Exhibit 1.1
Jones Energy, Inc.
[
·
] Shares of Class A Common Stock
Underwriting Agreement
[
·
] 2013
J.P. Morgan Securities LLC
Barclays Capital Inc.
Wells Fargo Securities, LLC
As Representatives of the
several Underwriters listed
in Schedule 1 hereto
c/o J. P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
Ladies and Gentlemen:
Jones Energy, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several Underwriters listed in Schedule 1 hereto (the “Underwriters”), for whom you are acting as representatives (collectively, the “Representatives”), an aggregate of [
·
] shares of Class A Common Stock, par value $0.001 per share, of the Company (the “Underwritten Shares”) and, at the option of the Underwriters, up to an additional [
·
] shares of Class A Common Stock of the Company (the “Option Shares”). The Underwritten Shares and the Option Shares are herein referred to as the “Shares.” The shares of Class A Common Stock of the Company to be outstanding after giving effect to the sale of the Shares are referred to herein as the “Stock.”
The Company is a Delaware corporation that was formed for the purpose of making the proposed issuance and sale of the Shares (the “offering”). Upon consummation of the offering contemplated by this Agreement, the Company will (i) contribute the net proceeds of the offering to Jones Energy Holdings, LLC, a Delaware limited liability company (“JEH LLC”), in exchange for units of membership interest in JEH LLC (the “JEH LLC Units”) and (ii) become the sole managing member of JEH LLC. It is understood and agreed to by all parties that concurrently with, or prior to, the closing of this offering, JEH LLC, will complete a corporate reorganization (the “Reorganization”), pursuant to which the following transactions will occur:
A.
The members of JEH LLC (the “Existing Owners”) will convert their existing membership interests in JEH LLC into JEH LLC Units and the Second Amended and Restated Limited Liability Company Agreement of JEH LLC will be amended and restated (as amended and restated, the “JEH LLC Third Amended and Restated LLC Agreement”) to, among other things, modify JEH LLC’s capital structure to consist solely of JEH LLC Units.
B.
The Company will enter into an Exchange Agreement with JEH LLC and the Existing Owners (the “Exchange Agreement”) pursuant to which the Existing Owners and their permitted transferees will have the right, subject to the terms of the Exchange Agreement, to exchange their JEH LLC Units (together with a corresponding number of shares of Class B Common Stock of the Company) for shares of Class A Common Stock (or, at JEH LLC’s option, for a cash payment) on a one-for-one basis, subject to certain adjustments.
C.
In connection with the Reorganization, the certificate of incorporation of the Company will be amended and restated (as amended and restated, the “Company Restated Certificate of Incorporation”) and the bylaws of the Company will be amended and restated (as amended and restated, the “Company Restated Bylaws,” and together with the Company Restated Certificate of Incorporation, the JEH LLC Third Amended and Restated LLC Agreement and the Exchange Agreement, the “Transaction Documents”).
The effective time of the Reorganization is hereinafter referred to as the “Reorganization Effective Time.”
The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:
1.
Registration Statement
. The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Securities Act”), a registration statement (File No. 333-188896), including a prospectus, relating to the Shares. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A under the Securities Act to be part of the registration statement at the time of its effectiveness (“Rule 430 Information”), is referred to herein as the “Registration Statement;” and as used herein, the term “Preliminary Prospectus” means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term “Prospectus” means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462 Registration Statement. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.
At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively with the pricing information set forth on Annex B, the “Pricing Disclosure Package”): a Preliminary Prospectus dated [
·
], 2013 and each “free-writing prospectus” (as defined pursuant to Rule 405 under the Securities Act) listed on Annex B hereto.
“Applicable Time” means [
·
] [A/P].M., New York City time, on [
·
], 2013.
2.
Purchase of the Shares by the Underwriters
.
(a)
The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this Agreement, and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase from the Company the respective number of Underwritten Shares set forth opposite such Underwriter’s name in Schedule 1 hereto at a price per share (the “Purchase Price”) of $[
·
].
In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at the Purchase Price less an
2
amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares.
If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 10 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make.
The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date or later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.
(b)
The Company understands that the Underwriters intend to make a public offering of the Shares as soon after the effectiveness of this Agreement as in the judgment of the Representatives is advisable, and initially to offer the Shares on the terms set forth in the Prospectus. The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.
(c)
Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives in the case of the Underwritten Shares, at the offices of Baker Botts L.L.P., 98 San Jacinto Blvd., Suite 1500, Austin, Texas 78701 at 10:00 A.M., New York City time, on [
·
], 2013, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters’ election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the “Closing Date,” and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the “Additional Closing Date.”
Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date in definitive form registered in such names and in such denominations as the Representatives shall request in writing not later than two full business days prior to the Closing Date or the Additional Closing Date, as the case may be, with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (“DTC”) unless the Representatives shall otherwise instruct.
(d)
The Company acknowledges and agrees that the Underwriters are acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally,
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neither the Representatives nor any other Underwriter is advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Company with respect thereto. Any review by the Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company.
3.
Representations and Warranties of the Company and JEH LLC
. The Company and JEH LLC, jointly and severally, represent and warrant to each Underwriter that:
(a)
Preliminary Prospectus.
No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
provided
that neither the Company nor JEH LLC makes any representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company or JEH LLC in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(b)
Pricing Disclosure Package
. The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
provided
that neither the Company nor JEH LLC makes any representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company or JEH LLC in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(c)
Issuer Free Writing Prospectus.
Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an “Issuer Free Writing Prospectus”) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex B hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives. Each such Issuer Free Writing Prospectus complied in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to
4
the extent required thereby) and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
provided
that neither the Company nor JEH LLC makes any representation and warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company or JEH LLC in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(d)
Emerging Growth Company
. From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(e)
Testing-the-Waters Materials.
The Company (i) has not alone engaged in any Testing-the-Waters Communications and (ii) has not authorized anyone to engage in Testing-the-Waters Communications. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
(f)
Registration Statement and Prospectus.
The Registration Statement has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
provided
that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
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(g)
Financial Statements.
The historical combined financial statements (including the related notes thereto) of JEH LLC and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the financial position of JEH LLC and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; the balance sheet (including the related notes thereto) of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus complies in all material respects with the applicable requirements of the Securities Act and presents fairly in all material respects the financial position of the Company as of the dates indicated; the statement of revenues and direct operating expenses of the interests of Chalker Energy Partners III, LLC and Participating Owners in certain oil and gas properties acquired by JEH LLC (including the related notes thereto) included in the Registration Statement, the Pricing Disclosure Package and the Prospectus complies in all material respects with the applicable requirements of the Securities Act and presents fairly in all material respects the results of operations related to such interests for the period specified; all such financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) applied on a consistent basis throughout the periods covered thereby, and any supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein. The pro forma financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply as to form in all material respects with the applicable requirements of the Securities Act and give effect to assumptions made on a reasonable basis as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All disclosures contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. All other financial information included in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company, JEH LLC and their respective subsidiaries and presents fairly in all material respects the information shown thereby.
(h)
No Material Adverse Change.
Since the date of the most recent financial statements of JEH LLC and the date of the most recent balance sheet of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has not been any change in the capital stock or membership interests, as applicable (other than the Reorganization), short-term debt or long-term debt of the Company or any of its subsidiaries, on the one hand, or JEH LLC and any of its subsidiaries, on the other hand, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company or JEH LLC on any class of capital stock or membership interests, as applicable, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, properties, management, financial position, stockholders’ equity or results of operations of the Company, JEH LLC and their respective subsidiaries taken as a whole; (ii) none of the Company, JEH LLC or any of their respective subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company, JEH LLC and their respective subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company, JEH LLC and their respective subsidiaries taken as a whole; and (iii) none of the Company, JEH LLC or any of their respective subsidiaries has sustained any loss or interference with its business that is material to the Company, JEH LLC and their respective subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or
6
any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(i)
Organization and Good Standing.
The Company, JEH LLC and each of their respective subsidiaries have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company, JEH LLC and their respective subsidiaries taken as a whole or on the performance by the Company and JEH LLC of their obligations under this Agreement (a “Material Adverse Effect”). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Registration Statement. The subsidiaries listed in Schedule 2 to this Agreement will be the only significant subsidiaries of the Company after giving effect to the Reorganization.
(j)
Capitalization of the Company.
After giving effect to the Reorganization, the Company will have an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Capitalization;” all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock or other equity interests of the Company, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock or other equity interests of the Company, as the case may be, conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and, after giving effect to the Reorganization, the Company will own [
·
]% of the issued and outstanding JEH LLC Units (or such additional amount to reflect the exercise of the Underwriters’ option to purchase Option Shares pursuant to Section 2 hereof); such JEH LLC Units will be duly and validly authorized and issued, fully paid and non-assessable (except as such nonassessability may be affected by Sections 18-607 and 18-804 of the Delaware LLC Act, as applicable, and limited to the extent set forth in JEH LLC’s organizational documents) and will be owned by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party, except as may exist pursuant to that certain Credit Agreement, dated as of December 31, 2009, among Jones Energy Holdings, LLC, as Borrower, Wells Fargo Bank, N.A., as Administrative Agent, Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner, and the lenders thereto, as amended through the date hereof (the “Credit Agreement”), and that certain Second Lien Credit Agreement, dated as of December 31, 2009, among Jones Energy Holdings, LLC, as Borrower, Wells Fargo Energy Capital, Inc., as Administrative Agent, Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner, and the lenders thereto, as amended through the date hereof (the “Term Loan”).
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(k)
Capitalization of JEH LLC.
All the outstanding membership interests in JEH LLC have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any membership interests or other equity interest in JEH LLC or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any membership interests or other equity interests in JEH LLC or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the membership interests or other equity interests in JEH LLC, as the case may be, conform in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding membership interests or other equity interests in each subsidiary of JEH LLC have been duly and validly authorized and issued, are fully paid and non-assessable (except as such nonassessability may be affected by Sections 18-607 and 18-804 of the Delaware LLC Act and Sections 101.206 and 101.613 of the Texas Business Organization Code, as applicable, and limited to the extent set forth in each subsidiary’s organizational documents) and are owned directly or indirectly by JEH LLC, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party, except as may exist pursuant to the Credit Agreement and Term Loan.
(l)
Stock Options.
With respect to the stock options (the “Stock Options”) granted pursuant to the stock-based compensation plans of the Company, JEH LLC and their respective subsidiaries (the “Company Stock Plans”), (i) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective by all necessary corporate action, including, as applicable, approval by the board of directors of the Company or JEH LLC (or a duly constituted and authorized committee thereof), as applicable, and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, and (ii) each such grant was made in accordance with the terms of the Company Stock Plans, the Securities Act, the Exchange Act and all other applicable laws and regulatory rules or requirements. Each of the Company and JEH LLC has not knowingly granted, and there is no and has been no policy or practice of the Company or JEH LLC of granting, Stock Options prior to, or otherwise coordinating the grant of Stock Options with, the release or other public announcement of material information regarding the Company, JEH LLC or their respective subsidiaries or their results of operations or prospects.
(m)
Due Authorization.
Each of the Company and JEH LLC has full right, power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and each of the Transaction Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby has been duly and validly taken.
(n)
Underwriting Agreement.
This Agreement has been duly authorized, executed and delivered by the Company and JEH LLC.
(o)
The Shares.
The Shares to be issued and sold by the Company hereunder have been duly authorized and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions
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thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights.
(p)
Other Transaction Documents.
Each Transaction Document to which the Company and JEH LLC is a party, as applicable, has been duly authorized, executed and delivered by the Company and JEH LLC, as applicable, and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of each of the Company and JEH LLC, as applicable, enforceable against each of them in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or by equitable principles relating to enforceability.
(q)
Descriptions of the Transaction Documents.
Each Transaction Document conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(r)
No Violation or Default.
None of the Company, JEH LLC or any of their respective subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company, JEH LLC or any of their respective subsidiaries is a party or by which the Company, JEH LLC or any of their respective subsidiaries is bound or to which any of the property or assets of the Company, JEH LLC or any of their respective subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.
(s)
No Conflicts.
The execution, delivery and performance by the Company and JEH LLC of each of the Transaction Documents, the issuance and sale of the Shares and the consummation of the transactions contemplated by the Transaction Documents, including the Reorganization, will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, JEH LLC or any of their respective subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company, JEH LLC or any of their respective subsidiaries is a party or by which the Company, JEH LLC or any of their respective subsidiaries is bound or to which any of the property or assets of the Company, JEH LLC or any of their respective subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company, JEH LLC or any of their respective subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(t)
No Consents Required.
No consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company or JEH LLC of each of the Transaction Documents, the issuance and sale of the Shares and the consummation of the transactions contemplated by the Transaction Documents, except for (i) the registration of the Shares under the Securities Act, (ii) such consents, approvals, authorizations, orders and
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registrations or qualifications as may be required by FINRA and under applicable state securities laws in connection with the purchase and distribution of the Shares by the Underwriters, (iii) consents that have been, or prior to the Closing Date will be, obtained, and (iv) consents that, if not obtained, would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or materially impair the ability of the Company to consummate the transactions contemplated herein or to consummate the Reorganization.
(u)
Consents Necessary to Effect the Reorganization
. Each of the Company and JEH LLC have received, or will receive prior to the Reorganization Effective Time, all consents, approvals and authorizations necessary to effect the Reorganization under its organizational documents, the Delaware LLC Act or the Delaware General Corporation Law, as applicable and the Credit Agreement and the Term Loan, other than such consents, approvals and authorizations that, if not obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Company or JEH LLC to consummate the transactions contemplated herein or to consummate the Reorganization.
(v)
Legal Proceedings.
Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company, JEH LLC or any of their respective subsidiaries is a party or to which any property of the Company, JEH LLC or any of their respective subsidiaries is the subject that, individually or in the aggregate, if determined adversely to the Company, JEH LLC or any of their respective subsidiaries, could reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company or JEH LLC, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(w)
Independent Accountants
. PricewaterhouseCoopers LLP, who has certified certain financial statements of the Company, JEH LLC and their respective subsidiaries, is an independent registered public accounting firm with respect to the Company, JEH LLC and their respective subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
(x)
Independent Reserve Engineers
. Cawley Gillespie & Associates, Inc. (“CGA”), who has prepared the reserve reports and estimates of proved reserves disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, has represented to the Company and JEH LLC that they are, and the Company and JEH LLC believe them to be, independent reserve engineers with respect to the Company, JEH LLC and their respective subsidiaries within the applicable rules and regulations adopted by the Commission and as required by the Securities Act for the periods set forth in the Preliminary Prospectus and the Prospectus.
10
(y)
Information Underlying Reserve Reports
. The oil and natural gas proved reserve estimates of the Company, JEH LLC and their respective subsidiaries contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus are derived from reports that have been prepared by CGA, and such estimates fairly reflect, in all material respects, the oil and natural gas reserves attributable to the Company, JEH LLC and their respective subsidiaries at the dates indicated therein and are prepared in accordance, in all material respects, with Commission guidelines applied on a consistent basis throughout the periods involved.
(z)
Title to Real and Personal Property
. The Company, JEH LLC and their respective subsidiaries have good and marketable title in fee simple (in the case of real property) to, or have valid and marketable rights to lease or otherwise use, all items of real and personal property that are material to the respective businesses of the Company, JEH LLC and their respective subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company, JEH LLC and their respective subsidiaries, (ii) could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or (iii) are created under or permitted by the Credit Agreement and the Term Loan.
(aa)
Title to Oil and Gas Properties
. Each of the Company, JEH LLC and their respective subsidiaries has good and defensible title to all of its oil and gas properties in each case free and clear of all liens, encumbrances and defects, except (i) such as are described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (ii) such as are created under or permitted by the Credit Agreement and the Term Loan, or (iii) such as do not materially interfere with the use of the properties of the Company, JEH LLC and their respective subsidiaries taken as a whole; and all of the leases and subleases under which the Company, JEH LLC or any of their respective subsidiaries holds or uses properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus are in full force and effect, with such exceptions as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and none of the Company, JEH LLC or any of their respective subsidiaries has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company, JEH LLC or their respective subsidiaries under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company, JEH LLC or any respective subsidiary thereof to the continued possession or use of the leased or subleased premises, except for such claims that, if successfully asserted, would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; provided however, that the enforceability of such leases and subleases, as the case may be, may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(bb)
Rights-of-Way
. The Company, JEH LLC and their respective subsidiaries have such consents, easements, rights-of-way or licenses from any person (“rights-of-way”) as are necessary to enable the Company, JEH LLC and their respective subsidiaries to conduct their respective businesses in the manner described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except for such rights-of-way the failure of which to obtain would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. The rights-of-way owned by Company, JEH LLC and their respective subsidiaries are subject only to such qualifications, reservations and encumbrances as may be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
11
(cc)
Title to Intellectual Property
. The Company, JEH LLC and their respective subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses as currently conducted and as proposed to be conducted, and the conduct of their respective businesses will not conflict in any material respect with any such rights of others, except as would not reasonably be expected , individually or in the aggregate, to have a Material Adverse Effect. None of the Company, JEH LLC or their respective subsidiaries has received any notice of any claim of infringement, misappropriation or conflict with any such rights of others in connection with its patents, patent rights, licenses, inventions, trademarks, service marks, trade names, copyrights and know-how, which could reasonably be expected to result in a Material Adverse Effect.
(dd)
No Undisclosed Relationships
. No relationship, direct or indirect, exists between or among the Company, JEH LLC or any of their respective subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company, JEH LLC or any of their respective subsidiaries, on the other, that is required by the Securities Act to be described in the Registration Statement and the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package.
(ee)
Investment Company Act
. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”).
(ff)
Taxes.
The Company, JEH LLC and their respective subsidiaries have filed all federal, state and local tax returns required to be filed by them through the date hereof, subject to permitted extensions, and have paid all taxes with respect to such tax returns (or such taxes are being contested in good faith by appropriate proceedings and adequate reserves for such taxes have been established), except to the extent that the failure to file such tax returns and/or pay such taxes would not, individually and in the aggregate, have a Material Adverse Effect.
(gg)
Licenses and Permits.
The Company, JEH LLC and their respective subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, none of the Company, JEH LLC or any of their respective subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course.
(hh)
No Labor Disputes.
Except as would not reasonably be expected to result in a Material Adverse Effect, no labor disturbance by or dispute with employees of the Company, JEH LLC or any of their respective subsidiaries exists or, to the knowledge of the Company or JEH
12
LLC, is contemplated or threatened, and each of the Company and JEH LLC is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of its or its respective subsidiaries’ principal suppliers, contractors or customers.
(ii)
Compliance with and Liability under Environmental Laws.
(i) The Company, JEH LLC and their respective subsidiaries (a) are in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions, judgments, decrees, orders and the common law relating to pollution or the protection of the environment, natural resources or human health or safety, including those relating to the generation, storage, treatment, use, handling, transportation, Release or threat of Release of Hazardous Materials (collectively, “Environmental Laws”), (b) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, (c) have not received notice of any actual or potential liability under or relating to, or actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any Release or threat of Release of Hazardous Materials, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, (d) are not conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Environmental Law at any location, and (e) are not a party to any order, decree or agreement that imposes any obligation or liability under any Environmental Law, and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company, JEH LLC or their respective subsidiaries, except in the case of each of (i) and (ii) above, for any such matter, as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iii) except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) there are no proceedings that are pending, or that are known to be contemplated, against the Company, JEH LLC or any of their respective subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed, (b) the Company, JEH LLC and their respective subsidiaries are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws, including the Release or threat of Release of Hazardous Materials, that could reasonably be expected to have a Material Adverse Effect on the capital expenditures, earnings or competitive position of the Company, JEH LLC and their respective subsidiaries, and (c) none of the Company, JEH LLC or their respective subsidiaries anticipates material capital expenditures relating to any Environmental Laws.
(jj)
Hazardous Materials
. There has been no storage, generation, transportation, use, handling, treatment, Release or threat of Release of Hazardous Materials by or caused by the Company, JEH LLC or any of their respective subsidiaries (or, to the knowledge of the Company, JEH LLC or any of their respective subsidiaries, any other entity (including any predecessor) for whose acts or omissions the Company, JEH LLC or any of their respective subsidiaries is or could reasonably be expected to be liable) at, on, under or from any property or facility now or previously owned, operated or leased by the Company, JEH LLC or any of their respective subsidiaries, or at, on, under or from any other property or facility, in violation of any Environmental Laws or in a manner or amount or to a location that could reasonably be expected to result in any liability under any Environmental Law, except for any violation or liability which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. “Hazardous Materials” means any material, chemical, substance, waste, pollutant, contaminant, compound, mixture, or constituent thereof, in any form or amount, including petroleum (including crude oil or any fraction thereof) and petroleum products, natural gas liquids, asbestos and asbestos containing materials, naturally occurring radioactive materials,
13
brine, and drilling mud, regulated or which can give rise to liability under any Environmental Law. “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, or migrating in, into or through the environment, or in, into from or through any building or structure.
(kk)
Compliance with ERISA.
Except, in each case, for any such matter as would not reasonably be expected to have a Material Adverse Effect, (i) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which each of the Company and JEH LLC or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption; (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, as applicable, has been satisfied (without taking into account any waiver thereof or extension of any amortization period); (iv) the fair market value of the assets of each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan); (v) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur; (vi) none of the Company, JEH LLC or any member of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the Pension Benefit Guaranty Corporation (the “PBGC”), in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA); (vii) there is no pending audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the PBGC or any other governmental agency or any foreign regulatory agency with respect to any Plan; and (viii) an increase in the Company, JEH LLC and their respective subsidiaries’ “accumulated postretirement benefit obligations” (within the meaning of Statement of Financial Accounting Standards 106) compared to the amount of such obligations in the Company, JEH LLC and their respective subsidiaries’ most recently completed fiscal year has not occurred and is not reasonably likely to occur.
(ll)
Disclosure Controls
. The Company, JEH LLC and their respective subsidiaries maintain an effective system of “disclosure controls and procedures” (to extent required by and as such term is defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure to be made.
(mm)
Accounting Controls.
The Company, JEH and their respective subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance
14
with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no material weaknesses in the internal controls over financial reporting of the Company or JEH LLC. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the ability of the Company or JEH LLC to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s or JEH LLC’s internal controls over financial reporting.
(nn)
Insurance.
The Company, JEH LLC and their respective subsidiaries have insurance covering their respective properties, operations, personnel and businesses, which insurance is in amounts and insures against such losses and risks as are reasonably adequate to protect the Company, JEH LLC and their respective subsidiaries and their respective businesses; and none of the Company, JEH LLC or any of their respective subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.
(oo)
No Unlawful Payments.
None of the Company, JEH LLC or any of their respective subsidiaries or, to the knowledge of the Company or JEH LLC, any director, officer, agent, employee or other person associated with or acting on behalf of the Company, JEH LLC or any of their respective subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
(pp)
Compliance with Money Laundering Laws
. The operations of the Company, JEH LLC and their respective subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company, JEH LLC or any of their respective subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or JEH LLC, threatened.
(qq)
Compliance with OFAC.
None of the Company, JEH LLC or any of their respective subsidiaries or, to the knowledge of the Company or JEH LLC, any director, officer, agent, employee or affiliate of the Company, JEH LLC or any of their respective subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of
15
the U.S. Department of the Treasury (“OFAC”); and each of the Company and JEH LLC
will not, directly or indirectly, use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person
currently subject to any U.S. sanctions administered by OFAC.
(rr)
No Restrictions on Subsidiaries
. No subsidiary of the Company or JEH LLC is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company or JEH LLC, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company or JEH LLC any loans or advances to such subsidiary from the Company or JEH LLC or from transferring any of such subsidiary’s properties or assets to the Company or JEH LLC or any other subsidiary of the Company or JEH LLC, except for such prohibitions as exist pursuant to the Credit Agreement or the Term Loan or as are otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(ss)
No Broker’s Fees.
None of the Company, JEH LLC or any of their respective subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company, JEH LLC or any of their respective subsidiaries or any Underwriter for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.
(tt)
No Registration Rights
. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no person has the right to require the Company, JEH LLC or any of their respective subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares.
(uu)
No Stabilization.
None of the Company, JEH LLC or any of their respective affiliates has taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.
(vv)
Forward-Looking Statements.
No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(ww)
Statistical and Market Data.
Nothing has come to the attention of the Company or JEH LLC that has caused the Company or JEH LLC to believe that the statistical and market-related data included in the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.
(xx)
Sarbanes-Oxley Act
. To the extent applicable to the Company on the date hereof, there is and has been no failure on the part of the Company or, to the knowledge of the Company or JEH LLC, any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith.
(yy)
Status under the Securities Act
. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any
16
offering participant made a
bona fide
offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act.
(zz)
Corporate Reorganization
. As of the Closing Date, the Company and JEH LLC will have filed all notices, reports, documents or other information required to be filed pursuant to, and will have otherwise complied with all requirements of, all applicable laws in connection with the consummation of the Reorganization, except in each case where such failure would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(aaa)
No Downgrade
. There are no debt securities or preferred stock of, or guaranteed by, the Company, JEH LLC or any of their respective subsidiaries that are rated by a “nationally recognized statistical rating organization,” as such term is defined in Section 3(a)(62) of the Exchange Act.
4.
Further Agreements of the Company
. The Company covenants and agrees with each Underwriter that:
(a)
Required Filings.
The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; and will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the second business day succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.
(b)
Delivery of Copies.
The Company will deliver, without charge, (i) to the Representatives, two signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term “Prospectus Delivery Period” means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.
(c)
Amendments or Supplements, Issuer Free Writing Prospectuses.
Before preparing, using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably object.
(d)
Notice to the Representatives.
The Company will advise the Representatives promptly (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Prospectus or any Issuer Free Writing Prospectus or any amendment to the Prospectus has been filed; (iv) of any request by the Commission for any amendment to the Registration Statement or
17
any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information; (v) of the issuance by the Commission of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, the Pricing Disclosure Package or any Issuer Free Writing Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package or any such Issuer Free Writing Prospectus is delivered to a purchaser, not misleading; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or suspending any such qualification of the Shares and, if any such order is issued, will use its best efforts to obtain as soon as possible the withdrawal thereof.
(e)
Ongoing Compliance.
(1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.
(f)
Blue Sky Compliance.
The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares;
provided
that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be
18
required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.
(g)
Earnings Statement.
The Company will make generally available to its security holders and the Representatives as soon as practicable an earnings statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the “effective date” (as defined in Rule 158) of the Registration Statement.
(h)
Clear Market.
For a period of 180 days after the date of the Prospectus, the Company, its officers and directors or certain affiliates of the Company, each as listed on Schedule 3 hereto (each, a “Lock-Up Party”), will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock (including, without limitation, Stock or such other securities which may be deemed to be beneficially owned by each such Lock-Up Party in accordance with the rules and regulations of the Commission and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge, disposition or filing (other than filings on Form S-8 relating to the Company Stock Plans), or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, or (iii) make any demand for or exercise any right with respect to the registration of any shares of Stock or any security convertible into or exercisable or exchangeable for Stock, without the prior written consent of J. P. Morgan Securities LLC and Barclays Capital Inc., other than (i) the Shares to be sold hereunder, (ii) any shares of Stock issued in connection with the Reorganization or upon the exercise of options granted under Company Stock Plans and (iii) any JEH LLC Units exchanged by the Existing Owners under the Exchange Agreement in connection with any exercise by the Underwriters of the option to purchase Option Shares. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, the Company issues an earnings release or announces material news or a material event relating to the Company occurs; or (2) prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions imposed by this Agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or the occurrence of the material news or material event.
If J.P. Morgan Securities LLC and Barclays Capital Inc., in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(m) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(i)
Use of Proceeds.
The Company and JEH LLC will apply the net proceeds from the sale of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Use of proceeds.”
19
(j)
No Stabilization.
The Company and JEH LLC will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Stock.
(k)
Exchange Listing.
The Company will use its best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange (the “Exchange”).
(l)
Reports.
For a period of two years from the date of this Agreement, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system;
provided
the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on the Commission’s Electronic Data Gathering, Analysis, and Retrieval system.
(m)
Record Retention
. The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.
(n)
Filings.
The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.
(o)
Emerging Growth Company
. The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 4(h) hereof.
5.
Certain Agreements of the Underwriters
.
Each Underwriter hereby represents and agrees that:
(a)
It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any “free writing prospectus”, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex B or prepared pursuant to Section 3(c) or Section 4(c) above (including any electronic road show), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an “Underwriter Free Writing Prospectus”).
(b)
It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares;
provided
that the Company hereby consents to the use of a term sheet substantially in the form of Annex D hereto;
provided further
that any Underwriter using such term sheet shall notify the Company, and provide a copy of such term sheet to the Company, prior to, or substantially concurrently with, the first use of such term sheet.
20
(c)
It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).
6.
Conditions of Underwriters’ Obligations.
The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company and JEH LLC of its covenants and other obligations hereunder and to the following additional conditions:
(a)
Registration Compliance; No Stop Order.
No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.
(b)
Representations and Warranties.
The representations and warranties of the Company and JEH LLC contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and JEH LLC and their respective officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.
(c)
No Material Adverse Change.
No event or condition of a type described in Section 3(h) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
(d)
Officer’s Certificate.
The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of the chief financial officer or chief accounting officer of each of the Company and JEH LLC and one additional senior executive officer of each of the Company and JEH LLC who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations set forth in Sections 3(b) and 3(f) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company and JEH LLC in this Agreement are true and correct and that the Company and JEH LLC has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be, and (iii) to the effect set forth in paragraphs (a) and (c) above.
(e)
Auditor Comfort Letters.
On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, PricewaterhouseCoopers LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably
21
satisfactory to the Representatives, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a “cut-off” date no more than three business days prior to such Closing Date or such Additional Closing Date, as the case may be.
(f)
Reserve Engineer Confirmation Letters
. On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, CGA shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in reserve engineers’ “confirmation letters” to underwriters with respect to the reserve reports, estimates of proved reserves and other reserve information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(g)
Opinion and 10b-5 Statement of Counsel for the Company.
Baker Botts L.L.P., counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, to the effect set forth in Annex A hereto.
(h)
Opinion and 10b-5 Statement of Counsel for the Underwriters.
The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement of Vinson & Elkins L.L.P., counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(i)
No Legal Impediment to Issuance.
No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares.
(j)
Good Standing
. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company, JEH LLC and their respective subsidiaries in their respective jurisdictions of organization and their good standing as foreign entities in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.
(k)
Exchange Listing.
The Shares to be delivered on the Closing Date or Additional Closing Date, as the case may be, shall have been approved for listing on the Exchange, subject to official notice of issuance.
(l)
Lock-up Agreements
. The “lock-up” agreements, each substantially in the form of Exhibit A hereto, between you and each of the Lock-Up Parties relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to you on or before the
22
date hereof, shall be in full force and effect on the Closing Date or Additional Closing Date, as the case may be.
(m)
Corporate Reorganization
. The Reorganization, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, shall have been consummated in the manner described therein.
(n)
Additional Documents.
On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company and JEH LLC shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.
All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
7.
Indemnification and Contribution
.
(a)
Indemnification of the Underwriters.
Each of the Company and JEH LLC agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in (A) the Prospectus (or any amendment or supplement thereto), (B) any Issuer Free Writing Prospectus, (C) any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act or any road show as defined in Rule 433(h) under the Securities Act (a “road show”) (in the case of (B) or (C), taken together with the Pricing Disclosure Package) or (D) the Pricing Disclosure Package, or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below.
Indemnification of QIU
. The Company hereby confirms its engagement of Barclays Capital Inc. as, and Barclays Capital Inc. hereby confirms its agreement with the Company to render services as, a “qualified independent underwriter” within the meaning of Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 5121(f)(12) with respect to the offering and sale of the Shares. Barclays Capital Inc., in its capacity as qualified independent underwriter and not otherwise, is referred to herein as the “QIU.” The Company will indemnify and hold harmless Barclays Capital Inc., in its capacity as QIU, against any losses, claims, damages or liabilities, joint or several, to which the QIU may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or omission to act
23
or any alleged act or omission to act by Barclays Capital Inc. as QIU in connection with any transaction contemplated by this Agreement or undertaken in preparing for the purchase, sale and delivery of the Shares, except with respect to clauses (i) and (ii) for any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information furnished to the Company by Barclays Capital Inc., in its capacity as QIU, for use therein, and except with respect to clause (iii) to the extent that any such loss, claim, damage or liability results from the gross negligence or bad faith of Barclays Capital Inc. in performing the services as QIU, and will reimburse the QIU for any legal or other expenses reasonably incurred by the QIU in connection with investigating or defending any such action or claim as such expenses are incurred.
