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, 2000
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
2,449,903 Shares Outstanding as of March 31, 2000.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended Nine Months Ended Twelve Months Ended
March 31 March 31 March 31
2000 1999 2000 1999 2000 1999
OPERATING REVENUES $ 20,708,156 $ 16,890,711 $ 35,425,645 $ 30,458,920 $ 43,638,960 $ 39,408,372
OPERATING EXPENSES
Purchased gas $ 10,456,457 $ 8,139,116 $ 15,786,275 $ 13,220,280 $ 19,009,983 $ 17,171,297
Operation and
maintenance 2,290,247 2,300,903 6,936,311 6,685,219 9,388,198 8,959,825
Depreciation and
depletion 1,024,360 974,520 2,988,180 2,874,795 3,954,381 3,757,366
Taxes other than
income taxes 343,872 355,669 1,023,595 989,906 1,368,667 1,286,713
Income taxes 1,983,625 1,469,425 1,867,775 1,190,675 1,920,400 1,353,575
Total operating
expenses $ 16,098,561 $ 13,239,633 $ 28,602,136 $ 24,960,875 $ 35,641,629 $ 32,528,776
OPERATING INCOME $ 4,609,595 $ 3,651,078 $ 6,823,509 $ 5,498,045 $ 7,997,331 $ 6,879,596
OTHER INCOME AND
DEDUCTIONS, NET 6,533 6,131 18,815 21,213 23,464 67,976
INCOME BEFORE INTEREST
CHARGES $ 4,616,128 $ 3,657,209 $ 6,842,324 $ 5,519,258 $ 8,020,795 $ 6,947,572
INTEREST CHARGES 1,215,441 1,141,873 3,610,178 3,444,924 4,712,189 4,566,125
NET INCOME $ 3,400,687 $ 2,515,336 $ 3,232,146 $ 2,074,334 $ 3,308,606 $ 2,381,447
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,439,071 2,397,453 2,427,118 2,389,842 2,421,992 2,384,515
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ 1.39 $ 1.05 $ 1.33 $ .87 $ 1.37 $ 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, 2000 June 30, 1999 March 31, 1999
UTILITY PLANT $ 140,548,034 $ 133,804,954 $ 132,540,282
Less-Accumulated provision
for depreciation (41,255,508) (38,308,798) (37,956,082)
Net utility plant $ 99,292,526 $ 95,496,156 $ 94,584,200
CURRENT ASSETS
Cash and cash equivalents $ 772,719 $ 248,588 $ 345,330
Accounts receivable - net 4,184,738 1,629,883 3,579,493
Gas in storage 453,690 3,501,177 1,953,711
Materials and supplies 551,845 664,830 554,170
Deferred gas costs 1,021,563 - -
Prepayments 265,062 188,089 315,825
Total current assets $ 7,249,617 $ 6,232,567 $ 6,748,529
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 339,450 $ 339,450 $ 347,789
Note receivable from officer 158,000 122,000 128,000
Unamortized debt expense
and other 5,577,782 5,282,944 5,119,975
Total other assets $ 6,075,232 $ 5,744,394 $ 5,595,764
Total assets $ 112,617,375 $ 107,473,117 $ 106,928,493
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders'
equity $ 31,627,105 $ 29,912,007 $ 30,329,591
Long-term debt 50,421,763 51,699,700 51,729,581
Total capitalization $ 82,048,868 $ 81,611,707 $ 82,059,172
CURRENT LIABILITIES
Notes payable $ 9,870,000 $ 5,695,000 $ 4,910,000
Current portion of
long-term debt 2,450,000 2,450,000 2,450,000
Accounts payable 3,239,189 2,324,383 2,548,357
Accrued taxes 2,313,297 954,675 1,461,053
Refunds due customers 51,682 41,349 49,716
Advance recovery of gas
costs - 1,198,465 246,796
Customers' deposits 524,149 524,263 610,003
Accrued interest on debt 442,023 1,225,903 1,575,051
Accrued vacation 584,014 584,014 528,952
Other current and accrued
liabilities 382,694 493,518 444,758
Total current
liabilities $ 19,857,048 $ 15,491,570 $ 14,824,686
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 9,360,549 $ 8,826,655 $ 8,436,725
Investment tax credits 536,100 567,800 602,550
Regulatory liability 720,600 760,625 789,600
Advances for construction
and other 94,210 214,760 215,760
Total deferred credits
and other $ 10,711,459 $ 10,369,840 $ 10,044,635
Total liabilities and
shareholders' equity $ 112,617,375 $ 107,473,117 $ 106,928,493
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Twelve Months Ended
March 31 March 31
2000 1999 2000 1999
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 3,232,146 $ 2,074,334 $ 3,308,606 $ 2,381,447
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion
and amortization 3,468,825 3,181,553 4,558,304 4,162,201
Deferred income taxes and
investment tax credits 462,169 336,675 788,374 (98,925)
Other, net 656,267 537,897 833,571 696,591
Increase in other assets (2,916,591) (2,437,357) (1,779,022) (416,574)
Increase in other
liabilities 1,268,393 1,295,044 197,608 533,191
Net cash provided by
operating activities $ 6,171,209 $ 4,988,146 $ 7,907,441 $ 7,257,931
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (6,979,030) $ (5,954,315) $(9,050,960) $ (8,025,855)
Net cash used in
investing
activities $ (6,979,030) $ (5,954,315) $(9,050,960) $ (8,025,855)
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common
stock $ (2,078,402) $ (2,043,580) $ (2,763,820) $ (2,719,018)
Issuance of common stock 561,354 488,543 752,728 619,091
Issuance of long-term debt - - - (350,756)
Repayment of long-term
debt (1,326,000) (287,000) (1,378,000) (10,286,703)
Issuance of short-
term debt 21,565,000 15,665,000 27,515,000 18,190,000
Repayment of short-
term debt (17,390,000) (12,630,000) (22,555,000) (13,280,000)
Net cash provided
by (used in)
financing activities $ 1,331,952 $ 1,192,963 $ 1,570,908 $ (7,827,386)
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS $ 524,131 $ 226,794 $ 427,389 $ (8,595,310)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 248,588 118,536 345,330 8,940,640
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 772,719 $ 345,330 $ 772,719 $ 345,330
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 4,514,92 $ 3,205,938 $ 6,006,377 $ 4,483,325
Income taxes (net of
refunds) $ 237,908 $ 520,923 $ 429,008 $ 1,596,923
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 three 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, to customers
not on Delta's system and to Delta for system supply. Enpro, Inc.
owns and operates production properties and undeveloped acreage.
Deltran, Inc., which operated an underground natural gas storage
field that it leased from Delta through December 31, 1999, was
dissolved during February, 2000. All subsidiaries of Delta 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, 1999 for
additional footnote disclosures, including a summary of
significant accounting policies.
(3) 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.
(4) On December 27, 1999, Delta received approval from the PSC
for an annual revenue increase of $420,000. This resulted from a
general rate case that Delta had filed with the PSC during July,
1999. The new tariffs include a weather normalization tariff
whereby Delta is permitted to adjust rates for the billing
months of December through April to reflect variations from
normal weather. The new rates were effective for service on and
after January 1, 2000.
(5) External and intersegment revenues and net income by
business segment are shown below, in ($000):
2000 Three Months Ended Nine Months Ended Twelve Months Ended
March 31, 2000 March 31, 2000 March 31, 2000
Revenues
Regulated
External customers 16,773 26,128 32,629
Intersegment 825 3,860 5,130
Total regulated 17,598 29,988 37,759
Non-regulated
External customers 3,935 9,298 11,010
Intersegment 1,793 9,026 13,391
Total non-regulated 5,728 18,324 24,401
Eliminations for (2,618) (12,886) (18,521)
intersegment
Total operating
revenues 20,708 35,426 43,639
Net Income
Regulated 3,206 2,598 2,629
Non-regulated 195 634 680
Total net income 3,401 3,232 3,309
1999 Three Months Ended Nine Months Ended Twelve Months Ended
March 31, 1999 March 31, 1999 March 31, 1999
Revenues
Regulated
External customers 14,513 23,500 30,305
Intersegment 1,495 4,226 5,500
Total regulated 16,008 27,726 35,805
Non-regulated
External customers 2,378 6,959 9,103
Intersegment 2,695 11,460 16,915
Total non-regulated 5,073 18,419 26,018
Eliminations for
intersegment (4,190) (15,686) (22,415)
Total operating
revenues 16,891 30,459 39,408
Net Income
Regulated 2,419 1,736 1,895
Non-regulated 96 338 486
Total net income 2,515 2,074 2,381
(6) On July 1, 1999, the Company adopted Statement of Position
("SOP") 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." The adoption of this SOP
did not and is not expected to have a material impact on the
Company's financial position, results of operations or financial
statement disclosures.
(7) 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 2000 are expected to be
approximately $9.9 million, of which approximately $7.0 million was
expended during the nine months ended March 31, 2000. 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 $9.9 million was borrowed at
March 31, 2000. The line of credit, which is with Bank One, Kentucky,
NA, requires renewal during November, 2000. 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, 2000 and 1999 are summarized below:
Nine Months Ended March 31
2000 1999
Provided by operating
activities $ 6,171,209 $ 4,988,146
Used in investing activities (6,979,030) (5,954,315)
Provided by financing activities 1,331,952 1,192,963
Net increase in cash and cash
equivalents $ 524,131 $ 226,794
Twelve Months Ended March 31
2000 1999
Provided by operating
activities $ 7,907,441 $ 7,257,931
Used in investing activities (9,050,960) (8,025,855)
Provided by (used in) financing
activities 1,570,908 (7,827,386)
Net increase (decrease) in
cash and cash equivalents $ 427,389 $ (8,595,310)
RESULTS OF OPERATIONS
Operating Revenues
A comparison of Delta's revenues and volumes for the three, nine
and twelve months ended March 31, 2000 with the same periods in the
preceding year are set forth below:
Increase or (Decrease)
________2000 Compared with 1999________
Three Months Ended Nine Months Ended Twelve Months Ended
March 31 March 31 March 31
Variations in regulated
revenues
Gas rates $1,117,900 $1,126,200 $ 606,700
Weather normalization
adjustment 530,800 530,800 530,800
Sales volumes 629,400 57,300 962,000
Transportation (77,600) 28,100 41,900
Other 3,100 4,900 14,700
$2,203,600 $2,547,300 $2,156,100
Variations in non-regulated revenues
Gas rates $ 102,100 $ 280,100 $ 242,800
Sales volumes 1,511,300 2,139,600 1,832,100
$1,613,400 $2,419,700 $2,074,900
$3,817,000 $4,967,000 $4,231,000
Variations in volumes(%)
Regulated sales 4.0 3.6 3.2
Non-regulated sales 95.7 44.4 28.6
Transportation 22.9 9.9 9.6
Heating degree days billed were 92%, 80%, and 91%, of the thirty-year
average ("normal") for the three, nine and twelve months ended March 31,
2000, as compared with 93%, 79% and 88% of normal for the similar
periods of 1999.
Operating Expenses
The increases in purchased gas expense for the three, nine and
twelve months ended March 31, 2000 of $2,317,000, $2,566,000 and
$1,839,000, respectively, were due primarily to increased gas purchases
for retail sales. These increases were partially offset by decreases in
the cost of gas purchased for retail sales.
Delta reduced its number of employees during February, 2000 by 9%,
and by July, 2000 will have reduced an additional 5%, in order to
improve efficiency and help to offset the warm weather trend of the past
several years while keeping rates as low as possible. The results of
these changes did not materially impact results for the quarter ended
March 31, 2000 but are expected to have a positive impact on net income
in future periods.
Income Taxes
The increases in income taxes for the three, nine and twelve
months ended March 31, 2000 of $514,000, $677,000 and $567,000,
respectively, were primarily due to increases in pre-tax income.
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, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. 10(k) - Employment agreements dated March
1, 2000 between Delta and its officers, John B. Brown,
Johnny L. Caudill, John F. Hall, Robert C. Hazelrigg, Alan
L. Heath and Glenn R. Jennings.
Exhibit No. 10(l) - Agreement dated March 1, 2000
between Delta and Harrison D. Peet, Chairman of the Board.
(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 11, 2000 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(k)
OFFICER AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation
(hereinafter referred to as "Delta" or the "Company"), and Alan L. Heath
(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 employ of Delta following a
change of 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 employ of Delta,
the parties agree as follows:
1. OPERATION. This Agreement shall be effective immediately upon its
execution but, anything in this Agreement to the contrary notwithstanding,
neither this Agreement nor any of its provisions shall be operative unless and
until there has been a Change of Control while Officer is still a corporate
officer of Delta, nor shall this Agreement govern or affect Officer's
employment relationship with Delta except as explicitly set forth herein.
Upon a Change of Control, if Officer is still employed by Delta in the
capacity of a corporate officer, this Agreement and all of its provisions
shall become operative immediately. If Officer's employment relationship with
Delta is terminated before a Change of Control or if the Officer is not at the
time of such a Change of Control employed as a corporate officer of Delta,
Officer shall have no rights or obligations under this Agreement.
As used herein, "Operative Date" shall mean the date on which a Change of
Control occurs.
