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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under § 240.14a-12

Montage Resources Corporation

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

 

   

 

  (2)  

Aggregate number of securities to which transaction applies:

 

 

   

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

   

 

  (4)  

Proposed maximum aggregate value of transaction:

 

 

   

 

  (5)   Total fee paid:
        
   

 

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

 

   

 

  (2)  

Form, Schedule or Registration Statement No.:

 

 

   

 

  (3)  

Filing Party:

 

 

   

 

  (4)  

Date Filed:

 

 

   

 

 

 

 


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LOGO

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

Dear Stockholder:

On August 12, 2020, Southwestern Energy Company (“Southwestern”) and Montage Resources Corporation (“Montage”) entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), pursuant to which they agreed to combine in an all-stock merger transaction. Pursuant to the Merger Agreement, Montage will merge with and into Southwestern, with Southwestern continuing as the surviving corporation (the “merger”). Following completion of the merger, the combined company will retain the Southwestern Energy Company name and will be headquartered in Spring, Texas.

Upon successful completion of the merger, each issued and outstanding share of Montage common stock, par value $0.01 per share (“Montage Common Stock”), will be converted into the right to receive 1.8656 shares (the “Exchange Ratio”) of Southwestern common stock, par value $0.01 per share (“Southwestern Common Stock”). The Exchange Ratio is fixed and will not be adjusted for changes in the market price of either Southwestern Common Stock or Montage Common Stock between the signing of the Merger Agreement and the effective time of the merger. Southwestern stockholders will continue to own their existing shares of Southwestern Common Stock. Based on the Exchange Ratio, the number of outstanding shares of Montage Common Stock (plus the number of shares underlying outstanding Montage restricted stock units and performance units) and the number of outstanding shares of Southwestern Common Stock (on a fully diluted basis), it is estimated that Southwestern stockholders will own approximately 90% and Montage stockholders will own approximately 10% of the issued and outstanding shares of Southwestern Common Stock on a fully diluted basis immediately following the effective time of the merger. Southwestern Common Stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “SWN.” Montage Common Stock is traded on the NYSE under the symbol “MR.” The common stock of the combined company will remain listed on the NYSE under the symbol “SWN.” We encourage you to obtain current market quotations for the common stock of both Southwestern and Montage.

Contemporaneously with the execution of the Merger Agreement, Southwestern and certain Montage stockholders affiliated with EnCap Investments L.P. (collectively, “EnCap”) entered into a support agreement which provides that, among other things, those stockholders will vote all of the shares of Montage Common Stock held by EnCap as of such date (i) in favor of the adoption of the Merger Agreement, (ii) against any alternative acquisition proposal, and (iii) against any amendment of Montage’s certificate of incorporation or bylaws or other proposal that would delay, impede, frustrate, prevent or nullify the merger or Merger Agreement or change in any manner the voting rights of any outstanding stock of Montage. As of August 12, 2020, EnCap was the beneficial owner of approximately 39.0% of the outstanding shares of Montage.

Montage will hold a special meeting of its stockholders in connection with the proposed merger (the “Montage Special Meeting”). At the Montage Special Meeting, Montage stockholders will be asked to consider and vote on proposals to (1) adopt the Merger Agreement (the “Merger Proposal”), (2) approve, on an advisory (non-binding) basis, the payments that will or may be paid to Montage’s named executive officers in connection with the merger, and (3) approve the adjournment of the Montage Special Meeting to solicit additional proxies if there are not sufficient votes cast at the Montage Special Meeting to approve the Merger Proposal. The Montage board unanimously recommends that Montage stockholders vote “FOR” each of the proposals to be considered at the Montage Special Meeting.

We cannot complete the merger unless the Montage stockholders approve the Merger Proposal. Your vote on these matters is very important regardless of the number of shares you own. Whether or not you plan to attend the Montage Special Meeting, please promptly mark, sign and date the accompanying proxy card and return it in the enclosed postage-paid envelope or authorize the individuals named on your proxy card to vote your shares by calling the toll-free telephone number or by using the Internet as described in the instructions included with your proxy card.

The accompanying proxy statement/prospectus provides you with important information about the Montage Special Meeting, the merger, and each of the proposals. We encourage you to read the entire document carefully, in particular the “Risk Factors” section beginning on page 23, for a discussion of risks relating to the merger and the combined company following the merger.

We look forward to the successful completion of the merger.

Sincerely,

 

LOGO

John K. Reinhart

President and Chief Executive Officer

Montage Resources Corporation

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger or the Southwestern Common Stock to be issued in the merger or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated October 6, 2020 and is first being mailed to the stockholders of Montage on or about October 8, 2020.


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LOGO

Montage Resources Corporation

122 W. John Carpenter Freeway

Suite 300

Irving, Texas 75039

(469) 444-1647

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON NOVEMBER 12, 2020

To the Stockholders of Montage Resources Corporation:

Notice is hereby given that Montage Resources Corporation (“Montage”) will hold a special meeting of its stockholders (the “Montage Special Meeting”) at Montage’s principal executive office building located at 122 West John Carpenter Freeway, 1st Floor Conference Center, Irving, Texas 75039, on November 12, 2020, beginning at 10:00 a.m. Central Time. At the Montage Special Meeting, Montage stockholders will be asked:

 

  1.

to adopt the Agreement and Plan of Merger, dated as of August 12, 2020 (as it may be amended from time to time, the “Merger Agreement”), a copy of which is attached as Annex A to the proxy statement/prospectus of which this notice is a part, by and between Southwestern Energy Company (“Southwestern”) and Montage (the “Merger Proposal”);

 

  2.

to approve, on an advisory (non-binding) basis, the payments that will or may be paid to Montage’s named executive officers in connection with the merger (the “Advisory Compensation Proposal”); and

 

  3.

to approve the adjournment of the Montage Special Meeting to solicit additional proxies if there are not sufficient votes at the time of the Montage Special Meeting to approve the Merger Proposal or to ensure that any supplement or amendment to the accompanying proxy statement/prospectus is timely provided to Montage stockholders (the “Adjournment Proposal”).

Montage will transact no other business at the Montage Special Meeting except such business as may properly be brought before the Montage Special Meeting or any adjournment or postponement thereof. The accompanying proxy statement/prospectus, including the Merger Agreement attached thereto as Annex A, contains further information with respect to these matters.

Only holders of record of shares of Montage’s common stock, par value $0.01 per share (“Montage Common Stock”) at the close of business on October 5, 2020, the record date for voting at the Montage Special Meeting (the “Record Date”), are entitled to notice of and to vote at the Montage Special Meeting and any adjournments or postponements thereof.

The board of directors of Montage (the “Montage Board”) has unanimously adopted, approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the merger. The Montage Board unanimously recommends that Montage stockholders vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.

Your vote is very important regardless of the number of shares of Montage Common Stock you own. Montage cannot complete the transactions contemplated by the Merger Agreement, including the merger, without stockholder approval of the Merger Proposal. Approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Montage Common Stock entitled to vote on the Merger Proposal.


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Whether or not you plan to attend the Montage Special Meeting, Montage urges you to please promptly mark, sign and date the accompanying proxy card and return it in the enclosed postage-paid envelope, call the toll-free telephone number or use the Internet as described in the instructions included with the proxy card, so that your shares may be represented and voted at the Montage Special Meeting. If you hold your shares through a broker, bank or other nominee in “street name” (instead of as a registered holder) and you wish to vote at the Montage Special Meeting, you must obtain a legal proxy from your bank, broker or other nominee in order to vote at the Montage Special Meeting.

If you have any questions about the merger or about how to vote or direct a vote in respect of your shares of Montage Common Stock, please contact Montage at (469) 444-1647 or write to Montage Resources Corporation, Attn: Corporate Secretary, 122 W. John Carpenter Freeway, Suite 300, Irving, Texas 75039.

 

By Order of the Board of Directors,

LOGO

Paul M. Johnston

Executive Vice President, General

Counsel and Corporate Secretary

Irving, Texas

 

Your vote is very important. Montage stockholders are requested to complete, date, sign and return the enclosed proxy card in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes electronically through the Internet or by telephone.


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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Southwestern, constitutes a prospectus of Southwestern under Section 5 of the Securities Act of 1933 (as amended, the “Securities Act”) with respect to the shares of Southwestern Common Stock to be issued to Montage stockholders pursuant to the Merger Agreement. This document also constitutes a proxy statement of Montage under Section 14(a) of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”). It also constitutes a notice of meeting with respect to the Montage Special Meeting.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. Southwestern and Montage have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference into this proxy statement/prospectus. This proxy statement/prospectus is dated October 6, 2020. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to Montage stockholders nor the issuance by Southwestern of shares of Southwestern Common Stock pursuant to the Merger Agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Southwestern has supplied all information contained in this proxy statement/prospectus relating to Southwestern, and Montage has supplied all such information relating to Montage. Southwestern and Montage have both contributed to the information related to the merger contained in this proxy statement/prospectus.

All references in this proxy statement/prospectus to “Southwestern” refer to Southwestern Energy Company, a Delaware corporation. All references in this proxy statement/prospectus to “Montage” refer to Montage Resources Corporation, a Delaware corporation. All references in this proxy statement/prospectus to “Southwestern Common Stock” refer to the common stock of Southwestern, par value $0.01 per share, and all references in this proxy statement/prospectus to “Montage Common Stock” refer to the common stock of Montage, par value $0.01 per share. All references in this proxy statement/prospectus to “Merger Agreement” refer to the Agreement and Plan of Merger, dated as of August 12, 2020, by and between Southwestern and Montage, as it may be amended, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated by reference herein. All references in this proxy statement/prospectus to the “Exchange Ratio” refer to the ratio of 1.8656 shares of Southwestern Common Stock per outstanding share of Montage Common Stock that will be issued to Montage stockholders in connection with the merger.

 

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ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about Southwestern and Montage from other documents that are not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see “Where You Can Find More Information” beginning on page 185.

You can obtain any of the documents incorporated by reference into this proxy statement/prospectus free of charge by requesting them by telephone at (832) 796-4068 or in writing at the following address: Investor Relations, 10000 Energy Drive, Spring, Texas 77389.

To receive timely delivery of the documents in advance of the Montage Special Meeting, you should make your request no later than November 4, 2020, which is five business days before the Montage Special Meeting.

You may also obtain any of the documents incorporated by reference into this proxy statement/prospectus without charge through the SEC’s website at www.sec.gov. In addition, you may obtain copies of documents filed by Southwestern with the SEC by accessing Southwestern’s website at https://ir.swn.com/corporateprofile/sec-filings. You may also obtain copies of documents filed by Montage with the SEC by accessing Montage’s website at https://ir.montageresources.com/financial-information/sec-filings.

We are not incorporating the contents of the websites of the SEC, Southwestern, Montage or any other entity into this proxy statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this proxy statement/prospectus at these websites only for your convenience.

 

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     page  

QUESTIONS AND ANSWERS

     vii  

SUMMARY

     1  

The Parties to the Merger

     1  

The Merger and the Merger Agreement

     1  

Exchange Ratio

     1  

The Montage Special Meeting

     2  

EnCap Support Agreement

     3  

Recommendation of the Montage Board and Reasons for the Merger

     3  

Opinion of Montage’s Financial Advisor

     3  

Board of Directors and Management of Southwestern Following the Merger

     4  

Interests of Montage’s Directors and Executive Officers in the Merger

     4  

Treatment of Existing Montage Long-Term Incentive Awards in the Merger

     5  

Certain Beneficial Owners of Montage Common Stock

     5  

Ownership of Southwestern after the Merger

     5  

Conditions to the Completion of the Merger

     6  

No Solicitation of Acquisition Proposals

     7  

No Change of Recommendation

     8  

Termination of the Merger Agreement

     9  

Termination Fee

     10  

Accounting Treatment

     11  

Material U.S. Federal Income Tax Consequences of the Merger

     11  

Fractional Shares

     12  

Comparison of Stockholders’ Rights

     12  

Listing of Southwestern Common Stock; Delisting and Deregistration of Montage Common Stock

     12  

Regulatory Matters

     12  

No Appraisal Rights

     12  

Legal Proceedings Regarding the Merger

     12  

Risk Factors

     13  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SOUTHWESTERN

     14  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MONTAGE

     16  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     18  

SUMMARY UNAUDITED PRO FORMA COMBINED OIL, NATURAL GAS AND NGL RESERVE INFORMATION AND PRODUCTION DATA

     19  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE INFORMATION

     20  

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

     21  

Market Price

     21  

Dividend Information

     22  

RISK FACTORS

     23  

Risks Relating to the Merger

     23  

Risks Relating to the Combined Company

     30  

Other Risk Factors

     40  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     41  

THE PARTIES TO THE MERGER

     43  

Southwestern Energy Company

     43  

Montage Resources Corporation

     43  

 

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THE MERGER

     44  

Transaction Structure

     44  

Consideration to Montage Stockholders

     44  

Background of the Merger

     44  

Southwestern’s Rationale for the Merger

     60  

Recommendation of the Montage Board and Reasons for the Merger

     60  

Opinion of Montage’s Financial Advisor

     65  

Certain Unaudited Forecasted Financial Information

     79  

Board of Directors and Executive Officers After Completion of the Merger

     83  

Headquarters

     83  

Treatment of Indebtedness

     83  

Interests of Montage’s Directors and Executive Officers in the Merger

     84  

Indemnification and Insurance

     90  

Dividend Policy

     91  

Listing of Southwestern Common Stock; Delisting and Deregistration of Montage Common Stock

     91  

Accounting Treatment of the Merger

     91  

Regulatory Matters

     92  

No Appraisal Rights

     92  

Legal Proceedings Regarding the Merger

     92  

THE MERGER AGREEMENT

     94  

Explanatory Note Regarding the Merger Agreement

     94  

Structure of the Merger

     94  

Completion and Effectiveness of the Merger

     95  

Merger Consideration

     95  

Treatment of Montage Equity Awards

     96  

Board of Directors and Executive Officers After Completion of the Merger

     97  

Exchange of Shares

     97  

Termination of the Exchange Fund

     98  

Withholding Rights

     99  

Stock Transfer Books

     99  

Adjustments to Exchange Ratio

     99  

Representations and Warranties

     99  

Covenants

     102  

No Change of Recommendation

     108  

Access to Information and Properties

     109  

Further Action; Reasonable Efforts

     110  

Proxy Statement / Form S-4; Stockholders’ Meeting

     112  

Notification of Certain Matters

     113  

Directors’ and Officers’ Insurance and Indemnification

     113  

Publicity

     114  

Comfort Letters; Consent to Use of Financial Statements

     115  

Stock Exchange Listing

     115  

Employee Matters

     115  

Certain Tax Matters

     116  

Confidentiality Agreement

     117  

Takeover Laws

     117  

Section 16 Matters

     117  

Transportation Agreements

     117  

 

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Hedging Matters

     118  

WARN Act Compliance

     118  

Delay Rentals/Lease Extensions

     118  

Certain Disposition Activities

     118  

Conditions to the Completion of the Merger

     119  

Termination of the Merger Agreement

     120  

Termination Fee

     121  

Amendment; Waiver

     122  

Specific Performance

     122  

Third-Party Beneficiaries

     122  

EnCap Support Agreement

     123  

MONTAGE SPECIAL MEETING

     124  

General

     124  

Date, Time and Place

     124  

Purpose of the Montage Special Meeting

     124  

Recommendation of the Montage Board

     124  

Record Date; Stockholders Entitled to Vote

     125  

Quorum; Adjournment

     125  

Required Vote

     125  

Abstentions and Broker Non-Votes

     126  

Failure to Vote

     126  

Voting by Montage’s Directors and Executive Officers

     126  

Voting at the Montage Special Meeting

     127  

Revocation of Proxies

     128  

Solicitation of Proxies

     128  

Tabulation of Votes

     128  

Appraisal Rights

     128  

Householding of Montage Special Meeting Materials

     128  

Questions

     128  

MONTAGE PROPOSAL 1—THE MERGER PROPOSAL

     129  

MONTAGE PROPOSAL 2—THE ADVISORY COMPENSATION PROPOSAL

     130  

MONTAGE PROPOSAL 3—THE ADJOURNMENT PROPOSAL

     131  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     132  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     149  

U.S. Federal Income Tax Consequences of the Merger Generally

     149  

U.S. Federal Income Tax Consequences to Southwestern and Montage

     150  

U.S. Federal Income Tax Consequences to U.S. Holders

     150  

DESCRIPTION OF SOUTHWESTERN CAPITAL STOCK

     152  

Common Stock

     152  

Preferred Stock

     153  

Anti-Takeover Effects of Provisions of Southwestern’s Certificate of Incorporation and Bylaws and Delaware Law

     153  

Liability and Indemnification of Directors and Officers

     154  

COMPARISON OF STOCKHOLDERS’ RIGHTS

     156  

CERTAIN BENEFICIAL OWNERS OF MONTAGE COMMON STOCK

     179  

 

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VALIDITY OF COMMON STOCK

     181  

LEGAL MATTERS

     181  

EXPERTS

     181  

Southwestern

     181  

Montage

     181  

STOCKHOLDER PROPOSALS

     182  

Southwestern

     182  

Montage

     182  

HOUSEHOLDING OF PROXY MATERIALS

     184  

WHERE YOU CAN FIND MORE INFORMATION

     185  

Southwestern SEC Filings

     185  

Montage SEC Filings

     185  

ANNEX A—MERGER AGREEMENT

     A-1  

ANNEX B—OPINION OF MONTAGE FINANCIAL ADVISOR

     B-1  

ANNEX C—ENCAP SUPPORT AGREEMENT

     C-1  

 

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QUESTIONS AND ANSWERS

The following questions and answers briefly address some commonly asked questions about the Montage Special Meeting and the merger. They may not include all the information that is important to Montage stockholders. Montage stockholders should carefully read this entire proxy statement/prospectus, including the annexes and the other documents referred to herein.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

This proxy statement/prospectus serves as a proxy statement for the Montage Special Meeting.

You are receiving this proxy statement/prospectus because Southwestern and Montage have agreed to combine in an all-stock merger transaction. The combined company will retain the Southwestern Energy Company corporate name and the company’s listing will remain on the NYSE under the ticker “SWN.” As referred to in this proxy statement/prospectus, the “Effective Time” means the date and time when the certificate of merger has been duly filed with the Secretary of State of the State of Delaware, or such later date and time as may be agreed by Southwestern and Montage and specified in the certificate of merger. The Merger Agreement governs the terms of the merger of Southwestern and Montage and is attached to this proxy statement/prospectus as Annex A.

In order to complete the merger, among other things, Montage stockholders must adopt the Merger Agreement in accordance with the General Corporation Law of the State of Delaware (the “DGCL”).

This proxy statement/prospectus serves as both the proxy statement through which Montage will solicit proxies to obtain the necessary stockholder approvals for the merger and the prospectus by which Southwestern will issue shares of Southwestern Common Stock as consideration in the merger.

This proxy statement/prospectus, which you should carefully read in its entirety, contains important information about the Montage Special Meeting, the merger and other matters.

 

Q:

What will happen in the merger?

 

A:

The Merger Agreement sets forth the terms and conditions of the proposed merger of Southwestern and Montage. Under the Merger Agreement, Montage will merge with and into Southwestern, with Southwestern continuing as the surviving corporation (the “merger”).

The Merger Agreement is attached to this proxy statement/prospectus as Annex A. For a more complete discussion of the proposed merger, its effects and the other transactions contemplated by the Merger Agreement, please see “The Merger” elsewhere in this proxy statement/prospectus.

 

Q:

What am I being asked to vote on?

 

A:

Montage is holding a special meeting of its stockholders to vote on the adoption of the Merger Agreement, pursuant to which each outstanding share of Montage Common Stock will be cancelled and converted into the right to receive 1.8656 shares of Southwestern Common Stock.

Montage stockholders will also be asked to approve, on an advisory (non-binding) basis, the payments that will or may be paid to Montage’s named executive officers in connection with the merger.

Montage stockholders will also be asked to approve the proposal to adjourn the Montage Special Meeting to solicit additional proxies if there are not sufficient votes at the time of the Montage Special Meeting to approve the Merger Proposal or to ensure that any supplement or amendment to this proxy statement/prospectus is timely provided to Montage stockholders.

Your vote is very important, regardless of the number of shares that you own. The approval of the Merger Proposal is a condition to the obligations of Southwestern and Montage to complete the merger.

 

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Q:

When and where will the Montage Special Meeting take place?

 

A:

The Montage Special Meeting will be held at Montage’s principal executive office building located at 122 West John Carpenter Freeway, 1st Floor Conference Center, Irving, Texas 75039, beginning at 10:00 a.m., Central Time, on November 12, 2020.

Even if you plan to attend the Montage Special Meeting, Montage recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to or become unable to attend the Montage Special Meeting. Shares held in “street name” may be voted by you at the Montage Special Meeting only if you obtain a signed legal proxy from your bank, broker or other nominee giving you the right to directly vote the shares.

 

Q:

How important is my vote?

 

A:

Your vote “FOR” each proposal presented at the Montage Special Meeting is very important, and you are encouraged to submit a proxy as soon as possible. The merger between Southwestern and Montage cannot be completed without the approval of the Merger Proposal by the Montage stockholders.

 

Q:

What constitutes a quorum, and what vote is required to approve each proposal at the Montage Special Meeting?

 

A:

The holders of a majority of the outstanding shares of Montage Common Stock entitled to vote at the Montage Special Meeting must be represented at the Montage Special Meeting in person or by proxy in order to constitute a quorum.

Approval of the Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of Montage Common Stock entitled to vote thereon. Accordingly, a Montage stockholder’s abstention from voting or the failure of a Montage stockholder to vote (including the failure of a Montage stockholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to that bank, broker or other nominee) will have the same effect as a vote “against” the Merger Proposal.

Approval of the Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of Montage Common Stock present in person or represented by proxy at the Montage Special Meeting and entitled to vote thereat. Assuming a quorum is present, approval of the Advisory Compensation Proposal requires the affirmative vote of holders of a majority of the shares of Montage Common Stock present in person or represented by proxy at the Montage Special Meeting and entitled to vote thereon. Accordingly, with respect to a Montage stockholder who is present in person or represented by proxy at the Montage Special Meeting, a Montage stockholder’s abstention from voting or the failure of a Montage stockholder to vote will have the same effect as a vote “ against” the Adjournment Proposal and the Advisory Compensation Proposal. The failure of a Montage stockholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to the bank, broker or other nominee will have no effect on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal. However, if a Montage stockholder instructs its bank, broker or other nominee regarding some but not all of the proposals, such broker non-vote will have the same effect as voting “against” the Adjournment Proposal but will have no effect on the outcome of the Advisory Compensation Proposal. Regardless of whether there is a quorum, the chairman of the Montage Special Meeting may also adjourn the Montage Special Meeting.

 

Q:

Are there any stockholders who have already committed to voting in favor of any of the proposals?

 

A:

Yes. Contemporaneously with the execution of the Merger Agreement, Southwestern entered into a support agreement (the “EnCap Support Agreement”) (a copy of which is attached as Annex C to this proxy statement/prospectus) with certain Montage stockholders affiliated with EnCap Investments L.P. pursuant to which EnCap agreed, among other things, subject to the terms and conditions thereof, to vote all of the

 

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  shares of Montage Common Stock held by EnCap as of such date in favor of the Merger Proposal at the Montage Special Meeting. For more information, please see “The Merger Agreement—EnCap Support Agreement.”

 

Q:

What will Montage stockholders receive if the merger is completed?

 

A:

If the merger is completed, each share of Montage Common Stock outstanding at the Effective Time will be converted into the right to receive 1.8656 shares of Southwestern Common Stock. Each Montage stockholder will receive cash in lieu of any fractional shares of Southwestern Common Stock that such stockholder would otherwise be entitled to receive in the merger.

Because Southwestern will issue a fixed number of shares of Southwestern Common Stock in exchange for each share of Montage Common Stock, the value of the merger consideration that Montage stockholders will receive in the merger will depend on the market price of shares of Southwestern Common Stock at the Effective Time. The market price of shares of Southwestern Common Stock that Montage stockholders receive at the Effective Time could be greater than, less than or the same as the market price of shares of Southwestern Common Stock on the date of this proxy statement/prospectus or at the time of the Montage Special Meeting. Accordingly, you should obtain current market quotations for Southwestern Common Stock and Montage Common Stock before deciding how to vote with respect to the Merger Proposal. Southwestern Common Stock is traded on the NYSE under the symbol “SWN.” Montage Common Stock is traded on the NYSE under the symbol “MR.” The common stock of the combined company will continue to trade on the NYSE under the symbol “SWN.”

For more information regarding the merger consideration to be received by Montage stockholders if the merger is completed, please see “The Merger Agreement—Merger Consideration.”

 

Q:

Who will own Southwestern immediately following the merger?

 

A:

Southwestern and Montage estimate that upon completion of the merger, current Southwestern stockholders, collectively, will own approximately 90% of the outstanding shares of Southwestern Common Stock, and current Montage stockholders, collectively, will own approximately 10% of the outstanding Southwestern Common Stock (in each case based on fully diluted shares outstanding of each company).

 

Q:

Will Montage equity and other long-term incentive awards be affected by the merger?

 

A:

Upon completion of the merger, outstanding Montage equity awards will be affected as described below.

At the Effective Time, each Montage RSU Award (as defined in “The Merger Agreement—Treatment of Montage Equity Awards”) that is outstanding immediately prior to the Effective Time will be converted into an Assumed RSU Award (as defined in “The Merger—Interests of Montage’s Directors and Executive Officers in the Merger”), with respect to a number of shares of Southwestern Common Stock equal to the product obtained by multiplying (i) the applicable number of shares of Montage Common Stock subject to such Montage RSU Award by (ii) the Exchange Ratio. For each holder of a Montage RSU Award, any fractional shares resulting from the conversion of his or her Montage RSU Awards will be rounded to the nearest whole share. Except as otherwise provided in the Merger Agreement, each Assumed RSU Award will continue to have, and will be subject to, the same terms and conditions (including time vesting conditions and, if applicable, any accelerated vesting in connection with a termination of service) that applied to the underlying Montage RSU Award immediately prior to the Effective Time, except that Southwestern (x) may modify terms rendered inoperative by reason of the transactions contemplated by the Merger Agreement or for such other immaterial administrative or ministerial changes as in the reasonable and good faith determination of Southwestern are appropriate to effectuate the administration of the Assumed RSU Award, and (y) may settle the Assumed RSU Award upon vesting in shares of Southwestern Common Stock or cash.

 

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The Merger Agreement provides that Montage shall take all necessary and appropriate actions so that, prior to the Effective Time, each then outstanding Montage PSU Award (as defined in “The Merger Agreement—Treatment of Montage Equity Awards”) will be terminated and vested in accordance with its terms. Southwestern will settle such Montage PSU Awards in Southwestern Common Stock (determined in the same manner as described above for converting Montage RSU Awards into Assumed RSU Awards) or cash.

The Merger Agreement further provides that Montage shall take all necessary and appropriate actions so that prior to the Effective Time each Montage Restricted Stock Award (as defined in “The Merger Agreement—Treatment of Montage Equity Awards”) granted to a Montage non-employee director shall vest. Shares of Montage Common Stock attributable to such Montage Restricted Stock Awards will be treated in the manner as applies to shares of Montage Common Stock, as set forth in the Merger Agreement, at the Effective Time.

 

Q:

What will the composition of the board of directors and management of Southwestern be following completion of the merger?

 

A:

The officers of Southwestern immediately prior to the Effective Time shall, from and after the Effective Time, be the officers of the surviving corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

The directors of Southwestern immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the surviving corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with Southwestern’s certificate of incorporation and bylaws.

 

Q:

How does the Montage Board recommend that I vote at the Montage Special Meeting?

 

A:

The Montage board of directors (the “Montage Board”) unanimously recommends that you vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal. For additional information regarding the recommendation of the Montage Board, please see “The Merger—Recommendation of the Montage Board and Reasons for the Merger.”

 

Q:

Who is entitled to vote at the Montage Special Meeting?

 

A:

The Record Date for the Montage Special Meeting is October 5, 2020. All holders of shares of Montage Common Stock who held shares at the close of business on the Record Date are entitled to receive notice of, and to vote at, the Montage Special Meeting. Each such holder of Montage Common Stock is entitled to cast one vote on each matter properly brought before the Montage Special Meeting for each share of Montage Common Stock that such holder owned of record as of the Record Date. Please see “The Montage Special Meeting—Voting at the Montage Special Meeting” for instructions on how to vote your shares without attending the Montage Special Meeting.

 

Q:

What is a proxy?

 

A:

A stockholder’s legal designation of another person to vote shares of such stockholder’s common stock at a special or annual meeting is referred to as a proxy. The document used to designate a proxy to vote your shares of common stock is called a proxy card.

 

Q:

How many votes do I have for the Montage Special Meeting?

 

A:

Each Montage stockholder is entitled to one vote for each share of Montage Common Stock held of record as of the close of business on the Record Date for each proposal. As of the close of business on September 30, 2020, the latest practicable date prior to the date of this proxy statement/prospectus, there were 36,022,393 outstanding shares of Montage Common Stock.

 

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Q:

Where will Southwestern Common Stock be publicly traded following consummation of the merger?

 

A:

The Southwestern Common Stock will continue to trade on the NYSE under the symbol “SWN” following consummation of the merger.

 

Q:

What happens if the merger is not completed?

 

A:

If the Merger Proposal is not approved or if the merger is not completed for any other reason, Montage stockholders will not receive any merger consideration for their shares of Montage Common Stock in connection with the merger. Instead, Southwestern and Montage will each remain independent public companies, the Southwestern Common Stock will continue to be listed and traded on the NYSE, and the Montage Common Stock will continue to be listed and traded on the NYSE. If the Merger Agreement is terminated under certain specified circumstances, Montage may be required to pay to Southwestern a termination fee of $9.7 million. Please see “The Merger Agreement—Termination of the Merger Agreement—Termination Fee” for a more detailed discussion of the termination fee.

 

Q:

How can I vote my shares and participate at the Montage Special Meeting?

 

A:

Record Holders - Shares held directly in your name as the stockholder of record of Montage may be voted in person by ballot at the Montage Special Meeting or by submitting a proxy. If you choose to vote your shares in person at the Montage Special Meeting, please bring your enclosed proxy card and proof of identification.

Shares instreet name” - Shares held in “street name” may be voted by you at the Montage Special Meeting only if you obtain a signed legal proxy from your bank, broker or other nominee giving you the right to vote the shares. If you choose to vote your shares in street name in person at the Montage Special Meeting, please bring that signed legal proxy along with proof of identification.

Even if you plan to attend the Montage Special Meeting, Montage recommends that you vote your shares in advance as described below so that your vote will be counted even if you later decide not to or become unable to attend the Montage Special Meeting.

Additional information on attending the Montage Special Meeting can be found under “The Montage Special Meeting.”

 

Q:

How can I vote my shares without attending the Montage Special Meeting?

 

A:

Whether you hold your shares directly as a stockholder of record of Montage or beneficially in “street name,” you may direct your vote by proxy without attending the Montage Special Meeting. You can vote by proxy by mail, over the Internet or by telephone by following the instructions provided in the enclosed proxy card. Please note that if you hold shares beneficially in “street name,” you should follow the voting instructions provided by your bank, broker or other nominee.

Additional information on voting procedures can be found under “The Montage Special Meeting.”

 

Q:

What is the difference between holding shares as a stockholder of record and as a beneficial owner of shares held in “street name?”

 

A:

If your shares are held in “street name” in a stock brokerage account or by a bank or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Montage or by voting in person at the Montage Special Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.

 

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Q:

If my shares of Montage Common Stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote those shares for me?

 

A:

Under the rules of the NYSE, your bank, broker or other nominee will only be permitted to vote your shares of Montage Common Stock with respect to “non-routine” matters if you instruct your bank, broker or other nominee how to vote. All of the proposals scheduled for consideration at the Montage Special Meeting are “non-routine” matters. As a result, if you fail to provide voting instructions to your broker, bank or other nominee, your shares will not be counted as present at the Montage Special Meeting for purposes of determining a quorum and will not be voted on any of the proposals. If you provide voting instructions to your broker, bank or other nominee on one or more of the proposals but not on one or more of the other proposals, then your shares will be counted as present for the purposes of determining a quorum but will not be voted on any proposal for which you fail to provide instructions. To make sure that your shares are voted with respect to each of the proposals, you should instruct your bank, broker or other nominee how you wish to vote your shares in accordance with the procedures provided by your bank, broker or other nominee regarding the voting of your shares.

The effect of not instructing your bank, broker or other nominee how you wish to vote your shares will be the same as a vote “against” the Merger Proposal and will not have any effect on the outcome of the Adjournment Proposal or the Advisory Compensation Proposal. However, if you instruct your bank, broker or other nominee on how you wish to vote your shares on some but not all proposals, such broker non-vote will have the same effect as voting “against” the Merger Proposal and the Adjournment Proposal but will not have any effect on the outcome of the Advisory Compensation Proposal.

 

Q:

What should I do if I receive more than one set of voting materials for a stockholder meeting?

 

A:

If you hold shares of Montage Common Stock in “street name” and also directly in your name as a stockholder of record or otherwise, or if you hold shares of Montage Common Stock in more than one brokerage account, you may receive more than one set of voting materials relating to the Montage Special Meeting.

Record Holders. For shares held directly, please complete, sign, date and return each proxy card, or you may cast your vote by telephone or Internet as provided on each proxy card, or otherwise follow the voting instructions provided in this proxy statement/prospectus in order to ensure that all of your shares of Montage Common Stock are voted.

“Street nameHolders. For shares held in “street name” through a bank, broker or other nominee, you should follow the procedures provided by your bank, broker or other nominee to vote your shares.

 

Q:

If a stockholder gives a proxy, how are the shares of Montage Common Stock voted?

 

A:

Regardless of the method you choose to vote, the individuals named on the enclosed proxy card will vote your shares of Montage Common Stock in the way that you indicate. When completing the proxy card or the Internet or telephone processes, you may specify whether your shares of Montage Common Stock should be voted for or against, or abstain from voting on, all, some or none of the specific items of business to come before the Montage Special Meeting.

 

Q:

How will my shares of Montage Common Stock be voted if I return a blank proxy?

 

A:

If you sign, date and return your proxy card and do not indicate how you want your shares of Montage Common Stock to be voted, then your shares of Montage Common Stock will be voted “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.

 

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Q:

Can I change my vote after I have submitted my proxy?

 

A:

Any stockholder giving a proxy has the right to revoke it before the proxy is voted at the Montage Special Meeting by:

 

   

subsequently submitting a new proxy, whether by submitting a new proxy card or by submitting a proxy via the Internet or telephone, that is received by the deadline specified on the accompanying proxy card;

 

   

giving written notice of your revocation to Montage’s Corporate Secretary; or

 

   

revoking your proxy and voting at the Montage Special Meeting.

Your attendance at the Montage Special Meeting will not revoke your proxy unless you give written notice of revocation to Montage’s Corporate Secretary before your proxy is exercised or unless you vote your shares in person at the Montage Special Meeting.

Execution or revocation of a proxy will not in any way affect your right to attend the Montage Special Meeting and vote. Written notices of revocation and other communications with respect to the revocation of proxies should be addressed to:

Montage Resources Corporation

Attn: Corporate Secretary

122 W. John Carpenter Freeway

Suite 300

Irving, Texas 75039

For more information, please see “The Montage Special Meeting—Revocation of Proxies.”

 

Q:

If I hold my shares in “street name,” can I change my voting instructions after I have submitted voting instructions to my bank, broker or other nominee?

A: If your shares are held in the name of a bank, broker or other nominee and you previously provided voting instructions to your bank, broker or other nominee, you should follow the instructions provided by your bank, broker or other nominee to revoke or change your voting instructions.

 

Q:

Where can I find the voting results of the Montage Special Meeting?

 

A:

The preliminary voting results for the Montage Special Meeting will be announced at the meeting. In addition, within four business days of the Montage Special Meeting, Montage intends to file the final voting results of its meeting with the SEC on a Current Report on Form 8-K.

 

Q:

Do Montage stockholders have appraisal rights or dissenters’ rights?

 

A:

No. Montage stockholders are not entitled to appraisal or dissenters’ rights in connection with the merger under Section 262 of the DGCL.

 

Q:

Are there any risks that I should consider in deciding whether to vote for the approval of the Merger Proposal?

 

A:

Yes. You should read and carefully consider the risk factors set forth in “Risk Factors.” You also should read and carefully consider the risk factors of Southwestern and Montage contained in the reports of Southwestern and Montage which are incorporated by reference into this proxy statement/prospectus.

 

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Q:

Do any of the officers or directors of Montage have interests in the merger that may differ from or be in addition to my interests as a Montage stockholder?

 

A:

Yes. In considering the recommendation of the Montage Board that Montage stockholders vote to approve the Merger Proposal, Montage stockholders should be aware that Montage’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Montage stockholders generally. The Montage Board was aware of and considered these differing interests, to the extent such interests existed at the time, among other matters, in evaluating and negotiating the Merger Agreement and the merger, and in unanimously recommending that the Merger Agreement be adopted by Montage stockholders. See “The Merger—Interests of Montage’s Directors and Executive Officers in the Merger.”