(b)
Indemnification of the Company and JEH LLC.
Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, JEH LLC and their respective directors, the Company’s officers who signed the Registration Statement and each person, if any, who controls the Company or JEH LLC within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any road show or the Pricing Disclosure Package, it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the third paragraph under the caption “Underwriting” and the information contained in the fourteenth and fifteenth paragraphs under the caption “Underwriting.”
(c)
Notice and Procedures.
If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing;
provided
that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and
provided
,
further
, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person (other than reasonable costs of investigation) unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one
24
separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred;
provided
, however that if indemnity may be sought pursuant to the second paragraph of Section 7(a) above in respect of such proceeding, then in addition to such separate firm of the Underwriters, their affiliates and such control persons of the Underwriters, the Indemnifying Person shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for Barclays Capital Inc. in its capacity as a “qualified independent underwriter”, its affiliates, directors, officers and all persons, if any, who control Barclays Capital Inc., in its capacity as QIU, within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by J. P. Morgan Securities LLC and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff providing for an indemnifiable loss hereunder, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment to the extent provided herein. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
(d)
Contribution.
If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities required to be indemnified thereby, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and JEH LLC, on the one hand, and the Underwriters on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and JEH LLC, on the one hand, and the Underwriters on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and JEH LLC, on the one hand, and the Underwriters on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company and JEH LLC, on the one hand, and the Underwriters on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and JEH LLC or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
25
(e)
Limitation on Liability.
The Company, JEH LLC and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) above were determined by
pro rata
allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of paragraphs (d) and (e), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute pursuant to paragraphs (d) and (e) are several in proportion to their respective purchase obligations hereunder and not joint.
(f)
Non-Exclusive Remedies.
The remedies provided for in this Section 7 paragraphs (a) through (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.
8.
Effectiveness of Agreement
. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
9.
Termination
. This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the Exchange, the American Stock Exchange, the Nasdaq Stock Market, the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities or a material disruption in securities settlement or clearance services in the United States shall have occurred; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
10.
Defaulting Underwriter
.
(a)
If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or the Additional
26
Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes. As used in this Agreement, the term “Underwriter” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 10, purchases Shares that a defaulting Underwriter agreed but failed to purchase.
(b)
If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriter’s pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.
(c)
If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date shall terminate without liability on the part of the non-defaulting Underwriters. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 11 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.
(d)
Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.
11.
Payment of Expenses
.
(a)
Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and JEH LLC, jointly and severally, will pay or cause to be paid all costs and expenses incident to the performance of their obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the costs of reproducing and distributing each of the Transaction Documents; (iv) the fees and expenses of the Company’s counsel and independent accountants; (v) the fees and expenses incurred in connection with the registration or qualification of the Shares under the state or foreign securities or blue sky laws of such jurisdictions as the Representatives may reasonably designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related reasonable fees and expenses of counsel for the Underwriters); (vi) the cost of preparing stock certificates; (vii) the costs and charges of any transfer agent and any registrar; (viii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA (including the related
27
reasonable fees and expenses of Underwriters’ counsel in an amount not to exceed $15,000); (ix) all costs and expenses of the officers and employees of the Company and JEH LLC and any other expenses of the Company and JEH LLC relating to any investor or “road show” presentations in connection with the offering and sale of the Shares, including, without limitation, any travel expenses of the officers and employees of the Company and JEH LLC and any other expenses of the Company and JEH LLC, provided it is expressly agreed that the Company and JEH LLC, on the one hand, and the Underwriters, on the other, will each pay 50% of the costs of any chartered aircraft used by the Underwriters and the Company or JEH LLC in connection with any such meetings with investors (it being understood that the Underwriters will bear all other expenses incurred by the Underwriters in connection with any roadshow, including travel, car and meeting venue expenses); and (x) all expenses and application fees related to the listing of the Shares on the Exchange. It is understood, however, that except as provided in this Section and Sections 7 and 10 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel and any advertising expenses connected with any offers they make.
(b)
If (i) this Agreement is terminated pursuant to Section 9(ii), (ii) the Company for any reason fails to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares due to the Company or JEH LLC’s failure to fulfill the conditions set forth in Section 6 hereof, the Company and JEH LLC, jointly and severally, agree to reimburse the Underwriters for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby.
12.
Persons Entitled to Benefit of Agreement
. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.
13.
Survival
. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, JEH LLC and the Underwriters contained in this Agreement or made by or on behalf of the Company, JEH LLC or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto, shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company, JEH LLC or the Underwriters.
14.
Certain Defined Terms
. For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; and (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act; and (d) the term “significant subsidiary” has the meaning set forth in Rule 1-02 of Regulation S-X under the Exchange Act.
15.
Miscellaneous
.
(a)
Authority of the Representatives
. Any action by the Underwriters hereunder may be taken by the Representatives on behalf of the Underwriters, and any such action taken by the Representatives shall be binding upon the Underwriters.
(b)
Notices.
All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o J. P. Morgan
28
Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention Equity Syndicate Desk. Notices to the Company or JEH LLC shall be given to it at 807 Las Cimas Parkway, Austin, TX 78746, (fax:: (512) 328-5394); Attention: Mike S. McConnell.
(c)
Patriot Act Compliance
. In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and JEH LLC, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
(d)
Governing Law.
This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such state.
(e)
Counterparts.
This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.
(f)
Amendments or Waivers.
No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.
(g)
Headings.
The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
29
If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.
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Very truly yours,
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Jones Energy, Inc.
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By:
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Name:
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Title:
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Jones Energy Holdings, LLC
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By:
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Name:
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Title:
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Accepted: [
·
], 2013
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J. P. MORGAN SECURITIES LLC
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By:
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Authorized Signatory
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[
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]
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By:
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Authorized Signatory
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BARCLAYS CAPITAL INC.
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By:
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Authorized Signatory
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[
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]
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By:
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Authorized Signatory
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[
Signature Page to Underwriting Agreement
]
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WELLS FARGO SECURITIES, LLC
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By:
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Authorized Signatory
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[
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]
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By:
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Authorized Signatory
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For themselves and on behalf of the
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several Underwriters listed
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in Schedule 1 hereto.
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[
Signature Page to Underwriting Agreement
]
Schedule 1
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Underwriter
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Number of Shares
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J. P. Morgan Securities LLC
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[
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]
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Barclays Capital Inc.
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[
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]
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Wells Fargo Securities, LLC
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Jefferies LLC
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Tudor, Pickering, Holt & Co. Securities, Inc.
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Citigroup Global Markets Inc.
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Capital One Southcoast, Inc.
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Credit Agricole Securities (USA) Inc.
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Mitsubishi UFJ Securities (USA), Inc.
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Morgan Stanley & Co. LLC
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[Stifel, Nicolaus & Company, Incorporated]
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SunTrust Robinson Humphrey, Inc.
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Total
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Schedule 2
Subsidiaries
Jones Energy Holdings, LLC (Delaware)
CCPR Sub LLC (Delaware)
Nosley Assets, LLC (Delaware)
Jones Energy, LLC (Texas)
JRJ Opco, LLC (Texas)
Schedule 3
Lock-Up Parties
Jones Energy, Inc.
MCP (C) II Jones Intermediate LLC
MCP II Co-Investment Jones Intermediate LLC
MCP II Jones Intermediate LLC
MCP II (TE) AIF Jones Intermediate LLC
MCP II (Cayman) AIF Jones Intermediate LLC
MCP II Executive Fund Jones Intermediate LLC
Wells Fargo Central Pacific, Inc.
Jonny Jones
Robert Brooks
Howard Hoffen
Gregory D. Myers
Mike S. McConnell
Eric Niccum
Annex A
Form of Opinion of Counsel for Jones Energy, Inc.
(a)
The Registration Statement has been declared effective under the Securities Act; each of the Preliminary Prospectus and the Prospectus was filed with the Commission pursuant to Rule 424(b) under the Securities Act in the manner and within the time period required by Rule 424(b); and to the knowledge of such counsel no order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or in connection with the offering is pending or threatened by the Commission.
(b)
The Company, JEH LLC and each of the subsidiaries set forth on Schedule I (the “Subsidiaries”) are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction set forth opposite the name of such entity on Schedule I, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, in each case except where the failure to be so qualified or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(c)
After giving effect to the Reorganization, the Company will have an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Capitalization;” all the issued shares of capital stock of the Company (including the Shares being delivered at the applicable Closing Date) have been duly and validly authorized and issued and are, or in the case of the Shares being delivered at the applicable Closing Date, when issued and delivered against payment therefor as provided in the Underwriting Agreement, will be validly issued, fully paid and non-assessable.
(d)
Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no options, warrants, preemptive rights, rights of first refusal or other rights to subscribe for or to purchase, any equity securities of the Company pursuant to the Company Restated Certificate of Incorporation, the Company Restated Bylaws or any other agreement or instrument filed as an exhibit to the Registration Statement.
(e)
After giving effect to the Reorganization, the Company will own [
·
]% of the issued and outstanding JEH LLC Units (or such additional amount to reflect the exercise of the Underwriters’ option to purchase Option Shares pursuant to Section 2 of the Underwriting Agreement); such JEH LLC Units will be duly and validly authorized and issued, fully paid and non-assessable (except as such nonassessability may be affected by Sections 18-607 and 18-804 of the Delaware LLC Act, as applicable, and limited to the extent set forth in JEH LLC’s organizational documents) and will be owned by the Company, free and clear of any lien, charge, encumbrance or security interest (each, a “Lien”) in respect of which a financing statement under the Uniform Commercial Code of the State of Delaware naming the Company as the debtor is on file in the office of the Secretary of State of the State of Delaware, other than those Liens that may exist pursuant to the Credit Agreement or the Term Loan.
(f)
Each of the Company and JEH LLC has all requisite corporate or limited liability company power and authority to execute and deliver each of the Transaction Documents to which it is a party and to perform its obligations thereunder; and all corporate or limited liability company action required to be taken for the due and proper authorization, execution and delivery by the Company and JEH LLC of each of the
A-1
Transaction Documents to which it is a party and the consummation by it of the transactions contemplated thereby has been validly taken.
(g)
The Underwriting Agreement has been duly authorized, executed and delivered by the Company and JEH LLC.
(h)
Each Transaction Document to which the Company and JEH LLC, as applicable, are a party, assuming the due authorization, execution and delivery by the other parties thereto, constitutes a valid and legally binding agreement of each of the Company and JEH LLC, as applicable, enforceable against each of the Company and JEH LLC in accordance with its terms, provided that the enforceability thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (ii) public policy, applicable law relating to fiduciary duties and indemnification and an implied covenant of good faith and fair dealing.
(i)
Each Transaction Document conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(j)
None of (i) the execution, delivery and performance by the Company and JEH LLC of each of the Transaction Documents to which it is a party, (ii) the issuance and sale by the Company of the Shares being delivered on the Closing Date or the Additional Closing Date, as the case may be, or (iii) the consummation of the transactions contemplated by the Transaction Documents, including the Reorganization, will (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than Liens arising under or in connection with the Credit Agreement and Term Loan) upon any property or assets of the Company, JEH LLC and each of the Subsidiaries under any agreement or other instrument filed as an exhibit to the Registration Statement, (B) constitute a violation of the provisions of the charter or by-laws or similar organizational documents of the Company, JEH LLC or any of the Subsidiaries or (C) result in the violation of the DGCL, the Delaware LLC Act, the laws of the State of Texas or federal law applicable to the Company, JEH LLC or any of the Subsidiaries, except, in the case of clauses (A) and (C) above, for such conflict, breach, violation, default or Lien that would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect, and except in the case of clause (C) for federal or state securities laws or anti-fraud laws.
(k)
No consent, approval, authorization, order, registration or qualification (“consent”) of or with any Delaware, Texas or federal court, arbitrator, governmental agency or regulatory authority having jurisdiction over the Company, JEH LLC and each of the Subsidiaries under the DGCL, the Delaware LLC Act, the laws of the State of Texas or federal law, is required for the execution, delivery and performance by the Company and JEH LLC of each of the Transaction Documents to which it is a party, the issuance and sale by the Company of the Shares being delivered on the Closing Date or the Additional Closing Date, as the case may be, or the consummation by the Company and JEH LLC of the transactions contemplated by the Transaction Documents, except (i) for registration of the Shares under the Securities Act and consents required under the Exchange Act, applicable state securities or “Blue Sky” laws, and the rules of the FINRA in connection with the purchase and distribution of the Shares by the Underwriters (as to which such counsel need not express an opinion), (ii) for such consents that have been obtained or made, (iii) for any such consents the absence or omission of which would not reasonably be expected to have a Material Adverse Effect or (iv) as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
A-2
(l)
The statements in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the headings “Material U.S. federal income and estate tax considerations for non-U.S. holders,” “Description of capital stock,” and in the Registration Statement in item 14, insofar as they describe the terms of the Shares, provisions of federal statutes, rules or regulations or the DGCL or any contracts and other legal instruments, are accurate in all material respects.
(m)
To the knowledge of such counsel, (A) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement or the Prospectus and that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (B) there are no contracts or other instruments that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus and that have not been so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(n)
After giving effect to the application of the proceeds received by the Company and JEH LLC from the offering and sale of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act.
In rendering such opinion, such counsel may (i) rely in respect of matters of fact upon certificates of officers and employees of the Company and JEH LLC and upon information obtained from public officials, (ii) assume that all documents submitted to such counsel as originals are authentic, that all copies submitted to such counsel conform to the originals thereof, and that the signatures on all documents examined by such counsel are genuine, (iii) state that its opinion is limited to matters governed by federal law, the Texas Limited Liability Company Act, the Delaware General Corporation Law and the Delaware LLC Act, (iv) with respect to the opinions expressed as to the good standing or due qualification or registration as a foreign corporation or limited liability company, as the case may be, of the Company, JEH LLC and each of their respective subsidiaries, state that such opinions are based upon certificates of good standing provided by the Secretary of State of the state of formation and certificates of foreign qualification or registration provided by the Secretary of State of the states listed on an annex to be attached to such counsel’s opinion (each of which shall be dated as of a date not more than fourteen days prior to the Closing Date or the Additional Closing Date, as applicable, and shall be provided to counsel to the Underwriters), (v) state that they express no opinion with respect to (A) any permits to own or operate any real or personal property or (B) state or local taxes or tax statutes to which any of the members of JEH LLC may be subject; and (vi) with respect to the opinions expressed in paragraphs (c) and (d) relating to the existence of any Lien for which a financing statement under the Uniform Commercial Code is on file, rely solely upon such counsel’s review of reports, dated as of recent dates, prepared by CT Lien Solutions, a Wolters Kluwer Company, purporting to describe all financing statements on file as of the dates thereof in the office of the Secretary of State of the State of Delaware, naming the Company or JEH LLC as debtor.
In addition, such counsel shall make statements to the following effect:
Such counsel has reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and has participated in conferences with officers and other representatives of each of the Company and JEH LLC, representatives of its independent registered public accounting firm, representatives of the independent reserve engineers of the Company and JEH LLC and with the Underwriters’ representatives and their counsel, at which the contents of the Registration Statement, the Pricing Disclosure Package, the Prospectus and related matters were discussed. The purpose of such counsel’s professional engagement was not
A-3
to establish or confirm factual matters set forth in the Registration Statement, the Pricing Disclosure Package or the Prospectus, and such counsel has not undertaken to verify independently any of the factual matters in such documents. Moreover, many of the determinations required to be made in the preparation of the Registration Statement, the Pricing Disclosure Package and the Prospectus involve matters of a non-legal nature. Accordingly, such counsel is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained or included in the Registration Statement, the Pricing Disclosure Package and the Prospectus (except to the extent stated in paragraph (l) above). Subject to the foregoing and on the basis of the information such counsel gained in the course of performing the services referred to above, such counsel advises the Underwriters that:
(a)
the Registration Statement, as of the latest effective date, the Preliminary Prospectus, as of the Applicable Time, and the Prospectus, as of its date and as of the applicable Closing Date, appear on their face to be appropriately responsive in all material respects to the requirements of the Securities Act and the rules and regulations of the Commission thereunder; and
(b)
nothing came to such counsel’s attention that caused it to believe that:
(1)
the Registration Statement, as of the latest Effective Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading,
(2)
the Pricing Disclosure Package, as of the Applicable Time, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or
(3)
the Prospectus, as of its date or as of the applicable Closing Date, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
it being understood that in each case such counsel has not been asked to, and does not, express any belief with respect to (a) the financial statements and schedules or other financial or accounting information contained or included therein or omitted therefrom, (b) the summary reserve report of independent reserve engineer and reserve information contained or included therein or omitted therefrom, or (c) representations and warranties and other statements of fact contained in the exhibits to the Registration Statement.
The opinion of Baker Botts L.L.P. described above shall be rendered to the Underwriters at the request of the Company and shall so state therein.
A-4
Annex B
a.
Pricing Disclosure Package
[None]
[b.
Pricing Information Provided Orally by Underwriters
Price per share to the public: $[
·
]
Number of Shares Offered: [
·
]]
B-1
Annex C
Written Testing-the-Waters Communications
[None]
C-1
Annex D
Jones Energy, Inc.
Pricing Term Sheet
[TO COME]
D-1
Exhibit A
FORM OF LOCK-UP AGREEMENT
[
·
], 2013
J.P. Morgan Securities LLC
Barclays Capital Inc.
Wells Fargo Securities, LLC
As Representatives of the
several Underwriters listed
in Schedule 1 to the Underwriting
Agreement referred to below
c/o J. P. Morgan Securities LLC
383 Madison Avenue
New York, NY 10179
Re:
Jones Energy, Inc.
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Jones Energy, Inc., a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the “Underwriters”), of shares of Class A common stock, $0.001 per share par value, of the Company (the “Securities”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of J. P. Morgan Securities LLC and Barclays Capital Inc., on behalf of the Underwriters, the undersigned will not, during the period ending 180 days after the date of the prospectus relating to the Public Offering (the “Prospectus”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any shares of Class A Common Stock, $0.001 per share par value, of the Company (the “Common Stock”) or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge, disposition or filing (other than any filings on Form S-8 relating to the Company Stock Plans), (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) make any demand for or exercise any right with respect to the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock, in each case other than (A) the Securities to be sold by the undersigned pursuant to the Underwriting Agreement, (B) any JEH LLC Units exchanged by the Existing Owners under the
Exchange Agreement in connection with any exercise by the Underwriters of the option to purchase Option Shares, (C) transfers of shares of Common Stock as a bona fide gift or gifts, and (D) distributions of shares of Common Stock to members, partners or stockholders of the undersigned;
provided
that in the case of any transfer or distribution pursuant to clause (C) or (D), each donee or distributee shall execute and deliver to the Representatives a lock-up letter in the form of this paragraph; and
provided
,
further
, that in the case of any transfer or distribution pursuant to clause (C) or (D), no filing by any party (donor, donee, transferor or transferee) under the Securities Exchange Act of 1934, as amended, or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made after the expiration of the 180-day period referred to above).
If the undersigned is an officer or director of the Company, (i) each of J.P. Morgan Securities LLC and Barclays Capital Inc., on behalf of the Underwriters, agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, J.P. Morgan Securities LLC and Barclays Capital Inc., on behalf of the Underwriters, will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by each of J.P. Morgan Securities LLC and Barclays Capital Inc., on behalf of the Underwriters, hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions imposed by this Letter Agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release, announcement of the material news or occurrence of the material event.
In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned understands that, if the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, the undersigned shall be released from, all obligations under this Letter Agreement. The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter Agreement.
This Letter Agreement and any claim, controversy or dispute arising under or related to this Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof.
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Very truly yours,
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[
NAME OF STOCKHOLDER
]
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By:
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Name:
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Title:
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Exhibit B
Form of Waiver of Lock-up
J.P. MORGAN SECURITIES LLC
Corporation
Public Offering of Class A Common Stock
[
Date
]
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Jones Energy, Inc. (the “Company”) of shares of Class A common stock, $0.001 par value (the “Common Stock”), of the Company and the lock-up letter dated [
·
], 2013 (the “Lock-up Letter”), executed by you in connection with such offering, and your request for a [waiver] [release] dated , 20 , with respect to shares of Common Stock (the “Shares”).
J.P. Morgan Securities LLC and Barclays Capital Inc. hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective , 20 ;
provided
,
however
, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
Yours very truly,
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[Signatures of J.P. Morgan Securities LLC and Barclays Capital Inc. Representatives]
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[Names of J.P. Morgan Securities LLC and Barclays Capital Inc. Representatives]
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cc: Company
Exhibit C
[Form of Press Release]
Jones Energy, Inc.
[Date]
Jones Energy, Inc. (the “Company”) announced today that J.P. Morgan Securities LLC and
Barclays Capital Inc.
, book-running managers in the Company’s recent public sale of shares of Class A common stock, are [waiving] [releasing] a lock-up restriction with respect to shares of the Company’s Class A common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
of
JONES ENERGY, INC.
(hereinafter called the “
Corporation
”)
ARTICLE I
OFFICES
1.1
Registered Office.
The registered office of the Corporation required by the General Corporation Law of the State of Delaware or any successor statute (as amended from time to time, the “
DGCL
”) to be maintained in the State of Delaware shall be the registered office named in the Certificate of Incorporation of the Corporation, as it may be amended or restated in accordance with the DGCL from time to time (the “
Certificate of Incorporation
”). Should the Corporation maintain a principal office within the State of Delaware, such registered office need not be identical to such principal office of the Corporation.
1.2
Other Offices.
The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may determine from time to time or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1
Place of Meetings.
Meetings of the stockholders for the election of directors or for any other purpose shall be held at such place, if any, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors. Subject to applicable law, the Board of Directors may elect to postpone, reschedule or cancel any meeting of stockholders previously scheduled by the Board of Directors.
2.2
Annual Meeting.
An annual meeting of the stockholders, for the election of directors and for the transaction of such other business as may be properly brought before the meeting, shall be held at such place, if any, within or without the State of Delaware, on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting. At the annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the annual meeting as set forth in Section 2.9 and Section 3.5 hereof. Failure to hold the annual meeting at the designated time or otherwise shall not affect otherwise valid corporate acts or work a forfeiture or dissolution of the Corporation.
2.3
Special Meetings.
Except as otherwise required by law, or by or pursuant to the Certificate of Incorporation, special meetings of the stockholders for any purpose or purposes may be called at any time only (i) by the Chairman of the Board of Directors, if there is one, (ii) by the Chief Executive Officer, if there is one, or (iii) by the Board of Directors.
2.4
Notice of Meeting.
Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, notice of all stockholder meetings stating the place, if any, day
and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered in accordance with Section 7.3 not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. Notice of any meeting of stockholders of the Corporation need not be given to any stockholder of the Corporation (a) if waived by such stockholder in writing or by electronic transmission in accordance with Section 7.3 hereof or (b) to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first-class mail) of dividends or interest on securities during a 12-month period, in either case (i) or (ii) above, have been mailed addressed to such person at such person’s address as shown on the records of the Corporation and have been returned undeliverable;
provided, however,
that the exception in (b)(i) shall not be applicable to any notice returned as undeliverable if the notice was given by electronic transmission. If any person to whom notice need not be given in accordance with clause (b) of the immediately preceding sentence shall deliver to the Corporation a written notice setting forth such person’s then-current address, the requirement that notice be given to such person shall be reinstated. Attendance at a meeting of the stockholders of the Corporation shall constitute a waiver of notice of such meeting, except when a stockholder of the Corporation attends a meeting for the express purpose of objecting (and so expresses such objection at the beginning of the meeting) to the transaction of any business on the ground that the meeting is not lawfully called or convened.
2.5
Registered Holders of Shares; Closing of Share Transfer Records; Record Date
.
(a)
Registered Holders as Owners.
The Corporation may regard the person in whose name any shares issued by the Corporation are registered in the stock transfer records of the Corporation at any particular time (including, without limitation, as of a record date fixed pursuant to paragraph (b) of this Section 2.5) as the owner of those shares at that time for purposes of voting those shares, receiving distributions thereon or notices in respect thereof, transferring those shares, exercising rights of dissent with respect to those shares, entering into agreements with respect to those shares, or giving proxies with respect to those shares, and shall not be bound to recognize any equitable or other claim or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law; and, to the fullest extent permitted by law, neither the Corporation nor any of its officers, directors, employees or agents shall be liable for regarding that person as the owner of those shares at that time for those purposes, regardless of whether that person possesses a certificate for those shares.
(b)
Record Date (Meetings).
In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten
2
(10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
(c)
Record Date (Dividends).
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
2.6
List of Stockholders Entitled to Vote.
The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.6 or to vote in person or by proxy at any meeting of stockholders.
3
2.7
Quorum of Stockholders.
Unless otherwise required by law or the Certificate of Incorporation or these Bylaws, the presence in person or by proxy of the holders of shares of capital stock entitled to cast a majority of the votes which could be cast at such meeting by the holders of all outstanding shares of capital stock entitled to vote at such meeting shall constitute a quorum at all meetings of the stockholders for the transaction of business. “Broker non-votes” shall be considered present at the meeting with respect to the determination of a quorum but shall not be considered as votes cast with respect to matters as to which no authority is granted. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting shall have the power to adjourn the meeting, or the stockholders, present in person or represented by proxy, may, by the vote of holders of stock representing a majority of the voting power of all shares present at the meeting, have the power to adjourn the meeting, in each case from time to time in the manner provided in Section 2.8 until a quorum shall be present or represented. Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.
2.8
Adjournment.
Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any meeting of the stockholders may be adjourned from time to time, without notice other than by announcement at the meeting at which such adjournment is taken, and at any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.
2.9
Voting by Stockholders
.
(a)
Voting on Matters Other than the Election of Directors.
With respect to any matters as to which no other voting requirement is specified by the DGCL, the Certificate of Incorporation, these Bylaws or the rules or regulations of any stock exchange applicable to the corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, the affirmative vote required for stockholder action shall be that of a majority in voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter. Broker non-votes shall not be considered as shares present and entitled to vote as to matters with respect to which no authority has been granted. In the case of a matter submitted for a vote of the stockholders as to which a stockholder approval requirement is applicable under the stockholder approval policy of any stock exchange or quotation system on which the capital stock of the Corporation is traded or quoted, the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), or any provision of the Internal Revenue Code, in each case for which no higher voting requirement is specified by the DGCL, the Certificate of Incorporation or these Bylaws, the vote required for approval
4
shall be the requisite vote specified in such stockholder approval policy, Rule 16b-3 or Internal Revenue Code provision, as the case may be (or the highest such requirement if more than one is applicable). For the approval or ratification of the appointment of independent public accountants (if submitted for a vote of the stockholders), the vote required for approval shall be a majority of the votes cast on the matter. For this purpose, abstentions shall not be considered as votes cast.
(b)
Voting in the Election of Directors.
Unless otherwise provided in the DGCL or the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast by the holders of outstanding shares of capital stock of the Corporation entitled to vote in the election of directors at a meeting of stockholders.
(c)
Stockholder Proposals (Other than Director Nominations).
At an annual meeting of stockholders of the Corporation, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such annual meeting. To be properly brought before an annual meeting, business or proposals (other than any nomination of directors of the Corporation, which is governed by Section 3.5 hereof) must (i) be specified in the notice relating to the meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or a duly authorized committee thereof) in accordance with Section 2.4 hereof, (ii) otherwise be properly brought before the annual meeting by or at the direction of the Board of Directors (or a duly authorized committee thereof) or (iii) be properly brought before the meeting by a stockholder of the Corporation who (A) is a stockholder of record at the time of the giving of such stockholder’s notice provided for in this Section 2.9 and on the record date for the determination of stockholders entitled to vote at such annual meeting, (B) shall be entitled to vote at the annual meeting and (C) complies with the requirements of this Section 2.9, and otherwise be proper subjects for stockholder action and be properly introduced at the annual meeting. Clause (iii) of the immediately preceding sentence shall be the exclusive means for a stockholder to submit business or proposals (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the notice relating to the meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or a duly authorized committee thereof) in accordance with Section 2.4 hereof) before an annual meeting of stockholders of the Corporation.
For a proposal to be properly brought before an annual meeting by a stockholder of the Corporation pursuant to these provisions, in addition to any other applicable requirements, such stockholder must have given timely advance notice thereof in writing to the Secretary of the Corporation and any such proposed business must constitute a proper matter for stockholder action. To be timely, such stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the annual meeting date of the immediately preceding annual meeting;
provided, however
, that if the scheduled annual meeting date is called for a date that is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by such stockholder, to be timely, must be so delivered or received not earlier than the close of business on the 120th day and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if less than 100 days’ prior notice or public disclosure of the scheduled meeting date is given or made, the 10th day following the earlier of the day on which the notice
5
of such meeting was mailed to stockholders of the Corporation or the day on which such public disclosure was made. For purposes of this Section 2.9(c) and Section 3.5(a), the first anniversary of the annual meeting date of the 2013 annual meeting shall be deemed to be [June 15], 2014. In no event shall any adjournment, postponement or deferral of an annual meeting or the announcement thereof commence a new time period for the giving of a timely notice as described above.
Any such stockholder’s notice to the Secretary of the Corporation shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, together with the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), (ii) as to such stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, and the name and address of any other stockholders known by such stockholder to be supporting such business or proposal, (B)(1) the class or series and number of shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, (2) any option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of capital stock of the Corporation or with a value derived in whole or in part from the price, value or volatility of any class or series of shares of capital stock of the Corporation or any derivative or synthetic arrangement having characteristics of a long position in any class or series of shares of capital stock of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a “
Derivative Instrument
”) directly or indirectly owned beneficially by such stockholder and by such beneficial owner and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of capital stock of the Corporation, (3) any proxy, contract, arrangement, understanding or relationship the effect or intent of which is to increase or decrease the voting power of such stockholder or beneficial owner with respect to any shares of any security of the Corporation, (4) any pledge by such stockholder or beneficial owner of any security of the Corporation or any short interest of such stockholder or beneficial owner in any security of the Corporation (for purposes of this Section 2.9(c) and Section 3.5, a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (5) any rights to dividends on the shares of capital stock of the Corporation owned beneficially by such stockholder and by such beneficial owner that are separated or separable from the underlying shares of capital stock of the Corporation, (6) any proportionate interest in shares of capital stock of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder or beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (7) any performance-related fees (other than an asset-based fee) that such stockholder or beneficial owner is entitled to based on any increase or decrease in the value of shares of capital stock of the Corporation or Derivative Instruments, if any, as of the date of such notice, including, without limitation, for purposes of clauses (B)(1)
6
through (B)(7) above, any of the foregoing held by members of such stockholder’s or beneficial owner’s immediate family sharing the same household, and (C) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for the proposal, or would otherwise be required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; (iii) any material interest of such stockholder and beneficial owner, if any, in such business or proposal, (iv) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting, (v) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person or persons (including their names) in connection with such business or proposal by such stockholder and (vi) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (b) otherwise to solicit proxies or votes from stockholders in support of such proposal.
A stockholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.9(c) shall be true and correct as of the record date for the meeting and as of the date that is ten business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable (or, if not practicable, on the first practicable date prior to the date for the meeting) or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten business days prior to the meeting or any adjournment or postponement thereof). In addition, a stockholder providing notice of business proposed to be brought before an annual meeting shall update and supplement such notice, and deliver such update and supplement to the principal executive offices of the Corporation, promptly following the occurrence of any event that materially changes the information provided or required to be provided in such notice pursuant to this Section 2.9(c).
Except as otherwise provided by law, the Chairman of the Board or, if he is not presiding, the presiding officer of the meeting of stockholders of the Corporation shall determine whether the requirements of this Section 2.9 have been met with respect to any stockholder proposal. If the Chairman of the Board or the presiding officer determines that any stockholder proposal was not made in accordance with the terms of this Section 2.9, except as otherwise provided by law, he may so declare at the meeting and any such proposal shall not be acted upon at the meeting. Notwithstanding the foregoing provisions of this Section 2.9(c), unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present proposed business, such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.9(c), to be considered a qualified representative of the stockholder, a person must be a duly authorized
7
officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
For purposes of this Section 2.9 and Section 3.5, “public disclosure” shall mean disclosure in a press release reported by the Dow Jones News Services, The Associated Press or a comparable national news service or in a document publicly filed or furnished by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
At a special meeting of stockholders of the Corporation, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such special meeting. To be properly brought before such a special meeting, business or proposals (other than any nomination of directors of the Corporation, which is governed by Section 3.5 hereof) must be specified in the notice relating to the meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or a duly authorized committee thereof) in accordance with Section 2.3 and Section 2.4 hereof. Stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders.
