Document:

EXHIBIT 10.1 - Settlement Agreement

Exhibit 10.1

APPLICATION OF THE CONNECTICUT     :    DOCKET NO. 09-11-12
WATER COMPANY TO AMEND RATE         :
SCHEDULES                     :     June 28, 2013

SETTLEMENT AGREEMENT

INTRODUCTION 

The Connecticut Water Company (“CWC” or the “Company”) has identified an opportunity to utilize a recent change in the United States Internal Revenue Services (“IRS”) Code (Repair Regulations – Rev. Proc. 2012-19) allowing for the immediate deduction of qualifying capital spending that otherwise would have been deducted over the book life of the asset.  This has provided an opportunity for a regulated utility like CWC that has been addressing its aging infrastructure needs by systematically replacing components of its pipeline, to derive a material financial benefit. In this Settlement Agreement The Connecticut Water Company (“CWC” or the “Company”), Consumer Counsel Elin Swanson Katz (“Consumer Counsel”), and George Jepsen, Attorney General for the State of Connecticut (“Attorney General”) propose a mechanism to provide the benefit from those savings to customers in the form of a rate reduction or credit on their water bills.  

“Revenue Procedure 2012-19” allows CWC to adopt an alternative method for determining how capital expenditures can be treated for federal tax purposes, allowing certain expenditures that were historically considered as capital for tax purposes to now be eligible to be deducted on federal taxes.  The IRS procedure allows the Company to reflect a ‘catch up adjustment’ to be adopted on its 2012 Federal Tax Return and reach back for refunds of taxes paid on or after January 1, 2010.  The Company has proposed to reflect the method change in its 2012 tax filing, which is due on or before September 16, 2013, and anticipates a significant refund as a result. The Company expects that the refund will be approximately $10 million.  

The Company has proposed an accounting treatment to allow for the deferral of  the tax refund received from the 2012 IRS filing and a credit of the catch up tax benefit to customers over a period of time through a credit on water bills issued starting April 1, 2014.   

In conjunction with the rate reduction from the tax change, the Settlement Agreement provides that CWC shall remove the Water Infrastructure and Conservation Adjustment (“WICA”) authorized as of October 1, 2013 as a surcharge on customers’ bills and include that amount in base rates effective April 1, 2014, concurrent with the rate reduction for the tax refund.  

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Further, the Settlement Agreement provides that CWC record on its accounting and financial reporting records revenues to establish and implement the Revenue Adjustment Mechanism (“RAM”) authorized by PA 13-78, with any associated change in rates to also be reflected on customers’ bills as of April 1, 2014.  

With these changes, the Company would delay the filing of the next application for WICA for one year after the WICA filing that it plans to file in July 2013.   Thus there would be no new WICA surcharge on customers’ bills after the rate changes on April 1, 2014 authorized by this agreement until October 1, 2014.  Further the Company agrees herein that it would not file for a general rate increase that would become effective prior to October 1, 2015.

The combined effect of these changes will result in a net reduction on customers’ bills as of April 1, 2014 and delay otherwise planned increases from WICA and a general rate case, creating greater certainty for customers.  The Company, the Consumer Counsel, and the Attorney General submit that the proposed settlement provides clear benefits to customers and request the Public Utilities Regulatory Authority’s (“PURA” or the “Authority”) approval thereof.

This Settlement Agreement (the “Agreement”) is made as of the 28th day of June, 2013 by and between CWC, the Consumer Counsel, and the Attorney General.  CWC, the Consumer Counsel and the Attorney General are sometimes referred to individually as a “Party” and collectively as the “Parties.”

		
	I.
	BACKGROUND

		
	A.
	The Parties have engaged in rate settlement discussions in order to reduce the impact of CWC’s water rates on Connecticut consumers, to stabilize those water rates in the coming years and to provide for the recovery of the Company’s costs of providing high quality water service to its customers.

		
	B.
	Those settlement discussions resulted in the rate settlement that is the subject of this Agreement and the accompanying Petition to Reopen the Company’s prior general rate case for the limited purpose of securing the approval of the Authority with respect to implementing the rate adjustments described herein.  

		
	C.
	This Agreement represents an integrated set of trade-offs and compromises in order to achieve the goal of a fair resolution of the issues described above.  It provides a rate reduction to consumers and enables CWC to accept a “stay out” period within which it agrees it will not file for a general increase of base rates.  As more fully set forth in Section C below, neither of the Parties necessarily finds any particular element of the Settlement Agreement reasonable standing apart from the rest of the Agreement.

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	D.
	The elements of the rate adjustments required by the Agreement are described below.  The attached exhibits showing rate and revenue requirement calculations are provided for illustration purposes only.  Actual calculations will be provided as and when described below, when actual final tax and sales figures are known.  

Based upon the Company’s current estimates of the Repair Tax Deduction Credit (“RTDC”) and assuming that it is applied over a two-year period, the approximate amount of the reduction for CWC that will be shared with customers from the RTDC is expected to be approximately $10 million or 6.4%.  The benefit of the RTDC can be applied such that, even with the implementation of the Revenue Adjustment Mechanism (“RAM”) authorized by PA 13-78, the Parties expect there will be a net reduction in customers’ bills starting in April of 2014.  

		
	II.
	RATE ADJUSTMENTS

		
	A.
	The tax impact of the change in the repair tax deduction taken on CWC’s 2012 federal tax return will be credited to customers over a two-year period starting on April 1, 2014.  This rate reduction will be reflected as a line item on the customer bills with the surcredit as a percentage of base rates in effect as of April 1, 2014.

		
	1.
	CWC’s 2012 Federal Tax Return will be filed as required on or before September 16, 2013.  Through that filing, the Company will be allowed to capture eligible repair tax deductions for prior years, creating the RTDC that is to be credited to customers pursuant to this Agreement.

