may make reasonable rules for action by, or a meeting
of, Debentureholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" is a Saturday, a Sunday, or a day on which banking
institutions in Cincinnati, Ohio, are not required to be open. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
SECTION 11.08. NO RECOURSE AGAINST OTHERS.
No liability under the Debentures shall inure to any director, officer,
employee or stockholders, as such, of the Corporation and each
Debentureholder, by accepting the Debenture, waives and releases all such
liability.
<PAGE> 33
SECTION 11.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 11.10. GOVERNING LAW.
This Indenture and the Debentures shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky, without reference
to its principles of conflicts of laws.
SECTION 11.11. TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SIGNATURES
Dated: , 1998 DELTA NATURAL GAS COMPANY, INC.
-------------- ("Corporation")
(SEAL) By:
---------------------------
Its: President and Chief
Executive Officer
Dated: , 1998 THE FIFTH THIRD BANK
-------------- ("Trustee")
By:
---------------------------
Its: Trust Officer
<PAGE> 34
FORM OF GLOBAL SECURITY
EXHIBIT A
THIS DEBENTURE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR
NOMINEE OF A DEPOSITORY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR DEBENTURES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
ONLY IN LIMITED CIRCUMSTANCES HEREINAFTER DESCRIBED AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY.
Unless this certificate is presented by an authorized representative of
THE DEPOSITORY TRUST COMPANY, a New York corporation ("DTC"), to Delta
Natural Gas Company, Inc., a Kentucky corporation, or its agent for
registration of transfer, exchange, or payment, and any certificate issued is
registered in the name of CEDE & CO. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.
DELTA NATURAL GAS COMPANY, INC.
% DEBENTURE DUE APRIL 1, 2018
-----
$25,000,000
No. CUSIP No.
----------------------- -------------------
DELTA NATURAL GAS COMPANY, INC., a Kentucky corporation, for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of TWENTY- FIVE MILLION DOLLARS on April 1, 2018, and to pay
interest on said principal sum at the rate of % per annum
--------------
calculated on the basis of a 360-day year of twelve 30-day months.
1. INTEREST.
DELTA NATURAL GAS COMPANY, INC. ("CORPORATION"), a Kentucky
corporation, promises to pay interest on the principal amount of this
Debenture at the rate per annum shown above. The Corporation will pay
interest semi-annually on April 1 and October 1 of each year (each such date
being an "INTEREST PAYMENT DATE"), commencing October 1, 1998. Interest on
the Debentures will accrue from the most recent date to which interest has
been paid, or, if no interest has been paid previously, from the date of
original issuance of this Debenture; provided that, if there is no existing
default in the payment of interest, and if this Debenture is authenticated
between a "Record Date" (as hereinafter defined) and the next succeeding
Interest Payment Date, interest shall accrue from the next Interest Payment
Date. The term "RECORD DATE" as used herein shall mean the March 15 or
September 15, as the case may be, immediately preceding each Interest Payment
Date.
A-1
<PAGE> 35
2. METHOD OF PAYMENT.
The Corporation will pay interest on the Debentures (except defaulted
interest) to the Paying Agent who will then pay such interest to the Persons
who are registered Holders of Debentures at the close of business on the
Record Date next preceding the Interest Payment Date. The Corporation shall
pay appropriate amounts to the Paying Agent in immediately available funds at
least one (1) business day preceding the Interest Payment Date. The Paying
Agent will pay interest to such Holders on the next Interest Payment Date
even though Debentures are canceled after the Record Date but on or before
the Interest Payment Date. Holders must surrender Debentures to the Paying
Agent to collect Principal payments; except that, with respect to a Global
Security, the Depository need not surrender the Global Security to collect
payments of Principal other than the final payment of Principal of such
Global Security, provided that the Depository makes appropriate endorsement
on such Global Security of such prepayments on the Table of Prepayments. The
Paying Agent will pay Principal and interest in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. However, except as set forth in the last sentence of this paragraph:
(i) the Paying Agent may pay Principal and interest by check payable in such
money; and (ii) the Paying Agent may mail an interest check to a Holder's
registered address. Any Holder of at least $1,000,000 aggregate principal
amount of Debentures shall have the right to receive payment of Principal of
and interest on the Debentures by wire transfer of funds, provided that such
Debentureholder requests such form of payment, accompanied by appropriate
wire transfer instructions, by written notice to the Trustee and the Paying
Agent given not later than the Record Date immediately preceding such
payment.
3. PAYING AGENT AND REGISTRAR.
Initially, The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati,
Ohio 45263, will act as Paying Agent and Registrar. The Corporation may
change any Paying Agent, Registrar or Co-Registrar without notice. The
Corporation or any of its Subsidiaries may act in any such capacity.
4. INDENTURE.
The Corporation issued the Debentures under an Indenture dated as of
March 1, 1998 ("INDENTURE"), between the Corporation and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) (the "ACT") as in effect on the date of the
Indenture. The Debentures are subject to all such terms, and
Debentureholders are referred to the Indenture and the Act for a statement of
such terms. Capitalized terms used but not otherwise defined herein shall
have the same meanings such terms are given in the Indenture. The Debentures
are unsecured general obligations of the Corporation limited to $25,000,000
in aggregate principal amount.
5. REDEMPTION AT CORPORATION'S OPTION.
The Corporation may, at its option, at any time on or after April 1,
2003, redeem all the Debentures or some of them from time to time at a
Redemption Price equal to 100% of the principal amount thereof plus unpaid
accrued interest to the Redemption Date.
Notice of redemption at the Corporation's option will be mailed at
least 30 days before the Redemption Date to each Holder of Debentures to be
redeemed at his registered address as set forth
A-2
<PAGE> 36
in the register. Debentures in denominations larger than $1,000 may be redeemed
in part but only in integral multiples of $1,000. On and after the Redemption
Date (if there is no default in the payment of the Redemption Price by the
Corporation), interest ceases to accrue on Debentures or portions thereof called
for redemption. The Corporation shall have the right, at its option, to
withdraw and rescind, in whole or in part, any such optional redemption by the
Corporation and any such notice of redemption given in connection therewith
up to five (5) days prior to the Redemption Date by written notice of such
withdrawal to the Trustee and to the Debentureholders affected thereby.
6. REDEMPTION AT BENEFICIAL OWNER'S OPTION.
For purposes hereof, a "BENEFICIAL OWNER" means the Person who has the
right to sell, transfer or otherwise dispose of an interest in this Debenture
and the right to receive the proceeds therefrom, as well as the interest and
Principal payable to the Holder hereof. In general, a determination of
beneficial ownership in this Debenture will be subject to the rules,
regulations and procedures governing the Depository and institutions that
have accounts with the Depository or a nominee thereof ("PARTICIPANTS").