This Section 2.9 is expressly intended to apply to any business proposed to be brought before an annual or special meeting of stockholders, including the presenting at an annual meeting of any proposal properly made pursuant to Rule 14a-8 under the Exchange Act and included in the notice of meeting given by or at the direction of the Board of Directors (or a duly authorized committee thereof). In addition to the foregoing provisions of this Section 2.9, a stockholder of the Corporation shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.9;
provided
,
however
, that any references in these bylaws to the Exchange Act or the rules and regulations promulgated hereunder are not intended to and shall not limit any requirements applicable to proposals as to any other business to be considered pursuant to this Section 2.9. Nothing in this Section 2.9 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock if and to the extent provided for under law, the Certificate of Incorporation or these Bylaws.
2.10
Proxies.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Such authorization may be in writing and executed by the stockholder or his or her authorized officer, director, employee or agent. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. No proxy authorized hereby shall be voted or acted upon more than three years from its date, unless the proxy provides for a longer period. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by
8
resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting who shall decide all questions relating to the qualification of voters, the validity of the proxies and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions.
2.11
Organization.
Such person as the Board of Directors may have designated or, in the absence of such person, the Chairman of the Board or, in his or her absence, the Chief Executive Officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary or an Assistant Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints.
2.12
Conduct of Meetings.
The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meetings of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; (vi) limitations on the time allotted to questions or comments by participants; and (vii) policies and procedures with respect to the adjournment of such meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE III
DIRECTORS
3.1
Duties and Powers.
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the authority and powers conferred upon the Board of Directors by the DGCL or by the provisions of the Certificate of Incorporation, the Board of Directors is authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, the Certificate of Incorporation and these Bylaws.
3.2
Number and Term of Directors.
Within any limits specified in the Certificate of Incorporation, and subject to such rights of holders of shares of one or more outstanding series of preferred stock of the Corporation to elect one or more directors of the Corporation under
9
circumstances as shall be provided by or pursuant to the Certificate of Incorporation, the number of directors of the Corporation that shall constitute the Board of Directors shall be fixed from time to time exclusively by, and may be increased or decreased from time to time exclusively by, resolution of a majority of the total number of directors. The directors shall be designated as Class I directors, Class II directors or Class III directors (in each case, as defined in the Certificate of Incorporation) in accordance with the Certificate of Incorporation. The election and term of director shall be as set forth in the Certificate of Incorporation.
3.3
Vacancies.
Unless otherwise provided by or pursuant to the Certificate of Incorporation, vacancies on the Board of Directors and newly-created directorships resulting from any increase in the authorized number of directors shall be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director, and each director so appointed shall hold office until the next election of the class for which such director shall have been appointed and until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. The Board of Directors shall specify the class to which a newly created directorship shall be allocated in accordance with the Certificate of Incorporation.
3.4
Qualifications.
Directors need not be residents of the State of Delaware or stockholders of the Corporation.
3.5
Nomination of Directors
.
(a)
Subject to such rights of holders of shares of one or more outstanding series of preferred stock of the Corporation to elect one or more directors of the Corporation under circumstances as shall be provided by or pursuant to the Certificate of Incorporation, only persons who are nominated in accordance with the procedures set forth in this Section 3.5 shall be eligible for election as, and to serve as, directors of the Corporation. Nominations of persons for election to the Board of Directors may be made only at a meeting of the stockholders of the Corporation at which directors of the Corporation are to be elected (i) by or at the direction of the Board of Directors (or a duly authorized committee thereof) or (ii) (if but only if the Board of Directors has determined that directors shall be elected at such meeting) by any stockholder of the Corporation who is a stockholder of record at the time of the giving of such stockholder’s notice provided for in this Section 3.5 and on the record date for the determination of stockholders entitled to vote at such meeting, who shall be entitled to vote at such meeting in the election of directors of the Corporation and who complies with the requirements of this Section 3.5. Clause (ii) of the immediately preceding sentence shall be the exclusive means for a stockholder to make any nomination of a person or persons for election as a director of the Corporation at an annual meeting or special meeting. Any such nomination by a stockholder of the Corporation shall be preceded by timely advance notice in writing to the Secretary of the Corporation.
To be timely with respect to an annual meeting, such stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the annual meeting date of the immediately preceding annual meeting;
provided, however
, that (1) if the scheduled annual meeting is called for a date
10
that is more than 30 days before or more than 70 days after such anniversary date, notice by such stockholder, to be timely, must be so delivered or received not earlier than the close of business on the 120th day and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if less than 100 days’ prior notice or public disclosure of the scheduled meeting date is given or made, the 10th day following the earlier of the day on which the notice of such meeting was mailed to stockholders of the Corporation or the day on which such public disclosure was made; and (2) if the number of directors to be elected to the Board of Directors at such annual meeting is increased and there is no prior notice or public disclosure by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to such anniversary date, a stockholder’s notice required by this Section 3.5(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the principal executive offices of the Corporation not later than the close of business on the 10th day following the earlier of the day on which the notice of such meeting was mailed to stockholders of the Corporation or the day on which such public disclosure was made. To be timely with respect to a special meeting, such stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the scheduled special meeting date;
provided, however
, that if less than 100 days’ prior notice or public disclosure of the scheduled meeting date is given or made, notice by such stockholder, to be timely, must be so delivered or received not later than the close of business on the 10th day following the earlier of the day on which the notice of such meeting was mailed to stockholders of the Corporation or the day on which such public disclosure was made. In no event shall any adjournment, postponement or deferral of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.
Any such stockholder’s notice to the Secretary of the Corporation shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director of the Corporation, (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors of the Corporation in a contested election, or would otherwise be required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including, without limitation, the written consent of such person to having such person’s name placed in nomination at the meeting and to serve as a director of the Corporation if elected), and (D) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if such stockholder and such beneficial owner, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; and (ii) as to such stockholder giving the notice, the beneficial owner, if any, on whose behalf the nomination is made and the
11
proposed nominee, (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, and the name and address of any other stockholders known by such stockholder to be supporting such nomination, (B) (1) the class or series and number of shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder, such beneficial owner and such nominee, (2) any Derivative Instrument directly or indirectly owned beneficially by such stockholder, such beneficial owner and such nominee and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of capital stock of the Corporation, (3) any proxy, contract, arrangement, understanding or relationship the effect or intent of which is to increase or decrease the voting power of such stockholder, beneficial owner or nominee with respect to any shares of any security of the Corporation, (4) any pledge by such stockholder, beneficial owner or nominee of any security of the Corporation or any short interest of such stockholder, beneficial owner or nominee in any security of the Corporation, (5) any rights to dividends on the shares of capital stock of the Corporation owned beneficially by such stockholder, beneficial owner and nominee that are separated or separable from the underlying shares of capital stock of the Corporation, (6) any proportionate interest in shares of capital stock of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder, beneficial owner or nominee is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (7) any performance-related fees (other than an asset-based fee) that such stockholder, beneficial owner or nominee is entitled to based on any increase or decrease in the value of shares of capital stock of the Corporation or Derivative Instruments, if any, as of the date of such notice, including, without limitation, for purposes of clauses (B)(1) through (B)(7) above, any of the foregoing held by members of such stockholder’s, beneficial owner’s or nominee’s immediate family sharing the same household (which information shall be supplemented by such stockholder, beneficial owner, if any, and nominee not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), (C) a representation that such stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, (D) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (E) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (ii) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, and (F) any other information relating to such stockholder, beneficial owner, if any, and nominee that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors of the Corporation in a contested election, or would otherwise be required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Any such stockholder’s notice to the Secretary of the Corporation shall also include or be accompanied by, with respect to each nominee for election or reelection to the Board of Directors, a completed and signed questionnaire, representation and agreement required by Section 3.5(b). The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee
12
to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.
A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 3.5(a) shall be true and correct as of the record date for the meeting and as of the date that is ten business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than five business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight business days prior to the date for the meeting, if practicable (or, if not practicable, on the first practicable date prior to the date for the meeting) or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten business days prior to the meeting or any adjournment or postponement thereof). In addition, a stockholder providing notice of any nomination proposed to be made at a meeting shall update and supplement such notice, and deliver such update and supplement to the principal executive offices of the Corporation, promptly following the occurrence of any event that materially changes the information provided or required to be provided in such notice pursuant to this Section 3.5(a).
In addition to the foregoing provisions of this Section 3.5, a stockholder of the Corporation shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.5;
provided
,
however
, that any references in these bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations to be considered pursuant to this Section 3.5. Nothing in this Section 3.5 shall be deemed to affect any rights of the holders of any series of preferred stock if and to the extent provided for under law, the Certificate of Incorporation or these Bylaws.
(b)
To be eligible to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 3.5(a)) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be in the form provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “
Voting Commitment
”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in
13
compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.
(c)
Except as otherwise provided by law, the Chairman of the Board or, if he is not presiding, the presiding officer of the meeting of stockholders of the Corporation shall determine whether the requirements of this Section 3.5 have been met with respect to any nomination or intended nomination. If the Chairman of the Board or the presiding officer determines that any nomination was not made in accordance with the requirements of this Section 3.5, except as otherwise provided by law, he may so declare at the meeting and the defective nomination shall be disregarded. In addition to the foregoing provisions of this Section 3.5, a stockholder of the Corporation shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.5. Notwithstanding the foregoing provisions of this Section 3.5, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination, such nomination shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 3.5, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
3.6
Meetings.
The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, if there be one, the Chief Executive Officer, or such number of directors constituting more than one-third of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the time of the meeting, by telephone, telegram, facsimile transmission or other electronic transmission not less than twenty-four (24) hours before the time of the meeting. Notice of any meeting need not be given to any director if waived by him in writing or electronic transmission, either before or after the meeting.. Attendance at a meeting of the Board of Directors shall constitute presence in person at and waiver of notice of such meeting, except where a person attends the meeting for the express purpose of objecting (and so expresses such objection at the beginning of the meeting) to the transaction of any business on the ground that the meeting is not lawfully called or convened.
3.7
Quorum of and Action by Directors.
Unless a greater number is required by law or the Certificate of Incorporation, a majority of the then authorized number of directors shall constitute a quorum of the Board of Directors for the transaction of business; but a majority of the directors present at any meeting, whether there is a quorum or otherwise, may adjourn the meeting from day to day until a quorum is present. Except as otherwise provided by law, the
14
Certificate of Incorporation or these Bylaws, the vote of a majority of the directors present at any meeting at which a quorum is present shall constitute the action of the Board of Directors.
3.8
Board and Committee Action by Unanimous Written Consent in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if all the members of the Board of Directors or such committee consent thereto in writing or by electronic transmission and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or any committee thereof in accordance with applicable law.
3.9
Board and Committee Conference Telephone Meetings.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in and hold a meeting of such Board of Directors or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can speak to and hear each other, and attendance at a meeting pursuant to this Section 3.9 shall constitute presence in person at such meeting, except where a person attends the meeting for the express purpose of objecting (and so expresses such objection at the beginning of the meeting) to the transaction of any business on the ground that the meeting is not lawfully called or convened.
3.10
Compensation.
Directors will receive such compensation for their services as may be fixed by resolution of the Board of Directors and shall be reimbursed for their actual expenses of attendance, if any, for each regular or special meeting of the Board of Directors;
provided
that nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
3.11
Committees of the Board of Directors
.
(a)
The Board of Directors may designate from among its members one or more committees, each of which shall be comprised of one or more of its members, and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations by the Board of Directors, replace absent or disqualified members at any meeting of that committee. Any such committee, to the extent provided in such resolution or in the Certificate of Incorporation or these Bylaws, shall have and may exercise all of the authority of the Board of Directors to the extent permitted by the DGCL. Any such committee may authorize the seal of the Corporation to be affixed to all papers which may require it. In addition to the above, such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by resolution adopted by the Board of Directors.
(b)
The Board of Directors shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the number of members of any such committee shall constitute a quorum for the transaction of business unless
15
a greater number is required by a resolution adopted by the Board of Directors. The act of the majority of the members of a committee present at any meeting at which a quorum is present shall be the act of such committee, unless the act of a greater number is required by a resolution adopted by the Board of Directors. Each such committee may elect a chairman (unless the Board of Directors appoints a chairman) and may appoint such subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors, meetings of any committee shall be conducted in accordance with Sections 3.6, 3.7, 3.8, 3.9, 3.10 and 7.3 hereof. Election or appointment of a member of a committee shall not of itself create contract rights.
(c)
Any action taken by any committee of the Board of Directors shall promptly be recorded in the minutes and filed with the Secretary of the Corporation.
ARTICLE IV
OFFICERS
4.1
Designation.
The officers of the Corporation shall be elected or appointed by the Board of Directors and shall consist of a Chief Executive Officer, a President, a Chief Financial Officer, a Secretary, a Treasurer and such Executive, Senior or other Vice Presidents, Assistant Secretaries and other officers as may be elected or appointed by the Board of Directors. Any number of offices may be held by the same person,
provided
that no person holding more than one office may sign, in more than one capacity, any certificate or other instrument required by law to be signed by two officers. The Board of Directors shall also elect or appoint from among the directors a person to act as Chairman of the Board who shall not be deemed to be an officer of the Corporation unless he or she has otherwise been elected or appointed as such.
4.2
Powers and Duties.
The officers of the Corporation shall have such powers and duties as generally pertain to their offices, except as modified herein or by the Board of Directors, as well as such powers and duties as from time to time may be conferred by the Board of Directors. The Chairman of the Board shall have such duties as may be assigned to him by the Board of Directors and shall preside at meetings of the Board of Directors and at meetings of the stockholders. The Chief Executive Officer shall have general supervision over the business, affairs and property of the Corporation.
4.3
Vacancies.
Whenever any vacancies shall occur in any office by death, resignation, increase in the number of offices of the Corporation, or otherwise, the same shall be filled by the Board of Directors, and the officer so elected shall hold office until such officer’s successor is elected or appointed or until his earlier death, resignation or removal.
4.4
Removal.
Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause at any time. Such removal shall be without prejudice to the contract, common law, and statutory rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.
4.5
Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President and the Treasurer of the Corporation
16
shall each have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.
ARTICLE V
CAPITAL STOCK
5.1
Shares of Stock.
The capital stock of the Corporation shall be represented by certificated or uncertificated shares, as determined by the Board of Directors. Certificates representing such certificated shares shall be signed by the Chairman of the Board, the President or a Vice President and either the Treasurer or an Assistant Treasurer of the Corporation, or the Secretary or an Assistant Secretary of the Corporation, and may bear the seal of the Corporation or a facsimile thereof. The signatures of such persons upon a certificate may be facsimiles. The stock record books and the blank stock certificate books shall be kept by the Secretary of the Corporation, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time by resolution determine. In case any person who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be Chairman of the Board or shall have ceased to be an officer before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer at the date of its issuance.
5.2
Transfer of Shares.
The shares of stock of the Corporation shall be transferable only on the stock transfer books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives and, in the case of shares represented by a certificate, the certificate being surrendered for cancellation. Until and unless the Board of Directors appoints some other person, firm or corporation as its transfer agent (and upon the revocation of any such appointment, thereafter until a new appointment is similarly made), the Secretary of the Corporation shall be the transfer agent of the Corporation without the necessity of any formal action of the Board of Directors, and the Secretary, or any person designated by him, shall perform all of the duties thereof.
5.3
Regulations Regarding Certificates.
The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation.
5.4
Lost or Destroyed Certificates.
The Chief Executive Officer, the President or any Vice President may determine the conditions upon which a new certificate of stock may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in its discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety, to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims that may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed.
17
ARTICLE VI
INDEMNIFICATION AND ADVANCEMENT
6.1
Right to Indemnification
. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “
Covered Person
”) who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative (a “
Proceeding
”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or executive officer of the Corporation or, while a director or executive officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust, enterprise or other organization, nonprofit or otherwise, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the Corporation shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors.
6.2
Prepayment of Expenses
. The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any Proceeding in advance of its final disposition;
provided
,
however
, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.
6.3
Claims
. If a claim for indemnification (following the final disposition of such proceeding) under this Article VI is not paid in full within sixty (60) days after a written claim therefor by the Covered Person has been received by the Corporation, or if a claim for any advancement of expenses under this Article VI is not paid in full within thirty (30) days after the Corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
6.4
Nonexclusivity of Rights
. The rights conferred on any Covered Person by this Article VI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
6.5
Other Sources
. The Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit
18
entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.
6.6
Amendment or Repeal
. Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of these bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.
6.7
Other Indemnification and Advancement of Expenses
. This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.
6.8
Insurance
. The Board of Directors is authorized, to the extent permitted by the DGCL, to cause the Corporation to purchase and maintain insurance on its behalf whether or not the Corporation would have the power to indemnify it under the provisions of this Article VI or otherwise.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1
Bylaw Amendments.
In furtherance and not in limitation of the powers conferred by law, the Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of any Bylaws by the Board of Directors shall require the approval of a majority of the total number of directors. The stockholders shall also have the power to adopt, amend or repeal the Bylaws, at any meeting before which such matter has been properly brought in accordance with the Bylaws of the Corporation;
provided, however
, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least 75% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal any provision of the Bylaws. No Bylaws hereafter made or adopted, nor any repeal of or amendment thereto, shall invalidate any prior act of the Board of Directors that was valid at the time it was taken.
7.2
Books and Records.
The Corporation shall keep books and records of account and shall keep minutes of the proceedings of its stockholders, its Board of Directors and each committee of its Board of Directors.
7.3
Notice; Waiver.
Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it may be given personally, by mail or by a form of electronic transmission consented to by the stockholder to whom the notice is given, to the fullest extent allowed under the DGCL. Notice by mail to a stockholder shall be deemed to be sufficient if deposited in the United States mail, postage prepaid, and addressed to last known post office address of such stockholder as shown on the stock records of the Corporation.
19
Any notice required to be given to any director or committee member may be given by any method that creates a record of its content that may be retained, retrieved and reviewed by the recipient, except that such notice, other than one which is delivered personally, shall be sent to such address (whether physical, telephonic, electronic or otherwise) as such director shall have specified in writing to the Secretary or, in the absence of such specification, to the last known address of such director or committee member.
All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by telephonic, electronic or other similarly instantaneous means shall be deemed to have been given as of the sending time recorded at the time of transmission.
Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written or electronic waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
7.4
Resignations.
Any director or officer may resign at any time. Such resignation shall be made in writing or electronic transmission and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chief Executive Officer or the Secretary of the Corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.
7.5
Seal.
The seal of the Corporation, if any, shall be in such form as the Board of Directors may adopt.
7.6
Fiscal Year.
The fiscal year of the Corporation shall end on the 31st day of December of each year or as otherwise provided by a resolution adopted by the Board of Directors.
7.7
Dividends.
Subject to limitations contained in the DGCL and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation.
7.8
Facsimile Signatures.
In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of the Chairman of the Board, any other director, or any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors.
7.9
Reliance upon Books, Reports and Records.
Each director and each member of any committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the director or member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or behalf of the Corporation.
20
As last amended on [ ].
21
Exhibit 4.1
JONES ENERGY, INC.
REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT
DATED AS OF JUNE [ ], 2013
TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION
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1
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1.1
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Definitions
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1
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1.2
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Rules of Construction
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5
|
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ARTICLE II BOARD OF DIRECTORS
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6
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2.1
|
Composition of Board
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6
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2.2
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Election
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6
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2.3
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Removal
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7
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2.4
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Vacancies
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7
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2.5
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Termination of Rights
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7
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ARTICLE III REGISTRATION RIGHTS
|
8
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3.1
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Required Registration
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8
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3.2
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Piggyback Registration
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10
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3.3
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Holdback Agreement
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11
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3.4
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Preparation and Filing
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11
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3.5
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Expenses
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15
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3.6
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Indemnification
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15
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3.7
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Underwriting Agreement
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17
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3.8
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Information by Holder
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18
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3.9
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Exchange Act Compliance
|
19
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3.10
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Postponement and Suspension
|
19
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ARTICLE IV AMENDMENT AND WAIVER
|
20
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4.1
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Amendment
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20
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4.2
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Waiver
|
20
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ARTICLE V MISCELLANEOUS
|
20
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5.1
|
Severability
|
20
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5.2
|
Entire Agreement
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20
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5.3
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Independence of Agreements and Covenants
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20
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5.4
|
Successors and Assigns
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20
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5.5
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Counterparts; Validity
|
21
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5.6
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Remedies
|
21
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5.7
|
Notices
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21
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5.8
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Governing Law
|
22
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5.9
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Waiver of Jury Trial
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22
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5.10
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Further Assurances
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23
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5.11
|
Conflicting Agreements
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23
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5.12
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Third Party Reliance
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23
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i
REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT
This Registration Rights and Stockholders Agreement, dated as of June [ ], 2013 (as amended, modified, supplemented or restated from time to time, this “
Agreement
”), among Jones Energy, Inc., a Delaware corporation (the “
Company
”), the Jones Holders (as such term is defined herein), and the Metalmark Holders (as such term is defined herein).
WHEREAS, the Company is proposing to consummate the transactions contemplated by the Company’s Registration Statement on Form S-1 (File No. 333-188896), including an initial public offering (the “
Initial Public Offering
”) of its Class A Common Stock (as defined below);
WHEREAS, the Stockholders will receive Stockholder Shares (as defined below) in the Company as a result of a reorganization of the Jones Energy Holdings, LLC’s equity structure in connection with the Initial Public Offering, which reorganization will occur immediately prior to the execution of an underwriting agreement with respect to the Initial Public Offering (the transactions in which the Stockholders initially acquire the Stockholder Shares being referred to collectively as the “
Reorganization
”); and
WHEREAS, the parties hereto desire to provide for the terms with respect to certain matters regarding the relationship between the Company and the Stockholders and the relationship among the Stockholders.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as set forth below.
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1
Definitions
. As used in this Agreement, the following terms shall have the meanings set forth below.
“
Agreement
” has the meaning set forth in the Preamble.
“
Automatic Shelf Registration Statement
” means a registration statement filed on Form S-3 (or successor form or other appropriate form under the Securities Act) by a WKSI pursuant to General Instruction I.D. or I.C. (or other successor or appropriate instruction) of such forms, respectively.
“
Board
” means the board of directors of the Company.
“
Business Day
” means any day except a Saturday, a Sunday or any other day on which commercial banks in New York, NY are authorized or required by law to close.
“
Class A Common Stock
” means the Class A common stock of the Company, par value $0.001 per share.
1
“
Class B Common Stock
” means the Class B common stock of the Company, par value $0.001 per share.
“
Commission
” means the U.S. Securities and Exchange Commission.
“
Common Stock
” means the Class A Common Stock and Class B Common Stock.
“
Company
” has the meaning set forth in the Preamble.
“
Control
” means, (including, with correlative meaning, the terms “controlling,” “controlled by” and “under common control with”) with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or investment decisions of such Person, whether through the ownership of voting Securities, by contract or otherwise.
“
Director
” means a member of the Board.
“
Disclosure Package
” means, with respect to any offering of Securities, (i) the preliminary prospectus, (ii) each Free Writing Prospectus and (iii) all other information, in each case, that is deemed, under Rule 159 promulgated by the Commission under the Securities Act, to have been conveyed to purchasers of Securities at the time of sale of such Securities (including a contract of sale).
“
Exchange Act
” means the Securities Exchange Act of 1934 or any successor statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time.
“
Exchange Agreement
” means the Exchange Agreement dated on or about the date hereof between the Company, the Stockholders and the other parties thereto.
“
FINRA
” means the Financial Industry Regulatory Authority, Inc.
“
Free Writing Prospectus
” means “free writing prospectus” as defined Rule 405 promulgated by the Commission under the Securities Act.
“
Information
” has the meaning set forth in Section 3.4(i).
“
Initial Public Offering
” has the meaning set forth in the Recitals.
“
Inspectors
” has the meaning set forth in Section 3.4(i).
“
Jones Directors
” has the meaning set forth in Section 2.1(b).
“
Jones Holders
” means Jones Energy Drilling Fund, LP, a Texas limited partnership, Jones Energy Equity Partners, LP, a Texas limited partnership, Jones Energy Equity Partners II, LP, a Texas limited partnership, Jones Energy Team 3, LP, a Texas limited partnership, and their Transferees that directly or indirectly own interests in such entities as of the date hereof and become signatory hereto from time to time.
2
“
Law
” means any federal, state, county, local or foreign statute, law, ordinance, regulation, rule, code, order or rule of common law.
“
Metalmark Directors
” has the meaning set forth in Section 2.1(a).
“
Metalmark Holders
” means MCP (C) II Jones Intermediate LLC, a Delaware limited liability company, MCP II Co-Investment Jones Intermediate LLC, a Delaware limited liability company, MCP II Jones Intermediate LLC, a Delaware limited liability company, MCP II (TE) AIF Jones Intermediate LLC, a Delaware limited liability company, MCP II (Cayman) AIF Jones Intermediate LLC, a Delaware limited liability company, MCP II Executive Fund Jones Intermediate LLC, a Delaware limited liability company.
“
Necessary Action
” shall mean, with respect to a specified result, all actions (to the extent such actions are permitted by law and, in the case of any action by the Company that requires a vote or other action on the part of the Board, to the extent such action is consistent with the fiduciary duties that the Directors may have in such capacity) necessary to cause such result, including (i) nominating, or causing to be nominated, individuals to serve as Directors, (ii) voting or providing a written consent or proxy with respect to shares of Common Stock, (iii) causing the adoption of stockholders’ resolutions and amendments to the organizational documents of the Company, (iv) executing agreements and instruments and (v) making or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.
“
Other Shares
” means at any time those shares of Common Stock which do not constitute Primary Shares or Registrable Shares hereunder.
“
Person
” shall be construed as broadly as possible and shall include an individual person, a partnership (including a limited liability partnership), a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental authority.
“
Primary Shares
” means, at any time, authorized but unissued shares of Class A Common Stock.
“
Prospectus
” means the prospectus included in a Registration Statement, including any amendment or prospectus subject to completion, and any such prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares and, in each case, by all other amendments and supplements to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.
“
Public Offering
” means the closing of a public offering of Common Stock pursuant to a Registration Statement declared effective under the Securities Act, except that a Public Offering shall not include an offering of Securities issuable pursuant to an employee benefit plan.
“
Records
” has the meaning set forth in Section 3.4(i).
3
“
Registrable Shares
” means any Stockholder Shares;
provided
, that any Registrable Shares shall cease to be a Registrable Shares when (i) they have been effectively registered under the Securities Act and they have been disposed of in accordance with the Registration Statement covering them, (ii) they are eligible to be sold or distributed pursuant to Rule 144 in a single transaction by any Stockholder without limitation, or (iii) they shall have ceased to be outstanding.
“
Registration Expenses
” has the meaning set forth in Section 3.5.
“
Registration Statement
” means any registration statement of the Company that covers an offering of any Registrable Shares, and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.
“
Reorganization
” has the meaning set forth in the Recitals.
“
Representative
” of a Person shall be construed broadly and shall include such Person’s partners, members, officers, directors, managers, investment advisors, employees, agents, advisors, counsel, accountants and other representatives.
“
Rule 144
” means Rule 144 (including Rule 144(b)(1) and all other subdivisions thereof) promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar or successor rule then in force.
“
Secondary Offering
” an offering by Stockholders of Stockholder Shares as part of the Initial Public Offering, together with any sale of Stockholder Shares in connection with the exercise of any over-allotment option granted by Stockholders to underwriters in the Initial Public Offering.
“
Securities
” means “securities” as defined in Section 2(1) of the Securities Act and includes, with respect to any Person, the capital stock or other equity interests in such Person or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, the capital stock or other equity or equity-linked interests in such Person, including phantom stock and stock appreciation rights. Whenever a reference herein to Securities is referring to any derivative Securities, the rights of a Stockholder shall apply to such derivative Securities and all underlying Securities directly or indirectly issuable upon conversion, exchange or exercise of such derivative Securities.
“
Securities Act
” means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time.
“
Shelf Registration Statement
” shall mean a registration statement of the Company filed with the Commission on Form S-3 (or any successor form or other appropriate form under the Securities Act) for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any similar rule that may be adopted by the Commission) covering the Registrable Shares, as applicable.
4
“
Stockholders
” means the Jones Holders and the Metalmark Holders.
“
Stockholders’ Counsel
” has the meaning set forth in Section 3.4(b).
“
Stockholder Shares
” means (a) any equity Securities of the Company (including the Common Stock) held by any Stockholder or (b) any Securities issued or issuable directly or indirectly with respect to the Securities referred to in clause (a) above by way of exchange pursuant to the Exchange Agreement, stock dividend, stock split, or in connection with a combination of shares, recapitalization, reclassification, merger, consolidation or other reorganization.
“
Subsidiary
” means, at any time, with respect to any Person (the “subject person”), any other Person of which either (a) more than fifty percent (50%) of the Securities or other interests entitled to vote in the election of directors or comparable governance bodies performing similar functions or (b) more than a 50% interest in the profits or capital of such Person, are at the time owned or Controlled directly or indirectly by the subject person or through one or more Subsidiaries of the subject person.
“
Transfer
” of Securities shall be construed broadly and shall include any issuance, sale, assignment, transfer, participation, gift, bequest, distribution, or other disposition thereof, or any pledge or hypothecation thereof, placement of a lien thereon or grant of a security interest therein or other encumbrance thereon, in each case whether voluntary or involuntary or by operation of law or otherwise.
“
Transferee
” means a person to whom a Transfer is validly made hereunder.
“
WKSI
” means a “well-known seasoned issuer” as defined in Rule 405 promulgated under the Securities Act and which (i) is a “well-known seasoned issuer” under paragraph (1)(i)(A) of such definition or (ii) is a “well-known seasoned issuer” under paragraph (1)(i)(B) of such definition and is also eligible to register a primary offering of its Securities relying on General Instruction I.B.1 of Form S-3 or Form F-3 under the Securities Act.
1.2
Rules of Construction
. The use in this Agreement of the term “
including
” means “
including, without limitation
.” The words “
herein
,” “
hereof
,” “
hereunder
” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular Section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to Sections, schedules and exhibits mean the Sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the Section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied
5
against any party. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1 (or in the case of January 29, 30 or 31, the following month shall be March 1).
ARTICLE II
BOARD OF DIRECTORS
2.1
Composition of Board
. The Company and the Stockholders shall take all Necessary Actions to cause the Board to include, in addition to its other members, members designated as follows:
(a)
Two (2) nominees shall be designated by a majority in interest of the Metalmark Holders (the “
Metalmark Directors
”), which Metalmark Directors shall initially be Gregory D. Myers and Howard I. Hoffen;
provided
,
however
, that, the Metalmark Holders will only have the right to designate one (1) nominee at such time as the Metalmark Holders hold less than 50% of the Common Stock held by the Metalmark Holders immediately following the consummation of the Initial Public Offering;
provided
,
further
, that, the right of the Metalmark Holders to designate any nominees shall terminate at such time as the Metalmark Holders hold less than 20% of the Common Stock held by the Metalmark Holders immediately following the consummation of the Initial Public Offering. At any given time, and provided that the Directors are allocated among separate classes, each Metalmark Director shall be in a different class of Directors as the other Metalmark Director.
(b)
Two (2) nominees shall be designated by a majority in interest of the Jones Holders (the “
Jones Directors
”), which Jones Directors shall initially be Jonny Jones and Mike S. McConnell;
provided
,
however
, that, the Jones Holders will only have the right to designate one (1) nominee at such time as the Jones Holders hold less than 50% of the Common Stock held by the Jones Holders immediately following the consummation of the Initial Public Offering;
provided
,
further
, that, the right of the Jones Holders to designate any nominees shall terminate at such time as the Jones Holders hold less than 20% of the Common Stock held by the Jones Holders immediately following the consummation of the Initial Public Offering. At any given time, and provided that the Directors are allocated among separate classes, each Jones Director shall be in a different class of Directors as the other Jones Director.
2.2
Election.
At each election of Directors held after the date hereof (or each written consent in lieu thereof), each Stockholder agrees to vote all shares of Common Stock entitled to vote in the election of directors owned or held of record by such Stockholder, and to take any other Necessary Actions, to elect (or to execute such written consent consenting to the election of) the nominees designated pursuant to Section 2.1(a) and 2.1(b). The voting agreements herein are coupled with an interest and may not be revoked or amended except as set forth in this Agreement.
6
2.3
Removal.
