SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-8788
DELTA NATURAL GAS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Incorporated in the State 61-0458329
of Kentucky (I.R.S. Employer Identification No.)
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(Address of Principal Executive Offices) (Zip Code)
606-744-6171
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
YES X . NO .
Common Shares, Par Value $1.00 Per Share
2,402,722 Shares Outstanding as of March 31, 1999.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
March 31 March 31 March 31
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 16,890,711 $ 18,305,458 $ 30,458,920 $ 35,308,550 $ 39,408,372 $ 44,728,600
OPERATING EXPENSES
Purchased gas $ 8,139,116 $ 10,062,400 $ 13,220,280 $ 18,548,472 $ 17,171,297 $ 23,454,358
Operation and maintenance 2,300,903 2,242,846 6,685,219 6,693,607 8,959,825 8,916,730
Depreciation and depletion 974,520 868,254 2,874,795 2,562,812 3,757,366 3,318,856
Taxes other than income taxes 355,669 312,399 989,906 915,251 1,286,713 1,204,072
Income taxes 1,469,425 1,377,325 1,190,675 1,238,100 1,353,575 1,330,200
Total operating expenses $ 13,239,633 $ 14,863,224 $ 24,960,875 $ 29,958,242 $ 32,528,776 $ 38,224,216
OPERATING INCOME $ 3,651,078 $ 3,442,234 $ 5,498,045 $ 5,350,308 $ 6,879,596 $ 6,504,384
OTHER INCOME AND
DEDUCTIONS, NET 6,131 10,217 21,213 21,148 67,976 34,032
INCOME BEFORE INTEREST
CHARGES $ 3,657,209 $ 3,452,451 $ 5,519,258 $ 5,371,456 $ 6,947,572 $ 6,538,416
INTEREST CHARGES 1,141,873 1,086,122 3,444,924 3,227,297 4,566,125 4,184,165
NET INCOME $ 2,515,336 $ 2,366,329 $ 2,074,334 $ 2,144,159 $ 2,381,447 $ 2,354,251
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,397,453 2,363,783 2,389,842 2,356,167 2,384,915 2,351,418
BASIC AND DILUTED EARNINGS PER
COMMON SHARE $ 1.05 $ 1.00 $ .87 $ .91 $ 1.00 $ 1.00
DIVIDENDS DECLARED PER
COMMON SHARE $ .285 $ .285 $ .855 $ .855 $ 1.14 $ 1.14
</TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS March 31, 1999 June 30, 1998 March 31, 1998
UTILITY PLANT $ 132,540,282 $ 127,028,159 $ 125,182,821
Less-Accumulated provision
for depreciation (37,956,082) (34,929,481) (34,099,719)
Net utility plant $ 94,584,200 $ 92,098,678 $ 91,083,102
CURRENT ASSETS
Cash and cash equivalents $ 345,330 $ 118,536 $ 8,940,640
Accounts receivable - net 3,579,493 2,538,800 4,813,515
Gas in storage 1,953,711 2,050,000 443,663
Materials and supplies 554,170 520,362 692,025
Prepayments 315,825 241,731 373,649
Total current assets $ 6,748,529 $ 5,469,429 $ 15,263,492
OTHER ASSETS
Cash surrender value of
Officers' life insurance $ 347,789 $ 339,215 $ 329,913
Note receivable from officer 128,000 110,000 116,000
Unamortized debt expense
and other 5,119,975 4,849,291 4,629,086
Total other assets $ 5,595,764 $ 5,298,506 $ 5,074,999
Total assets $ 106,928,493 $ 102,866,613 $ 111,421,593
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders'
equity $ 30,329,591 $ 29,810,294 $ 30,048,071
Long-term debt 51,729,581 52,612,494 52,614,870
Total capitalization $ 82,059,172 $ 82,422,788 $ 82,662,941
CURRENT LIABILITIES
Notes payable $ 4,910,000 $ 1,875,000 $ -
Current portion of
long-term debt 2,450,000 1,790,000 11,766,700
Accounts payable 2,548,357 2,050,628 2,185,433
Accrued taxes 1,461,053 1,085,766 1,550,746
Refunds due customers 49,716 117,123 149,207
Advance recovery of gas costs 246,796 1,148,019 163,693
Customers' deposits 610,003 438,134 509,098
Accrued interest on debt 1,575,051 1,215,265 1,330,529
Accrued vacation 528,952 528,952 516,032
Other current and accrued