		
	2.
	PURA shall authorize CWC to defer, as soon as practicable, but not later than December 31, 2013, the amount to be credited to customers on its Balance Sheet.

		
	3.
	Amount to be credited to customers:

		
	a.
	Cash refund equal to total amount paid on 2010 federal income tax return plus;

		
	b.
	Cash refund equal to total amount paid on 2011 federal income tax return plus; and

		
	c.
	Amount the RTDC allowance reduces federal income taxes paid for 2012 tax year.

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	4.
	On or before October 30, 2013, CWC will submit the following to PURA as a compliance filing:

		
	a.
	Total actual amount of the tax refund relating to 3(a) and 3(b) above and the amount of the RTDC for the 2012 tax year;

		
	b.
	A copy of the Company’s Consolidated 2012 federal income tax return; and

		
	c.
	The calculation of the rate reduction that will be applied to all customers’ bills starting on April 1, 2014. (See Exhibit A for example of rate reduction calculation; see paragraph C below for rate design).

		
	B.
	The approved WICA authorized as of October 1, 2013 will be included in the Company’s base rates and removed as a surcharge effective April 1, 2014.  There will be no increase to customers’ bills due to the change in location of the WICA on the bill. 

		
	1.
	Effective on April 1, 2014 the approved WICA in effect as of October 1, 2013 will be folded into base rates on a pro rata percentage basis across the board to all of the Company’s rates, including miscellaneous charges.

		
	2.
	On or before March 1, 2014, CWC will submit the following to PURA:

		
	d.
	The new base rate revenue requirements calculation reflecting the WICA fold in (See Exhibit B for example); and

		
	e.
	A schedule showing all of the Company’s current base rates and what each base rate will become on April 1, 2014, reflecting the WICA adjustment described herein and the RAM described in Section C below.

		
	C.
	To establish and implement the RAM authorized in Section 3 of Public Act No. 13-78, PURA shall authorize the Company to record on its accounting and financial reporting records its allowed revenue as its operating revenue annually beginning in calendar year 2013, and to defer on its balance sheet as a regulatory asset or liability the positive or negative difference between its actual revenues and allowed revenues.

		
	1.
	Recovery or refund of the deferral for under or over collecting authorized revenues in 2013 on customers’ bills will start on April 20, 2014, through adjustments to the Company’s base rates designed to true up actual revenues to allowed revenues over a twelve-month period.

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	2.
	The PURA rate order authorizing the rate adjustments required by this Agreement shall provide that CWC customers shall benefit from the establishment of an over earnings sharing mechanism as stipulated in Section 3(f) of Public Act No. 13-78 that will become effective for earnings accruing on or after the implementation of the RAM.

		
	3.
	Exhibit C shows the timeline and calculations for the RAM using sales and revenues from the Company’s 2012 calendar year as an example.  As noted in Section B, on or before March 1, 2014, CWC will submit to PURA a schedule showing all of the Company’s new base rates that reflect the transfer of the existing WICA charges to base rates and the adjustment allowed under the RAM.

		
	D.
	Except as otherwise provided in part IV of this Agreement, the Company will not make a general rate filing for new rates unless those rates are to be effective on or after October 1, 2015.  The Company will continue to make investments in infrastructure replacement consistent with its approved WICA plan, but after the rate changes on April 1, 2014 authorized by this agreement will not seek a WICA to be effective before October 1, 2014.  The WICA filing in July 2014 will include all eligible WICA investments completed by the Company but not reflected in the last approved WICA adjustment in effect in October 2013.  

		
	E.
	Protection for the Company in case the IRS subsequently disallows all or part of the RTDC that CWC has or was expecting to credit to customers:

		
	1.
	If the amount that has been credited to customers is greater than allowed by the IRS:

		
	a.
	Within ten days of the receipt by the Company of a formal notice from the IRS disallowing some or all of the RTDC, the Company shall make an immediate compliance filing with PURA eliminating the amount of the credit to customers’ bills equivalent to the amount of any such IRS disallowance on a going forward basis.  The RTDC surcredit shall be adjusted or, in the case of complete disallowance by the IRS, eliminated as proposed by the compliance filing unless PURA issues a notice within twenty days of the compliance filing requiring a different schedule.

		
	b.
	The Company shall be authorized to defer on its accounting and financial records and include for recovery in its next general rate application the amount that has been credited to customers over and above the amount allowed by the IRS.

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	III.
	RATE DESIGN

		
	A.
	All of the adjustments to base rates contemplated by this Agreement shall be reflected by across the board pro rata adjustments to rates and charges as follows:

		
	3.
	The RTDC shall be applied to all rates (including fire protection charges) except miscellaneous/special charges.

		
	4.
	The changes in base rates, to include the WICA charge and the application of the RAM, shall be applied to all rates and charges, including sales for resale and approved miscellaneous/special charges.

		
	IV.
	OTHER ISSUES

		
	A.
	Upon Authority approval of the Settlement Agreement in its entirety, CWC agrees that it shall not file a new application for a general increase in rates pursuant to section 16-19 of the Connecticut General Statutes that would become effective prior to October 1, 2015, provided that CWC reserves the right to request rate relief that would become effective prior to October 1, 2015 if CWC incurs or will incur unanticipated substantial and material cost increases as a result of changes in law, administrative requirements or accounting standards, or due to force majeure events such as acts of God, strikes, lockouts, acts of the public enemy, wars, riots, landslides, lightning, earthquakes, fires, storms, floods, breakage or accident to machinery or lines of pipe, line freeze ups, and other cause, whether the kind herein enumerated, or otherwise, which is not in the control of CWC and which by the exercise of due diligence CWC is unable to prevent or overcome, occurring after the date of this Settlement Agreement.

		
	B.
	The record in this proceeding provides sufficient evidence on which the Authority can rely to make a determination that the Settlement Agreement is reasonable and in the public interest, and that the resulting rates comply with applicable law.