 

Q:

What happens if I sell my shares of Montage Common Stock after the Record Date but before the Montage Special Meeting?

 

A:

The Record Date is earlier than the date of the Montage Special Meeting. If you transfer your shares of Montage Common Stock after the Record Date but before the Montage Special Meeting, you will, unless special arrangements are made, retain your right to vote at the Montage Special Meeting.

 

Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

The Montage Board is soliciting your proxy in connection with the Montage Special Meeting, and Montage will bear the cost of soliciting such proxies, including the costs of printing and filing this proxy statement/prospectus. Montage does not expect to retain a proxy solicitor to assist with the solicitation of proxies in connection with the Montage Special Meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through banks, brokers and other nominees to the beneficial owners of shares of Montage Common Stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by certain of Montage’s directors, officers and employees, without additional compensation.

Southwestern and Montage also may be required to reimburse banks, brokers and other custodians, nominees and fiduciaries or their respective agents for their expenses in forwarding proxy materials to beneficial owners of Montage Common Stock. Southwestern’s directors, officers and employees and Montage’s directors, officers and employees also may solicit proxies by telephone, by electronic means or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q:

What are the United States federal income tax consequences of the merger to Montage U.S. stockholders?

 

A:

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes. However, it is not a condition to Southwestern’s obligation or Montage’s obligation to complete the merger that the merger qualifies as a “reorganization.” Nevertheless, assuming that the merger so qualifies, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 149) of shares of Montage Common Stock will generally not recognize any gain or loss for U.S. federal income tax purposes on the exchange of their shares of Montage Common Stock for shares of Southwestern Common Stock in the merger, except for any gain or loss that may result from the receipt of cash in lieu of a fractional share of Southwestern Common Stock. Southwestern and Montage have not sought and will not seek any ruling from the Internal Revenue Service (the “IRS”) regarding any matters relating to the transactions and, as a result, there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth herein.

For a more complete discussion of the U.S. federal income tax consequences of the merger, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger.”

 

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Q:

When is the merger expected to be completed?

 

A:

Subject to the satisfaction or waiver of the closing conditions described under “The Merger Agreement—Conditions to the Completion of the Merger,” including the approval of the Merger Proposal, the merger is expected to close in the fourth quarter of calendar year 2020. However, neither Southwestern nor Montage can predict the actual date on which the merger will be completed, or if the merger will be completed at all, because completion of the merger is subject to conditions and factors outside the control of both companies. Southwestern and Montage hope to complete the merger as soon as reasonably practicable.

 

Q:

What are the conditions to completion of the merger?

 

A:

The merger is subject to a number of conditions to closing as specified in the Merger Agreement. These closing conditions include, among others, (i) the approval of the Merger Proposal by Montage stockholders, (ii) the absence of any law, order or injunction prohibiting the merger, (iii) the expiration or earlier termination of the waiting period under the Hart–Scott–Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iv) the SEC having declared effective Southwestern’s Registration Statement on Form S-4 filed in connection with the merger (the “S-4”), (v) the shares of Southwestern Common Stock issuable in connection with the Merger having been authorized for listing on the NYSE, upon official notice of issuance, (vi) the accuracy of each party’s representations and warranties, (vii) each party’s compliance with its covenants and agreements contained in the Merger Agreement, and (viii) an authorized officer of each party certifying that the conditions described in (vi) and (vii) above have been satisfied in respect of such party. No assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied or waived, and, even if all required consents and approvals are obtained and the conditions are satisfied or waived, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the merger could cause Southwestern and Montage not to realize, or to be delayed in realizing, some or all of the benefits that Southwestern and Montage expect to achieve if the merger is successfully completed within its expected time frame. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, please see “The Merger Agreement—Conditions to the Completion of the Merger.”

 

Q:

How will I receive the merger consideration to which I am entitled?

 

A:

If you hold your shares of Montage Common Stock through The Depository Trust Company (“DTC”), you will not be required to take any specific actions to exchange your shares for shares of Southwestern Common Stock. After the completion of the merger, shares of Montage Common Stock held through DTC in book-entry form will be automatically exchanged for shares of Southwestern Common Stock in book-entry form and an exchange agent (the “Exchange Agent”) selected by the parties will deliver to you a check in the amount of any cash to be paid in lieu of any fractional share of Southwestern Common Stock to which you would otherwise be entitled. If you hold your shares of Montage Common Stock in certificated form, or in book-entry form but not through DTC, after receiving the proper documentation from you, following the Effective Time, the Exchange Agent will deliver to you the Southwestern Common Stock and a check in the amount of any cash in lieu of fractional shares to which you would otherwise be entitled. More information may be found in “The Merger Agreement—Exchange of Shares.”

 

Q:

What should I do now?

 

A:

You should read this proxy statement/prospectus carefully and in its entirety, including the annexes, and return your completed, signed and dated proxy card by mail in the enclosed postage-paid envelope, or you may submit your voting instructions by telephone or over the Internet as soon as possible so that your shares will be voted in accordance with your instructions.

 

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Q:

Whom do I call if I have questions about the Montage Special Meeting or the merger?

 

A:

If you have questions about the Montage Special Meeting or the merger, or desire additional copies of this proxy statement/prospectus or additional proxy cards, you may contact:

Montage Resources Corporation

122 W. John Carpenter Freeway

Suite 300

Irving, Texas 75039

Attention: Investor Relations

(469) 444-1736

 

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SUMMARY

For your convenience, provided below is a brief summary of certain information contained in this proxy statement/prospectus. This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that may be important to you as a Montage stockholder. To understand the merger fully and for a more complete description of the terms of the merger, you should read this entire proxy statement/prospectus carefully, including its annexes and the other documents to which you are referred. Additionally, important information, which you are urged to read, is contained in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 185. Items in this summary include a page reference directing you to a more complete description of those items.

The Parties to the Merger (See page 43)

Southwestern Energy Company

Southwestern is an independent energy company engaged in exploration, development and production activities, including the related marketing of natural gas, oil and natural gas liquids (“NGLs”) produced in its operations. Southwestern is a holding company whose assets consist of direct and indirect ownership interests in, and whose business is conducted substantially through, its subsidiaries. Currently Southwestern operates exclusively in the United States. Southwestern Common Stock is listed and traded on the NYSE under the ticker symbol “SWN.” Southwestern, which is incorporated in Delaware, has its executive offices located at 10000 Energy Drive, Spring, Texas 77389, and can be reached by phone at (832) 796-1000.

Montage Resources Corporation

Montage is an independent exploration and production company engaged in the acquisition and development of oil and natural gas properties in the Appalachian Basin. As of December 31, 2019, Montage had assembled an acreage position approximating 233,800 net surface acres in Eastern Ohio, 38,700 net surface acres in Pennsylvania and 49,700 net surface acres in West Virginia, which excludes any acreage pending title. Montage Common Stock is listed and traded on the NYSE under the ticker symbol “MR.” Montage has its executive offices located at 122 W. John Carpenter Freeway, Suite 300, Irving, Texas 75039, and can be reached by phone at (469) 444-1647.

The Merger and the Merger Agreement (See pages 44 and 94)

The terms and conditions of the merger are contained in the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus. You are encouraged to read the Merger Agreement carefully and in its entirety, as it is the primary legal document that governs the merger.

Pursuant to the Merger Agreement, Montage will merge with and into Southwestern. At the Effective Time, the separate corporate existence of Montage will cease, with Southwestern continuing as the surviving corporation. Following the merger, Montage Common Stock will be delisted from the NYSE, will be deregistered under the Exchange Act and will cease to be publicly traded.

Exchange Ratio (See page 44)

At the Effective Time, each share of Montage Common Stock will be converted into the right to receive 1.8656 shares of Southwestern Common Stock.

The Exchange Ratio is fixed, which means that it will not change between now and the Effective Time, regardless of changes in the market price of Montage Common Stock and Southwestern Common Stock. No



 

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fractional shares of Southwestern Common Stock will be issued upon the conversion of shares of Montage Common Stock pursuant to the Merger Agreement. Each Montage stockholder who otherwise would have been entitled to receive a fraction of a share of Southwestern Common Stock will be entitled to receive cash in lieu of such fractional share.

Southwestern stockholders will continue to own their existing shares of Southwestern Common Stock, which will not be affected by the merger.

The Montage Special Meeting (See page 124)

The Montage Special Meeting will be held at Montage’s principal executive office building located at 122 West John Carpenter Freeway, 1st Floor Conference Center, Irving, Texas 75039, on November 12, 2020, beginning at 10:00 a.m. Central Time. The Montage Special Meeting is being held to consider and vote on the following proposals:

 

   

Proposal 1—the Merger Proposal: to adopt the Merger Agreement, pursuant to which, among other things, each outstanding share of Montage Common Stock will be cancelled and converted into the right to receive 1.8656 shares of Southwestern Common Stock;

 

   

Proposal 2—the Advisory Compensation Proposal: to approve, on an advisory (non-binding) basis, the payments that will or may be paid to Montage’s named executive officers in connection with the merger; and

 

   

Proposal 3—the Adjournment Proposal: to approve the adjournment of the Montage Special Meeting to solicit additional proxies if there are not sufficient votes at the time of the Montage Special Meeting to approve the Merger Proposal or to ensure that any supplement or amendment to this proxy statement/prospectus is timely provided to Montage stockholders.

Completion of the merger is conditioned on, among other things, the approval of the Merger Proposal by Montage stockholders. Approval of the Advisory Compensation Proposal and the Adjournment Proposal are not conditions to the obligation of either Montage or Southwestern to complete the merger.

Only holders of record of outstanding shares of Montage Common Stock as of the close of business on October 5, 2020, the Record Date, are entitled to notice of, and to vote at, the Montage Special Meeting or any adjournment or postponement of the Montage Special Meeting. Montage stockholders may cast one vote for each share of Montage Common Stock owned as of the Record Date for each proposal.

Assuming holders of a majority of the outstanding shares of Montage Common Stock entitled to vote at a meeting of stockholders (for purposes of the Montage Special Meeting, a “quorum”) are present in person or represented by proxy at the Montage Special Meeting, approval of the Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of Montage Common Stock entitled to vote thereon. Accordingly, a Montage stockholders abstention from voting or the failure of a Montage stockholder to vote (including the failure of a Montage stockholder who holds shares in street name through a bank, broker or other nominee to give voting instructions to that bank, broker or other nominee) will have the same effect as a vote against the Merger Proposal.

Approval of the Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of Montage Common Stock present in person or represented by proxy at the Montage Special Meeting and entitled to vote thereat. Assuming a quorum is present, approval of the Advisory Compensation Proposal requires the affirmative vote of holders of a majority of the shares of Montage Common Stock present in person or represented by proxy at the Montage Special Meeting and entitled to vote thereon. Accordingly, with respect to a



 

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Montage stockholder who is present in person or represented by proxy at the Montage Special Meeting, a Montage stockholder’s abstention from voting or the failure of a Montage stockholder to vote will have the same effect as a vote “ against” the Adjournment Proposal and the Advisory Compensation Proposal. The failure of a Montage stockholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to its bank, broker or other nominee will have no effect on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal. However, if a Montage stockholder instructs its bank, broker or other nominee regarding some but not all of the proposals, such broker non-vote will have the same effect as voting “against” the Adjournment Proposal but will have no effect on the outcome of the Advisory Compensation Proposal. Regardless of whether there is a quorum, the chairman of the Montage Special Meeting may also adjourn the Montage Special Meeting.

EnCap Support Agreement (See page 123)

Contemporaneously with the execution of the Merger Agreement, Southwestern entered into the EnCap Support Agreement (a copy of which is attached as Annex C to this proxy statement/prospectus) with EnCap, pursuant to which EnCap agreed, among other things, subject to the terms and conditions thereof, to vote all of the shares of Montage Common Stock held by EnCap as of such date in favor of the Merger Proposal at the Montage Special Meeting. For more information, please see “The Merger Agreement—EnCap Support Agreement.” For more information regarding the security ownership of EnCap, please see “Certain Beneficial Owners of Montage Common Stock.”

Recommendation of the Montage Board and Reasons for the Merger (See page 60)

The Montage Board has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and fair to, and in the best interests of, Montage and its stockholders and has unanimously adopted, approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the merger. The Montage Board unanimously recommends that Montage stockholders vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal, if necessary or appropriate to solicit additional proxies. For additional information on the factors considered by the Montage Board in reaching this decision and the recommendation of the Montage Board, please see “The Merger—Recommendation of the Montage Board and Reasons for the Merger.”

Opinion of Montages Financial Advisor (See page 65 and Annex B)

Montage engaged Barclays Capital Inc. (“Barclays”) to act as its financial advisor with respect to the merger. On August 12, 2020, Barclays rendered its oral opinion (which opinion was subsequently confirmed in writing) to the Montage Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio to be offered to the Montage stockholders (other than holders of Excluded Shares (as defined in the Merger Agreement), as applicable) was fair, from a financial point of view, to such stockholders, as more fully described in the section of this proxy statement/prospectus entitled “The Merger—Opinion of Montage’s Financial Advisor” beginning on page 65. The summary of Barclays’ opinion set forth below is qualified in its entirety by reference to the full text of Barclays’ written opinion.

The full text of Barclays’ written opinion, dated as of August 12, 2020, is attached as Annex B to this proxy statement/prospectus. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety.

Barclays’ opinion was addressed to the Montage Board, addressed only the fairness, from a financial point of view, of the Exchange Ratio to be offered to the Montage stockholders (other than holders of



 

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Excluded Shares, as applicable) and does not constitute a recommendation to any Montage stockholder as to how such stockholder should vote with respect to the merger or any other matter. Barclays did not recommend any specific form of consideration to Montage or that any specific form of consideration constituted the only appropriate consideration for the merger. Barclays was not requested to opine as to, and its opinion did not in any manner address, Montage’s underlying business decision to proceed with or effect the merger, the likelihood of the consummation of the merger, or the relative merits of the merger as compared to any other transaction in which Montage may engage. In addition, Barclays expressed no opinion on, and its opinion did not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any party to the merger, or any class of such persons, relative to the consideration to be offered to the Montage stockholders (other than holders of Excluded Shares, as applicable) in connection with the merger. No limitations were imposed by the Montage Board upon Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.

For additional information, see the section entitled “The Merger—Opinion of Montage’s Financial Advisor” beginning on page 65 and Annex B.

Board of Directors and Management of Southwestern Following the Merger (See page 83)

The directors of Southwestern immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the surviving corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with Southwestern’s certificate of incorporation and bylaws.

The officers of Southwestern immediately prior to the Effective Time shall, from and after the Effective Time, be the officers of the surviving corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Interests of Montages Directors and Executive Officers in the Merger (See page 84)

When considering the recommendation of the Montage Board that Montage stockholders vote “FOR” the Merger Proposal, Montage stockholders should be aware that, aside from their interests as Montage stockholders, Montage’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of other Montage stockholders generally. The Montage Board was aware of such interests during its deliberations on the merits of the merger and in deciding to recommend that Montage stockholders vote “FOR” the Merger Proposal at the Montage Special Meeting on November 12, 2020.

These interests include:

 

   

certain executive officers of Montage have arrangements with Montage that provide for certain severance payments or benefits, accelerated vesting of certain equity-based awards and other rights and other payments or benefits in the event of a qualifying termination of employment following the completion of the merger, or for some equity-based awards, upon completion of the merger;

 

   

the directors of Montage have arrangements with Montage that provide for accelerated vesting of certain equity-based awards upon the completion of the merger; and

 

   

executive officers and directors of Montage have rights to indemnification, advancement of expenses and directors’ and officers’ liability insurance that will survive the completion of the merger.

The Montage Board was aware of these additional interests of their directors and executive officers and considered these potential interests, among other matters, in evaluating and negotiating the Merger Agreement



 

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and the merger, in approving the Merger Agreement and in recommending the applicable merger-related proposals. For a further discussion of the interests of Montage directors and executive officers in the merger, see “The Merger—Interests of Montage’s Directors and Executive Officers in the Merger” beginning on page 84.

Treatment of Existing Montage Long-Term Incentive Awards in the Merger (See page 96)

At the Effective Time, each Montage RSU Award that is outstanding immediately prior to the Effective Time will be converted into an Assumed RSU Award, with respect to a number of shares of Southwestern Common Stock equal to the product obtained by multiplying (i) the applicable number of shares of Montage Common Stock subject to such Montage RSU Award by (ii) the Exchange Ratio. For each holder of a Montage RSU Award, any fractional shares resulting from the conversion of his or her Montage RSU Awards will be rounded to the nearest whole share. Except as otherwise provided in the Merger Agreement, each Assumed RSU Award will continue to have, and will be subject to, the same terms and conditions (including time vesting conditions and, if applicable, any accelerated vesting in connection with a termination of service) that applied to the underlying Montage RSU Award immediately prior to the Effective Time, except that Southwestern (x) may modify terms rendered inoperative by reason of the transactions contemplated by the Merger Agreement or for such other immaterial administrative or ministerial changes as in the reasonable and good faith determination of Southwestern are appropriate to effectuate the administration of the Assumed RSU Award, and (y) may settle the Assumed RSU Award upon vesting in shares of Southwestern Common Stock or cash.

The Merger Agreement provides that Montage shall take all necessary and appropriate actions so that, prior to the Effective Time, each then outstanding Montage PSU Award will be terminated and vested to the extent provided under such award’s existing terms.

The Merger Agreement further provides that Montage shall take all necessary and appropriate actions so that prior to the Effective Time each Montage Restricted Stock Award granted to a Montage non-employee director shall vest. Shares of Montage Common Stock attributable to such Montage Restricted Stock Awards will be treated in the manner set forth in the Merger Agreement at the Effective Time.

Certain Beneficial Owners of Montage Common Stock (See page 179)

At the close of business on September 30, 2020, the latest practicable date prior to the date of this proxy statement/prospectus, Montage’s directors and executive officers and their affiliates (other than EnCap, which is discussed below), as a group, beneficially owned and were entitled to vote approximately 443,237 shares of Montage Common Stock, collectively representing 1.2% of the shares of Montage Common Stock outstanding on that date. Montage currently expects that all of its directors and executive officers will vote their shares “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal. For more information regarding the security ownership of Montage directors and executive officers, please see “Certain Beneficial Owners of Montage Common Stock.”

In addition, pursuant to the EnCap Support Agreement, EnCap (which owns approximately 39.0% of the outstanding shares of Montage Common Stock as of September 30, 2020) has agreed, subject to the terms and conditions thereof, to vote all shares of Montage Common Stock held by EnCap as of such date in favor of the Merger Proposal at the Montage Special Meeting. For a more complete discussion of the EnCap Support Agreement, please see “The Merger Agreement—EnCap Support Agreement.”

Ownership of Southwestern after the Merger (See page 44)

As of the date of this proxy statement/prospectus, based on the Exchange Ratio, the number of outstanding shares of Montage Common Stock (plus the number of shares underlying outstanding Montage restricted stock



 

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units and performance units) and the number of outstanding shares of Southwestern Common Stock (on a fully diluted basis), it is estimated that Southwestern stockholders will own approximately 90% and Montage stockholders will own approximately 10% of the issued and outstanding shares of Southwestern Common Stock on a fully diluted basis immediately following the effective time of the merger.

Conditions to the Completion of the Merger (See page 119)

Each party’s obligation to effect the merger is subject to the satisfaction at closing, or waiver at or prior to closing, of each of the following conditions:

 

   

the approval of the Merger Proposal by the Montage stockholders;

 

   

the absence of any law, order or injunction prohibiting the merger;

 

   

the expiration or earlier termination of the waiting period under the HSR Act;

 

   

the SEC having declared effective the S-4; and

 

   

the NYSE having approved the listing of the Southwestern Common Stock to be issued in the merger.

Southwestern’s obligation to effect the merger is subject to the satisfaction at closing, or waiver at or prior to closing, of each of the following conditions:

 

   

the accuracy of the representations and warranties of Montage as follows:

 

   

the representations and warranties of Montage regarding organization, good standing, authority and certain representations regarding capital stock (as set forth in Sections 3.1(a), certain portions of 3.2(a) and 3.2(d) and 3.3 of the Merger Agreement) must have been true and correct in all respects as of the date of the Merger Agreement and must be true and correct in all respects as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date) except for de minimis inaccuracies;

 

   

the representations and warranties of Montage regarding the authorization and validity of its capital stock must have been true and correct in all material respects as of the date of the Merger Agreement and must be true and correct in all material respects as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date);

 

   

the representations and warranties of Montage regarding the absence of certain changes with respect to a material adverse effect must have been true and correct in all respects as of the date of the Merger Agreement and must be true and correct in all respects as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date); and

 

   

each other representation and warranty of Montage set forth in the Merger Agreement must be true and correct (disregarding all qualifications or limitations as to “material,” “materiality” or “material adverse effect”) as of the date of the Merger Agreement and as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (disregarding all qualifications or limitations as to “material,” “materiality” or “material adverse effect”), individually or in the aggregate, would not reasonably be likely to have a material adverse effect with respect to Montage.

 

   

Montage’s performance, in all material respects, of its obligations under the Merger Agreement required to be performed at or prior to the closing date; and



 

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Montage having delivered to Southwestern a certificate of an authorized officer certifying that the conditions described in the immediately preceding bullets with respect to representations and warranties and performance of obligations have been satisfied.

The obligation of Montage to effect the merger is subject to the satisfaction at closing, or waiver at or prior to closing, of each of the following conditions:

 

   

the accuracy of the representations and warranties of Southwestern as follows:

 

   

the representations and warranties of Southwestern regarding organization, good standing, authority and certain representations regarding capital stock (as set forth in Sections 4.1(a), certain portions of 4.2(a) and 4.2(b) and 4.3 of the Merger Agreement) must have been true and correct in all respects as of the date of the Merger Agreement and must be true and correct in all respects as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date) except for de minimis inaccuracies;

 

   

the representations and warranties of Southwestern regarding the absence of certain changes with respect to a material adverse effect must have been true and correct in all respects as of the date of the Merger Agreement and must be true and correct in all respects as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date); and

 

   

each other representation and warranty of Southwestern set forth in the Merger Agreement must be true and correct (disregarding all qualifications or limitations as to “material,” “materiality” or “material adverse effect”) as of the date of the Merger Agreement and as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (disregarding all qualifications or limitations as to “material,” “materiality” or “material adverse effect”), individually or in the aggregate, would not reasonably be likely to have a material adverse effect with respect to Southwestern.

 

   

Southwestern’s performance, in all material respects, of its obligations under the Merger Agreement required to be performed at or prior to the Effective Time; and

 

   

Southwestern having delivered to Montage a certificate of an authorized officer certifying that the conditions described in the immediately preceding bullets with respect to representations and warranties and performance of obligations have been satisfied.

No Solicitation of Acquisition Proposals (See page 106)

Montage agreed that neither it nor any of its subsidiaries will, and Montage will, and will cause its subsidiaries to, instruct their representatives not to, directly or indirectly:

 

   

initiate, solicit, knowingly encourage or knowingly facilitate (including by way of furnishing non-public information), or take any other action designed to lead to, any inquiries or the making or submission of any proposal that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal (as defined under “The Merger Agreement—Covenants—No Solicitation of Acquisition Proposals”);

 

   

participate or engage in discussions or negotiations with, or disclose any non-public information or data relating to Montage or any of its subsidiaries or afford access to the properties, books or records of Montage or any of its subsidiaries to any person that has made an Acquisition Proposal or any inquiry or proposal that would reasonably be expected to lead to an Acquisition Proposal;



 

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accept an Acquisition Proposal or enter into any agreement (other than an acceptable confidentiality agreement in certain circumstances), including any letter of intent or agreement in principle, providing for or relating to an Acquisition Proposal or enter into any agreement, including any letter of intent or agreement in principle, that would require, or would have the effect of causing, Montage to abandon, terminate or fail to consummate the merger or the other transactions contemplated by the Merger Agreement;

 

   

amend or grant any waiver, release or modification under, or fail to enforce, any standstill or similar agreement with respect to any class of equity securities of Montage or any of its subsidiaries except that, prior to the approval of the Merger Proposal, if, in response to an unsolicited request from a third party to waive any “standstill” or similar provision, the Montage Board determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, Montage may waive any such “standstill” or similar provision solely to the extent necessary to permit a third party to make an Acquisition Proposal, on a confidential basis, to the Montage Board; or

 

   

resolve to do any of the foregoing.

Notwithstanding the restrictions described above, prior to, but not after, the time the approval of the Merger Proposal is obtained, Montage may take any actions described in the second bullet above with respect to a third party if Montage receives an unsolicited written Acquisition Proposal from such third party that the Montage Board believes in good faith is bona fide, the Montage Board concludes in good faith, after consultation with its financial advisors and outside legal counsel, that such proposal constitutes or is reasonably expected to result in a Superior Proposal (as defined under “The Merger Agreement—No Solicitation of Acquisition Proposals”), and the Montage Board determines in good faith, after consultation with its outside counsel, that the failure to participate in such negotiations or discussions or to furnish such information or data to such third party would reasonably be expected to be inconsistent with the Montage Board’s fiduciary duties under applicable law.

No Change of Recommendation (See page 108)

Subject to certain exceptions described below, neither the Montage Board nor any committee thereof may directly or indirectly:

 

   

make an Adverse Recommendation Change (as defined under “The Merger Agreement—No Change of Recommendation”);

 

   

approve or recommend, or publicly propose to approve or recommend, or allow Montage or any of its subsidiaries to execute or enter into, any agreement, arrangement or understanding, (A) constituting or related to, or that is intended to or could reasonably be expected to lead to, any Acquisition Proposal, or (B) requiring it to abandon, terminate or fail to consummate the merger or any other transaction contemplated by the Merger Agreement; or

 

   

resolve, propose, agree or publicly announce an intention to do any of the foregoing.

Permitted Change of Recommendation—Superior Proposal

If Montage receives an Acquisition Proposal that was not the result of a material violation of the terms of the Merger Agreement, and that the Montage Board believes in good faith is bona fide, and the Montage Board, after consultation with its financial advisors and outside legal counsel, concludes constitutes a Superior Proposal and following consultation with outside legal counsel, determines that the failure of the Montage Board to make an Adverse Recommendation Change or terminate the Merger Agreement would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, then the Montage Board may at any time prior to obtaining approval of the Merger Proposal effect an Adverse Recommendation Change or terminate the Merger Agreement; provided, however, that the Montage Board may not take such action unless: (i) Montage has



 

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provided prior notice to Southwestern specifying in reasonable detail the reasons for such action at least four days in advance of its intention to take such action with respect to an Adverse Recommendation Change or termination; (ii) during the four-day period, Montage has negotiated with Southwestern in good faith (to the extent Southwestern desires to negotiate) to make such adjustments to the terms and conditions of the Merger Agreement as would obviate the need for the Montage Board to make an Adverse Recommendation Change or terminate the Merger Agreement; and (iii) at the end of the four-day period, the Montage Board again concludes in good faith, after consultation with its financial advisors and outside legal counsel, and taking into account any adjustment or modification to the terms and conditions of the Merger Agreement proposed by Southwestern, that such Acquisition Proposal continues to constitute a Superior Proposal and that the failure of the Montage Board to effect an Adverse Recommendation Change or terminate the Merger Agreement with respect to such Superior Proposal would reasonably be expected to be inconsistent with its fiduciary duties under applicable law. Any material amendment to the terms of the Acquisition Proposal will require a new notice period, but such notice period will be two days from the time that Southwestern receives notice of such material amendment (as opposed to four days).

Permitted Change of Recommendation—Intervening Event

The Montage Board may make an Adverse Recommendation Change at any time prior to obtaining approval of the Merger Proposal in response to a Company Intervening Event (as defined under “The Merger Agreement—No Change of Recommendation—Permitted Change of Recommendation—Intervening Event”) to the extent that (i) the Montage Board determines in good faith, after consultation with Montage’s outside legal counsel, that the failure of the Montage Board to effect an Adverse Recommendation Change would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, and (ii) (A) Montage provides Southwestern four days’ notice of its intention to take such action, which notice shall specify the reasons therefor, (B) after providing such notice and prior to making such Adverse Recommendation Change, Montage shall negotiate in good faith with Southwestern during such four-day period (to the extent that Southwestern desires to negotiate) to make such revisions to the terms of the Merger Agreement as would obviate the need for the Montage Board to make an Adverse Recommendation Change, and (C) the Montage Board shall have considered in good faith any changes to the Merger Agreement offered in writing by Southwestern, and following such four-day period, shall have determined in good faith, after consultation with its outside legal counsel and financial advisors, that the failure of the Montage Board to effect an Adverse Recommendation Change with respect to such Company Intervening Event would reasonably be expected to be inconsistent with its fiduciary duties under applicable law.

Termination of the Merger Agreement (See page 120)

Termination by Mutual Consent

The Merger Agreement may be terminated and the merger abandoned at any time prior to the Effective Time, whether before or after approval of the merger by the Montage stockholders, by mutual written consent of Southwestern and Montage.

Termination by Either Southwestern or Montage

Either party may terminate the Merger Agreement if:

 

   

the merger has not been consummated by 11:59 p.m., Central Time, on February 12, 2021, unless due to the failure to fulfill any material obligation under the Merger Agreement or other material breach of the Merger Agreement by the terminating party;

 

   

any governmental entity shall have issued a statute, rule, order, decree or regulation or taken any other action (which Montage and Southwestern shall have used their commercially reasonable efforts to lift), in each case permanently retraining, enjoining or otherwise prohibiting consummation of the merger or making the merger illegal and such statute, rule, order, decree, regulation or other action shall have become final and not-appealable (provided that the terminating party is not then in breach of certain of its covenants in the Merger Agreement);



 

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Montage stockholders fail to approve the Merger Proposal at the Montage Special Meeting (or a postponement or adjournment of that meeting); or

 

   

there shall have been a breach of or any inaccuracy in any of the representations or warranties or a material breach of any of the covenants or agreements in the Merger Agreement on the part of the other party, which breach is not cured within 30 days following receipt by the breaching party of notice of such breach from the terminating party, or which breach, by its nature, cannot be cured prior to the closing (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement); provided, however, that neither party shall have the right to terminate unless the breach, together with all other such breaches, would entitle the party receiving such representation or to which such covenants or agreements are made, as applicable, not to consummate the transactions pursuant to that party’s condition related to breach of representations and warranties or covenants and agreements by the other party, as applicable (see “The Merger Agreement— Conditions to the Completion of the Merger” for additional details).

Termination by Southwestern

Southwestern may terminate the Merger Agreement and the merger may be abandoned prior to, but not after, approval of the Merger Proposal is obtained if:

 

   

Montage or the Montage Board, as the case may be, (A) entered into any agreement with respect to any Acquisition Proposal (other than the merger or an Acceptable Confidentiality Agreement as permitted by the Merger Agreement); (B) approved or recommended, or, in the case of a committee, proposed to the Montage Board to approve or recommend, any Acquisition Proposal other than the merger; or (C) resolved to do any of the foregoing; or

 

   

an Adverse Recommendation Change shall have occurred or the Montage Board or any committee thereof has resolved to make an Adverse Recommendation Change.

Termination by Montage

Montage may terminate the Merger Agreement and the merger may be abandoned prior to, but not after, approval of the Merger Proposal is obtained in order for Montage to enter into a definitive agreement with respect to a Superior Proposal; provided, however, that Montage shall concurrently pay to Southwestern the termination fee.

Termination Fee (See page 121)

Montage will be required to pay to Southwestern a termination fee of $9.7 million if:

 

   

Southwestern terminates the Merger Agreement due to Montage’s entry into any agreement with respect to an Acquisition Proposal (other than the merger or an Acceptable Confidentiality Agreement as permitted by the Merger Agreement), the Montage Board’s approval or recommendation of (or, in the case of a committee, a proposal to the Montage Board to approve or recommend) any Acquisition Proposal other than the merger, or the Montage Board’s resolution to do any of the foregoing;

 

   

Southwestern terminates the Merger Agreement due to an Adverse Recommendation Change;

 

   

Montage terminates the Merger Agreement in order to enter into a definitive agreement with respect to a Superior Proposal; or

 

   

(i) an Acquisition Proposal has been publicly proposed by any person (other than Southwestern or any of its affiliates) or an Acquisition Proposal has otherwise become known to Montage’s directors or officers, or its stockholders generally, (ii) thereafter the Merger Agreement is terminated by either Southwestern or Montage due to the merger having not been consummated by 11:59 p.m., Central



 

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Time, on February 12, 2021 or Montage stockholders failing to approve the Merger Proposal at the Montage Special Meeting (or a postponement or adjournment of that meeting) or by Southwestern for a breach of or any inaccuracy in any of the representations or warranties or a material breach of any of the covenants or agreements in the Merger Agreement by Montage, and (iii) within 12 months after the termination of the Merger Agreement, Montage or any of its subsidiaries enters into any definitive agreement providing for an Acquisition Proposal, or an Acquisition Proposal is consummated; provided that, for purposes of this paragraph only, any reference in the definition of “Acquisition Proposal” to “20% or more” will be deemed to be references to “50% or more.”

Accounting Treatment (See page 91)

Southwestern and Montage prepare their respective financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The merger will be accounted for using the acquisition method of accounting, with Southwestern being treated as the accounting acquirer. In identifying Southwestern as the acquiring entity for accounting purposes, Southwestern and Montage took into account a number of factors as of the date of this proxy statement/prospectus, including which entity is issuing its equity interests, the expectation that following the Effective Time holders of shares of Southwestern Common Stock as of immediately prior to the Effective Time will hold, in the aggregate, approximately 90% of the issued and outstanding shares of Southwestern Common Stock (based on fully diluted shares outstanding of Southwestern) immediately following the Effective Time, the intended corporate governance structure of Southwestern following the Effective Time, the intended senior management of Southwestern following the Effective Time, and the terms of the share exchange. No single factor was the sole determinant in the overall conclusion that Southwestern is the acquirer for accounting purposes; rather, all factors were considered in arriving at such conclusion.

Material U.S. Federal Income Tax Consequences of the Merger (See page 149)

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. However, it is not a condition to Southwestern’s obligation or Montage’s obligation to complete the merger that the merger qualifies as a “reorganization.” Nevertheless, assuming that the merger so qualifies, U.S. holders of shares of Montage Common Stock will generally not recognize any gain or loss for U.S. federal income tax purposes on the exchange of their shares of Montage Common Stock for shares of Southwestern Common Stock in the merger, except for any gain or loss that may result from the receipt of cash in lieu of a fractional share of Southwestern Common Stock.

Southwestern and Montage have not sought and will not seek any ruling from the IRS regarding any matters relating to the transactions and, as a result, there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth herein.

For a more complete discussion of the U.S. federal income tax consequences of the merger, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger.”

The discussion of the material U.S. federal income tax consequences contained in this proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, it does not address the effects of any foreign, state or local tax laws, or federal tax laws other than U.S. federal income tax laws.

TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX



 

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ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.

Fractional Shares (See page 95)

No fractional shares will be issued in connection with the merger. Instead, Montage stockholders will receive cash for any fractional shares of Southwestern Common Stock that such stockholder would otherwise receive in the merger. Any cash amounts to be received by a stockholder in respect of fractional shares will be aggregated and rounded to the nearest whole cent.

Comparison of Stockholders Rights (See page 156)

Upon completion of the merger, Montage stockholders receiving shares of Southwestern Common Stock will become stockholders of Southwestern, and their rights will be governed by Delaware law and the governing corporate documents of Southwestern in effect at the Effective Time. Montage stockholders will have different rights once they become stockholders of Southwestern due to differences between the governing corporate documents of Montage and Southwestern, as further described in “Comparison of Stockholders’ Rights.”

Listing of Southwestern Common Stock; Delisting and Deregistration of Montage Common Stock (See page 91)

Before completion of the merger, Southwestern has agreed to use its reasonable best efforts to cause the shares of Southwestern Common Stock to be issued in the merger and reserved for issuance under any equity awards to be approved for listing on the NYSE. The listing of the shares of Southwestern Common Stock is also a condition to completion of the merger. If the merger is completed, the Montage Common Stock will cease to be listed on NYSE and will be deregistered under the Exchange Act.

Regulatory Matters (See page 92)

The completion of the merger is subject to antitrust review in the United States. Under the HSR Act and the rules promulgated thereunder, the merger cannot be completed until the parties to the Merger Agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), and until the applicable waiting period has expired or has been terminated. On September 9, 2020, Montage and Southwestern received early termination of the HSR Act waiting period.

In addition, the new shares of Southwestern Common Stock to be issued to former Montage stockholders must be approved for listing on the NYSE, subject to official notice of issuance.

No Appraisal Rights (See page 92)

Under the DGCL, neither Southwestern stockholders nor Montage stockholders are entitled to appraisal rights or dissenters’ rights in connection with the merger or the issuance of shares in the merger.