liabilities 444,758 485,018 441,839
Total current
liabilities $ 14,824,686 $ 10,733,905 $ 18,613,277
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 8,436,725 $ 8,023,475 $ 8,393,000
Investment tax credits 602,550 637,300 673,500
Regulatory liability 789,600 831,425 861,300
Advances for construction
and other 215,760 217,720 217,575
Total deferred credits
and other $ 10,044,635 $ 9,709,920 $ 10,145,375
Total liabilities and
shareholders' equity $ 106,928,493 $ 102,866,613 $ 111,421,593
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Twelve Months Ended
March 31 March 31
1999 1998 1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 2,074,334 $ 2,144,159 $ 2,381,447 $ 2,354,251
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion
and amortization 3,181,553 2,776,232 4,162,201 3,585,434
Deferred income taxes and
Investment tax credits 336,675 406,200 (98,925) 466,900
Other, net 537,897 555,788 696,591 792,836
(Increase) decrease in other
assets (2,437,357) 611,909 (416,574) 2,138,879
Increase (decrease) in other
liabilities 1,295,044 175,923 533,191 189,563
Net cash provided by
operating activities $ 4,988,146 $ 6,670,211 $ 7,257,931 $ 9,527,863
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $(5,954,315) (9,138,924) $(8,025,855) $(13,705,277)
Net cash used in
investing
activities $(5,954,315) (9,138,924) $(8,025,855) $(13,705,277)
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common
stock $(2,043,580) $(2,014,795) $(2,719,018) $(2,680,694)
Issuance of common stock 488,543 444,138 619,091 574,125
Issuance of long-term debt - 24,147,443 (350,756) 24,147,443
Repayment of long-term debt (287,000) (782,856) (10,286,703) (906,337)
Issuance of short-term
debt 15,665,000 23,675,000 18,190,000 31,815,000
Repayment of short-term
debt (12,630,000) (34,540,000) (13,280,000) (40,825,000)
Net cash provided by
financing activities $ 1,192,963 $10,928,930 $(7,827,386) $12,124,537
NET INCREASE IN
CASH AND CASH
EQUIVALENTS $ 226,794 $ 8,460,217 $ (8,595,310) $ 7,947,123
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 118,536 480,423 8,940,640 993,517
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 345,330 $ 8,940,640 $ 345,330 $ 8,940,640
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 3,205,938 $ 3,013,688 $ 4,483,325 $ 4,013,075
Income taxes (net of
refunds) $ 520,923 $ 563,200 $ 1,596,923 $ 351,850
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) 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 or other large use 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 an underground natural gas storage
field that it leases from Delta. Enpro, Inc. owns and operates
production properties and undeveloped acreage. TranEx Corporation
owns a 43 mile intrastate pipeline. All subsidiaries are included in
the consolidated financial statements. Intercompany balances and
transactions have been eliminated.
(2) The accompanying information reflects, in the opinion of
management, all normal recurring adjustments necessary to present
fairly the results for the interim periods. Reference should be
made to Delta's Form 10-K for the year ending June 30, 1998 for
additional footnote disclosures, including a summary of significant
accounting policies.
(3) In June 1997, Statement of Financial Accounting Standards No.
130 (SFAS 130), "Comprehensive Income," was issued. SFAS 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Delta adopted SFAS 130 during the quarter ended
September 30, 1998. The adoption of this statement had no impact on
the financial statements of the Company.