		
	C.
	The Parties waive the right to submit briefs prior to the Authority issuing a Draft Decision approving or rejecting the Settlement Agreement.

		
	D.
	The Parties agree that this Settlement Agreement is in the public interest.

		
	E.
	This Settlement Agreement is intended to be an integrated document.  As such, the terms contained herein are interdependent and not severable, and they shall not be binding upon, or deemed to be an admission or 

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concession by any Party, or to represent the positions of the Parties, if the Settlement Agreement is not fully approved by the Authority.  If the Authority does not approve this Settlement Agreement in its entirety, it shall be deemed withdrawn, it shall not constitute a part of the record in this or any other administrative or judicial proceeding, shall not be admissible as evidence or be used for any purpose whatsoever in this or any other administrative or judicial proceeding, and each Party shall be free to advocate any position on any of the issues addressed by the Settlement Agreement in this or any other administrative or judicial proceeding, unless the Parties agree otherwise.
		
	F.
	The Parties shall support the Settlement Agreement before the Authority, any other public forum and any court to which an appeal may be taken, shall do nothing to undermine the integrity of the Settlement Agreement and shall take all such action necessary on a cooperative basis to secure approval and implementation of the provisions of the Settlement Agreement.

		
	G.
	The discussions which have produced this Settlement Agreement have been conducted on the explicit understanding that all offers of settlement and discussions relating thereto are and shall be privileged and confidential, shall be without prejudice to the position of any Party presenting such offer or participating in any such discussions, and are not to be used in any manner in connection with this or any other administrative or judicial proceeding involving any or all of the Parties or otherwise.

		
	H.
	This Settlement Agreement does not represent an admission or concession by the Parties as to the proper disposition of any issue not related to this Settlement Agreement or these Parties in any other proceeding before the Authority, any court or any other administrative agency.  It does not signify the Parties' agreement with any claim or claims made by any Party in this case.  This Settlement Agreement or any of its terms shall not prejudice the positions that the Parties may take on any issue in any proceeding not related to this Settlement Agreement before the Authority, the courts or any other administrative agency, and shall not be admissible as evidence therein or in any proceeding not related to the matters and parties covered by this Settlement Agreement before the Authority, the courts or any other administrative agency, and shall not be deemed an admission or concession by any of the Parties in regard to any claim or position taken by any other of the Parties in such proceedings.  The Settlement Agreement is not intended to establish precedent in such proceedings.  Nothing contained herein shall be construed as a waiver of, or limitation upon any Party's right to raise any issues contained herein in any docket not related to this Settlement Agreement during the term of this Settlement Agreement.

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IN WITNESS WHEREOF, each of the Parties has duly executed this Settlement Agreement as of the date set forth above.
	
		
	 
	THE CONNECTICUT WATER COMPANY

By     /s/ David C. Benoit            

         David C. Benoit
         Chief Financial Officer, Vice President- 
         Finance and Treasurer

ELIN SWANSON KATZ 
CONSUMER COUNSEL

/s/ Elin Swanson Katz            

GEORGE JEPSEN 
ATTORNEY GENERAL FOR THE STATE OF 
CONNECTICUT

/s/ George Jepsen (NRD)            

8NOTE MODIFICATION 2013

Exhibit 10(a)

	
				
	Maker
	DELTA NATURAL GAS COMPANY, INC.
	 
	 

	 
	 
	BB&T
	9580219605

	Address
	3617 LEXINGTON ROAD
	Customer Number

	 
	WINCHESTER, KY 40391
	 

	 
	 
	3

	 
	NOTE MODIFICATION AGREEMENT
	Note Number

	
							
	$40,000,000.00
	 
	10/31/2002
	 
	$40,000,000.00
	 
	6/30/2013

	Original Amount of Note
	 
	Original Date
	 
	Modification Amount
	 
	Modification Date

This Note Modification Agreement (hereinafter “Agreement”) is made and entered into this 30th day of June, 2013, by and between DELTA NATURAL GAS COMPANY,  INC., maker(s), co-maker(s), endorser(s), or other obligor(s) on the Promissory Note (as defined below), hereinafter also referred to jointly and severally as Borrower(s); Branch Banking and Trust Company of North Carolina, a banking corporation, hereinafter referred to as Bank and ______________________________________ _______________________________________________________________________ owners other than Borrower(s) (if any) of any property pledged to secure performance of Borrower(s)’s obligations to Bank, hereinafter referred to jointly and severally as Debtor(s)/Grantor(s).

Witnesseth: Whereas, Borrower(s) has previously executed a Promissory Note payable to Bank, which Promissory Note includes the original Promissory Note and all renewals, extensions and modifications thereof, collectively “Promissory Note”, said Promissory Note being more particularly identified by description of the original note above; and Borrower(s) and Bank agree that said Promissory Note be modified only to the limited extent as is hereinafter set forth; that all other terms, conditions, and covenants of said Promissory Note remain in full force and effect, and that all other obligations and covenants of Borrower(s), except as herein modified, shall remain in full force and effect, and binding between Borrower(s) and Bank; and Whereas Debtor(s)/Grantor(s), if different from Borrower(s), has agreed to the terms of this modification; NOW THEREFORE, in mutual consideration of the premises, the sum of Ten Dollars ($10) and other good and valuable consideration, each to the other parties paid, the parties hereto agree that said Promissory Note is amended as hereinafter described:

o    Borrower shall pay a prepayment fee as set forth in the Prepayment Fee Addendum attached hereto.

INTEREST RATE, PRINCIPAL AND INTEREST PAYMENT TERM MODIFICATIONS (To the extent no change is made, existing terms continue.  Sections not completed are deleted.)

Interest shall accrue from the date hereof on the unpaid principal balance outstanding from time to time at the:

Exhibit 10(a)

	
		
	o
	Fixed Rate of ________% per annum.