If the Metalmark Holders and/or the Jones Holders provide written notice to each other Stockholder entitled to vote in the election of Directors indicating that the Metalmark Holders and/or the Jones Holders desire to remove a Metalmark Director or Jones Director, as applicable, previously designated, then such Metalmark Director or Jones Director, as applicable, shall be removed, and each Stockholder hereby agrees to vote all shares of Common Stock owned or held of record by such Stockholder to effect such removal. Notwithstanding the foregoing, no Metalmark Director or Jones Director shall be removed, with or without cause, without the prior written consent of the Metalmark Holders or the Jones Holders, respectively.
2.4
Vacancies.
(a)
If a vacancy is created on the Board at any time by death, disability, retirement, resignation or removal (with or without cause) of a Metalmark Director nominated pursuant to this Article II (other than in connection with the resignation of such Metalmark Director as set forth in Section 2.1(a)), a majority in interest of the Metalmark Holders shall be entitled to designate a replacement Metalmark Director to fill such vacancy.
(b)
If a vacancy is created on the Board at any time by death, disability, retirement, resignation or removal (with or without cause) of a Jones Director nominated pursuant to this Article II (other than in connection with the resignation of such Jones Director as set forth in Section 2.1(b)), a majority in interest of the Jones Holders, as applicable, shall be entitled to designate a replacement Jones Director to fill such vacancy.
(c)
Any other vacancy on the Board, whether as a result of (i) the initial vacancies on the Board, (ii) an increase in size of the Board, (iii) the resignation of a Metalmark Director required by Section 2.1(a) or the resignation of a Jones Director required by Section 2.1(b), or (iv) the death, disability, retirement, resignation, removal (with or without cause) of any Director other than a Metalmark Director or a Jones Director, as applicable, shall be filled by a Person nominated by the Nominating and Governance Committee, and unanimously approved by all Directors then in office.
(d)
Each Stockholder entitled to vote in the election of Directors hereby agrees to vote all voting shares of Common Stock owned or held of record by it for the individual designated to fill such vacancies in the manner provided in this Section 2.4;
provided
, such designee was not previously removed from the Board for cause.
2.5
Termination of Rights.
The nomination rights granted in this Article II shall terminate (i) with respect to the Metalmark Holders, upon receipt by the Board of written election by a majority in interest of the Metalmark Holders to waive their nomination rights hereunder, and (ii) with respect to the Jones Holders, upon receipt by the Board of written election by a majority in interest of the Jones Holders to waive their nomination rights hereunder.
7
ARTICLE III
REGISTRATION RIGHTS
3.1
Required Registration.
(a)
If the Company shall receive from a majority in interest of the Jones Holders or a majority in interest of the Metalmark Holders, at any time after one hundred eighty (180) days from the date of the consummation of the Company’s Initial Public Offering, a written request that the Company file a registration statement with respect to such Stockholders’ Registrable Shares, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Stockholders, and subject to the limitations of this Section 3.1, use its commercially reasonable efforts to effect, as soon as reasonably practicable, the registration under the Securities Act of the sale of all Registrable Shares that the Stockholders request to be registered, pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration;
provided however
, that if the managing underwriter, if any, advises the Company that the inclusion of all Primary Shares, Registrable Shares and Other Shares requested to be included in such registration would interfere with the successful marketing (within a price range acceptable to holders a majority of Registrable Securities that have been requested for inclusion) of the shares of Common Stock proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares proposed to be included in such registration shall be included in the order set forth below:
(i)
first, the Registrable Shares owned by the Stockholders requesting that their Registrable Shares be included in such registration pursuant to the terms of this Section 3.1, pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration; and
(ii)
second, the Primary Shares;
(iii)
third, the Other Shares.
(b)
Notwithstanding anything to the contrary in this Agreement, a Stockholder may request that the Company register the sale of such Registrable Shares on an appropriate form, including a Shelf Registration Statement (so long as the Company is eligible to use Form S-3) and, if the Company is a WKSI, an Automatic Shelf Registration Statement. All long-form registrations shall be underwritten registrations. The Stockholders of a majority of the Registrable Shares initially requesting registration hereunder shall have the right to select the investment banker(s) and manager(s) to administer the offering with the consent of the Company (which consent shall not be unreasonably withheld conditioned or delayed.) The Company shall not be obligated to take any action to effect any such registration:
(i)
if the request comes from a majority in interest of the Metalmark Holders, after it has effected (a) three (3) such registrations pursuant to this Section 3.1 on behalf of the Metalmark Holders;
provided
,
however
, that a majority in interest of the Metalmark Holders shall be permitted an unlimited amount of requests for registration on a Form S-3 so long as the Company is eligible to use Form S-3;
provided further
that a registration shall not count as one of the permitted registrations pursuant to
8
this Section 3.1 unless the Metalmark Holders are able to register and sell at least 80% of the Registrable Shares they requested to be included in such registration;
(ii)
if the request comes from a majority in interest of the Jones Holders, after it has effected (a) three (3) such registrations pursuant to this Section 3.1 on behalf of the Jones Holders;
provided
,
however
, that a majority in interest of the Jones Holders shall be permitted an unlimited amount of requests for registration on a Form S-3 so long as the Company is eligible to use Form S-3;
provided further
that a registration shall not count as one of the permitted registrations pursuant to this Section 3.1 unless the Jones Holders are able to register and sell at least 80% of the Registrable Shares they requested to be included in such registration;
(iii)
within one hundred eighty (180) days of a registration pursuant to this Section 3.1 that has been declared or ordered effective;
(iv)
during the period starting with the date sixty (60) days prior to its good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration (other than a registration relating solely to the sale of Securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or to a Commission Rule 145 transaction), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;
(v)
where the registration is on a Form S-3 and the anticipated aggregate offering price of all Securities included in such offering is equal to or less than twenty five million dollars ($25,000,000);
(vi)
where the registration is on a form other than a Form S-3 and the anticipated aggregate offering price of all Securities included in such offering is equal to or less than fifty million dollars ($50,000,000); or
(vii)
if the Company shall furnish to such Stockholders a certificate signed by the CEO or President of the Company stating that in the good faith judgment of the Board of the Company it would be seriously detrimental to the Company and its equity holders for such registration statement to be filed at the time filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Stockholders, provided that the Company shall not defer its obligation in this manner more than once in any twelve (12) month period;
provided further
that in such event, the Stockholders of Registrable Securities initially requesting such registration shall be entitled to withdraw such request and, if such request is withdrawn, such registration shall not count as one of the permitted registrations hereunder.
(c)
At any time before the registration statement covering such Registrable Shares becomes effective, the Stockholder so requesting such registration may request the Company to withdraw or not to file the registration statement. In that event, unless
9
such request of withdrawal was caused by, or made in response to, in each case as determined by such Stockholder, in good faith (i) a material adverse effect or a similar event related to the business, properties, condition, or operations of the Company not known (without imputing the knowledge of any other Person to such holders) by such Stockholder at the time their request was made, or other material facts not known at the time such request was made, or (ii) a material adverse change in the financial markets, such Stockholder shall be deemed to have used one of its registration rights under Section 3.1(a);
provided
,
however
, that such withdrawn registration shall not count as a requested registration pursuant to Section 3.1(a) if the Company shall have been reimbursed (in the absence of any agreement to the contrary, pro rata by such Stockholder) for all out-of-pocket expenses incurred by the Company in connection with such withdrawn registration.
(d)
To the extent an Automatic Shelf Registration Statement has been filed under Section 3.1, the Company shall use commercially reasonable efforts to remain a WKSI and not become an ineligible issuer (as defined in Rule 405 under the Securities Act) during the period during which such Automatic Shelf Registration Statement is required to remain effective. If the Automatic Shelf Registration Statement has been outstanding for at least three years, at the end of the third year the Company shall refile a new Automatic Shelf Registration Statement covering the Registrable Securities that remain unsold. If at any time when the Company is required to re-evaluate its WKSI status, the Company determines that it is not a WKSI, the Company shall use commercially reasonable efforts to refile the Shelf Registration Statement on Form S-3 and, if such form is not available, Form S-1 and keep such registration statement effective during the period during which such registration statement is required to be kept effective.
(e)
If, after it has become effective, (i) such registration statement has not been kept continuously effective for a period of at least 180 days (or such shorter period which will terminate when all the Registrable Shares covered by such registration statement have been sold pursuant thereto), (ii) such registration requested pursuant to Section 3.1(a) becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, or (iii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived, other than by reason of some act or omission by the Stockholder requesting registration, such registration shall not count as a requested registration pursuant to Section 3.1(a).
3.2
Piggyback Registration.
(a)
If the Company, at any time, proposes for any reason to register any of its Primary Shares (in any event either for its own account or for the account of other Security holders) under the Securities Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act (or any successor forms thereto)) in connection with an underwritten offering to the public for cash on a form that would permit registration of Registrable Shares, or to otherwise engage in an underwritten offering pursuant to an effective Shelf Registration Statement, it shall give written notice to the Stockholders of its intention to so register such Primary Shares promptly and the Company shall use its commercially reasonable efforts to cause
10
all Registrable Shares included in a written response delivered by a Stockholder to the Company within five (5) days after delivery of the Company’s notice to be included in such registration, or in any prospectus supplement to the prospectus included in an already effective Shelf Registration Statement and underwriting involved therein on the same terms and conditions as the Securities otherwise being sold;
provided
,
however
, that in the case of an “overnight” or “bought” offering, such requests must be made within one (1) Business Day after the delivery of any such notice by the Company;
provided further
, that if the managing underwriter, if any, advises the Company that the inclusion of all Primary Shares, Registrable Shares and Other Shares requested to be included in such registration would interfere with the successful marketing (within a price range acceptable to holders a majority of Registrable Securities that have been requested for inclusion) of the shares of Common Stock proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares proposed to be included in such registration shall be included in the order set forth below:
(i)
first, the Primary Shares;
(ii)
second, the Registrable Shares owned by the Stockholders requesting that their Registrable Shares be included in such registration pursuant to the terms of this Section 3.2, pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration; and
(iii)
third, the Other Shares.
(b)
No registration effected pursuant to this Section 3.2 shall relieve the Company of its obligation to effect any registration upon request under Section 3.1 hereof, nor shall any registration hereunder be deemed to have been effected pursuant to Section 3.1. The Company will pay all Registration Expenses in connection with each registration pursuant to this Section 3.2.
3.3
Holdback Agreement
. If the Company at any time pursuant to Section 3.1 shall register under the Securities Act an offering and sale of Registrable Shares held by the Stockholders for sale to the public pursuant to an underwritten Public Offering and, if requested by the lead underwriters in such underwritten Public Offering, the Company and the Stockholders shall not, without the prior written consent of the lead underwriters for such offering, effect any public sale or distribution of Securities similar to those being registered, or any Securities convertible into or exercisable or exchangeable for such Securities, during the 7 days prior to and during the 90-day period beginning on the effective date of such underwritten Public Offering.
3.4
Preparation and Filing
. If and whenever the Company is under an obligation pursuant to the provisions of this Agreement to use its commercially reasonable efforts to effect the registration of an offering and sale of any Registrable Shares, the Company shall, as expeditiously as practicable (but subject to the timing provisions in Section 3.2 with respect to “overnight” or “bought” offerings):
(a)
use its commercially reasonable efforts to cause a Registration Statement that registers such offering of Registrable Shares to contain a “plan of distribution”
11
that permits the distribution of Securities pursuant to all means in compliance with Law, and to cause such Registration Statement to become and remain effective pursuant to the terms of this Agreement for a period of 180 days or until all of such Registrable Shares have been disposed of (if earlier);
(b)
furnish, at least five (5) Business Days before filing a Registration Statement that registers such Registrable Shares, a Prospectus relating thereto, or, with respect to an effective Shelf Registration Statement, a prospectus supplement to the Prospectus included in such Shelf Registration Statement, and any amendments or supplements relating to such Registration Statement or Prospectus, to one counsel selected by the Stockholders for the benefit of the Stockholders whose Registrable Shares are to be covered by such Registration Statement (the “
Stockholders’ Counsel
”), copies of all such documents proposed to be filed (it being understood that such 5 Business Day period need not apply to successive drafts of the same document proposed to be filed so long as such successive drafts are supplied to such counsel in advance of the proposed filing by a period of time that is customary and reasonable under the circumstances), and shall use its commercially reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as the Stockholders whose Registrable Shares are to be covered by such Registration Statement may reasonably propose;
(c)
prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of at least 180 days or until all of such Registrable Shares have been disposed of (if earlier) and to comply with the provisions of the Securities Act with respect to the offering and sale or other disposition of such Registrable Shares;
(d)
notify the Stockholders’ Counsel promptly in writing of (i) any comments by the Commission with respect to such Registration Statement or Prospectus, or any request by the Commission for the amending or supplementing thereof or for additional information with respect thereto; (ii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or Prospectus or any amendment or supplement thereto or the initiation of any proceedings for that purpose; and (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of such Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes;
(e)
use its commercially reasonable efforts to register or qualify such Registrable Shares under such other Securities or blue sky laws of such jurisdictions as any seller of Registrable Shares reasonably requests and do any and all other acts and things that may reasonably be necessary or advisable to enable such seller of Registrable Shares to consummate the disposition in such jurisdictions of the Registrable Shares owned by such seller;
provided
, that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject;
12
(f)
furnish to each seller of such Registrable Shares such number of copies of a summary Prospectus or other Prospectus, including a preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as such seller of Registrable Shares may reasonably request in order to facilitate the Public Offering and sale or other disposition of such Registrable Shares (to the extent not publicly available on EDGAR or the Company’s website);
(g)
use its commercially reasonable efforts to cause such offering and sale of Registrable Shares to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Shares;
(h)
notify on a timely basis each seller of such Registrable Shares at any time when a Prospectus relating to such Registrable Shares is required to be delivered under the Securities Act within the appropriate period mentioned in Section 3.4(b) of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and, at the request of such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the offerees of such shares, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;
(i)
make available for inspection by any seller of such Registrable Shares, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the “
Inspectors
”), all pertinent financial, business and other records, pertinent corporate documents and properties of the Company (collectively, the “
Records
”), as shall reasonably be necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information (together with the Records, the “
Information
”) reasonably requested by any such Inspector in connection with such Registration Statement (and any of the Information that the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed by the Inspectors unless (A) the disclosure of such Information is necessary to avoid or correct a misstatement or omission in the Registration Statement; (B) the release of such Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; (C) such Information has been made generally available to the public; or (D) the seller of Registrable Shares agrees that it will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of the Information deemed confidential);
(j)
use its commercially reasonable efforts to obtain from its independent registered public accounting firm a “comfort letter” (or, in the case of any such Person which does not satisfy the conditions for receipt of a “comfort letter” specified in
13
Statement on Auditing Standards No. 72, an “agreed upon procedures” letter) signed by the independent registered public accounting firm and addressed to the selling Stockholders, the Board, and the underwriter, if any, in customary form and covering such matters of the type customarily covered by accountants’ comfort letters;
(k)
use its commercially reasonable efforts to obtain, from its counsel, an opinion or opinions in customary form (which shall also be addressed to the Stockholders selling Registrable Shares in such registration);
(l)
have appropriate officers of the Company prepare and make presentations at any “road shows” and before analysts and rating agencies, as the case may be, and other information meetings organized by the underwriters, take other actions to obtain ratings for any Registrable Shares (if they are eligible to be rated) and otherwise use its commercially reasonable efforts to cooperate as reasonably requested by the sellers of such Registrable Shares in the offering, marketing or selling of such Registrable Shares, provided that the gross proceeds for such offering are reasonably anticipated by the managing underwriters to be in excess of (i) fifty million dollars ($50,000,000) where the registration statement is on a form other than a Form S-3 or (ii) twenty five million dollars ($25,000,000) where the registration statement is on a Form S-3, and provided further that such officers shall not be required to participate in such presentations at any “road shows” and before analysts and rating agencies, as the case may be, more than twice in a 365 day period;
(m)
provide a transfer agent and registrar (which may be the same Person and which may be the Company) for such Registrable Shares;
(n)
list such Registrable Shares on any national securities exchange on which any shares of the Common Stock are listed or, if the Common Stock is not listed on a national securities exchange, use its commercially reasonable efforts to qualify such Registrable Shares for quotation on the automated quotation system of the NASDAQ, National Market System, Euronext or such other national securities exchange as the holders of a majority of such Registrable Shares included in such registration shall request;
(o)
register such Registrable Shares under the Exchange Act, and otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its Security holders, as soon as reasonably practicable but not later than eighteen (18) months after the effective date, earnings statements (which need not be audited) covering a period of twelve (12) months beginning within three (3) months after the effective date of the Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(p)
not take any direct or indirect action prohibited by Regulation M under the Exchange Act;
provided
,
however
, that to the extent that any prohibition is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable; and
(q)
use its commercially reasonable efforts to take all other steps necessary to effect the registration of such Registrable Shares contemplated hereby.
14
3.5
Expenses
. Except as expressly provided otherwise, all expenses incident to the Company’s performance of or compliance with Sections 3.1, 3.2, and 3.4, including, without limitation, (a) all registration and filing fees, and any other fees and expenses associated with filings required to be made with any stock exchange, the Commission and FINRA (including, if applicable, the fees and expenses of any “qualified independent underwriter” and its counsel as may be required by the rules and regulations of FINRA); (b) all fees and expenses of compliance with state securities or “blue sky” laws (including reasonable fees and disbursements of counsel for the underwriters or Stockholders in connection with “blue sky” qualifications of the Registrable Shares and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters may designate); (c) all printing and related messenger and delivery expenses (including expenses of printing prospectuses); (d) all fees and disbursements of counsel for the Company and of all independent certified public accountants of the issuer (including the expenses of any special audit and “comfort letters” required by or incident to such performance); (e) all fees and expenses incurred in connection with the listing of the Registrable Shares on any securities exchange and all rating agency fees; (f) all reasonable and documented fees and disbursements of counsel (plus appropriate special and local counsel) selected by the Stockholders to represent them in connection with such registration (it being understood that all other expenses incurred by a Stockholder shall be borne by such Stockholder); and (g) all fees and disbursements of underwriters customarily paid by the issuer or sellers of Securities, excluding underwriting fees, commissions, discounts and allowances, if any, and fees and disbursements of counsel to underwriters (other than such fees and disbursements incurred in connection with any registration or qualification of Registrable Shares under the Securities or “blue sky” laws of any state) (all such expenses being herein called “
Registration Expenses
”), will be borne by the Company, regardless of whether the Registration Statement becomes effective. In addition, the Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any audit and the fees and expenses of any Person, including special experts, retained by the Company.
3.6
Indemnification.
(a)
In connection with any registration of any offering and sale of Registrable Shares under the Securities Act pursuant to this Agreement, the Company and its Subsidiaries shall indemnify and hold harmless the seller of such Registrable Shares, each underwriter, broker or any other Person acting on behalf of such seller, each other Person, if any, who Controls any of the foregoing Persons within the meaning of the Securities Act and each Representative of any of the foregoing Persons, against any losses, claims, damages or liabilities, joint or several, to which any of the foregoing Persons may become subject, whether commenced or threatened, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement under which such Registrable Shares were registered, any preliminary Prospectus or final Prospectus contained therein, any offering circular, offering memorandum or Disclosure Package, or any amendment or supplement thereto, or any document incident to registration or qualification of any offering and sale of any Registrable Shares, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any Prospectus, necessary to make the
15
statements therein in light of the circumstances under which they were made not misleading, or any violation by the Company or any of its Subsidiaries of the Securities Act or state securities or blue sky laws applicable to the Company or any of its Subsidiaries and relating to action required or inaction of the Company or its Subsidiaries in connection with such registration or qualification under such state securities or blue sky laws, and the Company and its Subsidiaries shall promptly reimburse such seller, underwriter, broker, Controlling Person or Representative for any legal or other expenses incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action;
provided
,
however
, that neither the Company nor its Subsidiaries shall be liable to any such Person to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, preliminary Prospectus, amendment thereto, or any document incident to registration or qualification of any Registrable Shares in reliance upon and in conformity with written information furnished to the Company or its Subsidiaries through an instrument duly executed by such Person, or a Person duly acting on their behalf, specifically for use in the preparation thereof.
(b)
In connection with any registration of an offering and sale of Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares severally, and not jointly, shall indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.6(a)) the Company, its Subsidiaries, their Directors and officers, each underwriter or broker involved in such offering, each other seller of Registrable Shares under such Registration Statement, each Person who Controls any of the foregoing Persons within the meaning of the Securities Act and any Representative of the foregoing Persons with respect to any untrue statement or allegedly untrue statement in or omission or alleged omission from such Registration Statement, any preliminary Prospectus, final Prospectus or Free Writing Prospectus contained therein, any amendment or supplement thereto or any document incident to registration or qualification of any such offering and sale of Registrable Shares, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company, its Subsidiaries, or such underwriter through an instrument duly executed by such seller or a Person duly acting on such seller’s behalf specifically for use in connection with the preparation of such Registration Statement, preliminary Prospectus, final Prospectus, Free Writing Prospectus, amendment or supplement;
provided
,
however
, that the maximum amount of liability in respect of such indemnification shall be limited, in the case of each seller of Registrable Shares, to an amount equal to the proceeds (net of underwriting discounts and commissions) actually received by such seller from the sale of Registrable Shares effected pursuant to such registration.
(c)
Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding paragraphs of this Section 3.6, such indemnified party will, if a claim in respect thereof is not made against an indemnifying party, give written notice to the latter of the commencement of such action (
provided
,
however
, that an indemnified party’s failure to give such notice in a timely manner shall only relieve the indemnification obligations of an indemnifying party to the extent such indemnifying party is materially prejudiced by such failure). In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after
16
notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof;
provided
,
however
, that if any indemnified party shall have reasonably concluded (based upon the written advice of counsel) that there may be one or more legal or equitable defenses available to such indemnified party which are in addition to or in conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section 3.6, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying party shall reimburse such indemnified party and any Person Controlling such indemnified party for that portion of the fees and expenses of any one lead counsel (plus appropriate special and local counsel) retained by the indemnified party that are reasonably related to the matters covered by the indemnity agreement provided in this Section 3.6; provided, further, that, if there is more than one indemnified party, then the indemnifying party shall only be required to reimburse the expenses for the lead counsel (plus appropriate special and local counsel) approved in writing by the indemnified party or parties (as applicable) holding a majority of the Registrable Shares held by all indemnified parties.
(d)
If the indemnification provided for in this Section 3.6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage or liability referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations;
provided
,
however
, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each seller of Registrable Shares, to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Shares effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e)
The indemnification and contribution provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party and will survive the Transfer of Registrable Shares.
3.7
Underwriting Agreement.
(a)
Notwithstanding the provisions of Sections 3.3, 3.4 and 3.6, to the extent that the Stockholders selling Registrable Shares in a proposed registration shall enter into an underwriting or similar agreement that contains provisions covering one or more issues addressed in such Sections of this Agreement, the provisions contained in such Sections of this Agreement addressing such issue or issues shall be of no force or effect with respect to such
17
registration, but this provision shall not apply to the Company if the Company is not a party to the underwriting or similar agreement.
(b)
If any registration pursuant to Section 3.1 is requested to be an underwritten Public Offering, the Company shall negotiate in good faith to enter into a reasonable and customary underwriting agreement with the underwriters thereof. Such underwriting agreement shall be satisfactory in form and substance to the Stockholder requesting registration, or if such Stockholder is not participating in such offering, holders of a majority of Registrable Securities included in such offering, and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type. Any Stockholder participating in the offering shall be a party to such underwriting agreement and, at its option, may require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also shall be made to and for the benefit of such Stockholder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Stockholder;
provided
,
however
, that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a selling Stockholder for inclusion in the registration statement. No Stockholder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Stockholder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of such Stockholder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of underwriting discounts and commissions) that it derives from such registration. The Company shall be entitled to receive indemnities from lead institutions, underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement and to the extent customarily given their role in such distribution.
(c)
No Stockholder may participate in any registration hereunder that is underwritten unless such Stockholder agrees to sell such Stockholder’s Registrable Shares proposed to be included therein on the basis provided in any underwriting arrangements reasonably acceptable to the Company.
3.8
Information by Holder
. Each holder of Registrable Shares to be included in any registration shall furnish to the Company and the managing underwriter such written information regarding such holder and the distribution proposed by such holder as the Company or the managing underwriter may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. Each Stockholder shall as expeditiously as possible, notify the Company of the occurrence of any event concerning such Stockholder as a result of which the Prospectus relating to such registration contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
18
3.9
Exchange Act Compliance
. From and after the date a registration statement is filed by the Company pursuant to the Exchange Act relating to the Company’s Securities and shall have become effective, the Company shall comply with all of the reporting requirements of the Exchange Act (whether or not it shall be required to do so) and shall comply with all other public information reporting requirements of the Commission that are conditions to the availability of Rule 144 for the sale of the Common Stock. The Company shall cooperate with each Stockholder in supplying such information as may be necessary for such Stockholder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of Rule 144.
3.10
Postponement and Suspension
. Anything contained in this Agreement to the contrary notwithstanding, the Company may postpone the filing of any registration statement required under this ARTICLE III for a reasonable period of time if the Board determines that such disclosure would have a material adverse effect on the Company. The Company shall not be required to cause a registration statement requested pursuant to this ARTICLE III to become effective prior to one hundred eighty (180) days following the effective date of a registration statement initiated by the Company if the request for registration has been received by the Company subsequent to the giving of written notice by the Company to the Stockholders that the Company is commencing to prepare a Company-initiated registration statement (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any other similar rule under the Securities Act is applicable). If after any Registration Statement to which rights hereunder apply becomes effective (and prior to completion of any sales thereunder), the Board determines that the failure of the Company to (i) suspend sales of Securities under the Registration Statement or (ii) amend or supplement the Registration Statement, would have a material adverse effect on the Company, the Company shall so notify each Stockholder participating in such registration and each Stockholder shall suspend any further sales under such Registration Statement until the Company advises the Stockholder that the Registration Statement has been amended or that conditions no longer exist that would require such suspension. In such event, the Company may (but shall not be obligated to) withdraw the effectiveness of any registration statement subject to this provision.
19
ARTICLE IV
AMENDMENT AND WAIVER
4.1
Amendment
. Except as expressly set forth herein, the provisions of this Agreement may only be amended or waived with the prior written consent of (a) the Company, (b) a majority in interest of the Metalmark Holders, and (c) a majority in interest of the Jones Holders.
4.2
Waiver
. No course of dealing between the Company and the Stockholders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
ARTICLE V
MISCELLANEOUS
5.1
Severability
. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
5.2
Entire Agreement
. This Agreement embodies the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede and preempt any and all prior and contemporaneous understandings, agreements, arrangements or representations by or among the parties, written or oral, which may relate to the subject matter hereof or thereof in any way.
5.3
Independence of Agreements and Covenants
. All agreements and covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant, the fact that such action or condition is permitted by another agreement or covenant shall not affect the occurrence of such default, unless expressly permitted under an exception to such initial agreement or covenant.
5.4
Successors and Assigns
. Except as otherwise provided herein, this Agreement will bind and inure to the benefit of and be enforceable by the Company and its successors and permitted assigns and the Stockholders. Except as specifically set forth herein, the Company may not assign its rights or obligations hereunder without the prior written consent
20
of a majority in interest of the Metalmark Holders and a majority in interest of the Jones Holders (which consent shall not be unreasonably withheld, conditioned or delayed);
provided
, that notwithstanding any such assignment by the Company, the Company shall remain liable for its obligations hereunder. Any Stockholder may Transfer all or a portion of its Registrable Shares to another Stockholder (to the extent such Transfer is otherwise permissible under this Agreement) in connection with an assignment of its rights hereunder with respect thereto. In the event of any Transfer by any Stockholder of all or a portion of its Registrable Shares to any third party other than a Stockholder, all rights under this Agreement with respect to the Registrable Shares so Transferred shall cease and terminate.
5.5
Counterparts; Validity
. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by facsimile, electronic mail or otherwise) to the other party, it being understood that all parties need not sign the same counterpart. Any counterpart or other signature hereupon delivered by facsimile shall be deemed for all purposes as constituting good and valid execution and delivery of this Agreement by such party.
5.6
Remedies.
(a)
Each Stockholder shall have all rights and remedies reserved for such Stockholder pursuant to this Agreement and all rights and remedies which such holder has been granted at any time under any other agreement or contract and all of the rights which such holder has under any law or equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or equity.
(b)
The parties hereto agree that if any parties seek to resolve any dispute arising under this Agreement pursuant to a legal proceeding, the prevailing parties to such proceeding shall be entitled to receive reasonable fees and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with such proceedings.
5.7
Notices
. All notices, amendments, waivers or other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, sent by electronic mail (email) or facsimile, sent by nationally recognized overnight courier or mailed by registered or certified mail with postage prepaid, return receipt requested, to the parties hereto at the following addresses (or at such other address for a party as shall be specified by like notice):
(a)
if to the Company:
Jones Energy, Inc.
807 Las Cimas Parkway, Suite 350
Austin, Texas 78746
Attention: Chief Executive Officer
Email: jjones@jonesenergy.com
21
Fax: 512-328-5394
with a copy to:
Baker Botts LLP
98 San Jacinto Blvd., Suite 1500
Austin, Texas 78701
Attention: Michael L. Bengtson
Email: Mike.Bengtson@bakerbotts.com
Fax: 512-322-8349
(b)
if to the Metalmark Holders:
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, New York 10036
Attention: Gregory D. Myers
Email: greg.myers@metalmarkcapital.com
Fax: 212-823-1949
(c)
if to the Jones Holders:
c/o Jones Energy Management
807 Las Cimas Parkway, Suite 370
Austin, Texas 78746
Attention: Robin Picard
Email: rpicard@jrjmgmt.com
Fax: 512-328-6971
(d)
if to any Stockholder, to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any such notice or communication shall be deemed to have been given and received (a) when delivered, if personally delivered; (b) when sent, if sent by electronic mail or facsimile during normal business hours (or, if not sent during normal business hours, on the next Business Day after the date sent); (c) on the next Business Day after dispatch, if sent by nationally recognized overnight courier guaranteeing next Business Day delivery; and (d) on the fifth Business Day following the date on which the piece of mail containing such communication is posted, if sent by mail.
5.8
Governing Law
. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
5.9
Waiver of Jury Trial
. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY OF ANY ACTION,
22
PROCEEDING OR COUNTERCLAIM BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. EACH OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED OR HAD THE OPPORTUNITY TO REVIEW THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
5.10
Further Assurances
. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the provisions of this Agreement and the consummation of the transactions contemplated hereby or thereby.
5.11
Consequential Damages
. Each party hereto hereby waives and agrees not to seek consequential or punitive damages with respect to any claim, controversy, or dispute arising out of or relating to this Agreement or the breach thereof.
5.12
Conflicting Agreements
. No Stockholder shall enter into any stockholder agreements or arrangements of any kind with any Person with respect to any Stockholder Shares on terms inconsistent with the provisions of this Agreement (whether or not such agreements or arrangements are with other Stockholders or with Persons that are not parties to this Agreement), including agreements or arrangements with respect to the acquisition or disposition of Stockholder Shares in a manner which is inconsistent with this Agreement.
5.13
Third Party Reliance
.
(a)
Anything contained herein to the contrary notwithstanding, the covenants of the Company contained in this Agreement (a) are being given by the Company as an inducement to the Stockholders to enter into this Agreement (and the Company acknowledges that the Stockholders have expressly relied thereon) and (b) are solely for the benefit of the Stockholders. Accordingly, no third party (including, without limitation, any holder of capital stock of the Company) or anyone acting on behalf of any thereof other than the Stockholders, shall be a third party or other beneficiary of such covenants and no such third party shall have any rights of contribution against the Stockholders or the Company with respect to such covenants or any matter subject to or resulting in indemnification under this Agreement or otherwise.
23
(b)
None of the provisions hereof shall create, or be construed or deemed to create, any right to employment in favor of any Person by the Company.
[Signature pages follow]
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IN WITNESS WHEREOF, the undersigned have executed this Registration Rights and Stockholders Agreement as of the date set forth above.
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COMPANY:
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JONES ENERGY, INC.