(4) Effective November 30, 1997, Delta received approval from the
Kentucky Public Service Commission ("PSC") for an annual revenue
increase of $1,670,000. This resulted from a general rate case that
Delta had filed with the PSC during March, 1997. Effective May 1,
1998, resulting from a re-hearing of certain tax-related items in
this rate case, Delta also received approval from the PSC for an
additional revenue increase of $117,000.
(5) On March 23, 1998, Delta completed the issuance and sale of
$25,000,000 of 7.15% Debentures that mature in March, 2018. The
net proceeds of approximately $24.1 million were used to repay
short-term notes payable and to redeem the Company's 9% Debentures
that would have matured in April, 2011. The redemption of this
debt, the outstanding principal amount of which was $10,000,000,
was completed on April 30, 1998. Loss on extinguishment of debt of
$632,000, which included $332,000 of unamortized debt issuance
expense and call premium of $300,000 on the redeemed 9%
Debentures, was deferred and is being amortized over the term of
the related debt consistent with regulatory treatment.
(6) On February 5, 1999, Delta filed proposed alternative
regulatory tariffs with the PSC that would provide for annual rate
adjustments each July 1, beginning July 1, 1999. The tariffs
would adjust Delta's rates annually to reflect Delta's financial
budgets and would provide a return on equity within a band of
11.1% to 12.1%. The tariffs are proposed for an experimental
three year period. The PSC is reviewing and considering these
tariffs and has established a procedural schedule providing for a
public hearing on September 8, 1999.
(7) On April 29, 1999, Delta filed notice with the Kentucky
Public Service Commission of its intent to file a general rate
case. This notice is required to enable Delta to file a case, if
desired, no sooner than four weeks after the notice. Delta's
preference is to utilize the alternative regulatory approach in
its proposed tariffs that were filed on February 5. However,
Delta intends to file a general rate case, if necessary, so that
new rates can be implemented as early as possible this coming
winter heating season.
(8) Reference is made to Part II - Item 1 relative to the status of
legal proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
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 1999 are expected to be
approximately $6.8 million, of which approximately $6.0 million was
expended during the nine months ended March 31, 1999. 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 million, of which $4.9 million was borrowed at March
31, 1999. The line of credit, which is with Bank One, Kentucky, NA,
requires renewal during November, 1999. 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 March 1998, when the net proceeds of
$24.1 million from the sale of $25 million of debentures were used to
repay short-term debt and to redeem the Company's 9% Debentures, that
would have matured in 2011, in the amount of $10 million.
The primary cash flows for the nine and twelve month periods ending
March 31, 1999 and 1998 are summarized below:
Nine Months Ended March 31
1999 1998
Provided by operating
activities $ 4,988,146 $ 6,670,211
Used in investing activities (5,954,315) (9,138,924)
Provided by financing activities 1,192,963 10,928,930
Net increase in cash and cash
equivalents $ 226,794 $ 8,460,217
Twelve Months Ended March 31
1999 1998
Provided by operating
activities $ 7,257,931 $ 9,527,863
Used in investing activities (8,025,855) (13,705,277)
Provided by financing
activities (7,827,386) 12,124,537
Net increase in
cash and cash equivalents $ (8,595,310) $ 7,947,123
RESULTS OF OPERATIONS
Operating Revenues
The decrease in operating revenues for the three months ended March
31, 1999 of $1,415,000 was due primarily to a decrease in the cost of gas
purchased that was reflected in rates billed to customers through Delta's
gas cost recovery clause. This decrease was offset by an increase in
retail sales volumes of 97,000 Mcf, or 5%, resulting from colder weather
in 1999. Heating degree days billed were 103% of the thirty-year average
("normal") for the three months ended March 31, 1999, as compared with 93%
for the same period in 1998.