Participants may hold interests in this Debenture as Beneficial Owners for
their own accounts, or as nominees for other persons.
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Beneficial Owner has the right to request redemption
of all or part of his interest, expressed in integral multiples of $1,000
principal amount, in this Debenture for payment prior to its maturity, and
the Corporation will redeem the same subject to the limitations that the
Corporation will not be obligated to redeem, during the period from the
original issuance of the Debentures through and including April 1, 1999 (the
"INITIAL PERIOD"), and during any twelve-month period which ends on and
includes each April 1 thereafter (each such twelve-month period being
hereinafter referred to as a "SUBSEQUENT PERIOD"), (i) on behalf of a
deceased Beneficial Owner any interest in this Debenture which exceeds an
aggregate principal amount of $25,000 or (ii) interests in this Debenture in
an aggregate principal amount exceeding $750,000. In the case of interests
in this Debenture owned by a deceased Beneficial Owner, a request for
redemption may be presented to the Trustee at any time and in any principal
amount. If the Corporation, although not obligated to do so, chooses to
redeem interests of any deceased Beneficial Owner in this Debenture in the
Initial Period or any Subsequent Period in excess of the $25,000 limitation,
such redemption, to the extent that it exceeds the $25,000 limitation for any
deceased Beneficial Owner, shall not be included in the computation of the
$750,000 limitation for such Initial Period or such Subsequent Period, as the
case may be, or for any succeeding Subsequent Period.
Subject to the $25,000 and $750,000 limitations, the Corporation will,
upon the death of any Beneficial Owner, redeem the interest of such
Beneficial Owner in this Debenture within 60 days following receipt by the
Trustee of a Redemption Request (as herein defined) from such Beneficial
Owner's personal representative, or surviving joint tenant(s), tenant(s) by
the entirety or tenant(s) in common, or other Persons entitled hereunder to
effect such a Redemption Request (each, a "REPRESENTATIVE"). If Redemption
Requests exceed the aggregate principal amount of interests in Debentures
required to be redeemed during the Initial Period or during any Subsequent
Period, then such excess Redemption Requests will be applied to successive
Subsequent Periods, regardless of the number of Subsequent Periods required
to redeem such interests.
A request for redemption of an interest in this Debenture may be made
by delivering a request to the Depository, in the case of a Participant which
is the Beneficial Owner of such interest, or to the Participant through whom
the Beneficial Owner owns such interest, in form
A-3
<PAGE> 37
satisfactory to the Participant, together with evidence of the death of the
Beneficial Owner and evidence of the authority of the Representative
satisfactory to the Participant and Trustee. A Representative of a deceased
Beneficial Owner may make the request for redemption and shall submit such other
evidence of the right to such redemption as the Participant or Trustee shall
require. The request shall specify the principal amount of the interest in this
Debenture to be redeemed. A request for redemption in the form satisfactory to
the Participant and accompanied by the documents relevant to the request as
above provided, together with a certification by the Participant that it holds
the interest on behalf of the deceased Beneficial Owner with respect to whom the
request for redemption is being made (a "REDEMPTION REQUEST"), shall be
provided to the Depository by a Participant and the Depository will forward
the request to the Trustee. Redemption Requests shall be in form
satisfactory to the Trustee.
The price to be paid by the Corporation for interests in the Debentures
to be redeemed pursuant to a Redemption Request from a deceased Beneficial
Owner's Representative is 100% of the principal amount thereof plus accrued
but unpaid interest to the date of payment. Subject to arrangements with the
Depository, payment for interests in the Debentures which are to be redeemed
shall be made to the Depository upon presentation of Debentures to the
Trustee for redemption in the aggregate principal amount specified in the
Redemption Requests submitted to the Trustee by the Depository which are to
be fulfilled in connection with such payment. Any acquisition of Debentures
by the Corporation or its Subsidiaries other than by redemption at the option
of any Representative of a deceased Beneficial Owner pursuant to this
paragraph 6 shall not be included in the computation of either the $25,000 or
the $750,000 limitation for the Initial Period or for any Subsequent Period.
For purposes of this paragraph 6, an interest in a Debenture held in
tenancy by the entirety, joint tenancy or by tenants in common will be deemed
to be held by a single Beneficial Owner and the death of a tenant by the
entirety, joint tenant or tenant in common will be deemed the death of a
Beneficial Owner. The death of a person, who, during his lifetime, was
entitled to substantially all of the rights of a Beneficial Owner of an
interest in this Debenture will be deemed the death of the Beneficial Owner,
regardless of the recordation of such interest on the records of the
Participant, if such rights can be established to the satisfaction of the
Participant and the Trustee. Such interests shall be deemed to exist in
typical cases of street name or nominee ownership, ownership under the
Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, community
property or other joint ownership arrangements between a husband and wife
(including individual retirement accounts or Keogh [H.R. 10] plans maintained
solely by or for the decedent or by or for the decedent and his spouse), and
trust and certain other arrangements where one Person has substantially all
of the rights of a Beneficial Owner during his lifetime. Beneficial
interests shall include the power to sell, transfer or otherwise dispose of
an interest in this Debenture and the right to receive the proceeds
therefrom, as well as interest and Principal payable with respect thereto.
In the case of any Redemption Request which is presented pursuant to
this paragraph 6 and which has not been fulfilled at the time the Corporation
gives notice of its election to redeem Debentures pursuant to paragraph 5,
such interest or portion thereof shall not be subject to redemption pursuant
to paragraph 5 but shall remain subject to redemption pursuant to this
paragraph 6.
Subject to the provisions of the immediately preceding sentence, any
Redemption Request may be withdrawn by the Person(s) presenting the same upon
delivery of a written request for such withdrawal given by the Depository to
the Trustee prior to the issuance of a check in payment of such Redemption
Request.
A-4
<PAGE> 38
7. DENOMINATIONS, TRANSFER AND EXCHANGE.
The Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples thereof. The transfer of Debentures shall
be registered and Debentures may be exchanged as provided in the Indenture.
The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not
exchange or register the transfer of any Debenture or portion of a Debenture
selected for redemption. Also, it need not exchange or register the transfer
of any Debentures during that period of time subsequent to any Record Date
and prior to the next succeeding Interest Payment Date.
A-5
<PAGE> 39
8. PERSONS DEEMED OWNERS.
The registered Holder of a Debenture may be treated as its owner for
all purposes.
9. AMENDMENTS, SUPPLEMENTS AND WAIVERS.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and any existing Default may be waived, with the
consent of Holders of a majority in principal amount of the Debentures then
outstanding. Without the consent of any Debentureholder, the Indenture or
the Debentures may be amended or supplemented, for among other reasons, to
cure any ambiguity, defect or inconsistency, to provide for assumption of
Corporation obligations to Debentureholders or to make any change that does
not materially adversely affect the rights of any Debentureholder.
