Sec Form 13D Filing - Kimmeridge Energy Management Company LLC filing for Sitio Royalties Corp. (STR) - 2023-01-09

Sitio Royalties Corp. (f/k/a Snapper Merger Sub I, Inc.)

Class A Common Stock, par value $0.0001 per share

82983N108

(212) 756-2000

December 29, 2022

NAME OF REPORTING PERSON

Kimmeridge Energy Management Company, LLC

(a) ¨

(b) ¨

SOURCE OF FUNDS

OO (See Item 3)

CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware

SOLE VOTING POWER

36,495,520 (1)

SHARED VOTING POWER

0

SOLE DISPOSITIVE POWER

36,495,520 (1)

SHARED DISPOSITIVE POWER

0

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

36,495,520 (1)

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

31.1% (2)(3)

TYPE OF REPORTING PERSON

OO

The Reporting Person acquired the securities reported herein for investment purposes, subject to the following:

Mr. Noam Lockshin serves on the Issuer's board of directors (the “Board”).

The information in Item 6 of this Schedule 13D is incorporated herein by reference.

The Reporting Person intends to communicate with the Issuer’s management and Board about a broad range of operational and strategic matters including, among other things, potential changes in the Issuer’s operations, management, organizational documents, the composition of the Board, ownership, capital or corporate structure, dividend policy, and strategy and plans of the Issuer and to communicate with other shareholders or third parties, including potential acquirers, service providers and financing sources regarding the foregoing. The Reporting Person may exchange information with any such persons pursuant to appropriate confidentiality or similar agreements which may include customary standstill provisions.

The Reporting Person intends to review the Kimmeridge Companies’ investment in the Issuer on a continuing basis and depending upon various factors, including without limitation, the Issuer’s financial position and strategic direction, the outcome of any discussions referenced above, overall market conditions, other investment opportunities available to them, and the availability of securities of the Issuer at prices that would make the purchase or sale of such securities desirable, it may endeavor (i) to increase or decrease the Kimmeridge Companies’ position in the Issuer through, among other things, the purchase or sale of the Common Stock and/or other equity, debt, derivative securities or other instruments that are convertible into Common Stock, or are based upon or relate to the value of the Common Stock of the Issuer (collectively, “Securities”) on the open market or in private transactions, including through a trading plan created under Rule 10b5-1(c) or otherwise, on such terms and at such times as the Reporting Person may deem advisable and/or (ii) to enter into transactions that increase or hedge its economic exposure to the Common Stock or other Securities without affecting the Reporting Person’s beneficial ownership of the Common Stock or other Securities. In addition, the Reporting Person may, at any time and from time to time, (i) review or reconsider its position and/or change its purpose and/or formulate plans or proposals with respect thereto and (ii) propose or consider one or more of the actions described in subparagraphs (a) - (j) of Item 4 of Schedule 13D.

Agreement and Plan of Merger and Merger Transactions

On December 29, 2022 (the “Closing Date”), pursuant to the Agreement and Plan of Merger, dated September 6, 2022, (as amended from time to time, the “Merger Agreement”), by and among the Issuer, STR Sub Inc. (“Former Sitio”), Sitio Royalties Operating Partnership, LP (“Opco LP”), Snapper Merger Sub IV, Inc. (“Brigham Merger Sub”), Snapper Merger Sub V, Inc. (“Sitio Merger Sub”), Snapper Merger Sub II, LLC (“Opco Merger Sub”), Brigham Minerals, Inc. (“Brigham”), and Brigham Minerals Holdings, LLC (“Opco LLC”), Former Sitio acquired Brigham in an all-stock transaction through: (i) the merger of Brigham Merger Sub with and into Brigham (the “Brigham Merger”), with Brigham surviving the Brigham Merger as a wholly owned subsidiary of the Issuer, (ii) the merger of Sitio Merger Sub with and into Former Sitio (the “Sitio Merger”), with Former Sitio surviving the Sitio Merger as a wholly owned subsidiary of the Issuer, and (iii) the merger of Opco Merger Sub LLC with and into Opco LLC (the “Opco Merger,” and, together with the Brigham Merger and the Sitio Merger, the “Mergers”), with Opco LLC surviving the Opco Merger as a wholly owned subsidiary of Opco LP, in each case on the terms set forth in the Merger Agreement. As a result of the Mergers, Former Sitio and Brigham became direct wholly owned subsidiaries of the Issuer. The transactions contemplated by the Merger Agreement are referred to herein as the “Merger Transactions.”

Pursuant to the terms of the Merger Agreement, effective as of the effective time of the Sitio Merger (the “First Effective Time”) and in connection with the consummation of the Sitio Merger, each share of Former Sitio Class C Common Stock was cancelled and converted into the right to receive one share of the Issuer’s Class C Common Stock. The Kimmeridge Companies received 36,495,520 shares of Class C Common Stock in connection with the closing of the Merger Transactions and retained its 36,495,520 Partnership Units. Although the Kimmeridge Companies retained its Partnership Units following the Mergers, the Redemption Right (as defined below) now entitles the holder thereof to cause OpCo LP to redeem all or a portion of its Partnership Units in exchange for shares of Class A Common Stock and a corresponding number of shares of Class C Common Stock will be cancelled.