The decreases in operating revenues for the nine and twelve months
ended March 31, 1999 of $4,850,000 and $5,320,000 respectively, were due
primarily to decreases in retail sales volumes of 313,000 Mcf, or 9%, and
429,000 Mcf, or 10%, respectively, as compared to similar periods of 1998,
resulting from warmer winter weather in 1999. Heating degree days billed
were 79% and 88%, respectively, of normal for the nine and twelve months
ended March 31, 1999, as compared with 85% and 102% for the similar
periods of 1998. Operating revenues for the periods also decreased due to
decreases in the cost of gas purchased that were reflected in rates billed
to customers through Delta's gas cost recovery clause.
Operating Expenses
The decrease in purchased gas expense for the three months ended
March 31, 1999 of $1,923,000 was due primarily to the decrease in the cost
of gas purchased for retail sales. This decrease was partially offset by
increased gas purchases for retail sales resulting from the colder winter
weather in the 1999 period.
The decreases in purchased gas expense for the nine and twelve
months ended March 31, 1999 of $5,328,000 and $6,283,000 respectively,
were due primarily to decreased gas purchases for retail sales resulting
from the warmer winter weather in 1999 and decreases in the cost of gas
purchased for retail sales.
The increases in depreciation expense for the three, nine and twelve
months ended March 31, 1999 of approximately $106,000, $312,000 and
$439,000, respectively, were due primarily to additional depreciable
plant.
Interest Charges
The increases in interest charges for the three, nine and twelve
months ended March 31, 1999 of $56,000, $218,000 and $382,000,
respectively, were due primarily to increased borrowings for the periods.
The "Year 2000" Issue
The Company is working to determine the potential impact of the Year
2000 on the ability of Delta's computerized information systems to
accurately process information that may be date-sensitive. Any of Delta's
programs that recognize a date using "00" as the Year 1900 rather than the
Year 2000 could result in errors or system failures. The Company uses a
number of computer programs across its entire operation.
In recent years, Delta has replaced virtually all of its financial
computer systems (both hardware and software) with systems from third
party vendors who certify their products as being Year 2000 compliant.
The Company has established a Year 2000 committee, comprised of
members of management, which has coordinated an extensive inventory of all
operational systems, including information technology (IT) hardware and
software, as well as non-IT embedded systems such as process controls for
gas delivery and metering systems and service providers.
The Committee is assessing the likelihood of miscalculations or
system failures as a result of these items, systems or service providers.
The Company has currently assessed approximately 97% of these inventoried
items, systems and service providers. This assessment percentage for the
items Delta deems as "critical" stands at 98%. Delta has been diligently
working to insure that critical or otherwise important items assessed as
certain to fail are either repaired or replaced so as not to cause
business interruption or data integrity problems on January 1, 2000.
The costs incurred to date related to its Year 2000 activities have
not been material to the Company, and based upon current estimates, the
Company does not believe that the total cost of its Year 2000 readiness
programs will have a material adverse impact on the Company's results of
operations or financial position.
Like most businesses, the Company relies upon various suppliers and
vendors in order to provide services and supplies to its customers. Delta
understands that even though it is taking steps to prepare it could,
nevertheless, be adversely affected by the failures and/or delays caused
by any non-compliant equipment used by its suppliers or vendors.
Therefore, Delta is currently gathering information regarding the steps
its "mission-critical" suppliers and vendors are taking to become Year
2000 compliant. For instance, Delta has sent each of these parties a
letter inquiring about the nature and extent of their efforts.
Although the Company intends to complete all Year 2000 remediation
and testing activities by the end of the third quarter of 1999, and
although the Company has initiated Year 2000 communications with
significant customers, key vendors, service suppliers and other parties
material to the Company's operations and is diligently monitoring the
progress of such third parties in Year 2000 compliance, such third parties
nonetheless represent a risk that cannot be assessed with precision or
controlled with certainty.
The major applications which pose the greatest Year 2000 risks for
the Company if implementation of the Year 2000 compliance program is not
successful are the gas delivery, metering and billing systems. Potential
problems related to these systems include service interruptions to
customers, interrupted revenue data gathering and poor customer relations
resulting from delayed billing.
