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DELTA NATURAL GAS COMPANY, INC. (NASDAQ:DGAS) Files An 8-K Entry into a Material Definitive Agreement

DELTA NATURAL GAS COMPANY, INC. (NASDAQ:DGAS) Files An 8-K Entry into a Material Definitive Agreement

Item 1.01

Entry into a Material Definitive Agreement
Merger Agreement
On February 20, 2017, Delta Natural Gas Company, Inc., a Kentucky
corporation (Delta), entered into an Agreement and Plan of Merger
(the Merger Agreement) with PNG Companies LLC, a Delaware limited
liability company (PNG Companies) and Drake Merger Sub Inc., a
Kentucky corporation and a wholly-owned subsidiary of PNG
Companies (Merger Sub). A copy of the Merger Agreement is
attached as Exhibit 2.1 to this report.
Merger and Cash Consideration – The Merger Agreement provides for
the merger of Merger Sub with and into Delta on the terms and
subject to the conditions set forth in the Merger Agreement (the
Merger), with Delta continuing as the surviving corporation in
the Merger and becoming a direct, wholly-owned subsidiary of PNG
Companies. At the effective time of the Merger (the Effective
Time), by virtue of the Merger and without any action on the part
of Delta, PNG Companies, Merger Sub or any holder of any shares
of common stock, $1.00 par value per share, of Delta (the Delta
Common Stock), each share of Delta Common Stock issued and
outstanding immediately prior to the Effective Time (other than
shares of Delta Common Stock that are owned by PNG Companies or
Merger Sub or any of their respective subsidiaries, in each case
immediately prior to the Effective Time) will be converted
automatically into the right to receive $30.50 in cash, without
interest (the Merger Consideration). Shares of Delta Common Stock
held by PNG Companies or Merger Sub or any of their respective
subsidiaries will not be entitled to receive the Merger
Consideration.
Treatment of Outstanding Shares of Restricted Stock. to the
Merger Agreement, each outstanding share of restricted Delta
Common Stock will be converted into a vested right to receive
cash in an amount equal to the Merger Consideration.
Treatment of Performance Share Awards. If the Effective Time
occurs on or before June 30, 2017, then each outstanding Delta
Performance Share Award (as defined in the Merger Agreement) for
which the applicable performance period ends on June 30, 2017,
shall, as of the Effective Time, be converted into a number of
restricted shares of Delta Common Stock (Delta Restricted Shares)
equal to that number of shares of Delta Restricted Shares to
which the holder of such Delta Performance Share Award would have
been entitled assuming the Targeted Performance Objective (as
defined in the applicable award agreement) is achieved. Such
Delta Restricted Shares shall immediately thereafter (1) vest in
full, (2) be deemed to constitute fully vested shares of Delta
Common Stock, and (3) be converted into a vested right to receive
cash in an amount equal to the Merger Consideration.
In addition, if the Effective Time occurs after June 30, 2017 but
before the settlement of the outstanding Delta Performance Share
Awards for the period ending on June 30, 2017, then each
outstanding Delta Performance Share Award shall, as of the
Effective Time, be converted into that number of shares of Delta
Restricted Shares to which the holder of such Delta Performance
Share Award would be entitled based on the actual Performance
Objective achieved for such performance period, as provided in
the applicable award agreement, but with such actual performance
determined after eliminating the effects of any third-party
expenses incurred as a result of the proposed Merger. Such Delta
Restricted Shares shall immediately thereafter (1) vest in full,
(2) be deemed to constitute fully vested shares of Delta Common
Stock, and (3) be converted into a vested right to receive cash
in an amount equal to the Merger Consideration.
In addition, if Delta awards new Delta Performance Share Awards
for a performance period beginning on July 1, 2017 and ending on
June 30, 2018 and if the Effective Time occurs before June 30,
2018, then each outstanding Delta Performance Share Award with a
performance period ending on June 30, 2018 shall, as of the
Effective Time, be converted into that number of Delta Restricted
Shares equal to: (i) that number of Delta Restricted Shares to
which the holder of such Delta Performance Share Award is
entitled based on the actual Performance Objective achieved for
the shortened performance period that occurs prior to the
Effective Time, as provided in the applicable award agreement,
but with such actual performance determined after eliminating the
effects of any third-party expenses incurred as a result of the
proposed Merger, multiplied by (ii) a fraction, the numerator of
which shall be the number of days that have elapsed from June 30,
2017 through and including the Effective Time, and the
denominator of which shall be
365. Such Delta Restricted Shares shall immediately thereafter
(1) vest in full, (2) be deemed to constitute fully vested shares
of Delta Common Stock, and (3) be converted into a vested right
to receive cash in an amount equal to the Merger Consideration.
Immediately prior to the Effective Time, Delta shall distribute
any accumulated dividends to the applicable holders of Delta
Restricted Shares.
Conditions to Consummation of Merger. Consummation of the Merger
is subject to the satisfaction or waiver of specified closing
conditions, including (1) the approval of the Merger by the
holders of a majority of the outstanding shares of Delta Common
Stock, (2) the receipt of regulatory approvals required to
consummate the Merger, including approval from the Public Service
Commission of Kentucky, (3) the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, (4) the absence of any law, statute,