2. CHANGE IN CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity (including the
Company), group or "person" (as "person" is defined by Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended [the "Exchange
Act"]) of any of the Company's outstanding voting stock if following such
acquisition any individual, entity, group or person is beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Delta (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Delta entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by Delta or any corporation
controlled by Delta, or (ii) any acquisition by any corporation pursuant to
a reorganization, merger, share exchange, consolidation or similar
transaction, if, following such reorganization, merger, share exchange,
consolidation or similar transaction, the conditions described in clauses
(i), (ii) and (iii) of Subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination of election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board; or
(c) Approval by the Company of a reorganization, merger, share
exchange, consolidation or similar transaction, in each case, unless,
following such reorganization, merger, share exchange, consolidation or
similar transaction:
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
reorganization, merger, share exchange, consolidation or similar transaction
in substantially the same proportions as their ownership, immediately prior to
such reorganization, merger, share exchange, consolidation or similar
transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be (as used herein, "Resulting
Corporation" means the surviving company in a merger, consolidation,
reorganization or similar transaction and the company in a share exchange
(such as, for example, the share exchange that is presently provided for by
Kentucky Revised Statutes 271B.11-020) that, pursuant to a statutory share
exchange, acquires all of the outstanding shares of another company); and
(ii) no Person (excluding [A] any employee benefit plan (or related
trust) of the or the Resulting Corporation, and [B] any Person beneficially
owning, immediately prior to such reorganization, merger, share exchange, con-
solidation or similar transaction, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
Resulting Corporation or the combined voting power of the then outstanding
voting securities of the Resulting Corporation entitled to vote generally in the
election of directors: and
(iii) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or
(d) Approval by the Company of:
(i) a complete liquidation or dissolution of the Company; or
(ii) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale, lease, exchange or other disposition:
(A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly (for example, shares owned by the Company
would be "indirectly" owned by the Company's shareholders), by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale, lease, exchange or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale, lease,
exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may
be; and
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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 date before the Operative Date for a period of
three years immediately following the Operative Date.
4. COMPENSATION AND BENEFITS. Each year during the three year period immedia-
tely following the Operative 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 Operative 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 (12) months
ending on the Operative Date.
In addition to the foregoing compensation, Officer shall continue to partici-
ipate, at not less than levels existing on the day before the Operative Date, in
Delta's employee benefit plans and practices (or equivalents), including, but
not limited to, the retirement plan, employee savings plan, disability plan,
vacation plan, stock purchase plan, life insurance and health-and-accident
insurance plan and arrangement, 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 (3) year period immediately following the Operative
Date, Officer shall nevertheless receive all compensation and benefits
described in Section 4 hereinabove during said full three year period
immediately following the Operative Date, but in no event for less than two
(2) years following termination of employment, plus credit for vacation and
annual days earned but not taken. In lieu of the continued right to a
Company automobile, however, Officer may, in the event of his termination
without cause, in his sole discretion, elect to receive, and Delta in
such case agrees to convey to Officer, the full, complete and unencumbered
title to the automobile then currently being furnished to Officer under the
terms of this Agreement. Upon such conveyance, Delta shall no longer have
any obligation to furnish Officer with an automobile.
In the event of termination without cause, Officer, in his sole discretion, may
elect to receive his total base salary due under Section 4(a) as a lump sum
payment. Officer may at any time notify Delta of his determination to
receive such lump sum payment, and such payment shall be made by Delta no
later than the tenth day following such notification by Officer. An election
by Officer to receive a lump sum payment for his base salary shall not affect
his right under this Section 5 to participate fully in all other forms of
compensation described in Section 4.
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 Operative 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
immediately prior to the Operative Date, materially and adversely affects the
administration of his office.
Officer may terminate his employment at any time during the three (3) year
period following the Operative Date if the Officer determines in good faith that
either (a) his continued employment with Delta is not in the best interests of
Delta, or (b) he is unable effectively to carry out his duties and responsi-
bilities as contemplated hereby. Such termination of Officer shall be
considered to be "termination without cause".
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. EXCISE TAX MAKE-WHOLE. In the event it shall be determined that any
payment or distribution by Delta to Officer or for Officer's benefit, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (or any successor thereto) or comparable state or local tax or any
interest or penalties with respect to such excise tax or comparable state or
local tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then Officer
shall be entitled to receive additional payment (a "Gross-Up Payment"). The
Gross-Up Payment shall be equal to the sum of the Excise Tax and all taxes
(including any interest or penalties imposed with respect to such taxes)
imposed upon the Gross-Up Payment.
If Officer determines that a Gross-Up Payment is required, Officer shall notify
Delta in writing, specifying the amount of Gross-Up Payment required and
details as to the calculation thereof. Delta shall, within 30 days, either
pay such Gross-Up Payment (net of applicable wage withholding) to Officer or
furnish an unqualified opinion from Independent Tax Counsel (as defined
below), addressed to Officer and Delta, that there is substantial authority
(within the meaning of Section 5551 of the Code) for the position that no
Gross-Up Payment is required. "Independent Tax Counsel" means a lawyer with
expertise in the area of Officer compensation tax law, who shall be selected
by Officer and shall be reasonably acceptable to Delta, and
whose fees and disbursements shall be paid by Delta.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Officer's income tax that would result in a Gross-Up Payment,
Officer shall promptly notify Delta in writing and shall refrain for at
least 30 days after giving such notice, if so permitted by law, from paying
any tax (including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration of
such period, Delta shall either pay the Gross-Up Payment or provide an
opinion from Independent Tax Counsel to Officer and Delta as to whether it
is more likely than not that the proposed adjustment would be successfully
challenged if the matter were to be litigated. If the opinion provides that
a challenge would be more likely than not to be successful if the issues were
litigated, and Delta requests in writing that Officer contest such proposed
adjustment, then Officer shall contest the proposed adjustment and shall
consult in good faith with Delta with respect to the nature of all action to
be taken in furtherance of the contest of such proposed adjustment; provided
that Officer, after such consultation with Delta, shall determine in
Officer's sole discretion the nature of all action to be taken to contest
such proposed adjustment, including (A) whether any such action shall
initially be by way of judicial or administrative proceedings, or
both, (B) whether any such proposed adjustment shall be contested by resisting
payment thereof or by paying the same and seeking a refund thereof, and (C) if
Officer shall undertake judicial action with respect to such proposed
adjustment, the court or other judicial body before which such action shall
be commenced and the court or other judicial body to which any appeals
should be taken. Officer agrees to take appropriate appeals of any
judicial decision that would require Delta to pay a Gross-Up Payment,
provided Delta requests in writing that Officer do so and provides an
opinion from Independent Tax Counsel to Officer and Delta that it is
more likely than not that the appeal would be successful. Officer further
agrees to settle, compromise or otherwise terminate a contest with the
Internal Revenue Service or other tax authority with respect to all or a
portion of the proposed adjustment giving rise to the Gross-Up Payment, if
requested by Delta in writing to do so at any time, in which case Officer
shall be entitled to receive from Delta the Gross-Up Payment. In no event
shall Officer compromise or settle all or any portion of a proposed
adjustment which would result in Gross-Up Payment without the written
consent of Delta.
Officer shall not be required to take or continue any action pursuant to this
Section 7 unless Delta acknowledges its liability under this Agreement in
the event that the Internal Revenue Service or other tax authority prevails
in the contest. Delta hereby agrees to indemnify Officer in a manner
reasonably satisfactory to Officer for any fees, expenses, penalties,
interest or additions to tax which Officer may incur as a result of
contesting validity of any Excise Tax and to pay Officer promptly upon
receipt of a written demand therefor all costs and expenses which Officer
may incur in connection with contesting such proposed adjustment (including
reasonable fees and disbursements of Independent Tax Counsel); provided,
however, that Delta shall not be required to pay any amount necessary to
permit Officer's instituting a claim for refund under this Section 7.
If Officer shall have contested any proposed adjustment as above provided,
and for so long as Officer shall be required under the terms of this Section 7
to continue such contest, Delta shall not be required to pay a Gross-Up Payment
until there occurs a Final Determination (as defined below) of Officer's
liability for the tax and any interest, penalties and additions to tax
asserted to be payable as a result of such proposed adjustment. A "Final
Determination" shall mean (A) a decision, judgment, decree or other order
has become final after all allowable appeals by either party to the action
have been exhausted, the time for filing such appeal has expired or Officer
has no right under the terms thereof to request an appeal, (B) a
closing agreement entered into under Section 7121 of the Code or any other
settlement agreement entered into in connection with an administrative or
judicial proceeding and with Officer's consent, or (C) the expiration of the
time for instituting suit with respect thereto.
In the event Officer receives any refund from the Internal Revenue Service or
other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by Officer to Delta.
8. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control Delta's
obligations to pay the severance benefits or make any other payments
described in this Agreement shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which Delta or
any of its subsidiaries may have against the Officer or anyone else.
Officer shall not be required to mitigate damages, and if Officer does
accept other employment, any benefits or payments hereunder shall not be
reduced by any compensation earned or other benefits received as a result of
such employment.
9. LEGAL FEES AND EXPENSES. Subject to and contingent upon the occurrence
of a Change of Control Delta agrees to pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which Officer may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Delta, Officer or others
of the validity or enforceability of, or liability under, any provision of
this Agreement (including any contest by Officer about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 150% of the Prime
Rate posted by Bank One, Kentucky, NA.
10. 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.
11. INDEMNIFICATION
(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" include attorneys fees.
(4) As used herein, "Subsidiary" means any company in
which Delta is a 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, settle-
ments and reasonable expenses actually incurred by Officer in connection with
the Proceedings, 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 requisite 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 known 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.
12. 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 other-
wise 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 prior written consent
of Officer.
13. 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.
14. AMENDMENTS. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement by the parties hereto.
15. PREVIOUS AGREEMENTS. This Agreement supercedes and replaces any and
all previous or existing such similar agreements between Officer
and Delta.
16. NOTICES. All notices, requests, claims, demands and other communica-
tions 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
facsimile transmission, or by 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, Kentucky 40391
Attention: President
If to Officer:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 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.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
18. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall no affect the construction hereof.
IN WITNESS WHEREOF, the parties hereby 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 and Chief Executive Officer
/s/Alan L. Heath___________________
Alan L. Heath
OFFICER AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation
(hereinafter referred to as "Delta" or the "Company"), and Robert C. Hazelrigg
(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 employ of Delta following a
change of 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 employ of Delta, the
parties agree as follows:
1. OPERATION. This Agreement shall be effective immediately upon its
execution but, anything in this Agreement to the contrary notwithstanding,
neither this Agreement nor any of its provisions shall be operative unless
and until there has been a Change of Control while Officer is still a
corporate officer of Delta, nor shall this Agreement govern or affect
Officer's employment relationship with Delta except as explicitly set forth
herein. Upon a Change of Control, if Officer is still employed by
Delta in the capacity of a corporate officer, this Agreement and all of its
provisions shall become operative immediately. If Officer's employment
relationship with Delta is terminated before a Change of Control or if the
Officer is not at the time of such a Change of Control employed as a
corporate officer of Delta, Officer shall have no rights or obligations
under this Agreement.
As used herein, "Operative Date" shall mean the date on which a Change of
Control occurs.
2. CHANGE IN CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity (including the Company),
group or "person" (as "person" is defined by Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]) of
any of the Company's outstanding voting stock if following such acquisition
any individual, entity, group or person is beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Delta (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of Delta entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Delta or any corporation
controlled by Delta, or (ii) any acquisition by any corporation pursuant to
a reorganization, merger, share exchange, consolidation or similar trans-
action, if, following such reorganization, merger, share exchange,
consolidation or similar transaction, the conditions described in clauses
(i), (ii) and (iii) of Subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination of election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the Company of a reorganization, merger, share exchange,
consolidation or similar transaction, in each case, unless, following such
reorganization, merger, share exchange, consolidation or similar transaction:
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, share exchange, consolidation or
similar transaction in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger, share exchange, consoli-
dation or similar transaction, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be (as used herein,
"Resulting Corporation" means the surviving company in a merger, consolida-
tion, reorganization or similar transaction and the company in a share exchange
(such as, for example, the share exchange that is presently provided for by
Kentucky Revised Statutes 271B.11-020) that, pursuant to a statutory share
exchange, acquires all of the outstanding shares of another company); and
(ii) no Person (excluding [A] any employee benefit plan (or related
trust) of the or the Resulting Corporation, and [B] any Person beneficially
owning, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
Resulting Corporation or the combined voting power of the then outstanding
voting securities of the Resulting Corporation entitled to vote generally in
the election of directors: and
(iii) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or
(d) Approval by the Company of:
(i) a complete liquidation or dissolution of the Company; or
(ii) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale, lease, exchange or other disposition:
(A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly (for example, shares owned by the Company
would be "indirectly" owned by the Company's shareholders), by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale, lease, exchange or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale, lease,
exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may
be; and
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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 date before the Operative Date for a period of
three years immediately following the Operative Date.
4. COMPENSATION AND BENEFITS. Each year during the three year period
immediately following the Operative 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 Operative 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 (12) months
ending on the Operative Date.
In addition to the foregoing compensation, Officer shall continue to partici-
pate, at not less than levels existing on the day before the Operative Date,
in Delta's employee benefit plans and practices (or equivalents), including,
but not limited to, the retirement plan, employee savings plan, disability
plan, vacation plan, stock purchase plan, life insurance and health-and-
accident insurance plan and arrangement, 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 (3) year period immediately following the Operative
Date, Officer shall nevertheless receive all compensation and benefits
described in Section 4 hereinabove during said full three year period
immediately following the Operative Date, but in no event for less than two
(2) years following termination of employment, plus credit for vacation and
annual days earned but not taken. In lieu of the continued right to a
Company automobile, however, Officer may, in the event of his termination
without cause, in his sole discretion, elect to receive, and Delta in
such case agrees to convey to Officer, the full, complete and unencumbered
title to the automobile then currently being furnished to Officer under the
terms of this Agreement. Upon such conveyance, Delta shall no longer have
any obligation to furnish Officer with an automobile.
In the event of termination without cause, Officer, in his sole discretion,
may elect to receive his total base salary due under Section 4(a) as a lump
sum payment. Officer may at any time notify Delta of his determination to
receive such lump sum payment, and such payment shall be made by Delta no
later than the tenth day following such notification by Officer. An
election by Officer to receive a lump sum payment for his base salary shall
not affect his right under this Section 5 to participate fully in all other
forms of compensation described in Section 4.
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 Operative 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 immediately prior to the Operative Date, materially and
adversely affects the administration of his office.