	

	

	o
	Variable rate of the Bank’s Prime Rate plus ____% per annum to be adjusted __________________as the Bank’s Prime Rate Changes.

	

	

	o
	As of the Modification Date, any fixed, floating, or average maximum rate and fixed minimum rate in effect by virtue of the Promissory Note are hereby deleted.  The interest rate will in no instance exceed the maximum rate permitted by applicable law and if checked here o, the interest rate will not decrease below a fixed minimum rate of ______%.  If checked here  o the interest rate will not exceed o a fixed maximum rate of _____%,  oan average maximum rate of _________%,  or o a floating maximum rate of the greater of ______% or the Bank’s Prime Rate.  If an average maximum rate is specified, a determination of any required reimbursement of interest by Bank will be made:  owhen the Promissory Note is repaid in full by Borrower o annually beginning on __________________.

	

	

	ý
	THE ADJUSTED LIBOR RATE, AS DEFINED IN THE ATTACHED ADDENDUM TO PROMISSORY NOTE.

	

	

	 
	Principal and interest are payable as follows:

	

	

	 
x
	Principal (plus any accrued interest not otherwise scheduled herein  }  is due in full at maturity on JUNE 30, 2015.

	o
	Principal plus accrued interest

	o
	Payable in consecutive _____ installments of oPrincipal                    
                                                                         o Principal and interest   } commencing on ________
 
and continuing on the same day of each calendar period thereafter, in ____ equal payments of  $______, with one final payment of all remaining principal and accrued interest due on _____________.

	

	

	o
	ChoiceLine Payment Option:  2% of outstanding balance is payable monthly commencing on ____________ and continuing on the same day of each month thereafter, with one final payment of all remaining principal and accrued interest due on _______________________

	

	

	ý
	Accrued interest is payable monthly  commencing on  July 31, 2013 and continuing on the same day of each calendar period thereafter, with one final payment of all remaining interest due on June 30, 2015.

	 
	 

	o
	Bank reserves the right in its sole discretion to adjust the fixed payment due hereunder _______ on ________ and continuing on the same day of each calendar period thereafter, in order to maintain an amortization period of no more than ______ months from the date of the initial principal payment due hereunder.  Borrower understands the payment may increase if interest rates increase.

	

	

	o
	At the Borrower’s request, the Bank has agreed to readvance the principal amount of  $____________.  The outstanding principal balance under the Promissory Note prior to the readvance is $________________, making the total outstanding principal balance now due hereunder to be $_____________ (“Modification Amount”).

	

	

	o
	____________________________________________________________________________________________

	

	

	o
	___________________________________________________________________________________________

	

	

	o
	Borrower hereby authorizes Bank to automatically draft from its demand deposit or savings account(s) with Bank or other bank, any payment(s) due on the date(s) due.  Borrower shall provide appropriate account number(s) for account(s) at Bank or other bank.

	

	

	 
	The following scheduled payment(s) is (are) deferred:

	

	

	o
	$___________ principal

	 
	                                                                   }        payment(s) due on _________________________

	o
	$___________ interest

	

	

	 
	is (are) hereby deferred.  Payments will resume on ___________________________ according to the schedule contained herein or to the existing schedule (if no other changes are made herein).

	

	

	 
	ACCOUNTS/NOTES

	

	 

Exhibit 10(a)

The Borrower(s) promises to pay Bank, or order, a late fee in the amount of five percent (5%) of any installment past due for ten (10) or more days.  Where any installment payment is past due for ten (10) or more days, subsequent payments shall first be applied to the past due balance.  In addition, the undersigned shall pay to Bank a returned payment fee if the undersigned or any other obligor hereon makes any payment at any time by check or other instrument, or by any electronic means, which is returned to Bank because of nonpayment due to nonsufficient funds.

COLLATERAL:  oThe Promissory Note, as modified, and the performance of the terms of any agreement or instrument relating to, evidencing, or securing the Promissory Note, as modified, shall be additionally secured by collateral hereinafter described, a new security instrument shall be executed by Borrower(s), and/or Debtor(s)/Grantor(s), and all other steps necessary to perfect or record the Bank’s lien with priority acceptable to Bank shall be taken.  In addition to Bank’s right of off-set and to any liens and security interests granted to Bank in the Agreements, the undersigned hereby grants to Bank a security interest in all of its depository accounts with and investment property held by Bank, which shall serve as collateral for the indebtedness and obligations evidenced by the Promissory Note, as modified.

Deed(s) of Trust / Mortgage(s) granted in favor of Bank as beneficiary / mortgagee:

	
		
	o
	dated __________________________ in the maximum principal amount of $___________________
granted by _________________________________________

	 
	 

	o
	dated _______________ in the maximum principal amount of $________________________________
granted by ________________________________________________

	 
	 

Exhibit 10(a)

Security Agreement(s) granting a security interest to Bank:
	
		
	o
	dated __________________ given by ______________________________________________________________
 ___________________________________________________________________________________________

	 
	 

	o
	dated __________________ given by ______________________________________________________________
___________________________________________________________________________________________

	 
	 

	o
	Securities Account Pledge and Security Agreement dated _________________,
executed by ________________________________________________________

	 
	 

	o
	Control Agreement(s) dated ___________________, covering * Deposit Account(s)           * Investment Property
                                                                                                     * Letter of Credit Rights     *  Electronic Chattel Paper

	 
	 

	o
	Assignment of Certificate of Deposit, Security Agreement, and Power of Attorney (for Certificated Certificates of Deposit) dated ____________________________________, executed by _____________________________________

	 
	 

	o
	Pledge and Security Agreement for Publicly Traded Certificated Securities dated _________________________, executed by ______________________________________________

	 
	 

	o
	Assignment of Life Insurance Policy as Collateral dated _________________________________________,
executed by  _____________________________________________________________