ordinance, code, rule, regulation, ruling, decree, judgment,
injunction or order of a governmental authority that prohibits
the consummation of the Merger, and (5) other customary closing
conditions, including (a) the accuracy of each partys
representations and warranties (subject to customary materiality
qualifiers), (b) each partys compliance in all material respects
with its obligations and covenants contained in the Merger
Agreement, and (c) the absence of a material adverse effect on
Delta. In addition, the obligations of PNG Companies and Merger
Sub to consummate the Merger are subject to the required
regulatory approvals not imposing or requiring any undertakings,
terms, conditions, obligations, commitments or remedial actions
that constitute a Burdensome Condition (as defined in the Merger
Agreement).
Representations and Warranties. The Merger Agreement also
contains customary representations, warranties and covenants of
both Delta and PNG Companies. These covenants include, among
others, an obligation on behalf of Delta to operate its business
in the ordinary course until the Merger is consummated, subject
to certain exceptions. Delta has made certain additional
customary covenants, including, among others, subject to certain
exceptions, (1) a covenant to cause a meeting of Deltas
shareholders to be held to consider approval of the Merger
Agreement, (2) a covenant limiting any increase in the
declaration of any quarterly dividends by more than $0.01 per
quarter above the current quarterly dividend, and (3) a customary
non-solicitation covenant prohibiting Delta from soliciting,
providing non-public information or entering into discussions or
negotiations concerning proposals relating to alternative
business combination transactions, except as permitted under the
Merger Agreement. In addition, the parties are required to use
reasonable best efforts to obtain any required regulatory
approvals.
Termination of Merger Agreement; Termination Fees. The Merger
Agreement may be terminated by each of Delta and PNG Companies
under certain circumstances, including if the Merger is not
consummated by December 1, 2017 (subject to a three-month
extension by either party, if all of the conditions to closing,
other than the conditions related to obtaining regulatory
approvals, the absence of a law or injunction preventing the
consummation of the Merger and the absence of a Burdensome
Condition (as defined in the Merger Agreement) imposed in
connection with any required regulatory approval, have been
satisfied). The Merger Agreement also provides for certain
additional termination rights for both Delta and PNG Companies.
Upon termination of the Merger Agreement under certain specified
circumstances, including (a) the Delta Boards withdrawal of its
recommendation of the Merger Agreement and the Merger under
certain circumstances in order to enter into another definitive
agreement with respect to certain business combinations (other
than the Merger Agreement), or (b) termination by PNG Companies
following a withdrawal by Deltas Board of its recommendation of
the Merger Agreement, Delta will be required to pay PNG Companies
a termination fee of $4,340,000. In addition, if the Merger
Agreement is terminated under certain circumstances due to the
breach by PNG Companies of its obligations in respect of
obtaining regulatory approvals PNG Companies will be required to
pay Delta a termination fee of $4,340,000.
Merger Agreement Incorporated By Reference. The foregoing
description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached hereto as Exhibit
2.1 and incorporated herein by reference.
Cautionary Statement
The Merger Agreement has been included in this report to provide
investors with information regarding its terms. Except for the
status of such agreement as the contractual document that
establishes and governs the legal relations among the parties
thereto with respect to the transactions described in this
report, the Merger Agreement is not intended to be a source of
factual, business or operational information about the parties
thereto.
The representations, warranties, covenants and agreements made by
the parties to the Merger Agreement are made as of specific dates
and are qualified and limited, including by information in
confidential disclosure schedules that the parties exchanged in
connection with the execution of the Merger Agreement. Moreover,
certain of the representations and warranties are subject to a
contractual standard of materiality that may be different from
what may be viewed as material to shareholders. Representations
and warranties may be used as a tool to allocate risks between
the parties to the Merger Agreement, including where the parties
do not have complete knowledge of all facts. Investors are not
third-party beneficiaries under the Merger Agreement and should
not rely on the representations, warranties and covenants or any
descriptions thereof as characterizations of the actual state of
facts or condition of Delta, PNG Companies or any of their
respective affiliates. Moreover, information concerning the
subject matter of the representations and warranties may change
after the date of the Merger Agreement, which subsequent
information may or may not be fully reflected in Deltas public
disclosures.
Item 8.01
Other Events
On February 21, 2017, Delta and Peoples Natural Gas, an affiliate
of PNG Companies issued a joint press release announcing the
signing of the Merger Agreement. A copy of the press release is
attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
Additional Information About the Merger and Where to Find It
This communication does not constitute a solicitation of any vote
or approval. In connection with the proposed Merger, Delta