Officer may terminate his employment at any time during the three (3) year
period following the Operative Date if the Officer determines in good faith
that either (a) his continued employment with Delta is not in the best
interests of Delta, or (b) he is unable effectively to carry out his duties
and responsibilities as contemplated hereby. Such termination of Officer
shall be considered to be "termination without cause".
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. EXCISE TAX MAKE-WHOLE. In the event it shall be determined that any
payment or distribution by Delta to Officer or for Officer's benefit, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any successor thereto) or comparable state or local tax or
any interest or penalties with respect to such excise tax or comparable
state or local tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then Officer shall be entitled to receive additional payment (a "Gross-
Up Payment"). The Gross-Up Payment shall be equal to the sum of the Excise Tax
and all taxes (including any interest or penalties imposed with respect to such
taxes) imposed upon the Gross-Up Payment.
If Officer determines that a Gross-Up Payment is required, Officer shall notify
Delta in writing, specifying the amount of Gross-Up Payment required and
details as to the calculation thereof. Delta shall, within 30 days, either
pay such Gross-Up Payment (net of applicable wage withholding) to Officer or
furnish an unqualified opinion from Independent Tax Counsel (as defined
below), addressed to Officer and Delta, that there is substantial authority
(within the meaning of Section 5551 of the Code) for the position that no
Gross-Up Payment is required. "Independent Tax Counsel" means a lawyer
with expertise in the area of Officer compensation tax law, who shall be
selected by Officer and shall be reasonably acceptable to Delta, and
whose fees and disbursements shall be paid by Delta.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Officer's income tax that would result in a Gross-Up Payment,
Officer shall promptly notify Delta in writing and shall refrain for at
least 30 days after giving such notice, if so permitted by law, from paying
any tax (including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration of
such period, Delta shall either pay the Gross-Up Payment or provide an
opinion from Independent Tax Counsel to Officer and Delta as to whether it
is more likely than not that the proposed adjustment would be successfully
challenged if the matter were to be litigated. If the opinion provides that
a challenge would be more likely than not to be successful if the issues were
litigated, and Delta requests in writing that Officer contest such proposed
adjustment, then Officer shall contest the proposed adjustment and shall
consult in good faith with Delta with respect to the nature of all action to
be taken in furtherance of the contest of such proposed adjustment; provided
that Officer, after such consultation with Delta, shall determine in
Officer's sole discretion the nature of all action to be taken to contest
such proposed adjustment, including (A) whether any such action shall
initially be by way of judicial or administrative proceedings, or
both, (B) whether any such proposed adjustment shall be contested by
resisting payment thereof or by paying the same and seeking a refund thereof,
and (C) if Officer shall undertake judicial action with respect to such
proposed adjustment, the court or other judicial body before which such
action shall be commenced and the court or other judicial body to which any
appeals should be taken. Officer agrees to take appropriate appeals of any
judicial decision that would require Delta to pay a Gross-Up Payment,
provided Delta requests in writing that Officer do so and provides an
opinion from Independent Tax Counsel to Officer and Delta that it is
more likely than not that the appeal would be successful. Officer further
agrees to settle, compromise or otherwise terminate a contest with the
Internal Revenue Service or other tax authority with respect to all or a
portion of the proposed adjustment giving rise to the Gross-Up Payment, if
requested by Delta in writing to do so at any time, in which case Officer
shall be entitled to receive from Delta the Gross-Up Payment. In no event
shall Officer compromise or settle all or any portion of a proposed
adjustment which would result in Gross-Up Payment without the written
consent of Delta.
Officer shall not be required to take or continue any action pursuant to this
Section 7 unless Delta acknowledges its liability under this Agreement in
the event that the Internal Revenue Service or other tax authority prevails
in the contest. Delta hereby agrees to indemnify Officer in a manner
reasonably satisfactory to Officer for any fees, expenses, penalties,
interest or additions to tax which Officer may incur as a result of contest-
ing validity of any Excise Tax and to pay Officer promptly upon receipt of a
written demand therefor all costs and expenses which Officer may incur
in connection with contesting such proposed adjustment (including
reasonable fees and disbursements of Independent Tax Counsel); provided,
however, that Delta shall not be required to pay any amount necessary to
permit Officer's instituting a claim for refund under this Section 7.
If Officer shall have contested any proposed adjustment as above provided,
and for so long as Officer shall be required under the terms of this Section
7 to continue such contest, Delta shall not be required to pay a Gross-Up
Payment until there occurs a Final Determination (as defined below) of
Officer's liability for the tax and any interest, penalties and additions to
tax asserted to be payable as a result of such proposed adjustment. A
"Final Determination" shall mean (A) a decision, judgment, decree or other
order has become final after all allowable appeals by either party to the
action have been exhausted, the time for filing such appeal has expired or
Officer has no right under the terms thereof to request an appeal, (B) a
closing agreement entered into under Section 7121 of the Code or any other
settlement agreement entered into in connection with an administrative or
judicial proceeding and with Officer's consent, or (C) the expiration of the
time for instituting suit with respect thereto.
In the event Officer receives any refund from the Internal Revenue Service or
other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by Officer to Delta.
8. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control
Delta's obligations to pay the severance benefits or make any other payments
described in this Agreement shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which Delta or any of its
subsidiaries may have against the Officer or anyone else. Officer shall not be
required to mitigate damages, and if Officer does accept other employment, any
benefits or payments hereunder shall not be reduced by any compensation earned
or other benefits received as a result of such employment.
9. LEGAL FEES AND EXPENSES. Subject to and contingent upon the occurrence
of a Change of Control Delta agrees to pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which Officer may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Delta, Officer or others
of the validity or enforceability of, or liability under, any provision of
this Agreement (including any contest by Officer about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by Bank One,
Kentucky, NA.
10. 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.
11. INDEMNIFICATION
(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" include attorneys fees.
(4) As used herein, "Subsidiary" means any company in
which Delta is a 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, settle-
ments and reasonable expenses actually incurred by Officer in connection with
the Proceedings, 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 requisite 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 known 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.
12. 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 other-
wise 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 prior
written consent of Officer.
13. 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 restric-
tions of this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
14. AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written
agreement by the parties hereto.
15. PREVIOUS AGREEMENTS. This Agreement supercedes and replaces any and
all previous or existing such similar agreements between Officer
and Delta.
16. 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 facsimile transmission, or by 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, Kentucky 40391
Attention: President
If to Officer:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 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.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
18. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall no affect the construction hereof.
IN WITNESS WHEREOF, the parties hereby 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 and Chief Executive Officer
/s/Robert C. Hazelrigg___________
Robert C. Hazelrigg
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation (the
"Company"), and Glenn R. Jennings (the "Executive").
The Executive is presently employed by the Company as President and Chief
Executive Officer.
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
significant. The Board desires to provide for the continued employment of the
Executive and to make certain changes in the Executive's employment
arrangements with the Company, which the Board has determined will reinforce
and encourage the continued attention and dedication to the Company of the
Executive as a member of the Company's management, in the best interest of the
Company and its shareholders. The Executive is willing to commit himself to
continue to serve the Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to enter
into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the promises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to continue to serve the Company, on the terms and
conditions set forth herein.
2. TERM
The employment of the Executive by the Company as provided in Section 1
will commence on the date hereof and end on November 30, 2004, unless further
extended or sooner terminated as hereinafter provided. On November 30, 2000,
and on each November 30 thereafter, the term of the Executive's employment
shall be automatically extended one (1) additional year, unless prior to
such date the Company shall have delivered to the Executive or the Executive
shall have delivered to the Company written notice that the term of the
Executive's employment hereunder will not be extended.
3. POSITION AND DUTIES
The Executive shall serve as President and Chief Executive Officer of the
Company and shall have such responsibilities and authority as may from time to
time be assigned to the Executive by the Board, provided that such authority
shall be reasonably similar to the duties traditionally associated with the
position of president and chief executive officer in companies similar in
size and operations to the Company. The Executive shall devote substan-
tially all his working time and efforts to the business and affairs of the
Company.
4. COMPENSATION AND RELATED MATTERS
(a) Salary. During the period of Executive's employment hereunder, the
Company shall pay to Executive a salary at a rate of not less than $158,400
per annum in equal semi-monthly installments. This salary may be increased
from time to time in accordance with normal business practices of the
Company and, if so increased, shall not thereafter during the term of this
Agreement be decreased. Compensation of Executive by salary payments shall
not be deemed exclusive and shall not prevent Executive from participating
in any other compensation or benefit plans of the Company. The salary
payments (including any increased salary payments) hereunder shall not in
any way limit or reduce any other obligation of the Company hereunder, and
no other compensation, benefit or payment hereunder shall in any way limit
or reduce the obligation of the Company to pay Executive's salary hereunder.
(b) Expenses. During the term of the Executive's employment
hereunder, Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by Executive in performing services hereunder,
including all expenses of travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided
that such expenses are incurred and accounted for in accordance with the
policies and procedures established by the Company.
(c) Other Benefits. The Company shall maintain in full force and effect,
and the Executive shall be entitled to continue to participate in, all of its
employee benefit plans and arrangements in effect on the date hereof in which
the Executive participates or plans or arrangements providing Executive with
at least equivalent benefits thereunder (including without limitation each
pension and retirement plan and arrangement, employee savings plan, stock
purchase plan, life insurance and health-and-accident insurance plan and
arrangement, medical, dental and health plan, disability plan, vacation plan
and Company furnished automobile and office). The Company shall not make
any changes in such plans or arrangements which would adversely affect
Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executives of the Company and does
not result in a proportionately greater reduction in the rights of or
benefits to Executive as compared with any other executive of the Company.
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement made available by the Company in the
future to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall administration of
such plans and arrangements. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in the future shall be
deemed to be in lieu of the salary payable to Executive pursuant to Section
4(a). Any payments or benefits payable to Executive hereunder in respect
of any calendar year during which Executive is employed by the Company for
less than the entire such year shall, unless otherwise provided in the
applicable plan or arrangement, be prorated in accordance with the
number of days in such calendar year during which he is so employed.
(d) Vacations. Executive shall be entitled to the number of vacation days
in each calendar year, and to compensation in respect of earned but
unused vacation days, determined in accordance with the Company's vacation
policy. Executive shall also be entitled to all paid holidays given by the
Company to its executives.
(e) Services Furnished. The Company shall furnish Executive with office
space, stenographic assistance and such other facilities and services as
shall be suitable to Executive's position and adequate for the performance
of his duties as set forth herein.
(f) Loan. It is acknowledged and agreed that, as of the date of this
Agreement, Executive is indebted to the Company in the amount of $160,000. The
Loan shall be repaid by Executive to the Company in accordance with the
following terms and conditions:
(i) so long as Executive shall remain an employee of the Company in any
capacity, the Company shall forgive $2,000.00 of the outstanding principal
amount of the Loan for each month of service completed by Executive after
the date of this Agreement. With the express approval of the Company's Board,
the Company may forgive additional amounts of the Loan at any time; and
(ii) in the event of termination of Executive's employment hereunder either
(A) by the Company (other than termination by the Company due to Executive's
death, as provided in Section 5(a), due to Executive's disability, as
provided in Section 5(b), or for Cause, as provided in Section 5(c)), or (B) by
Executive pursuant to Section 5(d) hereof, then the Company shall forgive and
Executive shall be relieved of liability for repayment of the entire unpaid
principal balance of and all accrued interest on the Loan then outstanding; and
(iii) in the event Executive ceases to be an employee of the
Company for any reason or under any circumstances whatsoever other than a
reason or circumstance that would obligate the Company to forgive and entitle
the Executive to be relieved of liability for repayment of the Loan, as
provided above in Section 4(f)(ii) (a "Cessation of Employment"):
(A) Company's forgiveness of the Loan as provided above in Section 4(f)(i)
shall cease as of the end of the month during which the Cessation of
Employment occurs, and there shall be no further forgiveness of any
remaining principal amount of the Loan following such month; and
(B) the entire unpaid amount of the Loan shall become due and payable and
shall be paid by Executive on a date (the "Payment Date") selected by
Executive; provided, however, that in no event shall such Payment Date
selected by Executive be later than six (6) months after the date on which
the Cessation of Employment occurred. The Executive shall select and give
the Company written notice of the Payment Date within thirty (30) days
following the date the Cessation of Employment occurred; and
(C) during the time period between the Cessation of Employment and the
Payment Date, the Executive shall make no payment with respect to the unpaid
principal amount of the Loan but shall continue to pay interest
thereon at the rate and on the terms hereinafter set forth.
(iv) Executive shall pay interest on the outstanding principal balance of
the Loan at a rate of 6% per annum. Such interest shall be paid on or
about the last day of each month during which such Loan or any part thereof is
outstanding (the "Due Date"), beginning on March 31, 2000. Such payments of
interest shall continue until the Loan is entirely forgiven or entirely paid in
accordance with the terms and provisions of this Section 4(f). Notwithstanding
the foregoing, in the event a Condition of Default (as herein defined) occurs,
interest shall thereafter accrue and be at a rate of 6% per annum on any due
and unpaid interest until such time as the entire amount of principal of
and interest on the Loan is paid to the Company as hereinafter provided.
(v) (A) In the event that Executive has not paid the full amount of any
monthly interest by the Due Date, as provided above, the Company may at any
time following such Due Date provide notice to Executive (the "Notice of
Non-payment") stating that such interest is due and unpaid. Such Notice of
Non-payment shall also state that the failure to pay such due and unpaid
interest within fifteen (15) days of the date of such Notice of Non-payment
shall constitute a Condition of Default.
(B) Failure by Executive to pay such due and unpaid interest within the
fifteen (15) days following such Notice of Non-payment, or failure
of Executive to perform any other obligation to which he is subject pursuant
to the provisions of this Section 4(f) within fifteen (15) days following
written notice from the Company to Executive specifying the nature of such
nonperformance and demanding that Executive perform same, shall constitute
a "Condition of Default". Upon the occurrence of a Condition of Default,
the entire unpaid principal amount of and all unpaid interest on the Loan
automatically shall be accelerated and become immediately due and payable
in full by Executive to the Company, without the requirement of any
further notice from Company.