	 
	 

	ý
	AMENDMENT TO Loan Agreement dated 6/30/2013, executed by Borrower and * Guarantor(s)

	 
	 

	o
	_____________________________________________________________________________________________

	 
	 

	o
	_____________________________________________________________________________________________

	 
	 

	o
	The collateral hereinafter described shall be and hereby is deleted as security interest for payment of the Promissory Note:

	 
	 

	 
	______________________________________________________________________________________________

	 
	______________________________________________________________________________________________

	 
	 

	 
	OTHER:   ______________________________________________________________________________________

If the Promissory Note being modified by this Agreement is signed by more than one person or entity, the modified Promissory Note shall be the joint and several obligation of all signers and the property and liability of each and all of them.  It is expressly understood and agreed that this Agreement is a modification only and not a novation.  The original obligation of the Borrower(s) evidenced by the Promissory Note is not extinguished hereby.  It is agreed that except for the modification(s) contained herein, the Promissory Note, and any other Loan Documents or Agreements evidencing, securing or relating to the Promissory Note and all singular terms and conditions thereof, shall be and remain in full force and effect.  This Agreement shall not release or affect the liability of any co-makers, obligors, endorsers or guarantors of said Promissory Note.  Borrower and Debtor(s)/Grantor(s), if any, jointly and severally consent to the terms of this Agreement, waive any objection thereto, affirm any and all obligations to Bank and certify that there are no defenses or offsets against said obligations or the Bank, including without limitation the Promissory Note.  Bank expressly reserves all rights as to any party with right of recourse on the Promissory Note.

In the event periodic accruals of interest shall exceed any periodic fixed payment amount described above, the fixed payment amount shall be immediately increased or supplemental interest payments required on the same periodic basis as specified above (increased fixed payments or supplemental payments to be determined in the Bank’s sole discretion), in such amounts and at such times as shall be necessary to pay all accruals of interest for the period and all accruals of unpaid interest from previous periods.  Such adjustments to the fixed payment amount or supplemental payments shall remain in effect for so long as any interest accruals shall 

Exhibit 10(a)

exceed the original fixed payment amount and shall be further adjusted upward or downward to reflect changes in any variable interest rate based on an index such as the Bank’s Prime Rate; provided that unless elected otherwise above, the fixed payment amount shall not be reduced below the original fixed payment amount.  However, Bank shall have the right, in its sole discretion, to lower the fixed payment amount below the original payment amount.  Notwithstanding any other provision contained in this agreement, in no event shall the provisions of this paragraph be applicable to any Promissory Note which requires disclosures pursuant to the Consumer Protection Act (Truth-in-Lending Act) 15 USC § 1601, et seq., as implemented by Regulation Z.

Borrower agrees that the only interest charge is the interest actually stated in the Promissory Note, as modified hereby, and that any loan or origination fee shall be deemed charges rather than interest, which charges are fully earned and non-refundable.  It is further agreed that any late charges are not a charge for the use of money but are imposed to compensate Bank for some of the administrative services, costs and losses associated with any delinquency or default under the Promissory Note, and said charges shall be fully earned and non-refundable when accrued.  All other charges imposed by Bank upon Borrower in connection with the Promissory Note and the loan including, without limitation, any commitment fees, loan fees, facility fees, origination fees, discount points, default and late charges, prepayment fees, statutory attorneys' fees and reimbursements for costs and expenses paid by Bank to third parties or for damages incurred by Bank are and shall be deemed to be charges made to compensate Bank for underwriting and administrative services and costs, other services, and costs or losses incurred and to be incurred by Bank in connection with the Promissory Note and the loan and shall under no circumstances be deemed to be charges for the use of money.  All such charges shall be fully earned and non-refundable when due.

The Bank may, at its option, charge any fees for the modification, renewal, extension, or amendment of any of the terms of the Promissory Note as permitted by applicable law.

In the words "Prime Rate", "Bank Prime Rate", "BB&T Prime Rate", "Bank's Prime Rate" or "BB&T's Prime Rate" are used in this Agreement, they shall refer to the rate announced by the Bank from time to time as its Prime Rate.  The Bank makes loans both above and below the Prime Rate and uses indexes other than the Prime Rate.  Prime Rate is the name given a rate index used by the Bank and does not in itself constitute a representation of any preferred rate or treatment.

Unless otherwise provided herein, it is expressly understood and agreed by and between Borrower(s), Debtor(s)/Grantor(s) and Bank that any and all collateral (including but not limited to real property, personal property, fixtures, inventory, accounts, instruments, general intangibles, documents, chattel paper, and equipment) given as security to insure faithful performance by Borrower(s) and any other third party of any and all obligations to Bank, however created, whether now existing or hereafter arising, shall remain as security for the Promissory Note as modified hereby.

It is understood and agreed that if Bank has released collateral herein, it shall not be required or obligated to take any further steps to release said collateral from any lien or security interest unless Bank determines, in its sole discretion, that it may do so without consequence to its secured position and relative priority in other collateral; and unless Borrower(s) bears the reasonable cost of such action. No delay or omission on the part of the Bank in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Bank, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same, or of any other right on any further occasion. Each of the parties signing this Agreement regardless of the time, order or place of signing waives presentment, demand, protest, and notices of every kind, and assents to any one or more extensions or postponements of the time of payment or any other indulgences, to any substitutions, exchanges or releases of collateral if at any time there is available to the Bank collateral for the Promissory Note, as amended, and to the additions or releases of any other parties or persons primarily or secondarily liable. Whenever possible the provisions of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is prohibited by or invalid under such law, such provisions shall be ineffective to the extent of any such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All rights and obligations arising hereunder shall be governed by and construed in accordance with the laws of the same state which governs the interpretation and enforcement of the Promissory Note.