10. DEFAULTS AND REMEDIES.
An Event of Default is: default for 30 days in payment of interest on
the Debentures; default in payment of Principal of the Debentures; failure by
the Corporation for 60 days after notice to it to comply with any of its
other agreements in the Indenture or the Debentures; default in the payment
of Indebtedness having an outstanding principal balance of $100,000 or more
under certain circumstances; and certain events of bankruptcy or insolvency.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Debentures may declare all the
Debentures to be due and payable immediately. Debentureholders may not
enforce the Indenture or the Debentures except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Debentures. Subject to certain limitations, Holders of a
majority in principal amount of the Debentures may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from
Debentureholders notice of any continuing Default (except a default in
payment of Principal or interest) if it determines that withholding notice is
in their interests. The Corporation must furnish an annual Officers'
Certificate to the Trustee.
The Trustee shall not be charged with knowledge of any Event of Default
as defined in the Indenture, unless written notice thereof shall have been
given to a Trust Officer of the Trustee at the Corporate Trust Office by the
Corporation, the Paying Agent, the Holder of a Debenture or an agent of such
Holder.
11. TRUSTEE DEALINGS WITH CORPORATION.
The Fifth Third Bank, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Corporation or its Affiliates, and may otherwise
deal with the Corporation or its Affiliates, as if it were not Trustee,
subject to any limitations imposed by the Act.
A-6
<PAGE> 40
12. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Corporation shall not have any liability for any obligations of the
Corporation under the Debentures or the Indenture or for any claim based on,
in respect of or by reason of such obligations or their creation. Each
Debentureholder by accepting a Debenture waives and releases all such
liability. The waiver and release are part of the consideration for the
issue of the Debentures.
13. AUTHENTICATION.
This Debenture shall not be valid until authenticated by the manual
signature of the Trustee or an authenticating agent.
14. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Debentureholder or
an assignee, such as TEN COM ( = tenants in common), TEN ENT ( = tenants by
the entireties), JT TEN ( = joint tenants with right of survivorship and not
as tenants in common), CUST ( = Custodian), and U/G/M/A ( = Uniform Gifts to
Minors Act).
Dated:
Authenticated:
THE FIFTH THIRD BANK, DELTA NATURAL GAS
AS TRUSTEE COMPANY, INC.
By: By:
--------------------------- ---------------------------
Its: Authorized Signer Its: President
By:
---------------------------
Its: Corporate Secretary
(SEAL)
------------------
The Corporation will furnish to any Debentureholder upon written request and
without charge a copy of the Indenture, which has in it the text of this
Debenture in larger type. Requests may be made to: Treasurer, Delta Natural
Gas Company, Inc., 3617 Lexington Road, Winchester, Kentucky 40391.
A-7
<PAGE> 41
------------------
TABLE OF PREPAYMENTS
Upon all partial payments of principal of the within Debenture, this
Debenture shall be surrendered to the Trustee for issuance of a new Debenture
unless the registered Holder hereof shall make appropriate endorsements on
the table below indicating the amount of principal so prepaid, prior to any
transfer to this Debenture. Any purchaser or transferee of this Debenture
shall verify with the Trustee the principal balance outstanding prior to the
purchase or transfer hereof.
<TABLE>
<CAPTION>
PRINCIPAL REMAINING UNPAID
DATE AMOUNT PAID PRINCIPAL BALANCE SIGNATURE
- ---- ----------- ----------------- ---------
<S> <C> <C> <C>
</TABLE>
A-8
<PAGE> 42
ASSIGNMENT FORM
I/We assign and transfer this Debenture to
[ ]
---------------------------
(Insert assignee's social
security or tax I.D. number)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint agent to transfer
----------------------------------
this Debenture on the books of the Corporation. The agent may substitute
another to act for him.
Date: Signature:
------------------- -----------------------------------
(Sign exactly as your
name appears on this
Debenture)
Signature Guarantee
- -------------------------
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<PAGE> 43
FORM OF DEBENTURE
EXHIBIT B
(Face of Debenture)
DELTA NATURAL GAS COMPANY, INC.
% DEBENTURE DUE 2018
----
No. $
---------------------- -------------------------
DELTA NATURAL GAS COMPANY, INC., a Kentucky corporation, for value
received, hereby promises to pay to , or registered
------------------------
assigns, the principal sum of DOLLARS on April 1,
----------------------
2018, and to pay interest on said principal sum at the rate of %
----------
per annum calculated on the basis of a 360-day year of twelve 30-day months.
INTEREST PAYMENT DATES: April 1 and October 1
RECORD DATES: March 15 and September 15
Dated:
Authenticated:
THE FIFTH THIRD BANK, DELTA NATURAL GAS
AS TRUSTEE COMPANY, INC.
By: By:
-------------------------- ---------------------------
Its: Authorized Signer Its: President
By:
---------------------------
Its: Corporate Secretary
(SEAL)
B-1
<PAGE> 44
(Back of Debenture)
DELTA NATURAL GAS COMPANY, INC.
% DEBENTURE DUE APRIL 1, 2018
----
1. INTEREST.
DELTA NATURAL GAS COMPANY, INC. ("CORPORATION"), a Kentucky
corporation, promises to pay interest on the principal amount of this
Debenture at the rate per annum shown above. The Corporation will pay
interest semi-annually on April 1 and October 1 of each year (each such date
being an "Interest Payment Date"), commencing October 1, 1998. Interest on
the Debentures will accrue from the most recent date to which interest has
been paid, or, if no interest has been paid previously, from the date of
original issuance of this Debenture; provided that, if there is no existing
default in the payment of interest, and if this Debenture is authenticated
between a Record Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from the next Interest Payment
Date.
2. METHOD OF PAYMENT.
The Corporation will pay interest on the Debentures (except defaulted
interest) to the Paying Agent who will then pay such interest to the Persons
who are registered Holders of Debentures at the close of business on the
Record Date next preceding the Interest Payment Date. The Corporation shall
pay appropriate amounts to the Paying Agent in immediately available funds at
least one (1) business day preceding the Interest Payment Date. The Paying
Agent will pay interest to such Holders on the next Interest Payment Date
even though Debentures are canceled after the Record Date but on or before
the Interest Payment Date. Holders must surrender Debentures to the Paying
Agent to collect Principal payments. The Paying Agent will pay Principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, except as set forth
in the last sentence of this paragraph: (i) the Paying Agent may pay
Principal and interest by check payable in such money; and (ii) the Paying
Agent may mail an interest check to a Holder's registered address. Any
Holder of at least $1,000,000 aggregate principal amount of Debentures shall
have the right to receive payment of Principal of and interest on the
Debentures by wire transfer of funds, provided that such Debentureholder
requests such form of payment, accompanied by appropriate wire transfer
instructions, by written notice to the Trustee and the Paying Agent given not
later than the Record Date immediately preceding such payment.