(vi) (A) Executive has granted the Company a first and prior mortgage on
that certain real property located at 9 Fairway Drive, Berea, Kentucky
(the "Property"), to secure payment of the Loan, in form and substance
satisfactory to the Company in its sole discretion.
(B) In the event that Executive sells, transfers or assigns the Property or
any part thereof, the Company agrees to release its mortgage lien on the
Property provided that Executive grants the Company a first and prior
mortgage on other real property (the "Substitute Property") with an
appraised value at least equal to the principal amount of the Loan then
outstanding. It shall be the obligation of the Executive to provide an
appraisal of the Substitute Property reasonably satisfactory to the Company.
The form and substance of any such appraisal of the Substitute Property and
the appraiser selected by the Executive to make such appraisal shall all be
subject to the approval of the Company in its reasonable discretion.
Executive shall also be obligated to provide the Company with an opinion of
title from an attorney chosen by the Executive, but acceptable to the
Company in its sole discretion, certifying that the Substitute Property is
owned in fee simple by the Executive, subject only to the Company's
mortgage lien hereinabove described.
(C) The Executive shall be responsible for paying all fees, costs and
expenses of preparing, recording and releasing any such mortgage(s) and of
obtaining such title opinion(s) and any such appraisal(s).
5. TERMINATION
The Executive's employment hereunder shall be terminated without any
breach of this Agreement only under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of the Executive's physical or mental
illness, disability or incapacitation, the Executive shall have been absent
from his duties hereunder on a full-time basis for the entire period of six
consecutive months, and within thirty (30) days after written Notice of
Termination is given (which may occur before or after the end of such
six-month period) shall not have returned to the performance of his duties
hereunder on a full-time basis, the Company may terminate the Executive's
employment hereunder.
(c) Cause. The Company may terminate Executive's employment
hereunder for Cause. For purposes of this Section 5(c):
(i) The Company shall have "Cause" to terminate Executive's employment
hereunder only upon (A) the willful and continued failure by Executive to
substantially perform his duties hereunder (other than any such failure
resulting from the Executive's incapacity due to physical or mental illness),
after written demand for substantial performance is delivered by the Company
that specifically identifies the manner in which the Company believes
Executive has not substantially performed his duties, or (B) the willful
engaging by Executive in misconduct which is materially injurious to the
Company, monetarily or otherwise.
(ii) No act or failure to act on Executive's part shall be considered
"willful" unless done, or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the best
interest of the Company.
(iii) Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause without (A) reasonable notice to Executive
setting forth the reasons for the Company's intention to terminate for
Cause, (B) an opportunity for Executive, together with counsel, to be heard
before the Board of the Company, and (C) delivery to Executive of a Notice of
Termination as defined in Section 5 hereof.
(d) Termination by the Executive. The Executive may terminate his
employment hereunder if, following a Change in Control, as hereinafter
defined, the Executive determines in good faith, but otherwise in his sole
discretion, that, as a result of the Change in Control, either (A) his
continued employment with Company is not in the best interests of Company,
or (B) he is unable effectively to carry out his duties and responsibilities
as contemplated hereby. As used herein, "Change of Control" means:
(i) the acquisition by any individual, entity (including the Company),
group or "person" (as "person" is defined by Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]) of
any of the Company's outstanding voting stock if following such acquisition
any individual, entity, group or person is beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Company or any corporation
controlled by Company, or (ii) any acquisition by any corporation
pursuant to a reorganization, merger, share exchange, consolidation or similar
transaction, if, following such reorganization, merger, share exchange,
consolidation or similar transaction, the conditions described in clauses
(A), (B) and (C) of Subsection (d)(iii) of this Section 5 are satisfied; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination of election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board; or
(iii) approval by the Company of a reorganization, merger, share exchange,
consolidation or similar transaction, in each case, unless, following
such reorganization, merger, share exchange, consolidation or similar
transaction:
(A) more than 60% of, respectively, the then outstanding shares of common
stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, share exchange, consolidation or
similar transaction in substantially the same proportions as their owner-
ship, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be (as
used herein, "Resulting Corporation" means the surviving company in a
merger, consolidation, reorganization or similar transaction and the
company in a share exchange (such as, for example, the share exchange that is
presently provided for by Kentucky Revised Statutes 271B.11-020) that,
pursuant to a statutory share exchange, acquires all of the outstanding
shares of another company); and
(B) no person (excluding [A] any employee benefit plan (or related trust) of
the or the Resulting Corporation, and [B] any person beneficially owning,
immediately prior to such reorganization, merger, share exchange, consoli-
dation or similar transaction, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the Resulting
Corporation or the combined voting power of the then outstanding voting
securities of the Resulting Corporation entitled to vote generally in the
election of directors: and
(C) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or,
(iv) Approval by the Company of:
(A) a complete liquidation or dissolution of the Company;
or
(B) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with
respect to which following such sale, lease, exchange or other disposition:
(I) more than 60% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or indirectly
(for example, shares owned by the Company would be "indirectly" owned by the
Company's shareholders), by all or substantially all of the individuals or
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such sale, lease, exchange or other disposition in substantially
the same proportion as their ownership, immediately prior to such sale,
lease, exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be; and
(II) no person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(III) at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the execution
of the initial agreement or action of the Board providing for such sale
or other disposition of assets of the Company.
Any termination of the Executive's employment by the Company or by the
Executive (other than termination pursuant to Section 5(a) above) shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
"Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death pursuant to Section 5(a), the date of his death, (ii)
if the Executive's employment is terminated pursuant to Section 5(b) above,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the performance of his duties of a
full-time basis during such thirty (30) day period), (iii) if the
Executive's employment is terminated pursuant to Section 5(c) above, the
date specified in the Notice of Termination, and (iv) if the Executive'
employment is terminated for any other reason, the date on which a Notice of
Termination is Given. Notwithstanding the foregoing provisions, if within
thirty days after any Notice of Termination is given, the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
6. COMPENSATION UPON TERMINATION
(a) In the event of termination of Executive's employment hereunder, due to
Executive's death as provided in Section 5(a), due to Executive's disability
as provided in Section 5(b), or for Cause as provided in Section 5(c), then:
(i) such termination shall be effective at the Date of
Termination; and
(ii) all compensation to Executive provided herein shall
cease as of the Date of Termination; and
(iii) Company's forgiveness of the Loan shall cease and
Executive shall be obligated to pay the Loan as provided above in Section 4(f).
(b) In the event the Company shall terminate Executive's employment
hereunder other than pursuant to any of Sections 5(a), 5(b) or 5(c), or
in the event Executive shall terminate his employment hereunder pursuant to
Section 5(d), then:
(i) Company shall pay Executive his full salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given;
and
(ii) in lieu of any further salary payments to Executive for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to the Executive an amount equal to the product of (A) Executive's
annual salary rate in effect as of the Date of Termination, multiplied by (B)
the greater of the number of years (including partial years) remaining in the
term of employment hereunder or the number three, such payment to be made
(X) if pursuant to Section 5(d) herein, in a lump sum on or before the fifth
day following the Date of Termination, or (Y) if resulting from any other
cause, in substantially equal semi-monthly installments on the fifteenth and
last days of each month commencing with the month in which the Date of
Termination occurs and continuing for the number of consecutive semi-monthly
payment dates (including the first such date as aforesaid) equal to the
product obtained by multiplying the number of years (including partial
years) applicable under Section 6(b)(ii) above by twenty-four; and
(iii) the Company shall pay all losses or other damages Executive may
suffer as a result of such termination, including but not limited to any
and all loss of benefits to Executive under the Company's employee benefit
plans and arrangements which, but for such termination, Executive would have
received pursuant to Section 4(c) hereof, and further including all legal
fees and expenses incurred by him as a result of such termination. In lieu
of the continued right to a Company automobile, however, Executive may, in
the event of such termination, in his sole discretion elect to receive, and
ompany in such case agrees to convey to Executive, the full, complete and
unencumbered title to the automobile then currently being furnished to
Executive under the terms of this Agreement. Upon such conveyance, Company
shall no longer have any obligation to furnish Executive with an automobile,
and
(iv) the Company shall forgive the entire unpaid principal
amount and accrued interest, if any, then outstanding on the Loan, as provided
above in Section 4(f); and
(v) the Company shall maintain in full force and effect, for
the continued benefit of the Executive for the greater of the number of years
(including partial years) remaining in the term of employment hereunder or the
number three, all employee benefit plans and programs in which Executive was
entitled to participate immediately prior to the Date of Termination,
provided that Executive's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that
Executive's participation in any such plan or program is barred, the Company
shall arrange to provide Executive with benefits substantially similar to
those which Executive would otherwise have been entitled to receive under
such plans and programs from which his continued participation is barred; and
(iv) Executive shall not be required to mitigate the amount of
any payment provided for in this Section 6(b) by seeking other employment or
otherwise.
7. EXCISE TAX MAKE-WHOLE
In the event it shall be determined that any payment or distribution by the
Company to Executive or for Executive's benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor thereto) or comparable state or local tax or any interest
or penalties with respect to such excise tax or comparable state or local
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then Executive
shall be entitled to receive additional payment (a "Gross-Up Payment").
The Gross-Up Payment shall be equal to the sum of the Excise Tax and all
taxes (including any interest or penalties imposed with respect to such taxes)
imposed upon the Gross-Up Payment.
If Executive determines that a Gross-Up Payment is required, Executive shall
notify the Company in writing, specifying the amount of Gross-Up Payment
required and details as to the calculation thereof. The Company shall,
within 30 days, either pay such Gross-Up Payment (net of applicable wage
withholding) to Executive or furnish an unqualified opinion from Independent
Tax Counsel (as defined below), addressed to Executive and the Company,
that there is substantial authority (within the meaning of Section 5551 of
the Code) for the position that no Gross-Up Payment is required.
"Independent Tax Counsel" means a lawyer with expertise in the area of
executive compensation tax law, who shall be selected by Executive and shall be
reasonably acceptable to the Company, and whose fees and disbursements shall be
paid by the Company.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Executive's income tax that would result in a Gross-Up Payment,
Executive shall promptly notify the Company in writing and shall refrain for
at least 30 days after giving such notice, if so permitted by law, from
paying any tax (including interest, penalties and additions to tax)
asserted to be payable as a result of such proposed adjustment. Before the
expiration of such period, the Company shall either pay the Gross-Up Payment
or provide an opinion from Independent Tax Counsel to Executive and the
Company as to whether it is more likely than not that the proposed
adjustment would be successfully challenged if the matter were to be
litigated. If the opinion provides that a challenge would be more likely
than not to be successful if the issues were litigated, and the Company
requests in writing that Executive contest such proposed adjustment, then
Executive shall contest the proposed adjustment and shall consult in good
faith with the Company with respect to the nature of all action to be taken
in furtherance of the contest of such proposed adjustment; provided that
Executive, after such consultation with the Company, shall determine in
Executive's sole discretion the nature of all action to be taken to contest
such proposed adjustment, including (A) whether any such action shall
initially be by way of judicial or administrative proceedings, or both, (B)
whether any such proposed adjustment shall be contested by resisting
payment thereof or by paying the same and seeking a refund thereof, and (C)
if Executive shall undertake judicial action with respect to such proposed
adjustment, the court or other judicial body before which such action shall
be commenced and the court or other judicial body to which any appeals
should be taken. Executive agrees to take appropriate appeals of any
judicial decision that would require the Company to pay a Gross-Up Payment,
provided the Company requests in writing that Executive do so and provides an
opinion from Independent Tax Counsel to Executive and the Company that it is
more likely than not that the appeal would be successful. Executive further
agrees to settle, compromise or otherwise terminate a contest with the
Internal Revenue Service or other tax authority with respect to all or a
portion of the proposed adjustment giving rise to the Gross-Up Payment, if
requested by the Company in writing to do so at any time, in which case
Executive shall be entitled to receive from the Company the Gross-Up
Payment. In no event shall Executive compromise or settle all or any
portion of a proposed adjustment which would result in Gross-Up
Payment without the written consent of the Company.
Executive shall not be required to take or continue any action pursuant to this
section 7 unless the Company acknowledges its liability under this Agreement
in the event that the Internal Revenue Service or other tax authority
prevails in the contest. The Company hereby agrees to indemnify Executive
in a manner reasonably satisfactory to Executive for any fees, expenses,
penalties, interest or additions to tax which Executive may incur as a
result of contesting validity of any Excise Tax and to pay Executive
promptly upon receipt of a written demand therefor all costs and expenses
which Executive may incur in connection with contesting such proposed
adjustment (including reasonable fees and disbursements of Independent
Tax Counsel); provided, however, that the Company shall not be required to
pay any amount necessary to permit Executive's instituting a claim for
refund under this section 7.
If Executive shall have contested any proposed adjustment as above provided,
and for so long as Executive shall be required under the terms of this
section 7 to continue such contest, the Company shall not be required to
pay a Gross-Up Payment until there occurs a Final Determination (as defined
below) of Executive's liability for the tax and any interest, penalties and
additions to tax asserted to be payable as a result of such proposed
adjustment. A "Final Determination" shall mean (A) a decision, judgment,
decree or other order has become final after all allowable appeals by either
party to the action have been exhausted, the time for filing such appeal has
expired or Executive has no right under the terms thereof to request an
appeal, (B) a closing agreement entered into under Section 7121 of the Code
or any other settlement agreement entered into in connection with an
administrative or judicial proceeding and with Executive's consent, or (C)
the expiration of the time for instituting suit with respect thereto.
In the event Executive receives any refund from the Internal Revenue Service
or other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by Executive to the Company.