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By:
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Jonny Jones
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Chief Executive Officer
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Signature Page to Registration Rights and Stockholders Agreement
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JONES HOLDERS:
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JONES ENERGY HOLDINGS, LLC
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By:
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Jonny Jones
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Chief Executive Officer
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JONES ENERGY DRILLING FUND, LP
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By:
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Jones Energy Management, LLC, its General Partner
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By:
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Jonny Jones
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Manager
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JONES ENERGY EQUITY PARTNERS, LP
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By:
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Jones Energy Management, LLC, its General Partner
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By:
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Jonny Jones
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Manager
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JONES ENERGY EQUITY PARTNERS II, LP
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By:
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Jones Energy Management, LLC, its General Partner
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By:
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Jonny Jones
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Manager
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JONES ENERGY TEAM 3, LP
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By: JET 3 GP, LLC, its General Partner
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By: Jon Rex Jones Jr. Trust V, its Managing Member
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By:
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Jonny Jones
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Trustee
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Signature Page to Registration Rights and Stockholders Agreement
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METALMARK HOLDERS:
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MCP (C) II JONES INTERMEDIATE LLC
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By: Metalmark Capital Partners II GP, L.P., its General Partner
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By:
Metalmark Capital Holdings LLC, its
General Partner
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By:
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Gregory D. Myers
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Managing Director
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MCP II CO-INVESTMENT JONES INTERMEDIATE LLC
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By:
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Gregory D. Myers
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Managing Director
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MCP II JONES INTERMEDIATE LLC
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By:
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Gregory D. Myers
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Managing Director
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MCP II (TE) AIF JONES INTERMEDIATE LLC
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By:
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Gregory D. Myers
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Managing Director
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MCP II (CAYMAN) AIF JONES INTERMEDIATE LLC
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By:
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Gregory D. Myers
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Managing Director
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MCP II EXECUTIVE FUND JONES INTERMEDIATE LLC
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By:
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Gregory D. Myers
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Managing Director
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Signature Page to Registration Rights and Stockholders’ Agreement
Exhibit 10.5
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“
Agreement
”) is entered into as of the day of , 2013 by and between Jones Energy, Inc., a Delaware corporation (the “
Company
”), and (“
Indemnitee
”).
RECITALS
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance and indemnification against risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.
WHEREAS, the Board of Directors of the Company (the “
Board
”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself.
WHEREAS, the Amended and Restated Bylaws of the Company (the “
Bylaws
”) provide that the Company shall indemnify and advance expenses to all directors and officers of the Company in the manner set forth therein and to the fullest extent permitted by applicable law, and the Company’s Amended and Restated Certificate of Incorporation (the “
Certificate of Incorporation
”) provides for limitation of liability for directors. In addition, Indemnitee may be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“
DGCL
”). The Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification.
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.
WHEREAS, Indemnitee is concerned that the protection available under the Company’s Certificate of Incorporation and Bylaws and insurance may not be adequate, and may not be willing to continue to serve as an officer or director of the Company without greater certainty concerning such protection, and the Company desires Indemnitee to serve in such capacity and is willing to provide such greater certainty.
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
1.
Indemnification.
1.1
Indemnification of Expenses
. If Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf relating to such Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter. To the extent that the Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
1.2
Advances
. In the event of any threatened or pending Proceeding in which Indemnitee is a party or is involved and that may give rise to a right of indemnification under this Agreement, following written request to the Company by Indemnitee, the Company shall promptly pay to Indemnitee amounts to cover Expenses reasonably incurred by Indemnitee in connection with such Proceeding in advance of its final disposition upon the receipt by the Company of (i) a written undertaking executed by or on behalf of Indemnitee providing that Indemnitee will repay the advance if it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as provided in this Agreement and (ii) reasonably satisfactory evidence as to the amount of such Expenses.
1.3
Request for Indemnification
. To obtain indemnification, Indemnitee shall submit to the Secretary of the Company a written claim or request. Such written claim or request shall contain sufficient information to reasonably inform the Company about the nature and extent of the indemnification or advance sought by Indemnitee. The Secretary of the Company shall promptly advise the Board of Directors of such request.
1.4
Determination of Entitlement; No Change of Control
. If there has been no Change of Control at the time the request for indemnification is submitted, Indemnitee’s
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entitlement to indemnification shall be determined in accordance with Section 145(d) of the DGCL. If entitlement to indemnification is to be determined by Independent Counsel, the Company shall furnish notice to Indemnitee within ten days after receipt of the request for indemnification notice specifying the identity and address of Independent Counsel. The Indemnitee may, within 14 days after receipt of such written notice, deliver to the Company a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis for such assertion. If there is an objection to the selection of Independent Counsel, either the Company or Indemnitee may petition the Court for a determination that the objection is without a reasonable basis or for the appointment of Independent Counsel selected by the Court.
1.5
Determination of Entitlement; Change of Control
. If there has been a Change of Control at the time the request for indemnification is submitted, Indemnitee’s entitlement to indemnification shall be determined in a written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall give the Company written notice advising of the identity and address of the Independent Counsel so selected. The Company may, within 14 days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. Indemnitee may, within 14 days after the receipt of such objection from the Company, submit the name of another Independent Counsel and the Company may, within seven days after receipt of such written notice, deliver to the Indemnitee a written objection to such selection. Any objections referred to in this
Section 1.5
may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and such objection shall set forth with particularity the factual basis for such assertion. Indemnitee may petition the Court for a determination that the Company’s objection to the first or second selection of Independent Counsel is without a reasonable basis or for the appointment as Independent Counsel selected by the Court.
1.6
Procedures of Independent Counsel
. If a Change of Control shall have occurred before the request for indemnification is sent by Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided in this Agreement) to be entitled to indemnification upon submission of a request for indemnification in accordance with
Section 1.3
hereof, and thereafter the Company shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be used by Independent Counsel as a basis for a determination of entitlement to indemnification unless the Company provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel convinces him by clear and convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to indemnification is to be made by Independent Counsel, if the person or persons empowered under
Section 1.4
or
1.5
hereof to determine entitlement to indemnification shall not have made and furnished to Indemnitee in writing a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification or such
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indemnification is prohibited by applicable law. The termination of any Proceeding or of any Matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, or with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. A person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan of the Company shall be deemed to have acted in a manner not opposed to the best interests of the Company.
For purposes of any determination hereunder, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Company or another enterprise or on information, opinions, reports or statements presented to him or to the Company by any of the Company’s officers, employees or directors, or by any other person as to matters the person reasonably believes are in such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company or another enterprise in the course of their duties or on the advice of legal counsel for the Company or another enterprise or on information or records given or reports made to the Company or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or another enterprise. The term “another enterprise” as used in this
Section 1.6
shall mean any other corporation or any partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Company as a director, officer, employee or agent. The provisions of this paragraph shall not be deemed to be exclusive or to limit in any way the circumstances in which an Indemnitee may be deemed to have met the applicable standards of conduct for determining entitlement to rights under this Agreement.
1.7
Independent Counsel Expenses
. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred acting pursuant to this Agreement and in any Proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection has been made to his selection until a court has determined that such objection is without a reasonable basis.
1.8
Adjudication
. In the event that (i) a determination is made pursuant to
Section 1.4
or
1.5
hereof that Indemnitee is not entitled to indemnification under this Agreement; (ii) advancement of Expenses is not timely made pursuant to
Section 1.2
hereof; (iii) Independent Counsel has not made and delivered a written opinion determining the request for indemnification (a) within 90 days after being appointed by the Court, (b) within 90 days after objections to his selection have been overruled by the Court or (c) within 90 days after the time for the Company or Indemnitee to object to his selection; or (iv) payment of indemnification is
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not made within five days after a determination of entitlement to indemnification has been made or is deemed to have been made pursuant to
Section 1.4
,
1.5
or
1.6
hereof, Indemnitee shall be entitled to an adjudication by the Court of his entitlement to such indemnification or advancement of Expenses. In the event that a determination shall have been made that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this
Section 1.8
shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding commenced pursuant to this
Section 1.8
, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. If a determination shall have been made or is deemed to have been made that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this
Section 1.8
, or otherwise, unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification, or such indemnification is prohibited by law.
The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this
Section 1.8
that the procedures and presumptions of this Agreement are not valid, binding and enforceable. If Indemnitee, pursuant to this
Section 1.8
, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Agreement, and if he prevails therein, then Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, then the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be prorated.
1.9
Participation by the Company
. With respect to any Proceeding: (a) the Company will be entitled to participate therein at its own expense; (b) except as otherwise provided below, to the extent that it may wish, the Company (jointly with any other indemnifying party similarly notified) will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; and (c) the Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which consent shall not be unreasonably withheld. After receipt of notice from the Company to Indemnitee of the Company’s election to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than as otherwise provided below. Indemnitee shall have the right to employ his own counsel in such action, suit, proceeding or investigation but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless the employment of counsel by Indemnitee has been authorized by the Company, or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action, or the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel employed by Indemnitee shall be subject to indemnification pursuant to the terms of this Agreement. The Company shall not be entitled to assume the defense of any Proceeding brought in the name of or on behalf of the
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Company or as to which Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action. The Company shall not settle any action or claim in any manner which would impose any limitation or un-indemnified penalty on Indemnitee without Indemnitee’s written consent, which consent shall not be unreasonably withheld.
1.10
Insurance and Subrogation
. If, at the time of the receipt by the Company of a notice of a Claim pursuant to this Agreement, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
Except as provided in
Section 1.11
, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if, but only to the extent that, Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. Except as provided in
Section 1.11
, in the event of any payment hereunder, the Company shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee (other than against the Fund Indemnitors), who shall execute all papers required and take all action reasonably requested by the Company to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
1.11
Primacy of Indemnification
. The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by third parties (collectively, the “
Fund Indemnitors
”). The Company hereby agrees (a) that the Company is the indemnitor of first resort with respect to the Corporate Status of the Indemnitee (i.e., the Company’s obligations to the Indemnitee are primary, and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee in connection with the Corporate Status of such Indemnitee are secondary), (b) that the Company shall be required to advance the full amount of expenses incurred by the Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement or the Company’s Certificate of Incorporation or Bylaws, without regard to any rights the Indemnitee may have against the Fund Indemnitors, and, (c) that the Company irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of the Indemnitee with respect to any claim for which the Indemnitee has sought indemnification from the Company shall affect the foregoing, and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of the Indemnitee against the Company. The Company and the Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this
Section 1.11
. For the avoidance of doubt, it is the intent of the parties that this Agreement contain provisions which are more favorable to the Indemnitee and
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the Fund Indemnitors than are provided under the Company’s Certificate of Incorporation or Bylaws or applicable law and no provision of the Company’s Certificate of Incorporation or Bylaws which is less favorable shall be construed to limit the rights of Indemnitee and/or Fund Indemnitors hereunder. For the avoidance of doubt, (x) the Company hereby irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or otherwise as may exist in the Company’s Bylaws and (y) in the event of a conflict between the provisions of this Agreement and the provisions of the Company’s Certificate of Incorporation or Bylaws relating to contribution or subrogation, the provisions of this Agreement shall control.
1.12
Selection of Counsel
. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, delayed or conditioned, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee’s counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company. The Company shall have the right to conduct such defense as it sees fit in its sole discretion; provided, however, that the Company shall not be entitled to settle any claim against Indemnitee without the consent of the Indemnitee, which consent shall not be unreasonably withheld, conditioned or delayed, unless the settlement involves only the payment of monetary relief for which the Indemnitee will be indemnified and does not include a statement or an admission of fault or culpability by or on behalf of the Indemnitee.
2.
Additional Indemnification Rights; Nonexclusivity.
2.1
Scope
. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation or the Company’s Bylaws. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in
Section 6.1
hereof.
2.2
Indemnification for Contribution Claims by Others
. To the fullest extent permitted by law, the Company will fully indemnify and hold Indemnitee harmless from any
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claims of contribution which may be brought by other officers, directors or employees of the Company who may be jointly liable with Indemnitee for any loss or Expense arising from a Proceeding.
2.3
Nonexclusivity
. The rights of indemnification and advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled to under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. The rights to indemnification and advancement of Expenses provided by, or granted pursuant to, this Agreement shall be deemed vested at the time a person becomes a director or officer of the Company and no subsequent amendment, alteration or repeal of this Agreement or any other provision of the Certificate of Incorporation or the Bylaws shall adversely affect the rights of any person that is or was a director or officer with respect to events, actions or circumstances occurring, in whole or in part, prior to such amendment, alteration or repeal. The provisions of this Agreement shall continue as to an Indemnitee whose Corporate Status has ceased for any reason and shall inure to the benefit of his or its heirs, executors, administrators, successors or assigns. Neither the provisions of this Agreement nor those of any agreement to which the Company is a party shall be deemed to preclude the indemnification of any person who is not specified in this Agreement as having the right to receive indemnification or is not a party to any such agreement, but whom the Company has the power or obligation to indemnify under the provisions of the DGCL.
3.
Partial Indemnification.
If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
4.
Mutual Acknowledgement.
Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee; provided, however, that such determination shall in no event affect Indemnitee’s right to recovery under any insurance policy contemplated by
Section 5
hereof.
5.
Liability Insurance.
To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.
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6.
Exceptions.
Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
6.1
Excluded Action or Omissions
. To indemnify Indemnitee for Indemnitee’s acts, omissions or transactions from which Indemnitee or the Indemnitee may not be relieved of liability under applicable law;
6.2
Claims Initiated by Indemnitee
. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company’s Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the DGCL, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be;
6.3
Lack of Good Faith
. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous;
6.4
Claims Under Section 16(b)
. To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), or any similar successor statute;
6.5
Proceeding by or in the Right of the Company
. To indemnify for judgments, fines and penalties incurred in connection with the defense or settlement of any Claim by or in the right of the Company to procure a judgment in its favor (except to the extent indemnification is permitted under Section 145(b) of the DGCL);
6.6
Fraudulent Conduct
.
To indemnify Indemnitee for any Expenses, judgments, fines or penalties resulting from Indemnitee’s conduct which is finally adjudged to have been willful misconduct, knowingly fraudulent or deliberately dishonest; or
6.7
Unlawful Payment
. If a court of competent jurisdiction finally determines that such payment hereunder is unlawful.
7.
Construction of Certain Phrases.
7.1
Company
. References to “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director,
9
officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
7.2
Definitions
. For purposes of this Agreement:
“
Change of Control
” means a change in control of the Company after the date Indemnitee acquired his Corporate Status, which shall be deemed to have occurred in any one of the following circumstances occurring after such date: (i) there shall have occurred an event that is or would be required to be reported with respect to the Company in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Exchange Act, if the Company is or were subject to such reporting requirement; (ii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall have become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding voting securities without prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person’s attaining such percentage interest; (iii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including, for this purpose, any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.
“
Claim
” any threatened, pending or completed action, suit, proceeding, arbitration or alternative dispute resolution mechanism, or any inquiry or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other.
“
Corporate Status
” describes the status of an individual as a present or former director or officer of the Company, or as a director, officer or other designated legal representative of any other corporation, partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise for which an individual is or was serving as a director, officer or other designated legal representative at the request of the Company.
“
Court
” means the Court of Chancery of the State of Delaware or any other court of competent jurisdiction.
10
“
Expenses
” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.
“
Indemnifiable Event
” any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request (express or implied) of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.
“
Indemnitee
” includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding by reason of his Corporate Status.
“
Independent Counsel
” means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently is, nor in the five years previous to his selection or appointment has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.
“
Matter
” is a claim, a material issue or a substantial request for relief.
“
Proceeding
” includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to
Section 1.8
hereof to enforce his rights under this Agreement.
11
8.
Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
9.
Binding Effect; Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company’s request.
10.
Attorneys’ Fees.
In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee material defenses to such action was made in bad faith or was frivolous.
11.
Notice.
Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if he anticipates or contemplates making a claim for indemnification or advancement of Expenses pursuant to the terms of this Agreement, notify the Company of the commencement of such Proceeding; provided, however, that any delay in so notifying the Company shall not constitute a waiver or release by Indemnitee of rights hereunder and that any omission by Indemnitee to so notify the Company shall not relieve the Company from any liability that it may have to Indemnitee otherwise than under this Agreement. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee address as set forth on the Company’s records and if to the
12
Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten days’ advance written notice to the other party hereto.
12.
Consent to Jurisdiction.
The Company and Indemnitee each hereby irrevocably consents to the jurisdiction of the courts of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement.
13.
Severability.
The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
14.
Choice of Law.
This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
15.
Amendment and Termination.
No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
16.
Integration and Entire Agreement.
This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.
17.
No Construction as Employment Agreement.
Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries.
[Signature Page Follows]
13
IN WITNESS WHEREOF
, the parties hereto have executed this Agreement as of the date first above written.
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JONES ENERGY, INC.:
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INDEMNITEE:
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By:
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Name:
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Name:
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Title:
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Address:
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807 Las Cimas Parkway
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Address:
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Suite 350
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Austin, TX 78746
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SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT
Exhibit 10.6
ASSET PURCHASE AND SALE AGREEMENT
By and Between
Jones Energy Holdings, LLC,
a Delaware limited liability company
(the “Purchaser”),
and
Southridge Energy, LLC,
a Texas limited liability company (the “Seller”)
Dated as of April 12, 2011
ASSET PURCHASE AND SALE AGREEMENT
CONTENTS
ARTICLE 1
INTENT, STRUCTURE OF AGREEMENT
AND DEFINITION OF TERMS
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1.1
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Intent and Structure of Agreement
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1
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1.2
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Defined Terms
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1
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1.3
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References and Titles
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11
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ARTICLE 2
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PURCHASE AND SALE
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2.1
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Assignment
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12
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2.2
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Purchase Price
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12
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2.3
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Adjustments to Purchase Price
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12
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2.4
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Purchase Price Adjustment Statement
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13
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2.5
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Final Settlement
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13
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2.6
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Allocation of Purchase Price
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13
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ARTICLE 3
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CLOSING
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3.1
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Closing Date
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14
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3.2
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Actions at Closing
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14
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3.3
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Remedies for Failure to Close
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14
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ARTICLE 4
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REPRESENTATIONS AND WARRANTIES OF SELLER
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4.1
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Certain Representations, Warranties and Covenants of Seller
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15
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ARTICLE 5
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REPRESENTATIONS AND WARRANTIES OF PURCHASER
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5.1
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Representations and Warranties of Purchaser
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23
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ARTICLE 6
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DUE DILIGENCE AND TITLE EXAMINATION
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6.1
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Due Diligence
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25
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6.2
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Title Matters
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25
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6.3
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Adjustments to Purchase Price for Title Defects
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27
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i
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6.4
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Poolings and Communitizations
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28
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6.5
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Consents to Assignment and Preferential Rights to Purchase
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29
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6.6
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Environmental Defects and Adjustments to Purchase Price
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29
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6.7
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Purchaser Indemnification
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32
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ARTICLE 7
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COVENANTS
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7.1
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Certain Covenants of Seller
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33
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7.2
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Conduct of Business Prior to Closing
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34
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7.3
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Suspense Accounts
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35
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7.4
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Non-Consent Election
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35
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7.5
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Consents and Approvals
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36
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7.6
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Casualty Loss
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36
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7.7
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Confidentiality
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37
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7.8
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Non-Competition Agreement
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37
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7.9
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Imbalances
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38
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7.10
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Successor Operator
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38
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7.11
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Tax Matters
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38
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7.12
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Certain Restrictions
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39
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7.13
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Abandoned Wells
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40
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ARTICLE 8
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CONDITIONS TO CLOSING
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8.1
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Conditions to Obligations of Purchaser
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40
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8.2
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Conditions to Obligations of Seller
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42
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ARTICLE 9
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POST-CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION
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9.1
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Receipts
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43
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9.2
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Expenses
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43
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9.3
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Assumed Obligations
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43
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9.4
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Survival
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44
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9.5
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Seller’s Indemnification Obligations
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45
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9.6
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Purchaser’s Indemnification Obligations
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45
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9.7
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Net Amounts
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46
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9.8
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Tax Treatment
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46
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9.9
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Indemnification Proceedings
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46
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9.10
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Indemnification Exclusive Remedy
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9.11
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Limited to Actual Damages
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47
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9.12
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Indemnification Despite Negligence
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47
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9.13
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Limited Survivability
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47
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ii
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ARTICLE 10
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DISPUTES
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10.1
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Dispute Resolution
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10.2
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Negotiation between Executives
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48
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10.3
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Mediation
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48
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10.4
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Litigation
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48
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10.5
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Choice of Forum and Venue
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48
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10.6
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Waiver of Jury Trial
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48
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10.7
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Provisional Remedies
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49
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10.8
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Tolling Statute of Limitations
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49
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10.9
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Performance to Continue
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49
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10.10
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Exclusive Remedies In Failure to Close
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49
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ARTICLE 11
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TERMINATION, AMENDMENT AND WAIVER
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11.1
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Termination
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49
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11.2
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Effect of Termination
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50
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11.3
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Amendment
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50
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11.4
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Waiver
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50
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ARTICLE 12
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MISCELLANEOUS
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12.1
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Expenses
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50
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12.2
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Further Assurances
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51
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12.3
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Binding Agreement; Assignment; Parties in Interest
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51
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12.4
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Notices
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51
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12.5
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Publicity
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52
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12.6
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Exhibits and Schedules
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52
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12.7
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Entire Agreement; Amendments; Waivers
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52
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12.8
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Severability
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52
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12.9
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Counterparts
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52
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12.10
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Mutual Waiver of Certain Remedies
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53
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12.11
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Preparation of Agreement
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53
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iii
EXHIBITS AND SCHEDULES
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Exhibits
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Topic
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A-1 (i)
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Properties — Producing Properties
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A-1 (ii)
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Properties — Equipment
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A-2
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Represented Interests
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A-3
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Allocated Values
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A-4
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Excluded Assets
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A-5
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Undeveloped Properties
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B
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Form of Assignment and Bill of Sale
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C
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Non-Competition Area
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D
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Amendment between Atoka Midstream LLC and Pablo Energy II, LLC
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Schedules
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Topic
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1.2
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Permitted Encumbrances
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3.3(c)
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Purchaser Hedges
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4.1(f)
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Approvals
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4.1(h)
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Pending or Threatened Investigations/Review by Governmental Entities
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4.1(j)
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Environmental Laws
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4.1(k)(i)
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Exceptions to Contracts
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4.1(k)(ii)
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Contracts
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4.1(l)
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Commitments or Proposals
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4.1(m)
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Production Sales Contracts
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4.1(n)
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Exceptions to Payment of Expenses and Royalties
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4.1(o)
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Prepayments; Imbalances
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4.1(p)
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Fees and Commissions
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4.1(r)
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Exceptions to Oil and Gas Operations
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4.1(v)
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Consents and Preferential Purchase Rights
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4.1(w)
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Bonds
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4.1(x)
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AMI and Farmout Obligations
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7.2(a)(iv)
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Permitted Agreements
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7.3
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Suspended Funds
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7.13
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Abandoned Wells
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iv
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT
(this “
Agreement
”) is dated as of the 12th day of April, 2011, by and between,
Jones Energy Holdings, LLC
, a Delaware limited liability company (the “
Purchaser
”), and
Southridge Energy, LLC
, a Texas limited liability company (the “
Seller
”).
W I T N E S S E T H:
WHEREAS
, Seller owns undivided leasehold working interests in and to certain Producing Properties (as hereinafter defined); and
WHEREAS
, Seller owns the Undeveloped Properties (as hereinafter defined); and
WHEREAS
, Seller
desires to sell to Purchaser and Purchaser desires to purchase from Seller (a) all of Seller’s interest in the Producing Properties and (b) fifty percent (50%) of Seller’s right, title and interest in and to the Undeveloped Properties, for the consideration and upon the terms and conditions set forth herein; and
WHEREAS
, concurrently with the execution and delivery of this Agreement, Seller and Purchaser have entered into the Farmout Acquisition Agreement (as hereinafter defined); and
NOW, THEREFORE
, for and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
INTENT, STRUCTURE OF AGREEMENT
AND DEFINITION OF TERMS
1.1
Intent and Structure of Agreement.
It is the intent of the parties that, for the consideration set forth herein, Purchaser acquire the Assets. In consideration of the transaction contemplated by this Agreement, Purchaser shall pay to Seller at the Closing cash in the amount specified in
Section 2.2
. The Purchase Price, as adjusted pursuant to
Article 2
, is herein referred to as the “
Adjusted Purchase Price
.”
1.2
Defined Terms.
Unless the context otherwise requires, the following terms used in this Agreement shall have the meanings assigned to them in this
Section 1.2
or in the Sections referred to below:
“
Abandoned Well
” shall have the meaning set forth in
Section 7.13
.
“
Adjustment Period
” shall have the meaning set forth in
Section 2.3
.
“
Affiliate
” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common
1
control with, such Person. “Control” means ownership of fifty percent (50%) or more of the voting interest (stock or otherwise) of such Person.
“
Aggregate Environmental Defect Threshold
” shall have the meaning set forth in
Section 6.6(a)(ii)
.
“
Allocated Value
” means the allocated value of each Producing Property as shown on
Exhibit A-3
. Purchaser shall prepare
the allocated value data on
Exhibit A-3
and shall present
Exhibit A-3
to Seller for its review and approval.
“
Alternative Transaction
” shall have the meaning set forth in the Exclusivity Letter.
“
Applicable Law
” means any statute, law, principle of common law, rule, regulation, judgment, order, ordinance, requirement, code, writ, injunction, or decree of any Governmental Entity.
“
Arkoma Woodford
” means the full and entire Woodford Formation, or its stratigraphic equivalent, as found between the depths of 8,008 and 8,180 on the Schlumberger Litho Density/Compensated Neutron Log, conducted on June 29, 2006 in the Pablo-operated Denson 1H-15 (API# 35-029-20744) having a surface location approximately 660 feet from the north line and 1,520 from the west line of Section 15, Township 1 North, Range 10 East in Coal County, Oklahoma.
“
Assets
” means all of Seller’s right, title and interest in and to the following:
(i)
the Producing Properties;
(ii)
an undivided fifty percent (50%) of Seller’s interest in the Undeveloped Properties (together with the Producing Properties, the “Properties”);
(iii)
all of the following items insofar as they cover and include the Producing Properties and an undivided fifty percent (50%) of the following items insofar as they cover and include the Undeveloped Properties:
a.
the Contracts;
b.
all surface fee interests, easements, permits, licenses, servitudes, rights-of-way, surface leases and other surface rights or interests appurtenant to, and used or held for use in connection with, the Properties;
c.
all equipment, machinery, fixtures and other tangible personal property and improvements located on the Properties or used or held for use in connection with the operation of the Properties or the production of oil or gas from the Properties;
2
d.
the materials and equipment inventory, if any, used or held for use by Seller with respect to the Properties;
e.
all Hydrocarbons within, produced from or attributable to the Properties;
f.
the Property Records;
g.
to the extent transferable, any federal, state and local governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations, certificates, consents, rights, privileges and applications therefor, in each case with respect to the Assets;
h.
to the extent assignable, all right to indemnities and releases from third Persons relating to the Assets and, to the extent not assignable, the benefit of such indemnities and releases; and
i.
to the extent transferable, all other assets, properties or rights of every kind and description, whether real, personal or mixed, tangible or intangible, that are owned, licensed or otherwise held or used by Seller related to the Properties; and
(iv)
for the avoidance of doubt, the Assets shall not include the Excluded Assets.
“
Assignment
” means the Assignment and Bill of Sale to be entered into by the parties hereto, which shall be in the form attached hereto as
Exhibit B
.
“
Assumed Obligations
” shall have the meaning set forth in
Section 9.3
.
“
Citibank Lien
” means that certain Loan Agreement, dated as of May 31, 2007, as amended, from Southridge Energy, LLC, as successor in interest to Pablo Energy II, LLC, to Citibank, N.A., in its capacity as administrative agent thereunder and successor in interest to Great Plains Ag Credit, PCA, as well as any existing Mortgage, Security Agreement, Financing Statement and Assignment of Proceeds of Sale of Production, as the same may be amended, which has been entered into pursuant to the Loan Agreement.
“
Closing
” and “
Closing Date
” shall have the meanings given to such terms in
Section 3.1
.
“
Code
” means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder by the Treasury Department of the United States.
“
Consultant
” shall have the meaning set forth in
Section 6.6(b)
.
“
Contracts
” means any and all existing operating agreements, unit agreements, gas purchase and sales contracts, oil sales contracts, gas transportation and processing contracts,
3
farmin agreements, farmout agreements, exploration agreements, leasehold acquisition agreements (including associated area of mutual interest rights and provisions), pooling orders (including any associated agreements among parties to such orders) and all other agreements (i) to the extent related to or associated with the Properties, and (ii) customary in the oil and gas exploration, development, production or extraction business or in the business of processing and/or marketing of hydrocarbons produced therefrom, including, without limitation, those set forth in
Schedules 4.1(k)(i)
and
4.1(k)(ii)
. For the avoidance of doubt, the Contracts shall not include any agreements effecting Hedging Transactions.
“
Cure Period
” shall have the meaning set forth in
Section 6.3.(b)
.
“
Defect Threshold
” means, for the Producing Properties taken as a whole, Title Defects asserted by Purchaser that adversely affect the Producing Properties by an aggregate amount equal to or in excess of one percent (1%) of the Allocated Value of the Producing Properties taken as a whole.
“
Defensible Title
” to a Property means such title and right of Seller to those Hydrocarbons produced from the Arkoma Woodford play that, subject to and except for the Permitted Encumbrances:
(i)
Entitles Seller to receive not less than the net revenue interest (“
Net Revenue Interest
”) set forth for each Property (
e.g.,
well interest, unit interest or leasehold interest, as applicable) on
Exhibit A-2
, subject to the limitations as to depths or formations, if any, set forth in
Exhibit A-1
;
(ii)
Obligates Seller to bear costs and expenses relating to the maintenance, development, operation and the production of oil and gas from each Property (
e.g.
, well interest, unit interest or leasehold interest, as applicable) in an amount not greater than the working interest (“
Working Interest
”) therefore as set forth in
Exhibit A-2
without a corresponding increase in the Net Revenue Interest for such Property; and
(iii)
Is free and clear of encumbrances, liens and defects (including the lack of sufficient surface rights to access the Properties) that would create an impairment of use and enjoyment of or loss of interest in the affected Property.
“
Effective Date
” means 12:01 a.m. on December 1, 2010.
“
Environmental Laws
” shall have the meaning set forth in
Section 4.1(j)
.
“
Environmental Claims
” shall have the meaning set forth in
Section 4.1(j)(ii)
.
“
Environmental Cure Period
” shall have the meaning set forth in
Section 6.6(a)(iii)
.
“
Environmental Defect
” means a violation of applicable Environmental Laws or condition involving Hazardous Substances that presently exists on a Property that requires reporting to a governmental authority, investigation, removal, remediation, restoration or
4
correction under Environmental Laws or any contract or agreement relating to the environmental condition of the Property or the operation thereof.
“
Environmental Defect Notice
” shall have the meaning set forth in
Section 6.6(a)
.
“
Examination Period
” shall have the meaning set forth in
Section 6.1(a)
.
“
Excluded Assets
” means the Pontotoc Interest, the Payne Properties, any interests excluded by either party hereto pursuant to
Sections 6.3(c)
or
6.6(c)
, or reconveyed to Seller pursuant to
Section 6.4
, as the case may be, all rights to severance tax refunds for severance taxes paid prior to the Effective Date, all rights to recoup income overpaid to interest owners prior to the Effective Date, including but not limited to all rights to recoup the amounts set forth on
Exhibit A-4
, and any other assets described on
Exhibit A-4
.
“
Exclusivity Letter
” means that certain letter agreement dated February 17, 2011, by and between Purchaser and Seller.
“
Farmout Acquisition Agreement
” means that certain Farmout Acquisition Agreement of even date herewith between Purchaser and Seller.
“
Farmout Agreement
” means that certain Farmout Agreement to be entered into by and between Purchaser and Seller pursuant to the terms and conditions of the Farmout Acquisition Agreement.
“
Final Settlement Date
” shall have the meaning set forth in
Section 2.7(a)
.
“
Final Settlement Period
” shall have the meaning set forth in
Section 2.7(a)
.
“
Final Settlement Price
” shall have the meaning set forth in
Section 2.7(a)
.
“
Final Statement
” shall have the meaning set forth in
Section 2.7(a)
.
“
Governmental Entity
” means any court or tribunal in any jurisdiction (domestic or foreign) or any public, governmental, or regulatory body, agency, department, commission, board, bureau, or other authority or instrumentality (domestic or foreign).
“
Hazardous Substances
” means any “hazardous waste,” “hazardous substance,” “extremely hazardous substance,” “toxic chemical,” “hazardous chemical,” “toxic pollutants,” “contaminants,” “chemical,” “chemical substance,” “exploration and production wastes” or “asbestos,” as such terms are defined in any of the Environmental Laws, or related substances, in such quantities or concentrations as are regulated by such Environmental Laws or other Applicable Laws, or which may be declared to constitute a material threat to human health or to the environment.
5
“
Hedging Transaction
” means any futures, hedge, swap collar, put, call, floor, cap, option or other contract that is intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including hydrocarbons, interest rates, or currencies.
