On June 1, 2021, Southwestern entered into an Agreement and Plan of Merger with Ikon Acquisition Company, LLC (“Ikon”), Indigo Natural Resources LLC (“Indigo”) and Ibis Unitholder Representative LLC (the “Indigo Merger Agreement”). Pursuant to the terms of the Indigo Merger Agreement, Indigo merged with and into Ikon, a subsidiary of Southwestern, and became a subsidiary of Southwestern (the “Indigo Merger”). On August 27, 2021, Southwestern’s stockholders voted to approve the Indigo Merger and the transaction closed on September 1, 2021. The Indigo Merger established Southwestern’s natural gas operations in the Haynesville and Bossier Shales.

The outstanding equity interests in Indigo were cancelled and converted into the right to receive (i) $373 million in cash consideration, subject to adjustment as provided in the Indigo Merger Agreement, and (ii) 337,827,171 shares of Southwestern common stock. These shares of Southwestern common stock had an aggregate dollar value equal to approximately $1,588 million, based on the closing price of $4.70 per share of Southwestern common stock on the NYSE on September 1, 2021. Additionally, Southwestern assumed $700 million in aggregate principal amount of 5.375% Senior Notes due 2029 of Indigo (the “Indigo Notes”) with a fair value of $726 million as of September 1, 2021, which were subsequently exchanged for $700 million of newly issued 5.375% Senior Notes due 2029. In addition, the Company assumed Indigo’s revolving line of credit balance of $95 million as of September 1, 2021. This balance was subsequently repaid, and the Indigo revolving line of credit was retired in September 2021. Following the closing of the Indigo Merger, Southwestern's existing shareholders and Indigo's

The following table sets forth the preliminary fair value of the assets acquired and liabilities assumed as of the acquisition date. Certain data and studies necessary to complete the purchase price allocation are still under evaluation, including, but not limited to, the valuation of natural gas and oil properties and the resolution of certain matters that the Company is indemnified for under the Indigo Merger Agreement for which not enough information is available to assess the final fair value of at this time. The Company will finalize the purchase price allocation during the twelve-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.


(in millions)	As of September 1, 2021
Consideration:
Total consideration	$	1,961
Fair Value of Assets Acquired:
Cash and cash equivalents	55
Accounts receivable	192
Other current assets	2
Commodity derivative assets	2
Evaluated oil and gas properties	2,724
Unevaluated oil and gas properties	676
Other property, plant and equipment	4
Other long-term assets	27
Total assets acquired	3,682
Fair Value of Liabilities Assumed:
Accounts payable	266
Other current liabilities	55
Derivative liabilities	501
Revolving credit facility	95
Senior unsecured notes	726
Asset retirement obligations	8
Other noncurrent liabilities	70
Total liabilities assumed	1,721
Net Assets Acquired and Liabilities Assumed	$	1,961

The assets acquired and liabilities assumed were recorded at their preliminary estimated fair values at the date of the Indigo Merger. The valuation of certain assets, including property, are based on preliminary appraisals. The fair value of acquired equipment is based on both available market data and a cost approach.

Unevaluated oil and gas properties were valued primarily using a market approach based on comparable transactions for similar properties while the income approach was utilized for proved oil and gas properties based on underlying reserve projections at the Indigo Merger date. Income approaches are considered Level 3 fair value estimates and include significant assumptions of future production, commodity prices, and operating and capital cost estimates, discounted using weighted average cost of capital for industry peers, and risk adjustment factors based on reserve category. Price assumptions were based on observable market pricing adjusted for historical differentials. Cost estimates were based on current observable costs inflated based on historical and expected future inflation. Taxes were based on current statutory rates.

With the completion of the Indigo Merger, Southwestern acquired proved and unproved properties of approximately $2.7 billion and $676 million, respectively, primarily associated with the Haynesville and Bossier formations. The remaining $4 million in Other property, plant and equipment consists of land, water facilities and various equipment.

Deferred income taxes represent the tax effects of differences in the tax basis and merger-date fair values of assets acquired and liabilities assumed. The initial net balance of any deferred tax assets or liabilities is zero. A full valuation was placed on all deferred tax assets generated following the Indigo Merger consistent with the Company’s treatment of its deferred tax asset balance as of September 30, 2021. The measurement of senior unsecured notes was based on unadjusted quoted prices in an active market and are Level 1. The Company considered the borrowings under the revolving credit facility to approximate fair value. The value of derivative instruments was based on observable inputs, primarily forward commodity-price and interest-rate curves and is considered Level 2.

Prior to the Indigo Merger, in May 2021, Indigo closed on an agreement to divest its Cotton Valley natural gas and oil properties. Indigo retained certain contractual commitments related to volume commitments associated with natural gas gathering, for which Southwestern will assume the obligation to pay the gathering provider for any unused portion of the volume commitment under the agreement through 2027, depending on the buyer’s actual use. As of September 30, 2021, up to approximately $34 million of these contractual commitments remain, and the Company has recorded a $17 million liability for the estimated future payments.

Excluding the Cotton Valley gathering agreement (discussed above), the Company has recorded additional liabilities totaling $81 million as of September 30, 2021, primarily related to purchase or volume commitments associated with gathering, fresh water and sand. These amounts will be recognized as payments are made over a period ranging from two to seven years.