The foregoing description of the Merger Agreement contained in this Item 6 does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 99.1, and is also incorporated herein by reference.

Second Amended and Restated Agreement of Limited Partnership of Sitio OpCo

On the June 7, 2022, the Issuer, the Kimmeridge Companies, the Source Stockholders, Rock Ridge and Royal Resources L.P., a Delaware limited partnership (“Royal Resources” and, together with Rock Ridge, “Blackstone”) entered into the Second Amended and Restated Agreement of Limited Partnership of the Sitio OpCo (the “Sitio Opco LPA”). Sitio OpCo LPA.

The Sitio OpCo LPA provides that, subject to certain restrictions contained therein, each holder of Partnership Units (other than the Issuer) generally has the right to cause Sitio OpCo to redeem all or a portion of its Partnership Units (the “Redemption Right”) in exchange for shares of Class A Common Stock on a one-for-one basis or, at Sitio OpCo’s election, an equivalent amount of cash. In connection with any redemption of Partnership Units pursuant to the Redemption Right, the corresponding number of shares of the Class C Common Stock will be cancelled.

In connection with the closing of the Merger Transactions, Sitio Royalties GP, LLC, a Delaware limited liability company and wholly owned subsidiary of Former Sitio, entered into an amendment (the “Sitio Opco LPA Amendment”) to the Sitio OpCo LPA as the sole general partner of Opco LP. The Sitio Opco LPA Amendment provides that the references to Former Sitio in the Sitio Opco LPA is amended to refer to New Sitio, among other things.

Assignment and Allocation Agreement

In connection with the Merger, the Issuer assumed Former Sitio’s obligations under those certain Allocation and Assignment Agreements entered into on June 7, 2022 (the “Allocation Agreements”). In connection with the receipt of limited partnership interests in Opco LP (the “Sitio Opco Partnership Units”) and shares of Former Sitio Class C Common Stock pursuant to Former Sitio’s merger with Falcon Minerals Corporation (the “Falcon Merger”), the holders of limited liability company interests in DPM Holdco, LLC (the “DPM Holders”) assigned their right to receive 0.5% of the merger consideration in the Falcon Merger to Former Sitio’s executive officers (who continue to serve as executive officers of the Issuer), representing 309,527 Sitio Opco Partnership Units and 309,527 shares of Former Sitio Class C Common Stock collectively (the “Restricted Securities”), which are subject to certain transfer restrictions and forfeiture if certain conditions are not satisfied. Such Restricted Securities that are shares of Former Sitio Class C Common Stock were exchanged on a one-for-one basis in the Merger, subject to the same transfer restrictions and forfeiture. In connection with the assignment of the right to receive the Restricted Securities, Former Sitio and Opco LP agreed that they would re-issue to the DPM Holders, on a one-for-one basis, Sitio Opco Partnership Units and shares of Former Sitio Class C Common Stock to the extent Restricted Securities are forfeited (such rights, “Allocation Rights”). Following the assumption by New Sitio, Sitio Opco Partnership Units and shares of the Issuer's Class C Common Stock will be issued pursuant to Allocation Rights solely to the extent a corresponding forfeiture of Restricted Securities has occurred. The Issuer will assume Former Sitio’s obligations pursuant to an assignment, and the Reporting Person has 183,394 Allocation Rights.

The foregoing description of the All ocation Agreements does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Form of Assignment and Allocation Agreement, which is filed as Exhibit 99.4 and is also incorporated herein by reference.

Assumption and Amendment Agreement of Director Designation Agreement

On December 29, 2022, the Kimmeridge Companies entered into an Assignment, Assumption and Amendment Agreement of Director Designation Agreement with the Issuer, Former Sitio, and each of the Principal Stockholders set forth on the signature page attached thereto (the “AAA of the Director Designation Agreement”), which amends the Director Designation Agreement, dated January 11, 2022, by and between the Issuer and the Principal Stockholders as set forth therein (the “Original Director Designation Agreement”). Pursuant to the AAA of the Director Designation Agreement in connection with the transactions contemplated by the Merger Agreement, Former Sitio assigned all of its right, title and interest in the Director Designation Agreement to the Issuer and the Issuer accepted such assignment.

Registration Rights Agreement

In connection with the Merger, the Issuer assumed Former Sitio’s obligations under the Registration Rights Agreement (as may be amended and restated from time to time, the “Registration Rights Agreement”) entered into on January 11, 2022.

The foregoing description of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Registration Rights Agreement, which is filed as Exhibit 99.7 and is also incorporated herein by reference.