“
Hydrocarbons
” means oil, condensate, gas, casinghead gas and other liquid or gaseous hydrocarbons or any combination thereof.
“
Imbalance
” or “
Imbalances
” means over-production or under-production or over-deliveries or under-deliveries with respect to oil or gas produced from or allocated to the Producing Properties, regardless of whether such over-production or under-production or over-deliveries or under-deliveries arise at the platform, wellhead, pipeline, gathering system, transportation or other location.
“
Indemnifying Party
” and “
Indemnified Parties
” have the meanings as set forth in
Section 9.5
.
“
Individual Environmental Defect Threshold
” shall have the meaning set forth in
Section 6.6(a)(i)
.
“
Interim Period
” means the time between the Effective Date and the Closing Date.
“
Knowledge
” of a specified Person (or similar references to a Person’s knowledge) means all information actually or constructively known to (a) in the case of a Person who is an individual, such Person, or (b) in the case of a Person which is corporation or other entity, an executive officer or employee who devoted substantive attention to matters of such nature during the ordinary course of his employment by such Person. A Person has “constructive knowledge” of those matters which the individual involved could reasonably be expected to have as a result of undertaking an investigation of such a scope and extent as a reasonably prudent man would undertake concerning the particular subject matter.
“
Leases
” means the oil, gas or other Hydrocarbon leases (and any other rights to Hydrocarbons and other minerals in place) that are part of the Properties.
“
Lien
” means any claim, lien, mortgage, security interest, pledge, charge, option, right-of-way, easement, encroachment, or encumbrance of any kind.
“
Material Adverse Effect
” means any detrimental change, development, or effect (individually or in the aggregate) on the ownership, operation or value of the Properties, as currently operated, that (a) is or is likely to be material to the ownership, operation or value of the Properties, taken as a whole, for purposes of determining whether the conditions to Closing have been satisfied or (b) exceeds five percent (5%) of the Purchase Price in value for all other purposes under this Agreement; provided, however, that the following shall not be deemed to constitute, create or cause a Material Adverse Affect: any changes, circumstances or effects (i) that affect generally the oil and gas industry, such as fluctuations in the price of oil and gas, and that result from international, national, regional, state or local economic conditions; from changes in laws, rules or regulations applicable to Seller or the Properties or from other general
6
economic conditions, facts or circumstances that are not subject to the control of Seller; or (ii) that result from the effects of conditions or events resulting from an outbreak or escalation of hostilities (whether nationally or internationally), or the occurrence of any other calamity or crisis (whether nationally or internationally), including, without limitation, the occurrence of one or more terrorist attacks.
“
Mowdy #1 SWD Well
” means the Mowdy No. 1 salt water disposal well (API# 35-029-20060-A) described on
Exhibit A-1(i)
and having a surface location within Section 6, Township 1 South, Range 10 East in Coal County, Oklahoma.
“
Net Revenue Interest
” shall have the meaning set forth in this
Section 1.2
within the definition of Defensible Title.
“
Ordinary Course of Business
” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency) and in compliance in all material respects with Applicable Laws.
“
Organizational Documents
” means (i) the articles or certificate of incorporation and the bylaws of a corporation; (ii) the partnership agreement and any statement of partnership of a general partnership; (iii) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (iv) the articles of organization and regulations of a limited liability company; and (v) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a partnership (limited or general), corporation, association, joint stock company, trust, joint venture or limited liability company; and (vi) any amendment to the foregoing.
“
Payne Properties
” means Sections 35 and 36, Township 1 North, Range 9 East and Section 32, Township 1 North, Range 10 East, all in Coal County, Oklahoma.
“
Permitted Encumbrances
” means:
(i)
Liens for taxes which are not yet delinquent or which are being contested in good faith and for which adequate reserves have been established in each case as specifically set forth in
Schedule 1.2
;
(ii)
Normal and customary Liens of co-owners under operating agreements, unitization agreements, and pooling orders relating to the Producing Properties, which obligations are not yet due and pursuant to which Seller is not in default;
(iii)
Mechanic’s and materialman’s Liens relating to the Producing Properties, which obligations are not yet due and pursuant to which Seller is not in default;
(iv)
Liens in the Ordinary Course of Business consisting of minor defects and irregularities in title or other restrictions (whether created by or arising out of
7
joint operating agreements, farm-out agreements, leases and assignments, contracts for purchases of hydrocarbons or similar agreements, or otherwise in the ordinary course of business) that are of the nature customarily accepted by prudent purchasers of oil and gas properties and do not decrease the Net Revenue Interest, increase the Working Interest (without a proportionate increase in the Net Revenue Interest) and affect the value of any property encumbered thereby by less than TEN THOUSAND Dollars ($10,000);
(v)
All approvals required to be obtained from Governmental Entities that are lessors under leases forming a part of the Properties (or who administer such leases on behalf of such lessors) which are customarily obtained post-closing;
(vi)
Subject to compliance with
Sections 6.5
and
7.5
, the preferential rights to purchase any of the Producing Properties and consents to assignment listed on
Schedule 4.1(v)
;
(vii)
Conventional rights of reassignment normally actuated by an intent to abandon or release a lease and requiring notice to the holders of such rights;
(viii)
Lessors’ royalties, overriding royalties; other royalty interests, reversionary interests and similar burdens if the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interests of any of the Properties to less than the Net Revenue Interest set forth in
Exhibit A-2
;
(ix)
The terms and conditions of any leases identified on
Exhibit A-1
;
(x)
Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, pipelines, grazing, or the like; and easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements, and rights-of-way, on, over or in respect of any of the Producing Properties to the extent that they do not interfere with the operation of the Producing Properties
as they were being operated as of the Effective Date;
(xi)
Rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any of the Properties in any manner, and all Applicable Laws, rules and orders of any governmental authority;
(xii)
Such Title Defects (as defined below) or other defects as Purchaser has waived in writing; and
(xiii)
Liens to be released at Closing.
“
Person
” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, enterprise, unincorporated organization, or Governmental Entity.
“
Phase I environmental assessment
” shall have the meaning set forth in
Section 6.1(c)
.
8
“
Pontotoc Interest
” means the interest of Seller as described in that certain Assignment, Conveyance and Bill of Sale recorded in Book 767, Pages 196-217 in the official public records of Coal County, Oklahoma.
“
Pontotoc JOA
” means that certain AAPL Form 610-1989 Operating Agreement, dated effective as of June 1, 2008, by and between Pablo Energy II, LLC, as operator, and Pontotoc Production Company, Inc. in respect of the Powell 1H-26 well, the Bonnie 1H-24 well and the Tomlinson 1H-23 well, and all lands and oil and gas interests described in Exhibit “A” thereto (Coal County, Oklahoma).
“
Post-Closing Defect
” shall have the meaning set forth in
Section 6.3(b)
.
“
Proceedings
” means all proceedings, actions, claims, suits, arbitration or mediation proceedings, investigations and inquiries by or before any arbitrator or Governmental Entity.
“
Producing Properties
” means, collectively, all of Seller’s interest in the oil and gas leases, wells, and units on the lands described on
Exhibit A-1(i)
, limited to the wellbore only of the wells described on
Exhibit A-1(i)
(including, for the avoidance of doubt, the Mowdy #1 SWD Well) together with all associated equipment located thereon or used in connection therewith, including the equipment described on
Exhibit A-1(ii)
, and all other properties, rights and interests owned, legally or beneficially, by Seller as of the Effective Date which are associated with the wells described on
Exhibit A-1(i)
; but excluding the Excluded Assets.
“
Properties
” shall have the meaning set forth in this
Section 1.2
within the definition of Assets.
“
Property Costs
” means all operating expenses (including without limitation costs of insurance and ad valorem, property, severance, production and similar Taxes based upon or measured by the ownership or operation of the Properties or the production of Hydrocarbons therefrom that are not actually reimbursed by the purchaser of production, but excluding any other Taxes) and capital expenditures incurred in the ownership and operation of the Properties in the Ordinary Course of Business and, where applicable, in accordance with the relevant operating or unit agreement, if any, and overhead costs charged to the Properties under the relevant operating agreement or unit agreement, if any, but excluding without limitation liabilities, losses, costs, and expenses attributable to (i) Claims for personal injury or death, property damage or violation of any Law, (ii) obligations to plug wells, dismantle facilities, close pits and restore the surface around such wells, facilities and pits, (iii) obligations to remediate any contamination of groundwater, surface water, soil or equipment under applicable Environmental Laws, (iv) obligations to furnish make-up gas according to the terms of applicable gas sales, gathering or transportation contracts, (v) gas balancing obligations, (vi) obligations to pay working interests, royalties, overriding royalties or other interests held in suspense, all of which are addressed in
Article 9
and (vii) any overhead not chargeable to other joint interest owners under the applicable operating agreements.
“
Property Records
” means, collectively, (i) the Contracts, lease files, title opinions, production records, well files, maps, surveys, and electric logs and geological data, together with
9
all other land files, third-party contracts, documents and records, of Seller related to the Properties, and (ii) copies of accounting and tax records of Seller relating to the Properties, in each case including electronic records.
“
Purchase Price
” shall have the meaning specified in
Section 2.2
.
“
Purchase Price Adjustment Statement
” shall have the meaning set forth in
Section 2.5
.
“
Purchaser
” shall have the meaning set forth in the preamble.
“
Purchaser Hedges
” shall have the meaning set forth in
Section 3.3(c)
.
“
Purchaser Indemnitees
” shall have the meaning set forth in
Section 9.2
.
“
Purchaser’s Losses
” shall have the meaning set forth in
Section 9.2
.
“
Purchaser’s Title Review
” shall have the meaning set forth in
Section 6.2(a)
.
“
Release
” or “
Released
” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, migrating or disposing (including the abandoning or discarding of barrels, containers and other closed receptacles containing any Hazardous Substance) of a substance into the environment.
“
Remedies for Title Defects
” shall have the meaning set forth in
Section 6.2(b)
.
“
Representatives
” means, as to any Person, its officers, directors, equity owners, employees, counsel, accountants, financial advisors, consultants and lenders and their counsel, advisers and consultants.
“
Seller Indemnitees
” shall have the meaning set forth in
Section 9.6
.
“
Seller
” shall have the meaning set forth in the preamble.
“
Seller’s Losses
” shall have the meaning set forth in
Section 9.3
.
“
Seller Transaction Representations
” shall have the meaning set forth in
Section 9.4(a)
.
“
Survival Period
” shall have the meaning set forth in
Section 9.1(a)
.
“
Taxes
” means (i) taxes of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, including income, gross receipts, ad valorem, value added, excise, real or personal property, asset, sales, use, federal royalty, license, payroll, transaction, capital stock, paid-up capital, profits, registration, goods and services, capital, net worth, business, alternative or add-on minimum and franchise taxes, taxes under section 59A of the Code, estimated taxes, withholding, employment, social security, workers compensation, utility, severance, production, unemployment compensation, occupation, premium, transfer, stamp, unclaimed property and gains taxes or other governmental taxes imposed or payable to the United States, any state, local
10
or foreign government, any governmental subdivision thereof, or any Governmental Entity and in each instance such term shall include any interest, penalties or additions to tax attributable thereto, including penalties for the failure to file any Tax Return or report, and (ii) liability for the payment of any amounts of the type described in clause (i) as a result of Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.
“
Tax Contest
” shall have the meaning given such term in
Section 7.11(d)
.
“
Tax Returns
” means all reports, returns, declarations, statements, claims for refunds, elections, forms or other information required to be supplied to a Taxing authority in connection with Taxes, including any schedule or attachment thereto.
“
Termination Date
” shall have the meaning set forth in
Section 3.1
.
“
Title Defect
” shall have the meaning set forth in
Section 6.2(d)
.
“
Title Defect Amount
” shall have the meaning set forth in
Section 6.2(c)
.
“
Title Defect Notice
” shall have the meaning set forth in
Section 6.2(b)
.
“
Title Defect Property
” shall have the meaning set forth in
Section 6.2(b)
.
“
Title Increase
” shall have the meaning given such term in
Section 6.3(c)
.
“
Undeveloped Properties
” means Seller’s interest in all of the oil, gas or other Hydrocarbon leases and other rights to Hydrocarbons and other minerals in place on the lands described on
Exhibit A-5
, including, without limitation, those Leases set forth in
Exhibit A-5
, together with each and every kind and character of right, title, claim and interest that Seller has in and to such leases and other rights, or the lands covered thereby or lands currently pooled, unitized, communitized or consolidated therewith; provided, for the avoidance of doubt, that such leases and other rights shall not include the Pontotoc Interest or the Payne Properties.
“
Working Interest
” shall have the meaning set forth in this
Section 1.2
within the definition of Defensible Title.
1.3
References and Titles.
All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “
this Agreement
,” “
herein
,” “
hereby
,” “
hereunder
” and “
hereof
,” and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words “
this Article
,” “
this Section
” and “
this subsection
,” and words of similar import, refer only to the Article, Section or subsection hereof in which such words occur. The
11
word “
or
” is not exclusive, and the word “
including
” (in its various forms) means including without limitation. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.
ARTICLE 2
PURCHASE AND SALE
2.1
Assignment.
Subject to the terms and conditions set forth herein, Seller shall sell, transfer, convey, assign, and deliver all of its interest in the Producing Properties and an undivided 50% of its interest in the Undeveloped Properties to Purchaser by delivery of the Assignment. The Assignment shall be made on the Closing Date, but shall be effective as of the Effective Date, and shall provide a special warranty of title, subject to any Permitted Encumbrances, by, through and under Seller.
2.2
Purchase Price.
The purchase price for the Assets to be transferred to Purchaser shall be the sum of ONE HUNDRED SIXTY-FIVE MILLION Dollars ($165,000,000) (the “
Purchase Price
”), plus or minus the adjustments determined pursuant to
Section 2.3
.
2.3
Adjustments to Purchase Price.
The Purchase Price shall be adjusted based on the following:
(a)
Reduced by the aggregate amount of the following proceeds received by Seller between the Effective Date and the Closing Date (with the period between the Effective Date and the Closing Date referred to as the “
Adjustment Period
”): (i) proceeds from the sale of Hydrocarbons (net of any royalties, overriding royalties or other burdens on or payable out of production, gathering, processing and transportation costs and any sales or excise Taxes with respect thereto that are incurred during the Adjustment Period and paid by Seller, to the extent not reimbursed to Seller by the purchaser of production, but excluding any other Taxes) produced from or attributable to the Producing Properties during the Adjustment Period, and (ii) other proceeds earned with respect to the Producing Properties during the Adjustment Period, all of which shall be retained by the Seller;
(b)
Reduced in accordance with
Section 6.5
, by an amount equal to the Allocated Value of those Producing Properties (i) with respect to which preferential purchase rights have been exercised prior to Closing or (ii) that cannot be transferred at Closing due to unwaived or unexpired requirements for consent to the assignments contemplated hereby;
(c)
Reduced in accordance with
Sections 6.3
and
6.6
;
(d)
Increased by the amount of all Property Costs which are paid by Seller and incurred at or after the Effective Date (except to the extent such costs are netted against the proceeds from the sale of Hydrocarbons pursuant to
Section 2.3(a)
);
12
(e)
Increased or reduced, as appropriate, pursuant to the provisions of
Section 7.9
; and
(f)
Any other amount agreed upon by Seller and Purchaser in writing.
2.4
Purchase Price Adjustment Statement.
Seller shall submit a Closing statement (the “
Purchase Price Adjustment Statement
”) to Purchaser not fewer than five (5) full business days prior to Closing, and shall afford Purchaser access to Seller’s and the Company’s records pertaining to the computations contained in the Purchase Price Adjustment Statement. At least two (2) full business days prior to Closing, Purchaser shall deliver to Seller a written report containing such changes, if any, which Purchaser proposes be made to the Purchase Price Adjustment Statement. Seller and Purchaser shall each make every reasonable effort to agree prior to the Closing Date on a mutually agreed Purchase Price Adjustment Statement.
2.5
Final Settlement.
Subject to the provisions of
Sections 6.3
and
6.4
, as soon as practicable after the Closing Date, but in any event within ninety (90) calendar days thereafter (the “
Final Settlement Period
”), Purchaser shall prepare and submit to Seller a proposed statement (herein called the “
Final Statement
”), which shall show the final calculation of the Purchase Price (herein called the “
Final Settlement Price
”). As soon as possible after receipt of the Final Statement, but in any event within thirty (30) calendar days after receipt thereof, Seller shall deliver to Purchaser a written report containing the changes, if any, which Seller proposes being made to the Final Statement. In the event no response is made by Seller within such thirty (30) day period, it shall be conclusively presumed that Seller concurs with the Final Statement, and such Final Statement shall be the basis for the Final Settlement Price. In the event that Seller submits a response, the parties shall exercise all reasonable efforts to agree upon a mutually acceptable Final Settlement Price and the calculation of the amount, if any, due in connection therewith not later than one hundred twenty (120) calendar days after the Closing (herein called the “
Final Settlement Date
”). After agreement upon a Final Settlement Price setting forth the amount by which the Purchase Price shall be adjusted (either upward or downward) has been reached, the amount due shall be paid within five (5) business days thereafter by the party owing the same by confirmed wire transfer to a bank account or accounts to be designated by the appropriate party. In the event Purchaser and Seller are unable to agree with respect to the amounts due pursuant to this
Section 2.5
before the Final Settlement Date, then either Seller or Purchaser may refer the issues in dispute to Ernst & Young LLP, Fort Worth, Texas (or such other recognized firm of public accountants as Seller and Purchaser may mutually agree) and the resolution of such issues by such firm shall be final and binding on Seller and Purchaser. The costs of such public accountants shall be borne equally by Seller and Purchaser.
2.6
Allocation of Purchase Price.
For United States federal income tax purposes, the Purchase Price shall be allocated among the Properties consistent with the allocations set forth in
Exhibit A-3
. Purchaser and Seller agree to prepare Form 8594 within 180 days of the Closing Date. Purchaser and Seller agree to file Internal Revenue Service Form 8594, and all federal, state, local and foreign tax returns, in a manner consistent with any such agreed upon allocation. Purchaser and Seller agree to provide the other promptly with any information required to complete Form 8594. Purchaser and Seller shall notify and provide the other with
13
reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this
Section 2.6
.
ARTICLE 3
CLOSING
3.1
Closing Date.
Subject to the terms and conditions of this Agreement, the closing hereunder (the “
Closing
”) shall take place at 10:00 a.m., local time, on a date selected by Purchaser which is (a) not earlier than the first to occur of (i) the date on which all conditions to Closing have been satisfied and (ii) thirty (30) days from the date of this Agreement, and (b) not later than April 14, 2011 (the “
Termination Date
”) (provided, that Purchaser may elect to extend the Termination Date by not more than thirty (30) days (and in the event of such extension the Effective Date shall be extended by the same number of days)), at the offices of Sprouse Shrader Smith PC, 701 S. Taylor, Suite 500, Amarillo, TX 79105, or at such other place and time as may be mutually agreed upon by the parties (the “
Closing Date
”).
3.2
Actions at Closing.
(a)
(a)
The Purchase Price shall be delivered to Seller by wire transfer; and
(b)
All documents required by
Sections 8.1
and
8.2
shall be delivered by the parties hereto.
3.3
Remedies for Failure to Close.
(a)
In the event at Closing all conditions to the obligations of Purchaser to close have been satisfied or waived and Purchaser fails or refuses to close other than for Seller’s default, Seller shall be entitled, as Seller’s sole remedies at law or in equity, either to enforce specific performance of Purchaser’s obligations or to terminate this Agreement pursuant to
Article 11
. In the event at Closing all conditions to the obligations of Seller to close have been satisfied or waived and Seller fails or refuses to close other than for Purchaser’s default, Purchaser shall be entitled, as Purchaser’s sole remedies, (1), at its election, either to enforce specific performance of Seller’s obligations or to terminate this Agreement pursuant to
Article 11
, and, in addition, (2) to obtain reimbursement from Seller for of the costs of its Purchaser Hedges, as provided in (c) below.
(b)
Purchaser and Seller agree and stipulate, as a matter of contract, that specific performance will be an available remedy for an unexcused failure to close, without regard to whether specific performance would otherwise be available under the laws of the State of Texas regarding remedies. A party claiming injury by a failure to close may immediately file suit under this section in state district court in Tarrant County, Texas, for specific performance and, if the party claiming injury is the Purchaser, for the cost of the Purchaser Hedges, without the need to pursue dispute resolution or provide advance notice as otherwise required by
Article 10
.
14
(c)
Seller acknowledges that in connection with the execution and delivery of this Agreement Purchaser will be entering into Hedging Transactions at current NYMEX strip prices for the quantities of Hydrocarbons set forth in
Schedule 3.3(c)
(the “
Purchaser Hedges
”). In the event at Closing all conditions to the obligations of Seller to close have been satisfied or waived and Seller fails or refuses to close, or Purchaser terminates this Agreement pursuant to
Section 11.1(f)
, Seller shall promptly pay to Purchaser (in addition to any other damages that Purchaser may be entitled to receive) the aggregate cost to Purchaser for the termination or unwinding of the Purchaser Hedges.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1
Certain Representations, Warranties and Covenants of Seller.
Seller represents and warrants to Purchaser, and covenants with Purchaser, as follows:
(a)
Power and Authority of Company
. Seller has all requisite power and authority to execute, deliver, and perform this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary member action of Seller.
(b)
Organization and Existence; Valid and Binding Agreement
. Seller is a limited liability company duly formed and validly existing under the laws of the State of Texas. This Agreement has been duly executed and delivered by Seller and constitutes, and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which Seller is a party has been, or when executed will be, duly executed and delivered by Seller and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of Seller, enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors’ rights generally and (b) equitable principles which may limit the availability of certain equitable remedies (such as specific performance) in certain instances.
(c)
Investment Company Act
. Seller is not an “investment company” or a company controlled by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
(d)
Public Utility Holding Company Act
. Seller is not a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company” or of “subsidiary company” of a “holding company” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended.
15
(e)
Non-Contravention
. Neither the execution, delivery, and performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party nor the consummation by it of the transactions contemplated hereby and thereby do and will (i) conflict with or result in a violation of any provision of Seller’s Organizational Documents, (ii) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage or indenture, or any material lease, contract, agreement, or other instrument or obligation to which Seller is a party or by which Seller or any of the Assets, may be bound, (iii) result in the creation or imposition of any Lien or other encumbrance upon the Assets, or (iv) violate any Applicable Law binding upon Seller
, except, in the instance of clause (ii) or clause (iv) above, for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Properties.
(f)
Approvals
. Except as specifically set forth in
Schedule 4.1(f)
, no consent, approval, order, or authorization of, or declaration, filing, or registration with, any court or governmental agency or of any third party is required to be obtained or made by Seller in connection with the execution, delivery, or performance by Seller of this Agreement, each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which Seller is a party or the consummation by Seller of the transactions contemplated hereby and thereby.
(g)
Pending Litigation
. There are no Proceedings pending or, to Seller’s Knowledge, threatened (i) against Seller or its Affiliates that might affect the execution and delivery of this Agreement by Seller or the consummation of the transactions contemplated hereby by Seller or (ii) involving any of the Properties.
(h)
Compliance with Laws
. Seller is not in violation of, or in default in any respect under, and no event has occurred that (with notice or the lapse of time or both) would constitute a violation of or default under: (i) its Organizational Documents; (ii) any Applicable Law; or (iii) any Contract to which Seller is a party or by which the Properties are bound, except (in the case of clause (ii) or (iii) above) for any violation or default that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Properties. Seller has obtained, holds and is in compliance with all permits, licenses, variances, exemptions, orders, franchises, approvals and authorizations of all Governmental Entities necessary for the lawful ownership, use and operation of the Assets, except for those which the failure to obtain or hold would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Assets and are in compliance with such, except where the failure to comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Properties. No investigation or review by any Governmental Entity with respect to the Assets is pending or, to the Knowledge of Seller, threatened, except as set forth in
Schedule 4.1(h)
.
16
(i)
Taxes
.
(i)
Seller has timely filed with the appropriate Taxing authorities (a) all Tax Returns required to have been filed relating to, necessary for the operation of, or required in connection with, the Assets and (b) all Tax Returns required to have been filed, the non-filing or late filing of which could result in a Lien (other than a Permitted Encumbrance) upon an Asset or in liability to the Purchaser as a transferee or successor with respect to the Assets. Each Tax Return referred to in the preceding sentence has been prepared in all material respects in compliance with all applicable laws and regulations and is true, accurate and complete in all material respects.
(ii)
Seller has paid in a timely manner to the appropriate Taxing authority (i) all Taxes (other than Taxes that are not yet due and payable) relating or attributable to the Assets or the operation thereof, whether or not shown on a Tax Return, and (ii) all other Taxes (other than Taxes that are not yet due and payable), whether or not shown on a Tax Return, the underpayment or nonpayment of which could result in a Lien (other than a Permitted Encumbrance) upon an Asset or in liability to the Purchaser as a transferee or successor with respect to the Assets.
(iii)
There are no pending or, to Seller’s Knowledge, threatened or proposed, examinations, audits, actions, proceedings, investigations, disputes, assessments or claims with respect to (i) any Taxes related or attributable to the Assets or (ii) any Taxes the underpayment or nonpayment of which could result in a Lien (other than a Permitted Encumbrance) upon an Asset or in liability to the Purchaser as a transferee or successor with respect to the Assets.
(iv)
There are no outstanding agreements or waivers that would extend the statutory period in which a Taxing authority may assess or collect (i) any Taxes related or attributable to the Assets or (ii) any Taxes the underpayment or nonpayment of which could result in a Lien (other than a Permitted Encumbrance) upon an Asset or in liability to the Purchaser as a transferee or successor with respect to the Assets.
(j)
Environmental Laws
.
(i)
Except as specifically set forth in
Schedule 4.1(j)
, to the Knowledge of Seller, the Properties and the operations thereon have been maintained in material compliance in all respects with any laws, common laws, ordinances, or regulations of any governmental authority, as well as any order, decree, permit, judgment or injunction issued, promulgated, approved or entered thereunder, which (a) regulate or relate to the protection or clean-up of the environment; the use, treatment, storage, transportation, handling, disposal or Release of Hazardous Substances, the preservation or protection of waterways, groundwater, drinking water, air, wildlife, plants or other natural resources; or the health and safety of persons or property, including without limitation protection of the health and safety of employees; or (b) impose liability with respect to any of the foregoing, including without limitation the Federal Water Pollution
17
Control Act (33 U.S.C. § 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. § 6901 et seq.), Safe Drinking Water Act (21 U.S.C. § 349, 42 U.S.C. § 300f 300j 26), Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), Clean Air Act (42 U.S.C. § 7401 et seq.), Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), or any other similar federal, state or local law of similar effect. (All of the above are, collectively, the “
Environmental Laws
”).
(ii)
There are no pending civil, criminal or administrative actions, lawsuits, written demands or claims, or litigation relating to an alleged breach of Environmental Laws on or with respect to Seller’s ownership or operation of the Properties, and Seller has not received any written notice of any environmental or health or safety claims, demands, filings, investigations, administrative proceedings, actions, suits or other legal proceedings relating to the Properties (an “
Environmental Claim
”) or written notice of any alleged violation or non-compliance with or response or remedial obligation under any Environmental Law, arising from, based upon, associated with or related to the Properties or the ownership or operation of any thereof.
(iii)
To the Knowledge of Seller, no Hazardous Substance is present or has been handled, managed, stored, transported, processed, treated, disposed of, released, migrated or escaped on, in, from, under or in connection with the Properties or the ownership or operation of any thereof, such as to cause a condition or circumstance that would reasonably be expected to result in an Environmental Claim or a violation of or response or remedial obligation under any Environmental Law.
(iv)
Seller has made available to Purchaser complete and accurate copies of all environmental, health or safety assessment and audit reports, studies, investigations and all similar documentation and correspondence in the possession of or control of Seller or any Affiliate of Seller and addressing environmental, health or safety liabilities, water rights (including water withdrawal, storage, discharge, treatment, injection, and disposal rights) or future compliance costs relating to ownership or operation of the Properties.
(k)
Contracts
.
(i)
Except as disclosed on
Schedule 4.1(k)(i)
, to Seller’s Knowledge (a) Seller has paid its share of all costs (including without limitation Property Costs) payable by it under the Leases and the Contracts, and (b) all of the Leases and the Contracts are in full force and effect and constitute valid and binding obligations of the parties thereto. To Seller’s Knowledge, (y) Seller is not in breach or default (and no situation exists that, with the passing of time or giving of notice would create a breach or default) under any of the Leases or the Contracts, and (z) no breach or default by any third party (or situation that, with the passing of time or giving of notice would create a breach or default) exists, expect such defaults as would not, individually or in the aggregate have a Material Adverse Effect.
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(ii)
To Seller’s Knowledge,
Schedule 4.1(k)(ii)
sets forth all of the following contracts, agreements, and commitments (excluding oil and gas leases and surface contracts) to which any of the Properties will be bound as of the Closing: (a) any agreement with any Affiliate of Seller; (b) any agreement or contract for the sale, exchange, or other disposition of Hydrocarbons produced from or attributable to Seller’s interest in the Properties that is not cancelable without penalty or other material payment on not more than thirty (30) days prior written notice; (c) any agreement of or binding upon Seller to sell, lease, farmout, or otherwise dispose of any interest in any of the Properties after the date hereof, other than conventional rights of reassignment arising in connection with Seller’s surrender or release of any of the Properties; (d) any agreement that can reasonably be expected to result in aggregate payments by or revenues to Seller of more than TWENTY-FIVE THOUSAND Dollars ($25,000) during the current or any subsequent fiscal year; (e) any indenture, mortgage, loan, credit or sale-leaseback, guaranty of any obligation, bond, letter of credit or similar agreement; (f) any swap, forward, future or derivative transaction or option or other similar hedge agreement; (g) any non-competition agreement or any agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, Seller conducts business, including area of mutual interest agreements; (h) any agreement where the primary purpose thereof was to indemnify another Person; (i) any agreement that contains any “tag along” or similar rights allowing a third party to participate in future sales of any of the Properties; and (j) any tax partnership agreement of or binding upon Seller affecting any of the Properties. Prior to the execution of this Agreement, Seller has made available to Purchaser true and complete copies of each agreement listed on
Schedule 4.1(k)(ii)
and all amendments thereto. Seller has not received or given any written notice of default, amendment, waiver, price redetermination, market out, curtailment or termination with respect to any agreement listed on
Schedule 4.1(k)(ii)
, the resolution of which is currently outstanding.
(l)
Commitments or Proposals
. Except as set forth in
Schedule 4.1(l)
: (a) Seller has incurred no expenses, and has made no commitments to make expenditures in connection with the ownership or operation of the Assets after the Effective Date, other than routine expenses incurred in the normal operation of existing wells on the Properties in accordance with generally accepted practices in the oil and gas industry; (b) no proposals are currently outstanding by Seller or, to Seller’s Knowledge, other working interest owners to drill additional wells, or to deepen, plug back, or rework existing wells, or to conduct other operations for which consent is required under the applicable operating agreement, or to conduct any other operations other than normal operation of existing wells on the Properties, or to abandon any wells, on the Properties; and (c) Seller has not failed to elect to participate in any operation or activity proposed with respect to the Properties which could result in any of Seller’s interests in any Property becoming subject to a penalty or forfeiture as a result of such election not to participate in such operation or activity, except to the extent reflected in the Net Revenue Interest and Working Interest set forth in
Exhibit A-2
.
(m)
Production Sales Contracts
. There exist no agreements or arrangements for the sale of Seller’s share of Hydrocarbons from the Properties (including calls on, or other
19
rights to purchase, production, whether or not the same are currently being exercised) other than (a) production sales contracts disclosed in
Schedule 4.1(m)
or (b) agreements or arrangements which are cancelable on thirty (30) days notice or less without penalty or detriment.
(n)
Payment of Expenses
and Royalties
. As to the Properties operated by Pablo Energy II, LLC, all expenses (including all bills for labor, materials and supplies used or furnished for use in connection with the Properties, and all severance, production, ad valorem and other similar taxes) relating to the ownership or operation by Seller of its interest in the Properties and for which Seller has received an invoice, have been, and are being, paid (timely, and before the same become delinquent) by Seller, except such expenses and taxes as are disputed in good faith by Seller as specifically set forth in
Schedule 4.1(n)
. To Seller’s Knowledge, Seller is not delinquent with respect to its obligations to bear costs and expenses relating to the development and operation of the Properties. All royalties, overriding royalties, compensatory royalties and other payments due from or in respect of production with respect to the Properties, have been or will be, prior to the Closing, properly and correctly paid or provided for in all material respects.