From and after any event of default under the Promissory Note, as modified hereby, or any related deed of trust, security agreement or loan agreement, interest shall accrue on the sum of the principal balance and accrued interest then outstanding at the variable rate equal to the Bank's Prime Rate plus 5% per annum ("Default Rate"), provided that such rate shall not exceed at any time the highest rate of interest permitted by the laws of the State of Kentucky; and further that such rate shall apply after judgement. In the event of any default, the then remaining unpaid principal amount and accrued but unpaid interest then outstanding shall bear interest at the Default Rate until such principal and interest have been paid in full.  Bank shall not be obligated to accept any check, money order, or other payment instrument marked "payment in full" on any disputed amount due hereunder, and Bank expressly reserves the right to reject all such payment instruments. Borrower agrees that tender of its check or other payment instrument so marked will not satisfy or discharge its obligation under the Promissory Note, disputed or otherwise, even if such check or payment instrument is inadvertently processed by Bank unless in fact such payment is in fact sufficient to pay the amount due hereunder.

Exhibit 10(a)

WAIVER OF TRIAL BY JURY.  UNLESS EXPRESSLY PROHIBITED BY APPLICABLE LAW, THE UNDERSIGNED HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS OR CLAIMS ARISING OUT OF THIS AGREEMENT, THE PROMISSORY NOTE OR ANY LOAN DOCUMENT EXECUTED IN CONNECTION HEREWITH OR OUT OF THE CONDUCT OF THE RELATIONSHIP BETWEEN THE UNDERSIGNED AND BANK.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK TO MAKE THE LOAN EVIDENCED BY THE PROMISSORY NOTE AND THIS AGREEMENT.  FURTHER, THE UNDERSIGNED HEREBY CERTIFY THAT NO REPRESENTATIVE OR AGENT OF BANK, NOR BANK’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT SEEK TO ENFORCE THIS WAIVER OR RIGHT TO JURY TRIAL PROVISION IN THE EVENT OF LITIGATION.  NO REPRESENTATIVE OR AGENT OF BANK, NOR BANK’S COUNSEL, HAS THE AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION.

Unless otherwise required under a Loan Agreement, if applicable, and as long as any indebtedness evidenced by the Promissory Note, as modified by this Agreement remains outstanding or as long as Bank remains obligated to make advances, the undersigned shall furnish annually an updated financial statement in a form satisfactory to Bank, which, when delivered shall be the property of the Bank.  Further, the undersigned agree to provide any and all documentation requested by the Bank in order to verify the identity of the undersigned in accordance with the USA Patriot Act.

(SIGNATURES ON FOLLOWING PAGE)

Exhibit 10(a)

BB&T

NOTE MODIFICATION SIGNATURE PAGE

	
		
	Borrower:  DELTA NATURAL GAS COMPANY, INC.
	 

	

	

	Account Number:    9580219605
	Note Number:    00003

	

	

	Modification Amount:    $40,000,000.00
	Modification Date:     June 30, 2013

IN WITNESS WHEREOF, the undersigned, on the day and year first written above, has caused this instrument to be executed

If Borrower is a Corporation:
	
		
	WITNESS:
	DELTA NATURAL GAS COMPANY, INC.

	 
	(Name of Corporation)

	

	

	___/s/W. Harvey Coggin_________________________
	By:  __/s/Glenn R. Jennings___________________

	

	

	 
	Title:  Glenn R. Jennings, President                              

	

	

	_____________________________________________
	By:  ________________________________________

	

	

	 
	Title:  _______________________________________

	

	

If Borrower is a Partnership, Limited Liability Company, Limited Liability Partnership,
Or Limited Liability Limited Partnership:
	
		
	WITNESS:
	____________________________________________

	 
	NAME OF PARTNERSHIP, LLC, LLP OR LLLP

	

	

	____________________________________________
	By:  ________________________________________

	

	

	 
	Title: _________________________________________

	

	

	____________________________________________
	By:  _________________________________________

	

	

	 
	Title: ________________________________________

	

	

	___________________________________________
	By:  _________________________________________

	

	

	 
	Title:  _______________________________________

If Borrower is an Individual:
	
		
	WITNESS:
	 

	

	

	____________________________________________
	___________________________________________

Additional Borrowers and Debtors/Grantors/Guarantors:

	
		
	WITNESS:
	 

	 
	 

	___________________________________________
	____________________________________________

	___________________________________________
	____________________________________________

	 
	 

	 
	 

	___________________________________________
	____________________________________________

	___________________________________________
	____________________________________________

	 
	 

	 
	 

	___________________________________________
	____________________________________________

Exhibit 10(a)

BB&T
ADDENDUM TO PROMISSORY NOTE

THIS ADDENDUM TO PROMISSORY NOTE (“Addendum”) is hereby made a part of the Promissory Note dated 10/31/2002 from DELTA NATURAL GAS COMPANY, INC. (“Borrower”) payable to the order of Branch Banking and Trust Company (“Bank”) in the principal amount of $40,000,000.00 (including all renewals, extensions, modifications and substitutions therefore, the “Note”).  

	
		
	I.  
	DEFINITIONS.

1.1  Adjusted LIBOR Rate means a rate of interest per annum equal to the sum obtained (rounded upwards, if necessary, to the next higher 1/16th of 1.0%) by adding (i) the One Month LIBOR plus (ii) 1.15% per annum, which shall be adjusted monthly on the first day of each LIBOR Interest Period.  The Adjusted LIBOR Rate shall be adjusted for any change in the LIBOR Reserve Percentage so that Bank shall receive the same yield.  The interest rate will in no instance exceed the maximum rate permitted by applicable law and if checked here o the interest rate will not decrease below a fixed minimum rate of _____%.  If checked here * the interest rate will not exceed o a fixed maximum rate of 30.00% or o an average maximum rate of _____%.  If an average maximum rate is specified, a determination of any required reimbursement of interest by Bank will be made:  o when Note is repaid in full by Borrower o annually beginning on __________________.  If the loan has been repaid prior to this date, no reimbursement will be made.