8. LEGAL FEES AND EXPENSES
Subject to and contingent upon the occurrence of a Change of Control the
Company agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which Executive may reasonably thereafter
incur as a result of any contest, litigation or arbitration (regardless of
the outcome thereof) by the Company, Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement
(including any contest by Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment at the
rate of 150% of the Prime Rate posted by Bank One, Kentucky, NA.
9. CESSATION OF PAYMENTS
If, at any time while Executive is receiving payments hereunder, he directly or
indirectly owns, manages, operates, joins, controls, is employed by or partici-
pates in the ownership, management, operation or control of, or is connected
in any manner with, any retail nature gas distribution business (other than
the Company) located, operating or conducting business or operations within
any county in which the Company's pipeline facilities are located on the
date of execution of this Agreement, then such payments shall forthwith
cease.
10. INDEMNIFICATION
(a) As used in this Section 10:
(i) "Proceeding" means any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative,
and whether formal or informal;
(ii) "Party" includes a person who was, is or is threatened to
be made a named defendant or respondent in a Proceeding;
(iii) "expenses" include attorneys fees;
(iv) "officer" means any person serving as Chief Executive Officer,
Chairman of the Board of Directors, President, Vice-President, Treasurer,
Secretary or Controller of the Company or Subsidiary (as hereinafter defined);
(v) "Director" means an individual who is or was a director of the Company
or Subsidiary or an individual who, while a director of the Company or
Subsidiary, is or was serving at the request of the Company or Subsidiary as
a Director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership joint venture, trust, employee benefit
plan or other enterprise. A Director shall be considered serving an
employee benefit plan at the Company's or Subsidiary's request if his duties
to the Company or Subsidiary also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the
plan. "Director" includes, unless the context requires otherwise, the
estate or personal representatives of a Director.
(vi) "Subsidiary" means any Company in which the Company is a beneficial
owner of 100% of all classes of voting stock.
(b) (i) Company shall indemnify Executive if he is made a Party to any
Proceeding by reason of the fact that he is or was an officer or Director
and if:
(A) Executive conducted himself in good faith; and
(B) Executive reasonably believed:
(I) in the case of conduct in his official capacity with the Company or
Subsidiary, that his conduct was in the Company's or Subsidiary's best
interest; and
(II) in all other cases, that his conduct was at least not opposed to the
Company's or Subsidiary's best interest; and
(C) in the case of any criminal Proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(ii) Executive's conduct with respect to an employee benefit plan for a
purpose he reasonably believes to be in the best interest of the partici-
pants in and beneficiaries of the plan shall be conduct that satisfies the
requirement of Section 10(b)(i)(B)(II) hereof.
(iii) Indemnification shall be made against judgments, penalties, fines,
settlements and reasonable expenses, including legal expenses, actually
incurred by Executive in connection with the Proceedings, except that if the
Proceeding was by or in the right of the Company or Subsidiary, indemnification
shall be made only against such reasonable expenses and shall not be made in
respect of any Proceeding in which Executive shall have been adjudged to be
liable to the Company 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 Executive did
not meet the requisite standard of conduct set forth in this Section 10(b).
(iv) (A) Reasonable expenses incurred by Executive as a Party to a Pro-
ceeding with respect to which indemnity is to be provided under this Section
10(b) shall be paid or reimbursed by the Company in advance of the final
disposition of such Proceeding provided:
(I) Company receives (1) a written affirmation by Executive of his good
faith belief that he has met the requisite standard of conduct set forth in
this Section 10(b), and (2) Company receives a written undertaking by or on
behalf of Executive to repay such amount if it shall ultimately be
determined that he has not met such standard of conduct; and
(II) Company's Board (or other appropriate decision maker for the Company)
determines that the facts then known to the Board (or decision maker) would
not preclude indemnification under Kentucky law.
(B) The undertaking required herein shall be an unlimited general
obligation of Executive but shall not require any security and shall
be accepted without reference to the financial ability of Executive to make
repayment.
(C) Determinations and authorizations of payments under this Section 10(b)
(iv) shall be made in the manner specified in Section 10(b)(v) hereof.
(v) (A) Company shall not indemnify Executive under this Section 10(b)
unless authorized in the specific case after a determination has been
made that indemnification of Executive is permissible in the circumstances
because he has met the requisite standard of conduct set forth in this
Section 10(b).
(B) The determination shall be made:
(I) by the Company's Board by majority vote of
a quorum consisting of directors not at the time Parties to the Proceeding; or
(II) if a quorum cannot be obtained under Section 10(b)(v)(B)(I), by
majority vote of a committee duly designated by the Company's Board (in
which designation Executive may participate), consisting solely of two or
more members of the Board not at the time Parties to the Proceeding;
(III) by special legal counsel:
(1) selected by the Company's Board or its committee in the manner
prescribed in Section 10(b)(v)(B)(I) or (II); or
(2) if a quorum of the Board cannot be obtained under Section 10(b)(v)(B)(I)
and a committee cannot be designated under Section 10(b)(v)(B)(II),
selected by a majority vote of the full Board (in which selection Executive
may participate); or
(IV) by the Company's shareholders, but shares owned by or voted under the
control of members of the Company's Board who are at the time Parties to
the Proceeding shall not be voted on the determination.
(C) Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that indemni-
fication is permissible, except that if the determination is made by special
legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under Section
10(b)(v)(B)(III) to select counsel.
(c) Notwithstanding any limitation imposed by Section 10(b) or elsewhere
and in addition to the indemnification set forth in Section 10(b), the
Company, to the full extent permitted by law, may or may agree to contact or
otherwise to indemnify Executive and hold him harmless against any judgments,
penalties, fines, settlements and reasonable expenses actually incurred or
reasonably anticipated in connection with any Proceeding in which Executive
is a party, provided Executive was made a Party to such Proceeding by reason
of the fact that he is or was an officer or Director of the Company or
Subsidiary or by reason of any inaction, nondisclosure, action or statement
made, taken or omitted by or on behalf of Executive in his capacity as an
officer or Director.
(d) Company shall purchase and maintain or cause to be purchased and
maintained insurance on behalf of Executive against any liability asserted
against him or incurred by him in his capacity or arising out of his status
as an officer or Director. Such insurance shall provide complete coverage for
Executive to the extent reasonably available.
11. DUE AUTHORIZATION
Company hereby warrants and represents to Executive that this Agreement
has been duly authorized by all necessary corporate action on the part of the
Company and has been duly executed by a duly authorized officer of the Company.
12. BINDING EFFECT; ASSIGNABILITY
This Agreement shall inure to the benefit of and be binding upon the Company,
its successors and assigns, including, without limitation, any person, group
of persons, partnership or corporation which may acquire substantially all of
the Company's assets or business or with which or into which the Company may be
liquidated, consolidated, merged or otherwise combined, and shall inure to the
benefit of and be binding upon Executive, his heirs and personal rep-
resentatives. Executive may assign his right to payment under this
Agreement, but not his obligations under this Agreement. This Agreement
shall not be assigned by the Company without prior written consent of
Executive.
13. 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 Agree-
ment shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
14. AMENDMENTS
This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement by the
parties hereto.
15. ENTIRE AGREEMENT
This Agreement, together with any document or agreement specifically
referred to herein, constitutes the entire agreement between the parties
with respect to te terms and conditions of Executive's employment with the
Company and with respect to the Loan, superseding and replacing any and all
prior understandings, contracts, agreements, representations or under-
takings, whether oral or written, with respect thereto.
16. NOTICES
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person, sent by telegram or facsimile transmission, or sent by registered or
certified mail, postage pre-paid, return receipt requested, to the
respective parties as follows:
If to the Company:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
Attention: Corporate Secretary
If to Executive:
Glenn R. Jennings
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
or to such other address as either party may have furnished to the other
in writing in accordance herewith. Any such notice shall be deemed to have
been given and shall be effective (a) as of the date delivered to the
intended recipient, if personally delivered or if sent by telegram or
facsimile as provided above, or (b) three business days following the date
deposited in a regularly maintained receptacle for the deposit
of U.S. mail, if mailed in the manner provided above.
17. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Kentucky.
18. EFFECT OF HEADINGS
The paragraph headings herein are for convenience only and shall no affect
the construction hereof.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to
be executed the day and year first above written.
DELTA NATURAL GAS COMPANY, INC.
BY: /s/H. D. Peet____________________
Chairman of the Board
/s/Glenn R. Jennings______________
Glenn R. Jennings
OFFICER AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation
(hereinafter referred to as "Delta" or the "Company"), 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 employ of Delta following a
change of 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 employ of Delta, the
parties agree as follows:
1. OPERATION. This Agreement shall be effective immediately upon its
execution but, anything in this Agreement to the contrary notwithstanding,
neither this Agreement nor any of its provisions shall be operative unless
and until there has been a Change of Control while Officer is still a
corporate officer of Delta, nor shall this Agreement govern or affect
Officer's employment relationship with Delta except as explicitly set forth
herein. Upon a Change of Control, if Officer is still employed by
Delta in the capacity of a corporate officer, this Agreement and all of its
provisions shall become operative immediately. If Officer's employment
relationship with Delta is terminated before a Change of Control or if the
Officer is not at the time of such a Change of Control employed as a
corporate officer of Delta, Officer shall have no rights or obligations
under this Agreement.
As used herein, "Operative Date" shall mean the date on which a Change of
Control occurs.
2. CHANGE IN CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity (including the Company), group
or "person" (as "person" is defined by Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]) of any of
the Company's outstanding voting stock if following such acquisition any
individual, entity, group or person is beneficial owner (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i)
the then outstanding shares of common stock of the Delta (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of Delta entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Delta or any corporation
controlled by Delta, or (ii) any acquisition by any corporation pursuant to
a reorganization, merger, share exchange, consolidation or similar
transaction, if, following such reorganization, merger, share exchange,
consolidation or similar transaction, the conditions described in clauses
(i), (ii) and (iii) of Subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination of election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the Company of a reorganization, merger, share exchange,
consolidation or similar transaction, in each case, unless, following such
reorganization, merger, share exchange, consolidation or similar transaction:
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, share exchange, consolidation or
similar transaction in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be (as
used herein, "Resulting Corporation" means the surviving company in a
merger, consolidation, reorgnization or similar transaction and the company
in a share exchange (such as, for example, the share exchange that is
presently provided for by Kentucky Revised Statutes 271B.11-020) that,
pursuant to a statutory share exchange, acquires all of the outstanding shares
of another company); and
(ii) no Person (excluding [A] any employee benefit plan (or related
trust) of the or the Resulting Corporation, and [B] any Person beneficially
owning, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
Resulting Corporation or the combined voting power of the then outstanding
voting securities of the Resulting Corporation entitled to vote generally in
the election of directors: and
(iii) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or
(d) Approval by the Company of:
(i) a complete liquidation or dissolution of the Company; or
(ii) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale, lease, exchange or other disposition:
(A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly (for example, shares owned by the Company
would be "indirectly" owned by the Company's shareholders), by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale, lease, exchange or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale, lease,
exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may
be; and
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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 date before the Operative Date for a period of
three years immediately following the Operative Date.
4. COMPENSATION AND BENEFITS. Each year during the three year period
immediately following the Operative 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 Operative 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 (12) months
ending on the Operative Date.
In addition to the foregoing compensation, Officer shall continue to
participate, at not less than levels existing on the day before the
Operative Date, in Delta's employee benefit plans and practices (or
equivalents), including, but not limited to, the retirement plan, employee
savings plan, disability plan, vacation plan, stock purchase plan, life
insurance and health-and-accident insurance plan and arrangement, 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 (3) year period immediately following the Operative
Date, Officer shall nevertheless receive all compensation and benefits
described in Section 4 hereinabove during said full three year period
immediately following the Operative Date, but in no event for less than two
(2) years following termination of employment, plus credit for vacation and
annual days earned but not taken. In lieu of the continued right to a
Company automobile, however, Officer may, in the event of his termination
without cause, in his sole discretion, elect to receive, and Delta in
such case agrees to convey to Officer, the full, complete and unencumbered
title to the automobile then currently being furnished to Officer under the
terms of this Agreement. Upon such conveyance, Delta shall no longer have any
obligation to furnish Officer with an automobile.
In the event of termination without cause, Officer, in his sole discretion, may
elect to receive his total base salary due under Section 4(a) as a lump sum
payment. Officer may at any time notify Delta of his determination to
receive such lump sum payment, and such payment shall be made by Delta no
later than the tenth day following such notification by Officer. An
election by Officer to receive a lump sum payment for his base salary shall
not affect his right under this Section 5 to participate fully in all other
forms of compensation described in Section 4.
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 Operative 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
immediately prior to the Operative Date, materially and adversely affects the
administration of his office.
Officer may terminate his employment at any time during the three (3) year
period following the Operative Date if the Officer determines in good faith
that either (a) his continued employment with Delta is not in the best
interests of Delta, or (b) he is unable effectively to carry out his duties
and responsibilities as contemplated hereby. Such termination of Officer
shall be considered to be "termination without cause".
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. EXCISE TAX MAKE-WHOLE. In the event it shall be determined that any
payment or distribution by Delta to Officer or for Officer's benefit,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any successor thereto) or comparable state or
local tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Officer shall be entitled to receive additional payment
(a "Gross-Up Payment"). The Gross-Up Payment shall be equal to the sum of
the Excise Tax and all taxes (including any interest or penalties imposed
with respect to such taxes) imposed upon the Gross-Up Payment.