(o)
Prepayments; Imbalances
. Seller is not obligated by virtue of a take or pay or other prepayment arrangement to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Properties at some future time without receiving payment therefor at or after the time of delivery.
Schedule 4.1(o)
sets forth all production Imbalances of Seller as of the date set forth in such schedule with respect to the Properties.
(p)
Fees and Commissions
. Except as set forth in
Schedule 4.1(p
), no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller. The fees and other amounts payable to the Persons identified on
Schedule 4.1(p)
shall be paid by Seller.
(q)
Disclaimer of Warranties
. Other than those expressly set out in this
Article 4
or in the Assignment, Seller hereby expressly disclaims any and all representations or warranties with respect to the Assets or the transaction contemplated hereby, and Purchaser agrees that the Assets are being sold by Seller “where is” and “as is”, with all faults. Specifically as a part of (but not in limitation of) the foregoing, Purchaser acknowledges that the Seller has not made, and Seller hereby expressly disclaims, any representation or warranty (express, implied, under common law, by statute or otherwise) as to the title or condition of the Assets
(INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS). OTHER THAN THOSE EXPRESSLY SET OUT IN THIS
ARTICLE 4
OR IN THE ASSIGNMENT, SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO (I) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME, OR DELIVERABILITY OF ANY OIL, GAS, OR OTHER MINERALS OR RESERVES (IF ANY) IN, UNDER, OR ATTRIBUTABLE TO THE PROPERTIES, (II) THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, OR
20
ENVIRONMENTAL CONDITION OF THE PROPERTIES, BOTH SURFACE AND SUBSURFACE, INCLUDING MATTERS RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS OR NATURALLY OCCURRING RADIOACTIVE MATERIALS OR (III) THE GEOLOGICAL OR ENGINEERING CONDITION OF THE PROPERTIES OR ANY VALUE THEREOF. OTHER THAN THOSE EXPRESSLY SET OUT IN THIS
ARTICLE 4
OR IN THE ASSIGNMENT, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY, OR IMPLIED, AS TO (A) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION, OR RECORDS FURNISHED TO PURCHASER IN CONNECTION WITH THE ASSETS OR OTHERWISE CONSTITUTING A PORTION OF THE ASSETS; (B) THE PRESENCE, QUALITY, AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES; (C) THE ABILITY OF THE PROPERTIES TO PRODUCE HYDROCARBONS, INCLUDING PRODUCTION RATES, DECLINE RATES, AND RECOMPLETION OPPORTUNITIES; (D) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTIES, (E) THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, (F) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, AND (G) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO PURCHASER BY SELLER OR OTHERWISE CONSTITUTING A PORTION OF THE ASSETS. ANY DATA, INFORMATION, OR OTHER RECORDS FURNISHED BY SELLER ARE PROVIDED TO PURCHASER AS A CONVENIENCE AND PURCHASER’S RELIANCE ON OR USE OF THE SAME IS AT PURCHASER’S SOLE RISK.
(r)
Oil and Gas Operations
.
(i)
All wells included in the Properties have been drilled and (if completed) completed, operated and produced in accordance with generally accepted oil and gas field practices and in compliance in all material respects with applicable oil and gas leases, pooling and unit agreements, and Applicable Laws except where the failure to take any such action or comply would not reasonably be expected to have a Material Adverse Effect on the applicable Property. Except as set forth in
Schedule 4.1(r)
or as would not reasonably be expected to have a Material Adverse Effect on the Properties:
(A)
there are no wells that Seller is currently obligated by Law or contract to plug and abandon, nor are there any abandoned wells that Seller will be obligated to plug and abandon with the lapse of time;
(B)
there are no wells that are subject to exceptions to a requirement to plug and abandon issued by a Governmental Entity having jurisdiction over the applicable Property;
21
(C)
there are no wells that have been plugged and abandoned but have not been plugged in accordance, in all material respects, with all applicable requirements of each Governmental Entity having jurisdiction over the Properties; and
(D)
all such wells have been produced in compliance with allowables allocated thereto by the applicable Governmental Entity.
(ii)
Proceeds from the sale of hydrocarbons produced from Seller’s interest in the Properties are being received by Seller in a timely manner and are not being held in suspense for any reason.
(iii)
Except as set forth in
Schedule 4.1(r)
, no Person has any call upon, option to purchase, or similar rights with respect to the Seller’s interest in the Properties or to the production therefrom.
(s)
Bankruptcy
. There is no bankruptcy, reorganization, receivership or arrangement proceedings pending, being contemplated by, or to the best of Seller’s Knowledge, threatened against Seller, and neither Seller nor any of its Affiliates is insolvent or generally not paying its debts as they become due.
(t)
Unrecorded Documents
. Except as provided in any schedule to this Agreement, to Seller’s Knowledge, there exists no unrecorded document or agreement which would result in the impairment or loss of Seller’s title to the Properties or the value thereof or impede the operations thereof by Purchaser.
(u)
Hedging Transactions
. Except for the Purchaser Hedges set forth in
Schedule 3.3(c)
, none of the Properties are the subject of any Hedging Transactions that will be binding on Purchaser following the Closing.
(v)
Consents and Preferential Purchase Rights
. None of the Assets, or any portion thereof, is subject to any preferential rights to purchase or restrictions on assignment or required third-party consents to assignment, which may be applicable to the transactions contemplated by this Agreement, except for (i) governmental consents and approvals of assignments that are customarily obtained after Closing, (ii) preferential rights, consents and restrictions listed on
Schedule 4.1(v)
.
(w)
Bonds
.
Schedule 4.1(w)
sets forth all bonds, letters of credit and guarantees posted by Seller or any of its Affiliates with Governmental Authorities and relating to the Properties.
(x)
No AMI or Farmout Obligations
. Except as set forth in
Schedule 4.1(x)
, no portion of the Properties is subject to any area of mutual interest agreement, any farm-out agreement under which a party thereto is entitled to receive assignments not yet made, or any similar agreements.
22
(y)
Surface Condition and Rights
. No physical condition exists upon any of the Properties which prevents the customary operation thereof or production of Hydrocarbons therefrom. The Leases and Contracts contain sufficient rights for Purchaser to access and utilize the surface of the Properties.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1
Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller that:
(a)
Organization and Existence
. Purchaser is a limited liability company duly organized, legally existing and in good standing under the laws of its state of formation, and is qualified to do business in the State of Delaware.
(b)
Power and Authority
. Purchaser has all requisite power and authority to execute, deliver, and perform this Agreement and each other agreement, instrument, or document executed or to be executed by Purchaser in connection with the transactions contemplated hereby to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by Purchaser of this Agreement and each other agreement, instrument, or document executed or to be executed by Purchaser in connection with the transactions contemplated hereby to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary limited liability company action of Purchaser.
(c)
Valid and Binding Agreement
. This Agreement has been duly executed and delivered by Purchaser and constitutes, and each other agreement, instrument, or document executed or to be executed by Purchaser in connection with the transactions contemplated hereby to which it is a party has been, or when executed will be, duly executed and delivered by Purchaser and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of Purchaser, enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors’ rights generally and (b) equitable principles which may limit the availability of certain equitable remedies (such as specific performance) in certain instances.
(d)
Non-Contravention
. The execution, delivery, and performance by Purchaser of this Agreement and each other agreement, instrument, or document executed or to be executed by Purchaser in connection with the transactions contemplated hereby to which it is a party and the consummation by it of the transactions contemplated hereby and thereby do not and will not (a) conflict with or result in a violation of any provision of Purchaser’s Organizational Documents, (b) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage, indenture, lease, contract, agreement, or other instrument or obligation to which Purchaser is a party or by
23
which Purchaser or any of its properties may be bound, (c) result in the creation or imposition of any Lien or other encumbrance upon the properties of Purchaser, or (d) violate any Applicable Law binding upon Purchaser.
(e)
Approvals
. No consent, approval, order, or authorization of, or declaration, filing, or registration with, any court or governmental agency or of any third party is required to be obtained or made by Purchaser in connection with the execution, delivery, or performance by Purchaser of this Agreement and each other agreement, instrument, or document executed or to be executed by Purchaser in connection with the transactions contemplated hereby to which it is a party or the consummation by it of the transactions contemplated hereby and thereby.
(f)
Pending Litigation
. There are no Proceedings pending or to, the Knowledge of Purchaser, threatened against Purchaser or its subsidiaries or any of its properties that might delay, prevent or hinder the consummation of the transactions contemplated hereby.
(g)
Fees and Commissions
. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser.
(h)
Confidentiality.
Purchaser covenants and agrees with Seller that, in the event that this Agreement is terminated or, if not terminated, until the Closing, the confidentiality of any confidential data or confidential information received by Purchaser regarding the business and properties of Seller shall be maintained by Purchaser and its representatives.
(i)
Knowledgeable Purchaser
. Purchaser is a knowledgeable purchaser, owner and operator of oil and gas properties, has the ability to evaluate the Assets for purchase, and is acquiring the Assets for its own account and not with the intent to make a distribution within the meaning of the Securities Act (and the rules and regulations pertaining thereto) or a distribution thereof in violation of any other applicable securities laws. Purchaser will have access to the Assets and the books, records, and files of Seller relating to the Assets, and has had the opportunity to meet with Seller, its representatives and consultants to review and discuss the status of the Assets. In reviewing the Assets, determining the value thereof and making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Purchaser has relied on (i) its knowledge of, and familiarity with, the Assets, (ii) its own independent due diligence investigation of the Assets, (iii) its own expertise and that of legal, land, tax, and other professional counsel concerning this transaction and (iv) Seller’s express representations and warranties in
Article 4
and in the Assignment.
(j)
Funds
. Purchaser has, or at the Closing will have, sufficient cash and other sources of immediately available funds, as are necessary in order to pay the Purchase Price to Seller at the Closing and otherwise consummate the transactions contemplated hereby.
24
ARTICLE 6
DUE DILIGENCE AND TITLE EXAMINATION
6.1
Due Diligence.
(a)
From the date of this Agreement until 5:00 p.m. CST on the date which is four (4) days prior to the Closing Date (the “
Examination Period
”), Seller agrees to disclose and make available to Purchaser and its representatives, at Seller’s office and during Seller’s normal business hours, all records as may be reasonably requested by Purchaser for the purpose of permitting Purchaser to complete its due diligence review. Purchaser shall maintain any such report in confidence, unless and to the extent otherwise required by Applicable Laws.
(b)
Seller shall permit Purchaser to inspect its records only to the extent that it may do so without violating legal constraints or any obligation of confidence or other contractual commitment of Seller to a third party. Subject to the consent and cooperation of third parties, Seller will cooperate with Purchaser in Purchaser’s reasonable efforts to obtain, at Purchaser’s sole expense, such additional information relating to the Assets as Purchaser may reasonably desire, to the extent in each case that Seller may do so without violating legal constraints or any obligation of confidence or other contractual commitment of Seller to a third party.
(c)
As part of its pre-Closing diligence review, Purchaser will have the right to conduct a Phase I environmental assessment of the Properties, subject to the terms set forth in this
Section 6.1
. Purchaser’s Phase I environmental assessment must be conducted by an agent or representative of Purchaser reasonably acceptable to both Seller and Purchaser. For purposes of this Agreement, a “Phase I environmental assessment” means (i) a review of Seller’s and the government’s environmental records, (ii) the submission of pre-inspection questionnaires to Seller, (iii) a site visit to visually inspect the Properties accompanied by a representative of Seller, and (iv) interviews with corporate and site personnel of Seller. A Phase I environmental assessment does not include soil or groundwater sampling, subsurface testing or invasive sampling or testing of any kind, nor shall any such sampling or testing be permitted without the prior written approval of Seller, which approval shall not be unreasonably withheld or delayed. Seller shall be entitled to receive a copy of any final Phase I inspection reports for the Properties.
6.2
Title Matters.
(a)
During the Examination Period, Seller shall afford to Purchaser and its authorized representatives reasonable access during normal business hours to the office, personnel and books and records of Seller in order for Purchaser to conduct a title examination as it may in its sole discretion choose to conduct with respect to the Properties in order to determine whether Title Defects exist (“
Purchaser’s Title Review
”). Such books and records shall include all abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, operating records and agreements, well files, financial and accounting records, geological data and engineering records, in each case insofar as same may now be in existence and in the possession of Seller, excluding, however, any information that Seller is prohibited from disclosing by bona fide, third party confidentiality restrictions; provided, that if requested by
25
Purchaser, Seller shall use its commercially reasonable efforts to obtain a waiver of any such restrictions in favor of Purchaser. The cost and expense of Purchaser’s Title Review, if any, shall be borne solely by Purchaser.
(b)
If Purchaser discovers any Title Defect affecting any of the Properties, Purchaser shall notify Seller of such alleged Title Defect as soon as reasonably possible after the discovery thereof by Purchaser, and in any event Purchaser shall provide Seller with weekly updates, in either oral or written reports, on the status of Purchaser’s title review and developments with respect thereto, which may in each case be preliminary in nature and supplemented in any subsequent Title Defect Notice. To be effective, such notice (“
Title Defect Notice
”) must (i) be in writing, (ii) be received by Seller prior to the expiration of the Examination Period, (iii) describe the Title Defect in reasonable detail (including any alleged variance in the Net Revenue Interest), (iv) identify the specific Property affected by such Title Defect, and (v) include the value of such Title Defect as determined by Purchaser in good faith. Subject to Seller’s special warranty of title set forth in the Assignments, any matters that may otherwise constitute Title Defects, but of which Seller has not been specifically notified by Purchaser in accordance with the foregoing, shall be deemed to have been waived by Purchaser for all purposes. Upon the receipt of such effective Title Defect Notice from Purchaser, Seller shall have the option, in addition to the remedies set forth in
Section 6.2(c)
(the “
Remedies for Title Defects
”), but not the obligation, to attempt to cure such Title Defect at any time prior to the Closing. The Property affected by such uncured Title Defect shall be a “
Title Defect Property
.”
(c)
With respect to each Title Defect attributable to the Producing Properties that is not cured on or before the Closing, the Purchase Price shall be reduced, subject to this
Article 6
, by the Title Defect Amount with respect to such Title Defect Property. The “
Title Defect Amount
” shall mean, with respect to a Title Defect Property, the amount by which such Title Defect Property is impaired as a result of the existence of one or more Title Defects, which amount shall be determined as follows:
(i)
The Title Defect Amount with respect to a Title Defect Property shall be determined by taking into consideration the Allocated Value of the Producing Property subject to such Title Defect, the portion of the Property subject to such Title Defect, and the legal effect of such Title Defect on the Property or portion thereof affected thereby; provided, however, that: (A) if such Title Defect is in the nature of Seller’s Net Revenue Interest in a Property being less than the Net Revenue Interest set forth in
Exhibit A-2
hereto and the Working Interest remains the same, then the Title Defect Amount shall be equal to the Allocated Value for the affected Producing Properties multiplied by the percentage reduction in such Net Revenue Interest as a result of such Title Defect or (B) if such Title Defect is in the nature of a Lien, then the Title Defect Amount shall equal the amount required to fully discharge such Lien; and
(ii)
If the Title Defect results from any matter not described in
Section 6.2(c)(i)
, the Title Defect Amount shall be an amount equal to the difference between the value of the Title Defect Property affected by such Title Defect with such
26
Title Defect and the value of such Title Defect Property without such Title Defect (taking into account the portion of the Allocated Value of the Title Defect Property).
(d)
As used in this
Section 6.2
, “
Title Defect
” shall mean any particular defect in or failure of Seller’s title and right to those Hydrocarbons produced from the Arkoma Woodford by virtue of Seller’s ownership of any Producing Property:
(i)
That causes Seller to not have Defensible Title to such Property;
(ii)
That has attributable thereto a Title Defect Amount in excess of TWENTY-FIVE THOUSAND Dollars ($25,000) (provided, that with regard to a particular well, a series of defects in or failures to Seller’s title meeting the requirements of clauses (d)(i) and (d)(iii) of this
Section 6.2
may be aggregated in respect of the threshold contemplated by this clause (d)(ii)); and
(iii)
Regarding which a Title Defect Notice has been timely and otherwise validly delivered.
Notwithstanding any other provision in this Agreement to the contrary, the following matters shall not constitute, and shall not be asserted as, a Title Defect:
(x)
Defects or irregularities that have been cured or remedied by the applicable statutes of limitation or statutes for prescription;
(y)
Defects or irregularities in the chain of title consisting of the failure to recite marital status in documents or omissions of heirship proceedings; or
(z)
Any matter which is not considered an encumbrance or defect under the Title Examination Standards adopted as of the Effective Date by the Oklahoma Bar Association.
(e)
If Seller and Purchaser are unable to reach an agreement as to whether a Title Defect exists or, if it does exist, the Title Defect Amount attributable such Title Defect, the provisions of
Article 10
shall be applicable.
6.3
Adjustments to Purchase Price for Title Defects.
(a)
Notwithstanding anything to the contrary contained in this Agreement, no adjustment of the Purchase Price shall be made for Title Defects unless the aggregate of the Title Defect Amounts attributable to the Producing Properties, as determined in accordance with this Agreement, equals or exceeds the Defect Threshold, in which event the Purchase Price shall be adjusted downward by the amount such Title Defect Amounts exceed the Defect Threshold. Only the portion of a Producing Property subject to an asserted Title Defect shall be subject to adjustment, and the portion not affected by an asserted Title Defect shall not be included in calculating any defects.
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(b)
Notwithstanding anything herein to the contrary, if Seller is unable to cure a Title Defect attributable to the Producing Properties on or prior to Closing, Seller shall have the option, by notice in writing to Purchaser on or before Closing, to attempt to cure such Title Defect attributable to the Producing Properties (a “
Post-Closing Defect
”) within the one hundred eighty (180) day period commencing on the Closing Date (the “
Cure Period
”). In such event, the transactions contemplated hereby will close as provided herein and the Purchase Price shall be reduced by the applicable Title Defect Amount in respect of such Post-Closing Defect as provided in
Sections 6.2
and
6.3(a)
. If, during or upon the expiration of the Cure Period, Seller and Purchaser mutually agree that a Post-Closing Defect has been cured, then within two Business Days after such determination, Purchaser shall tender to Seller an amount equal to the Title Defect Amount (and, for the avoidance of doubt, without interest)
in respect thereof. If, during or upon the expiration of the Cure Period, Seller and Purchaser are unable to agree whether there has been a satisfactory cure of a Post-Closing Defect, then such disagreement shall be resolved as provided in
Article 10
. If Seller is unable to cure a Title Defect attributable to any of the Producing Properties within the Cure Period, Seller will retain such Producing Property or portion thereof, and Purchaser shall have no further obligation in regard to such Producing Property or portion thereof.
(c)
If Seller determines (or should Purchaser, in the course of Purchaser’s Title Review, determine) prior to Closing that Seller’s Net Revenue Interest in a Producing Property is greater than the Net Revenue Interest set forth in
Exhibit A-2
and the Working Interest remains the same, then the parties agree that an amount equal to the Allocated Value for the relevant Producing Property multiplied by the percentage increase in such Net Revenue Interest (a “
Title Increase
”) may be used to offset any downward adjustment to the Purchase Price pursuant to
Section 6.3(a)
, insofar and only insofar as each Title Increase equals or exceeds TWENTY-FIVE THOUSAND Dollars ($25,000) (each a “
Qualifying Increase
”). Notwithstanding anything to the contrary contained in this Agreement, no adjustment of the Purchase Price shall be made for Title Increases except as provided in the immediately preceding sentence. To the extent the aggregate of the Qualifying Increases exceeds the aggregate of the downward adjustments to the Purchase Price pursuant to
Section 6.3(a)
, by an amount greater than one percent (1%) of the Purchase Price, those portions of the Producing Properties that are the subject of the Qualifying Increases (which portions equal the amount of such net Qualifying Increases exceeding one percent (1%) of the Purchase Price) shall be deemed Excluded Assets and not transferred to Purchaser pursuant to this Agreement.
6.4
Poolings and Communitizations
.
In connection with any wells spudded on the Properties prior to the Effective Date, if as a result of any final pooling or communitization order issued by the Oklahoma Corporation Commission, the Working Interest and Net Revenue Interest of Seller is increased in a governmental section, Seller shall be entitled to request the reconveyance from Purchaser (without payment by Seller) of an interest in such Properties equal to the amount by which the Working Interest and Net Revenue Interest is increased beyond the applicable represented interests set forth in
Exhibit A-2
.
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6.5
Consents to Assignment and Preferential Rights to Purchase.
(a)
Seller shall promptly prepare and send (i) notices to the holders of any required consents to assignment of any Asset requesting such holder’s consent to assign such Asset to Purchaser, (ii) notices to the holders of any applicable preferential rights to purchase any Asset requesting waivers of such preferential rights to purchase and (iii) requests for consent to the waiver of any existing maintenance of uniform interest or area of mutual interest provisions with regard to any Property. The consideration payable under this Agreement for any particular Producing Property for purposes of preferential purchase right notices shall be the Allocated Value for such Producing Property. Seller shall use commercially reasonable efforts to cause such consents and waivers of preferential rights to purchase (or the exercise thereof) to be obtained and delivered prior to Closing. Purchaser shall cooperate with Seller in seeking to obtain such consents and waivers of preferential rights.
(b)
Seller shall notify Purchaser at least five (5) days prior to Closing of all required third-party consents to the assignment of the Assets to Purchaser which have not been obtained and the Asset to which they pertain. In no event shall there be included in the Assignments at Closing any Asset subject to a consent requirement that provides that transfer of the Asset without consent will result in a termination or other material impairment of any rights in relation to such Asset. In cases where the Asset subject to such a requirement is a Contract and Purchaser is assigned the Properties to which the Contract relates, but the Contract is not transferred to Purchaser due to the unwaived consent requirement, Seller shall continue after Closing to use commercially reasonable efforts to obtain such consent so that such Contract can be transferred to Purchaser upon receipt of such consent. In cases where a third-party consent to the sale and transfer of an Asset is not obtained prior to the Closing Date, Purchaser may elect to treat the unsatisfied consent requirement as a Title Defect by giving Seller notice thereof in accordance with
Section 6.2
, except that such notice must be given at least one (1) day prior to the Closing Date. If an unsatisfied consent requirement with respect to which a Purchase Price adjustment is made under
Section 6.2
is subsequently satisfied prior to the date of the final adjustment to the Purchase Price under
Section 2.5
, Seller shall be paid the amount of the previous reduction in the Purchase Price and the provisions of this
Section 6.5
shall no longer apply.
(c)
If any preferential rights to purchase any Assets are exercised prior to Closing, those Assets transferred to a third party as a result of the exercise of such preferential rights shall be treated as if subject to a Title Defect resulting in the complete loss of title and the Purchase Price shall be reduced under
Section 2.3(b)
by the Allocated Value for the affected Producing Properties. Seller shall retain the consideration paid by the third party.
6.6
Environmental Defects and Adjustments to Purchase Price.
(a)
If Purchaser discovers any Environmental Defect affecting any of the Properties, Purchaser shall notify Seller of such alleged Environmental Defect as soon as reasonably possible after the discovery thereof by Purchaser. To be effective, such notice (“
Environmental Defect Notice
”) must (i) be in writing, (ii) be received by Seller prior to the expiration of the Examination Period, (iii) describe the Environmental Defect in reasonable detail, (iv) identify the specific Property affected by such Environmental Defect, and (v) include
29
the value of such Environmental Defect as determined by Purchaser in good faith. Any matters that may otherwise constitute Environmental Defects, but of which Seller has not been specifically notified by Purchaser in accordance with the foregoing, shall be deemed to have been waived by Purchaser as Environmental Defects. Upon timely delivery of a notice of an Environmental Defect in accordance with the requirements of this
Section 6.6(a)
, the parties will in good faith negotiate the validity of the claim and the amount of any adjustment to the Purchase Price using the following criteria:
(i)
No single Environmental Defect shall be taken into account unless the value of such defect is determined to be more than TWENTY THOUSAND Dollars ($20,000) (each an “
Individual Environmental Defect Threshold
”), in which event the full amount of such defect shall be taken into account from the first dollar.
(ii)
No adjustment will be made to the Purchase Price for uncured Environmental Defects unless the total of all such Environmental Defects that exceed the Individual Environmental Defect Threshold exceeds one percent (1%) of the Purchase Price in the aggregate (the “
Aggregate Environmental Defect Threshold
”). In the event that the aggregate uncured Environmental Defects exceed the Aggregate Environmental Defect Threshold, the adjustment to the Purchase Price shall be the amount all such Environmental Defects exceed the Aggregate Environmental Defect Threshold. If the Aggregate Environmental Defect Threshold is exceeded then at the Purchaser’s option, any Property that Purchaser designates that is affected by specific Environmental Defects in excess of the Individual Environmental Defect Threshold (which Environmental Defect Seller has not elected to cure) will not be conveyed at the Closing.
(iii)
If the adjustment is based on a liability to remediate or otherwise cure a liquidated Environmental Defect related to a Property, then the adjustment is an amount equal to the lesser of (y) the lowest cost reasonably necessary for the reporting, investigation, monitoring, removal, cleanup, remediation, restoration or correction or to otherwise cure such Environmental Defect in a manner that does not materially interfere with the use or operation of such Property and consistent with applicable Environmental Law and prudent industry practices or (z) the Allocated Value of the affected Producing Properties.
(iv)
If the adjustment is based on an obligation, burden or liability upon a Property for which the Purchaser’s economic detriment is not liquidated but can be estimated with reasonable certainty, then, subject to the other provisions hereof, the adjustment is the amount equal to the lesser of the amount of such economic detriment or the Allocated Value of the affected Producing Properties.
(v)
If an Environmental Defect is reasonably susceptible of being cured or remediated, as applicable, the Seller will provide notice to the Purchaser within thirty (30) days following receipt of notice of the Environmental Defect stating whether or not the Seller will attempt to cure such Environmental Defect. If the Seller provides
30
notice electing to attempt to cure such Environmental Defect, the Purchaser and the Seller agree that the Seller will have the right to cure such defect for a period of up to ninety (90) days after the date of Seller’s receipt of the notice of such Environmental Defect (each, an “
Environmental Cure Period
”). If the parties are unable to agree on the adjustment relative to an uncured Environmental Defect, then either party shall have until the date ninety (90) days after the end of the applicable Environmental Cure Period to submit the dispute to an expert for resolution as provided in
Section 6.6(b)
. If the parties dispute whether any such Environmental Defect has been cured, then the matter shall be resolved in the manner described in
Section 6.6(b)
.
(vi)
If the Seller does not elect to cure an Environmental Defect in accordance with
Section 6.6(a)
, and the Seller and the Purchaser are not in agreement as to whether an Environmental Defect exists or the amount thereof, then either party may submit the dispute to an expert for resolution as provided in
Section 6.6(b)
until the date ninety (90) days after the end of the applicable Environmental Cure Period. With respect to Environmental Defects which the Seller elects to cure, if the Seller and the Purchaser are not in agreement as to whether an Environmental Defect has been cured, either party shall have until the date ninety (90) days after the end of the applicable Environmental Cure Period to submit the dispute to an expert for resolution as provided in
Section 6.6(b)
.
(b)
If there is a dispute between the Seller and the Purchaser involving: (i) Environmental Defects, (ii) the cure of an Environmental Defect or (iii) the value attributable to Environmental Defects or the adjustment to the Purchase Price with respect thereto, the Seller and the Purchaser will submit the dispute to an expert for determination as provided in this Section following written notice from one party to the other party that such party is initiating dispute resolution in accordance with this
Section 6.6(b)
, such notice to describe in reasonable detail the nature and specifics of the dispute. Environmental dispute matters to be resolved under this
Section 6.6(b)
shall be submitted to a mutually agreed, suitably qualified environmental expert in the energy industry with experience in environmental issues selected by the Seller and the Purchaser (each such environmental expert hereinafter, a “
Consultant
”). In the event the Seller and the Purchaser are unable to agree on a single Consultant within thirty (30) days after receipt of the initiating notice, the Seller and the Purchaser will each appoint one Consultant within ten (10) business days thereafter and the two Consultants so appointed will appoint a third Consultant within thirty (30) days after the second Consultant is appointed. If the two Consultants are unable to agree on a third Consultant within such thirty (30) day period, then a third Consultant shall be selected by the AAA office in Ft. Worth, Texas consistent with the selection criteria set forth in this Section and with due regard given to input from the parties and the other Consultants. Any Consultant appointed pursuant to this Agreement (y) shall not have worked as an employee of or performed other material work for any party hereto or its affiliates within the preceding five (5) year period or have any financial interest in the dispute and (z) shall agree in writing to keep strictly confidential the specifics and existence of the dispute as well as all proprietary records of the parties reviewed by the Consultants in the process of resolving such dispute. The mutually agreed Consultant or the three Consultants so appointed will resolve such matter. The costs and expenses of each Consultant shall be paid fifty percent (50%) by the Seller
31
and fifty percent (50%) by the Purchaser. The Seller and the Purchaser shall each present to the Consultant(s), with a simultaneous copy to the other party, a single written statement of its position on the defect, benefit or dispute in question, together with a copy of this Agreement and any supporting material that such party desires to furnish, not later than ten (10) business days after appointment of the Consultant(s). In making their determination, the Consultant(s) shall be bound by the terms of this Agreement and, without any additional or supplemental submittals by either party, may consider available legal and industry matters as in their opinion are necessary or appropriate to make a proper determination. Additionally, any Consultant may consult with and engage disinterested third parties to advise him, including petroleum engineers or environmental engineers. Within sixty (60) days following the submission of such written statements to the Consultant(s), applying the principles set forth in this
Section 6.6
, the Consultant(s) shall make a determination of the matter submitted based solely on the single written statement of each party. The decision of the Consultant(s) shall be in writing and conclusive and binding on the Seller and the Purchaser and shall be enforceable against the parties in any court of competent jurisdiction. Any adjustments owing by one party hereto as a result of such determination by the Consultant(s) will be made as provided in
Sections 9.1
and
9.2
hereof. The Consultant(s) shall act as experts for the limited purpose of determining the specific dispute presented to them, shall not act as arbitrators, and may not award damages, interest, costs or penalties to either party.
(c)
In any event, either Purchaser or Seller can elect to exclude from the transactions contemplated hereby any Property affected by an Environmental Defect, and such Property will be deemed an Excluded Asset and the Purchase Price will be reduced by the Allocated Value of the affected Producing Properties.
6.7
Purchaser Indemnification.
PURCHASER HEREBY INDEMNIFIES AND SHALL DEFEND AND HOLD SELLER, AFFILIATES THEREOF, AND ITS AND THEIR RESPECTIVE OWNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS, SUCCESSORS, AND ASSIGNS HARMLESS FROM AND AGAINST ANY AND ALL OF THE FOLLOWING CLAIMS ARISING FROM PURCHASER’S (OR ANY OF ITS AFFILIATE’S) INSPECTING AND OBSERVING THE PROPERTIES: (I) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF PURCHASER, ITS AFFILIATES OR ANY OF THEIR RESPECTIVE CONTRACTORS, AGENTS, CONSULTANTS, AND REPRESENTATIVES, AND DAMAGE TO THE PROPERTY OF PURCHASER, ANY OF ITS AFFILIATES OR OTHERS ACTING ON BEHALF OF PURCHASER OR ANY OF ITS AFFILIATES, EXCEPT FOR INJURIES OR DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER, AFFILIATES THEREOF OR ITS OR THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, CONSULTANTS, OR REPRESENTATIVES; AND (II) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF SELLER OR THIRD PARTIES, AND DAMAGE TO THE PROPERTY OF SELLER OR THIRD PARTIES, TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT OF PURCHASER OR ANY OF ITS AFFILIATES. TO THE EXTENT PROVIDED ABOVE, THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES
32
FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES. THE PARTIES HERETO AGREE THAT THE FOREGOING COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
ARTICLE 7
COVENANTS
7.1
Certain Covenants of Seller.
Seller covenants and agrees with Purchaser that:
(a)
Access to Records
. During the Examination Period, Seller will make and continue to make available to Purchaser for examination at Seller’s offices in Amarillo, Texas, the Property Records and will cooperate with Purchaser in Purchaser’s efforts to obtain, at Purchaser’s expense, such additional information relating to the Assets as Purchaser may reasonably desire. Seller shall permit Purchaser, at Purchaser’s expense, to inspect and photocopy such information and records at any reasonable time but only to the extent, in each case, that Seller may do so without violating any contractual commitment to a third party.
(b)
New Agreements
. Except as provided in
Section 7.2
, without the prior written consent of Purchaser, Seller shall not enter into any new agreements or commitments with respect to the Assets.