The Company has drafted contingency plans to address alternatives in
the event that Year 2000 failures of automatic systems and equipment
occur. These plans cover a wide range of possible scenarios and include
steps to remediation. Also, included in the contingency plans are
mitigating actions designed to lessen the chances of problem scenarios
being realized. A final contingency plan is scheduled for completion by
mid-year 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The detailed information required by Item 1 has been disclosed in
previous reports filed with the Commission and is unchanged from the
information as presented in Item 3 of Form 10-K for the period ending June
30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. Exhibit No. 10(M) - Employment agreement dated March
1, 1999 between Delta and John B. Brown, an officer.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by
the Registrant during the quarter for which this report is
filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DELTA NATURAL GAS COMPANY, INC.
(Registrant)
_/s/Glenn R. Jennings______________
DATE: May 13, 1999 Glenn R. Jennings
President and Chief Executive Officer
(Duly Authorized Officer)
_/s/John F. Hall___________________
John F. Hall
Vice President - Finance, Secretary
and Treasurer
(Principal Financial Officer)
EXHIBIT 10(M)
OFFICER AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 1999, by and
between DELTA NATURAL GAS COMPANY, INC., a Kentucky corporation (hereinafter
referred to as "Delta") and JOHN B. BROWN (hereinafter referred to as
"Officer):
W I T N E S S E T H:
THAT, WHEREAS, Officer has been employed by Delta in positions of great
responsibility; and
WHEREAS, Officer has contributed, and if he remains an executive officer of
Delta, it is anticipated will continue to contribute, to the welfare of Delta,
its shareholders and customers; and
WHEREAS, Delta desires to retain the services of Officer and provide for
continuity of management of Delta in the event of a change in control of
Delta; and
WHEREAS, Officer is willing to remain in the employee of Delta following a
change in control thereof on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth and to induce Officer to remain in the employee of
Delta, the parties hereto do hereby agree as follows:
1. Effective Date. This Agreement shall become effective simultaneous with a
Change in Control (as hereinafter defined) of Delta that occurs while Officer
is a full-time employee of Delta ("Effective Date").
2. Change in Control. As used in this Agreement, a Change in Control shall be
deemed to have occurred upon the happening of any of the following events:
(a) The acquisition, directly or indirectly, by any person, group of
persons, partnership or corporation of the beneficial ownership of 10% of
Delta's issued and outstanding voting common stock, followed by:
(i) A change in the majority of the Board of Directors of Delta as it
existed on the date of execution of this Agreement as the consequence of a
shareholders' meeting involving a contest for the election of directors; or
(ii) The termination without cause (as hereinafter defined) of Harrison D.
Peet as Chairman of the Board of Delta; or
(b) The election at any time of two or more directors whose election is
opposed by persons constituting a majority of the Board of Directors of
Delta on the date of execution of this Agreement.
3. Term. Delta agrees that Officer may, at his option, remain in the employ
of Delta in a principal executive and managerial capacity at least equal to
the position held by Officer on the day before the Effective Date for a
period of three years immediately following the Effective Date.
4. Compensation and Benefits. Each year during the three year period
immediately following the Effective Date, Officer shall receive compensation
consisting of:
(a) A base salary payable semi-monthly which is not less than the normal
rate in effect on the day before the Effective Date, with such increases as
may thereafter be awarded in accordance with Delta's regular compensation
policies; and
(b) Incentive awards, bonuses, and the like which are not less than the
annualized amount of any such awards paid to Officer for the twelve months
ending on the Effective Date. In addition to the foregoing compensation,
Officer shall continue to participate, at not less than levels existing
on the day before the Effective Date, in Delta's employee benefit plans and
practices (or equivalents), including, but not limited to, the retirement
plan, employee savings plan, stock purchase plan, life and accidental
death and dismemberment insurance, company furnished automobile and
office, and medical, dental and health plans.