If Officer determines that a Gross-Up Payment is required, Officer shall notify
Delta in writing, specifying the amount of Gross-Up Payment required and
details as to the calculation thereof. Delta shall, within 30 days, either
pay such Gross-Up Payment (net of applicable wage withholding) to Officer or
furnish an unqualified opinion from Independent Tax Counsel (as defined
below), addressed to Officer and Delta, that there is substantial authority
(within the meaning of Section 5551 of the Code) for the position that no
Gross-Up Payment is required. "Independent Tax Counsel" means a lawyer with
expertise in the area of Officer compensation tax law, who shall be
selected by Officer and shall be reasonably acceptable to Delta, and
whose fees and disbursements shall be paid by Delta.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Officer's income tax that would result in a Gross-Up Payment,
Officer shall promptly notify Delta in writing and shall refrain for at
least 30 days after giving such notice, if so permitted by law, from paying
any tax (including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration of
such period, Delta shall either pay the Gross-Up Payment or provide an
opinion from Independent Tax Counsel to Officer and Delta as to whether it
is more likely than not that the proposed adjustment would be successfully
challenged if the matter were to be litigated. If the opinion provides that
a challenge would be more likely than not to be successful if the issues were
litigated, and Delta requests in writing that Officer contest such proposed
adjustment, then Officer shall contest the proposed adjustment and shall
consult in good faith with Delta with respect to the nature of all action
to be taken in furtherance of the contest of such proposed adjustment;
provided that Officer, after such consultation with Delta, shall determine
in Officer's sole discretion the nature of all action to be taken to contest
such proposed adjustment, including (A) whether any such action shall
initially be by way of judicial or administrative proceedings, or
both, (B) whether any such proposed adjustment shall be contested by resisting
payment thereof or by paying the same and seeking a refund thereof, and (C) if
Officer shall undertake judicial action with respect to such proposed
adjustment, the court or other judicial body before which such action shall
be commenced and the court or other judicial body to which any appeals
should be taken. Officer agrees to take appropriate appeals of any judicial
decision that would require Delta to pay a Gross-Up Payment, provided Delta
requests in writing that Officer do so and provides an opinion from
Independent Tax Counsel to Officer and Delta that it is more likely than
not that the appeal would be successful. Officer further agrees to
settle, compromise or otherwise terminate a contest with the Internal Revenue
Service or other tax authority with respect to all or a portion of the proposed
adjustment giving rise to the Gross-Up Payment, if requested by Delta in
writing to do so at any time, in which case Officer shall be entitled to
receive from Delta the Gross-Up Payment. In no event shall Officer
compromise or settle all or any portion of a proposed adjustment which
would result in Gross-Up Payment without the written consent of Delta.
Officer shall not be required to take or continue any action pursuant to this
Section 7 unless Delta acknowledges its liability under this Agreement in
the event that the Internal Revenue Service or other tax authority prevails
in the contest. Delta hereby agrees to indemnify Officer in a manner
reasonably satisfactory to Officer for any fees, expenses, penalties,
interest or additions to tax which Officer may incur as a result of contest-
ing validity of any Excise Tax and to pay Officer promptly upon receipt of a
written demand therefor all costs and expenses which Officer may incur
in connection with contesting such proposed adjustment (including
reasonable fees and disbursements of Independent Tax Counsel); provided,
however, that Delta shall not be required to pay any amount necessary to
permit Officer's instituting a claim for refund under this Section 7.
If Officer shall have contested any proposed adjustment as above provided,
and for so long as Officer shall be required under the terms of this
Section 7 to continue such contest, Delta shall not be required to pay a
Gross-Up Payment until there occurs a Final Determination (as defined below)
of Officer's liability for the tax and any interest, penalties and additions
to tax asserted to be payable as a result of such proposed adjustment.
A "Final Determination" shall mean (A) a decision, judgment, decree or other
order has become final after all allowable appeals by either party to the
action have been exhausted, the time for filing such appeal has expired or
Officer has no right under the terms thereof to request an appeal, (B) a
closing agreement entered into under Section 7121 of the Code or any other
settlement agreement entered into in connection with an administrative or
judicial proceeding and with Officer's consent, or (C) the expiration of the
time for instituting suit with respect thereto.
In the event Officer receives any refund from the Internal Revenue Service or
other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by Officer to Delta.
8. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control Delta's
obligations to pay the severance benefits or make any other payments
described in this Agreement shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which Delta or any
of its subsidiaries may have against the Officer or anyone else. Officer
shall not be required to mitigate damages, and if Officer does accept other
employment, any benefits or payments hereunder shall not be reduced by any
compensation earned or other benefits received as a result of such employment.
9. LEGAL FEES AND EXPENSES. Subject to and contingent upon the
occurrence of a Change of Control Delta agrees to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses which
Officer may reasonably thereafter incur as a result of any contest, liti-
gation or arbitration (regardless of the outcome thereof) by Delta, Officer
or others of the validity or enforceability of, or liability under, any
provision of this Agreement (including any contest by Officer about the
amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the rate of 150% of the Prime Rate posted
by Bank One, Kentucky, NA.
10. 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.
11. INDEMNIFICATION
(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" include attorneys fees.
(4) As used herein, "Subsidiary" means any company in
which Delta is a 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, settle-
ments and reasonable expenses actually incurred by Officer in connection with
the Proceedings, except that if the Proceeding was by or in the right of
Delta or ubsidiary, 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 requisite 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 known 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.
12. 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
prior written consent of Officer.
13. 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.
14. AMENDMENTS. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement by the parties hereto.
15. PREVIOUS AGREEMENTS. This Agreement supercedes and replaces any and
all previous or existing such similar agreements between Officer
and Delta.
16. 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 facsimile transmission, or by 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, Kentucky 40391
Attention: President
If to Officer:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 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.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
18. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall no affect the construction hereof.
IN WITNESS WHEREOF, the parties hereby 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 and Chief Executive Officer
/s/John B. Brown_________________
John B. Brown
OFFICER AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation (herein-
after referred to as "Delta" or the "Company"), and John F. Hall (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 employ of Delta following a
change of 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 employ of Delta,
the parties agree as follows:
1. OPERATION. This Agreement shall be effective immediately upon its
execution but, anything in this Agreement to the contrary notwithstanding,
neither this Agreement nor any of its provisions shall be operative unless
and until there has been a Change of Control while Officer is still a
corporate officer of Delta, nor shall this Agreement govern or affect
Officer's employment relationship with Delta except as explicitly set forth
herein. Upon a Change of Control, if Officer is still employed by Delta in
the capacity of a corporate officer, this Agreement and all of its provisions
shall become operative immediately. If Officer's employment relationship
with Delta is terminated before a Change of Control or if the Officer is
not at the time of such a Change of Control employed as a corporate officer
of Delta, Officer shall have no rights or obligations under this Agreement.
As used herein, "Operative Date" shall mean the date on which a Change of
Control occurs.
2. CHANGE IN CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity (including the Company),
group or "person" (as "person" is defined by Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]) of
any of the Company's outstanding voting stock if following such acquisition
any individual, entity, group or person is beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Delta (the
"Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of Delta entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Delta or any corporation
controlled by Delta, or (ii) any acquisition by any corporation pursuant to
a reorganization, merger, share exchange, consolidation or similar
transaction, if, following such reorganization, merger, share exchange,
consolidation or similar transaction, the conditions described in clauses
(i), (ii) and (iii) of Subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination of election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the Company of a reorganization, merger, share exchange,
consolidation or similar transaction, in each case, unless, following such
reorganization, merger, share exchange, consolidation or similar transaction:
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, share exchange, consolidation or
similar transaction in substantially the same proportions as their owner-
ship, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be (as used
herein, "Resulting Corporation" means the surviving company in a merger,
consolidation, reorganization or similar transaction and the company in a
share exchange (such as, for example, the share exchange that is presently
provided for by Kentucky Revised Statutes 271B.11-020) that, pursuant to a
statutory share exchange, acquires all of the outstanding shares of another
company); and
(ii) no Person (excluding [A] any employee benefit plan (or related
trust) of the or the Resulting Corporation, and [B] any Person beneficially
owning, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
Resulting Corporation or the combined voting power of the then outstanding
voting securities of the Resulting Corporation entitled to vote generally in
the election of directors: and
(iii) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or
(d) Approval by the Company of:
(i) a complete liquidation or dissolution of the Company; or
(ii) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale, lease, exchange or other disposition:
(A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly (for example, shares owned by the Company
would be "indirectly" owned by the Company's shareholders), by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale, lease, exchange or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale, lease,
exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may
be; and
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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 date before the Operative Date for a
period of three years immediately following the Operative Date.
4. COMPENSATION AND BENEFITS. Each year during the three year period
immediately following the Operative 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 Operative 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 (12) months
ending on the Operative Date.
In addition to the foregoing compensation, Officer shall continue to
participate, at not less than levels existing on the day before the Operative
Date, in Delta's employee benefit plans and practices (or equivalents),
including, but not limited to, the retirement plan, employee savings plan,
disability plan, vacation plan, stock purchase plan, life insurance and
health-and-accident insurance plan and arrangement, company furnished auto-
mobile and office, and medical, dental and health plans.
5. TERMINATION. In the event Officer's employment is terminated without
cause during said three (3) year period immediately following the Operative
Date, Officer shall nevertheless receive all compensation and benefits
described in Section 4 hereinabove during said full three year period
immediately following the Operative Date, but in no event for less than
two (2) years following termination of employment, plus credit for vacation
and annual days earned but not taken. In lieu of the continued right to a
Company automobile, however, Officer may, in the event of his termination
without cause, in his sole discretion, elect to receive, and Delta in
such case agrees to convey to Officer, the full, complete and unencumbered
title to the automobile then currently being furnished to Officer under the
terms of this Agreement. Upon such conveyance, Delta shall no longer have
any obligation to furnish Officer with an automobile.
In the event of termination without cause, Officer, in his sole discretion,
may elect to receive his total base salary due under Section 4(a) as a lump
sum payment. Officer may at any time notify Delta of his determination to
receive such lump sum payment, and such payment shall be made by Delta no
later than the tenth day following such notification by Officer. An
election by Officer to receive a lump sum payment for his base salary shall
not affect his right under this Section 5 to participate fully in all other
forms of compensation described in Section 4.
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 Operative 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 immediately prior to the Operative Date, materially and adversely
affects the administration of his office.
Officer may terminate his employment at any time during the three (3) year
period following the Operative Date if the Officer determines in good faith
that either (a) his continued employment with Delta is not in the best
interests of Delta, or (b) he is unable effectively to carry out his duties
and responsibilities as contemplated hereby. Such termination of Officer
shall be considered to be "termination without cause".
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. EXCISE TAX MAKE-WHOLE. In the event it shall be determined that any
payment or distribution by Delta to Officer or for Officer's benefit,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor thereto) or comparable state or local
tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Officer shall be entitled to receive additional payment
(a "Gross-Up Payment"). The Gross-Up Payment shall be equal to the sum of
the Excise Tax and all taxes (including any interest or penalties imposed
with respect to such taxes) imposed upon the Gross-Up Payment.
If Officer determines that a Gross-Up Payment is required, Officer shall
notify Delta in writing, specifying the amount of Gross-Up Payment required
and details as to the calculation thereof. Delta shall, within 30 days,
either pay such Gross-Up Payment (net of applicable wage withholding) to
Officer or furnish an unqualified opinion from Independent Tax Counsel (as
defined below), addressed to Officer and Delta, that there is substantial
authority (within the meaning of Section 5551 of the Code) for the position
that no Gross-Up Payment is required. "Independent Tax Counsel" means a
lawyer with expertise in the area of Officer compensation tax law, who shall
be selected by Officer and shall be reasonably acceptable to Delta, and
whose fees and disbursements shall be paid by Delta.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Officer's income tax that would result in a Gross-Up Payment,
Officer shall promptly notify Delta in writing and shall refrain for at
least 30 days after giving such notice, if so permitted by law, from paying
any tax (including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration of
such period, Delta shall either pay the Gross-Up Payment or provide an
opinion from Independent Tax Counsel to Officer and Delta as to whether it
is more likely than not that the proposed adjustment would be successfully
challenged if the matter were to be litigated. If the opinion provides that
a challenge would be more likely than not to be successful if the issues were
litigated, and Delta requests in writing that Officer contest such proposed
adjustment, then Officer shall contest the proposed adjustment and shall
consult in good faith with Delta with respect to the nature of all action to
be taken in furtherance of the contest of such proposed adjustment; provided
that Officer, after such consultation with Delta, shall determine in
Officer's sole discretion the nature of all action to be taken to contest
such proposed adjustment, including (A) whether any such action shall
initially be by way of judicial or administrative proceedings, or both,
(B) whether any such proposed adjustment shall be contested by resisting
payment thereof or by paying the same and seeking a refund thereof, and (C) if
Officer shall undertake judicial action with respect to such proposed adjust-
ment, the court or other judicial body before which such action shall be
commenced and the court or other judicial body to which any appeals should
be taken. Officer agrees to take appropriate appeals of any judicial
decision that would require Delta to pay a Gross-Up Payment, provided Delta
requests in writing that Officer do so and provides an opinion from
Independent Tax Counsel to Officer and Delta that it is more likely than
not that the appeal would be successful. Officer further agrees to
settle, compromise or otherwise terminate a contest with the Internal Revenue
Service or other tax authority with respect to all or a portion of the proposed
adjustment giving rise to the Gross-Up Payment, if requested by Delta in
writing to do so at any time, in which case Officer shall be entitled to
receive from Delta the Gross-Up Payment. In no event shall Officer
compromise or settle all or any portion of a proposed adjustment which
would result in Gross-Up Payment without the written consent of Delta.
Officer shall not be required to take or continue any action pursuant to this
Section 7 unless Delta acknowledges its liability under this Agreement in
the event that the Internal Revenue Service or other tax authority prevails
in the contest. Delta hereby agrees to indemnify Officer in a manner
reasonably satisfactory to Officer for any fees, expenses, penalties,
interest or additions to tax which Officer may incur as a result of
contesting validity of any Excise Tax and to pay Officer promptly upon
receipt of a written demand therefor all costs and expenses which Officer may
incur in connection with contesting such proposed adjustment (including
reasonable fees and disbursements of Independent Tax Counsel); provided,
however, that Delta shall not be required to pay any amount necessary to
permit Officer's instituting a claim for refund under this Section 7.