Legal Proceedings Regarding the Merger (See page 92)

On September 30, 2020, a putative class action was filed by a purported Montage stockholder in the United States District Court for the District of Delaware, styled, Jack Wolf v. Montage Resources Corporation, et. al. (the “Wolf Complaint”). Also on September 30, 2020, a putative class action was filed by a purported Montage stockholder in the Supreme Court of the State of New York, styled, Jason Gordon v. Montage Resources Corporation, et. al. (the “Gordon Complaint” and, together with the Wolf Complaint, the “Complaints”). The



 

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Complaints name as defendants Montage, the Montage Board and Southwestern. The Wolf Complaint asserts claims under Sections 14(a) and 20(a) of the Exchange Act, alleging, among other things, that the registration statement on Form S-4, originally filed on September 16, 2020, omits material information with respect to the proposed merger, which renders the registration statement false and misleading. The Gordon Complaint asserts claims for breach of fiduciary duty under Delaware law against Montage and its directors, alleging, among other things, that the registration statement omits or misrepresents material information, that the merger consideration offered to Montage stockholders is inadequate, and that the process leading to the proposed merger did not offer sufficient protections for Montage stockholders. The Complaints seek to enjoin the proposed transaction and seek rescission and rescissory damages, including attorneys’ fees, among other relief.

Each of the lawsuits described above is at a preliminary stage. Southwestern and Montage believe the claims are meritless, but cannot currently predict the outcome of or reasonably estimate the possible loss or range of loss from such lawsuits. The defendants have not yet answered or otherwise responded to the Complaints.

Risk Factors (See page 23)

In evaluating the Merger Agreement and the merger, you should carefully read this proxy statement/prospectus and give special consideration to the factors discussed in “Risk Factors.”



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SOUTHWESTERN

The following table presents selected historical consolidated financial data for the periods indicated below. Southwestern derived the selected historical statements of earnings data for the years ended December 31, 2019, 2018 and 2017 and the balance sheet data as of December 31, 2019 and 2018, from its audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which is incorporated by reference into this document. The selected historical consolidated financial data for the six months ended June 30, 2020 and June 30, 2019, and as of June 30, 2020, are derived from Southwestern’s unaudited interim consolidated financial statements and related notes thereto contained in Southwestern’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which is incorporated by reference into this proxy statement/prospectus.

The selected historical consolidated financial data for the years ended December 31, 2016 and 2015 and as of December 31, 2017, 2016 and 2015, have been derived from Southwestern’s audited consolidated financial statements as of and for such years, which have not been included or incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data as of June 30, 2019, have been derived from Southwestern’s unaudited interim consolidated financial statements and related notes thereto contained in Southwestern’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which has not been incorporated by reference into this proxy statement/prospectus.

In presenting the selected historical consolidated financial data in conformity with GAAP, Southwestern is required to make estimates and assumptions that affect the amounts reported. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates,” included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are incorporated by reference into this document, for a detailed discussion of the accounting policies that Southwestern believes require subjective and complex judgments that could potentially affect reported results. The unaudited financial statements as of and for the periods described above have been prepared on the same basis as the audited consolidated financial statements incorporated by reference in this proxy statement/prospectus and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the information for the periods presented.

 

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The selected historical consolidated financial data set forth below are only a summary and are not necessarily indicative of future results of Southwestern and should be read together with the other information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes of Southwestern, included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are incorporated by reference into this proxy statement/prospectus.

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2020     2019     2019     2018     2017     2016     2015  

Financial Review

    (in millions except shares, per share, stockholder data and percentages)  

Total revenues

  $ 1,002   $ 1,657   $ 3,038   $ 3,862   $ 3,203   $ 2,436   $ 3,133

Operating costs and expenses

    3,248     1,422     2,768     3,065     2,472     4,626     9,655

Operating income (loss)

    (2,246     235     270     797     731     (2,190     (6,522

Net income (loss) attributable to common stock

  $ (2,427   $ 732   $ 891   $ 535   $ 815   $ (2,751   $ (4,662

Common Stock Statistics

 

Earnings (loss) attributable to common stockholders per share:

             

Basic

  $ (4.49   $ 1.36   $ 1.65   $ 0.93   $ 1.64   $ (6.32   $ (12.25

Diluted

  $ (4.49   $ 1.35   $ 1.65   $ 0.93   $ 1.63   $ (6.32   $ (12.25

Weighted average common shares outstanding

             

Basic

    540,693,841     539,362,984     539,345,343     574,631,756     498,264,321     435,337,402     380,521,039

Diluted

    540,693,841     540,624,742     540,382,914     576,642,808     500,804,297     435,337,402     380,521,039

Statement of Cash Flow Data:

 

Net cash provided by operating activities

  $ 254   $ 543   $ 964   $ 1,223   $ 1,097   $ 498   $ 1,580

Net cash provided by (used in) investing activities

  $ (470   $ (560   $ (1,045   $ 359   $ (1,252   $ (162   $ (1,638

Net cash provided by (used in) financing activities

  $ 221   $ (29   $ (115   $ (2,297   $ (352   $ 1,072   $ 20

Balance Sheet Data:

 

Total assets

  $ 4,555   $ 6,545   $ 6,717   $ 5,797   $ 7,521   $ 7,076   $ 8,086

Total debt

  $ 2,440   $ 2,319   $ 2,242   $ 2,318   $ 4,391   $ 4,653   $ 4,705

Stockholders’ equity

  $ 823   $ 3,082   $ 3,246   $ 2,362   $ 1,979   $ 917   $ 2,282

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MONTAGE

The following table presents selected historical consolidated financial data for the periods indicated below. The selected historical consolidated financial data for the years ended December 31, 2019, 2018 and 2017 and as of December 31, 2019 and 2018, have been derived from Montage’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which is incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data for the six months ended June 30, 2020 and June 30, 2019, and as of June 30, 2020, are derived from Montage’s unaudited interim consolidated financial statements and related notes thereto contained in Montage’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which is incorporated by reference into this proxy statement/prospectus.

The selected historical consolidated financial data for the years ended December 31, 2016 and 2015 and as of December 31, 2017, 2016 and 2015, have been derived from Montage’s audited consolidated financial statements as of and for such years, which have not been included or incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data as of June 30, 2019, have been derived from Montage’s unaudited interim consolidated financial statements and related notes thereto contained in Montage’s Quarterly Report on Form 10-Q for the six months ended June 30, 2019, which has not been included or incorporated by reference into this proxy statement/prospectus.

In presenting the selected historical consolidated financial data in conformity with GAAP, Montage is required to make estimates and assumptions that affect the amounts reported. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates,” included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are incorporated by reference into this proxy statement/prospectus, for a detailed discussion of the accounting policies that Montage believes require subjective and complex judgments that could potentially affect reported results. The unaudited financial statements as of and for the periods described above have been prepared on the same basis as the audited consolidated financial statements incorporated by reference in this proxy statement/prospectus and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the information for the periods presented.

The selected historical consolidated financial data set forth below are only a summary and are not necessarily indicative of future results of Montage and should be read together with the other information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes of Montage, included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are incorporated by reference into this proxy statement/prospectus. Montage completed its business combination with Blue Ridge Mountain Resources, Inc. (“BRMR”) on February 28, 2019. The results and other financial information of BRMR are not included in the table below for the periods or dates prior to February 28, 2019. For additional information, see the section entitled “Where You Can Find More Information” beginning on page 185.

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2020     2019     2019     2018     2017     2016     2015  
    (in millions except shares, per share, stockholder data and
percentages)
 

Financial Review

             

Total revenues

  $ 224   $ 297   $ 634   $ 515   $ 384   $ 235   $ 255

Operating costs and expenses

    280       282       594       421       371       352       1,235  

Operating income (loss)

    (56     15       41       94       13       (117     (980

 

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    Six Months Ended
June 30,
    Year Ended December 31,  
    2020     2019     2019     2018     2017     2016     2015  
    (in millions except shares, per share, stockholder data and
percentages)
 

Income (loss) from continuing operations

    (57     11       30       19       9     (207     (962

Net income (loss) attributable to common stock

  $ (66   $ 13   $ 32   $ 19   $ 9   $ (207   $ (962

Common Stock Statistics (1)

             

Earnings (loss) attributable to common stockholders per share:

             

Basic

  $ (1.84   $ 0.44   $ 0.96   $ 0.94   $ 0.49   $ (12.84   $ (66.21

Diluted

  $ (1.84   $ 0.44   $ 0.95   $ 0.94   $ 0.48   $ (12.84   $ (66.21

Weighted average common shares outstanding (in thousands)

             

Basic

    35,816     30,645     33,211     19,999     17,479     16,096     14,526

Diluted

    35,816     30,830     33,324     20,087     17,679     16,096     14,526

Statement of Cash Flow Data:

             

Net cash provided by operating activities

  $ 42   $ 83   $ 255   $ 225   $ 113   $ 6   $ 80

Net cash used in investing activities

  $ (75   $ (165   $ (336   $ (266   $ (292   $ (89   $ (437

Net cash provided by (used in) financing activities

  $ 30   $ 85   $ 86   $ 30   $ (4   $ 100   $ 474

Balance Sheet Data:

             

Total assets

  $ 1,896   $ 1,920   $ 1,951   $ 1,434   $ 1,224   $ 1,199   $ 1,267

Total debt

  $ 662   $ 627   $ 631   $ 530   $ 495   $ 492   $ 527

Stockholders’ equity

  $ 933   $ 977   $ 997   $ 687   $ 572   $ 557   $ 633

 

(1)

All issued and outstanding share and per share amounts as of and for the periods prior to February 28, 2019 have been adjusted retroactively to reflect the 15-to-1 reverse stock split with respect to the issued and outstanding shares of Montage Common Stock effected on February 28, 2019, in accordance with ASC 505 “Equity”.

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following selected unaudited pro forma condensed combined statements of operations data for the six months ended June 30, 2020 and year ended December 31, 2019 have been derived from the “Unaudited Pro Forma Condensed Combined Financial Information” and related notes included in this proxy statement/prospectus and have been prepared to give effect to the merger and related equity and debt issuances along with the use of proceeds therefrom, as if they had been completed on January 1, 2019. The unaudited pro forma condensed combined consolidated balance sheet data at June 30, 2020 has been prepared to give effect to the merger and related equity and debt issuances, along with the use of proceeds therefrom, as if they were completed on June 30, 2020.

The following selected unaudited pro forma condensed combined consolidated financial information is not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2019 for statements of operations purposes, and on June 30, 2020 for balance sheet purposes, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors.” The following selected unaudited pro forma condensed combined consolidated financial information should be read in conjunction with the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and related notes included in this proxy statement/prospectus.

 

(in millions, except per share amounts)    Six Months
Ended
June 30, 2020
     Year Ended
December 31,
2019
 

Unaudited Pro Forma Combined Statement of Operations:

     

Revenue

   $ 1,226    $ 3,673  

Net income (loss)

   $ (2,413    $ 1,007  

Net income (loss) per share, basic

   $ (3.60    $ 1.50  

Net income (loss) per share, diluted

   $ (3.60    $ 1.50  

 

(in millions)    At June 30, 2020  

Unaudited Pro Forma Combined Balance Sheet:

  

Cash and cash equivalents

       $ —  

Total assets

       $ 5,697  

Total liabilities

       $ 4,543

Total stockholders’ equity

       $ 1,154  

 

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SUMMARY UNAUDITED PRO FORMA COMBINED OIL, NATURAL GAS AND NGL RESERVE INFORMATION AND PRODUCTION DATA

The following tables present a summary of the estimated pro forma combined net proved developed and undeveloped oil, natural gas and NGL reserves as of December 31, 2019, as well as pro forma production data, which have been derived from “Note 4. Supplemental Pro Forma Oil and Natural Gas Reserve Information” included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” within this proxy statement/prospectus and give effect to the merger as if the transaction had occurred on January 1, 2019.

The following estimated pro forma combined net proved developed and undeveloped natural gas, oil and NGL reserve information and production data is not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2019, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors.” The following summary estimated unaudited pro forma combined net proved developed and undeveloped natural gas, oil and NGL reserve information and production data should be read in conjunction with the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and related notes included in this proxy statement/prospectus.

 

     As of December 31, 2019  
     Southwestern
Historical
     Montage
Historical
     Pro Forma
Combined
 

Proved reserves:

        

Natural gas (Bcf)

     8,630      2,138        10,768

Crude oil (MBbls)

     72,925      30,324      103,249  

Natural gas liquids (MBbls)

     608,761        68,359        677,120  
  

 

 

    

 

 

    

 

 

 

Total proved reserves (Bcfe)

     12,721        2,730        15,451  

Proved developed reserves:

        

Natural gas (Bcf)

     4,906      1,183        6,089  

Crude oil (MBbls)

     26,124        12,512        38,636  

Natural gas liquids (MBbls)

     226,271        39,316        265,587  
  

 

 

    

 

 

    

 

 

 

Total proved developed reserves (Bcfe)

     6,421      1,494        7,915

Proved Undeveloped reserves:

        

Natural gas (Bcf)

     3,724        955        4,679  

Crude oil (MBbls)

     46,801        17,812        64,613  

Natural gas liquids (MBbls)

     382,490        29,043        411,533  
  

 

 

    

 

 

    

 

 

 

Total proved undeveloped reserves (Bcfe)

     6,300        1,236        7,536  
     Year ended December 31, 2019  
     Southwestern
Historical
     Montage
Historical
     Pro Forma
Combined
 

Production:

        

Natural gas (Bcf)

     609      154        763

Crude oil (MBbls)

     4,696      2,951        7,647  

Natural gas liquids (MBbls)

     23,620      4,686      28,306  
  

 

 

    

 

 

    

 

 

 

Total production (Bcfe)

     778      200        978
     Six months ended June 30, 2020  
     Southwestern
Historical
     Montage
Historical
     Pro Forma
Combined
 

Production:

        

Natural gas (Bcf)

     314      86        400

Crude oil (MBbls)

     2,482      1,101        3,583  

Natural gas liquids (MBbls)

     12,239        2,192        14,431  
  

 

 

    

 

 

    

 

 

 

Total production (Bcfe)

     402      106      508

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE INFORMATION

The following table presents Southwestern’s and Montage’s historical and pro forma per share data as of and for the year ended December 31, 2019 and as of and for the six months ended June 30, 2020. The pro forma per share data as of and for the year ended December 31, 2019 and as of and for the six months ended June 30, 2020 is presented as if the merger and related common stock and debt issuances, along with the use of the proceeds therefrom, had been completed on January 1, 2019. The information provided in the table below is unaudited. This information should be read together with the historical consolidated financial statements and related notes of Southwestern and Montage, filed by each with the SEC, and incorporated by reference into this proxy statement/prospectus, and with the unaudited pro forma condensed combined financial statements included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 132. The pro forma information is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the period.

 

     Year ended December 31, 2019  
     Southwestern
Historical
    Montage
Historical
    Pro Forma
Combined
(Unaudited)
    Pro Forma
Combined
Equivalent
(Unaudited)(1)
 

Net Income (Loss) Attributable to Common Shareholders per Common Share:

        

Basic

   $ 1.65   $ 0.96   $ 1.50     $ 2.80  

Diluted

   $ 1.65   $ 0.95   $ 1.50     $ 2.80  

Book value per share

   $ 6.01   $ 29.92    

Cash dividends per share

   $ —     $ —     $ —       $ —  
     Six months ended June 30, 2020  
     Southwestern
Historical
    Montage
Historical
    Pro Forma
Combined
(Unaudited)
    Pro Forma
Combined
Equivalent
(Unaudited)(1)
 

Net Income (Loss) Attributable to Common Shareholders per Common Share:

        

Basic

   $ (4.49   $ (1.84   $ (3.60   $ (6.72

Diluted

   $ (4.49   $ (1.84   $ (3.60   $ (6.72

Book value per share

   $ 1.52   $ 26.06   $ 1.72     $ 3.21  

Cash dividends per share

   $ —     $ —     $ —       $ —    

 

(1)

Determined using the pro forma combined per share data multiplied by 1.8656 (the exchange ratio).

 

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Market Price

The Southwestern Common Stock is traded on the NYSE under the symbol “SWN” and the Montage Common Stock is traded on the NYSE under the symbol “MR.”

The high and low trading prices for the Southwestern Common Stock on August 11, 2020, the last trading day immediately before the public announcement of the merger, were $3.25 and $3.01, respectively. The high and low trading prices for the Montage Common Stock on August 11, 2020, the last trading day immediately before the public announcement of the merger, were $6.48 and $5.93, respectively.

As of September 30, 2020, the last date before the date of this proxy statement/prospectus for which it was practicable to obtain this information, there were 605,546,429 shares of Southwestern Common Stock outstanding and approximately 2,287 holders of record of Southwestern Common Stock, and 36,022,393 shares of Montage Common Stock outstanding and approximately 18 holders of record of Montage Common Stock.

The following table sets forth the closing sale price per share of Southwestern Common Stock and Montage Common Stock as reported on the NYSE as of August 11, 2020, the last trading day prior to the public announcement of the merger, and on September 30, 2020, the last practicable trading day before the date of this proxy statement/prospectus. The table also shows the estimated implied value of the merger consideration proposed for each share of Montage Common Stock as of the same two dates. The implied value was calculated by multiplying the closing price of a share of Southwestern Common Stock on the relevant date by the Exchange Ratio of 1.8656 shares of Southwestern Common Stock for each share of Montage Common Stock.

 

     Southwestern
Common
Stock
Closing Price
     Montage
Common
Stock

Closing Price
     Exchange
Ratio
     Implied
Per Share
Value of Merger
Consideration
 

August 11, 2020

   $         3.04      $         5.97        1.8656    $         5.67  

September 30, 2020

   $ 2.35      $ 4.39        1.8656    $ 4.38  

The market prices of Southwestern Common Stock and Montage Common Stock have fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate prior to the completion of the merger. No assurance can be given concerning the market prices of Southwestern Common Stock or Montage Common Stock before completion of the merger or of Southwestern Common Stock after completion of the merger. Because the Exchange Ratio, which determines the merger consideration, is fixed and will not be adjusted for changes in the market prices of either Southwestern Common Stock or Montage Common Stock, the market price of Southwestern Common Stock (and, therefore, the value of the merger consideration) when received by Montage stockholders after the merger is completed could be greater than, less than or the same as shown in the table above. Accordingly, these comparisons may not provide meaningful information to stockholders in determining how to vote with respect to the proposals described in this proxy statement/prospectus. We urge you to obtain current market quotations for Southwestern Common Stock and Montage Common Stock and to review carefully the other information contained in this proxy statement/prospectus. Please see “Risk Factors—Risks Relating to the Merger—Because the Exchange Ratio is fixed and will not be adjusted in the event of any change in either Southwestern’s or Montage’s stock price, the value of the merger consideration is uncertain.”

For more information on the market for Southwestern’s or Montage’s common equity, related stockholder matters and issuer purchases of equity securities, see Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of Southwestern’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or Montage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which are each incorporated by reference into this proxy statement/prospectus.

 

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Dividend Information

Southwestern currently does not pay dividends on Southwestern Common Stock, and does not anticipate paying any cash dividends in the foreseeable future. All decisions regarding the declaration and payment of dividends and stock repurchases are at the discretion of the Southwestern Board and will be evaluated regularly in light of Southwestern’s financial condition, earnings, growth prospects, funding requirements, applicable law and any other factors that the Southwestern Board deems relevant. The terms of the combined company’s debt agreements will contain restrictions on its ability to pay dividends. The terms of agreements governing debt that the combined company may incur in the future may also limit or prohibit dividend payments. Accordingly, Southwestern cannot assure you that it will either pay dividends in the future or continue to pay any dividend that it may commence in the future.

Montage has not paid any cash dividends since its inception, and it does not anticipate declaring or paying any cash dividends to holders of Montage Common Stock. The terms of the Merger Agreement limit the ability of Montage to declare or pay dividends prior to the completion of the merger. In addition, certain of Montage’s debt instruments place restrictions on its ability to pay cash dividends.

 

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RISK FACTORS

Risks Relating to the Merger

Because the Exchange Ratio is fixed and will not be adjusted in the event of any change in either Southwestern’s or Montage’s stock price, the value of the merger consideration is uncertain.

Upon completion of the merger, each share of Montage Common Stock outstanding immediately prior to the merger will be converted into and become exchangeable for 1.8656 shares of Southwestern Common Stock. The Exchange Ratio is fixed in the Merger Agreement and will not be adjusted for changes in the market price of either Southwestern Common Stock or Montage Common Stock. The market prices of Southwestern Common Stock and Montage Common Stock have fluctuated prior to and after the date of the announcement of the Merger Agreement and will continue to fluctuate from the date of this proxy statement/prospectus to the date of the Montage Special Meeting and the date the merger is consummated, and the market price of Southwestern Common Stock will continue to fluctuate thereafter.

Because the value of the merger consideration will depend on the market price of Southwestern Common Stock at the time the merger is completed, Montage stockholders will not know, or be able to determine, at the time of the Montage Special Meeting the market value of the merger consideration they would receive upon completion of the merger.

Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in Southwestern’s and Montage’s respective businesses, operations and prospects, reductions or changes in U.S. government spending or budgetary policies, market assessments of the likelihood that the merger will be completed, interest rates, general market, industry and economic conditions, such as oil prices and demand for natural gas, oil and NGLs, federal, state and local legislation, governmental regulation and legal developments in the industry segments in which Southwestern or Montage operate, the effects of the coronavirus pandemic (COVID-19) and governmental and business responses to the pandemic, the timing of the merger and other factors generally affecting the respective prices of Southwestern Common Stock or Montage Common Stock.

Many of these factors are beyond Southwestern’s and Montage’s control, and neither Southwestern nor Montage is permitted to terminate the Merger Agreement solely due to a decline in the market price of the common stock of the other party. You are urged to obtain current market quotations for Southwestern Common Stock and Montage Common Stock in determining whether to vote for the Merger Proposal. In addition, see “Comparative Historical and Unaudited Per Share Information” and “Comparative Per Share Market Price and Dividend Information.”

The merger may not be completed and the Merger Agreement may be terminated in accordance with its terms.

The merger is subject to a number of conditions that must be satisfied or waived (to the extent permissible), including the approval of the Merger Proposal prior to the completion of the merger. These conditions are described in “The Merger Agreement—Conditions to the Completion of the Merger.” These conditions to the completion of the merger, some of which are beyond the control of Southwestern and Montage, may not be satisfied or waived in a timely manner or at all, and, accordingly, the merger may be delayed or not completed. Additionally, either Southwestern or Montage may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the merger is not completed by February 12, 2021 (subject to certain exceptions). Montage will be required to pay to Southwestern a termination fee of $9.7 million if the Merger Agreement is terminated: (i) by Southwestern if Montage has entered into any agreement with respect to an Acquisition Proposal (other than the merger or an Acceptable Confidentiality Agreement as permitted by the Merger Agreement), the Montage Board’s approval or recommendation of (or, in the case of a committee, a proposal to the Montage Board to approve or recommend) any Acquisition Proposal other than the merger, or the Montage Board’s resolution to do any of the foregoing; (ii) by Southwestern with respect to an Adverse

 

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Recommendation Change; (iii) by Montage in order to enter into a definitive agreement with respect to a Superior Proposal or (iv) (A) an Acquisition Proposal has been publicly proposed by any person (other than Southwestern or any of its affiliates) or an Acquisition Proposal has otherwise become known to Montage’s directors or officers, or its stockholders generally, (B) thereafter the Merger Agreement is terminated by either Southwestern or Montage due to the merger having not been consummated by 11:59 p.m., Central Time, on February 12, 2021 or Montage stockholders failing to approve the Merger Proposal at the Montage Special Meeting (or a postponement or adjournment of that meeting) or by Southwestern for a breach of or any inaccuracy in any of the representations or warranties or a material breach of any of the covenants or agreements in the Merger Agreement by Montage, and (C) within 12 months after the termination of the Merger Agreement, Montage or any of its subsidiaries enters into any definitive agreement providing for an Acquisition Proposal, or an Acquisition Proposal is consummated; provided that, for purposes of this paragraph only, any reference in the definition of “Acquisition Proposal” to “20% or more” will be deemed to be references to “50% or more.” For more information, see “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Termination of the Merger Agreement—Termination Fee.”

The termination of the Merger Agreement could negatively impact Southwestern or Montage.

If the merger is not completed for any reason, including as a result of a failure to obtain approval of the Merger Proposal, the ongoing businesses of Southwestern and Montage may be adversely affected and, without realizing any of the benefits of having completed the merger, Southwestern and Montage may experience certain negative effects, including:

 

   

each company’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger;

 

   

the market price of Southwestern Common Stock or Montage Common Stock may decline to the extent that the market prices prior to termination reflect a market assumption that the merger will be completed; and

 

   

negative reactions from the financial markets may occur if the anticipated benefits of the merger are not able to be realized. Such anticipated benefits may include, among others, operational efficiencies, cost savings, and synergies.

If the merger is not consummated, neither Southwestern nor Montage can assure you that the risks described above will not negatively impact its business, financial results and ability to pay dividends, if any, to its respective stockholders.

The market price for shares of Southwestern Common Stock following the completion of the merger may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market prices of shares of Southwestern Common Stock and Montage Common Stock.

Upon consummation of the merger, Southwestern stockholders and Montage stockholders will both hold shares of Southwestern Common Stock. Southwestern’s businesses differ in some regards from those of Montage, and Montage’s businesses differ in some regards from those of Southwestern, and, accordingly, the results of operations of Southwestern following completion of the merger will be affected by some factors that are different from those currently or historically affecting the results of operations of Southwestern and those currently or historically affecting the results of operations of Montage. The results of operations of Southwestern following completion of the merger may also be affected by factors different from those that currently affect or have historically affected either Southwestern or Montage. In addition, following completion of the merger, Southwestern may seek to raise additional equity financing through one or more underwritten offerings, private placements and/or rights offerings, or issue stock in connection with acquisitions, which may result in downward pressure on the share price of Southwestern Common Stock. For a discussion of the businesses of each of

 

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Southwestern and Montage and some important factors to consider in connection with those businesses, please see “The Parties to the Merger” and the documents and information included elsewhere in incorporated by reference into this proxy statement/prospectus.

The shares of Southwestern Common Stock to be received by Montage stockholders as a result of the merger will have rights different from the shares of Montage Common Stock.

Upon consummation of the merger, the rights of Montage stockholders, who will become stockholders of Southwestern, will be governed by the Southwestern certificate of incorporation and the Southwestern bylaws. The rights associated with Montage Common Stock are different from the rights associated with Southwestern Common Stock. See “Comparison of Stockholders’ Rights” for a discussion of these rights.

Southwestern stockholders and Montage stockholders will each have reduced ownership and voting interest in and will exercise less influence over management of Southwestern following completion of the merger.

Southwestern stockholders currently have the right to vote in the election of the Southwestern Board and on other matters affecting Southwestern, and Montage stockholders currently have the right to vote in the election of the Montage Board and on other matters affecting Montage. Upon consummation of the merger, each Southwestern stockholder and each former Montage stockholder will be a stockholder of Southwestern with a percentage ownership of Southwestern that is smaller than such stockholder’s percentage ownership of Southwestern or Montage, as applicable, immediately prior to the merger. As of the date of this proxy statement/prospectus, based on the Exchange Ratio, the number of outstanding shares of Montage Common Stock (plus the number of shares underlying outstanding Montage restricted stock units and performance units) and the number of outstanding shares of Southwestern Common Stock (on a fully diluted basis), it is estimated that Southwestern stockholders will own approximately 90% and Montage stockholders will own approximately 10% of the issued and outstanding shares of Southwestern Common Stock on a fully diluted basis immediately following the effective time of the merger. Because of this, each share of Southwestern Common Stock and each share of Montage Common Stock will represent a smaller percentage ownership of Southwestern than it represented in Southwestern and Montage, respectively.

Until the completion of the merger or the termination of the Merger Agreement in accordance with its terms, Southwestern and Montage are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Southwestern or Montage and their respective stockholders.

From and after the date of the Merger Agreement and prior to completion of the merger, the Merger Agreement restricts Southwestern and Montage from taking specified actions without the consent of the other party and generally requires that the business of each company and its respective subsidiaries be conducted in all material respects in the ordinary course of business consistent with past practice. These restrictions may prevent Southwestern or Montage from making appropriate changes to their respective businesses or organizational structures or from pursuing attractive business opportunities that may arise prior to the completion of the merger, and could have the effect of delaying or preventing other strategic transactions. Adverse effects arising from the pendency of the merger could be exacerbated by any delays in consummation of the merger or termination of the Merger Agreement. Please see “The Merger Agreement—Covenants—Conduct of Business Prior to the Effective Time.”

Obtaining required approvals and satisfying closing conditions may prevent or delay completion of the merger.

The merger is subject to a number of conditions to closing as specified in the Merger Agreement. These closing conditions include, among others, obtaining stockholder approval of the Merger Proposal, approval for listing on the NYSE of the shares of Southwestern Common Stock issuable in accordance with the Merger

 

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Agreement, the absence of governmental restraints or prohibitions preventing the consummation of the merger, the effectiveness of Southwestern’s registration statement on Form S-4 registering the Southwestern Common Stock issuable pursuant to the Merger Agreement and the absence of any stop order or proceedings by the SEC with respect thereto. The obligation of each of Southwestern and Montage to consummate the merger is also conditioned on, among other things, (i) the accuracy of the representations and warranties as set forth by the other party in the Merger Agreement, (ii) the performance by the other party, in all material respects, of its obligations under the Merger Agreement required to be performed at or prior to the Effective Time and (iii) the delivery by the other party of a certificate of an authorized officer certifying that the required conditions have been satisfied. The required stockholder consents and approvals may not be obtained and the required conditions to closing may not be satisfied, and, if all required consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the merger could cause Southwestern and Montage not to realize, or to be delayed in realizing, some or all of the benefits that Southwestern and Montage expect to achieve if the merger is successfully completed within its expected time frame. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, please see “The Merger Agreement—Conditions to the Completion of the Merger.”

Under the terms of the Credit Agreement Amendment, failure to redeem at least $450 million of the Montage Notes may lead to an accelerated maturity of the Southwestern Credit Agreement.

Southwestern entered into an amendment to its credit agreement to, among other things, permit the merger and the assumption of the Montage Notes (as defined in “The Merger—Treatment of Indebtedness”). Unless, on or prior to the date that is 91 days before the scheduled maturity date of the Montage Notes, at least $450 million of the Montage Notes have been either redeemed or refinanced (such refinance subject to certain criteria) or amended such that their maturity date, or the maturity date of such refinancing indebtedness, as applicable, is extended to a date at least 91 days after the Southwestern Credit Agreement maturity date of April 26, 2024, the springing maturity included in the Credit Agreement Amendment will be triggered 91 days prior to the maturity date of the Montage Notes. For a more complete summary of the terms of the Credit Agreement Amendment, please see “The Merger—Treatment of Indebtedness—Credit Agreement Amendment.”

Completion of the merger will trigger change in control or other provisions in certain agreements to which Montage is a party, which may have an adverse impact on Southwestern’s business and results of operations following completion of the merger.

The completion of the merger will trigger change in control and other provisions in certain agreements to which Montage is a party. If Southwestern or Montage is unable to negotiate waivers of those provisions, counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages or equitable remedies. Even if Southwestern and Montage are able to negotiate consents or waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Montage or the combined company. Any of the foregoing or similar developments may have an adverse impact on Southwestern’s business and results of operations following completion of the merger.

Failure to attract, motivate and retain executives and other key employees could diminish the anticipated benefits of the merger.

The success of the merger will depend in part on the retention of personnel critical to the business and operations of the combined company due to, for example, their technical skills or management expertise. Competition for qualified personnel can be intense.

Current and prospective employees of Southwestern and Montage may experience uncertainty about their future role with Southwestern, Montage or the combined company until strategies with regard to these employees are announced or executed, which may impair Southwestern’s and Montage’s ability to attract, retain and motivate key management, sales, marketing, technical and field personnel, prior to and following the merger.

 

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Employee retention may be particularly challenging during the pendency of the merger, as employees of Southwestern and Montage may experience uncertainty about their future roles with Southwestern. If Southwestern and Montage are unable to retain personnel, including Southwestern’s and Montage’s key management, who are critical to the successful integration and future operations of the companies, Southwestern and Montage could face disruptions in their operations, loss of existing customers or loss of sales to existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs.

In addition, the loss of key personnel could diminish the anticipated benefits of the merger. If key employees of Southwestern or Montage depart, the integration of the companies may be more difficult and Southwestern’s business following the merger may be harmed. Furthermore, Southwestern may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent relating to the business of each of Southwestern and Montage, and the combined company’s ability to realize the anticipated benefits of the merger may be adversely affected. In addition, there could be disruptions to or distractions for the workforce and management associated with integrating employees into Southwestern. Following completion of the merger, Southwestern may not be able to attract or retain key employees of Southwestern and Montage to the same extent that those companies have been able to attract or retain their own employees in the past.

The merger, and uncertainty regarding the merger, may cause customers or suppliers to delay or defer decisions concerning Southwestern and Montage and adversely affect each company’s ability to effectively manage its respective business.

The merger will be consummated only if the stated conditions are satisfied or waived, including approval of the Merger Proposal, among other conditions. Many of the conditions are outside the control of Southwestern and Montage, and both parties also have certain rights to terminate the Merger Agreement. Accordingly, there may be uncertainty regarding the completion of the merger. This uncertainty may cause customers, suppliers, vendors or others that deal with Southwestern or Montage to delay or defer entering into contracts with Southwestern or Montage or making other decisions concerning Southwestern or Montage or seek to change or cancel existing business relationships with Southwestern or Montage, which could negatively affect their respective businesses. Any delay or deferral of those decisions or changes in existing agreements could have an adverse impact on the respective businesses of Southwestern and Montage, regardless of whether the merger is ultimately completed.

The opinion rendered to the Montage Board from its financial advisor will not reflect changes in circumstances between the date of such opinion and the completion of the merger.

Montage has received an opinion from its financial advisor, Barclays, in connection with the signing of the Merger Agreement, but Montage has not requested an updated opinion as of the date of this proxy statement/prospectus from Barclays, and the Montage Board does not expect to request an updated opinion prior to the completion of the merger. Barclays does not assume any obligation to update, revise or reaffirm its opinion. Barclays’ opinion was necessarily based on economic, monetary, market and other conditions existing on, and the information made available to Barclays, only as of, the date of the opinion of Barclays. Its opinion does not address the fairness of the Exchange Ratio, from a financial point of view, at the time the merger is completed. Changes in the operations and prospects of Southwestern or Montage, general economic, monetary, market and other conditions and other factors that may be beyond the control of Southwestern or Montage, and on which the opinion of Barclays was based, may alter the value of Southwestern or Montage or the prices of shares of Southwestern Common Stock or Montage Common Stock by the time the merger is completed. The opinion of Barclays does not speak as of any date other than the date of such opinion. For a description of the opinion that Montage received from its financial advisor, please see “The Merger—Opinion of Montage’s Financial Advisor.” The full text of Barclays’ written opinion, dated as of August 12, 2020, is attached as Annex B to this proxy statement/prospectus.

 

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Southwestern and Montage may be adversely affected by negative publicity related to the proposed merger and in connection with other matters.

From time to time, political and public sentiment in connection with the proposed merger and in connection with other matters could result in a significant amount of adverse press coverage and other adverse public statements affecting Southwestern and Montage. Adverse press coverage and other adverse statements, whether or not driven by political or public sentiment, may also result in investigations by regulators, legislators and law enforcement officials or in legal claims. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, can divert the time and effort of senior management from the management of Southwestern’s and Montage’s respective businesses. Addressing any adverse publicity, governmental scrutiny or enforcement or other legal proceedings is time consuming and expensive and, regardless of the factual basis for the assertions being made, can have a negative impact on the reputation of Southwestern and Montage, on the morale and performance of their employees and on their relationships with their respective regulators. It may also have a negative impact on their ability to take timely advantage of various business and market opportunities. The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on Southwestern’s and Montage’s respective businesses, financial condition, results of operations and cash flows.

The directors and executive officers of Montage have interests and arrangements that may be different from, or in addition to, those of Montage stockholders generally.

When considering the recommendation the Montage Board with respect to the proposals described in this proxy statement/prospectus, stockholders should be aware that the directors and executive officers of Montage have interests in the merger that are different from, or in addition to, those of Montage stockholders generally. These interests include the treatment in the merger of outstanding equity, equity-based and incentive awards, severance arrangements, other compensation and benefit arrangements, and the right to continued indemnification of former Montage directors and officers by Southwestern.

Montage stockholders should be aware of these interests when they consider the recommendation of the Montage Board and when they vote on the Merger Proposal. The Montage Board was aware of these interests when it adopted, approved and declared advisable the Merger Agreement, the merger and the transactions contemplated thereby on the terms and subject to the conditions set forth in the Merger Agreement, determined that the Merger Agreement, the merger and the transactions contemplated by the Merger Agreement were advisable and fair to, and in the best interests of, Montage and Montage stockholders and recommended that Montage stockholders approve the Merger Proposal. The interests of Montage directors and executive officers are described in more detail in “The Merger—Interests of Montage’s Directors and Executive Officers in the Merger.”