3. PAYING AGENT AND REGISTRAR.
Initially, The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati,
Ohio 45263, will act as Paying Agent and Registrar. The Corporation may
change any Paying Agent, Registrar or Co-Registrar without notice. The
Corporation or any of its Subsidiaries may act in any such capacity.
4. INDENTURE.
The Corporation issued the Debentures under an Indenture dated as of
March 1, 1998 ("INDENTURE"), between the Corporation and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust
B-2
<PAGE> 45
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "ACT") as in effect
on the date of the Indenture. The Debentures are subject to all such terms, and
Debentureholders are referred to the Indenture and the Act for a statement of
such terms. Capitalized terms used but not otherwise defined herein shall
have the same meanings such terms are given in the Indenture. The Debentures
are unsecured general obligations of the Corporation limited to $25,000,000
in aggregate principal amount.
5. REDEMPTION AT CORPORATION'S OPTION.
The Corporation may, at its option, at any time on or after April 1,
2003, redeem all the Debentures or some of them from time to time at a
Redemption Price equal to 100% of the principal amount thereof plus unpaid
accrued interest to the Redemption Date.
Notice of redemption at the Corporation's option will be mailed at
least 30 days before the Redemption Date to each Holder of Debentures to be
redeemed at his registered address as set forth in the register. Debentures
in denominations larger than $1,000 may be redeemed in part but only in
integral multiples of $1,000. On and after the Redemption Date (if there is
no default in the payment of the Redemption Price by the Corporation),
interest ceases to accrue on Debentures or portions thereof called for
redemption. The Corporation shall have the right, at its option, to withdraw
and rescind, in whole or in part, any such optional redemption by the
Corporation and any such notice of redemption given in connection therewith
up to five (5) days prior to the Redemption Date by written notice of such
withdrawal to the Trustee and to the Debentureholders affected thereby.
6. REDEMPTION AT HOLDER'S OPTION.
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Debentureholder has the right to present Debentures
for payment prior to their maturity, and the Corporation will redeem the same
subject to the limitations that the Corporation will not be obligated to
redeem, during the period from the original issuance of the Debentures
through and including April 1, 1999 (the "INITIAL PERIOD"), and during any
twelve-month period which ends on and includes each April 1 thereafter (each
such twelve-month period being hereinafter referred to as a "SUBSEQUENT
PERIOD"), (i) Debentures presented on behalf of a deceased Debentureholder
exceeding an aggregate principal amount of $25,000 or (ii) Debentures in an
aggregate principal amount exceeding $750,000. In the case of Debentures
owned by a deceased Holder, Debentures may be presented to the Trustee for
redemption at any time and in any principal amount. If the Corporation,
although not obligated to do so, chooses to redeem Debentures of any deceased
Debentureholder in any such period in excess of the $25,000 limitation, such
redemption, to the extent that it exceeds the $25,000 limitation for any
deceased Debentureholder, shall not be included in the computation of the
$750,000 limitation for such Initial Period or such Subsequent Period, as the
case may be, or for any succeeding Subsequent Period.
Subject to the $25,000 and $750,000 limitations, the Corporation will,
upon the death of any Debentureholder, redeem Debentures within 60 days
following receipt by the Trustee of a request therefor from such
Debentureholder's personal representative, or surviving joint tenant(s),
tenant(s) by the entirety or tenant(s) in common, or other Persons entitled
hereunder to request such redemption (each, a "REPRESENTATIVE"). If
Debentures presented for redemption exceed the aggregate principal amount of
Debentures required to be redeemed during the Initial Period or during any
Subsequent Period, then such excess Debentures presented for redemption will
be applied to successive Subsequent Periods, regardless of the number of
Subsequent Periods
B-3
<PAGE> 46
required to redeem such Debentures.
Debentures may be presented for redemption by delivering to the
Trustee: (i) a written request for redemption, in form satisfactory to the
Trustee, signed by the Representative of the deceased Debentureholder, (ii)
the Debenture(s) to be redeemed and (iii) appropriate evidence of death of
the Debentureholder and appropriate evidence of the authority of the
Representative of the deceased Debentureholder. No particular forms of
request for redemption or authority to request redemption are necessary. The
price to be paid by the Corporation for all Debentures presented to it
pursuant to the provisions described in this paragraph 6 is 100% of the
principal amount thereof plus accrued but unpaid interest to the date of
payment. Any acquisition of Debentures by the Corporation or its
Subsidiaries other than by redemption at the option of any Representative of
a deceased Debentureholder pursuant to this paragraph 6 shall not be included
in the computation of either the $25,000 or the $750,000 limitation for the
Initial Period or for any Subsequent Period.
For purposes of this paragraph 6, a Debenture held in tenancy by the
entirety, joint tenancy or by tenants in common will be deemed to be held by
a single Debentureholder and the death of a tenant by the entirety, joint
tenant or tenant in common will be deemed the death of a Debentureholder.
The death of a person, who, during his lifetime, was entitled to
substantially all of the beneficial interests of ownership of a Debenture
will be deemed the death of the Debentureholder, regardless of the registered
Debentureholder, if such beneficial interest can be established to the
satisfaction of the Trustee. Such beneficial interest shall be deemed to
exist in typical cases of street name or nominee ownership, ownership under
the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act,
community property or other joint ownership arrangements between a husband
and wife (including individual retirement accounts or Keogh [H.R. 10] plans
maintained solely by or for the decedent or by or for the decedent and his
spouse), and trust and certain other arrangements where one person has
substantially all of the beneficial ownership interests in the Debenture
during his lifetime. Beneficial interests shall include the power to sell,
transfer or otherwise dispose of a Debenture and the right to receive the
proceeds therefrom, as well as interest and Principal payable with respect
thereto.
In the case of Debentures held by Qualified Institutions on behalf of
beneficial owners, the $25,000 limitation shall apply to each such beneficial
owner and the death of such beneficial owner shall entitle a Qualified
Institution to seek redemption of such Debentures as if the deceased
beneficial owner were the record Debentureholder. Such Qualified
Institutions, in their request for redemption on behalf of such beneficial
owners, must submit evidence, satisfactory to the Trustee, that they hold
Debentures on behalf of such beneficial owners and must certify that the
aggregate requests for redemption tendered by such Qualified Institution on
behalf of each such beneficial owner in the Initial Period or any Subsequent
Period does not exceed $25,000. In addition, any request for redemption made
by a Qualified Institution on behalf of a beneficial owner must be delivered
to the Trustee by registered mail, return receipt requested.