If Officer shall have contested any proposed adjustment as above provided,
and for so long as Officer shall be required under the terms of this Section
7 to continue such contest, Delta shall not be required to pay a Gross-Up
Payment until there occurs a Final Determination (as defined below) of
Officer's liability for the tax and any interest, penalties and additions to
tax asserted to be payable as a result of such proposed adjustment.
A "Final Determination" shall mean (A) a decision, judgment, decree or other
order has become final after all allowable appeals by either party to the
action have been exhausted, the time for filing such appeal has expired or
Officer has no right under the terms thereof to request an appeal, (B) a
closing agreement entered into under Section 7121 of the Code or any other
settlement agreement entered into in connection with an administrative or
judicial proceeding and with Officer's consent, or (C) the expiration of the
time for instituting suit with respect thereto.
In the event Officer receives any refund from the Internal Revenue Service or
other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by Officer to Delta.
8. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control Delta's
obligations to pay the severance benefits or make any other payments
described in this Agreement shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which Delta or any of its
subsidiaries may have against the Officer or anyone else. Officer shall not be
required to mitigate damages, and if Officer does accept other employment, any
benefits or payments hereunder shall not be reduced by any compensation earned
or other benefits received as a result of such employment.
9. LEGAL FEES AND EXPENSES. Subject to and contingent upon the
occurrence of a Change of Control Delta agrees to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses which
Officer may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by Delta,
Officer or others of the validity or enforceability of, or liability under,
any provision of this Agreement (including any contest by Officer about the
amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the rate of 150% of the Prime
Rate posted by Bank One, Kentucky, NA.
10. 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.
11. INDEMNIFICATION
(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" include attorneys fees.
(4) As used herein, "Subsidiary" means any company in
which Delta is a 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, settle-
ments and reasonable expenses actually incurred by Officer in connection with
the Proceedings, 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 requisite 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 known 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.
12. 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 prior
written consent of Officer.
13. 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 restric-
tions of this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
14. AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
by the parties hereto.
15. PREVIOUS AGREEMENTS. This Agreement supercedes and replaces any and
all previous or existing such similar agreements between Officer and Delta.
16. NOTICES. All notices, requests, claims, demands and other communi-
cations 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 facsimile transmission, or by 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, Kentucky 40391
Attention: President
If to Officer:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 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.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
18. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall no affect the construction hereof.
IN WITNESS WHEREOF, the parties hereby 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 and Chief Executive Officer
/s/John F. Hall__________________
John F. Hall
OFFICER AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation
(hereinafter referred to as "Delta" or the "Company"), and Johnny L. Caudill
(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 employ of Delta following a
change of 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 employ of Delta, the
parties agree as follows:
1. OPERATION. This Agreement shall be effective immediately upon its
execution but, anything in this Agreement to the contrary notwithstanding,
neither this Agreement nor any of its provisions shall be operative unless
and until there has been a Change of Control while Officer is still a
corporate officer of Delta, nor shall this Agreement govern or affect
Officer's employment relationship with Delta except as explicitly set forth
herein. Upon a Change of Control, if Officer is still employed by Delta in
the capacity of a corporate officer, this Agreement and all of its provisions
shall become operative immediately. If Officer's employment relationship
with Delta is terminated before a Change of Control or if the Officer is not
at the time of such a Change of Control employed as a corporate officer of
Delta, Officer shall have no rights or obligations under this Agreement.
As used herein, "Operative Date" shall mean the date on which a Change of
Control occurs.
2. CHANGE IN CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity (including the Company), group
or "person" (as "person" is defined by Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]) of any of
the Company's outstanding voting stock if following such acquisition any
individual, entity, group or person is beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either
(i) the then outstanding shares of common stock of the Delta (the "Out-
standing Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of Delta entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Delta or any corporation
controlled by Delta, or (ii) any acquisition by any corporation pursuant to
a reorganization, merger, share exchange, consolidation or similar trans-
action, if, following such reorganization, merger, share exchange, consoli-
dation or similar transaction, the conditions described in clauses (i), (ii)
and (iii) of Subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director subse-
quent to the date hereof whose election, or nomination of election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the Company of a reorganization, merger, share exchange,
consolidation or similar transaction, in each case, unless, following such
reorganization, merger, share exchange, consolidation or similar transaction:
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such reorganization, merger, share exchange, consolidation or similar
transaction in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be (as used
herein, "Resulting Corporation" means the surviving company in a merger,
consolidation, reorganization or similar transaction and the company in a
share exchange (such as, for example, the share exchange that is presently
provided for by Kentucky Revised Statutes 271B.11-020) that, pursuant to a
statutory share exchange, acquires all of the outstanding shares of another
company); and
(ii) no Person (excluding [A] any employee benefit plan (or related
trust) of the or the Resulting Corporation, and [B] any Person beneficially
owning, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common stock of
the Resulting Corporation or the combined voting power of the then out-
standing voting securities of the Resulting Corporation entitled to vote
generally in the election of directors: and
(iii) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or
(d) Approval by the Company of:
(i) a complete liquidation or dissolution of the Company; or
(ii) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale, lease, exchange or other disposition:
(A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly (for example, shares owned by the Company
would be "indirectly" owned by the Company's shareholders), by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale, lease, exchange or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale, lease,
exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may
be; and
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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 date before the Operative Date for a
period of three years immediately following the Operative Date.
4. COMPENSATION AND BENEFITS. Each year during the three year period
immediately following the Operative 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 Operative 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 (12) months
ending on the Operative Date.
In addition to the foregoing compensation, Officer shall continue to
participate, at not less than levels existing on the day before the Opera-
tive Date, in Delta's employee benefit plans and practices (or equivalents),
including, but not limited to, the retirement plan, employee savings plan,
disability plan, vacation plan, stock purchase plan, life insurance and
health-and-accident insurance plan and arrangement, 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 (3) year period immediately following the Operative
Date, Officer shall nevertheless receive all compensation and benefits
described in Section 4 hereinabove during said full three year period
immediately following the Operative Date, but in no event for less than
two (2) years following termination of employment, plus credit for vacation
and annual days earned but not taken. In lieu of the continued right to a
Company automobile, however, Officer may, in the event of his termination
without cause, in his sole discretion, elect to receive, and Delta in such
case agrees to convey to Officer, the full, complete and unencumbered title
to the automobile then currently being furnished to Officer under the terms
of this Agreement. Upon such conveyance, Delta shall no longer have any
obligation to furnish Officer with an automobile.
In the event of termination without cause, Officer, in his sole discretion, may
elect to receive his total base salary due under Section 4(a) as a lump sum
payment. Officer may at any time notify Delta of his determination to receive
such lump sum payment, and such payment shall be made by Delta no later than
the tenth day following such notification by Officer. An election by Officer
to receive a lump sum payment for his base salary shall not affect his right
under this Section 5 to participate fully in all other forms of compensation
described in Section 4.
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 Operative 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
immediately prior to the Operative Date, materially and adversely affects the
administration of his office.
Officer may terminate his employment at any time during the three (3) year
period following the Operative Date if the Officer determines in good faith
that either (a) his continued employment with Delta is not in the best
interests of Delta, or (b) he is unable effectively to carry out his duties
and responsibilities as contemplated hereby. Such termination of Officer
shall be considered to be "termination without cause".
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. EXCISE TAX MAKE-WHOLE. In the event it shall be determined that
any payment or distribution by Delta to Officer or for Officer's benefit,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor thereto) or comparable state or local
tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Officer shall be entitled to receive additional payment
(a "Gross-Up Payment"). The Gross-Up Payment shall be equal to the sum of
the Excise Tax and all taxes (including any interest or penalties imposed
with respect to such taxes) imposed upon the Gross-Up Payment.
If Officer determines that a Gross-Up Payment is required, Officer shall notify
Delta in writing, specifying the amount of Gross-Up Payment required and
details as to the calculation thereof. Delta shall, within 30 days, either
pay such Gross-Up Payment (net of applicable wage withholding) to Officer or
furnish an unqualified opinion from Independent Tax Counsel (as defined below),
addressed to Officer and Delta, that there is substantial authority (within the
meaning of Section 5551 of the Code) for the position that no Gross-Up Payment
is required. "Independent Tax Counsel" means a lawyer with expertise in the
area of Officer compensation tax law, who shall be selected by Officer and
shall be reasonably acceptable to Delta, and whose fees and disbursements
shall be paid by Delta.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Officer's income tax that would result in a Gross-Up Payment,
Officer shall promptly notify Delta in writing and shall refrain for at
least 30 days after giving such notice, if so permitted by law, from paying
any tax (including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration of
such period, Delta shall either pay the Gross-Up Payment or provide an
opinion from Independent Tax Counsel to Officer and Delta as to whether it
is more likely than not that the proposed adjustment would be successfully
challenged if the matter were to be litigated. If the opinion provides that
a challenge would be more likely than not to be successful if the issues were
litigated, and Delta requests in writing that Officer contest such proposed
adjustment, then Officer shall contest the proposed adjustment and shall
consult in good faith with Delta with respect to the nature of all action
to be taken in furtherance of the contest of such proposed adjustment;
provided that Officer, after such consultation with Delta, shall determine
in Officer's sole discretion the nature of all action to be taken to contest
such proposed adjustment, including (A) whether any such action shall
initially be by way of judicial or administrative proceedings, or both, (B)
whether any such proposed adjustment shall be contested by resisting
payment thereof or by paying the same and seeking a refund thereof, and (C) if
Officer shall undertake judicial action with respect to such proposed
adjustment, the court or other judicial body before which such action shall
be commenced and the court or other judicial body to which any appeals
should be taken. Officer agrees to take appropriate appeals of any
judicial decision that would require Delta to pay a Gross-Up Payment,
provided Delta requests in writing that Officer do so and provides an
opinion from Independent Tax Counsel to Officer and Delta that it is
more likely than not that the appeal would be successful. Officer further
agrees to settle, compromise or otherwise terminate a contest with the Internal
Revenue Service or other tax authority with respect to all or a portion of the
proposed adjustment giving rise to the Gross-Up Payment, if requested by
Delta in writing to do so at any time, in which case Officer shall be
entitled to receive from Delta the Gross-Up Payment. In no event shall
Officer compromise or settle all or any portion of a proposed adjustment
which would result in Gross-Up Payment without the written consent of Delta.
Officer shall not be required to take or continue any action pursuant to this
Section 7 unless Delta acknowledges its liability under this Agreement in the
event that the Internal Revenue Service or other tax authority prevails in
the contest. Delta hereby agrees to indemnify Officer in a manner
reasonably satisfactory to Officer for any fees, expenses, penalties,
interest or additions to tax which Officer may incur as a result of
contesting validity of any Excise Tax and to pay Officer promptly upon
receipt of a written demand therefor all costs and expenses which Officer
may incur in connection with contesting such proposed adjustment (including
reasonable fees and disbursements of Independent Tax Counsel); provided,
however, that Delta shall not be required to pay any amount necessary to
permit Officer's instituting a claim for refund under this Section 7.
If Officer shall have contested any proposed adjustment as above provided,
and for so long as Officer shall be required under the terms of this Section
7 to continue such contest, Delta shall not be required to pay a Gross-Up
Payment until there occurs a Final Determination (as defined below) of
Officer's liability for the tax and any interest, penalties and additions to
tax asserted to be payable as a result of such proposed adjustment. A
"Final Determination" shall mean (A) a decision, judgment, decree or other
order has become final after all allowable appeals by either party to the
action have been exhausted, the time for filing such appeal has expired or
Officer has no right under the terms thereof to request an appeal, (B) a
closing agreement entered into under Section 7121 of the Code or any other
settlement agreement entered into in connection with an administrative or
judicial proceeding and with Officer's consent, or (C) the expiration of
the time for instituting suit with respect thereto.
In the event Officer receives any refund from the Internal Revenue Service or
other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount, \
shall be promptly paid by Officer to Delta.
8. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control Delta's
obligations to pay the severance benefits or make any other payments
described in this Agreement shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which Delta or any
of its subsidiaries may have against the Officer or anyone else. Officer
shall not be required to mitigate damages, and if Officer does accept other
employment, any benefits or payments hereunder shall not be reduced by any
compensation earned or other benefits received as a result of such employment.
9. LEGAL FEES AND EXPENSES. Subject to and contingent upon the
occurrence of a Change of Control Delta agrees to pay promptly as incurred, to
the full extent permitted by law, all legal fees and expenses which Officer may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Delta, Officer or others of
the validity or enforceability of, or liability under, any provision of this
Agreement (including any contest by Officer about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed
payment at the rate of 150% of the Prime Rate posted by Bank One, Kentucky,
NA.
10. 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.
11. INDEMNIFICATION
(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" include attorneys fees.
(4) As used herein, "Subsidiary" means any company in
which Delta is a 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, settle-
ments and reasonable expenses actually incurred by Officer in connection with
the Proceedings, 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 requisite 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 known 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.
12. 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
prior written consent of Officer.
13. 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.
14. AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
by the parties hereto.
15. PREVIOUS AGREEMENTS. This Agreement supercedes and replaces any and
all previous or existing such similar agreements between Officer
and Delta.
16. 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 facsimile transmission, or by 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, Kentucky 40391
Attention: President
If to Officer:
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 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.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
18. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall no affect the construction hereof.
IN WITNESS WHEREOF, the parties hereby 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 and Chief Executive Officer
/s/Johnny L. Caudill_____________
Johnny L. Caudill
EXHIBIT 10(l)
AGREEMENT
THIS AGREEMENT, made and entered into this 1ST day of March, 2000, by
and between DELTA NATURAL GAS COMPANY, INC., a Kentucky Corporation
(hereinafter referred to as "Delta" or the "Company"), and Harrison D. Peet
(hereinafter referred to as "Peet").