Southwestern or Montage may waive one or more of the closing conditions without re-soliciting stockholder approval.

Southwestern or Montage may determine to waive, in whole or part, one or more of the conditions to closing the merger prior to Southwestern or Montage, as the case may be, being obligated to consummate the merger. Montage currently expects to evaluate the materiality of any waiver and its effect on Montage stockholders in light of the facts and circumstances at the time, to determine whether any amendment of this proxy statement/prospectus or any re-solicitation of proxies is required in light of such waiver. Any determination whether to waive any condition to the merger or to re-solicit stockholder approval or amending or supplementing this proxy statement/prospectus as a result of a waiver will be made by Montage at the time of such waiver based on the facts and circumstances as they exist at that time.

Montage stockholders will not be entitled to appraisal rights in the merger.

Under Delaware law, holders of Montage Common Stock do not have appraisal rights in connection with the merger, as more fully described in “The Merger—No Appraisal Rights.”

 

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There are various provisions of the Merger Agreement and related documents that restrict the ability of Montage to seek alternative transactions or to terminate the merger.

The Merger Agreement contains “no shop” provisions that restrict Montage’s ability to, among other things, solicit or pursue alternative Acquisition Proposals, as described in “The Merger Agreement—Covenants—No Solicitation of Acquisition Proposals.” There are only limited circumstances under which the Merger Agreement would permit the Montage Board to withhold, withdraw, qualify or modify the Montage recommendation (as defined in “The Merger Agreement—Representations and Warranties”). The Merger Agreement also provides that in certain circumstances, Montage may be required to pay Southwestern a termination fee of $9.7 million if the Merger Agreement is terminated, as more fully described in “The Merger Agreement—Termination of the Merger Agreement.”

The EnCap Support Agreement includes covenants that, with limited exceptions, require EnCap (which collectively owns approximately 39.0% of the outstanding shares of Montage Common Stock as of September 30, 2020) to vote all of the shares of Montage Common Stock held by EnCap on such date in favor of the Merger Proposal and against actions that may impair or impede the transactions contemplated by the Merger Agreement. For specific details, please see “The Merger Agreement—EnCap Support Agreement.”

These provisions could discourage a potential competing acquirer from considering or proposing an acquisition or merger, even if it were prepared to pay consideration with a higher value than that implied by the Exchange Ratio, or might result in a potential competing acquirer proposing to pay a lower per share price than it might otherwise have proposed to pay because of the added expense of the termination fee provisions of the Merger Agreement.

Each of Southwestern and Montage will incur transaction and merger-related expenses in connection with the merger.

Southwestern and Montage have incurred and expect to incur a number of non-recurring costs associated with consummating the merger and combining the operations of the two companies. These costs and expenses include fees paid to financial, legal and accounting advisors, potential employment-related costs, filing fees, printing expenses and other related charges. Some of these costs are payable by Southwestern or Montage regardless of whether the merger is completed.

Following completion of the merger, Southwestern will also incur integration costs related to the merger. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the merger and the integration of the two companies’ businesses. Although Southwestern and Montage expect that the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses may offset incremental transaction and merger-related costs over time, any net benefit may not be achieved in the near term or at all. Many of these costs will be borne by Southwestern or Montage even if the merger is not completed. While both Southwestern and Montage have assumed that certain expenses would be incurred in connection with the merger and the other transactions contemplated by the Merger Agreement, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.

Southwestern and Montage may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. Defending against these claims can result in substantial costs and divert management time and resources, even if the lawsuits are without merit. An adverse judgment could result in monetary damages, which could have a negative impact on Southwestern’s and Montage’s respective businesses, results of operations and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction

 

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prohibiting completion of the merger, the injunction may delay or prevent the merger from being completed, which may adversely affect Southwestern’s and Montage’s respective businesses, results of operations and financial condition.

Risks Relating to the Combined Company

Recent declines in crude oil prices to record low levels as a result of the outbreak of the novel strain of coronavirus (“COVID-19”) and a significantly oversupplied crude oil market have negatively impacted demand for the products of Southwestern and Montage, and are expected to continue to negatively impact demand for the products of Southwestern, Montage and of the combined company, which may result in a material negative impact on the combined company’s results of operations, financial position and liquidity.

The COVID-19 outbreak in the United States and globally, together with the recent significant decline in commodity prices due, in significant part, to the recent actions of OPEC and other oil producing nations (“OPEC+”), have adversely affected, and are expected to continue to adversely affect, both the price of and demand for crude oil and the continuity of the combined company’s business operations. Oil demand significantly deteriorated as a result of the COVID-19 pandemic and corresponding preventative measures taken around the world to mitigate its spread, including “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19.

In the midst of the ongoing COVID-19 pandemic, OPEC+ were unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production. The convergence of the COVID-19 pandemic and the crude oil production increases caused the significant dual impact of global oil demand decline and the risk of a substantial increase in supply. While OPEC+ agreed in April 2020 to cut production, downward pressure on commodity prices has remained and could continue for the foreseeable future.

While the U.S. Department of Homeland Security and various local orders have identified the energy industry as critical to the U.S. infrastructure, generally allowing certain of the operations of Southwestern, Montage and their customers to continue, the operations of Southwestern and Montage, and those of their respective customers, have been and will likely continue to be disrupted in various ways. The recent decline in commodity prices has and could continue to adversely affect the demand and pricing for the production of Southwestern, Montage, and of the combined company. Additionally, demand for the combined company’s production will likely be significantly affected in the event of a global recession due to the reduction in oil prices and the ongoing effects of COVID-19, with the possibility of numerous bankruptcies of exploration and production (“E&P”) companies during 2020.

Additionally, in an effort to minimize the spread of illness, Southwestern and Montage have implemented various worksite restrictions in order to minimize contact among personnel. Certain travel restrictions and flight cancellations have also slowed personnel travel and equipment delivery to certain locations.

The COVID-19 pandemic, coupled with the global crude oil supply and demand imbalance and resulting decline in crude oil prices, has significantly impacted the value of Southwestern Common Stock and of Montage Common Stock, which may reduce the ability of Southwestern, Montage or the combined company to access capital in the bank and capital markets, which could in the future negatively affect the combined company’s liquidity. In addition, a recession or long-term market correction resulting from the COVID-19 pandemic could in the future further materially affect the value of Southwestern Common Stock, affect the combined company’s access to capital and affect the combined company’s business in the near and long-term. The borrowing base of the combined company’s credit facilities will be dependent upon its receivables, which may be significantly lower in the future due to reduced activity levels or decreases in pricing for its production and services. In addition, if the combined company’s customers experience financial distress due to the current market conditions, they could default on their payments owed to the combined company and create a credit risk on collecting receivables.

 

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The COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 and depressed crude oil prices will impact the combined company’s results, financial position and liquidity will depend on future developments, which are highly uncertain and cannot be predicted.

The combined company may not be able to retain customers or suppliers, and customers or suppliers may seek to modify contractual obligations with the combined company, either of which could have an adverse effect on Southwestern’s business and operations. Third parties may terminate or alter existing contracts or relationships with Southwestern or Montage.

As a result of the merger, the combined company may experience impacts on relationships with customers and suppliers that may harm the combined company’s business and results of operations. Certain customers or suppliers may seek to terminate or modify contractual obligations following the merger whether or not contractual rights are triggered as a result of the merger. There can be no guarantee that customers and suppliers will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms following the merger. If any customers or suppliers seek to terminate or modify contractual obligations or discontinue their relationships with the combined company, then the combined company’s business and results of operations may be harmed. Furthermore, the combined company will not have long-term arrangements with many of its significant suppliers. If the combined company’s suppliers were to seek to terminate or modify an arrangement with the combined company, then the combined company may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

Southwestern and Montage also have contracts with vendors, landlords, licensors and other business partners which may require Southwestern or Montage, as applicable, to obtain consent from these other parties in connection with the merger. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs, and lose rights that may be material to the business of the combined company. In addition, third parties with whom Southwestern or Montage currently have relationships may terminate or otherwise reduce the scope of their relationship with either party in anticipation of the merger. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the merger. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the merger or by a termination of the Merger Agreement.

The combined company may fail to realize the anticipated benefits of the merger.

The success of the merger will depend on, among other things, the combined company’s ability to combine the Southwestern and Montage businesses in a manner that realizes anticipated synergies and meets or exceeds the forecasted stand-alone cost savings anticipated by each company. On a combined basis, the combined company expects to benefit from significant synergies, based on, among other things, increased scale. If the combined company is not able to successfully achieve these objectives, or the cost to achieve these synergies is greater than expected, then the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

The combined company must achieve the anticipated savings and synergies in a timely manner and without adversely affecting current revenues and investments in future growth. In addition, the combined company must successfully combine the businesses of Southwestern and Montage in a manner that permits the anticipated savings and synergies to be realized. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. A variety of factors may adversely affect the combined company’s ability to realize the currently expected operating synergies, savings and other benefits of the merger.

 

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The failure to successfully integrate the businesses and operations of Southwestern and Montage in the expected time frame may adversely affect the combined company’s future results.

Southwestern and Montage have operated and, until the completion of the merger, will continue to operate independently, however, their businesses may not be integrated successfully. It is possible that the integration process could result in the loss of key Southwestern employees or key Montage employees, the loss of customers, the disruption of either company’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integrating the operations of Southwestern and Montage in order to realize the anticipated benefits of the merger so the combined company performs as expected:

 

   

combining the companies’ operations and corporate functions;

 

   

combining the businesses of Southwestern and Montage, in a manner that permits the combined company to achieve any cost savings anticipated to result from the merger;

 

   

reducing additional and unforeseen expenses such that integration costs more than anticipated;

 

   

avoiding delays in connection with the merger or the integration process;

 

   

integrating personnel from the two companies and minimizing the loss of key employees;

 

   

identifying and eliminating redundant and underperforming functions and assets;

 

   

harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;

 

   

maintaining existing agreements with customers, providers and vendors and avoiding delays in entering into new agreements with prospective customers, providers and vendors;

 

   

addressing possible differences in business backgrounds, corporate cultures and management philosophies;

 

   

consolidating the companies’ administrative and information technology infrastructure and financial systems;

 

   

coordinating distribution and marketing efforts; and

 

   

establishing the combined company’s headquarters in Spring, Texas.

In addition, at times the attention of certain members of either company’s or both companies’ management and resources may be focused on completion of the merger and the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt each company’s ongoing business and the business of the combined company.

The unaudited pro forma condensed combined financial information contained in this proxy statement/prospectus may not be an indication of the combined company’s results of operations or financial condition following the closing of the merger.

This proxy statement/prospectus includes unaudited pro forma condensed combined financial information for the combined company, which give effect to the merger and should be read in conjunction with the financial statements and accompanying notes of Southwestern and Montage, which are incorporated by reference into this proxy statement/prospectus. The unaudited pro forma condensed combined financial information contained in this proxy statement/prospectus should not be considered to be an indication of the combined company’s results of operations or financial condition following the closing of the merger. The unaudited pro forma condensed combined financial information has been derived from the historical financial statements of Southwestern and

 

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Montage and adjustments, assumptions and preliminary estimates have been made in connection with the preparation of this information. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments, assumptions and estimates are difficult to make with accuracy.

Moreover, the unaudited pro forma condensed combined financial information does not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in coordinating the operations of Southwestern and Montage are not reflected in the unaudited pro forma condensed combined financial information. In addition, the unaudited pro forma condensed combined financial information does not include, among other things, estimated cost synergies, adjustments related to restructuring or integration activities, future acquisitions or disposals not yet known or probable, or impacts of merger-related change in control provisions that are currently not factually supportable or probable of occurring.

As a result, the actual results of operations and financial condition of the combined company following the closing of the merger may not be consistent with, or evident from, the unaudited pro forma condensed combined financial information. The assumptions used in preparing the unaudited pro forma condensed combined financial information may not prove to be accurate, and other factors may affect the combined company’s results of operations or financial condition following the closing of the merger. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the price of the Southwestern Common Stock following the closing of the merger.

The unaudited pro forma condensed combined financial information in this proxy statement/prospectus is based on the best information available, which in part includes a number of estimates and assumptions. These estimates and assumptions may prove not to be accurate, and accordingly, the unaudited pro forma condensed combined financial information should not be assumed to be indicative of what the combined company’s financial condition, results of operations or cash flows actually would have been as a stand-alone company or to be a reliable indicator of what the combined company’s financial condition or results of operations may actually be in the future.

The financial analyses and forecasts considered by Montage and its financial advisor may not be realized, which may adversely affect the market price of the Southwestern Common Stock following the closing of the merger.

In performing its financial analysis and rendering its opinion regarding the fairness, from a financial point of view, of the merger consideration, Montage’s financial advisor relied on, among other things, internal stand-alone financial analyses and forecasts provided by Montage and Southwestern. None of these analyses or forecasts were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, U.S. GAAP or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts. These forecasts are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them. These forecasts are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of Southwestern and Montage. Important factors that may affect the actual results of Southwestern and Montage and cause the internal financial forecasts to not be achieved include risks and uncertainties relating to Southwestern’s and Montage’s businesses, industry performance, the regulatory environment, general business and economic conditions and other factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement/prospectus.

In addition, the financial forecasts also reflect assumptions that are subject to change and do not reflect revised prospects for Southwestern’s and Montage’s businesses, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. There can be no assurance that Southwestern’s, Montage’s or the

 

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combined company’s financial condition or results of operations will be consistent with those set forth in such analyses and forecasts. For more information please see “The Merger—Certain Unaudited Forecasted Financial Information.”

Any acquisitions, partnerships or joint ventures that the combined company enters into could disrupt its operations and have a material adverse effect on its business, financial condition and results of operations.

Southwestern’s strategy is to evaluate potential strategic acquisitions of businesses, including partnerships or joint ventures with third parties. Southwestern may not be successful in identifying acquisition, partnership and joint venture candidates. In addition, Southwestern may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that it acquires or with which it forms a partnership or joint venture. The process of integrating an acquired business may involve unforeseen costs and delays or other operational, technical and financial difficulties and may require a disproportionate amount of management attention and financial and other resources. Any acquisition, partnership or joint venture may not be successful, may reduce Southwestern’s cash reserves, may negatively affect its earnings and financial performance and, to the extent financed with the proceeds of debt, may increase its indebtedness. Southwestern cannot ensure that any acquisition, partnership or joint venture it makes will not have a material adverse effect on its business, financial condition and results of operations.

If the combined company fails to continue to meet all applicable listing requirements, the Southwestern Common Stock may be delisted from the New York Stock Exchange, which could have an adverse impact on the liquidity and trading price of the Southwestern Common Stock.

The Southwestern Common Stock is currently listed on the NYSE, which has qualitative and quantitative listing criteria. If the combined company is unable to meet any of the NYSE listing requirements in the future, including, for example, if the closing bid price for the Southwestern Common Stock falls below $1.00 per share for 30 consecutive trading days, the NYSE could determine to delist the Southwestern Common Stock. A delisting of the Southwestern Common Stock could negatively impact the combined company by, among other things, reducing the liquidity and market price of Southwestern Common Stock, reducing the number of investors willing to hold or acquire Southwestern Common Stock, which could negatively impact the combined company’s ability to raise equity financing or to use Southwestern Common Stock as consideration for acquisitions, decreasing the amount of news and analyst coverage of the combined company, and limiting the combined company’s ability to issue additional securities or obtain additional financing in the future.

The trading price and volume of the Southwestern Common Stock may be volatile following the merger.

The trading price and volume of the Southwestern Common Stock may be volatile following completion of the merger. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of the Southwestern Common Stock. As a result, you may suffer a loss on your investment.

The market for Southwestern Common Stock will depend on a number of conditions, most of which the combined company cannot control, including:

 

   

general economic conditions within the U.S. and internationally, including changes in interest rates;

 

   

general market conditions, including fluctuations in commodity prices;

 

   

domestic and international economic, legal and regulatory factors unrelated to the combined company’s performance;

 

   

changes in oil and natural gas prices;

 

   

volatility in the financial markets or other global economic factors, including the impact of COVID-19;

 

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actual or anticipated fluctuations in the combined company’s quarterly and annual results and those of its competitors;

 

   

quarterly variations in the rate of growth of the combined company’s financial indicators, such as revenue, EBITDA, net income and net income per share;

 

   

the businesses, operations, results and prospects of the combined company;

 

   

the operating and financial performance of the combined company;

 

   

future mergers and strategic alliances;

 

   

market conditions in the oil industry;

 

   

changes in government regulation, taxes, legal proceedings or other developments;

 

   

shortfalls in the combined company’s operating results from levels forecasted by securities analysts;

 

   

investor sentiment toward the stock of oil and gas companies;

 

   

changes in revenue or earnings estimates, or changes in recommendations by equity research analysts;

 

   

failure of the combined company to achieve the perceived benefits of the merger, including financial results and anticipated synergies, as rapidly as or to the extent anticipated by financial or industry analysts;

 

   

speculation in the press or investment community;

 

   

the failure of research analysts to cover the combined company’s common stock;

 

   

sales of Southwestern Common Stock by the combined company, large stockholders or management, or the perception that such sales may occur;

 

   

changes in accounting principles, policies, guidance, interpretations or standards;

 

   

announcements concerning the combined company or its competitors;

 

   

public reaction to the combined company’s press releases, other public announcements and filings with the SEC;

 

   

strategic actions taken by competitors;

 

   

actions taken by the combined company stockholders;

 

   

additions or departures of key management personnel;

 

   

maintenance of acceptable credit ratings or credit quality;

 

   

the general state of the securities markets; and

 

   

the risk factors described in this proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus.

These and other factors may impair the market for the Southwestern Common Stock and the ability of investors to sell shares at an attractive price. These factors also could cause the market price and demand for the Southwestern Common Stock to fluctuate substantially, which may negatively affect the price and liquidity of the Southwestern Common Stock. Many of these factors and conditions are beyond the control of the combined company or the combined company stockholders.

Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against the combined company, could result in very substantial costs, divert management’s attention and resources and harm the combined company’s business, operating results and financial condition.

 

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Future sales or issuances of Southwestern Common Stock could depress the market price for shares of Southwestern Common Stock.

The Southwestern Common Stock that Southwestern will issue to Montage stockholders if the merger is consummated generally may be sold immediately in the public market. It is possible that some Montage stockholders will decide to sell some or all of the shares of Southwestern Common Stock that they receive in the merger. Any disposition by a significant stockholder of Southwestern Common Stock, or the perception in the market that such dispositions could occur, may cause the price of Southwestern Common Stock to fall. Any such decline could impair the combined company’s ability to raise capital through future sales of Southwestern Common Stock. Further, Southwestern Common Stock may not qualify for investment indices and any such failure may discourage new investors from investing in Southwestern Common Stock.

Combined company stockholders may experience dilution in the future.

The percentage ownership of combined company stockholders may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that the combined company may grant to its directors, officers and employees. Such issuances may have a dilutive effect on the combined company’s earnings per share, which could adversely affect the market price of the Southwestern Common Stock.

Certain employees of Montage will have rights to purchase or receive shares of Southwestern Common Stock after the merger as a result of the conversion of their Montage equity awards into Southwestern equity awards. The conversion of these Montage equity awards into Southwestern equity awards is described in further detail in the section entitled “The Merger Agreement—Treatment of Montage Equity Awards.” The issuance of shares of Southwestern Common Stock pursuant to these awards will dilute the percentage ownership of combined company stockholders. It is also expected that, from time to time after the closing of the merger, the Southwestern Compensation Committee will grant additional equity awards to employees and directors of the combined company under the combined company’s compensation and employee benefit plans. These additional equity awards will have a dilutive effect on the combined company’s earnings per share, which could adversely affect the market price of the Southwestern Common Stock.

In addition, the combined company’s certificate of incorporation will authorize the combined company to issue, without the approval of stockholders, one or more classes or series of preferred stock having such designations, powers, preferences and relative, participating, optional and other special rights, including preferences over Southwestern Common Stock with respect to dividends and distributions, as the Southwestern Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of the Southwestern Common Stock. For example, the repurchase or redemption rights or liquidation preferences that could be assigned to holders of preferred stock could affect the residual value of the Southwestern Common Stock. For more information, see “Description of Southwestern Capital Stock.”

Certain provisions contained in Southwestern’s amended and restated certificate of incorporation and amended and restated bylaws, and certain provisions of Delaware law may prevent or delay an acquisition of the combined company or other strategic transactions, which could decrease the trading price of the Southwestern Common Stock.

The Southwestern certificate of incorporation and the Southwestern bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with the Southwestern Board rather than to attempt a hostile takeover.

In addition, because Southwestern has not chosen to be exempt from Section 203 of the DGCL, this provision could also delay or effectively prevent a change of control that some stockholders may favor. In

 

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general, Section 203 provides that persons that acquire ownership of 15% or more of the outstanding voting stock of a Delaware corporation, or an affiliate or associate of the corporation that within the prior three years did own 15% or more of the corporation’s outstanding voting stock, and the affiliates and associates of such persons (each an “interested stockholder”), shall not engage in any “business combination” with that corporation or its subsidiaries, including any merger, sales and leases of assets, issuances of securities or other similar transactions, for a three-year period following the date on which that person became the owner of 15% or more of such corporation’s outstanding voting stock unless one of the following exceptions applies: (i) the Southwestern Board approved the business combination or the transaction that resulted in the person becoming an interested stockholder prior to the time that the person became an interested stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder such person owned at least 85% of the outstanding voting stock of the corporation, excluding, for purposes of determining the voting stock outstanding, voting stock owned by directors who are also officers and certain employee stock plans, or (iii) the transaction is approved by the Southwestern Board and by the affirmative vote of two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Southwestern believes these provisions could help to protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with the Southwestern Board and by providing the Southwestern Board with more time to assess any acquisition proposal. These provisions are not intended to make the combined company immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or effectively prevent an acquisition that the Southwestern Board determines is not in the best interests of the combined company and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Southwestern’s current and future levels of indebtedness may adversely affect the combined company’s results and limit its growth.

As of June 30, 2020, Southwestern had long-term indebtedness of $2,440 million and approximately $209 million of letters of credit under its credit agreement. On August 18, 2020, Southwestern commenced an offering for $350 million aggregate principal amount of its 8.375% Senior Notes due 2028. Further, in connection with the merger, Southwestern will assume the amounts of outstanding Montage senior notes ($510.5 million as of June 30, 2020) and expects to borrow funds under the Southwestern credit agreement to repay the amounts outstanding under Montage’s revolving credit agreement ($160.0 million as of June 30, 2020). The terms of the indentures relating to Southwestern’s outstanding senior notes, its credit agreement, and the master lease agreements relating to its drilling rigs and other equipment (collectively, the “financing agreements”) impose restrictions on Southwestern’s ability and, in some cases, the ability of its subsidiaries to take a number of actions that they may otherwise desire to take, which may include, without limitation, one or more of the following:

 

   

incurring additional debt;

 

   

redeeming stock or redeeming debt;

 

   

making investments;

 

   

creating liens on Southwestern’s assets; and

 

   

selling assets.

Southwestern’s credit agreement contains customary representations, warranties and covenants including, among others, the following covenants:

 

   

a prohibition against incurring debt, subject to permitted exceptions;

 

   

a restriction on creating liens on assets, subject to permitted exceptions;

 

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restrictions on mergers and asset dispositions;

 

   

restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business; and

 

   

maintenance of the following financial covenants:

 

   

Minimum current ratio of no less than 1.00 to 1.00, whereby current ratio is defined as Southwestern’s consolidated current assets (including unused commitments under the credit agreement, but excluding non-cash derivative assets) to consolidated current liabilities (excluding non-cash derivative obligations and current maturities of long-term debt).

 

   

Maximum total net leverage ratio of no greater than, with respect to each fiscal quarter ending on or after June 30, 2020, 4.00 to 1.00. Total net leverage ratio is defined as total debt less cash on hand (up to the lesser of 10% of credit limit or $150 million) divided by consolidated EBITDAX for the last four consecutive quarters. EBITDAX, as defined in the credit agreement, excludes the effects of interest expense, depreciation, depletion and amortization, income tax, any non-cash impacts from impairments, certain non-cash hedging activities, stock-based compensation expense, non-cash gains or losses on asset sales, unamortized issuance cost, unamortized debt discount and certain restructuring costs.

Although Southwestern does not anticipate any violations of its financial covenants, Southwestern’s ability to comply with such financial covenants depends in part on the success of its development program and upon factors beyond its control, such as the market prices for natural gas, oil and NGLs.

Although the indentures governing Southwestern’s outstanding notes contain covenants limiting liens and sale and leaseback transactions, those covenants contain exceptions that would allow Southwestern to create, grant or incur certain liens or security interests. Moreover, the indentures do not contain any limitations on the ability of Southwestern or its subsidiaries to incur debt, pay dividends or make investments, or limit the ability of its subsidiaries to make distributions to Southwestern. Such activities may, however, be limited by Southwestern’s other financing agreements in certain circumstances.

Southwestern’s level of indebtedness and off-balance sheet obligations, and the covenants contained in its financing agreements, could have important consequences for its operations, including:

 

   

requiring Southwestern to dedicate a substantial portion of its cash flow from operations to required payments, thereby reducing the availability of cash flow for working capital, capital investing and other general business activities;

 

   

limiting Southwestern’s ability to obtain additional financing in the future for working capital, capital investing, acquisitions and general corporate and other activities;

 

   

limiting Southwestern’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; and

 

   

detracting from Southwestern’s ability to successfully withstand a downturn in its business or the economy generally.

If securities or industry analysts do not publish research or reports about the combined company’s business, if they adversely change their recommendations regarding the combined company’s common stock or if the combined company’s operating results do not meet their expectations, the Southwestern Common Stock price and trading volume could decline.

The trading market for Southwestern Common Stock following the consummation of the merger will depend in part on the research and reports that securities or industry analysts publish about the combined company or its businesses. While securities and industry analysts currently cover Southwestern and Montage,

 

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securities and industry analysts may not publish research on the combined company. If no securities or industry analysts provide coverage of the combined company, the trading price for the Southwestern Common Stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover the combined company downgrade its securities or publish inaccurate or unfavorable research about its businesses, or if the combined company’s operating results do not meet analyst expectations, the trading price of Southwestern Common Stock would likely decline. If one or more of these analysts cease coverage of the combined company or fail to publish reports on the combined company regularly, demand for Southwestern Common Stock could decrease, which might cause the Southwestern Common Stock price and trading volume to decline.

Declaration, payment and amounts of dividends, if any, distributed to stockholders of Southwestern will be uncertain.

Southwestern does not currently intend to pay dividends. Whether any dividends are declared or paid to stockholders of Southwestern following the merger, and the amounts of any such dividends that are declared or paid, are uncertain and depend on a number of factors. If dividends are paid to stockholders of Southwestern, they may not be of the same amount as any dividends paid by Southwestern to its stockholders prior to the Effective Time. The Southwestern Board will have the discretion to determine the dividend policy of Southwestern, which may be impacted by any of the following factors:

 

   

Southwestern may not have enough cash to pay such dividends or to repurchase shares due to its cash requirements, capital spending plans, cash flow or financial position;

 

   

decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Southwestern Board, which could change its dividend practices at any time and for any reason;

 

   

Southwestern’s desire to maintain or improve the credit ratings on its debt; and

 

   

the amount of dividends that Southwestern may distribute to its stockholders is subject to restrictions under Delaware law and is limited by restricted payment and leverage covenants in Southwestern’s credit facilities and indenture and, potentially, the terms of any future indebtedness that Southwestern may incur.

Stockholders should be aware that they have no contractual or other legal right to dividends that have not been declared.

The combined company may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.

The combined company will account for the merger as an acquisition of a business in accordance with GAAP. Under the acquisition method of accounting, the assets and liabilities of Montage and its subsidiaries will be recorded, as of completion, at their respective fair values and added to Southwestern’s. The combined company’s reported financial condition and results of operations for periods after completion of the merger will reflect Montage’s balances and results after completion of the merger but will not be restated retroactively to reflect the historical financial position or results of operations of Montage and its subsidiaries for periods prior to the merger.

Under the acquisition method of accounting, the total purchase price is allocated to Montage’s identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair market values as of the date of completion of the merger, with any excess purchase price allocated to goodwill. To the extent the value of goodwill or intangibles, if any, becomes impaired in the future, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.

 

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Other Risk Factors

Southwestern’s and Montage’s businesses are and will be subject to the risks described above. In addition, Southwestern and Montage are, and will continue to be, subject to the risks described in, as applicable, the Southwestern annual report on Form 10-K for the fiscal year ended December 31, 2019, and the Montage annual report on Form 10-K for the fiscal year ended December 31, 2019, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference into this proxy statement/prospectus.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and information in this proxy statement/prospectus may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “predict,” “budget,” “should,” “would,” “could,” “attempt,” “appears,” “forecast,” “outlook,” “estimate,” “continue,” “project,” “projection,” “goal,” “model,” “target,” “potential,” “may,” “will,” “objective,” “guidance,” “outlook,” “effort,” “are likely” and other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on Southwestern’s and Montage’s current expectations and beliefs concerning future developments and their potential effect on their respective businesses.

The forward-looking statements contained in this document are largely based on Southwestern’s and Montage’s expectations for the future, which reflect certain estimates and assumptions made by their respective managements. These estimates and assumptions reflect Southwestern’s and Montage’s best judgment based on currently known market conditions, operating trends, and other factors. Although Southwestern and Montage believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond Southwestern’s and Montage’s control. As such, managements’ assumptions about future events may prove to be inaccurate. For a more detailed description of the risks and uncertainties involved, see “Risk Factors” in Southwestern’s and Montage’s most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other SEC filings. Southwestern and Montage do not intend to publicly update or revise any forward-looking statements as a result of new information, future events, changes in circumstances, or otherwise.

These cautionary statements qualify all forward-looking statements attributable to Southwestern or Montage, or persons acting on either’s behalf. Southwestern management and Montage management caution you that the forward-looking statements contained in this proxy statement/prospectus are not guarantees of future performance, and neither Southwestern nor Montage can assure you that such statements will be realized or that the events and circumstances they describe will occur. Factors that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements herein include, but are not limited to:

 

   

the timing and extent of changes in market conditions and prices for natural gas, oil and natural gas liquids, including regional basis differentials and the impact of reduced demand for Southwestern’s or Montage’s production and products in which their production is a component due to governmental and societal actions taken in response to the COVID-19 pandemic;

 

   

the ability of Southwestern, Montage or the combined company to fund planned capital investments;

 

   

a change in the credit rating of Southwestern, Montage or the combined company;

 

   

an increase in interest rates;

 

   

the extent to which lower commodity prices impact the ability of Southwestern, Montage or the combined company to service or refinance existing debt;

 

   

the impact of volatility in the financial markets or other global economic factors, including the impact of COVID-19;

 

   

difficulties in appropriately allocating capital and resources among strategic opportunities;

 

   

the timing and extent of success in discovering, developing, producing and estimating reserves;

 

   

the ability of Southwestern, Montage or the combined company to maintain leases that may expire if production is not established or profitably maintained;

 

   

the combined company’s ability to realize the expected benefits from recent acquisitions and the merger between Southwestern and Montage;

 

   

the consummation of or failure to consummate the merger and the timing thereof;

 

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costs in connection with the merger;

 

   

integration of operations and results subsequent to the merger;

 

   

the ability of Southwestern, Montage or the combined company to transport production to the most favorable markets or at all;

 

   

the impact of government regulation, including changes in law, the ability to obtain and maintain permits, any increase in severance or similar taxes, and legislation or regulation relating to hydraulic fracturing, climate and over-the-counter derivatives;

 

   

the impact of the adverse outcome of any material litigation against Southwestern, Montage or the combined company or judicial decisions that affect the companies or the industry generally;

 

   

the effects of weather;

 

   

increased competition;

 

   

the financial impact of accounting regulations and critical accounting policies;

 

   

the comparative cost of alternative fuels;

 

   

credit risk relating to the risk of loss as a result of non-performance by counterparties; and

 

   

any other factors listed in the reports Southwestern and Montage have filed and may file with the SEC that are incorporated by reference herein.

All written and oral forward-looking statements attributable to Southwestern or Montage are expressly qualified in their entirety by this cautionary statement. For further discussion of these and other risks, contingencies and uncertainties applicable to Southwestern and Montage, please see “Risk Factors.”

All subsequent written or oral forward-looking statements attributable to Southwestern or Montage or any person acting on its or their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Neither Southwestern nor Montage is under any obligation, and each expressly disclaims any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise, except as may be required by law.

 

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THE PARTIES TO THE MERGER

Southwestern Energy Company

10000 Energy Drive

Spring, Texas 77389-4954

(832) 796-4068

Southwestern is an independent energy company engaged in exploration, development and production activities, including the related marketing of natural gas, oil and NGLs produced in its operations. Southwestern is a holding company whose assets consist of direct and indirect ownership interests in, and whose business is conducted substantially through, its subsidiaries. Currently, it operates exclusively in the United States. Shares of Southwestern Common Stock are listed and traded on the NYSE under the ticker symbol “SWN.” Additional information about Southwestern and its subsidiaries, including, but not limited to, information regarding its business, properties, legal proceedings, financial statements, financial condition and results of operations, market risk, executive compensation and related party transactions is set forth in Southwestern’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and Southwestern’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, which are each incorporated by reference into this proxy statement/prospectus.

For more information about Southwestern, please visit Southwestern’s website at www.swn.com. The information contained on Southwestern’s website or accessible through it does not constitute a part of this proxy statement/prospectus.

Montage Resources Corporation

122 W. John Carpenter Freeway

Suite 300

Irving, Texas 75039

(469) 444-1647

Montage is an independent exploration and production company engaged in the acquisition and development of oil and natural gas properties in the Appalachian Basin. As of December 31, 2019, Montage had assembled an acreage position approximating 233,800 net surface acres in Eastern Ohio, 38,700 net surface acres in Pennsylvania, and 49,700 net surface acres in West Virginia, which excludes any acreage pending title. Shares of Montage Common Stock are listed and traded on the NYSE under the ticker symbol “MR.” Additional information about Montage and its subsidiaries, including, but not limited to, information regarding its business, properties, legal proceedings, financial statements, financial condition and results of operations, executive compensation and related party transactions is set forth in Montage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Montage’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, which are each incorporated by reference into this proxy statement/prospectus.

For more information about Montage, please visit Montage’s website at www.montageresources.com. The information contained on Montage’s website or accessible through it does not constitute a part of this proxy statement/prospectus.

 

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THE MERGER

The following discussion contains certain information about the proposed merger. This discussion is subject, and qualified in its entirety by reference, to the Merger Agreement attached as Annex A to this proxy statement/prospectus. You are urged to carefully read this entire proxy statement/prospectus, including the Merger Agreement, before making any investment or voting decision.

Transaction Structure

Upon satisfaction or waiver of the conditions to closing in the Merger Agreement, at the Effective Time, Montage will merge with and into Southwestern, with Southwestern continuing as the surviving corporation. For further discussion regarding the circumstances in which Southwestern may change the method and structure of effecting the merger, please see “The Merger Agreement—Structure of the Merger.”

Consideration to Montage Stockholders

At the Effective Time, each share of Montage Common Stock issued and outstanding immediately prior to the Effective Time (excluding any Excluded Shares) shall be converted into 1.8656 shares of Southwestern Common Stock. All Montage Common Stock (if any) held in treasury or owned directly or indirectly by Montage or any of its wholly owned subsidiaries or by Southwestern or any of its wholly owned subsidiaries as of immediately prior to the Effective Time (other than any shares held in a fiduciary capacity), will automatically be cancelled and no consideration will be paid or delivered in exchange therefor.

In addition, each outstanding Montage equity award in respect of Montage Common Stock will be treated as described in “The Merger Agreement—Treatment of Montage Equity Awards.”

Background of the Merger

The terms of the merger are the result of arm’s-length negotiations between Montage and Southwestern. The following is a summary of the events leading up to the agreement to merge and the key meetings, negotiations, discussions and actions by and between Montage and Southwestern and their respective advisors that preceded the public announcement of the merger.

As part of Montage’s ongoing strategic planning process, the Montage Board, together with Montage’s executive management team, regularly reviews and assesses Montage’s long-term strategic plans and goals, opportunities, overall industry trends, the competitive environment in which Montage operates and Montage’s short-term and long-term performance. As part of these reviews, the Montage Board, with the assistance of Montage’s advisors, considered whether various strategic actions, including potential business combination transactions and acquisition opportunities, would be in the best interests of Montage and would enhance value for Montage’s stockholders.