In the case of any Debenture which is presented for redemption in part
only, upon such redemption the Corporation shall execute and the Trustee
shall authenticate and deliver to or on the order of the Holder of such
Debenture, without service charge to the Debentureholder, a new Debenture or
Debentures, of any authorized denomination or denominations as requested by
such Holder, in aggregate principal amount equal to the unredeemed portion of
the principal of the Debenture so presented.
In the case of any Debenture or portion thereof which is presented for
redemption pursuant to this paragraph 6 and which has not been redeemed at
the time the Corporation gives notice of its election to redeem Debentures
pursuant to paragraph 5, such Debenture or portion thereof shall not
B-4
<PAGE> 47
be subject to redemption pursuant to paragraph 5 but shall remain subject to
redemption pursuant to this paragraph 6.
Subject to the provisions of the immediately preceding sentence, any
Debentures presented for redemption at the option of the Representative of a
deceased Debentureholder may be withdrawn by the Person(s) presenting the
same upon delivery of a written request for such withdrawal given to the
Trustee prior to the issuance of a check in payment of such Debentures
presented by reason of the death of a Debentureholder.
7. DENOMINATIONS, TRANSFER AND EXCHANGE.
The Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples thereof. The transfer of Debentures shall
be registered and Debentures may be exchanged as provided in the Indenture.
The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not
exchange or register the transfer of any Debenture or portion of a Debenture
selected for redemption. Also, it need not exchange or register the transfer
of any Debentures during that period of time subsequent to any Record Date
and prior to the next succeeding Interest Payment Date.
8. PERSONS DEEMED OWNERS.
The registered Holder of a Debenture may be treated as its owner for
all purposes.
9. AMENDMENTS, SUPPLEMENTS AND WAIVERS.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and any existing Default may be waived, with the
consent of Holders of a majority in principal amount of the Debentures then
outstanding. Without the consent of any Debentureholder, the Indenture or
the Debentures may be amended or supplemented, for among other reasons, to
cure any ambiguity, defect or inconsistency, to provide for assumption of
Corporation obligations to Debentureholders or to make any change that does
not materially adversely affect the rights of any Debentureholder.
10. DEFAULTS AND REMEDIES.
An Event of Default is: default for 30 days in payment of interest on
the Debentures; default in payment of Principal of the Debentures; failure by
the Corporation for 60 days after notice to it to comply with any of its
other agreements in the Indenture or the Debentures; default in the payment
of Indebtedness having an outstanding principal balance of $100,000 or more
under certain circumstances; and certain events of bankruptcy or insolvency.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Debentures may declare all the
Debentures to be due and payable immediately. Debentureholders may not
enforce the Indenture or the Debentures except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Debentures. Subject to certain limitations, Holders of a
majority in principal amount of the Debentures may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from
Debentureholders notice of any continuing Default (except a default in
payment of Principal or interest) if it determines that withholding notice is
in their interests. The Corporation must furnish an annual Officers'
Certificate to the Trustee.
The Trustee shall not be charged with knowledge of any Event of Default
as defined in the
B-5
<PAGE> 48
Indenture, unless written notice thereof shall have been given to a Trust
Officer of the Trustee at the Corporate Trust Office by the Corporation, the
Paying Agent, the Holder of a Debenture or an agent of such Holder.
11. TRUSTEE DEALINGS WITH CORPORATION.
The Fifth Third Bank, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Corporation or its Affiliates, and may otherwise
deal with the Corporation or its Affiliates, as if it were not Trustee,
subject to any limitations imposed by the Act.
12. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Corporation shall not have any liability for any obligations of the
Corporation under the Debentures or the Indenture or for any claim based on,
in respect of or by reason of such obligations or their creation. Each
Debentureholder by accepting a Debenture waives and releases all such
liability. The waiver and release are part of the consideration for the
issue of the Debentures.
13. AUTHENTICATION.
This Debenture shall not be valid until authenticated by the manual
signature of the Trustee or an authenticating agent.
14. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Debentureholder or
an assignee, such as TEN COM ( = tenants in common), TEN ENT ( = tenants by
the entireties), JT TEN ( = joint tenants with right of survivorship and not
as tenants in common), CUST ( = Custodian), and U/G/M/A ( = Uniform Gifts to
Minors Act).
The Corporation will furnish to any Debentureholder upon written request and
without charge a copy of the Indenture, which has in it the text of this
Debenture in larger type. Requests may be made to: Treasurer, Delta Natural
Gas Company, Inc., 3617 Lexington Road, Winchester, Kentucky 40391.
B-6
<PAGE> 49
ASSIGNMENT FORM
I/We assign and transfer this Debenture to
[ ]
---------------------------
(Insert assignee's social
security or tax I.D. number)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint agent to transfer this
-------------------------
Debenture on the books of the Corporation. The agent may substitute another
to act for him.
Date: Signature:
------------------- ------------------------------------
(Sign exactly as your
name appears on the
other side of this
Debenture)
Signature Guarantee
- -------------------------
B-7
<PAGE> 1
STOLL, KEENON & PARK, LLP
201 E. Main Street
Suite 1000
Lexington, Kentucky 40507-1380
(606) 231-3000
Fax: (606) 253-1093
March 11, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Delta Natural Gas Company, Inc.
Registration Statement
Dear Sir or Madam:
We are acting as counsel to Delta Natural Gas Company, Inc. ("Delta"),
a Kentucky corporation, in connection with the issuance and sale by Delta of
$25,000,000 in debentures due 2018 (the "Debentures"). A Registration
Statement on Form S-2 with respect to the Debentures has been filed by Delta
with the Securities and Exchange Commission.
In our capacity as such counsel to Delta, we have familiarized
ourselves with the corporate affairs of Delta and are familiar with the
actions taken by Delta in connection with the aforementioned issuance and
sale. We have examined the original or certified copies of all such records
of Delta and all such agreements, certificates of public officials,
certificates of officers or representatives of Delta and others and such
other documents as we deem relevant and necessary as a basis for the opinions
hereinafter expressed. In
<PAGE> 2
March 11, 1998
Page 2
such examination we have assumed the genuineness of all signatures on
original documents and the conformity to original documents of all copies
submitted to us as conformed or photostatic copies. As to various questions
of fact material to such opinions, we have relied upon statements or
certificates of officials and representatives of Delta and others.
Based upon the foregoing, it is our opinion that:
1. Delta is a corporation duly organized and validly existing under
the laws of the State of Kentucky.
2. The Debentures have been legally authorized by Delta and will,
when sold, be legally issued, fully paid and non-assessable, and the
Debentures will be binding obligations of Delta.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. We also hereby consent to the use of our name under
"Legal Opinions" in the Prospectus constituting part of the Registration
Statement.