1.2  Business Day means a day other than a Saturday, Sunday, legal holiday or any other day when the Bank is authorized or required by applicable law to be closed.

1.3  LIBOR Advance means the advances made by Bank to Borrower evidenced by this Note upon which the Adjusted LIBOR Rate of Interest shall apply.

1.4  LIBOR Interest Period means the period, as may be elected by the Borrower applicable to any LIBOR Advance, commencing on the date the Note is first made (or the date of any subsequent LIBOR addendum to the Note) and ending on the day that is immediately prior to the numerically corresponding day of each month thereafter; provided that:

(a)  any LIBOR Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such LIBOR Interest Period shall end on the next preceding Business Day; and

(b)  any LIBOR Interest Period which begins on a day for which there is no numerically corresponding day in the subsequent month shall end on the last Business Day of each subsequent month.

1.5  LIBOR Reserve Percentage means the maximum aggregate rate at which reserves (including, without limitation, any marginal supplemental or emergency reserves) are required to be maintained under Regulation D by member banks of the Federal Reserve System with respect to dollar funding in the London interbank market.  Without limiting the effect of the foregoing, the LIBOR Reserve Percentage shall reflect any other reserves required to be maintained by such member banks by reason of any applicable regulatory change against (i) any category of liability which includes deposits by reference to which the Adjusted LIBOR Rate is to be determined or (ii) any category of extensions of credit or other assets related to LIBOR.

1.6  One Month LIBOR means the average rate quoted on Reuters Screen LIBOR01 Page (or such replacement page) on the determination date for deposits in U.S. Dollars offered in the London interbank market for one month determined as of 11:00 a.m. London time two (2) Business Days prior to the commencement of the applicable LIBOR Interest Period; provided that if the above method for determining one-month LIBOR shall not be available, the rate quoted in The Wall Street Journal, or a rate determined by a substitute method of determination agreed on by Borrower and Bank; provided further that if such agreement is not reached within a reasonable period of time (in Bank’s sole judgment), a rate reasonably determined by Bank in its sole discretion as a rate being paid, as of the determination date, by first class banking organizations (as determined by Bank) in the London interbank market for U.S. Dollar deposits.

1.7  Standard Rate means, for any day, a rate per annum equal to the Bank’s announced Prime Rate minus ______% per annum, and each change in the Standard Rate shall be effective on the date any change in the Prime Rate is publicly announced as being effective.

Exhibit 10(a)

	
		
	II.  
	LOAN BEARING ADJUSTED LIBOR RATE

2.1  Application of Adjusted LIBOR Rate.  The Adjusted LIBOR Rate shall apply to the entire principal balance outstanding of a LIBOR Advance for any LIBOR Interest period.

2.2  Adjusted LIBOR Based Rate Protections.

(a)  Inability to Determine Rate.  In the event that Bank shall have determined, which determination shall be final, conclusive and binding, that by reason of circumstances occurring after the date of this Note affecting the London interbank market, adequate and fair means do not exist for ascertaining the One Month LIBOR on the basis provided for in this Note, Bank shall give notice (by telephone confirmed in writing or by telecopy) to Borrower of such determination, whereupon (i) no LIBOR Advance shall be made until Bank notifies Borrower that the circumstances giving rise to such notice no longer exist, and (ii) any request by Borrower for a LIBOR Advance shall be deemed to be a request for an advance at the Standard Rate.

(b)  Illegality; Impracticability.  In the event that Bank shall determine, which determination shall be final, conclusive and binding, that the making, maintaining or continuance of any portion of a LIBOR Advance (i) has become unlawful as a result of compliance by Bank with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any of the same not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause Bank material hardship, as a result of contingencies occurring after the date of this Note materially and adversely affect the London interbank market or Bank’s ability to make LIBOR Advances generally, then, and in any such event, Bank shall give notice (by telephone confirmed in writing or by telecopy) to Borrower of such determination.  Thereafter, (x) the obligation of Bank to make any LIBOR Advances or to convert any portion of the loan to a LIBOR Advance shall be suspended until such notice shall be withdrawn by Bank and (y) any request by Borrower for a LIBOR Advance shall be deemed to be a request for an advance at the Standard Rate.

This Addendum shall operate as a sealed instrument.

Exhibit 10(a)

If Borrower Is a Corporation:
	
		
	WITNESS:
	DELTA NATURAL GAS COMPANY, INC.

	 
	(Name of Corporation)

	

	

	/s/W. Harvey Coggin                                           
	By:/s/ Glenn R. Jennings                              (SEAL)

	

	

	W. Harvey Coggin                                               
	Glenn R. Jennings                                             

	(Print Name)
	(Print Name)

	

	

	 
	Title:  President

	

	

	_______________________________________
	By:  ______________________________ (SEAL)

	 
	(Print Name)

	

	

	______________________________________
	Title:  __________________________________

	(Print Name)
	 

If Borrower is a Partnership, Limited Liability Company, Limited Liability Partnership,
Or Limited Liability Limited Partnership                                                        
	
		
	 
	______________________________________________

	 
	Name of Partnership, LLC, LLP, or LLLP

	WITNESS:
	 

	

	

	_____________________________________________
	By:  _______________________________________ (SEAL)

	

	

	______________________________________________
	________________________________________________

	(Print Name)
	(Print Name)

	

	

	 
	Title:  ___________________________________________

	

	

	______________________________________________
	By:  _______________________________________ (SEAL)

	

	

	______________________________________________
	________________________________________________

	(Print Name)
	(Print Name)

	

	

	 
	Title:  __________________________________________

	

	

	______________________________________________
	By:  ______________________________________ (SEAL)

	

	

	_______________________________________________
	________________________________________________

	(Print Name)
	(Print Name)

	

	