The Montage Board and Montage management have long recognized the benefits provided to large operators in the upstream industry and the associated competitive advantages those benefits provide, as well as the challenges presented by operating as a small-scale exploration and production company in a continued low commodity price environment. In early 2018, Montage began a process to identify strategic alternatives, which led to the completion of Montage’s business combination with BRMR on February 28, 2019 (the “BRMR Merger”). The BRMR Merger significantly increased the scale of Montage’s operations through the consolidation of Montage’s and BRMR’s contiguous and complementary acreage positions to create one of the largest Utica-focused public operators. Following the completion of the BRMR Merger and during the spring of 2019, Montage management and the Montage Board had ongoing general discussions regarding opportunities to continue enhancing value for Montage’s stockholders, with a particular focus on ways to further increase scale and address the risks associated with restricted access to capital and Montage’s limited trading liquidity.

 

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On May 24, 2019, John K. Reinhart, Montage’s President and Chief Executive Officer, had discussions with Michael L. Hodges, Montage’s Executive Vice President and Chief Financial Officer, regarding an internal strategic assessment of a potential combination of Montage and Company A, a publicly traded independent exploration and production company, which Montage management understood to be considering various strategic options.

On June 12, 2019, a financial consultant of Montage, hired to compile publicly available data in a format for preliminary assessment, provided Mr. Reinhart a preliminary background analysis of Company A.

On July 1, 2019, Mr. Reinhart contacted Company A’s Chief Executive Officer regarding an introductory meeting.

On August 8, 2019, Mr. Reinhart and Company A’s Chief Executive Officer met and discussed Company A’s strategy moving forward, potential synergies that could be realized in a combination of Montage and Company A, the importance of scale in the industry, and potential consolidation opportunities.

On August 13, 2019, Mr. Reinhart had a telephone call with D. Martin Phillips and Mark E. Burroughs, Jr., directors of Montage and principals of EnCap, Montage’s largest beneficial stockholder, regarding the stated intent of Company A’s Chief Executive Officer to reach out to Messrs. Phillips and Burroughs for discussions. Following this call, on August 14, 2019, Company A’s Chief Executive Officer had a discussion with Messrs. Phillips and Burroughs regarding potential acquisitions of Montage and other portfolio companies of EnCap. This discussion resulted in minimal continued dialogue until late January 2020, as discussed below.

On December 6, 2019, representatives of Company B, a publicly traded independent exploration and production company, and its financial advisor met in person with representatives of EnCap, which meeting was arranged by Company B’s financial advisor, to discuss general matters and a potential acquisition of, or merger with, Montage. At the meeting, representatives of EnCap deferred conversation regarding any potential strategic transaction involving Montage to Mr. Reinhart.

On December 10, 2019, the Chief Executive Officer of Company B invited Mr. Reinhart to meet in person, and on December 12, 2019, Mr. Reinhart accepted the invitation.

On January 9, 2020, Mr. Reinhart, Mr. Hodges, and Company B’s Chief Executive Officer met in person. At this meeting, Company B’s Chief Executive Officer presented the concept of a potential merger with, or acquisition of, Montage using Company B’s stock as consideration. Discussions at the meeting centered around Company B’s strategy and the information required to assess potential synergies that could be realized in the transaction and associated business combination metrics.

Following a request for a meeting from J. David Cecil, Southwestern’s then-Executive Vice President, Corporate Development, Mr. Burroughs and other representatives of EnCap met with Mr. Cecil on January 15, 2020 and discussed a potential combination between Southwestern and Montage and/or other portfolio companies of EnCap.

Following the meeting between Mr. Burroughs and Mr. Cecil, Mr. Cecil contacted Mr. Reinhart by email on January 24, 2020 and requested an introductory telephone call. The introductory call between Mr. Reinhart and Mr. Cecil was held on January 27, 2020, during which the parties discussed industry consolidation and scale benefits, as well as Southwestern’s desire to meet with Montage executives and learn more about Montage.

On January 27, 2020, Messrs. Reinhart and Hodges also had a telephone call with representatives of Company B’s financial advisor to discuss the potential merger or acquisition opportunity presented during the January 9th meeting between Mr. Reinhart and Company B’s Chief Executive Officer. Following this call, the parties exchanged emails regarding data requests in connection with assessment of the potential merger or acquisition opportunity and a draft confidentiality agreement from Company B.

 

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On January 29, 2020, Mr. Reinhart had a telephone call with Company B’s Chief Executive Officer to further discuss the data requests in connection with an assessment of a merger or acquisition opportunity between Montage and Company B, as well as the form of confidentiality agreement to be used.

On January 30, 2020, in order to permit Montage and Company B to begin possible due diligence investigations, Mr. Reinhart sent a draft mutual confidentiality agreement to Company B’s Chief Executive Officer. Over the next several days, the parties negotiated the terms of the mutual confidentiality agreement, with the participation of representatives from Norton Rose Fulbright US LLP (“Norton Rose Fulbright”), Montage’s outside counsel.

Additionally, on January 30, 2020, Mr. Phillips and another representative of EnCap met again with the Chief Executive Officer of Company A to discuss a combination between Company A and Montage and/or other portfolio companies of EnCap.

Also on January 30, 2020, Mr. Cecil contacted Mr. Reinhart to initiate the process for entering into a mutual confidentiality agreement, as well as begin coordination of an introductory meeting between Southwestern and Montage executives.

The next day, Mr. Cecil sent a draft mutual confidentiality agreement to Mr. Reinhart to facilitate further discussions about a possible transaction. Over the course of the next several days, the parties negotiated the terms of the confidentiality agreement between Southwestern and Montage, including the terms of a customary standstill provision binding on both parties, with participation by representatives of Norton Rose Fulbright and Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), Southwestern’s outside counsel. The confidentiality agreement contained a provision prohibiting either party from publicly requesting or proposing any waiver, amendment or termination of the standstill provision. The confidentiality agreement also contained a “fall away” provision rendering the standstill provision inoperative and of no force or effect with respect to a party if (i) any other person or “group” (as defined in the Exchange Act) acquired or publicly proposed to acquire more than 50% of the outstanding voting securities of the other party or (ii) such other party or any of its affiliates entered into an agreement with a person other than a party to the confidentiality agreement or any of its affiliates, providing for a merger, share exchange, asset or equity sale or other business combination transaction pursuant to which the voting securities of such other party outstanding immediately prior to such transaction would constitute less than 50% of the outstanding voting securities of such other party immediately following such transaction (or if such other party would not be the survivor or successor owner of its material assets after the merger, share exchange, asset or equity sale or other business combination, the voting securities of such other party outstanding immediately prior to such transaction would be converted into, or exchanged for, in such transaction, less than 50% of the outstanding voting securities of the survivor or successor or its publicly traded direct or indirect parent company).

On February 3, 2020, Mr. Reinhart had a telephone call with Mr. Cecil to schedule an introductory meeting and further discuss Southwestern’s interest in a potential transaction with Montage.

On February 4, 2020, Montage and Company B executed a mutual confidentiality agreement, and Montage provided Company B with access to an electronic data-room. The confidentiality agreement contained a customary reciprocal standstill provision and a provision prohibiting either party from requesting or proposing to waive, terminate or amend the standstill provision.

On February 6, 2020, Mr. Reinhart provided a January 2020 update to the Montage Board which included a strategic action update outlining Montage’s discussions with Company B and the entry into the mutual confidentiality agreement, as well as the informal introductory communication with Southwestern and the forthcoming confidentiality agreement process. Mr. Reinhart’s communication to the Montage Board also included an update regarding potential business development opportunities and other strategic acquisition opportunities, including an entity or asset-level acquisition of an exploration and production company operating

 

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in the Appalachian Basin, the upcoming divestiture of an Appalachian Basin-based exploration and production company by its private equity owners, and a potential divestiture by a global energy company of its Appalachian production and assets. The Montage Board was supportive of Montage management continuing dialogue to assess ongoing opportunities.

On February 10, 2020, Mr. Reinhart, Mr. Hodges, Oleg E. Tolmachev, Montage’s then Executive Vice President and Chief Operating Officer, and Matthew H. Rucker, Montage’s then-Executive Vice President, Resource Planning and Development, met with William J. Way, Southwestern’s President and Chief Executive Officer, Julian M. Bott, Southwestern’s Executive Vice President and Chief Financial Officer, Clayton A. Carrell, Southwestern’s Executive Vice President and Chief Operating Officer, and Mr. Cecil for a general introductory meeting.

On February 11, 2020, Mr. Reinhart contacted Randall M. Albert, Chairman of the Montage Board, and Mr. Burroughs to discuss the meeting with representatives of Southwestern the previous night and provide an update on the status of discussions with Company A and Company B.

On February 12, 2020, Mr. Reinhart contacted Mr. Cecil regarding a potential joint management presentation providing an overview of Montage and Southwestern, including a discussion of the expected date and content of the presentation, and provided Mr. Cecil with an outline of potential materials recommended to be provided by each side for corporate review. Mr. Reinhart subsequently contacted Mr. Burroughs to provide a summary of the topics expected to be reviewed in the joint management presentation with Southwestern and a potential management presentation with Company A.

On February 13, 2020 and February 14, 2020, Mr. Reinhart and Company B’s Chief Executive Officer discussed the status of the assessment of the merger or acquisition opportunity. Company B’s Chief Executive Officer relayed that Company B’s assessment of Montage and the potential merger or acquisition opportunity was ongoing, and the parties had a further general discussion surrounding Montage’s fit with Company B’s strategic corporate objectives.

Also on February 14, 2020, Montage and Southwestern executed the mutual confidentiality agreement.

On February 17, 2020, Company B’s Chief Executive Officer contacted Mr. Reinhart and expressed that Company B’s assessment of Montage was ongoing but a transaction with Montage was likely not a priority for Company B’s ongoing business strategy.

Also on February 17, 2020, Mr. Reinhart and Company A’s Chief Executive Officer met in person. Discussions during this meeting centered around the potential benefits of a merger between Montage and Company A.

Messrs. Reinhart and Hodges also contacted the Montage Board on February 17, 2020 to outline materials necessary for the Montage Board to facilitate the hiring of a strategic advisor.

Also on February 17, 2020, Mr. Reinhart contacted Mr. Cecil to confirm the date and location of the joint management presentation for March 11, 2020 at Southwestern’s principal executive offices in Spring, Texas. As part of that correspondence, Mr. Reinhart also confirmed certain matters related to an electronic data-room for due diligence information sharing.

On February 18, 2020, Mr. Reinhart sent the Montage Board a summary of plans to assess the engagement of a financial advisor, subject to approval of the Montage Board, and again provided the Montage Board the January 2020 update. The Montage Board provided feedback regarding a potential strategic financial advisor to consider.

 

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Also on February 18, 2020, Mr. Reinhart sent a draft mutual confidentiality agreement to Company A’s Chief Executive Officer. Over the next several days, the parties negotiated the terms of the mutual confidentiality agreement, with the participation of representatives from Norton Rose Fulbright and Vinson & Elkins L.L.P. (“Vinson & Elkins”), outside counsel to EnCap.

On February 20, 2020, Mr. Reinhart contacted Andy Huggins, Vice President, Commercial Development of Southwestern, to advise him that, with the exception of the management presentation, the preparation for which was still in progress, the Montage data requested by Southwestern had been posted to the Montage electronic data-room for Southwestern’s review.

On February 27, 2020, Montage and Company A executed the mutual confidentiality agreement, and the parties began scheduling initial management presentations for both companies. The confidentiality agreement contained a customary reciprocal standstill provision, a provision prohibiting either party from publicly requesting or proposing any waiver, amendment or termination of the standstill provision, and a customary “fall away” provision rendering the standstill provision inoperative and of no force or effect under certain circumstances. Over the next few days, Mr. Reinhart sent representatives of Company A certain requested data regarding Montage, as well as a copy of the Montage management presentation outline for Company A’s review.

On March 2, 2020, the Montage Board held a regularly scheduled, in-person meeting, which was attended by members of Montage management. Following the meeting, the Montage Board met in executive session to discuss the status of potential strategic transactions. Discussions during the executive session generally centered on industry consolidation and scale, potential counterparties for strategic transactions in Montage’s applicable region, and status updates on Company A, Company B and Southwestern. In addition to a consolidation scenario, the Montage Board analyzed numerous considerations and risks related to a stand-alone scenario during the discussions, including discussions regarding the upcoming maturity of Montage’s outstanding unsecured senior notes due 2023, Montage’s limited access to the debt and equity capital markets as a small-cap exploration and production company going forward, rising leverage and Montage’s muted near-term organic growth prospects considering the aforementioned items. The Montage Board also discussed the ongoing process for selecting a strategic financial advisor. Following this session, the Montage Board was supportive of Montage management continuing the strategic discussions with Company A, Company B and Southwestern and asked management to consider those options while also considering alternative stand-alone options in light of evolving commodity prices, capital markets, investor sentiment and other factors.

On March 3, 2020, Mr. Hodges engaged in discussions with representatives of Barclays Capital Inc. (“Barclays”) and two other potential financial advisors (collectively with Barclays, the “Sell-Side Financial Advisor Candidate Firms”) regarding financial advisory services and the associated confidentiality agreement process and sent draft confidentiality agreements to each of them. Over the next few days, the parties negotiated the terms of the confidentiality agreements.

On March 4, 2020, a representative of Company A contacted Mr. Reinhart to provide a revised due diligence request list and advise Mr. Reinhart that a Company A electronic data-room had been opened.

On March 5, 2020, Montage entered into confidentiality agreements with Barclays and each of the two other Sell-Side Financial Advisor Candidate Firms so that Montage could hold more in-depth discussions with such advisors for the purposes of evaluating their potential role as a financial advisor to Montage.

On March 9, 2020, Mr. Hodges had a telephone call with Company B’s financial advisor to discuss the status of the assessment of the merger or acquisition opportunity. During this call, Company B’s financial advisor indicated that Company B’s analysis of Montage was ongoing, but a transaction with Montage was one of many opportunities that Company B was assessing, and it was likely not a strategic fit for Company B.

Between March 10, 2020 and March 12, 2020, Barclays and the two other Sell-Side Financial Advisor Candidate Firms each gave a presentation to members of Montage management.

 

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On March 11, 2020, Messrs. Reinhart, Hodges, Rucker, and Tolmachev and other members of Montage management met with Messrs. Way, Bott and Carrell and other members of Southwestern management at Southwestern’s principal executive offices in Spring, Texas for initial joint management presentations. At this meeting, management of each company gave corporate overviews of their company which covered multiple functions, including assets, strategy, operations, financial positions, marketing and midstream, business development, and commercial agreements.

On March 12, 2020, Mr. Reinhart and Mr. Hodges met in person with Company A’s Chief Executive Officer and Chief Financial Officer. During this meeting, Company A’s Chief Executive Officer relayed that Company A was working with financial advisors regarding its strategic and financial alternatives, including the current discussions with Montage. The parties reviewed certain initial and high-level due diligence materials from Company A in context of analyzing the potential benefits of a merger of Company A and Montage.

On March 14, 2020, Montage provided Company A with access to an electronic data-room and notified Company A that materials were being uploaded in accordance with the previously provided request list.

On March 16, 2020, Messrs. Reinhart and Hodges received an unsolicited communication from a financial advisor providing information and assessments on potential mergers and acquisitions synergies related to Company A.

Also on March 16, 2020, Company A’s Chief Executive Officer contacted Mr. Reinhart and Mr. Hodges to schedule initial management presentations by Montage and Company A for March 19, 2020, noting that the data for the Company A management presentation was in the process of being finalized.

That same day, Mr. Reinhart and Mr. Cecil discussed the evaluation process and next steps following the previous Montage and Southwestern joint management presentations that had occurred on March 11, 2020.

Following completion by Montage management of its due diligence and interview process with Barclays and the two other Sell-Side Financial Advisor Candidate Firms, Montage management sent the Montage Board a presentation in support of its recommendation to engage Barclays. After review of this presentation, the Montage Board, acting by unanimous written consent effective as of March 17, 2020, authorized and approved the engagement of Barclays as Montage’s sole financial advisor to assist Montage in the evaluation of potential business combination transactions or other strategic alternatives, based on Barclays’ qualifications, expertise and reputation, and authorized Mr. Reinhart and Mr. Hodges to negotiate, execute and deliver an engagement letter with Barclays. Montage management worked with Barclays to finalize the engagement letter over the next several days with the participation of representatives from Norton Rose Fulbright.

On March 18, 2020, Mr. Hodges contacted Mr. Cecil regarding initial questions related to Southwestern data that was shared with or presented to Montage by Southwestern and its representatives.

On March 19, 2020, Montage and Company A each gave management presentations and conducted initial discussions regarding a potential transaction between the companies via videoconference. The attendees at this meeting included senior leadership of each company, but did not include Mr. Reinhart or the Chief Executive Officer of Company A. During these presentations, management of each company gave corporate overviews of their company which covered multiple functions, including assets, strategy, operations, financial positions, marketing and midstream, business development, and commercial agreements.

On March 21, 2020, Messrs. Reinhart and Hodges received unsolicited materials from a financial advisor regarding an update of the opportunity with Company A.

On March 23, 2020, representatives of Montage held a due diligence session with representatives of Southwestern by telephone. Over the next several months, Montage and Southwestern and their respective advisors continued to conduct due diligence investigations of each other and their respective operations and

 

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assets. As part of this process, each party continued to upload documents and other materials to their respective electronic data-rooms. Both parties submitted multiple follow-up due diligence requests to each other during the due diligence process, which continued throughout the period leading up to the signing of the Merger Agreement.

On March 24, 2020, Messrs. Reinhart and Hodges scheduled a telephone call with Company A’s Chief Executive Officer and Chief Financial Officer to discuss next steps in assessing a potential business combination between Montage and Company A.

On March 25, 2020, Montage and Barclays entered into an engagement letter. That same day, representatives of Barclays and Montage management held a kick-off meeting via teleconference to provide a general status update on discussions with Company A and Southwestern.

Also on March 25, 2020, Mr. Reinhart and Mr. Hodges had a telephone call with representatives of Barclays in advance of the telephone call scheduled for March 26, 2020 with Company A’s Chief Executive Officer and Chief Financial Officer.

On March 26, 2020, Messrs. Reinhart and Hodges had a telephone call with Company A’s Chief Executive Officer and Chief Financial Officer. During this call, the parties discussed the potential benefits of a strategic combination between the two companies and the associated financial synergies. Company A’s Chief Executive Officer and Chief Financial Officer provided materials in support of these benefits, which Mr. Hodges subsequently sent to Barclays. During this call, Messrs. Reinhart and Hodges requested an update of the proposed merger structure from Company A’s financial advisor for Montage to review.

Also on March 26, 2020, an informal group of Montage directors consisting of Mr. Burroughs, Mr. Albert, and Richard D. Paterson (collectively, the “Transaction Team”) was formed for the purpose of, with the participation of Mr. Reinhart, facilitating the Montage Board’s involvement in the strategic transaction process and keeping members of the Montage Board updated routinely on developments related to Montage’s potential strategic transactions.

On March 30, 2020, Mr. Reinhart reported to the Transaction Team. As part of this communication, Mr. Reinhart reiterated the intent that the Transaction Team was to be a means of more frequent updates regarding the strategic assessments under review by Montage, as well as to serve as a group that was to be consulted as the strategic reviews reach milestones, decision points or other meaningful assessments. Mr. Reinhart also provided the Transaction Team with an update on the kick-off meeting that Montage management personnel had with Barclays on March 25, 2020, and provided an overview of the status of the ongoing discussions on potential strategic transactions with Southwestern and Company A, including an update on the ongoing due diligence process with each company.

On March 31, 2020, representatives of Montage, Barclays, Company A and Company A’s financial advisors had a telephone call to discuss the merger opportunity between Montage and Company A and initial assessments by Company A’s financial advisors.

On April 1, 2020, representatives of Montage contacted Barclays to provide Montage management’s initial informal estimates of potential synergies in connection with the potential transaction with Company A, based upon internal management assessments regarding how the pro forma company’s assets and operations may be optimized.

During the first half of April 2020, at the direction of Montage management, Barclays held ongoing discussions with Company A management and Company A’s financial advisor to exchange financial information and conduct mutual financial due diligence for a potential transaction between Montage and Company A.

On April 3, 2020, Mr. Hodges had a final telephone call with Company B’s financial advisor, who confirmed that Company B was not interested in pursuing a transaction with Montage.

 

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On April 6, 2020, Mr. Reinhart had a telephone call with the Transaction Team to provide an update on the status of the financial analyses by Barclays with respect to a strategic transaction with Southwestern and Company A, respectively, and also provided related written materials by email. That same day, at the direction of Montage management, representatives of Barclays had a telephone call with Company A’s financial advisors to discuss potential merger synergies via optimization of the assets and operations of the pro forma company.

On April 13, 2020, Mr. Reinhart reported to the Transaction Team, advising them that Southwestern planned to advise Montage of its intent to continue to assess a potential transaction between Montage and Southwestern over the next few days, as well as providing the Transaction Team with an update on valuation work and merger synergies analysis for the potential Company A transaction.

On April 16, 2020, Company A’s financial advisors contacted Mr. Reinhart, Mr. Hodges, and representatives of Barclays and provided a combination overview and non-binding proposal on behalf of Company A based on financial analysis work conducted by the financial advisors. Company A’s proposal entailed a stock for stock merger whereby Montage would merge into Company A, with Company A surviving the merger, along with other financing transactions on which the proposed merger was conditioned. The proposal also included an expected pro forma relative equity ownership and proposed that the combined company’s board of directors would reflect that relative ownership.

On April 17, 2020, the Transaction Team and Mr. Reinhart discussed updates related to the status of the potential Southwestern and Company A transactions, including the status of Company A’s initial proposal and Montage’s preparation of a counter proposal. Mr. Reinhart also relayed that Montage was awaiting feedback from Southwestern.

In response to Company A’s proposal on April 16, 2020, Montage management prepared a pro forma operating plan designed to maximize levered free cash flow, reduce financial leverage and lower operating costs. On April 23, 2020, members of Montage management completed a high-level, non-binding counter proposal regarding a potential transaction between Montage and Company A and sent the proposal to Company A’s financial advisors. Montage’s counter proposal included a merger whereby Company A would merge into Montage, with Montage surviving the merger, along with pro forma optimization suggestions (along with the associated impacts to cash flows), a financing transaction contemplated as part of Montage’s counter proposal and plans for addressing the outstanding debt of both Company A and Montage.

On April 24, 2020, Company A advised Montage that it intended to pursue an alternative strategy and it was not interested in further discussions regarding Montage’s counter proposal at that time.

On April 28, 2020, Mr. Reinhart provided the Transaction Team with an update on the summary and status of the potential Southwestern and Company A transactions and a preview of the materials to be provided to the Montage Board at its meeting on May 1, 2020. Mr. Reinhart relayed that the main variances between the Montage and Company A proposals were the equity ownership split, the surviving entity, pro forma optimization suggestions proposed by Montage management, and other operational matters raised in Montage’s proposal as items for Company A to address. Mr. Reinhart informed the Transaction Team that Company A had informed Montage that it intended to pursue alternative strategies. Following discussions with the Transaction Team, it was determined that a combination with Company A under the terms proposed by Company A was not a strategic fit. Mr. Reinhart also informed the Transaction Team that Southwestern had indicated that their assessment of a potential transaction with Montage was temporarily on-hold due to uncertain market conditions, particularly the recent decline in oil prices and the economic impact of the COVID-19 pandemic.

On May 1, 2020, the Montage Board held a regularly scheduled meeting via teleconference, which teleconference was attended by members of Montage management. During the course of the meeting, the Montage Board discussed, among other things, Montage’s potential strategic transaction opportunities with Southwestern and Company A, including the benefits, considerations and status of each opportunity, and the

 

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non-binding proposal presented by Company A and Montage’s non-binding counter proposal thereto and reactions to those proposals. Following discussion, the Montage Board was supportive of Montage’s continued pursuit of consolidation opportunities in consideration of Montage’s stand-alone financial position, business development opportunities, and growth opportunities.

On May 6, 2020, at the direction of Montage management, representatives of Barclays had a discussion with representatives of Southwestern regarding the status of the potential transaction between Southwestern and Montage. Following this discussion, representatives of Barclays and Montage discussed the timing and progress of Southwestern’s evaluation and assessments.

On May 7, 2020, Mr. Reinhart had a telephone call with Mr. Cecil to discuss the status of the evaluation of a potential transaction between Southwestern and Montage and next steps to continue the process.

On May 12, 2020, Mr. Hodges had a telephone call with Company A’s financial advisor. During this call, Company A’s financial advisor confirmed that Company A was evaluating other strategic options and did not expect to revisit discussions with Montage in the near term.

On May 20, 2020, Mr. Cecil contacted Mr. Reinhart by email and telephone to discuss an update regarding the discussions of the Southwestern Board and intentions to advance discussions regarding a potential transaction.

On May 22, 2020, Mr. Way sent a letter to Mr. Reinhart confirming Southwestern’s intention of continuing dialogue regarding Southwestern’s potential acquisition of 100% of the issued and outstanding common stock of Montage. In the letter, Mr. Way relayed that Southwestern currently contemplated acquiring Montage in an all-stock transaction based on an “at market” exchange ratio, the Southwestern Board had been informed of Southwestern’s efforts to date, Southwestern had engaged Skadden as its outside counsel in connection with consideration of the potential transaction, and that Southwestern expected to retain outside financial advisors. In addition, Mr. Way’s letter outlined certain additional due diligence items that were important to further Southwestern’s analysis, pro forma business plans and valuation.

On May 26, 2020, Mr. Reinhart provided an update to the Transaction Team, noting that there was no further update regarding any potential transaction with Company A and describing the letter from Mr. Way discussed above. Also that day, Mr. Reinhart contacted Mr. Cecil to inform him that the Montage Board had been updated on the joint discussions between Montage and Southwestern, that the Montage Board was prepared to engage further, and that Montage required delivery of certain high-priority due diligence items in order to continue assessing Southwestern valuation.

On May 27, 2020, Mr. Reinhart had a telephone call with Mr. Cecil to discuss next steps in the evaluation process for a potential “at market” merger transaction.

On May 28, 2020, Mr. Reinhart sent the Transaction Team a copy of the letter from Mr. Way discussed above and informed them that Barclays was undertaking financial analyses regarding a potential merger transaction with Southwestern for review by the Montage Board.

During the month of May 2020, from time to time, Montage management discussed with Barclays the scope of potential partners for a consolidation transaction with Montage. During the same period, as part of its ordinary course of business conversations with various exploration and production companies, Barclays made multiple inquiries about such companies’ interest level in a potential strategic transaction with a small-scale exploration and production company operating in the Appalachian Basin. Only Company C, a publicly traded exploration and production company, indicated some potential interest and Barclays reported the feedback from these conversations to Montage management.

 

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On June 2, 2020, Mr. Reinhart provided the Transaction Team with an update regarding the ongoing due diligence efforts and scheduled due diligence calls in connection with the potential transaction with Southwestern.

On June 8, 2020, Mr. Way had a telephone call with Mr. Reinhart to provide a general update on discussions that had taken place among the Southwestern Board and advising Mr. Reinhart of certain Southwestern organizational changes.

Also on June 8, 2020, Mr. Reinhart provided the Transaction Team with an update regarding due diligence efforts and ongoing valuation work being performed in connection with the potential Southwestern transaction.

On June 12, 2020, Mr. Reinhart provided the Transaction Team with an update regarding Montage’s ongoing strategic alternatives and assessments, including (i) accretive business development opportunities, (ii) potential acquisition opportunities, including the potential entity or asset-level acquisition of an exploration and production company operating in the Appalachian Basin and the potential divestiture by a global energy company of its Appalachian production and assets, each in lieu of potential business combination transactions, and (iii) options for stand-alone capital market actions.

On June 15, 2020, at the direction of Montage management and pursuant to the general guidance from the Montage Board to explore possible strategic transaction counterparties, Barclays contacted representatives of Company C to discuss whether Company C would be interested in entering into a confidentiality agreement with Montage in order to conduct some initial due diligence on Montage and understand whether a strategic transaction was possible.

On June 16, 2020, Barclays received feedback from a representative of Company C that Company C was interested in starting due diligence with Montage to assess the possibility of a potential transaction, and Barclays provided Mr. Reinhart with contact information for Company C’s Chief Executive Officer in preparation for an introductory call.

On June 17, 2020, Mr. Reinhart provided the Transaction Team with an update. In this update, Mr. Reinhart provided the Transaction Team with a preliminary valuation analysis and related market information regarding a potential transaction with Southwestern. In addition, Mr. Reinhart advised the Transaction Team of Company C’s desire to access an electronic data-room for due diligence purposes, Company C’s request to enter into a mutual confidentiality agreement with Montage, and a telephone call with Company C’s Chief Executive Officer scheduled for later that day.

Later that day, Mr. Reinhart had a telephone call with Company C’s Chief Executive Officer. During this call, the parties discussed the respective businesses of Montage and Company C and potential synergies between the companies, and Company C’s Chief Executive Officer confirmed that Company C would like to assess the potential of a merger with or acquisition of Montage.

Also on June 17, 2020, Mr. Reinhart had a telephone call with Messrs. Way and Bott to discuss the status of ongoing valuation work.

On June 18, 2020, Mr. Reinhart sent a draft mutual confidentiality agreement to a representative of Company C. Over the next several days, the parties negotiated the terms of the mutual confidentiality agreement, with the participation of representatives from Norton Rose Fulbright and Vinson & Elkins.

On June 19, 2020, at the direction of Montage management, representatives of Barclays had an introductory telephone call with representatives of Citigroup Global Markets Inc. (“Citi”) and Goldman Sachs & Co. LLC (“Goldman Sachs”), Southwestern’s financial advisors. Representatives of Barclays provided an update to Messrs. Reinhart and Hodges following this call.

 

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On June 24, 2020, representatives of Barclays, Citi and Goldman Sachs had an additional, more detailed telephone call during which various financial aspects of the potential transaction, pro forma financial information and due diligence were discussed.

On June 25, 2020, Montage and Company C entered into a mutual confidentiality agreement. The confidentiality agreement contained a customary reciprocal standstill provision, a provision prohibiting either party from publicly requesting or proposing any waiver, amendment or termination of the standstill provision, and a customary “fall away” provision rendering the standstill provision inoperative and of no force or effect under certain circumstances.

On June 26, 2020, Montage provided Company C with access to an electronic data-room and notified Company C of certain key pertinent information that had been uploaded.

Also on June 26, 2020, Mr. Reinhart provided the Transaction Team with an update, relaying that Company C had entered into the mutual confidentiality agreement with Montage and had been provided with access to an electronic data-room. Mr. Reinhart also informed the Transaction Team that Barclays was working with Citi and Goldman Sachs with respect to various financial aspects regarding the potential transaction.

On July 1, 2020, Mr. Reinhart contacted representatives of Company C, inquiring if they had any questions or needed assistance with their ongoing review, and the representatives of Company C responded that they had no requests at that time.

On July 6, 2020, Mr. Reinhart provided the Transaction Team with an update regarding discussions between Barclays and Citi and Goldman Sachs with respect to various financial aspects regarding the potential transaction and due diligence efforts.

On July 8, 2020, at the request of Montage management, representatives of Barclays provided representatives of Montage management with an overview of publicly available information on Company C.

On July 13, 2020, Mr. Reinhart provided the Transaction Team with an update, relaying that feedback from Company C was expected later that week, due diligence efforts with respect to the potential transaction with Southwestern were ongoing, and an update from Southwestern’s financial advisors was expected soon related to a meeting of the Southwestern Board held during the previous week.

On July 14, 2020, Messrs. Reinhart and Hodges contacted Messrs. Way and Bott by email, and followed up with a telephone call, to discuss the pace of valuation work and associated due diligence efforts.

On July 15, 2020, Mr. Reinhart sent the Transaction Team a copy of the overview of publicly available information on Company C previously provided by Barclays, as well as a preliminary relative contribution analysis related to a potential transaction with Company C based on such public information.

On July 16, 2020, Mr. Reinhart contacted Mr. Bott to provide a list of high-priority due diligence items associated with the valuation analysis, pro forma business plan framework and other financial due diligence matters.

On July 20, 2020, Mr. Reinhart provided the Transaction Team with an update to relay feedback, following a meeting of the Southwestern Board, that Southwestern continued to support an “at market” business combination transaction and was also assessing potential associated capital markets transactions to refinance Montage’s unsecured senior notes to be undertaken in connection with the business combination transaction announcement.

Also on July 20, 2020, representatives of Company C requested that Montage provide certain cash flow data of Montage for review by Company C’s management. The next day, representatives of Company C requested

 

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additional data and financial analyses from Barclays and Montage to compare the cash flow data provided in the Montage data-room. Following a meeting of the Company C board of directors, Montage received feedback that Company C was currently prioritizing other strategic opportunities.

On July 22, 2020, Montage announced preliminary second quarter 2020 production results and its revised expectations for full year 2020 capital expenditures. Additionally, Montage announced that it had entered into a non-binding letter of intent with an international third-party to sell its non-core wellhead gathering infrastructure in the Ohio Utica condensate development area.

On July 24, 2020, Mr. Bott contacted Mr. Reinhart to advise him that an initial pro forma business plan had been delivered to Montage.

On July 27, 2020, Mr. Reinhart had a telephone call with Messrs. Way and Bott to discuss the status of ongoing valuation work associated with the potential transaction.

On July 30, 2020, Messrs. Reinhart and Hodges had a telephone call with Messrs. Way and Bott, during which Messrs. Way and Bott advised Messrs. Reinhart and Hodges of their intention to send a draft of a merger agreement, a capital markets plan to address Montage’s outstanding unsecured notes and an envisioned timeline for the announcement of a potential transaction. Following the call, Mr. Bott provided Messrs. Reinhart and Hodges the preliminary timeline by email, which included a timeline related to potential capital markets transactions to be undertaken shortly after execution of a merger agreement. Also on July 30, 2020, Citi and Goldman Sachs provided updated due diligence items on behalf of Southwestern.

On August 1, 2020, Mr. Bott contacted Mr. Reinhart to advise him of anticipated timing of forthcoming drafts of a merger agreement and an EnCap support agreement.

On August 2, 2020, Mr. Way sent a draft merger agreement and a draft EnCap support agreement to Mr. Reinhart. Among other things, the draft merger agreement included provisions that required Montage to present the Southwestern transaction to Montage’s stockholders for approval even if a third party were to propose an alternative transaction that the Montage Board determined to be a superior proposal (a “Force the Vote Provision”). The Southwestern draft merger agreement also included a termination fee payable by Montage in certain circumstances, including one in which Southwestern elected to terminate the merger agreement after the Montage Board withdrew its recommendation in favor of the Southwestern transaction in response to a superior proposal from a third party, equal to 5.0% of Montage’s total equity value implied by the transaction. In addition, the Southwestern draft merger agreement included a provision requiring Montage to reimburse Southwestern for all of its expenses in the event an alternative acquisition proposal was proposed or announced or otherwise became known to Montage and thereafter the Southwestern merger agreement was terminated under certain circumstances (the “Expense Reimbursement Provision”). Among other things, the draft EnCap support agreement included a provision requiring EnCap to vote its shares of Montage Common Stock against any alternative transaction for a period of 12 months following termination of the merger agreement between Montage and Southwestern in certain circumstances (a “Tail Provision”).

On August 3, 2020, Mr. Reinhart sent Mr. Burroughs copies of the draft merger agreement and draft EnCap support agreement for review by EnCap and Vinson & Elkins, and contacted Mr. Way to discuss the upcoming meetings of the Montage Board, the intention of representatives of Norton Rose Fulbright to have a telephone call with representatives of Skadden to discuss the draft merger agreement and draft EnCap support agreement in preparation for discussions with the Montage Board, transaction timeline changes and pro forma business plan information.

Also on August 3, 2020, representatives of Norton Rose Fulbright and Vinson & Elkins had a telephone call with representatives of Skadden to ask questions regarding the terms of the draft merger agreement and draft EnCap support agreement, as well as timing expectations.

 

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On August 4, 2020, the Montage Board held a regularly scheduled meeting via teleconference, which teleconference was attended by members of Montage management. During the course of the meeting, the Montage Board discussed, among other things, Montage’s potential strategic transaction opportunities with Southwestern and Company C, including the benefits, considerations and status of each opportunity. In particular, the Montage Board discussed an assessment and action plan related to Southwestern’s proposal of an all-stock merger in combination with capital markets transactions by Southwestern. The Montage Board also reviewed projections provided by Montage management and used by Barclays for its financial analyses in connection with a potential transaction with Southwestern. Following the discussion, the Montage Board expressed support of continued discussions regarding a strategic combination with Southwestern. Also at the meeting, representatives from Barclays reviewed information as to the historical relationship of Barclays with Southwestern and EnCap. After discussing the information provided by Barclays, the members of the Montage Board acknowledged these relationships and agreed that they did not present concerns with respect to Barclays’ independence in acting as Montage’s financial advisor in connection with the proposed transaction with Southwestern.

Also on August 4, 2020, Messrs. Reinhart and Hodges had a telephone call with Messrs. Way and Bott regarding pro forma financial information and targeted timelines for the potential transaction.