On August 12, 2020, Southwestern entered into an Agreement and Plan of Merger (the “Montage Agreement and Plan of Merger”) with Montage whereby Montage would merge with and into Southwestern, with Southwestern continuing as the surviving company (the "Montage Merger"). On November 12, 2020, Montage’s stockholders voted to approve the Montage Merger, and it was made effective on November 13, 2020. The Montage Merger added to Southwestern’s oil and gas portfolio in Appalachia.

In exchange for each share of Montage common stock, Montage stockholders received 1.8656 shares of Southwestern common stock, plus cash in lieu of any fractional share of Southwestern common stock that otherwise would have been issued, based on the average price of $3.05 per share of Southwestern common stock on the NYSE on November 13, 2020. Following the closing of the Montage Merger, Southwestern's existing shareholders and Montage's existing shareholders owned approximately 90% and 10%, respectively, of the outstanding shares of the combined company.

In anticipation of the Montage Merger, in August 2020 Southwestern issued $350 million of new senior unsecured notes and 63,250,000 shares of common stock for $152 million after deducting underwriting discounts and offering expenses. The Company used the net proceeds from the debt and common stock offerings and borrowings under its revolving credit facility to fund a redemption of $510 million aggregate principal amount of Montage's outstanding 8.875% senior notes due 2023 (the “Montage Notes”) and related accrued interest in connection with the closing of the Montage Merger. See Note 7 and Note 11 for additional information.


(in millions, except share, per share amounts)	As of November 13, 2020
Shares of Southwestern common stock issued in respect of outstanding Montage common stock	67,311,166
Shares of Southwestern common stock issued in respect of Montage stock-based awards	2,429,682
	69,740,848
NYSE closing price per share of Southwestern common shares on November 13, 2020	$	3.05
Total consideration (fair value of Southwestern common shares issued)	$	213
Increase in Southwestern common stock ($0.01 par value per share)	1
Increase in Southwestern additional paid-in capital	$	212

The assets acquired and liabilities assumed were recorded at their estimated fair values at the date of the Montage Merger. The following table sets forth the fair value of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation related to the Montage Merger is substantially complete as of the date of this filing. The Company is currently finalizing its analysis on potential liabilities and natural gas and oil property valuation. Any final adjustments in the fourth quarter of 2021 are expected to be immaterial. For the nine months ended September 30, 2021 there were no changes to the allocation presented in the 2020 Form 10-K.


(in millions)	As of November 13, 2020
Consideration:
Fair value of Southwestern’s stock issued on November 13, 2020	$	213
Fair Value of Assets Acquired:
Cash and cash equivalents	3
Accounts receivable	73
Other current assets	1
Commodity derivative assets	11
Evaluated oil and gas properties	1,012
Unevaluated oil and gas properties	90
Other property, plant and equipment	28
Other long-term assets	26
Total assets acquired	1,244
Fair Value of Liabilities Assumed:
Accounts payable	145
Other current liabilities	49
Derivative liabilities	70
Revolving credit facility	200
Senior unsecured notes	522
Asset retirement obligations	28
Other noncurrent liabilities	17
Total liabilities assumed	1,031
Net Assets Acquired and Liabilities Assumed	$	213

The unaudited pro forma information is not necessarily indicative of the operating results that would have occurred had the Montage Merger and the Indigo Merger (combined, the “Mergers”) been completed at January 1, 2019 and January 1, 2020, respectively, nor is it necessarily indicative of future operating results of the combined entities. The unaudited pro forma information gives effect to the Montage Merger and related equity and debt issuances along with the use of proceeds therefrom as if they had occurred on January 1, 2019. The unaudited pro forma information for 2020 is a result of combining the statements of operations of Southwestern with the pre-Montage Merger results of Montage and pre-Indigo Merger results of Indigo from January 1, 2020, and included adjustments for revenues and direct expenses. The pro forma results exclude any cost savings anticipated as a result of the Mergers, and include adjustments to DD&A (depreciation, depletion and amortization) based on the purchase price allocated to property, plant, and equipment and the estimated useful lives as well as adjustments to interest expense. Interest expense was adjusted to reflect the retirement of the Montage senior notes, the Montage credit facility, all related accrued interest and the associated decrease in amortization of issuance costs related to the Montage notes and revolving line of credit. This decrease was partially offset by increases in interest on debt associated with the issuance of

$350 million in 8.375% Senior Notes due 2028 related to the Southwestern debt offering and borrowings under Southwestern’s credit facility used to pay off the Montage notes, Montage credit facility and related accrued interest. Interest expense was also adjusted to include the impact of the assumption and exchange of Indigo’s $700 million of 5.375% Senior Notes due 2029 for equivalent Southwestern senior notes and to reflect the retirement of the Indigo credit facility, all related accrued interest and the associated decrease in amortization of issuance costs related to the revolving line of credit. Management believes the estimates and assumptions are reasonable, and the relative effects of the Mergers are properly reflected.

The Indigo Merger-related expenses primarily consist of bank, legal and consulting fees along with representation and warranty insurance. The Montage Merger-related expenses primarily consist of employees and contractors that were temporarily assisting in the transition and integration of the Montage Merger.