	 
	Title:  ___________________________________________

If Borrower is an Individual:
	
		
	WITNESS:
	 

	

	

	______________________________________________
	__________________________________________ (SEAL)

	_____________________________________________
	 

	(Print Name)
	 

Additional Co-makers:	
		
	WITNESS:
	 

	

	

	_______________________________________________
	___________________________________________ (SEAL)

	

	

	______________________________________________
	 

	(Print Name)
	 

	

	

	______________________________________________
	____________________________________________ (SEAL)

	

	

	______________________________________________
	 

	(Print Name)
	 

Exhibit 10(a)

9580219605
Account Number

SEVENTH AMENDMENT TO LOAN AGREEMENT

THIS SEVENTH AMENDMENT TO LOAN AGREEMENT ("Sixth Amendment") is made this 30th day of June, 2013, by and among Delta Natural Gas Company, Inc., a Kentucky Corporation ("Borrower") and BRANCH BANKING AND TRUST COMPANY, a North Carolina banking corporation ("Bank"), having a branch office in Lexington, Kentucky.  This Seventh Amendment amends and supplements that Loan Agreement dated October 31, 2002 (as amended, the "Loan Agreement"), among the Borrower and the Bank, and unless otherwise defined in this Seventh Amendment, capitalized terms shall have the definitions given them in the Loan Agreement. The Loan Agreement has been previously amended and such amendments include, but are not limited to, that certain Modification Agreement by and between Borrower and Bank, dated on or about (i) October 31, 2003, (ii) October 31, 2004, and (iii) August 12, 2005, and (iv) October 31, 2007, (v) June 30, 2009; and (vi) June 30, 2011.

RECITALS
A.           Pursuant to the terms and conditions of the Loan Agreement, the Bank made a Line of Credit in the original principal amount of $40,000,000 (the "Line of Credit"), evidenced by the Borrower's Promissory Note dated October 31, 2002 (the "Note"), payable to the order of the Bank and bearing interest as set forth therein, each as amended, restated, replaced, modified or extended.

B.           At the request of the Borrower, the Bank has agreed to extend the maturity of the Note until June 30, 2015, subject to the provisions of the Loan Agreement, as amended by this Seventh Amendment, and as evidenced by the Borrower’s Note Modification Agreement dated of even date herewith in the form of Exhibit A hereto (including any and all renewals, extensions, modifications and substitutions thereof, the “Restated Note”).

THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

I.   AMENDMENTS TO LOAN AGREEMENT

The Loan Agreement is amended as hereinafter described:

	
		
	1.01
	In the paragraph on page 1 of the Loan Agreement, titled “Line of Credit”, the date “October 31, 2003” is hereby deleted and the date “June 30, 2015” is inserted in lieu thereof.

	
		
	1.02  
	In Section 7.14  on page 3 of the Loan Agreement, as amended per the terms of the Modification Agreement dated August 12, 2005, titled "Fees" shall remain in effect as follows:  Payment quarterly of an unused availability fee equal to one eighth of one percent (.0125%) of unused availability of the Line of Credit.  Unused availability is calculated by subtracting the average outstanding principal balance for the previous ninety (90) days from the Committed Line Amount.  In addition, Borrower shall pay all attorneys' and related legal fees and other costs, if any, incurred by Bank in connection with the making, documenting and closing of the Line. 

II. REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants (which representations and warranties shall survive the execution hereof) to the Bank that:

2.1.   The representations and warranties made by the Borrower in Section 2 of the Loan Agreement and the other Loan Documents are true and correct on and as of the date hereof as though made on the date hereof.

2.2.   All financial statements, reports and information delivered to the Bank by the Borrower fairly represented the financial condition of the Borrower as of the dates thereof, and no material adverse change has occurred in its financial condition, business or operations since the most recently delivered of such financial statements and information.

Exhibit 10(a)

2.3.   It is in full compliance with the covenants and agreements contained in the Loan Agreement and the other Loan Documents, and no event of default exists and remains unremedied thereunder as of the date hereof.

2.4.   When duly executed and delivered by Borrower, the Loan Agreement, as amended hereby, the Restated Note and all other Loan Documents, all constitute its legal, valid and binding obligations, enforceable against it in accordance with their terms, and the Borrower hereby ratifies and affirms the Loan Agreement, as amended hereby, and the other Loan Documents described above.

III.   CONDITIONS PRECEDENT

The obligation of the Bank to make advances under the Line to the Borrower pursuant to the Loan Agreement, as amended hereby, is subject to the condition that the Bank first shall have received in a form and substance satisfactory to the Bank and its counsel the following:

3.1.   Delivery of Seventh Amendment and Restated Note.  Duly executed copies of this Seventh Amendment, the Note Modification Agreement and the Addendum to Promissory Note (Exhibit A).

3.2.   Other Assurances.   Other assurances and documents as may be required by the Bank.

IV.   MISCELLANEOUS COVENANTS

4.1.   Governing Law.  This Amendment and the Loan Documents shall all be deemed to be contracts made under and shall be construed in accordance with the laws of the Commonwealth of Kentucky.

4.2.   Continuing Effect.  Other than as expressly amended and supplemented hereby, the Loan Agreement shall remain unchanged in full force and effect.

IN WITNESS WHEREOF, the Borrower and the Bank have caused this instrument to be executed by their duly authorized officers as of the day and year first above written.

Borrower:

DELTA NATURAL GAS COMPANY, INC.

/s/W. Harvey Coggin                                                  By    /s/Glenn R. Jennings                                                       
Witness                                                                                   Name/Title: Glenn R. Jennings, President
 
Bank:

BRANCH BANKING AND TRUST COMPANY

/s/Karol Mattmiller                                                     By   /s/W. Harvey Coggin                                                                   
Witness                                                                                 Name/Title: W. Harvey Coggin, Senior Vice President

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