On August 5, 2020, the Montage Board held a meeting via teleconference, which teleconference was attended by members of Montage management and representatives of Norton Rose Fulbright and Barclays. During the course of the meeting, representatives of Barclays provided selected preliminary financial analyses, perspectives and information related to a potential “at market” merger between Southwestern and Montage and answered questions of the Montage Board related thereto. The Montage Board reviewed projections provided by Montage management and used by Barclays in its financial analyses. Following the presentation by Barclays, a representative of Norton Rose Fulbright discussed legal matters with the Montage Board, including the fiduciary duties of directors in the context of considering strategic alternatives and key deal terms at a high level related to the draft merger agreement and draft EnCap support agreement. The Montage Board was supportive of Montage and its advisors continuing discussions and negotiation of the merger agreement.

Also on August 5, 2020, Messrs. Bott and Way contacted Messrs. Reinhart and Hodges by email to inform them that the parties’ financial advisors were discussing pro forma business plans and requesting a telephone call between Messrs. Bott and Hodges to discuss the pro forma reserve-based lending facility and capital markets plans. Messrs. Bott and Hodges had a telephone call shortly thereafter to discuss such matters. Messrs. Reinhart and Hodges also contacted Messrs. Way and Bott that day to discuss certain employee matters and to schedule a general update call. In addition, other members of Montage and Southwestern management had a telephone call that day to discuss pro forma business plans.

On August 6, 2020, Messrs. Bott and Way contacted Messrs. Reinhart and Hodges regarding forthcoming pro forma business capital allocation plans and updated cash flow estimates for 2021 for the combined companies. That same day, Mr. Reinhart also contacted representatives of Southwestern regarding a draft employee change of control severance plan. Montage continued its due diligence efforts and analysis of the draft merger agreement and EnCap support agreement.

Also on August 6, 2020, Montage announced its second quarter 2020 operational and financial results and updated full year 2020 guidance. On the morning of August 7, 2020, Montage had an earnings call to review its second quarter 2020 financial and operational results.

Also on August 7, 2020, the Montage Board held a meeting via teleconference, which teleconference was attended by members of Montage management and representatives of Norton Rose Fulbright, Vinson & Elkins and Barclays. During the course of the meeting, the Montage Board discussed the status of a pro forma business review and associated valuation and general commercial terms with respect to the proposed transaction with Southwestern. Following these discussions, a representative of Norton Rose Fulbright summarized for the

 

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Montage Board the key terms of Southwestern’s proposed merger agreement, including the proposed Force the Vote Provision and the termination fee, and the key terms of Southwestern’s proposed EnCap support agreement, including the Tail Provision, as well as proposals for Montage’s responses in relation thereto. The Montage Board expressed its desire to reject the Force the Vote Provision and the Tail Provision. The representative of Norton Rose Fulbright also discussed with the Montage Board the proposed treatment of outstanding Montage equity awards under the merger agreement and the inclusion of a provision allowing Montage to solicit alternative transaction proposals and engage in discussions or negotiations related thereto for a specified time period following signing of the merger agreement (a “Go-Shop Provision”). The Montage Board understood that the continuation of Montage’s directors and officers as directors and officers of the combined company following completion of the merger was unlikely and did not recommend pursuing negotiations on that front. The Montage Board instructed Montage management and representatives of Norton Rose Fulbright to continue to negotiate the legal and commercial terms of the merger with Southwestern management and its advisors in accordance with the preceding discussions.

On August 8, 2020, at Montage management’s direction, representatives of Barclays, Goldman Sachs and Citi had telephone calls and discussed the potential pro forma business plan of the combined company.

Also on August 8, 2020, Norton Rose Fulbright sent Skadden a revised draft merger agreement that, among other revisions, added a Go-Shop Provision, eliminated the Force the Vote Provision and added a provision permitting Montage to terminate the merger agreement under certain circumstances to enter into a definitive agreement with respect to a superior proposal (subject to Montage’s payment of the termination fee), eliminated the Expense Reimbursement Provision, and proposed a termination fee of 3.0% of Montage’s total equity value implied by the transaction. Norton Rose Fulbright also sent a revised draft EnCap support agreement, reflecting comments from EnCap and Vinson & Elkins, to Skadden on August 8, 2020 that, among other revisions, eliminated the Tail Provision and added a provision stating that the EnCap support agreement would terminate upon the occurrence of an Adverse Recommendation Change (as defined in the draft merger agreement) by the Montage Board pursuant to the merger agreement (the “Adverse Recommendation Change Termination Provision”).

On August 9, 2020, the Montage Board held a meeting via teleconference, which teleconference was attended by members of Montage management and representatives of Norton Rose Fulbright, Vinson & Elkins and Barclays. At the meeting, a representative of Norton Rose Fulbright gave an update on the status of the draft merger agreement and draft EnCap support agreement. Following this update, representatives of Barclays presented certain preliminary financial analyses, perspectives and information related to the proposed merger with Southwestern, and the Montage Board reviewed projections provided by Montage management and used by Barclays in its financial analyses. The Montage Board discussed, in consultation with Barclays, the merits and likelihood of alternative strategic partners to Southwestern.

That same day, Messrs. Reinhart and Hodges contacted Messrs. Way and Bott regarding commercial and legal input on the draft merger agreement.

Also on August 9, 2020, representatives of Norton Rose Fulbright, Vinson & Elkins and Skadden had a telephone call to negotiate the terms of the draft merger agreement and draft EnCap support agreement. During the negotiations, the parties discussed various terms of the merger agreement, including, among others, the Go-Shop Provision, the Force the Vote Provision, the non-solicitation covenants applicable to Montage, the termination provisions and termination fee, the representations and warranties of Montage, the conditions precedent to both parties’ obligations to consummate the merger, the interim operating covenants of Montage, including in relation to the COVID-19 pandemic and changes in commodity prices, and provisions related to director & officer indemnity and insurance. The parties also discussed the various terms of the EnCap support agreement, including the Tail Provision and the Adverse Recommendation Change Termination Provision.

On August 10, 2020, Skadden sent Norton Rose Fulbright a revised draft merger agreement which, among other things, reinstated the Force the Vote Provision, eliminated the Go-Shop Provision, eliminated the provision

 

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permitting Montage to terminate the merger agreement under certain circumstances to enter into a definitive agreement with respect to a superior proposal, modified the scope and qualifications of certain of Montage’s representations and warranties and interim operating covenants, added certain covenants of Montage related to redemption of its outstanding unsecured senior notes due 2023, and modified certain of the situations in which the termination fee was payable by Montage. That same day, Skadden sent Norton Rose Fulbright a revised draft EnCap support agreement which, among other things, eliminated the Adverse Recommendation Change Termination Provision.

Also on August 10, 2020, the Montage Board held a meeting via teleconference, which teleconference was attended by members of Montage management and members of Southwestern management. During the course of this meeting, members of Southwestern management provided the Montage Board an overview of Southwestern and its business and assets, pro forma business plans for the combined company and specifics surrounding Southwestern’s planned management of the combined company. Following the meeting with Southwestern management, the Montage Board held an additional meeting via teleconference, which teleconference was attended by Mr. Reinhart, to deliberate and discuss the presentation by Southwestern management. After the discussions, the Montage Board was supportive of Montage and its advisors continuing discussions and negotiation of the merger agreement.

In the early morning of August 11, 2020, Norton Rose Fulbright sent Skadden a revised draft merger agreement that, among other revisions, further modified the scope and qualifications of certain of Montage’s representations and warranties and interim operating covenants, modified and weakened the Force the Vote Provision such that it would not apply if the merger agreement was terminated in accordance with its terms, reinstated the provision permitting Montage to terminate the merger agreement under certain circumstances to enter into a definitive agreement with respect to a superior proposal (subject to Montage’s payment of the termination fee), and eliminated the covenants of Montage related to redemption of its outstanding unsecured senior notes due 2023.

Later that day, representatives of Skadden had a telephone call with representatives of Norton Rose Fulbright and Vinson & Elkins to negotiate certain remaining terms of the merger agreement. Among other things, representatives of Skadden proposed deleting the termination fee concept in the merger agreement and replacing it with a requirement of Montage to reimburse Southwestern for its actual expenses, including expenses in connection with Southwestern’s proposed capital markets transactions following the signing of the merger agreement (subject to a cap), in the event of termination of the merger agreement under certain circumstances.

Throughout the day, Messrs. Reinhart and Hodges had telephone calls with Messrs. Way and Bott to discuss certain deal protection and the commercial terms of the merger agreement. In particular, the parties discussed the termination fee and expense reimbursement concepts, as well as relative changes in the share prices of the respective companies in the previous few days. The parties discussed the proposed “at market” exchange ratio to be set forth in the merger agreement and whether that exchange ratio would be based on the closing share price for that day or an average of the exchange ratios based on closing share prices over the preceding few days. After negotiation regarding these matters, Messrs. Way and Bott proposed to Messrs. Reinhart and Hodges an exchange ratio of 1.8656 shares of Southwestern Common Stock for each share of Montage Common Stock (which represented an average exchange ratio from the closing share prices of the respective companies for the previous three trading days through and including August 11, 2020), a termination fee of between 4.0% and 5.0% of Montage’s total equity value implied by the transaction and no expense reimbursement concept.

Following these calls, in the evening of August 11, 2020, the Montage Board held a meeting via teleconference, which teleconference was attended by members of Montage management and representatives of Norton Rose Fulbright and Vinson & Elkins. During the course of the meeting, the Montage Board reviewed the updated financial analyses related to the proposed merger with Southwestern provided by Barclays, discussed the exchange ratio and termination fee under the merger agreement and discussed the Montage Board’s fiduciary duties. The Montage Board discussed that the proposed exchanged ratio of 1.8656 was based upon the average

 

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exchange ratio from the closing share prices of the respective companies for the previous three trading days through and including August 11, 2020. After much discussion among the Montage Board and Montage management and representatives of Norton Rose Fulbright and Vinson & Elkins, the Montage Board expressed support for, but not final approval of, a transaction at the proposed 1.8656 exchange ratio, a termination fee of 4.5% of Montage’s total equity value implied by the transaction, and certain deal protection terms.

Later that evening, Skadden sent Norton Rose Fulbright a revised draft merger agreement which, among other things, further modified the scope and qualifications of certain of Montage’s representations and warranties and interim operating covenants, reinstated certain covenants of Montage related to redemption of its outstanding unsecured senior notes due 2023, and proposed a termination fee of 5.0% of Montage’s total equity value implied by the transaction. Throughout the evening of August 11, 2020 and the early morning of August 12, 2020, the parties and their respective advisors resolved the remaining open issues regarding the final terms of the merger agreement and the EnCap support agreement, including resolution on the calculation of a termination fee of 4.5% of Montage’s total equity value implied by the transaction (which represented approximately 1% of Montage’s total enterprise value as of August 12, 2020). For additional information regarding the final terms of the Merger Agreement and EnCap Support Agreement, see the section entitled “The Merger Agreement” beginning on page 94. Additionally, a copy of the final Merger Agreement is attached as Annex A to this proxy statement/prospectus, and a copy of the final EnCap Support Agreement is attached as Annex C to this proxy statement/prospectus.

Also that evening, the Southwestern Board unanimously (1) approved and declared advisable the Merger Agreement, the EnCap Support Agreement and the transactions contemplated thereby, including the merger, and (2) approved and declared advisable the issuance of shares of Southwestern Common Stock in connection with the medrger.

In the early morning of August 12, 2020, the Montage Board held a meeting via teleconference, which teleconference was attended by members of Montage management and representatives of Norton Rose Fulbright, Vinson & Elkins and Barclays. Barclays presented selected updated financial analyses related to the proposed merger with Southwestern reflecting closing share prices of Montage and Southwestern as of August 11, 2020 and the exchange ratio set forth in the merger agreement. A representative of Norton Rose Fulbright updated the Montage Board on the key terms of the merger agreement and the board’s fiduciary duties. Following such discussion, upon the request of the Montage Board, Barclays delivered its oral opinion to the Montage Board, which was confirmed by delivery of a written opinion dated August 12, 2020, to the effect that, based upon and subject to the qualifications, limitations and assumptions set forth in Barclays’ written opinion, as of the date of such opinion, from a financial point of view, the Exchange Ratio to be offered to the stockholders of Montage (other than holders of Excluded Shares, as applicable) in the merger was fair to such stockholders. After considering the proposed terms of the transaction with Southwestern, and taking into consideration the matters discussed during that meeting and prior meetings of the Montage Board, including the factors described above and under the section entitled “The Merger—Recommendation of the Montage Board and Reasons for the Merger,” the Montage Board unanimously (1) determined that the Merger Agreement, all agreements, documents, instruments, schedules and exhibits referenced in or contemplated by the Merger Agreement, including the EnCap Support Agreement, and the transactions contemplated thereby, including the merger, were advisable and fair to, and in the best interests of, Montage and its stockholders, (2) adopted, approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the merger, (3) authorized and empowered certain authorized officers of Montage to execute and deliver, for and on behalf of Montage, the Merger Agreement and all other agreements, documents, instruments, filings and certificates required or contemplated by the Merger Agreement, (4) recommended that the Montage stockholders approve the adoption of the Merger Agreement, and (5) directed that the Merger Agreement be submitted to a vote at a meeting of the Montage stockholders.

 

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Following the Montage Board meeting, in the early morning of August 12, 2020, Montage and Southwestern executed the Merger Agreement. Prior to the opening of trading on August 12, 2020, Southwestern and Montage issued a joint press release announcing execution of the Merger Agreement.

Southwestern’s Rationale for the Merger

Southwestern believes that the merger presents Southwestern with the opportunity to create long-term value to stockholders by virtue of:

 

   

a step change in free cash flow with the expected generation of approximately $100 million annual free cash flow beginning in 2021 based on strip pricing at signing;

 

   

anticipated synergies of approximately $30 million in annual general and administrative savings captured following the consummation of the merger, in addition to anticipated operational efficiencies;

 

   

a stronger balance sheet maintaining peer leading maturity runway;

 

   

being accretive to per share financial metrics as well as leverage, margin and returns; and

 

   

enhanced economic inventory, with investment opportunities in the Marcellus super rich and core Utica dry gas windows.

Recommendation of the Montage Board and Reasons for the Merger

By unanimous vote, the Montage Board, at a meeting held on August 12, 2020, (i) determined that the Merger Agreement, all agreements, documents, instruments, schedules, and exhibits referenced in or contemplated by the Merger Agreement, including the EnCap Support Agreement, and the transactions contemplated thereby, including the merger, are advisable and fair to, and in the best interests of, Montage and its stockholders, (ii) adopted, approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the merger, (iii) authorized and empowered certain authorized officers of Montage to execute and deliver, for and on behalf of Montage, the Merger Agreement and all other agreements, documents, instruments, filings, and certificates required or contemplated by the Merger Agreement, (iv) recommended that the Montage stockholders approve the adoption of the Merger Agreement, and (v) directed that the Merger Agreement be submitted to a vote at a meeting of the Montage stockholders. The Montage Board unanimously recommends that Montage stockholders vote FOR the Merger Proposal, FOR the Advisory Compensation Proposal and FOR the Adjournment Proposal.

In evaluating the Merger Agreement, the merger and the other transactions contemplated by the transaction documents (including the Merger Agreement), the Montage Board consulted with Montage’s senior management, outside legal counsel and financial advisors. The Montage Board determined that entering into the Merger Agreement with Southwestern provided the best alternative for maximizing stockholder value reasonably available to Montage, including when compared to continuing to operate on a stand-alone basis. In coming to this determination and in recommending that Montage stockholders vote their shares of Montage Common Stock in favor of adoption of the Merger Agreement, the Montage Board also considered a number of factors, including the following factors (not necessarily in order of relative importance) which the Montage Board viewed as being generally positive or favorable in coming to its determination, approval and related recommendation:

 

   

Attractive Value and Attractive Acquisition Currency. The aggregate value and nature of the consideration to be received in the merger by Montage stockholders, including the fact that:

 

   

based on the closing trading price of Southwestern Common Stock of $3.04 on August 11, 2020, the last trading day prior to public announcement of the merger, the merger consideration represented an implied value of $5.67 per share of Montage Common Stock, a 2.5% premium to the exchange ratio based on the five-day average closing prices of Montage Common Stock and Southwestern Common Stock, a 4.8% premium to the exchange ratio based on the 10-day average

 

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closing prices of Montage Common Stock and Southwestern Common Stock, a 16.7% premium to the exchange ratio based on the 30-day average closing prices of Montage Common Stock and Southwestern Common Stock, and a 7.5% premium to the exchange ratio based on the 90-day average closing prices of Montage Common Stock and Southwestern Common Stock;

 

   

as the consideration to be received by Montage stockholders in the merger is Southwestern Common Stock, which has historically had a higher trading multiple than Montage Common Stock, and because larger companies in the E&P space with increased scale have recently traded at higher multiples of cash flow from operations and EBITDAX than smaller companies, the Montage Board expects Montage stockholders to immediately benefit from an exchange of their current Montage Common Stock for Southwestern Common Stock;

 

   

based on the relative historical trading volume and public float for Southwestern Common Stock and Montage Common Stock, Montage stockholders receiving shares of Southwestern Common Stock in the merger should benefit from greater trading liquidity, as Southwestern Common Stock has a larger average daily trading volume and public float than Montage Common Stock;

 

   

following the merger, Montage stockholders will own approximately 10% of the outstanding Southwestern Common Stock on a fully diluted basis and will have the opportunity as stockholders to benefit from the value of the combined company, including potential future organic and inorganic growth that provides significant operating scale, which the Montage Board viewed as an important opportunity for Montage stockholders from the perspective of maximizing long-term returns;

 

   

the Montage Board believes that the merger will be accretive to Montage stockholders from an equity value perspective; and

 

   

because the merger consideration is a fixed number of shares of Southwestern Common Stock and will not fluctuate based on the trading price of Southwestern Common Stock, Montage stockholders would have the opportunity to benefit from any increase in the trading price of Southwestern Common Stock between the announcement of the merger and the completion of the merger.

 

   

Benefits of a Combined Company. The belief of the Montage Board that the company resulting from a merger of Southwestern and Montage would be well positioned to achieve future growth and generate additional returns for Montage’s former stockholders, including due to:

 

   

potential of the combined company to trade at higher multiples of cash flow from operations and EBITDAX than either company independently, as an operator with further increased resource and enterprise value scale;

 

   

expected enhanced access to capital by the combined company as compared to Montage on a stand-alone basis, as Montage’s access to the high yield, common equity and equity-linked markets, in particular, are currently limited;

 

   

the expectation that the merger will be credit-enhancing relative to Montage’s stand-alone credit profile, which is depressed by its upcoming debt maturities. This is expected to result in a lower cost of debt capital than would be realized by Montage on a stand-alone basis;

 

   

the benefits associated with consolidating Southwestern and Montage’s acreage positions, including the potential operating synergies associated with the following:

 

   

additional capital allocation flexibility between natural gas, natural gas liquids and condensate;

 

   

increased opportunities to block up existing positions through trades over a broad area of West Virginia, Pennsylvania and Ohio;

 

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synergies resulting from combining the midstream and downstream commercial agreements and relationships of Southwestern and Montage; and

 

   

combining exceptional technical teams with similar execution-focused cultures;

 

   

anticipated synergies of approximately $30 million in annual general and administrative savings captured following the consummation of the merger;

 

   

potential for the combined company to unlock value for the Flat Castle area utilizing Southwestern’s operational expertise in the area;

 

   

the expectation that increased size and scale of the combined company will afford greater resilience to commodity price changes and improved ability to manage development and cash flow generation and be adaptive to the broader macro environment;

 

   

other benefits that will potentially be available to the combined company due to the scale of its operations as the third largest producer in the Appalachian Basin with over 650,000 net surface acres with both Utica and Marcellus prospectivity;

 

   

the caliber of Southwestern’s executive management team, which is expected to continue as the executive management team of the combined company; and

 

   

the quality and experience of Southwestern’s board members, who are expected to remain on the combined company board.

 

   

Continuation of Stand-alone Montage. The Montage Board’s consideration of Montage’s business, prospects and other strategic opportunities, and the Montage Board’s belief that there are certain risks associated with continuing to operate as a stand-alone company, including:

 

   

the risks associated with Montage’s upcoming debt maturities, including the ability to refinance such debt due to Montage’s restricted access to capital and high cost of capital;

 

   

the risks associated with Montage’s current trading volume and associated liquidity, as discussed above;

 

   

the risk that Montage may not grow its production and reserves or complete accretive acquisitions in light of restricted access to capital (including equity capital) and high cost of capital attendant to doing business as a smaller independent exploration and production company;

 

   

the risk that Appalachian Basin producers will increasingly be subject to further pressures related to cost control and efficient development of existing resources and potential reduced depth of future inventory of undeveloped locations in the face of a low commodity price environment, and Montage, as a smaller independent producer, may lack the scale-related advantages available to larger companies; and

 

   

the risk that Montage’s ability to generate free cash flow will not be sufficient at Montage’s scale to appreciably impact Montage’s equity valuation in a meaningful way.

The Montage Board also considered the following factors as being generally positive or favorable in making its determination, approval and related recommendation:

 

   

Alternative Combination Transactions. The Montage Board considered whether there were potential alternative transactions and, following review of such possible alternatives in light of prior discussions with alternative strategic partners and after consultation with management and Barclays, believed that it was unlikely that an alternative bidder could be found or that if found could consummate a transaction that would be on superior terms, and that would provide Montage stockholders more valuable consideration, than is being provided in connection with the merger.

 

   

Opportunity to Receive Alternative Acquisition Proposals and to Terminate the Merger in Order to Accept a Superior Proposal. The Montage Board considered the terms of the Merger Agreement

 

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related to Montage’s ability to respond to unsolicited acquisition proposals and determined that third parties would be unlikely to be deterred from making a competing proposal by the provisions of the Merger Agreement, including because the Montage Board may, under certain circumstances, furnish information or enter into discussions in connection with a competing proposal and may terminate the Merger Agreement to pursue such a superior proposal in certain circumstances. In this regard, the Montage Board considered that:

 

   

subject to its compliance with the Merger Agreement, the Montage Board can change its recommendation to Montage stockholders with respect to the adoption of the Merger Agreement prior to the adoption of the Merger Agreement by the vote of its stockholders if it determines in good faith (after consultation with its financial advisors and outside legal counsel) that, with respect to a superior proposal or an intervening event, the failure to take such action would reasonably be expected to be inconsistent with the Montage Board’s fiduciary duties;

 

   

subject to its compliance in all material respects with certain terms of the Merger Agreement and payment of the termination fee, the Montage Board may, prior to obtaining the requisite Montage stockholder approval of the merger, terminate the Merger Agreement in order to enter into a definitive agreement with respect to a superior proposal;

 

   

the EnCap Support Agreement would terminate upon any termination of the Merger Agreement, including by Montage with respect to entering into a definitive agreement with respect to a superior proposal, thereby relieving EnCap of its obligations to support the merger; and

 

   

while the Merger Agreement contains a termination fee of $9.7 million that Montage would be required to pay to Southwestern in certain circumstances, the Montage Board believed that this fee is reasonable in light of such circumstances and the overall terms of the Merger Agreement, consistent with fees in comparable transactions, and not preclusive of other offers. For further discussion regarding the circumstances in which Montage would be required to pay the termination fee to Southwestern, please see “The Merger Agreement—Termination Fee” beginning on page 121.

 

   

Stockholder Support. The Montage Board considered the support of the merger by EnCap, as evidenced by EnCap’s execution of the EnCap Support Agreement, and that EnCap is receiving the same per-share consideration in the merger as all other Montage stockholders generally and is not receiving, in connection with the merger, any other consideration or benefit not received by all other Montage stockholders generally. For a discussion of the interests of Montage directors and executive officers in the merger, please see “The Merger—Interests of Montage’s Directors and Executive Officers in the Merger” beginning on page 84.

 

   

Tax Considerations. The Montage Board considered that the merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes.

 

   

Receipt of Fairness Opinion and Presentation from Barclays. The Montage Board considered the financial analyses reviewed and discussed with representatives of Barclays, as well as the oral opinion of Barclays rendered to the Montage Board on August 12, 2020, which opinion was subsequently confirmed by delivery of a written opinion the same day, to the effect that, based upon and subject to the qualifications, limitations and assumptions set forth therein, as of the date of such opinion, from a financial point of view, the Exchange Ratio to be offered to the stockholders of Montage (other than holders of Excluded Shares, as applicable) in the merger is fair to such stockholders, as more fully described below under the heading “—Opinion of Montage’s Financial Advisor” beginning on page 65.

 

   

Terms of the Merger Agreement. The Montage Board reviewed, in consultation with Montage’s legal advisors, and considered that the terms of the Merger Agreement, taken as a whole, including the parties’ representations, warranties and covenants and the circumstances under which the Merger

 

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Agreement may be terminated, in its belief, are reasonable. The Montage Board also reviewed and considered the conditions to the completion of the merger, including customary regulatory approvals.

The Montage Board also considered a number of uncertainties, risks and factors it deemed generally negative or unfavorable in making its determination, approval and related recommendation, including the following (not necessarily in order of relative importance):

 

   

Merger Consideration. The Montage Board considered that, because the merger consideration is based on a fixed exchange ratio rather than a fixed value, Montage stockholders bear the risk of a decrease in the trading price of Southwestern Common Stock during the pendency of the merger and the fact that the Merger Agreement does not provide Montage with a value-based termination right or an adjustment to the consideration received. Further, as the merger consideration consists of Southwestern Common Stock, the value of such consideration is subject to certain risks related to the business and financial condition of Southwestern, as more fully described in the section entitled “Risk Factors—Risks Relating to the Combined Company” beginning on page 30.

 

   

Cash Flow Dilution. The Montage Board considered its belief that the merger will not be accretive to cash flow from operations on a per share basis to Montage stockholders in 2021.

 

   

Post-Merger Corporate Governance. The Montage Board considered that the Merger Agreement provides that the Southwestern directors and officers will be the directors and officers of the combined company, respectively. Therefore, it is not expected that any Montage directors or officers will be capable of furthering the combined company’s efforts to realize the synergies expected to result from the merger.

 

   

Interim Operating Covenants. The Montage Board considered the restrictions on the conduct of Montage’s and its subsidiaries’ businesses during the period between the execution of the Merger Agreement and the completion of the merger as set forth in the Merger Agreement.

 

   

Risks Associated with the Timing and Pendency of the Merger. The Montage Board considered the risks and contingencies relating to the announcement and pendency of the merger and the amount of time that may be required to consummate the merger (including the likelihood of litigation or other opposition brought by or on behalf of Montage stockholders or Southwestern stockholders challenging the merger and the other transactions contemplated by the Merger Agreement, and the fact that the completion of the merger depends on factors outside of Montage’s or Southwestern’s control) and the risks and costs to Montage if the completion of the merger is not accomplished in a timely manner or if the merger does not close at all, either of which could have an adverse impact on Montage, including potential employee attrition, the impact on Montage’s relationships with third parties and the effect termination of the Merger Agreement may have on the trading price and volumes of Montage Common Stock and Montage’s operating results.

 

   

Possible Failure to Achieve Synergies. The Montage Board considered the potential challenges and difficulties in integrating the operations of Montage into those of Southwestern and the risk that anticipated cost savings and operational efficiencies between the two companies, or other anticipated benefits of the merger, might not be realized or might take longer to realize than expected.

 

   

Competing Proposals; Termination Fees. The Montage Board considered the possibility that a third party may be willing to enter into a strategic combination with Montage on terms more favorable than the merger. In connection therewith, the Montage Board considered the terms of the Merger Agreement relating to no shop covenants and termination fees, and the potential that such provisions might deter alternative bidders that might have been willing to submit a superior proposal to Montage. The Montage Board also considered that, under specified circumstances, Montage may be required to pay a termination fee in the event the Merger Agreement is terminated and the effect this could have on Montage, including:

 

   

the possibility that the termination fee could discourage other potential parties from making a competing offer; although the Montage Board believed that the termination fee was reasonable in

 

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amount and would not unduly deter any other party that might be interested in making a competing proposal; and

 

   

if the merger is not oconsummated, Montage will pay its own expenses incident to preparing for and entering into and carrying out its obligations under the Merger Agreement and the transactions contemplated thereby.

 

   

Regulatory Approval. The Montage Board considered that the merger and the related transactions require regulatory approval to be completed and the risk that the applicable governmental entities may seek to impose unfavorable terms or conditions, or otherwise fail to grant, such approval.

 

   

Stockholder Approval. The Montage Board considered that, because the Merger Proposal can be approved by the affirmative vote of a majority of the outstanding shares of Montage Common Stock entitled to vote on the Merger Proposal, and EnCap indirectly owns approximately 39.0% of the outstanding Montage Common Stock and has entered into the EnCap Support Agreement to vote in favor of the Merger Proposal, the Merger Proposal could be approved by the affirmative vote of Montage stockholders representing a relatively small percentage of the remaining outstanding Montage Common Stock.

 

   

Interests of Montage’s Directors and Executive Officers. The Montage Board considered that Montage’s directors and executive officers may have interests in the merger that may be different from, or in addition to, those of Montage stockholders. For more information about such interests, see below under the heading “—Interests of Montage’s Directors and Executive Officers in the Merger” beginning on page 84.

 

   

Merger Costs. The Montage Board considered the costs associated with entering into the Merger Agreement and the completion of the merger, including management’s time and energy, potential opportunity cost and disruption of Montage’s business operations.

 

   

Other Risks. The Montage Board considered risks of the type and nature described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” beginning on pages 23 and 41, respectively.

The Montage Board believed that, overall, the potential benefits of the merger to Montage stockholders outweighed the risks and uncertainties of the merger.

The foregoing discussion of factors considered by the Montage Board is not intended to be exhaustive, but includes the material factors considered by the Montage Board. In light of the variety of factors considered in connection with its evaluation of the merger, the Montage Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Montage Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Montage Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Montage Board based its recommendation on the totality of the information available to it.

Opinion of Montage’s Financial Advisor

Montage engaged Barclays to act as its financial advisor with respect to a possible sale of Montage, pursuant to an engagement letter dated March 25, 2020. On August 12, 2020, Barclays rendered its oral opinion (which opinion was subsequently confirmed in writing) to the Montage Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, from a financial point of view, the Exchange Ratio to be offered to the stockholders of Montage (other than holders of Excluded Shares, as applicable) is fair to such stockholders.

 

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The full text of Barclays’ written opinion, dated as of August 12, 2020, is attached as Annex B to this proxy statement/prospectus. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

Barclays’ opinion, the issuance of which was approved by Barclays’ Fairness Opinion Committee, is addressed to the Montage Board, addresses only the fairness, from a financial point of view, of the Exchange Ratio to be offered to the stockholders of Montage (other than holders of Excluded Shares, as applicable) and does not constitute a recommendation to any stockholder of Montage as to how such stockholder should vote with respect to the merger or any other matter. The terms of the merger were determined through arm’s-length negotiations between Montage and Southwestern and were unanimously approved by the Montage Board. Barclays did not recommend any specific form of consideration to Montage or that any specific form of consideration constituted the only appropriate consideration for the merger. Barclays was not requested to address, and its opinion does not in any manner address, Montage’s underlying business decision to proceed with or effect the merger, the likelihood of the consummation of the merger, or the relative merits of the merger as compared to any other transaction or business strategy in which Montage may engage. In addition, Barclays expressed no opinion on, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the consideration to be offered to the stockholders of Montage (other than holders of Excluded Shares, as applicable) in connection with the merger. No limitations were imposed by the Montage Board upon Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.

In arriving at its opinion, Barclays, among other things:

 

   

reviewed and analyzed the Merger Agreement and the specific terms of the merger;

 

   

reviewed and analyzed a draft of the EnCap Support Agreement;

 

   

reviewed and analyzed publicly available information concerning Montage that Barclays believed to be relevant to its analysis, including Montage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020, in each case, as filed with the SEC;

 

   

reviewed and analyzed publicly available information concerning Southwestern that Barclays believed to be relevant to its analysis, including Southwestern’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020, in each case, as filed with the SEC;

 

   

reviewed and analyzed financial and operating information with respect to the business, operations and prospects of Montage furnished to Barclays by Montage, including financial projections of Montage prepared by management of Montage (the “Montage Projections”);

 

   

reviewed and analyzed financial and operating information with respect to the business, operations and prospects of Southwestern furnished to Barclays by Southwestern, including financial projections of Southwestern (the “Southwestern Projections”) included in the pro forma financial projections of the combined company, in each case, prepared by management of Southwestern;

 

   

reviewed and analyzed the financial and operating information with respect to the business, operations and prospects of the combined company taking into account the projected pro forma impact of the merger, including cost synergies (the “Expected Synergies”) and other strategic benefits expected by the management of Montage and the management of Southwestern to result from a combination of the businesses, furnished to Barclays by Montage (the “Combined Projections”);

 

 

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reviewed and analyzed published estimates of independent research analysts with respect to the future financial performance of each of Montage and Southwestern and price targets of each of Montage Common Stock and Southwestern Common Stock;

 

   

reviewed and analyzed long-term commodity price forecasts and assumptions provided by management of Southwestern, as adjusted by management of Montage;

 

   

reviewed and analyzed the relative projected contributions of Montage and Southwestern to the future financial performance of the combined company on a pro forma basis following the merger;

 

   

reviewed and analyzed a comparison of the value of a holder of shares of Montage Common Stock’s interest in Montage with the value of such holder’s interest in Southwestern after giving effect to the merger in terms of certain financial metrics;

 

   

reviewed and analyzed estimates of proved, probable and possible oil and gas reserves and resources prepared by management of Montage (the “Montage Resources Report”) and furnished to Barclays by Montage;

 

   

reviewed and analyzed estimates of proved, probable and possible oil and gas reserves and resources prepared by management of Southwestern and furnished to Barclays by Southwestern and adjusted by Montage (the “Southwestern Resources Report”);

 

   

reviewed and analyzed the alternatives available to Montage on a stand-alone basis to fund its future capital and operating requirements;

 

   

reviewed and analyzed a recent trading history of each of Montage Common Stock and Southwestern Common Stock and a comparison of those trading histories with each other and, with respect to Montage Common Stock, the trading histories of other companies that Barclays deemed relevant;

 

   

reviewed and analyzed a comparison of the financial terms of the merger with the financial terms of certain other recent transactions that Barclays deemed relevant;

 

   

had discussions with the managements of Montage and Southwestern concerning their respective businesses, operations, assets, liabilities, financial condition and prospects and with the management of Montage, concerning the strategic rationale for the merger; and

 

   

undertook such other studies, analyses and investigations as Barclays deemed appropriate.

In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of such information (and Barclays did not assume responsibility or liability for any independent verification of such information). Barclays also relied upon the assurances of management of Montage that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the Montage Projections, the Southwestern Projections and the Combined Projections, upon the advice of Montage, Barclays assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Montage as to the future financial performance of Montage, Southwestern and the combined company, and that Montage, Southwestern and the combined company, respectively, will or would (as applicable) perform substantially in accordance with such projections. With respect to the Montage Resources Report and the Southwestern Resources Report, Barclays discussed the relevant reserve databases with the management of Montage and upon the advice and at the direction of Montage, Barclays assumed that the Montage Resources Report and the Southwestern Resources Report were a reasonable basis on which to evaluate the proved, probable and possible oil and gas reserves and resources of Montage (“Montage 3P Reserves”) and Southwestern (“Southwestern 3P Reserves”), respectively. However, for purposes of Barclays’ analysis, upon the advice and at the direction of Montage, Barclays also considered certain adjustments to the Montage 3P Reserves and the Southwestern 3P Reserves. Barclays discussed these adjusted Montage 3P Reserves and adjusted Southwestern 3P Reserves with the management of Montage and they agreed with the appropriateness of the use of such adjusted Montage 3P Reserves and adjusted Southwestern 3P Reserves in performing Barclays’ analysis

 

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and Barclays relied upon such information in arriving at its opinion. Furthermore, upon the advice of Montage, Barclays assumed that the amounts and timing of the Expected Synergies were reasonable and that the Expected Synergies will be realized in accordance with such estimates. In arriving at its opinion, Barclays assumed no responsibility for and expressed no view as to any such projections or estimates or the assumptions on which they were based. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of Montage and did not make or obtain any evaluations or appraisals of the assets or liabilities of Montage. In addition, Barclays was not authorized by Montage to solicit, and did not solicit, any indications of interest from any third party with respect to the purchase of all or a part of Montage’s business. Barclays’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, August 12, 2020. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after August 12, 2020. Barclays expressed no opinion as to the prices at which shares of Montage Common Stock or shares of Southwestern Common Stock would trade following the announcement of the merger or the potential effects of (1) any financing transactions by Southwestern announced or consummated on or after August 12, 2020, or (2) the volatility then being experienced in the credit, financial and stock markets on shares of Montage Common Stock or shares of Southwestern Common Stock or the merger. Barclays’ opinion did not provide any assurance that the market value of the shares of Southwestern Common Stock to be held by the stockholders of Montage after the consummation of the merger will be in excess of the market value of the shares of Montage Common Stock owned by such stockholders at any time prior to the announcement or consummation of the merger.