Very truly yours,
/dgr
<PAGE> 1
EXHIBIT 12
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
FOR THE
TWELVE
MONTHS
ENDED FOR THE YEARS ENDED JUNE 30,
DECEMBER 31, ----------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Net Income............................ $2,038,238 $1,724,265 $2,661,349 $1,917,735 $2,671,001 $2,620,664
Provisions for income taxes........... 1,154,275 964,800 1,559,500 1,042,400 1,509,600 1,543,700
Fixed charges......................... 4,087,549 3,632,191 2,808,209 2,387,935 2,214,659 2,210,833
---------- ---------- ---------- ---------- ---------- ----------
Total............................. $7,280,062 $6,321,256 $7,029,058 $5,348,070 $6,395,260 $6,375,197
========== ========== ========== ========== ========== ==========
Fixed Charges
Interest on debt...................... $3,975,949 $3,516,825 $2,719,409 $2,299,135 $2,123,255 $2,134,306
Amortization of debt expense.......... 111,600 115,366 88,800 88,800 91,404 76,527
---------- ---------- ---------- ---------- ---------- ----------
$4,087,549 $3,632,191 $2,808,209 $2,387,935 $2,214,659 $2,210,833
========== ========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges
Actual................................ 1.78x 1.74x 2.50x 2.24x 2.89x 2.88x
Pro Forma
Actual fixed charges.................. $4,087,549
Pro forma interest on debt
to be sold, assuming a
rate of 7.1%........................ 1,775,000
Actual interest on debt to be
retired............................. (1,586,780)
Pro forma fixed charges............... $4,275,769
==========
Pro forma ratio of earnings to fixed
charges............................. 1.75x
</TABLE>
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this Registration Statement and to the incorporation by
reference in this Registration Statement of our report dated August 15, 1997
included in the Company's Form 10-K for the year ended June 30, 1997 and to all
references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 9, 1998
<PAGE> 1
File No. ----
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(B)(2)
-----
THE FIFTH THIRD BANK
- --------------------------------------------------------------------------------
(Exact name of trustee as specified in its charter)
Ohio
- --------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization if not a
national bank)
31-0854433
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
38 Fountain Square Plaza, Cincinnati, Ohio
- --------------------------------------------------------------------------------
(Address of principal executive offices)
45263
- --------------------------------------------------------------------------------
(Zip Code)
Paul L. Reynolds, 5th and Walnut Streets
Cincinnati, Ohio, 45263 (513) 579-5300
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
DELTA NATURAL GAS COMPANY, INC.
- --------------------------------------------------------------------------------
(Exact name of obligor as specified in its charter)
Kentucky
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
61-0458329
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
3617 Lexington Road, Winchester, Kentucky
- --------------------------------------------------------------------------------
(Address of principal executive offices)
40391
- --------------------------------------------------------------------------------
(Zip Code)
Debentures Due April 1, 2018
- --------------------------------------------------------------------------------
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee -
(a) Name and address of each examining or supervising authority to
which it is subject.
Ohio Superintendent of Banks
State Office Tower
30 E. Broad Street
Columbus, Ohio 43215
Federal Reserve Bank of Cleveland
East Sixth Street and Superior Avenue
Cleveland, Ohio 44101
Federal Deposit Insurance Corporation,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEMS 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14 AND 15 ARE NOT APPLICABLE BY VIRTUE OF
THE ANSWER TO ITEM 13.
ITEM 13. DEFAULTS BY THE OBLIGOR.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None.
(b) If the Trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a
2
<PAGE> 3
default under any such indenture or series, identify the indenture or series
affected, and explain the nature of any such default.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of
eligibility. (Exhibits identified in parentheses, on file with the
Commission, are incorporated herein by reference as exhibits hereto.)
(1) A copy of the Certificate of Incorporation of the trustee as now
in effect.
(2) A copy of the certificate of authority of the trustee to commence
business. (Included in Exhibit 1)
(3) A copy of the authorization of the trustee to exercise corporate
trust powers.
(4) A copy of the existing code of regulations of the trustee
incorporating amendments to date.
(5) A copy of each indenture referred to in Item 4. (Not applicable)
(6) The consent of the trustee required by Section 321 (b) of the
Trust Indenture Act of 1939.
(7) A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
(8) A copy of any order pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to
be qualified under the Act.
(9) Foreign trustees are required to file a consent to service of
process on Form F-X
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, The Fifth Third Bank, a corporation organized and existing under
the laws of the State of Ohio, has duly caused this statement of eligibility
and qualification to be signed on its behalf by the undersigned, thereunto
duly authorized, all in the City of Cincinnati and the State of Ohio, on the
- ----- day of -----------------, 1998.
THE FIFTH THIRD BANK
By:
-------------------------------
Fred T. Overbeck,
Trust Officer
4
<PAGE> 5
EXHIBIT 1
CERTIFICATE OF INCORPORATION
OF THE TRUSTEE AS NOW IN EFFECT
[See Attached]
5
<PAGE> 6
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
THE FIFTH THIRD BANK
George A. Schaefer, Jr., President and Phillip C. Long, Secretary to The
Fifth Third Bank, an Ohio banking corporation, with its principal office
located at Cincinnati, Hamilton County, Ohio, do hereby certify that a duly
called meeting of the Board of Directors held on May 18, 1993, at which a
quorum was present and at a special meeting of the shareholder on May 18,
1993, the following resolution to amend the Third Amended Articles of
Incorporation which adopted by affirmative vote of all the Directors in
attendance and by an unanimous vote of the sole shareholder.
RESOLVED, that Article FOURTH of the Third Amendment Articles of
Incorporation be and is hereby amended in its entirety to read
as follows:
FOURTH: The maximum number of shares with the corporation is authorized
to have outstanding shall be Thirty-Two Thousand (32,000) shares with a
par value of Two Thousand Two Hundred Dollars ($2,200.00) per share.
IN WITNESS WHEREOF, said George A. Schaefer, Jr., President and Phillip C.
Long, Secretary of The Fifth Third Bank, acting for and on behalf of said
corporation have hereunto subscribed their names this 18th day of May ,
-------- -------
1993.
/s/ George A. Schaefer, Jr.
----------------------------------
George A. Schaefer, Jr., President
Approved this 16th day of June, 1993
/s/ Allison M. Meeks
- -------------------------------------
Allison M. Meeks, Superintendent
/s/ Phillip C. Long
----------------------------------
Phillip C. Long, Secretary
6
<PAGE> 7
THIRD AMENDED ARTICLES OF INCORPORATION
OF
THE FIFTH THIRD BANK
FIRST: The name of said Corporation shall be "The Fifth Third
Bank".
SECOND: The place in Ohio where its principal office is to be
located is Cincinnati, Hamilton County, and its principal business there
transacted.