5. Termination. In the event Officer's employment is terminated without
cause during said three year period immediately following the Effective
Date, Officer shall nevertheless receive all compensation and benefits
described in paragraph 4 hereinabove during said full three year period
immediately following the Effective Date, but in no event for less than
two years following termination of employment, plus credit for vacation and
annual days earned but not taken.
As used herein "termination without cause" shall mean any termination of
Officer's employment at the request or demand of Delta except termination
for one of the following reasons:
(a) Death of the Officer; or
(b) Retirement of the Officer in accordance with Delta's retirement policy
in effect on the day before the Effective Date; or
(c) Conduct or job performance by Officer which, according to an
affirmative vote of a majority of the directors still in office who were
directors of Delta on the date of execution of this Agreement, adversely
affects the administration of his office.
It is expressly agreed between Delta and Officer that termination of
employment at the request of Officer during said three year period
following the Effective Date shall be deemed "termination without cause"
if Officer determines in good faith that, as a result of the Change in
Control, he cannot continue to fulfill the responsibilities for which he
is employed.
6. Cessation of Payments. If, at any time while Officer is receiving
payments hereunder, he, within any county in which Delta's pipeline
facilities are located on the date of execution of this Agreement,
directly or indirectly owns, manages, operates, joins, controls, is
employed by or participates in the ownership, management, operation or
control of, or is connected in any manner with any retail natural gas
distribution business, then such payments shall forthwith cease.
7. Enforcement; Legal Expense. In the event Officer institutes litigation
against Delta after the Effective Date to enforce his rights to payment
under paragraphs 4 and/or 5 hereof, then Delta agrees to pay to Officer an
amount equal to legal fees and expenses incurred by Officer in connection
with such litigation, including appeals and retrials, whether or not officer
is successful therein.
8. Due Authorization. Delta hereby warrants and represents to Officer that
this Agreement has been duly authorized by all necessary corporate action
on the part of Delta and has been duly executed by a duly authorized officer
of Delta.
9. Indemnity.
(a) (1) As used herein "Proceeding" means any threatened, pending or
completed action, suit or Proceeding, whether civil, criminal, administrative
or investigative.
(2) As used herein, "Party" includes a person who was is or is threatened
to be made a named defendant or respondent in a Proceeding.
(3) As used herein, "expenses" includes attorneys fees.
(4) As used herein, "Subsidiary" means any company in which Delta is
beneficial owner of 100% of all classes of voting stock.
(b) Delta shall indemnify Officer if he is made a Party to any Proceeding
by reason of the fact that he is or was an officer of Delta or Subsidiary if:
(1) He conducted himself in good faith; and
(2) He reasonably believed:
(i) In the case of conduct in his capacity as an officer of Delta or
Subsidiary, that his conduct was in Delta's or Subsidiary's best interest; and
(ii) In all other cases, that his conduct was at least not opposed to
Delta's or Subsidiary's best interest; and
(iii) In the case of any criminal Proceeding, he had no reasonable cause
to believe his conduct was unlawful.
Indemnification shall be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by Officer in
connection with the Proceeding, except that if the Proceeding was by or
in the right of Delta or Subsidiary, indemnification shall be made only
against such reasonable expenses and shall not be made in respect of any
Proceeding which Officer shall have been adjudged to be liable to Delta or
Subsidiary. The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, by itself, be determinative that Officer did not meet the
requisite standard of conduct set forth in this provision.
(c) In addition to the foregoing Delta or Subsidiary shall, to the full
extent permitted by law, indemnify Officer and hold him harmless against
any judgments, penalties, fines, settlements and reasonable expenses
actually incurred in connection with any Proceeding in which Officer is a
Party, provided Officer was made a Party to such Proceeding by reason of
the fact that he is or was an officer of Delta or Subsidiary or by reason
of any inaction, nondisclosure, action or statement made, taken or omitted
by or on behalf of Officer with respect to Delta or Subsidiary or by or on
behalf of Officer in his capacity as an officer of Delta or Subsidiary.