Additionally, Barclays assumed the accuracy of the representations and warranties contained in the Merger Agreement and all the agreements related thereto. Barclays also assumed, upon the advice of Montage, that all material governmental, regulatory and third party approvals, consents and releases for the merger would be obtained within the constraints contemplated by the Merger Agreement and that the merger will be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays did not express any opinion as to any tax or other consequences that might result from the merger, nor did Barclays’ opinion address any legal, tax, regulatory or accounting matters, as to which Barclays understood Montage had obtained such advice as it deemed necessary from qualified professionals.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to the shares of Montage Common Stock but rather made its determination as to fairness, from a financial point of view, to Montage’s stockholders of the Exchange Ratio to be offered to such stockholders (other than holders of Excluded Shares, as applicable) in connection with the merger on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

Summary of Material Financial Analyses

The following is a summary of the material financial analyses used by Barclays in preparing its opinion to the Montage Board. The summary of Barclays’ analyses and reviews provided below is not a complete description of the analyses and reviews underlying Barclays’ opinion. The preparation of a fairness opinion is a

 

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complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to summary description.

For the purposes of its analyses and reviews, Barclays made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Montage or any other parties to the merger. No company, business or transaction considered in Barclays’ analyses and reviews is identical to Montage, Southwestern or the merger, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions considered in Barclays’ analyses and reviews. None of Montage, Southwestern, Barclays or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the companies, businesses or securities do not purport to be appraisals or reflect the prices at which the companies, businesses or securities may actually be sold. Accordingly, the estimates used in, and the results derived from, Barclays’ analyses and reviews are inherently subject to substantial uncertainty.

The summary of the financial analyses and reviews summarized below include information presented in tabular format. In order to fully understand the financial analyses and reviews used by Barclays, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Barclays’ analyses and reviews.

Summary of Analyses

The following is a summary of the principal financial analyses performed by Barclays with respect to Montage and Southwestern in preparing Barclays’ opinion:

 

   

net asset valuation analysis;

 

   

comparable company analysis; and

 

   

comparable transaction analysis.

Each of these methodologies was used to generate reference enterprise and equity value ranges, as applicable, for each of Montage and Southwestern. The enterprise value ranges for each company were adjusted for appropriate on-balance sheet and off-balance sheet assets and liabilities to arrive at implied equity value ranges (in aggregate dollars) for each company, including, as applicable without limitation, the after-tax estimated value impact of each company’s current commodity hedging portfolio; net debt; and future estimated general and administrative expenses. The implied equity value ranges for each of Montage and Southwestern were then divided by diluted shares outstanding, consisting of primary shares and incorporating the dilutive effect of outstanding options or other dilutive securities, as appropriate, as provided by Montage and Southwestern, respectively, in order to derive implied equity value ranges per share for each company. For the net asset valuation analysis, the comparable company analysis, and the comparable transaction analysis, the implied equity value range per share of Montage Common Stock and per share of Southwestern Common Stock were used to derive implied exchange ratio ranges which were then compared to the Exchange Ratio.

In addition to analyzing the value of Montage Common Stock and Southwestern Common Stock and the implied exchange ratios, Barclays also analyzed and reviewed: (i) the relative financial and operating

 

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contribution of Montage and Southwestern to the combined company on a pro forma basis; (ii) certain publicly available information related to selected corporate transactions in the oil and gas industry to calculate the amount of the premiums paid by the acquirers to stockholders of E&P companies; (iii) the pro forma impact to the combined company of the merger on projected cash flow from operations, otherwise known as discretionary cash flow (“CFFO”) per share, free cash flow (“FCF”) per share and equity value per share; (iv) the historical exchange ratios of Montage and Southwestern Common Stock for the period from August 11, 2019 to August 11, 2020; (v) the daily historical closing prices of Montage and Southwestern Common Stock for the period from August 11, 2019 to August 11, 2020; and (vi) the publicly available price targets of Montage and Southwestern published by independent equity research analysts associated with various Wall Street firms.

Net Asset Valuation Analysis

Barclays estimated the present value of the future after-tax cash flows expected to be generated from the Montage Resources Report and the Southwestern Resources Report based on reserve, production and capital and operating cost estimates provided by Montage and Southwestern, respectively. The present value of the future after-tax cash flows was determined using a range of discount rates and risk factors and assuming an effective tax rate of 21% at the direction of Montage management. Barclays then, at the direction of Montage management, adjusted the present values of the cash flows by adding or subtracting as applicable (i) the present value of after-tax general and administrative costs for both Montage and Southwestern, calculated based on multiples based on each company’s high and low valuation ranges; (ii) certain other capital expenditure and cost adjustments for Montage; (iii) the present value of hedges for each of Montage and Southwestern; (iv) certain drilling and completion costs for both Montage and Southwestern; (v) present value of certain midstream and marketing earnings for Southwestern; (vi) present value of firm transportation commitment shortfalls for Southwestern; and (vii) certain carryover basis and NOL balances for both Montage and Southwestern.

Certain of the oil and natural gas price scenarios employed by Barclays were based on New York Mercantile exchange (“NYMEX”), price forecasts (Henry Hub, Louisiana delivery for natural gas and West Texas Intermediate (“WTI”), Cushing, Oklahoma delivery for oil), to which adjustments were made by Barclays, at the direction of Montage management, to reflect location and quality differentials. NYMEX gas price quotations stated in heating value equivalents per million British Thermal Units (“Mmbtu”) were adjusted by Barclays to reflect the value per thousand cubic feet, or Mcf, of gas. NYMEX oil price quotations are stated in dollars per barrel (“Bbl”), of crude oil.

The following table summarizes the oil and natural gas price scenarios Barclays employed to estimate the future after-tax cash flows for each of the reserve and resource categories that Barclays considered for Montage and Southwestern. Case I reflects an approximation of the NYMEX strip as of the close of business on August 7, 2020. Case II reflects a high commodity price scenario and Case III reflects a low commodity price scenario, in each case relative to the NYMEX Strip case and held constant over the period of time set forth below. Based on its experience in the oil and gas E&P industry, the Montage management determined that Case II and Case III were appropriate sensitivities to the Case I Strip and directed Barclays to use Case II and Case III in its analysis.

 

     2H 2020E        2021E          2022E         2023E         2024E        Thereafter  

Gas – Henry Hub ($ / MMBtu)

                 

Case I Strip

   $ 2.29      $ 2.81      $ 2.55      $ 2.47      $ 2.54      $ 2.67  

Case II

   $ 2.75      $ 2.75      $ 2.75      $ 2.75      $ 2.75      $ 2.75  

Case III

   $ 2.00      $ 2.00      $ 2.00      $ 2.00      $ 2.00      $ 2.00  

 

     2H 2020E        2021E        2022E      2023E      2024E      Thereafter  

Crude Oil – WTI ($ / Bbl)

                 

Case I Strip

   $ 41.53      $ 43.59      $ 44.89      $ 45.91      $ 46.78      $ 47.64  

Case II

   $ 50.00      $ 50.00      $ 50.00      $ 50.00      $ 50.00      $ 50.00  

Case III

   $ 40.00      $ 40.00      $ 40.00      $ 40.00      $ 40.00      $ 40.00  

 

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In addition, at the direction of Montage management, Barclays employed NGL prices with respect to Montage’s Appalachia assets and with respect to Southwestern’s Northeast Appalachia and Southwest Appalachia assets, based on correlations of NGL prices to WTI prices (expressed as a percentage relative to WTI prices) used in the Montage Resources Report and Southwestern Resources Report. The chart below shows these NGL prices expressed as a percentage of the WTI benchmark prices.

 

    

  2H 2020E  

  

  2021E  

  

 2022E  

  

 2023E 

  

  2024E  

  

Thereafter

Montage NGLs (% of WTI)

                 

Appalachia

   34%    33%    33%    33%    33%    33%

 

      2H 2020E        2021E        2022E       2023E        2024E      

Thereafter

Southwestern NGLs (% of WTI)

            

Northeast Appalachia

     30     30     30     30     30   30%

Southwest Appalachia

     31     30     41     40     39   39%

These net asset valuation analyses yielded valuations for Montage and Southwestern that implied an exchange ratio range of 1.29 to 3.46 shares of Southwestern Common Stock for each share of Montage Common Stock for Case I and an exchange ratio of 1.54 to 3.39 shares of Southwestern Common Stock for each share of Montage Common Stock for Case II, in each case as compared to the proposed exchange ratio of 1.8656 shares of Southwestern Common Stock for each share of Montage Common Stock. For Case III, the net asset valuation analysis yielded valuations that implied a range of negative equity values for Montage and negative equity values in the low end of the range for Southwestern and thus, the resulting exchange ratios were disregarded for purposes of the analysis. Barclays noted that the proposed exchange ratio was in line with the range of implied exchange ratios under each of the two price scenarios as yielded by Barclays’ net asset valuation analyses for Montage and Southwestern.

Selected Comparable Company Analysis

In order to assess how the public market values shares of similar publicly traded companies, Barclays reviewed and compared specific financial and operating data relating to Montage and Southwestern, respectively, with selected companies that Barclays, based on its experience in the oil and gas E&P industry, deemed comparable to Montage and Southwestern, respectively.

With respect to Montage, the selected mid-cap comparable companies were:

 

   

Cabot Oil & Gas Corporation

 

   

CNX Resources Corporation

 

   

EQT Corporation

 

   

Range Resources Corporation

 

   

Southwestern

With respect to Montage, the selected small-cap comparable companies were:

 

   

Antero Resources Corporation

 

   

Diversified Gas & Oil PLC

 

   

Gulfport Energy Corporation

With respect to Southwestern, the selected mid-cap comparable companies were:

 

   

Cabot Oil & Gas Corporation

 

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CNX Resources Corporation

 

   

EQT Corporation

 

   

Range Resources Corporation

With respect to Southwestern, the selected small-cap comparable companies were:

 

   

Antero Resources Corporation

 

   

Diversified Gas & Oil PLC

 

   

Gulfport Energy Corporation

 

   

Montage

Barclays calculated and compared various financial multiples and ratios of Montage and Southwestern and their selected comparable companies, respectively. As part of its selected comparable company analysis, Barclays calculated and analyzed the ratio of equity value to CFFO for 2020 and 2021 based on Wall Street research estimates per FactSet Research Systems (“FactSet”), an independent third-party data provider. In addition, Barclays calculated and analyzed the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization and exploration expense (“EBITDAX”) for 2020 and 2021 based on Wall Street research estimates per FactSet, latest daily production as of June 30, 2020 (measured in Mmcfed), and proved reserves as of December 31, 2019 (measured in Bcfe), in each case, based on Montage and Southwestern’s latest public filings, and, at the direction of Montage management, pro forma for any acquisition and divestiture activity and subsequent events and adjustment for interests in non-upstream affiliates, as applicable. The enterprise value of each company was obtained by adding its short and long-term debt to the sum of the market value of its common equity and subtracting its cash and cash equivalents. All of these calculations were performed, and based on publicly available financial data including company filings and FactSet estimates and closing prices, as of August 10, 2020, the second to last trading date prior to the delivery of Barclays’ opinion.

The results from the Montage comparable companies analysis used are summarized below:

 

     Mid-Cap Peers      Small-Cap Peers      All
Peer
Median
 
     Low      High      Median      Low      High      Median  

Equity Value to 2020 CFFO

     2.8x        11.5x        3.4x        0.5x        3.3x        1.5x        3.2x  

Equity Value to 2021 CFFO

     2.2x        7.3x        3.3x        0.4x        3.4x        1.6x        3.2x  

Enterprise Value to 2020 EBITDAX

     5.9x        12.5x        6.5x        4.5x        5.1x        5.1x        6.0x  

Enterprise Value to 2021 EBITDAX

     4.6x        7.1x        5.7x        4.5x        5.3x        5.1x        5.5x  

Enterprise Value to Latest Daily Production ($/Mcfed)

   $ 1,876      $ 4,234      $ 2,392      $ 1,114      $ 2,916      $ 1,968      $ 2,343  

Enterprise Value to Proved Reserves ($/Mcfe)

   $ 0.30      $ 0.73      $ 0.41      $ 0.21      $ 0.45      $ 0.40      $ 0.41  

The results from the Southwestern comparable companies analysis used are summarized below:

 

     Mid-Cap Peers      Small-Cap Peers      All
Peer
Median
 
     Low      High      Median      Low      High      Median  

Equity Value to 2020 CFFO

     2.8x        11.5x        4.3x        0.5x        3.3x        1.5x        3.0x  

Equity Value to 2021 CFFO

     3.1x        7.3x        3.8x        0.4x        3.4x        1.4x        3.2x  

Enterprise Value to 2020 EBITDAX

     5.9x        12.5x        7.4x        4.2x        5.1x        4.8x        5.5x  

Enterprise Value to 2021 EBITDAX

     5.6x        7.1x        6.4x        3.4x        5.3x        4.8x        5.5x  

Enterprise Value to Latest Daily Production ($/Mcfed)

   $ 2,293      $ 4,234      $ 2,582      $ 1,114      $ 2,916      $ 1,763      $ 2,343  

Enterprise Value to Proved Reserves ($/Mcfe)

   $ 0.30      $ 0.73      $ 0.46      $ 0.21      $ 0.45      $ 0.36      $ 0.41  

 

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Barclays selected the comparable companies listed above because their businesses and operating profiles are reasonably similar to that of Montage or Southwestern, as applicable. However, because no selected comparable company is exactly the same as Montage or Southwestern, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made qualitative judgments concerning differences between the respective businesses, financial and operating characteristics and prospects of each of Montage and Southwestern and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Montage and Southwestern and the companies included in the selected company analysis.

Based upon these judgments, Barclays’ selected comparable company analysis yielded an implied exchange ratio range of 0.97 to 3.12 shares of Southwestern Common Stock for each share of Montage Common Stock. Barclays noted that the exchange ratio of 1.8656 shares of Southwestern Common Stock for each share of Montage Common Stock provided for in the Merger Agreement falls within the range of implied exchange ratios calculated by Barclays’ comparable company analysis.

Selected Comparable Transaction Analysis

Barclays reviewed and compared the purchase prices and financial multiples paid in selected other transactions in the oil and gas industry that Barclays, based on its experience with merger and acquisition transactions, deemed relevant. Barclays chose such transactions based on, among other things, the similarity of the applicable target companies in the transactions to Montage and Southwestern with respect to the size, focus, commodity mix, reserve profile, margins and other characteristics of their respective businesses.

The reasons for and the circumstances surrounding each of the selected comparable transactions analyzed were diverse and there are inherent differences in the respective businesses, operations, financial condition and prospects of each of Montage and Southwestern and the companies included in the selected comparable transaction analysis. Accordingly, Barclays believed that a purely quantitative selected comparable transaction analysis would not be particularly meaningful in the context of considering the merger. Barclays therefore made qualitative judgments concerning differences between the characteristics of the selected comparable transactions and the merger which would affect the acquisition values of the selected target companies, Montage and Southwestern. The criteria used in selecting, from the IHS Herold M&A database, the transactions analyzed included all transactions: (i) with target E&P assets in the Marcellus or Utica formations; (ii) announced since January 2016; and (iii) with transaction values greater than $50 million.

The following table sets forth the transactions analyzed based on such characteristics and the results of such analysis:

 

Date
Announced

 

Target

  

Acquirer

05/11/20   EQT Corporation    Diversified Gas & Oil PLC
05/04/20   Royal Dutch Shell Plc    National Fuel Gas Company
04/08/20   Carbon Energy Corporation    Diversified Gas & Oil PLC
07/24/19   EdgeMarc Energy Holdings LLC    Diversified Gas & Oil PLC
03/27/19   HG Energy II Appalachia LLC    Diversified Gas & Oil PLC
10/11/18   Core Appalachia Holding Co LLC    Diversified Gas & Oil PLC
08/27/18   Rex Energy Corporation    PennEnergy Resources, LLC
08/27/18   Blue Ridge Mountain Resources Inc.    Eclipse Resources Corporation
07/26/18   Chesapeake Energy Corporation    Encino Acquisition Partners
06/29/18   Hess Corp. & CNX Resources Corporation    Ascent Resources Utica Holdings, LLC
01/31/18   Alliance Petroleum Interests    Diversified Gas & Oil PLC
12/21/17   Ultra Petroleum Corporation    Alta Resources LLC
12/12/17   Warren Resources Inc.    Kalnin Ventures LLC

 

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Date
Announced

 

Target

  

Acquirer

12/11/17   Travis Peak Resources LLC    Eclipse Resources Corporation
10/06/17   Reliance Industries Ltd. / Carrizo Oil & Gas Inc.    Kalnin Ventures LLC
09/05/17   Carrizo Oil & Gas Inc.    Ascent Resources Utica Holdings LLC
07/17/17   LOLA Energy Resources LLC    Rice Energy Inc.
06/30/17   CONSOL Energy Inc.    Undisclosed
06/19/17   Rice Energy Inc.    EQT Corporation
06/09/17   CONSOL Energy Inc.    Antero Resources Corporation
05/02/17   Noble Energy Inc.    HG Energy LLC
02/09/17   Stone Energy Corporation    EQT Corporation
02/02/17   Undisclosed    EQT Corporation
01/04/17   Rex Energy Corporation & MFC Drilling Inc.    Antero Resources Corporation
12/22/16   Mitsui & Co. Ltd    Alta Resources LLC
12/21/16   Anadarko Petroleum Corporation    Alta Resources LLC
12/19/16   Eclipse Resources Corporation    Undisclosed
12/07/16   Undisclosed    Gulfport Energy Corporation
10/26/16   Murray Energy Corporation    Undisclosed
10/25/16   Trans Energy Inc. / Republic Energy Ventures LLC    EQT Corporation
10/25/16   Antero Resources Corporation    EQT Corporation
08/01/16   Statoil ASA    Antero Resources Corporation
06/09/16   Southwestern Energy Company    Antero Resources Corporation
05/17/16   Alpha Natural Resources Inc.    Vantage Energy Appalachia II LLC
05/02/16   Statoil ASA    EQT Corporation
02/26/16   Range Resources Corporation    Banpu Public Company Limited
02/19/16   Gastar Exploration Inc.    Tug Hill Inc.

As part of its comparable transaction analysis, Barclays calculated and analyzed the ratio of enterprise value for corporate transactions and transaction value for asset transactions to latest daily production and proved reserves. The enterprise value of each company was obtained by adding its short and long-term debt to the sum of the market value of its common equity, and subtracting its cash and cash equivalents. All of these calculations were performed and based on publicly available financial data including company filings. The results of the comparable transactions analysis are summarized below:

 

     Low      High      Median      Mean  

Enterprise Value to Latest Daily Production ($/Mcfed)

   $ 769      $ 85,000      $ 3,170      $ 10,428  

Enterprise Value to Proved Reserves ($/Mcfe)

   $ 0.25      $ 40.91      $ 0.58      $ 3.65  

Based upon Barclays’ judgments as described above, Barclays’ comparable transaction analysis yielded an implied exchange ratio range of 1.70 to 4.92 shares of Southwestern Common Stock for each share of Montage Common Stock. Barclays noted that the exchange ratio to be offered to holders of Montage Common Stock of 1.8656 shares of Southwestern Common Stock for each share of Montage Common Stock falls within the implied exchange ratio range as calculated by Barclays’ selected comparable transaction analysis.

Other Factors

Barclays also reviewed and considered other factors, which were not considered part of its financial analyses in connection with rendering its advice, but were references for informational purposes, including, among other things, the Pro Forma Merger Consequences Analysis, Historical Exchange Ratio Analysis, Transaction Premium Analysis, Relative Contribution Analysis, Historical Share Price Analysis and Equity Research Analyst Price Targets Analysis described below.

 

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Pro Forma Merger Consequences Analysis

Barclays reviewed and analyzed the pro forma impact of the merger on the implied equity value per share for Montage using a range of valuation multiples applied to the Montage EBITDAX for 2021 based on Wall Street research estimates. Barclays noted that the pro forma equity value per share would be accretive to Montage standalone equity value per share for 2021.

Barclays also reviewed and analyzed the pro forma impact of the merger on projected FCF per share and CFFO per share for Montage and Southwestern, respectively, assuming a selected number of exchange ratios ranging from 1.70 to 2.00. With respect to FCF per share and CFFO per share for Montage and Southwestern, Barclays reviewed the pro forma impact of these metrics for 2021 using projections provided by management of each of Montage and Southwestern as well as Wall Street estimates provided by FactSet. Barclays noted that pro forma FCF per share would be dilutive to Montage standalone FCF per share for 2021 and accretive to Southwestern standalone FCF per share for 2021 based on projections provided by management. Pro forma FCF per share would be generally accretive to Montage standalone FCF per share for 2021 and accretive to Southwestern standalone FCF per share for 2021 based on Wall Street estimates provided by FactSet. Pro forma CFFO per share would be dilutive to Montage standalone CFFO per share, and accretive to Southwestern standalone CFFO per share using projections provided by management as well as Wall Street estimates provided by FactSet.

Historical Exchange Ratio Analysis

To provide background information and perspective to the historical share prices of Montage Common Stock and Southwestern Common Stock, Barclays reviewed the daily historical closing prices of the Montage Common Stock and Southwestern Common Stock over the period from August 11, 2019 to August 11, 2020. In addition, Barclays reviewed the implied relative exchange ratio based on the share prices of Montage Common Stock and Southwestern Common Stock as of 5 and 30 days prior to August 11, 2020; the 52-week high share price for Montage Common Stock and Southwestern Common Stock, respectively; the average 5-day, 10-day, 30-day, 90-day and the periods since March 9, 2020 and May 22, 2020; the volume weighted average for the 5-day, 10-day, 30-day, 90-day, 180-day and 365-day periods ending August 11, 2020. This analysis implied relative exchange ratios from 1.5059 to 2.1211. As of market close on August 11, 2020, the exchange ratio of 1.8656 shares of Southwestern Common Stock for each share of Montage Common Stock provided for in the Merger Agreement implied a (i) 5.0% discount to the exchange ratio based on the closing prices of Montage Common Stock and Southwestern Common Stock on that day, (ii) a 2.5% premium to the exchange ratio based on the 5-day average closing prices of Montage Common Stock and Southwestern Common Stock, (iii) a 4.8% premium to the exchange ratio based on the 10-day average closing prices of Montage Common Stock and Southwestern Common Stock, (iv) a 16.7% premium to the exchange ratio based on the 30-day average closing prices of Montage Common Stock and Southwestern Common Stock and (v) a 7.5% premium to the exchange ratio based on the 90-day average closing prices of Montage Common Stock and Southwestern Common Stock.

 

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Transaction Premium Analysis

In order to assess the premium offered to the stockholders of Montage in the merger relative to the premiums offered to stockholders in other transactions, Barclays reviewed the premiums paid in the oil and gas industry in all public transactions of E&P companies domiciled in the U.S. valued greater than $250 million from January 1, 2005 to August 10, 2020. For each transaction, Barclays calculated the premium per share paid by the acquirer by comparing the announced transaction value per share to the target company’s historical closing share price as of the following periods: (i) 1 trading day prior to announcement; (ii) 5 trading days prior to announcement; (iii) 30 trading days prior to announcement, and (iv) the 52-week high prior to announcement. Barclays selected 50 transactions for the transaction premium analysis and highlighted the 20 transactions that reflected all stock transactions. The selected transactions and results of this transaction premium analysis are summarized below:

 

Date
Announced

  

Target

  

Acquirer

07/20/20    Noble Energy Inc.    Chevron Corporation
10/14/19    Jagged Peak Energy Inc.    Parsley Energy Inc.
08/26/19    SRC Energy Inc.    PDC Energy Inc.
07/15/19    Carrizo Oil & Gas Inc.    Callon Petroleum Company
05/09/19    Anadarko Petroleum Corporation    Occidental Petroleum Corporation
11/19/18    Resolute Energy Corporation    Cimarex Energy Company
11/01/18    Newfield Exploration Company    Encana Corporation
10/30/18    WildHorse Resource Development Corporation    Chesapeake Energy Corporation
08/27/18    Blue Ridge Mountain Resources Inc.    Eclipse Resource Corporation
08/14/18    Energen Corporation    Diamondback Energy Inc.
03/28/18    RSP Permian Inc.    Concho Resources Inc.
06/19/17    Rice Energy Inc.    EQT Corporation
01/16/17    Clayton Williams Energy Inc.    Noble Energy Inc.
05/16/16    Memorial Resource Development Corporation    Range Resources Corporation
05/21/15    Eagle Rock Energy Partners LP    Vanguard Natural Resources LLC
05/11/15    Rosetta Resources Inc.    Noble Energy Inc.
04/20/15    LRR Energy LP    Vanguard Natural Resources LLC
09/29/14    Athlon Energy Inc.    Encana Corporation
07/24/14    QR Energy LP    BreitBurn Energy Partners LP
07/13/14    Kodiak Oil & Gas Corporation    Whiting Petroleum Corporation
03/12/14    EPL Oil & Gas Inc.    Energy XXI Ltd.
04/30/13    Crimson Exploration Inc.    Contango Oil & Gas Company
02/21/13    Berry Petroleum Company    LinnCo LLC / LINN Energy LLC
12/05/12    Plains Exploration & Production Company    Freeport-McMoRan Copper & Gold Inc.
04/25/12    GeoResources Inc.    Halcon Resources Corporation
10/17/11    Brigham Exploration Company    Statoil ASA
08/29/11    Venoco Inc.    Venoco Inc. Management
07/14/11    Petrohawk Energy Corporation    BHP Billiton
03/25/11    Encore Energy Partners LP    Vanguard Natural Resources LLC
11/09/10    Atlas Energy Inc.    Chevron Corporation
07/27/10    American Oil & Gas Inc.    Hess Corporation
04/15/10    Mariner Energy Inc.    Apache Corporation
04/04/10    Arena Resources Inc.    SandRidge Energy Inc.
11/01/09    Encore Acquisition Company    Denbury Resources Inc.
12/14/09    XTO Energy Inc.    Exxon Mobil Corporation
09/15/09    Parallel Petroleum Corporation    Apollo Global Management LLC
04/30/08    Bois d’Arc Energy Inc.    Stone Energy Corporation
07/17/07    Pogo Producing Company    Plains Exploration & Production Company

 

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Date
Announced

  

Target

  

Acquirer

01/07/07    Houston Exploration Company    Forest Oil Corporation
07/08/06    Cascade Natural Gas Company    MDU Resources Group Inc.
06/23/06    Kerr-McGee Corporation    Anadarko Petroleum Corporation
06/23/06    Western Gas Resources Inc.    Anadarko Petroleum Corporation
04/21/06    KCS Energy Inc.    Petrohawk Energy Corporation
01/23/06    Remington Oil & Gas Corporation    Cal Dive International Inc.
12/12/05    Burlington Resources Inc.    ConocoPhillips Company
09/19/05    Spinnaker Exploration Company    Norsk Hydro ASA
07/01/05    Tipperary Corporation    Santos Limited
04/04/05    Unocal Corporation    Chevron Corporation
04/04/05    Mission Resources Corporation    Petrohawk Energy Corporation
01/26/05    Magnum Hunter Resources Inc.    Cimarex Energy Company

 

     Premiums on Selected All-Stock Deals  
     1 Day     5 Days     30 Days     52-Week
High
 

Median

     19.1 %     20.9 %     24.0 %     (21.8 %) 

Mean

     17.3 %     18.8 %     20.5 %     (22.9 %) 

High

     37.8 %     36.2 %     60.1 %     12.6 %

Low

     (5.2 %)      (14.0 %)      (7.8 %)      (59.2 %) 

Implied premium based on the Exchange Ratio provided for in the merger (as of August 11, 2020 close)

     (5.0 %)       

The reasons for and the circumstances surrounding each of the transactions analyzed in the transaction premium analysis were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Montage and the companies included in the transaction premium analysis. Accordingly, Barclays believed that a purely quantitative transaction premium analysis would not be particularly meaningful in the context of considering the merger. Barclays therefore made qualitative judgments concerning the differences between the characteristics of the selected transactions and the merger which would affect the acquisition values of the target companies and Montage.

Relative Contribution Analysis

Barclays reviewed and analyzed the relative equity contribution of Montage and Southwestern, respectively, to the pro forma company based on selected asset metrics, including reserves and production, and financial metrics, including CFFO, in comparison to the pro forma equity received by Montage stockholders in the pro forma company. The analysis excluded synergies and the impact of any financing transaction by Southwestern announced or consummated on or after August 12, 2020. For the selected asset metrics, the relative equity contribution was calculated by multiplying Montage’s percent asset contribution by the market enterprise value of the combined company (assuming no premium), based on prices as of August 10, 2020, and subtracting short and long-term debt and adding cash and cash equivalents.

Barclays reviewed and analyzed Montage’s and Southwestern’s contribution of reserves of the combined company on a proved basis, based on the Montage proved reserves and the Southwestern proved reserves. Barclays also reviewed and analyzed Montage’s and Southwestern’s contribution of reserves of the combined company on a proved developed basis, based on the Montage proved developed reserves and the Southwestern proved developed reserves. Montage contributed approximately 13% of the pro forma equity value based on proved reserves and 16% of the pro forma equity value based on proved developed reserves. Barclays also reviewed and analyzed Montage’s and Southwestern’s contribution of production based on Montage’s management and Southwestern’s management estimates of production each for 2021. Montage contributed 15% of the pro forma equity value based on 2021 estimated production. Further, Barclays reviewed and analyzed

 

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Montage and Southwestern CFFO contribution for 2021 to the combined company based on estimates provided by the management of each of Montage and Southwestern. Barclays noted that Montage contributed 19% of the pro forma equity value. Barclays also reviewed and analyzed the CFFO contribution based on Wall Street estimates provided by FactSet for 2020 and 2021 for Montage and Southwestern. Barclays noted that Montage contributed 21% and 20% of the pro forma equity value for 2020 and 2021, respectively, to the combined company. Barclays noted that the pro forma ownership received by Montage stockholders in the merger of approximately 11% was less than the equity contribution based on selected asset metrics and financial metrics. In calculating the pro forma ownership figures, after discussion with Montage management, Barclays used share count numbers for Montage and Southwestern provided by Montage management and Southwestern management, respectively, and excluded from the Southwestern share count, liability-classified restricted stock units and performance cash awards. Barclays notes that the primary shortcoming of a contribution analysis is that it treats all cash flow, reserves and production the same regardless of capitalization, expected growth rates, access to and cost of capital, upside potential, risk profile or credit profile.

Historical Share Price Analysis

To illustrate the trend in the historical trading prices of Montage Common Stock, Barclays considered historical data with regard to the trading prices of Montage Common Stock for the period from August 10, 2019 to August 10, 2020 and compared such data with the relative stock price performance during the same period of Southwestern Common Stock.

Equity Research Analyst Price Targets Analysis

Barclays evaluated the publicly available price targets of Montage and Southwestern published by independent equity research analysts associated with various Wall Street firms. The range of undiscounted analyst price targets for Montage Common Stock was $4.00 to $10.00 per share as of August 10, 2020 and the range of undiscounted analyst price targets for Southwestern Common Stock was $2.00 to $4.00 per share as of August 10, 2020. This analysis yielded an exchange ratio range of 1.00 to 5.00 shares of Southwestern Common Stock for each share of Montage Common Stock.

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Montage Board selected Barclays because of its familiarity with Montage and its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, as well as substantial experience in transactions comparable to the merger.

Barclays is acting as financial advisor to Montage in connection with the merger. As compensation for its services in connection with the merger, Montage paid Barclays $1 million upon the delivery of Barclays’ opinion, which is referred to as the “Opinion Fee.” The Opinion Fee was not contingent upon the conclusion of Barclays’ opinion or the consummation of the proposed transaction. Compensation of approximately $8 million will be payable on completion of the proposed transaction against which the amounts paid for the opinion will be credited. In addition, Montage has agreed to reimburse Barclays for a portion of its expenses incurred in connection with the merger and to indemnify Barclays for certain liabilities that may arise out of its engagement by Montage and the rendering of Barclays’ opinion. Barclays has performed various investment banking services for Montage, Southwestern and certain entities affiliated with EnCap in the past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, in the past two years, Barclays has performed and received fees for certain financial advisory services to Blue Ridge Mountain Resources, Inc. in connection with its merger with Eclipse Resource Corporation announced in August 2018. Montage is the resulting combined entity of such merger transaction. Further, an affiliate of Barclays is a

 

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lender under Montage’s existing revolving line of credit facility. In the past two years, Barclays has not received any fees for investment banking services for Southwestern. In addition, Barclays and its affiliates in the past have provided, currently are providing, or in the future may provide, investment banking services to EnCap, and certain of its affiliates and portfolio companies and have received or in the future may receive customary fees for rendering such services, including (i) having acted or acting as financial advisor to EnCap, certain of its affiliates and/or portfolio companies in connection with certain mergers and acquisition transactions; (ii) having acted or acting as arranger, bookrunner and/or lender for EnCap, certain of its affiliates and/or portfolio companies in connection with the financing for various acquisition transactions; and (iii) having acted or acting as underwriter, initial purchaser and placement agent for various equity and debt offerings undertaken by EnCap, certain of its affiliates and/or portfolio companies.

Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays and affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of each of Montage and Southwestern for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

Certain Unaudited Forecasted Financial Information

Neither Montage nor Southwestern, as a matter of course, makes public long-term forecasts or internal projections as to future performance, revenues, production, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with its evaluation of the merger, Montage’s management provided to the Montage Board and to Barclays in connection with its preparation of its fairness opinion certain unaudited internal financial forecasts with respect to Montage on a stand-alone basis prepared by Montage’s management, certain unaudited internal financial forecasts with respect to Southwestern on a pro forma basis giving effect to the merger prepared by Southwestern’s management, and certain unaudited internal financial forecasts with respect to Southwestern on a stand-alone basis included in the pro forma unaudited financial forecasts prepared by Southwestern’s management, and Montage’s management also prepared and provided to the Montage Board certain unaudited internal financial forecasts with respect to Southwestern on a pro forma basis giving effect to the merger, based on Wall Street consensus estimates provided by Barclays of Montage for the year 2021 on a stand-alone basis and of Southwestern for the year 2021 on a stand-alone basis (collectively, the “Forecasted Financial Information”). The inclusion of this Forecasted Financial Information should not be regarded as an indication that any of Montage, its advisors or other representatives, Southwestern, its advisors or other representatives, or any other recipient of this Forecasted Financial Information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.

This Forecasted Financial Information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the Forecasted Financial Information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of Montage’s and Southwestern’s management, including, among others, Montage’s and Southwestern’s future results, production and sales volume levels, levels of oil and gas reserves, oil and gas industry activity and the overall energy markets, commodity prices, demand for natural gas and crude oil, competitive conditions, technology, the availability of financing to fund the exploration and development costs associated with the respective projected drilling programs, levels of capital expenditures, general economic and regulatory conditions, including the effects of the COVID-19 pandemic, and other matters described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements,” “Where You Can Find More Information” and “Risk Factors.” The Forecasted Financial Information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Neither Montage nor Southwestern can give assurance that the Forecasted Financial Information and the underlying estimates and assumptions will be

 

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realized. This Forecasted Financial Information constitutes “forward-looking statements” and actual results may differ materially and adversely from those set forth below.

The Forecasted Financial Information was not prepared with a view toward compliance with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of prospective financial information. The Forecasted Financial Information included in this document has been prepared by, and is the responsibility of, management of Southwestern and Montage. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying Forecasted Financial Information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report incorporated by reference in this document relates to Southwestern’s previously issued financial statements. It does not extend to the Forecasted Financial Information and should not be read to do so.

The Forecasted Financial Information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP, and non-GAAP financial measures used by Montage may not be comparable to similarly titled measures used by other companies. Grant Thornton LLP has not compiled, examined or performed any procedures with respect to the Forecasted Financial Information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of Grant Thornton LLP, the independent registered public accounting firm to Montage, contained in its Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by reference into this proxy statement/prospectus, relates to historical financial information of Montage, and such report does not extend to the Forecasted Financial Information included below and should not be read to do so.

Furthermore, the Forecasted Financial Information does not take into account any circumstances or events occurring after the date it was prepared. Neither Montage nor Southwestern can give assurance that, had the Forecasted Financial Information been prepared either as of the date of the Merger Agreement or as of the date of this proxy statement/prospectus, similar estimates and assumptions would be used. Except as required by applicable securities laws, Montage and Southwestern do not intend to, and disclaim any obligation to, make publicly available any update or other revision to the Forecasted Financial Information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even if any or all of the underlying assumptions are shown to be in error, including with respect to the accounting treatment of the merger under GAAP, or to reflect changes in general economic or industry conditions. The Forecasted Financial Information does not take into account all of the possible financial and other effects of the merger on Montage or Southwestern, the effect on Montage or Southwestern of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the Merger Agreement had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the Forecasted Financial Information does not take into account the effect on Montage or Southwestern of any possible failure of the merger to occur. None of Montage or Southwestern or their respective affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any Montage stockholder or other person regarding Montage’s or Southwestern’s ultimate performance compared to the information contained in the Forecasted Financial Information or that the Forecasted Financial Information will be achieved. The inclusion of the Forecasted Financial Information herein should not be deemed an admission or representation by Montage, Southwestern, their respective advisors or any other person that it is viewed as material information of Montage or Southwestern, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the Forecasted Financial Information included below is not being included in this proxy statement/prospectus in order to influence any Montage stockholder’s decision or to induce any stockholder to vote in favor of any of the proposals at the

 

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Montage Special Meeting, but is being provided solely because it was made available to the Montage Board and Montage’s financial advisor in connection with the merger.