THIRD: Said Corporation is formed for the purposes of (a) receiving
on deposit or in trust, moneys, securities and other valuable property, on
such terms as may be agreed, and of doing the business of a savings bank and
of a trust company; (b) of disposing of box vaults for safekeeping of
valuables by lease or otherwise; (c) of investing and loaning the funds of
the company and those received by it on deposit or in trust; (d) of doing a
commercial banking business; and, (e) of doing the business of a special plan
bank, and in furtherance of said purposes, to exercise all the powers of
which may be lawfully exercised by a corporation formed therefore, and to do
all things necessary to incident thereto.
FOURTH: The maximum number of shares which the corporation is
authorized to have outstanding shall be Thirty-Two Thousand (32,000) shares
with a par value of One Thousand Nine Hundred Dollars ($1,900.00) per share.
FIFTH: These Amended Articles of Incorporation supersede and take
the place of the existing Articles of Incorporation.
7
<PAGE> 8
EXHIBIT 2
CERTIFICATE OF AUTHORITY OF THE
TRUSTEE TO COMMENCE BUSINESS
(INCLUDED IN EXHIBIT 1)
8
<PAGE> 9
EXHIBIT 3
A COPY OF THE AUTHORIZATION OF THE TRUSTEE
TO EXERCISE CORPORATE TRUST POWERS
[See Attached]
9
<PAGE> 10
STATE OF OHIO
DIVISION OF FINANCIAL INSTITUTIONS
This is to certify that The Fifth Third Bank, Cincinnati, Ohio, organized
under the laws of the State of Ohio has complied with the laws relating to
trust companies under Section 1111.04 of the Ohio Revised Code and is
qualified to exercise trust powers in Ohio.
Witness my hand at Columbus, Ohio, this 23rd day of February, 1998.
/s/ W. Curtis Stitt
----------------------------------
W. CURTIS STITT
Superintendent
Division of Financial Institutions
10
<PAGE> 11
EXHIBIT 4
A COPY OF THE EXISTING CODE OF REGULATIONS OF THE TRUSTEE
INCORPORATING AMENDMENTS TO DATE
[See Attached]
11
<PAGE> 12
CODE OF REGULATIONS OF THE FIFTH THIRD BANK
ARTICLE I
STOCKHOLDERS
SECTION 1. MEETINGS. The annual meeting of the Stockholders shall be
held at the principal office of the Company at such hour, as may be fixed in
the notice of such meeting, and on such date, not earlier than the second
Tuesday of January or later than the third Tuesday of April of each year, as
shall be fixed by the Board of Directors and communicated in writing to the
Shareholders not later than twenty (20) days prior to such meeting.
SECTION 2. QUORUM. Stockholders, whether in person or by lawful
proxies, representing a majority in amount of the outstanding stock of the
Company, shall constitute a quorum at any stockholders' meeting. If there be
less than a majority in amount of such stock at any meeting, the meeting may
be adjourned from time to time.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER. The Board of Directors shall be composed of
eighteen (18) persons unless this number is changed by: (1) the Shareholders
in accordance with the laws of Ohio or (2) the vote of a majority of the
Directors in office. The Directors may increase the number to not more than
twenty-four (24) persons and may decrease the number to not less than fifteen
(15) persons. Any Director's office created by the Directors by reason of an
increase in their number may be filled by action of a majority of the
Directors in office.
SECTION 2. TERM. Directors shall hold office until the expiration of
the term for which they were erected, and shall continue in office until
their respective successors shall have been duly elected and qualified.
SECTION 3. QUALIFICATIONS AND COMPENSATION. No person shall
serve as a Director who is not the owner of record of at least Five Hundred
($500.00) Dollars par value of stock of the Company. Each Director shall be
entitled to receive such compensation for attendance at meetings of the Board
of Directors of Committees thereof as the Board of Directors may, from time
to time, fix.
SECTION 4. REPLACEMENT OR REMOVAL. Directors may be replaced or
removed as provided by Ohio Law, provided that Directors may be removed
without cause only by an affirmative vote
12
<PAGE> 13
of not less than two-thirds (2/3) of the outstanding shares of the Company.
SECTION 5. VACANCIES. Any vacancy occurring in the Board of
Directors may be filled by the Board of Directors until an election to fill
such vacancy is had.
SECTION 6. QUORUM. A majority of the whole authorized number of
Directors, as the same shall be established from time to time in accordance
with Section 1 of this Code of Regulations, shall constitute a quorum for a
meeting of the Directors, except that a majority of the Directors in office
constitute a quorum for the filling of a vacancy or vacancies of the Board.
SECTION 7. ELECTION OF OFFICERS. The Board of Directors at the
first meeting after the election of Directors may elect one of its own number
Chairman of the Board and one of its own number Vice Chairman of the Board;
and it shall elect one of its own number President. It may also elect one or
more vice presidents (one or more of whom may be designated Executive Vice
President and/or Senior Vice President and/or Vice President and Trust
Officer), a Cashier, a Secretary, and a Treasurer, and it may appoint such
other officers as the Board may deem advisable. Any two of said offices may
be held by the same person. Officers so elected shall hold office during the
term of the Board by whom they are elected, subject to the power of the Board
to remove them at its discretion. They shall be bonded in such amount and
with such survey or sureties as the Board of Directors shall require.
SECTION 8. MEETINGS OF THE BOARD. Regular meetings of the Board of
Directors shall be held on the third Tuesday of each month, or at such other
times as may be determined by the Board of Directors. Except as otherwise
provided by law, any business may be transacted at any regular meeting of the
Board of Directors. Special meetings shall be held upon the call of the
Chairman of the Board, if one be elected, or by the President, or in their
absence, by a Vice President or any three (3) Directors.
SECTION 9. NOTICE OF MEETINGS. The Secretary shall give notice of
each meeting of the Board of Directors, whether regular or special, to each
member of the Board.
SECTION 10. COMMITTEES.
SECTION 10.1 EXECUTIVE COMMITTEE. The Board of Directors shall
appoint any Executive Committee consisting of at least three (3) members, all
of whom may be members of the Board of Directors, or at least one (1) of whom
shall be a Director, the remainder to be officers of the Bank. Such
Executive Committee shall serve until their successors are appointed. A
majority of the members of
13
<PAGE> 14
said Committee shall constitute a quorum. The Executive Committee shall
conduct the business of the Company and shall have all the powers of the
Board of Directors when said Board is not in session, except that of
declaring a dividend. The Secretary of the Company shall keep a record of
the Committee's proceedings, which, signed by the Chairman of the Committee,
shall be presented at the meetings of the Committee and at the meetings of
the Board of Directors.
SECTION 10.2 OTHER COMMITTEES. The Board of Directors shall
appoint a Trust Committee of which the Vice President and Trust Officer and
at least three (3) of its members who are not officers of the Company shall
be members. The Vice President and Trust Officer shall be Chairman of the
Trust Committee. In addition thereto, the Chairman of the Board, Chief
Executive Officer, may appoint such additional Committees, by and with the
approval of the Board of Directors, as may be deemed desirable or necessary.