intends to file with the SEC and mail to its shareholders a proxy
statement in connection with the proposed Merger. WE URGE OUR
DELTA SHAREHOLDERS AND OTHER INTERESTED PARTIES TO READ THE PROXY
STATEMENT REGARDING THE MERGER WHEN IT BECOMES AVAILABLE AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY
AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION.>The proxy statement will be
mailed to Delta shareholders prior to the shareholder meeting,
which has not yet been scheduled. In addition a copy of the proxy
statement and other related documents filed by Delta with the
SEC, may be obtained for free at the SECs website at
http://www.sec.gov. Investors and shareholders may also obtain
free copies of the documents filed with the SEC by Delta at
Deltas website at http://www.delta.com>(which website is not
incorporated herein by reference) or by contacting John Brown, by
telephone at (859) 744-6171 or by writing him at 3617 Lexington
Road, Winchester, KY 40391.
Participants in the Solicitation
Delta, PNG Companies and their respective executive officers and
directors and certain other members of management and employees
may be deemed to be participants in the solicitation of proxies
from the shareholders of Delta in connection with the proposed
Merger. Information about the directors and executive officers of
Delta is set forth in the proxy statement for Delta 2016 annual
meeting of shareholders, as filed with the SEC on September 22,
2016. Information about any other persons who may, under the
rules of the SEC, be considered participants in the solicitation
of Deltas shareholders in connection with the proposed Merger
will be included in the proxy statement. You can obtain free
copies of these documents from the SEC or Delta using the website
information above.
Forward-Looking Statements
Matters set forth in this filing contain certain forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. You can generally identify
forward-looking statements by the use of forward-looking
terminology such as anticipate, believe, continue, could,
estimate, expect, explore, evaluate, intend, may, might, plan,
potential, predict, project, seek, should, or will, or the
negative thereof or other variations thereon or comparable
terminology. These forward-looking statements are only
predictions and involve known and unknown risks and
uncertainties, many of which are beyond Deltas and PNG Companies
control. These statements include, but are not limited to,
certain plans, expectations, goals, and projections of Delta, and
include statements about the benefits of the proposed Merger
between Delta and PNG Companies, which are subject to numerous
assumptions, risks, and uncertainties. Actual results could
differ materially from those contained or implied by such
statements for a variety of factors including: the businesses of
Delta and PNG Companies may not be integrated successfully or
such integration may take longer to accomplish than expected;
disruption from the proposed Merger may make it more difficult to
maintain relationships with clients, associates, or suppliers;
the required governmental approvals of the proposed Merger may
not be obtained on the expected terms and schedule; Deltas
shareholders may not approve the proposed Merger; changes in
economic conditions; movements in interest rates; competitive
pressures on product pricing and services; success and timing of
other business strategies; the nature, extent, and timing of
governmental actions and reforms; and extended disruption of
vital infrastructure; and other factors described in Deltas 2016
Annual Report on Form 10-K, and documents subsequently filed by
Delta with the Securities and Exchange Commission. All
forward-looking statements included in this filing are based on
information available at the time of the release. Delta does not
assume any obligation to update any forward-looking statement.
Item 9.01
Financial Statements and Exhibits
(d) Exhibits
Exhibit No.
2.1
Agreement and Plan of Merger, dated as of February 20,
2017, among Delta Natural Gas Company, Inc., PNG
Companies LLC and Drake Merger Sub, Inc.*
99.1
Joint press release issued by Delta Natural Gas
Company, Inc. and Peoples Natural Gas, an affiliate of
PNG Companies LLC, dated February 21, 2017, announcing
the execution of the Agreement and Plan of Merger.
*
Schedules have been omitted to Item 601(b)(2) of
Regulation S-K. Delta Natural Gas Company, Inc. will
furnish the omitted schedules to the Securities and
Exchange Commission upon request by the Commission.

About DELTA NATURAL GAS COMPANY, INC. (NASDAQ:DGAS)
Delta Natural Gas Company, Inc. distributes or transports natural gas to approximately 36,000 customers. The Company’s segments include regulated segment and non-regulated segment. Through regulated segment, the Company distributes natural gas to its retail customers in approximately 23 rural counties. Its three service areas are Nicholasville, Corbin and Berea, Kentucky. The non-regulated segment includes the Company’s three subsidiaries, Delta Resources, Inc. and Delgasco, Inc. (Delgasco), which purchase natural gas in the open market, including natural gas from Kentucky producers, and Enpro, Inc. (Enpro), which produces natural gas that is sold to Delgasco for resale in the open market. The Company owns approximately 2,600 miles of natural gas gathering, transmission, distribution and storage lines. These lines range in size over 12 inches in diameter. It also holds leases for the storage of natural gas under approximately 8,000 acres located in Bell County, Kentucky. DELTA NATURAL GAS COMPANY, INC. (NASDAQ:DGAS) Recent Trading Information
DELTA NATURAL GAS COMPANY, INC. (NASDAQ:DGAS) closed its last trading session up +0.91 at 26.15 with 6,972 shares trading hands.

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