W I T N E S S E T H:
THAT, WHEREAS, Peet has for many years been an integral part of Delta,
having previously served as Chief Executive Officer, and presently continuing
to serve as Chairman of the Board of Directors; and
WHEREAS, Peet's continuing contribution to Delta is great and his leadership
and vast experience are invaluable to Delta and its shareholders, customers,
directors, officers and employees; and
WHEREAS, Delta desires to retain the benefit of Peet's continued service,
advice and counsel in the event of a change in control of Delta; and
WHEREAS, Peet is willing to remain to provide service, advice and counsel to
Delta following a change of control thereof on the terms and conditions herein-
after set forth.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth and to ensure Peet's continued service to Delta, the
parties agree as follows:
1. OPERATION. This Agreement shall be effective immediately upon its
execution but, anything in this Agreement to the contrary notwithstanding,
neither this Agreement nor any of its provisions shall be operative unless
and until there has been a Change of Control while Peet is still Chairman of
the Board of Directors of Delta, nor shall this Agreement govern or affect
Peet's relationship with Delta except as explicitly set forth herein. If
Peet is still Chairman of the Board of Directors of Delta, this Agreement
and all of its provisions shall become operative immediately upon a Change
of Control of Delta. If at the time of a Change of Control Peet is no
longer Chairman of the Board of Directors of Delta, Peet shall have no
rights or obligations under this Agreement.
As used herein, "Operative Date" shall mean the date on which a Change of
Control of Delta occurs.
2. CHANGE IN CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity (including the Company), group
pr "person" (as "person" is defined by Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"]) of any of
the Company's outstanding voting stock if following such acquisition any
individual, entity, group or person is beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either
(i) the then outstanding shares of common stock of the Delta (the
"Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of Delta entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Delta or any corporation
controlled by Delta, or (ii) any acquisition by any corporation pursuant to
a reorganization, merger, share exchange, consolidation or similar transaction,
if, following such reorganization, merger, share exchange, consolidation or
similar transaction, the conditions described in clauses (i), (ii) and (iii)
of Subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director sub-
sequent to the date hereof whose election, or nomination of election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the Company of a reorganization, merger, share exchange,
consolidation or similar transaction, in each case, unless, following such
reorganization, merger, share exchange, consolidation or similar transaction:
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the "Resulting Corporation", as hereinafter defined, and
more than 60% of the combined voting power of the then outstanding voting
securities of the Resulting Corporation are then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, share exchange, consolidation or
similar transaction in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger, share exchange, consoli-
dation or similar transaction, of the Outstanding Company Common Stock and
OutstandingCompany Voting Securities, as the case may be (as used herein,
"Resulting Corporation" means the surviving company in a merger, consoli-
dation or reorganization and the company in a share exchange (such as, for
example, the share exchange that is presently provided for by Kentucky
Revised Statutes 271B.11-020) that, pursuant to a statutory share exchange,
acquires all of the outstanding shares of another corporation); and
(ii) no Person (excluding [A] any employee benefit plan (or related
trust) of the or the Resulting Corporation, and [B] any Person beneficially
owning, immediately prior to such reorganization, merger, share exchange,
consolidation or similar transaction, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
Resulting Corporation or the combined voting power of the then outstanding
voting securities of the Resulting Corporation entitled to vote generally in
the election of directors: and
(iii) at least a majority of the members of the board of directors of the
Resulting Corporation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such reorganization,
merger, share exchange, consolidation or similar transaction;
or
(d) Approval by the Company of:
(i) a complete liquidation or dissolution of the Company; or
(ii) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale, lease, exchange or other disposition:
(A) more than 60% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly (for example, shares owned by the Company
would be "indirectly" owned by the Company's shareholders), by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale, lease, exchange or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale, lease,
exchange or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may
be; and
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors; and
(C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
3. TERM. In the event of a Change of Control of Delta, Delta agrees that,
commencing on the Operative Date, Peet may, at his option, continue in the
employ of Delta as a consultant for a period of three years immediately
following the Operative Date. In this capacity, Peet shall make himself
available to Delta for a maximum number of hours annually that is consistent
with the average number of annual hours Peet provided Delta during the last
three years immediately preceding the Change of Control, such hours of
consultation to be performed by Peet, at such times as may be reasonably
agreed between Peet and Delta.
4. COMPENSATION AND BENEFITS. Each year during the three year period
immediately following the Operative Date, Peet shall receive compensation
consisting of a base salary of $3,000 payable monthly. In addition, Peet
shall be entitled to a company furnished automobile, consistent with the
practice immediately before the Operative Date.
5. TERMINATION. In the event Peet's employment is terminated without
cause during the three (3) year period immediately following the Operative
Date:
(a) Peet shall nevertheless receive all compensation described in
Section 4 of this Agreement during said full three year period immediately
following the Operative Date, but in no event for less than two (2) years
following termination of employment; and
(b) Peet shall receive, and Delta agrees to convey to Peet, the full,
complete and unencumbered title to the automobile then currently being fur-
nished to Peet under the terms of this Agreement. Upon such conveyance,
Delta shall no longer have any obligation to furnish Peet with an automobile.
In the event of termination without cause, Peet, in his sole discretion, may
elect to receive his compensation due under Section 4 as a lump sum payment.
Peet may at any time notify Delta of his determination to receive such lump sum
payment, and such payment shall be made by Delta no later than the tenth day
following such notification by Peet.
As used herein, "termination without cause" shall mean any termination of
Peet's employment at the request or demand of Delta except termination for
one of the following reasons:
(c) death of Peet; or
(d) conduct or job performance by Peet which, according to an affirmative
vote of a majority of the directors still in office who were directors of
Delta immediately prior to the Operative Date, substantially and adversely
affects Delta.
Peet may terminate his employment at any time during the three (3) year
period following the Operative Date if the Peet determines in good faith
that either (i) his continued employment with Delta is not in the best
interests of Delta, or (ii) he is unable effectively to carry out his
duties and responsibilities as contemplated hereby. Such termination of
Peet shall be considered to be "termination without cause".
6. CESSATION OF PAYMENTS. If, at any time while Peet 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. EXCISE TAX MAKE-WHOLE. In the event it shall be determined that
any payment or distribution by Delta to Peet or for Peet's benefit, whether
paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a "Payment"), would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor thereto) or comparable state or local
tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Peet shall be entitled to receive additional payment (a
"Gross-Up Payment"). The Gross-Up Payment shall be equal to the sum of the
Excise Tax and all taxes (including any interest or penalties imposed with
respect to such taxes) imposed upon the Gross-Up Payment.
If Peet determines that a Gross-Up Payment is required, Peet shall notify
Delta in writing, specifying the amount of Gross-Up Payment required and
details as to the calculation thereof. Delta shall, within 30 days, either
pay such Gross-Up Payment (net of applicable wage withholding) to Peet or
furnish an unqualified opinion from Independent Tax Counsel (as defined
below), addressed to Peet and Delta, that there is substantial authority
(within the meaning of Section 5551 of the Code) for the position that no
Gross-Up Payment is required. "Independent Tax Counsel" means a lawyer with
expertise in the area of Peet compensation tax law, who shall be selected by
Peet and shall be reasonably acceptable to Delta, and whose fees and
disbursements shall be paid by Delta.
If the Internal Revenue Service or other tax authority proposes in writing an
adjustment to Peet's income tax that would result in a Gross-Up Payment, Peet
shall promptly notify Delta in writing and shall refrain for at least 30
days after giving such notice, if so permitted by law, from paying any tax
(including interest, penalties and additions to tax) asserted to be payable
as a result of such proposed adjustment. Before the expiration of such
period, Delta shall either pay the Gross-Up Payment or provide an opinion
from Independent Tax Counsel to Peet and Delta as to whether it is more
likely than not that the proposed adjustment would be successfully
challenged if the matter were to be litigated. If the opinion provides
that a challenge would be more likely than not to be successful if the
issues were litigated, and Delta requests in writing that Peet contest such
proposed adjustment, then Peet shall contest the proposed adjustment and
shall consult in good faith with Delta with respect to the nature of all
action to be taken in furtherance of the contest of such proposed
adjustment; provided that Peet, after such consultation with Delta, shall
determine in Peet's sole discretion the nature of all action to be taken to
contest such proposed adjustment, including (A) whether any such action
shall initially be by way of judicial or administrative proceedings, or
both, (B) whether any such proposed adjustment shall be contested by
resisting payment thereof or by paying the same and seeking a refund
thereof, and (C) if Peet shall undertake judicial action with respect to
such proposed adjustment, the court or other judicial body before
which such action shall be commenced and the court or other judicial body to
which any appeals should be taken. Peet agrees to take appropriate appeals
of any judicial decision that would require Delta to pay a Gross-Up Payment,
provided Delta requests in writing that Peet do so and provides an opinion
from Independent Tax Counsel to Peet and Delta that it is more likely than
not that the appeal would be successful. Peet further agrees to settle,
compromise or otherwise terminate a contest with the Internal Revenue
Service or other tax authority with respect to all or a portion of the
proposed adjustment giving rise to the Gross-Up Payment, if requested by
Delta in writing to do so at any time, in which case Peet shall be
entitled to receive from Delta the Gross-Up Payment. In no event shall Peet
compromise or settle all or any portion of a proposed adjustment which would
result in Gross-Up Payment without the written consent of Delta.
Peet shall not be required to take or continue any action pursuant to this
Section 7 unless Delta acknowledges its liability under this Agreement in the
event that the Internal Revenue Service or other tax authority prevails in
the contest. Delta hereby agrees to indemnify Peet in a manner reasonably
satisfactory to Peet for any fees, expenses, penalties, interest or
additions to tax which Peet may incur as a result of contesting validity of
any Excise Tax and to pay Peet promptly upon receipt of a written demand
therefor all costs and expenses which Peet may incur in connection with
contesting such proposed adjustment (including reasonable fees and disburse-
ments of Independent Tax Counsel); provided, however, that Delta shall not
be required to pay any amount necessary to permit Peet's instituting a
claim for refund under this Section 7.
If Peet shall have contested any proposed adjustment as above provided, and
for so long as Peet shall be required under the terms of this Section 7 to
continue uch contest, Delta shall not be required to pay a Gross-Up Payment
until there occurs a Final Determination (as defined below) of Peet's liability
for the tax and any interest, penalties and additions to tax asserted to be
payable as a result of such proposed adjustment. A "Final Determination"
shall mean (A) a decision, judgment, decree or other order has become final
after all allowable appeals by either party to the action have been
exhausted, the time for filing such appeal has expired or Peet has no right
under the terms thereof to request an appeal, (B) a closing agreement
entered into under Section 7121 of the Code or any other settlement agreement
entered into in connection with an administrative or judicial proceeding and
with Peet's consent, or (C) the expiration of the time for instituting suit
with respect thereto.
In the event Peet receives any refund from the Internal Revenue Service or
other tax authority on account of an overpayment of Excise Tax, such amount,
together with that part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by Peet to Delta.
8. PAYMENT OBLIGATIONS ABSOLUTE. Upon a Change of Control
Delta's obligations to pay the severance benefits or make any other payments
described in this Agreement shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which Delta or any
of its subsidiaries may have against the Peet or anyone else. Peet shall
not be required to mitigate damages, and if Peet does accept other
employment, any benefits or payments hereunder shall not be reduced by any
compensation earned or other benefits received as a result of such employ-
ment.
9. LEGAL FEES AND EXPENSES. Subject to and contingent upon the occurrence
of a Change of Control, Delta agrees to pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which Peet may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Delta, Peet or others of
the validity or enforceability of, or liability under, any provision of
this Agreement (including any contest by Peet about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the Bank
One, Kentucky, NA.
10. DUE AUTHORIZATION. Delta hereby warrants and represents to Peet 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.
11. INDEMNIFICATION
(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" include attorneys fees.
(4) As used herein, "Subsidiary" means any company in
which Delta is a beneficial owner of 100% of all classes of voting stock.
(b) Delta shall indemnify Peet if he is made a Party to any Proceeding by
reason of the fact that he is or was an Officer or Director 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 or Director 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, settle-
ments and reasonable expenses actually incurred by Peet in connection with
the Proceedings, 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 Peet 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 Peet 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 Peet and hold him harmless against any
judgments, penalties, fines, settlements and reasonable expenses actually
incurred in connection with any Proceeding in which Peet is a Party,
provided Peet was made a party to such Proceeding by reason of the fact that
he is or was an Officer or Director of Delta or Subsidiary or by reason of
any inaction, nondisclosure, action or statement made, taken or omitted by
or on behalf of Peet with respect to Delta or Subsidiary or by or on behalf
of Peet in his capacity as an Officer or Director of Delta or Subsidiary.
(d) Reasonable expenses incurred by Peet 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 Peet of his good faith
belief that he has met the requisite 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 Peet 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 known to the Board (or decision
maker) would not preclude indemnification under this provision.
The undertaking required herein shall be an unlimited general obligation of
Peet but shall not require any security and shall be accepted without
reference to the financial ability of Peet to make repayment.
(e) Notwithstanding anything herein to the contrary, Peet 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 Peet against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as an Officer or Director of Delta or Subsidiary.
Such insurance shall provide complete coverage for Peet to the extent
reasonably available.
12. 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 other-
wise combined, and shall inure to the benefit of and be binding upon Peet,
his heirs and personal representatives. Peet 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 prior written consent
of Peet.
13. 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 restric-
tions of this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
14. AMENDMENTS. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement by the parties hereto.
15. PREVIOUS AGREEMENTS. This Agreement supercedes and replaces any and
all previous or existing such written agreements between Peet and
Delta.
16. NOTICES. All notices, requests, claims, demands and other communi-
cations 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 facsimile transmission, or by 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, Kentucky 40391
Attention: President
If to Peet:
Harrison D. Peet
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 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.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
18. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall no affect the construction hereof.
IN WITNESS WHEREOF, the parties hereby 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 and Chief Executive Officer
/s/Harrison D. Peet____________
Harrison D. Peet
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