(d) Reasonable expenses incurred by Officer as a Party to a Proceeding
with respect to which indemnity is to be provided shall be paid or
reimbursed by Delta in advance of the final disposition of such Proceeding
provided:
(1) Delta receives (i) a written affirmation by Officer of his good faith
belief that he has met the standard of conduct necessary for indemnification
by Delta, as provided in this Agreement, and (ii) Delta receives a written
undertaking by or on behalf of Officer to repay such amount if it shall
ultimately be determined that he has not met such standard of conduct; and
(2) Delta's Board of Directors (or other appropriate decision maker for
Delta) determines that the facts then unknown to the Board (or decision
maker) would not preclude indemnification under this provision.
The undertaking required herein shall be an unlimited general obligation of
Officer but shall not require any security and shall be accepted without
reference to the financial ability of Officer to make repayment.
(e) Notwithstanding anything herein to the contrary, Officer shall not be
indemnified with respect to any Proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity,
in which he shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him.
(f) Delta shall purchase and maintain insurance on behalf of Officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as an officer of Delta or Subsidiary. Such
insurance shall provide complete coverage for Officer to the extent
reasonably available.
10. Binding Effect; Assignability. This Agreement shall inure to the benefit
of and be binding upon Delta, its successors and assigns, including, without
limitation, any person, group of persons, partnership or corporation which
may acquire substantially all of Delta's assets or business or with
which or into which Delta may be liquidated, consolidated, merged or
otherwise combined, and shall inure to the benefit of and be binding upon
Officer, his heirs and personal representatives. Officer may assign his
right to payment under this Agreement, but not his obligations under this
Agreement. This Agreement shall not be assigned by Delta without the prior
written consent of Officer.
11. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
12. Amendments. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
13. Previous Agreements. This Agreement supersedes and replaces any and all
previous or existing such written Officer Agreements between Officer and
Delta.
14. Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given if so given) if delivered in person, by telegram or telex, or
by mail (registered or certified mail, postage pre-paid, return receipt
requested) to the respective parties as follows:
If to Delta:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, KY 40391
Attn: President
If to Officer:
John B. Brown
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, KY 40391
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
15. Governing Law. This Agreement shall be construed in accordance with the
law of the Commonwealth of Kentucky.
16. Effect of Headings. The paragraph headings herein are for convenience
only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
DELTA NATURAL GAS COMPANY, INC.
By__/s/Glenn R. Jennings_____________________
President
__/s/John B. Brown________________________
Officer
<TABLE> <S> <C>
<ARTICLE> OPUR1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 94,584,200
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 6,748,529
<TOTAL-DEFERRED-CHARGES> 5,119,975
<OTHER-ASSETS> 475,789
<TOTAL-ASSETS> 106,928,493
<COMMON> 2,402,722
<CAPITAL-SURPLUS-PAID-IN> 26,289,021
<RETAINED-EARNINGS> 1,637,848
<TOTAL-COMMON-STOCKHOLDERS-EQ> 30,329,591
0
0
<LONG-TERM-DEBT-NET> 51,729,581
<SHORT-TERM-NOTES> 4,910,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,450,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 17,509,321
<TOT-CAPITALIZATION-AND-LIAB> 106,928,493
<GROSS-OPERATING-REVENUE> 30,458,920
<INCOME-TAX-EXPENSE> 1,190,675
<OTHER-OPERATING-EXPENSES> 23,770,200
<TOTAL-OPERATING-EXPENSES> 24,960,875
<OPERATING-INCOME-LOSS> 5,498,045
<OTHER-INCOME-NET> 21,213
<INCOME-BEFORE-INTEREST-EXPEN> 5,519,258
<TOTAL-INTEREST-EXPENSE> 3,444,924
<NET-INCOME> 2,074,334
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<EARNINGS-AVAILABLE-FOR-COMM> 2,074,334
<COMMON-STOCK-DIVIDENDS> 2,043,580
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 4,988,146
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