In light of the foregoing, and considering that the Montage Special Meeting will be held several months after the Forecasted Financial Information was prepared, as well as the uncertainties inherent in any forecasted information, Montage stockholders are cautioned not to place undue reliance on such information, and Montage urges you to review Montage’s and Southwestern’s most recent SEC filings for a description of Montage’s and Southwestern’s reported financial results included therein. See the section entitled “Where You Can Find More Information.”

The summarized prospective financial and operating information described below is based on various assumptions, including, but not limited to, the following principal assumptions: pro forma capital is allocated to the highest return areas considering any firm transportation commitments or minimum volume commitments; Southwestern recognizes the ability to reduce capital from legacy Montage assets due to production levels above volume commitments; Montage’s non-core wellhead gathering infrastructure in the Ohio Utica condensate development area is sold in accordance with the terms of the non-binding letter of intent previously announced by Montage; and model inputs are optimized in order to deliver expected free cash flows at the corporate level. The summarized prospective financial and operating information also reflects assumptions regarding the continuing nature of ordinary course operations that may be subject to change.

The following table sets forth certain summarized prospective financial and operating information regarding (i) Montage for the year 2021 on a stand-alone basis, which information was prepared by Montage management and provided to Barclays and the Montage Board, (ii) Southwestern for the year 2021 on a pro forma basis, taking into account the projected pro forma impact of the merger, including cost synergies and other strategic benefits expected by Montage management and Southwestern management to result from a combination of the businesses, which information was prepared by Southwestern’ s management and provided to Barclays and the Montage Board, and (iii) Southwestern for the year 2021 on a stand-alone basis, which information was included in the pro forma prospective financial and operating information prepared by Southwestern management and provided to Barclays and the Montage Board. Montage management instructed Barclays to use and rely upon the prospective financial and operating information as the basis for its analysis in rendering its opinion described in the section of this proxy statement/prospectus entitled “The Merger—Opinion of Montage’s Financial Advisor,” with such adjustments as are discussed in such section.

 

($ in millions, except commodity prices and per share amounts)

   Southwestern
Stand-Alone
     Montage
Stand-Alone
     Pro Forma
Southwestern(1)
 

Henry Hub Natural Gas ($ / MMBtu)

   $ 2.70      $ 2.70      $ 2.70  

Production (MMcfe/d)

     2,450        550        3,000  

EBITDAX(2)

   $ 868      $ 227      $ 1,125  

CFFO(3)

   $ 778      $ 179      $ 990  

Free Cash Flow(4)

   $ 78      $ 29      $ 140  

CFFO per Share(3)

   $ 1.43      $ 4.78     

Free Cash Flow per Share(4)

   $ 0.14      $ 0.77     

 

(1)

Includes $30 million of annual general and administrative synergies expected by Montage management and Southwestern management. Also assumes Southwestern issues $150 million of common equity subsequent to the announcement of execution of the Merger Agreement, 53.2 million shares are issued to the public at a 10.0% file-to-offer discount to Southwestern’s share price as of August 10, 2020, and the proceeds from the equity offering are used to repay Montage’s outstanding 8.875% Senior Notes due 2023 at 102.2%.

(2)

EBITDAX is defined as earnings before interest, taxes, depreciation and amortization, and exploration expense. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

 

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(3)

CFFO, or, cash flow from operating activities (otherwise known as discretionary cash flow) is defined as EBITDAX less interest expense and cash taxes. CFFO is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

(4)

Free cash flow is defined as cash flow from operating activities less accrual based capital expenditures. Free cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

The following table sets forth certain summarized prospective financial and operating information, based on Wall Street consensus estimates provided by Barclays of Montage for the year 2021 on a stand-alone basis and of Southwestern for the year 2021 on a stand-alone basis, as of August 10, 2020, prepared by Montage management and provided to the Montage Board and Barclays regarding Southwestern for the year 2021 on a pro forma basis, taking into account the projected pro forma impact of the merger, including cost synergies and other strategic benefits expected by Montage management and Southwestern management to result from a combination of the businesses.

 

($ in millions, except commodity prices and per share amounts)

   Southwestern
Stand-Alone
     Montage
Stand-Alone
     Pro Forma
Southwestern(1)
 

Henry Hub Natural Gas ($ / MMBtu)

   $ 2.50      $ 2.50      $ 2.50  

Production (MMcfe/d)

     2,423        588        3,011  

EBITDAX(2)

   $ 893      $ 253      $ 1,176  

CFFO(3)

   $ 772      $ 198      $ 1,014  

Free Cash Flow(4)

   $ 70      $ 13      $ 126  

CFFO per Share(3)

   $ 1.42      $ 5.28     

Free Cash Flow per Share(4)

   $ 0.13      $ 0.35     

 

(1)

Includes $30 million of annual general and administrative synergies expected by Montage management and Southwestern management. Also assumes Southwestern issues $150 million of common equity subsequent to the announcement of execution of the Merger Agreement, 53.2 million shares are issued to the public at a 10.0% file-to-offer discount to Southwestern’s share price as of August 10, 2020, and the proceeds from the equity offering are used to repay Montage’s outstanding 8.875% Senior Notes due 2023 at 102.2%.

(2)

EBITDAX is defined as earnings before interest, taxes, depreciation and amortization, and exploration expense. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

(3)

CFFO, or, cash flow from operating activities (otherwise known as discretionary cash flow) is defined as EBITDAX less interest expense and cash taxes. CFFO is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

(4)

Free cash flow is defined as cash flow from operating activities less accrual based capital expenditures Free cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

Southwestern and Montage do not intend to update or otherwise revise the above Forecasted Financial Information to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such Forecasted Financial Information are no longer appropriate, except as may be required by applicable law.

 

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Board of Directors and Executive Officers After Completion of the Merger

The directors of Southwestern immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the surviving corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with Southwestern’s certificate of incorporation and bylaws.

The officers of Southwestern immediately prior to the Effective Time shall, from and after the Effective Time, be the officers of the surviving corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Headquarters

Immediately following the Effective Time, the headquarters of Southwestern will continue to be located in Spring, Texas.

Treatment of Indebtedness

As of June 30, 2020, Southwestern had outstanding $336 million of principal and $209 million in letters of credit under its existing credit agreement. On August 18, 2020, Southwestern entered into an amendment to its existing credit facility to permit the assumption of Montage’s outstanding notes, as described below.

As of June 30, 2020, Montage had approximately $510.5 million principal amount of its 8.875% Senior Notes due 2023 (the “Montage Notes”) outstanding. The Merger Agreement requires Montage to, at Southwestern’s request, (i) provide all required notices and documentation to the trustee under the indenture governing the Montage Notes with respect to the redemption of all of the Montage Notes, (ii) when requested by Southwestern, send or instruct the trustee to send to the holders thereof a notice of optional redemption for all of the outstanding principal amount of the Montage Notes and (iii) assuming that prior to or contemporaneously with the closing of the merger, Southwestern has deposited or caused to be irrevocably deposited with the trustee as trust funds in trust solely for the benefit of the holders of the Montage Notes the aggregate amount of cash sufficient without consideration of any reinvestment of interest to pay and discharge the Montage Notes, together with all sums then payable by Montage under the indenture and the Montage Notes, concurrently with consummation of the merger, deliver irrevocable instructions to the trustee to apply the deposited money towards the payment of the Montage Notes. Southwestern intends to fund the redemption with the net proceeds of its recently completed equity offering and up to $26 million in borrowings under its existing credit agreement.

As of June 30, 2020, Montage had outstanding $160.0 million of principal and $29.2 million in letters of credit under its existing credit agreement. Unless the Montage credit agreement is terminated or amended, consummation of the merger would constitute a “Change in Control” and result in an event of default thereunder. The Merger Agreement requires Montage to, no later than 3 business days prior to the consummation of the merger, obtain a payoff letter from the administrative agent under the Montage credit facility, and deliver to Southwestern prior to consummation of the merger, a payoff letter in connection with the Montage credit agreement, in customary form and substance, setting forth (i) the amounts required to pay off the Montage credit agreement in full on the date of the consummation of the merger, the indebtedness owing to each creditor under the Montage credit agreement (including the outstanding principal, accrued and unpaid interest and prepayment and other penalties) and wire transfer information for such payment and (ii) upon payment of such amounts, a release of Montage and its subsidiaries, including the automatic release of any and all liens securing the Montage credit agreement.

For a description of Southwestern’s and Montage’s existing indebtedness, see Southwestern’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, filed on July 30, 2020, and Montage’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, filed on August 7, 2020, each of which is incorporated by reference into this proxy statement/prospectus.

 

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Credit Agreement Amendment

On August 18, 2020, Southwestern, several banks and other financial institutions (collectively, the “Southwestern Lenders”) and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Southwestern Lenders (the “Administrative Agent”), entered into Amendment No. 7 (the “Credit Agreement Amendment”) to that certain Credit Agreement dated as of April 26, 2018, by and among Southwestern, the Southwestern Lenders from time to time party thereto and the Administrative Agent (the “Southwestern Credit Agreement”). The Credit Agreement Amendment amended the Southwestern Credit Agreement to, among other things:

 

   

permit the assumption of the Montage Notes by Southwestern upon the closing of the merger;

 

   

permit the redemption of the Montage Notes with the proceeds of the recent Southwestern Common Stock offering, Southwestern’s recent senior notes offering and loans made under the Southwestern Credit Agreement subject to certain other conditions; and

 

   

add a springing maturity trigger 91 days prior to the July 15, 2023 maturity date of the Montage Notes unless at least $450 million of such notes have been redeemed, refinanced or amended such that their maturity date is extended to a date at least 91 days after the Southwestern Credit Agreement’s April 24, 2024, maturity date.

Interests of Montage’s Directors and Executive Officers in the Merger

In considering the recommendations of the Montage Board, Montage stockholders should be aware that Montage’s directors and executive officers have interests in the merger that may be different from, or in addition to, those of Montage stockholders generally. The Montage Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the merger, in approving the Merger Agreement and in recommending the applicable merger-related proposals.

The following discussion sets forth certain of these interests in the merger of each person who has served as an executive officer or non-employee director of Montage since January 1, 2019.

Treatment of Montage Equity Awards

The Merger Agreement provides for the treatment set forth below with respect to the Montage equity awards that are outstanding at the Effective Time.

Montage RSU Awards

Upon completion of the merger, each then-outstanding Montage RSU Award will be assumed by Southwestern and converted into the right to receive a number of shares of Southwestern Common Stock determined by multiplying (i) the applicable number of shares of Montage Common Stock subject to such Montage RSU Award immediately prior to the Effective Time by (ii) the Exchange Ratio. Each Montage RSU Award that is so converted upon completion of the merger is referred to herein as an “Assumed RSU Award.” Any fractional shares resulting from the conversion of a Montage RSU Award into an Assumed RSU Award will be rounded to the nearest whole share. Each Assumed RSU Award will continue to have, and will be subject to, the same terms and conditions (including time vesting conditions and, if applicable, any accelerated vesting in connection with a termination of service) that applied to the underlying Montage RSU Award. However, Southwestern can modify the terms that are rendered inoperative by reason of the merger or for other immaterial administrative or ministerial changes. Southwestern may, in its discretion, settle any Assumed RSU Award that becomes vested in shares of Southwestern Common Stock or cash (the amount of which will be equal to the fair market value of the shares of Southwestern Common Stock otherwise deliverable in settlement of the Assumed RSU Award pursuant to the foregoing if Southwestern instead elects to settle the Assumed RSU Award in shares of Southwestern Common Stock).

 

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The following sets forth, for each Montage executive officer, the aggregate number of shares of Montage Common Stock subject to outstanding Montage RSU Awards, held by such executive officer assuming (i) a closing date of November 13, 2020 and (ii) the executive officer remains continuously employed with Montage or a subsidiary until such date.

 

Name

  

Number of Shares
Subject to Montage
RSU Awards(1)

John K. Reinhart

   138,469

Michael L. Hodges

   61,500

Matthew H. Rucker

   55,658

Paul M. Johnston

   52,275

Timothy J. Loos

   16,631

 

(1) 

Benjamin W. Hulburt resigned as Montage’s Chairman, President and Chief Executive Officer and Matthew R. DeNezza resigned as Montage’s Executive Vice President and Chief Financial Officer, each on February 28, 2019. Oleg Tolmachev’s employment with Montage, as Montage’s Executive Vice President and Chief Operating Officer, was terminated effective June 1, 2020. Accordingly, none of these former executives continue to hold any Montage RSU Awards.

As the Montage RSU Awards are being converted directly into awards based on shares of Southwestern Common Stock using the Exchange Ratio, no monetary value is being received by Montage’s executive officers solely in connection with the conversion of their respective Montage RSU Awards. However, the vesting of any unvested converted Montage RSU Awards would accelerate in the event of an executive officer’s qualifying termination of employment under certain circumstances in connection with or following the merger. For the estimated values of the potential accelerated vesting of the Montage RSU Awards held by Montage’s named executive officers, see the “Equity” column of the table below under “—Potential Merger-Related Compensation Table.”

None of Montage’s non-employee directors hold a Montage RSU Award as of the date hereof or is expected to hold a Montage RSU Award as of an assumed closing date of November 13, 2020.

Montage PSU Awards

Prior to, but conditioned upon the occurrence of, the merger, each Montage PSU Award will be terminated and vested in accordance with its terms. The number of shares of Montage Common Stock deliverable with respect to a Montage PSU Award in connection with such termination and vesting will be determined by the Compensation Committee of the Montage Board, pursuant to the terms of the applicable Montage PSU Award, as such terms were in effect on August 12, 2020.

Specifically, as of the date the merger is completed, the number of shares of Montage Common Stock deliverable with respect to each Montage PSU Award granted in 2018 (a “2018 Montage PSU Award”) that is outstanding immediately prior to the Effective Time will range from 0% to 150% of the number of shares covered by the award, depending on actual performance, relative to the applicable performance objectives. As of the date the merger is completed, the number of shares of Montage Common Stock deliverable with respect to each Montage PSU Award granted in 2019 (a “2019 Montage PSU Award”) that is outstanding immediately prior to the Effective Time will range from 100% to 150% of the number of shares covered by the award, depending on actual performance, relative to the applicable performance objectives. As of the date the merger is completed, the number of shares of Montage Common Stock deliverable with respect to each Montage PSU Award granted in 2020 (a “2020 PSU Award”) that is outstanding immediately prior to the Effective Time, if the fair market value (as determined in good faith by the Montage Board) of the consideration received by the stockholders of Montage with respect to each share of Montage Common Stock as of the Effective Time is (a)

 

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less than $8.75 will range from 100% to 175% of the number of shares covered by the award, depending on greater of actual or target performance, relative to the applicable performance objective, and (b) equal to or greater than $8.75, will be 175% of the number of shares covered by the award.

Southwestern may elect to settle each Montage PSU Award in shares of Southwestern Common Stock (determined using the vesting determination described in the immediately preceding paragraph and converted into a number of shares of Southwestern Common Stock in the same manner as described above with respect to the Assumed RSU Awards) or in cash (the amount of which will be equal to the fair market value of the shares of Southwestern Common Stock otherwise deliverable in settlement of the Montage PSU Award pursuant to the foregoing if Southwestern instead elects to settle the Montage PSU Award in shares of Southwestern Common Stock).

The following sets forth, for each of Montage’s executive officers, the aggregate number of shares of Montage Common Stock issuable under their respective Montage PSU Awards outstanding as of an assumed closing date of November 13, 2020, assuming (a) payout at 100% of the target number of shares covered by the Montage PSU Awards and (b) each executive officer remains continuously employed with Montage or a subsidiary until the assumed closing date.

 

Name

  

Number of Shares Subject to
Montage PSU Awards

(Assuming Target Level of
Performance)(1), (2)

John K. Reinhart

   325,406

Michael L. Hodges

   144,500

Matthew H. Rucker

   130,773

Paul M. Johnston

   122,825

Timothy J. Loos

   39,770

 

(1) 

Benjamin W. Hulburt resigned as Montage’s Chairman, President and Chief Executive Officer and Matthew R. DeNezza resigned as Montage’s Executive Vice President and Chief Financial Officer, each on February 28, 2019. Oleg Tolmachev’s employment with Montage, as Montage’s Executive Vice President and Chief Operating Officer, was terminated effective June 1, 2020. Accordingly, none of these former executives continue to hold any Montage PSU Awards.

(2) 

As noted above, as of the date the merger is completed, the number of shares of Montage Common Stock deliverable with respect to (i) each 2018 Montage PSU Award that is outstanding immediately prior to the Effective Time will range from 0% to 150% of the number of share covered by the award, depending on actual performance, relative to the applicable performance objectives’ (ii) each 2019 Montage PSU Award that is outstanding immediately prior to the Effective Time will range from 100% to 150% of the number of shares covered by the award, depending on actual performance, relative to the applicable performance objectives; and (iii) each 2020 PSU Award that is outstanding immediately prior to the Effective Time, if the fair market value (as determined in good faith by the Montage Board) of the consideration received by the stockholders of Montage with respect to each share of Montage Common Stock as of the Effective Time is (a) less than $8.75 will range from 100% to 175% of the number of shares covered by the award, depending on greater of actual or target performance, relative to the applicable performance objective, and (b) equal to or greater than $8.75, will be 175% of the number of shares covered by the award.

For the estimated values deliverable upon completion of the merger to Montage’s named executive officers in respect of their Montage PSU Awards, see the “Equity” column of the table below under “—Potential Merger-Related Compensation Table.” None of Montage’s non-employee directors hold a Montage PSU Award as of the date hereof or is expected to hold a Montage PSU Award as of an assumed closing date of November 13, 2020.

 

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Montage Restricted Stock Awards

Montage will take all necessary and appropriate actions so that prior to the Effective Time each Montage Restricted Stock Award granted to Montage’s non-employee directors will vest. The following sets forth, for each of Montage’s non-employee directors, the aggregate number of Montage Restricted Stock Awards, held by such non-employee director, as of an assumed closing date of November 13, 2020 and assuming each non-employee director remains a director until such date.

 

Name(1)

  

Number of Restricted
Stock Awards

Randall M. Albert

   11,667

Mark E. Burroughs, Jr.

   11,667

Don Dimitrievich(2)

   —  

Richard D. Paterson

   11,667

D. Martin Phillips

   11,667

Douglas E. Swanson, Jr.

   11,667
  

 

(1) 

Michael C. Jennings resigned from the Board effective December 13, 2019. Eugene I. Davis and Robert L. Zorich notified the Montage Board of their decision to not stand for re-election as directors of Montage, and their term expired at Montage’s 2020 Annual Meeting of Stockholders held on June 19, 2020. Accordingly, none of these former directors hold any Montage Restricted Stock Awards.

(2)

Mr. Dimitrievich elected to forgo any compensation for his service on the Montage Board for Montage’s 2020 fiscal year.

Executive Officer Severance Arrangements

Employment Agreements

Montage previously entered into executive employment agreements with Messrs. Reinhart, Hodges, Rucker, Johnston, and Loos. The employment agreements provide each executive with certain severance benefits upon certain terminations of employment. If the executive’s employment is terminated by Montage without “Cause” or by the executive for “Good Reason,” then, subject to the execution and delivery and non-revocation of a release:

 

 

   

if the executive’s employment terminates prior to a Change of Control or after the date that is 12 months after a Change of Control, then the executive will be entitled to an amount equal to 2.5 times (in the case of Mr. Reinhart), 1.75 times (in the case of Messrs. Hodges, Rucker, or Johnston), and 0.75 times (in the case of Mr. Loos), the sum of (i) the executive’s annual base salary as of the termination date and (ii) an amount equal to the executive’s target annual bonus for the fiscal year that includes the termination date; or (B) if the executive’s employment terminates on the date of a Change of Control or within 12 months after a Change of Control, then the executive will be entitled to an amount equal to 3.0 times (in the case of Mr. Reinhart), 2.0 times (in the case of Messrs. Hodges, Rucker, or Johnston), and 1.0 times (in the case of Mr. Loos), the sum of (i) the executive’s annual base salary as of the termination date and (ii) an amount equal to the executive’s target annual bonus for the fiscal year that includes the termination date;

 

   

the executive will be entitled to a reimbursement of monthly premium costs necessary to continue the health care coverage under Montage’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for the executive and his qualified dependents for a period of up to 18 months following the termination date; and

 

   

the executive will be entitled to a pro-rated actual annual performance bonus for the year of termination. For the 2020 calendar year, each executive’s actual annual performance bonus is his “target” annual performance bonus.

 

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For purposes of the executive employment agreements, the terms below are generally defined as follows:

“Cause” means the occurrence of any of the following events, as reasonably determined by the Montage Board: (i) the executive’s willful failure to perform his material duties; (ii) the executive’s conviction of a felony, or his guilty plea to or entry of a nolo contendere plea to a felony charge; (iii) the willful or grossly negligent engagement by the executive in conduct that is materially injurious to Montage, financially or otherwise; or (iv) the executive’s breach of (A) any material term of the applicable employment agreement or (B) any material term of Montage’s material written policies or procedures, as in effect from time to time; provided that, with respect to (i), (iii) or (iv) above, such termination for Cause will only be effective upon a majority vote of the total number of directors on the Montage Board after written notice to the executive and a period of not less than 30 calendar days after receipt by the executive of such written notice during which time the executive will have an opportunity to appear before the Montage Board to demonstrate that he has cured the conduct giving rise to Cause.

“Good Reason” means any of the following, but only if occurring without the executive’s written consent: (i) a diminution in executive’s base salary; (ii) a material diminution or material adverse change in the executive’s position, authority, duties or other responsibilities; (iii) the relocation of the executive’s principal office to an area more than 50 miles from its location immediately prior to such relocation; (iv) any material failure of Montage to comply with any material provision of the executive’s employment agreement; (v) any material breach by Montage of any written indemnification agreement between Montage and the executive; or (vi) for Messrs. Reinhart, Hodges, Rucker and Johnston, any material breach of Section 6.10 of the Agreement and Plan of Merger among Eclipse Resources Corporation, Everest Merger Sub Inc. and Blue Ridge Mountain Resources, Inc., dated as of August 25, 2018, which section relates to indemnification and directors’ and officers’ insurance.

The merger will constitute a “change of control” under the executive employment agreements. For the quantification of the estimated value of the severance payments and benefits described above that would be payable to Montage’s named executive officers, see the “Cash” and “Benefits” columns of the table below under “—Merger-Related Compensation.”

Each executive employment agreement provides that if the compensation and benefits payable under the agreement would constitute an “excess parachute payment” under Code Section 280G, then either (a) the full amount of the compensation and benefits would be paid to the executive officer (with the executive officer paying any excise taxes himself) or (b) a lesser amount of the compensation and benefits would be paid to the executive officer such that no portion is subject to Code Section 280G, whichever provides the executive officer the greater after-tax amount. None of the executive officers is entitled to a Code Section 4999 gross-up in connection with the Merger.

Share Ownership

As described below under “Certain Beneficial Owners of Montage Common Stock” and “The Merger—Consideration to Montage Stockholders,” executive officers and non-employee directors of Montage beneficially own shares of Montage Common Stock, which will be entitled to receive the merger consideration in respect of each share of Montage Common Stock beneficially owned by them.

Indemnification & Insurance Arrangements

Pursuant to the Merger Agreement, directors and officers of Montage also have rights to exculpation, indemnification, advancement of expenses and directors’ and officers’ liability insurance arrangements that will survive completion of the merger. Please see “—Indemnification and Insurance” for further information about such arrangements.

 

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Summary of Potential Transaction Payments to Directors and Executive Officers of Montage

The information set forth below is required by Item 402(t) of Regulation S-K regarding compensation that is based on or otherwise relates to the Merger that Montage’s named executive officers could receive in connection with the merger. Such amounts have been calculated assuming (i) the effective time occurs on November 13, 2020, (ii) a price of $2.94 per share of Southwestern Common Stock, which is the average closing market price of a share of Southwestern Common Stock on the NYSE over the first five trading days following the first public announcement of the transaction, (iii) the Montage PSU Awards will terminate and vest based on “target” level performance (i.e., payout at 100% of the number of shares covered by the Montage PSU Awards), (iv) the annual base salary and annual target bonus opportunity for each of Montage’s named executive officers remains unchanged from the amount determined as of the date hereof, (v) none of Montage’s named executive officers receives any additional equity-based awards following the date hereof, (vi) each named executive officer is terminated without “Cause” or resigns for “Good Reason” at or immediate following the Effective Time, and (vii) each of Montage’s named executive officers has properly executed any required releases and complied with all requirements (including any applicable restrictive covenants) necessary in order to receive such payments and benefits. Some of the assumptions used in the table below are based upon information not currently available and, as a result, the actual amounts to be received by any of Montage’s named executive officers, if any, may materially differ from the amounts set forth below.

Potential Merger-Related Compensation Table

 

    Cash Severance
and Pro-Rated Bonus (1)
    Equity (2)     Perquisites/
Benefits (3)
    Total  

Executive Officers

       

John K. Reinhart
President and Chief Executive Officer

  $ 4,636,475     $ 2,544,291     $ 27,909     $ 7,208,676  

Benjamin W. Hulburt
Former President and Chief Executive Officer (4)

  $ —       $ —       $ —       $ —    

Michael L. Hodges
Executive Vice President and Chief Financial Officer

  $ 1,775,410     $ 1,129,882     $ 34,640     $ 2,939,932  

Oleg E. Tolmachev
Former Executive Vice President and Chief Operating Officer (5)

  $ —       $ —       $ —       $ —    

 

(1)

Amounts shown reflect lump-sum cash severance payments under the executive employment agreements, which consist of (i) the named executive officer’s severance, i.e., the sum of the named executive officer’s annual base salary and target annual bonus, multiplied by (x) 3.0 for Mr. Reinhart or (y) 2.0 for Mr. Hodges, and (ii) the named executive officer’s pro-rated target annual performance bonus for the 2020 calendar year. The cash severance payments are considered to be “double-trigger” payments, which means that both a change of control, such as the merger, and another event (i.e., qualifying termination without cause or for good reason) must occur prior to such payments being provided to the named executive officer and have been calculated assuming a qualifying termination on the assumed closing date of November 13, 2020 (see the section entitled “—Executive Officer Severance Arrangements”). The estimated amount of each such payment is set forth in the table below:

 

Named Executive Officer

   Base Salary      Target Bonus      Pro-rated 2020
Target
Performance Bonus
 

John K. Reinhart

   $ 2,025,000      $ 2,025,000      $ 586,475  

Michael L. Hodges

   $ 800,000      $ 680,000      $ 295,410  

 

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(2)

Amounts shown reflect the sum of the potential value that each named executive officer could receive in connection with (i) the accelerated vesting and settlement of the Montage RSU awards and (ii) the termination and vesting of the Montage PSU Awards in accordance with their terms. The values reported for the Montage PSU Awards assume award payouts based on target performance (i.e., 100% of the shares covered by the Montage PSU Award) (as more fully described under the section entitled “—Treatment of Montage Equity Awards”). As noted above, depending on actual performance, as of the date the merger is completed, relative to the applicable performance objectives, (a) the number of shares of Montage Common stock deliverable with respect to each 2018 Montage PSU Award that is outstanding immediately prior to the Effective Time will range from 0% to 150% of the number of shares covered by the award, (b) the number of shares of Montage Common Stock deliverable with respect to each 2019 Montage PSU Award that is outstanding immediately prior to the Effective Time will range from 100% to 150% of the number of shares covered by the award, and (c) the number of shares of Montage Common Stock deliverable with respect to each 2020 Montage PSU Award that is outstanding immediately prior to the Effective Time will range from 100% to 175% of the number of shares covered by the award. Consequently, the amounts received by the named executive officers could be greater than the amounts shown. The Montage RSU Awards will not automatically accelerate upon the closing of the merger, but vesting of these awards will accelerate upon the named executive officer’s qualifying termination without cause or for good reason at any time. The number of shares of Montage Common Stock deliverable under all such Montage equity awards based on the foregoing assumptions has been, for purposes of this table, multiplied by the Exchange Ratio. Based on the aforementioned assumptions, the estimated amounts deliverable to each executive officer under his Montage RSU Awards and his Montage PSU Awards are set forth in the table below:

 

Named Executive Officer

   Montage RSU Awards      Montage PSU Awards  

John K. Reinhart

   $ 759,484      $ 1,784,808  

Michael L. Hodges

   $ 337,319      $ 792,563  

 

(3)

Amounts shown reflect the aggregate monthly premium cost for COBRA continuation coverage under Montage’s group health plans (i.e., medical, dental, and vision) for 18 months following the assumed closing date of November 13, 2020, assuming current group health plan monthly premium costs. This COBRA reimbursement benefit is payable only upon the named executive officer’s qualifying termination without cause or for good reason. The estimated amount of each such benefit is set forth in the table below:

 

Named Executive Officer

   Monthly COBRA Reimbursement Benefit  

John K. Reinhart

   $ 1,550.50  

Michael L. Hodges

   $ 1,924.43  

 

(4)

Benjamin W. Hulburt resigned as Montage’s Chairman, President and Chief Executive Officer on February 28, 2019. Accordingly, he is not entitled to any payments or benefits in connection with the merger.

(5)

Oleg Tolmachev’s employment with Montage, as Montage’s Executive Vice President and Chief Operating Officer, was terminated effective June 1, 2020. Accordingly, he is not entitled to any payments or benefits in connection with the merger.

Indemnification and Insurance

On the terms and subject to the conditions set forth in the Merger Agreement, Southwestern will (i) after the Effective Time, indemnify, defend and hold harmless the present and former officers, directors, employees and agents of Montage and any of its subsidiaries in such capacities (“Indemnified Parties”) to the fullest extent permitted by applicable law against any losses, claims, damages, costs, fines, penalties, expenses (including attorneys’ and other professionals’ fees and expenses), liabilities, judgments or amounts that are paid in settlement of, or incurred in connection with, any proceeding to which an Indemnified Party is a party or is otherwise involved (including as a witness) that is based in whole or in part on, or arising in whole or in part out of, the fact that such Indemnified Party is or was a director, officer, employee or agent of Montage or any of its

 

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subsidiaries, or a fiduciary under any Montage benefit plan (including, in each case, if such service was at the request or for the benefit of Montage or any of its subsidiaries as a director, officer, employee, agent, trustee or partner of another corporation, partnership, trust, joint venture, employee benefit plan or other entity and including acts or omissions occurring in connection with the Merger Agreement and the transactions contemplated thereby), arising out of actions or omissions or alleged actions or omissions occurring or existing at, or prior to the Effective Time and whether asserted or claimed at, prior to or after the Effective Time, (ii) for a period of six years from the Effective Time, Southwestern shall maintain in effect the exculpation, indemnification and advancement of expenses provisions of Montage’s and any of its subsidiary’s certificate of incorporation and bylaws or similar organizational documents in effect immediately prior to the Effective Time or in any indemnification agreements of Montage or its subsidiaries with any of their respective directors, officers or employees in effect immediately prior to the Effective Time, and (iii) purchase, at or prior to the Effective Time, a “tail” directors’ and officers’ liability insurance policy covering the six-year period from and after the Effective Time for Montage and its current and former directors and officers who are currently covered by the directors’ and officers’ liability insurance coverage currently maintained by Montage from a carrier with the same or better credit rating to Montage’s current directors’ and officers’ liability insurance carrier on terms not less favorable to the insured persons than the directors’ and officers’ liability insurance coverage currently maintained by Montage as of the date of the Merger Agreement with respect to claims arising from facts or events that occurred on or before the Effective Time, except that in no event shall Southwestern pay (or become obligated to pay) with respect to such “tail” policy more than a specified maximum amount unless Southwestern, in its sole discretion, elects to pay more than the maximum amount for such purpose.

Dividend Policy

Southwestern currently does not pay dividends on the Southwestern Common Stock, and does not anticipate paying any cash dividends in the foreseeable future. All decisions regarding the declaration and payment of dividends and stock repurchases are at the discretion of the Southwestern Board and will be evaluated regularly in light of Southwestern’s financial condition, earnings, growth prospects, funding requirements, applicable law and any other factors that the Southwestern Board deems relevant. The terms of the combined company’s debt agreements will contain restrictions on its ability to pay dividends. The terms of agreements governing debt that the combined company may incur in the future may also limit or prohibit dividend payments. Accordingly, Southwestern cannot assure you that it will either pay dividends in the future or continue to pay any dividend that it may commence in the future.

Listing of Southwestern Common Stock; Delisting and Deregistration of Montage Common Stock

Before completion of the merger, Southwestern has agreed to use its reasonable best efforts to cause the shares of Southwestern Common Stock to be issued in the merger and reserved for issuance under any Montage equity awards to be approved for listing on the NYSE. The listing of the shares of Southwestern Common Stock is also a condition to completion of the merger. If the merger is completed, the Montage Common Stock will cease to be listed on NYSE and will be deregistered under the Exchange Act.

Accounting Treatment of the Merger

Southwestern and Montage prepare their respective financial statements in accordance with GAAP. The merger will be accounted for using the acquisition method of accounting, with Southwestern being treated as the accounting acquirer. In identifying Southwestern as the acquiring entity for accounting purposes, Southwestern and Montage took into account a number of factors as of the date of this proxy statement/prospectus, including which entity is issuing its equity interests, the expectation that following the Effective Time holders of shares of Southwestern Common Stock as of immediately prior to the Effective Time will hold, in the aggregate, approximately 90% of the issued and outstanding shares of Southwestern Common Stock (based on fully diluted shares outstanding of Southwestern) immediately following the Effective Time, the intended corporate governance structure of Southwestern following the Effective Time, the intended senior management of

 

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Southwestern following the Effective Time, and the terms of the share exchange. No single factor was the sole determinant in the overall conclusion that Southwestern is the acquirer for accounting purposes; rather, all factors were considered in arriving at such conclusion.

Regulatory Matters

The completion of the merger is subject to antitrust review in the United States. Under the HSR Act and the rules promulgated thereunder, the merger cannot be completed until the parties to the Merger Agreement have given notification and furnished information to the FTC and the DOJ, and until the applicable waiting period has expired or has been terminated. On September 9, 2020, Montage and Southwestern received early termination of the HSR Act waiting period.

In addition, the new shares of Southwestern Common Stock to be issued to former Montage stockholders must be approved for listing on the NYSE, subject to official notice of issuance.

No Appraisal Rights

Appraisal rights are statutory rights that, if applicable under law, enable stockholders of a corporation to dissent from a merger and to demand that such corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to such stockholders in connection with the transaction. Under the DGCL, stockholders do not have appraisal rights if the shares of stock they hold are either listed on a national securities exchange or held of record by more than 2,000 holders. In addition, stockholders of the constituent corporation surviving the merger are not entitled to appraisal rights if the merger did not require the vote of the stockholders of the surviving corporation pursuant to Section 251(f) of the DGCL. Notwithstanding the foregoing, appraisal rights are available if stockholders are required by the terms of the merger agreement to accept for their shares anything other than (i) shares of stock of the surviving or resulting corporation, (ii) shares of stock of another corporation that will either be listed on a national securities exchange or held of record by more than 2,000 holders, (iii) cash in lieu of fractional shares or (iv) any combination of the foregoing.

Because the merger is of Montage with and into Southwestern, Southwestern stockholders were not required to approve the merger pursuant to Section 251(f) of the DGCL, and holders of Southwestern Common Stock will continue to hold their shares following completion of the merger, holders of Southwestern Common Stock are not entitled to appraisal rights in the merger.

Because shares of Montage Common Stock are listed on the NYSE, a national securities exchange, and because Montage stockholders are not required by the terms of the Merger Agreement to accept for their shares anything other than shares of Southwestern Common Stock, which are shares of the surviving corporation and listed on the NYSE, and cash in lieu of fractional shares, holders of Montage Common Stock will not be entitled to appraisal rights in the merger.

Legal Proceedings Regarding the Merger

On September 30, 2020, a putative class action was filed by a purported Montage stockholder in the United States District Court for the District of Delaware, styled, Jack Wolf v. Montage Resources Corporation, et. al. (the “Wolf Complaint”). Also on September 30, 2020, a putative class action was filed by a purported Montage stockholder in the Supreme Court of the State of New York, styled, Jason Gordon v. Montage Resources Corporation, et. al. (the “Gordon Complaint” and, together with the Wolf Complaint, the “Complaints”). The Complaints name as defendants Montage, the Montage Board and Southwestern. The Wolf Complaint asserts claims under Sections 14(a) and 20(a) of the Exchange Act, alleging, among other things, that the registration statement on Form S-4, originally filed on September 16, 2020, omits material information with respect to the proposed merger, which renders the registration statement false and misleading. The Gordon Complaint asserts

 

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