Each such Committee, so appointed, shall have such powers and perform
such duties, not inconsistent with law, as may be delegated to it by the
Board of Directors.
SECTION 11. INDEMNIFICATION. The Company shall indemnify each
Director and each Officer of the Company, and each person employed by the
Company who serves at the written request of the President of the Company as
a director, trustee, officer, employee or agent of another corporation,
domestic or foreign, non-profit or for profit, partnership, joint venture,
trust or other enterprise, to the full extent permitted by Ohio law. The
term "Officer" as used in this Section shall include the Chairman of the
Board and the Vice Chairman of the Board if such offices are filled, the
President, each Vice President, the Treasurer, the Secretary, the Cashier,
the Controller, the Auditor, the Counsel and any other person who is
specifically designated as an "Officer" within the operation of this Section
by action of the Board of Directors. The Company may indemnify assistant
Officers, employees and others by action of the Board of Directors to the
extent permitted by Ohio law.
ARTICLE III
OFFICERS
SECTION 1. POWERS AND DUTIES. The Chairman of the Board if the
office be filled, otherwise the Vice Chairman of the Board, if the office be
filled, otherwise the President shall preside at all meetings of the
Stockholders, the Board of Directors, and the supervision and control over
the business of the Company and shall serve at the pleasure of the Board of
Directors. In the absence or disability of any of the foregoing officers,
their respective duties shall be performed by the Chairman of the Board, the
Vice
14
<PAGE> 15
Chairman of the Board, the President, or by a Vice President specifically
designated by the Board of Directors, in the order named.
The Secretary, or in his absence or disability, the Assistant Secretary,
shall act, ex officio, as Secretary of all meetings of the Stockholders, the
Board of Directors and the Executive Committee. The other officers of the
Company shall have such powers and duties as usually and customarily attach
to their offices.
ARTICLE IV
CERTIFICATES OF STOCK
SECTION 1. FORM. Certificates for shares of stock shall be signed by
the Chairman of the Board, or by the President, or by one of the Vice
Presidents, and by the Secretary or Treasurer or by the Cashier or an
Assistant Cashier, shall contain such statements as are required by law, and
shall otherwise be in such form as the Board of Directors may, from time to
time, require.
SECTION 2. TRANSFERS. Shares shall be transferable on the books of
the Company by the holders thereof in person or by duly authorized attorney
upon surrender of the certificates therefor with duly executed assignment
endorsed thereon or attached thereto.
SECTION 3. CLOSING OF TRANSFER BOOKS. The books for transfer of
the stock of the Company shall be closed for at least five (5) days preceding
the annual meeting of stockholders, and may be closed by order of the Board
of Directors, or Executive Committee, for a like period before any other
meeting of the Stockholders.
ARTICLE V
AMENDMENTS
These regulations may be changed, and new regulations adopted by the
assent thereto in writing of two-thirds (2/3) of the Stockholders of the
Company in number an in amount; or by a majority of such Stockholders in
number and in amount, at a meeting held for that purpose, notice of which has
been given by the President, the Secretary, or any two (2) Directors
personally or by written notice, to each Stockholders, and by publication
once a week for four (4) consecutive weeks in some newspaper of general
circulation in Hamilton County, Ohio, or in such other manner as may then be
authorized by the laws of Ohio.
15
<PAGE> 16
EXHIBIT 5
A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4
(NOT APPLICABLE)
16
<PAGE> 17
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321 (B)
OF THE TRUST INDENTURE ACT OF 1939
[See Attached]
17
<PAGE> 18
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939 in connection with the proposed issuance of Debt Securities of
Delta Natural Gas Company, Inc., The Fifth Third Bank hereby consents that
reports of examination by Federal, State, Territorial or District Authorities
may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
THE FIFTH THIRD BANK
By:
--------------------------------
Fred T. Overbeck,
Trust Officer
<PAGE> 19
EXHIBIT 7
A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS
OF ITS SUPERVISING OR EXAMINING AUTHORITY
[See Attached]
<PAGE> 20
R E P O R T O F C O N D I T I O N
Consolidated Report of Condition of FIFTH THIRD BANK of
----------------------------
CINCINNATI, OHIO and Foreign and Domestic Subsidiaries, a member of the
- -------------------
Federal Reserve System, at the close of business on December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
ASSETS Thousands
of Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin 480,674
Interest-bearing balances 99
Held-to-maturity securities 12,541
Available-for-sale securities 2,232,932
Federal funds sold and securities purchased //////////
under agreements to resell 466,100
Loans and lease financing receivables:
Loans and lease, net of unearned income 5,543,285
LESS: Allowance for loan and lease losses 72,840
LESS: Allocated transfer risk reserve 0
Loans and leases, net of unearned income, allowance,
and reserve 5,470,445
Trading Assets 7,906
Premises and fixed assets (including capitalized leases) 122,367
Other real estate owned 152
Investments in unconsolidated subsidiaries and
associated companies 0
Customers' liability to this bank on
acceptances outstanding 16,954
Intangible assets 49,228
Other assets 213,898
Total assets 9,073,296
<PAGE> 21
LIABILITIES
Deposits:
In domestic offices 4,894,224
Noninterest-bearing 1,300,258
Interest-bearing 3,593,966
In foreign offices, Edge and Agreement subsidiaries,
and IBFs: 540,951
Noninterest-bearing 0
Interest-bearing 540,951
Federal funds purchased and securities sold under agreements
to repurchase 1,737,588
Demand notes issued to the U.S. Treasury 2,087
Trading liabilities 0
Other borrowed money (including mortgage indebtedness and
obligations under capitalized leases): //////////
With a remaining maturity of one year or less 45,727
With a remaining maturity of more than one year through
three years 202,000
With a remaining maturity of more than three years 0
Mortgage indebtedness and obligations under
capitalized leases 0
Bank's liability on acceptances executed and outstanding 16,954
Subordinated notes and debentures 647,406
Other liabilities 264,374
Total liabilities 8,351,311
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock 70,400
Surplus 142,552
Undivided profits and capital reserves 493,210
Net unrealized holding gains (losses) on
available-for-sale securities 15,823
Cumulative foreign currency translation adjustments 0
Total equity capital 721,985
Total liabilities, limited-life preferred stock,
and equity capital 9,013,296
</TABLE>
<PAGE> 22
EXHIBIT 8
A COPY OF ANY ORDER PURSUANT TO WHICH THE FOREIGN TRUSTEE IS AUTHORIZED TO
ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED UNDER THE
ACT
(NOT APPLICABLE)
<PAGE> 23
EXHIBIT 9
FOREIGN TRUSTEES ARE REQUIRED TO FILE A CONSENT TO SERVICE OF
PROCESS ON FORM F-X
(NOT APPLICABLE)