(c)
Access to Employees, Properties and Technical Information
. Seller will permit Purchaser’s authorized representatives to consult with Seller and its agents and employees during reasonable business hours and to conduct, at Purchaser’s sole risk and expense, on-site inspections, tests and inventories of the Properties and inspect and examine all well logs, geological data relating to the Properties and other technical information. In the event that any information or data of Seller is subject to confidentiality restrictions with third parties, Seller shall use its commercially reasonable efforts to obtain consent for representatives of Purchaser to review.
(d)
Tax on Sale
. Any Taxes resulting from the sale of the Assets by Seller to Purchaser will be the responsibility of Seller.
(e)
Transfer Taxes
. All excise, sales, use, transfer (including real property transfer or gains), stamp, documentary, filing, recordation and other similar taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties, resulting directly from the sale and transfer by Seller to Purchaser of the Assets (the “
Transfer Taxes
”), shall be borne fully by Seller. Any Tax Returns that must be filed in connection with Transfer Taxes shall be prepared and filed when due by the party primarily or customarily responsible under the applicable local law for filing such Tax Returns, and such party will use its commercially reasonable efforts to provide such Tax Returns to the other party at least ten (10) days prior to the due date for such Tax Returns. Seller and Purchaser agree to cooperate with each other in demonstrating that the requirements for exemptions, if any, from such Transfer Taxes have been satisfied.
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7.2
Conduct of Business Prior to Closing.
Seller covenants and agrees that prior to Closing:
(a)
Negative Covenants
. Seller covenants and agrees that, during the period from the date of this Agreement to the Closing, Seller shall not, except with the prior written consent of Purchaser which shall not be unreasonably withheld, conditioned or delayed:
(i)
Sell, lease, dispose of or abandon any of the Properties, or allow any of such Properties to be subjected to any mortgage, pledge, lien, security interest or encumbrance of any kind;
(ii)
Do any act or omit to do any act, or permit any act or omission to act, which would cause a breach of any Contract or commitment with respect to the Properties or any of them;
(iii)
Elect not to participate (
i.e.,
go “non-consent”) in any new well, recompletion, rework, sidetrack or other well operation proposed under applicable joint operating agreements or other Contracts with respect to the Properties or any of them;
(iv)
Except as set forth in
Schedule 7.2(a)(iv)
, enter into any lease, contract, agreement, commitment, arrangement or transaction outside the Ordinary Course of Business consistent with past practice with respect to the Properties or any of them;
(v)
Enter into an agreement that, if entered into prior to the date of this Agreement, would be required to be listed in a Schedule to this Agreement;
(vi)
Amend, modify or change in any material respect any existing lease, contract or agreement with respect to the Properties of any of them;
(vii)
Make or change any election, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment, or consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment, if, in each case, such election, adoption, amendment, agreement, settlement or consent relates to the Assets and would have the effect of materially increasing the Tax liability of the Purchaser or its Affiliates with respect to the Assets for any taxable period or portion thereof ending after the Effective Date; or
(viii)
Agree, in writing or otherwise, to effect any of the changes or transactions described in clauses (i) through (vii) above.
(b)
Affirmative Covenants
. In addition, Seller shall, throughout the period from the date of this Agreement to Closing;
34
(i)
Continue to own, produce, maintain and (where applicable) operate the Assets in the Ordinary Course of Business;
(ii)
Maintain, or cause to be maintained, the books of account and Property Records relating to the Properties in the Ordinary Course of Business and in accordance with the usual accounting practices of Seller;
(iii)
Maintain insurance coverage on the Properties in the amounts in force prior to the Effective Date;
(iv)
Not grant or create any preferential right to purchase, right of first opportunity or other transfer restriction or requirement with respect to the Properties;
(v)
Use commercially reasonable efforts to maintain in full force and effect all Properties and all permits, licenses, orders, approvals, variances, waivers, franchises, rights and authorizations held by it and issued by any Governmental Authority with respect to the Properties;
(vi)
Maintain the Properties in compliance with all applicable Environmental Laws and maintain in full force and effect any permits required under applicable Environmental Laws for the operation of the Properties; and
(vii)
Give prompt written notice to Purchaser of any material damage or destruction of any of the Properties or material notice of violation of Applicable Law, including Environmental Laws, or claim, including Environmental Claims, received or made with respect to the Properties.
7.3
Suspense Accounts.
The parties agree that all suspended royalties and other proceeds which are held by Seller (or by a third-party designee on behalf of Seller) in suspense for third parties attributable to production from the Properties shall be transferred to Purchaser at the Closing. A complete list of all such suspended royalties and other proceeds is attached as
Schedule 7.3
. From and after the Closing, Purchaser shall become responsible for the payment of all suspended revenues to third parties entitled to the same and shall and does hereby hold Seller harmless from and against any loss, liability, cost or expense from and after the Closing (other than those that may be attributed to Seller’s improper placement of such revenues in suspense).
7.4
Non-Consent Election.
In the event that Seller desires to elect to not participate (non-consent) in any new well, recompletion, rework, sidetrack or other well operation proposed under applicable joint operation agreements or other Contracts with respect to the Properties and Purchaser will not agree to a non-consent election as required by
Section 8.2(a)(iii)
, Seller may make a wellbore assignment of the Property involved to Purchaser in lieu of Seller electing not to participate; provided that Seller shall have solicited and received all necessary consents or waivers with regard to any restrictions applicable to such transfer to Purchaser.
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7.5
Consents and Approvals.
(a)
Seller shall use its commercially reasonable efforts to obtain all consents, approvals, orders, authorizations and waivers of, and to effect all declarations, filings and registrations with, all third parties (including Governmental Entities) that are necessary or required to satisfy the conditions to Closing in
Section 8.1
and to otherwise consummate the transactions contemplated hereby. All costs and expenses of obtaining or effecting any and all of the consents, approvals, orders, authorizations, waivers, declarations, filings and registrations referred to in this
Section 7.5
shall be borne by Seller.
(b)
Should a third party fail to exercise its preferential right to purchase as to any portion of the Assets prior to Closing and the time for exercise or waiver has not yet expired, subject to the remaining provisions of this
Section 7.5
, such Assets shall be included in the transaction at Closing and the following procedures shall be applicable:
(i)
Seller shall, at its sole expense, continue to use commercially reasonable efforts to obtain the waiver of the preferential rights and shall continue to be responsible for the compliance therewith; and
(ii)
Should the holder of the preferential right exercise same, (y) Purchaser shall cause the affected Assets to be transferred to such holder on the terms and provisions set out herein and in the applicable preferential right provision and Purchaser shall be entitled to retain the consideration paid by the third party and (z) Seller shall assume all obligations assumed by Purchaser with respect to such Assets under
Section 9.3
, and shall indemnify, defend and hold harmless Purchaser from any and all claims, obligations, actions, liabilities, damages or expenses incurred by Purchaser caused by or arising out of or resulting from the ownership, use or operation of such Assets from the Closing Date to the date of the reconveyance.
(c)
Should any third party bring any suit, action or other proceeding seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated hereby in connection with a claim to enforce preferential rights, or, in the event the applicable preferential right provision prohibits transfer prior to the waiver or expiration of such right, the Asset affected by such suit, action or other proceeding shall be excluded from the Assets transferred at Closing and the Purchase Price shall be reduced by the Allocated Value of any affected Producing Properties. Promptly after the suit, action or other proceeding is dismissed or settled or a judgment is rendered, or the right is waived or expires, Seller shall sell to Purchaser and Purchaser shall purchase from Seller all such Assets not being sold to the third party for a purchase price equal to the Allocated Value of the affected Producing Properties, adjusted as provided in
Section 2.3
.
7.6
Casualty Loss.
If, after the date of this Agreement but prior to the Closing, all or any portion of the Properties are destroyed or damaged by fire, flood, earthquake, storm, theft, vandalism, explosion, blowout, riot, sabotage, accident or other casualty of a similar nature or shall be taken by condemnation or under the right of eminent domain (all of which are herein called “
Casualty Loss
”), Purchaser may elect on or before Closing: (i) to treat the Casualty Loss as a Title Defect in accordance with
Article 6
; or (ii) to proceed with the Closing notwithstanding
36
any such destruction or taking (without reduction of the Purchase Price) in which case Seller shall, at the Closing, pay to Purchaser all sums paid to Seller by third parties by reason of the destruction, damage or taking of such Properties and shall assign, transfer and set over unto Purchaser or subrogate Purchaser to all of the right, title and interest of Seller in and to any claims against or unpaid proceeds or other payments from third parties arising out of such destruction or taking, including, but not limited to, insurance proceeds. Prior to Closing, Seller shall not voluntarily compromise, settle or adjust any amounts payable by reason of any Casualty Loss during the aforementioned period without first obtaining the written consent of Purchaser.
7.7
Confidentiality.
Purchaser and Seller agree not to use or disclose to any Person any Confidential Information. “
Confidential Information
” means any information concerning the Assets or the transactions contemplated by this Agreement, except for any such information that (a) is generally available to the public, (b) is published or otherwise becomes generally available to the public through no fault of the disclosing party, any of their Affiliates or any of their Representatives, or (c) becomes available to the disclosing party, any of their Affiliates or any of their Representatives on a non-confidential basis from a source that did not acquire such information (directly or indirectly) from the non-disclosing party, any of their Affiliates or any of their Representatives on a confidential basis. Notwithstanding the foregoing, Purchaser and Seller may make disclosures required by Applicable Law, court rule or regulation and in connection with disputes hereunder; provided that the disclosing party, to the extent practicable, shall provide the non-disclosing party with prompt notice thereof so that the non-disclosing party may seek a protective order or other appropriate remedy or waive compliance with the provisions of this
Section 7.7
. In the event that such protective order or other remedy is not obtained or the non-disclosing party waives compliance with the provisions of this
Section 7.7
, the disclosing party shall or shall cause the Person required to disclose such confidential information to furnish only that portion of the information that such Person is advised by the non-disclosing party’s counsel is legally required to be disclosed.
7.8
Non-Competition Agreement.
In the event Seller, any of its Affiliates or any of the Persons who are members of Seller or its Affiliates, either directly or indirectly, acquires any interest in the oil or gas rights to explore for and produce oil or gas in an area of mutual interest with a boundary two (2) miles outside the Properties (as such area is identified in
Exhibit C
) for a period of one (1) year from the date hereof, insofar and only insofar as any such acquired interest covers the Arkoma Woodford, (the term “interest” as used herein shall include any interest whatsoever in the oil or gas, including but not limited to, royalties, overriding royalties, leases, renewals or extensions of existing leases, farmins, fee interests, etc.), Seller shall notify Purchaser immediately after any such acquisition, giving complete information as to the interests acquired, along with copies of the instrument or instruments by which the interest was acquired, and the consideration to be given or paid. Purchaser shall have thirty (30) days following receipt of such notice to notify Seller of its desire to acquire all or any party of any such interest by paying Seller (or its Affiliates or any of the Persons who are members of Seller or its Affiliates, as applicable) for its cost to acquire such interest or part thereof. Thereupon, Seller (or its Affiliates or any of the Persons who are members of Seller or its Affiliates, as applicable) shall immediately assign such interest to Purchaser, without warranty of title, except by, through and under Seller (or its Affiliates or any of the Persons who are members of Seller or its Affiliates, as
37
applicable), in an instrument in form and substance approved by Purchaser in writing, which approval shall not be unreasonably withheld. Seller and Purchaser agree that this
Section 7.8
does not apply to the Excluded Assets (other than the Payne Properties which shall be subject to all the restrictions set forth in this
Section 7.8
).
7.9
Imbalances.
Purchaser expressly assumes any and all obligations attributable to Imbalances, to the extent disclosed by Seller, associated with the Producing Properties. Should Purchaser discover any inaccuracy in
Schedule 4.1(o)
attributable to the Producing Properties prior to the Effective Date, Purchaser may assert a claim for an adjustment under this
Section 7.9
by delivering a written notice to Seller at least two (2) days prior to Closing. If it is determined that there is an inaccuracy as of the Effective Date in the Imbalances set forth in
Schedule 4.1(o)
, then an adjustment to the Purchase Price, will be made as follows:
(a)
Should Seller’s total net Imbalance reflect that the Seller is overproduced, then the Purchase Price shall be reduced by the net change in the total Imbalance times $3.00 per MMBtu; or
(b)
Should Seller’s total net Imbalance reflect that the Seller is underproduced, then the Purchase Price shall be increased by the net change in the total Imbalance times $3.00 per MMBtu.
7.10
Successor Operator.
Seller agrees that as to the Properties that Seller operates, it shall use commercially reasonable efforts to support Purchaser’s efforts to become successor operator (to the extent permitted under any applicable joint operating agreement), effective as of the Closing (at Purchaser’s sole cost and expense), and to designate or appoint by assignment, to the extent legally possible and permitted under the applicable Contracts, Purchaser as successor operator effective as of the Closing. In furtherance of the foregoing, as soon as reasonably practicable but no later than five (5) days after the date hereof, Seller shall send notices (in form and substance reasonably acceptable to Purchaser) to all participating parties and co-owners of the Properties that Seller or any of its Affiliates currently operate indicating that it is resigning as operator contingent upon and effective at Closing, and nominating and recommending Purchaser (or an Affiliate designated by Purchaser) as successor operator.
7.11
Tax Matters.
(a)
Seller’s Liability for Certain Taxes
. Seller shall be solely liable for, and shall indemnify and hold the Purchaser Indemnitees harmless against, any Taxes, other than Property Costs and sales and excise Taxes (to the extent such sales and excise Taxes are reflected in the adjustment to the Purchase Price following the final adjustment pursuant to
Section 2.5
), attributable to the direct or indirect ownership or operation of the Assets during any taxable period or portion thereof ending on or prior to the Closing Date, including pursuant to
Sections 7.1(d)
and
7.1(e)
.
(b)
Allocation of Taxes
. For purposes of this Agreement, in cases where a taxable period begins before and ends after the Closing Date or begins before and ends after the Effective Date, as applicable, the portion of Taxes payable with respect to such taxable period
38
that is attributable to the direct or indirect ownership or operation of the Assets for the portion of the taxable period ending on the Closing Date or Effective Date, as applicable, shall be determined as follows: (i) in the case of Taxes such as property Taxes, ad valorem Taxes, and similar Taxes imposed on a periodic basis, the portion of any such Tax that is attributable to (or incurred in) the portion of the period ending on the Closing Date (or Effective Date, as applicable) shall be considered to equal the amount of such Taxes for such taxable period, multiplied by a fraction, the numerator of which is the number of days in the portion of such taxable period that ends immediately prior to the Closing Date (or Effective Date, as applicable) and the denominator of which is the number of days in the entire taxable period and (ii) in the case of all other Taxes that are imposed on, or are based in whole or in part on, income, gross receipts or operations of Seller or the Purchaser (such as income and franchise Taxes, and sales and use, value added, and goods and services Taxes), the portion of such Taxes which is attributable to (or incurred in) the portion of such taxable period ending on the Closing Date (or Effective Date, as applicable) shall be determined by closing the books of Seller or the Purchaser, as applicable, as of the end of the day immediately preceding the Closing Date (or Effective Date, as applicable).
(c)
Cooperation on Tax Matters
. The Purchaser and Seller and their respective Affiliates shall cooperate in the preparation of all Tax Returns for any Tax periods for which any such party could reasonably require the assistance of another such party in obtaining any necessary information. Such cooperation and information shall include promptly forwarding copies of appropriate notices and forms or other communications received from or sent to any applicable Governmental Entity responsible for the imposition of Taxes which relate to the Assets. The Purchaser and Seller and their respective Affiliates shall make their respective employees and facilities available on a mutually convenient basis to explain any documents or information provided hereunder.
(d)
Tax Contests
. Notwithstanding anything to the contrary in
Article 9
, Tax Contests shall be subject to the following provisions. Seller shall be entitled to manage, conduct and control any Tax audits, examinations, appeals, litigation, or other Tax proceedings involving Taxes relating to the Assets for which Seller is liable under this
Section 7.11
or
Section 9.2
(each, a “
Tax Contest
”). However, to the extent the Purchaser could reasonably be expected to have successor or other liability for the Taxes that are the subject of such Tax Contest, then the parties shall jointly control the Tax Contest. In any event, any settlement or other disposition of any Tax Contest controlled by one party pursuant to this paragraph, which could result in an increase in any Taxes payable or reimbursable by another party may only be entered into with the written consent of such other party, which consent will not be unreasonably withheld or delayed.
7.12
Certain Restrictions.
(a)
Further Acquisitions
. From the date of this Agreement until the Closing, Seller shall not acquire, either directly or indirectly, any oil, gas or other Hydrocarbon leases or other rights to Hydrocarbons or other minerals in place on the lands described on
Exhibit C
, or
39
allow any of its Affiliates or any of the Persons who are members of Seller or its Affiliates to do so.
(b)
Alternative Transactions
. From the date of this Agreement until the Closing, Seller shall not, and shall not allow any of its Affiliates or any of the Persons who are members of Seller or its Affiliates to, directly or indirectly, (i) engage in, enter into or solicit any discussions, negotiations, proposals, inquiries, offers or agreements with any person with respect to an Alternative Transaction, or (ii) release or disclose any information the purpose or the result of which would be to assist in the preparation of an offer with respect to an Alternative Transaction. If Seller or any of its Affiliates or any of the Persons who are members of Seller or its Affiliates receive any inquiry, offer or proposal relating to an Alternative Transaction, Seller will promptly notify Purchaser thereof, communicate to Purchaser in reasonable detail the terms of any such indication, request or proposal and provide Purchaser with copies of all written communications relating to any such indication, request or proposal. Thereafter, Seller shall keep Purchaser promptly informed regarding any further communications relating to such inquiry, offer or proposal.
7.13
Abandoned Wells.
Seller and Purchaser agree that, at any time on or before April 14, 2014, Purchaser shall have the right to undertake the plugging and abandonment of any of the wells set forth in
Schedule 7.13
(each an “
Abandoned Well
”), in accordance with all applicable requirements of each Governmental Authority having jurisdiction over such wells and at the sole expense of Seller; provided, however, that no such election shall be made in respect of an Abandoned Well which Purchaser has re-entered with the intention of resuming drilling operations. If Purchaser desires to plug and abandon an Abandoned Well prior to April 14, 2014, it will provide Seller with an authorization for expenditure covering such plugging and abandonment prior to such date. Seller shall have thirty (30) days from receipt of any such authorization for expenditure to approve the proposed plugging and abandonment, which approval shall not be unreasonably withheld. If Seller approves such authorization for expenditure, Seller shall promptly reimburse Purchaser for all costs and expenses associated with the plugging and abandoning of the Abandoned Well referenced in such authorization for expenditure. Seller shall have no liability for the costs of plugging and abandoning any Abandoned Well for which an authorization for expenditure is delivered after April 14, 2014.
ARTICLE 8
CONDITIONS TO CLOSING
8.1
Conditions to Obligations of Purchaser.
The obligations of Purchaser under this Agreement are subject to the satisfaction at or prior to the Closing Date of the following conditions, compliance with which may be waived by Purchaser:
(a)
Warranties and Agreement of Seller; Officer’s Certificate
. All representations and warranties of Seller contained in this Agreement shall be true and correct in all respects without regard to materiality (or qualified as to a Material Adverse Effect) at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties
40
expressly relate to any earlier date; provided, however, that Seller shall be deemed to have satisfied the conditions of this
Section 8.1(a)
with respect to the accuracy of its representations and warranties so long as the aggregate effect of any breaches of Seller’s representations and warranties would not reasonably be expected to have a Material Adverse Effect; and Seller shall have performed and complied, in all material respects, with all the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by them at or prior to the Closing Date; and Purchaser shall have received a certificate dated the Closing Date and signed by the President of the Seller to the foregoing effect.
(b)
Approval of Documentation
. The form and substance of all certificates, instruments of transfer and other documents required to be delivered to Purchaser hereunder shall be satisfactory to Purchaser and its counsel in all reasonable respects.
(c)
Additional Information
. Seller shall have furnished to Purchaser and its counsel such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling them to pass upon the matters referred to in this
Section 8.1
.
(d)
No Suit or Action
. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement.
(e)
Prior Actions Completed
. All actions to have been completed by Seller pursuant to this Agreement and the transactions contemplated hereby prior to Closing, including actions under
Section 3.2
or
Article 7
, shall have been completed; and the consummation of the transactions contemplated by the Farmout Acquisition Agreement shall occur contemporaneously with Closing.
(f)
Receipt of Documents
. Purchaser shall have also received the certificates, instruments, and documents listed below:
(i)
The Assignment in the form attached hereto as
Exhibit B
, duly executed by Seller, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices;
(ii)
A certificate of non-foreign status in form, date and content reasonably acceptable to Purchaser, executed and delivered by Seller pursuant to Section 1445 of the Code and the regulations promulgated thereunder;
(iii)
Duly executed copies of all consents to assignment and waivers of preferential purchase rights identified on
Schedule 4.1(v)
;
(iv)
Written waivers of any maintenance of uniform interest provision or area of mutual interest provision applicable to the Properties as of the Effective Date;
41
(v)
Written confirmation that Purchaser or its designee has been designated operator pursuant to each joint operating agreement applicable to the Properties under which Seller or any of its Affiliates served as operator as of the Effective Date;
(vi)
Recordable release of the Citibank Lien, insofar as it affects the Assets;
(vii)
Fully executed copies of the Amendment between Atoka Midstream LLC and Pablo Energy II, LLC attached hereto as
Exhibit D
;
(viii)
Written confirmation that the Pontotoc JOA has been terminated; and
(ix)
All of the Property Records.
8.2
Conditions to Obligations of Seller.
The obligations of Seller under this Agreement are subject to the satisfaction at or prior to the Closing Date of the following conditions, compliance with which may be waived by Seller:
(a)
Warranties and Agreements of Purchaser; Officer’s Certificate
. All representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties expressly relate to an earlier date; and Purchaser shall have performed and complied, in all material respects, with all of the covenants and agreements and satisfied all the conditions required by this Agreement to be performed, complied with or satisfied by it at or prior to the Closing Date; and Seller shall have received a certificate dated the Closing Date and signed by the President or a Vice President of Purchaser to the foregoing effect.
(b)
Approval of Documentation
. The form and substance of all certificates and other documents required to be delivered to Seller hereunder shall be satisfactory in all reasonable respects to Seller and its counsel in all reasonable respects.
(c)
Additional Information
. Purchaser shall have furnished to Seller and its counsel such information, certificates and other documents as they shall have reasonably requested for the purpose of enabling them to pass upon the matters referred to in this
Section 8.2
.
(d)
No Suit or Action
. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or Governmental Entity seeking to restrain, prohibit or obtain damages in connection with the consummation of the transactions contemplated by this Agreement by any person other than any Seller or any Affiliate, owner or beneficiary thereof.
42
ARTICLE 9
POST-CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION
9.1
Receipts.
Except as otherwise provided in this Agreement, any production from or attributable to the Properties (and all products and proceeds attributable thereto) and any other income, proceeds, receipts and credits attributable to the Properties which are not reflected in the adjustments to the Purchase Price following the final adjustment pursuant to
Section 2.5
shall be treated as follows: (a) all production from or attributable to the Properties (and all products and proceeds attributable thereto) and all other income, proceeds, receipts and credits earned with respect to the Properties during and after the Adjustment Period shall be the sole property and entitlement of Purchaser, and, to the extent received by Seller, Seller shall fully disclose, account for and remit the same promptly to Purchaser, and (b) all production from or attributable to the Properties (and all products and proceeds attributable thereto) and all other income, proceeds, receipts and credits earned with respect to the Properties prior to the Adjustment Period shall be the sole property and entitlement of Seller and, to the extent received by Purchaser, Purchaser shall fully disclose, account for and remit the same promptly to Seller.
9.2
Expenses.
Except as otherwise provided in this Agreement, any Property Costs which are not reflected in the adjustments to the Purchase Price following the final adjustment pursuant to
Section 2.5
shall be treated as follows: (a) all Property Costs incurred prior to the Adjustment Period shall be the sole obligation of Seller and Seller shall promptly pay, or if paid by Purchaser, promptly reimburse Purchaser for and hold Purchaser harmless from and against same; and (b) all Property Costs incurred during and after the Adjustment Period shall be the sole obligation of Purchaser and Purchaser shall promptly pay, or if paid by Seller, promptly reimburse Seller for and hold Seller harmless from and against same. Seller is entitled to resolve all joint interest audits and other audits of Property Costs covering periods for which Seller is in whole or in part responsible, provided that Seller shall not agree to any adjustments to previously assessed costs for which Purchaser is liable without the prior written consent of Purchaser, such consent not to be unreasonably withheld. Seller shall provide Purchaser with a copy of all applicable audit reports and written audit agreements received by Seller and relating to periods for which Purchaser is partially responsible.
9.3
Assumed Obligations.
Without limiting Purchaser’s rights to indemnity under this
Article 9
, on the Closing Date Purchaser shall assume and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid or discharged) all of the obligations and liabilities of Seller, known or unknown, with respect to the Properties, regardless of whether such obligations or liabilities arose prior to, on or after the Effective Date, including but not limited to obligations to (i) furnish makeup gas according to the terms of applicable gas sales, gathering or transportation contracts, and to satisfy all other gas balancing obligations not adjusted under
Section 7.9
, (ii) pay working interests, royalties, overriding royalties and other interests held in suspense, (iii) properly plug and abandon any and all wells, including inactive wells or temporarily abandoned wells, drilled on the Properties or otherwise pursuant to the Contracts, (iv) replug any well, wellbore, or previously plugged well on the Properties to the extent required or necessary, (v) dismantle and remove any equipment structures, materials,
43
platforms, flowlines, and property of whatever kind related to or associated with operations and activities conducted on the Properties or otherwise pursuant to the Contracts, (vi) clean up, restore or remediate the premises covered by or related to the Properties in accordance with applicable agreements and Laws, and (vii) perform all obligations applicable to or imposed on the lessee, owner, or operator under any leases covering the Properties and related contracts, or as required by Applicable Laws (all of said obligations and liabilities, subject to the exclusions below, herein being referred to as the “
Assumed Obligations
”); provided, however, that Purchaser does not assume any obligations or liabilities of Seller (y) to the extent that they are the continuing responsibility of the Seller under
Sections 7.1
,
7.10
,
7.11
,
9.1
or
9.2
or matters for which Seller is required to indemnify Purchaser under
Sections 7.11
or
9.5
or (z) relating to any Hedging Transaction other than the Purchaser Hedges.
9.4
Survival.
(a)
The representations, warranties and covenants of Seller regarding Taxes (including
Sections 4.1(i)
,
7.1(e)
and
7.11
) shall each survive the Closing until 90 days following the expiration of the applicable statute of limitations. The representations and warranties contained in
Sections 4.1(a)
,
4.1(b)
,
4.1(e)
,
4.1(n)
and
4.1(p)
(the “
Seller Transaction Representations
”), and in
Sections 5.1(a)
,
5.1(b)
,
5.1(c)
,
5.1(d)
and
5.1(g)
, shall each survive the Closing without time limit. The representations and warranties set forth in
Section 4.1(j)
shall survive the Closing for a period of eighteen (18) months. The remaining representations and warranties of Seller contained in
Article 4
and the representations and warranties of Purchaser contained in
Article 5
shall survive until the twelve (12) month anniversary of the Closing Date. Notwithstanding the foregoing, in no event shall any representation or warranty (or portion thereof, except the special warranty of title set forth in the Assignments) of Seller regarding title to any of the Properties survive the Closing, and for the avoidance of doubt, Purchaser’s sole and exclusive remedy for issues regarding title (including any Title Defect) shall be pursuant to
Sections 6.2
and
6.3
and, to the extent applicable, Seller’s special warranty of title set forth in the Assignments. The period, if any, for which a representation and warranty survives is called a “
Survival Period
.” From and after the expiration of a Survival Period, no party hereto shall be under any liability with respect to any representation or warranty to which such Survival Period relates, except with respect to matters as to which notice has been received in accordance with
Section 9.1(b
). Each covenant and agreement of the parties hereto contained in this Agreement shall survive the Closing indefinitely unless otherwise stated herein.
(b)
No party hereto shall have any indemnification obligation pursuant to this
Article 9
or otherwise in respect of any representation, warranty or covenant unless (i) it shall have received from the party seeking indemnification written notice of the existence of the claim for or in respect of which indemnification in respect of such representation, warranty or covenant is being sought and (ii) with respect to a representation and warranty to which a Survival Period relates, such notice is received on or before the expiration of such Survival Period. Such notice shall set forth with reasonable specificity (x) the basis under this Agreement, and the facts that otherwise form the basis of such claim, (y) the estimate of the amount of such claim (which estimate shall not be conclusive of the final amount of such claim) and an explanation of the calculation of such estimate, including a statement of any significant
44
assumptions employed therein, and (z) the date on and manner in which the party delivering such notice became aware of the existence of such claim.
9.5
Seller’s Indemnification Obligations.
Seller shall, on the date of Closing, agree (and, upon delivery to Purchaser of the Assignments, shall be deemed to have agreed), subject to the limitations and procedures contained in this
Article 9
, following the Closing, to indemnify and hold Purchaser, its Affiliates and its and their respective successors and permitted assigns and all of their respective stockholders, partners, members, managers, directors, officer, employees, agents and representatives (collectively, the “
Purchaser Indemnitees
”) harmless from and against any and all claims, obligations, actions, liabilities, damages or expenses (collectively, “
Purchaser’s Losses
”) incurred, suffered, paid by or resulting to any of the Purchaser Indemnitees and which results from, arises out of or in connection with, is based upon, or exists by reason of: (a) any breach of any representation, warranty, covenant or agreement of Seller contained in this Agreement (in each case without regard to materiality or any qualification as to Material Adverse Effect), (b) Seller’s non-compliance with Applicable Laws or agreements in respect of the Properties prior to the Closing, (c) all Property Costs incurred prior to the Effective Date (including with regard to joint interest billings by Seller and any participating party’s payments in respect thereof), (d) all costs and expenses incurred by Purchaser associated with the plugging and abandoning of each Abandoned Well pursuant to
Section 7.13
or (e) the Excluded Assets; REGARDLESS OF THE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR RESPONSIBILITY OF PURCHASER, ANY OTHER PURCHASER INDEMNITEE, SELLER OR ANY OTHER PERSON. Notwithstanding any other provision of this Agreement, (i) the maximum liability of Seller under the indemnity provisions of
Article 9
or under any other provisions of this Agreement, in either case for a breach of any representation or warranty other than the Seller Transaction Representations and
Section 4.1(i)
, shall not exceed ten percent (10%) of the Purchase Price and (ii) Seller shall have no liability under the indemnity provisions of this
Section 9.5
by reason of any breach of any representation or warranty (other than the Seller Transaction Representations and
Section 4.1(i)
) until and unless the aggregate amount of the liability for all Purchaser Losses associated therewith exceeds ONE MILLION Dollars ($1,000,000), in which event Seller shall be liable for the amount of all Purchaser Losses, but in no event to exceed ten percent (10%) of the Purchase Price. Seller agrees that any amounts owing to Purchaser under this Agreement may be set off against and withheld from any amounts owing to Seller in respect of its interest under the Farmout Agreement.
9.6
Purchaser’s Indemnification Obligations.
Except (a) with respect to the matters for which Seller has provided an express indemnification as set forth in this
Article 9
, (b) Purchase Price adjustments covered by
Article 2
to the extent such adjustments are provided for after Closing, (c) Title Defect adjustments covered by
Article 6
, and (d) Tax obligations covered by
Section 4.1(i)
and the covenants set forth in
Sections 7.1(e)
and
7.11
, upon the Closing the Purchaser shall agree (and, upon the delivery by Seller to Purchaser of the Assignments, Purchaser shall be deemed to have agreed) to pay, defend, indemnify, reimburse, and hold harmless Seller, its Affiliates and their respective successors and permitted assigns and all of their respective stockholders, partners, members, managers, directors, officer, employees, agents and representatives (collectively, the “
Seller Indemnitees
”) from and against any and all claims, obligations, actions, liabilities, damages or expenses (collectively, “
Seller’s Losses
”) incurred,
45
suffered, paid by or resulting to any of the Seller Indemnitees and which results from, arises out of or in connection with, is based upon, or exists by reason of: (i) any breach or default in any representation or warranty set forth in this Agreement or in the performance by the Purchaser of any covenant or obligation set forth in this Agreement; and (ii) all of the Assumed Obligations; REGARDLESS OF THE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR RESPONSIBILITY OF SELLER, ANY OTHER SELLER INDEMNITEE, PURCHASER OR ANY OTHER PERSON.
9.7
Net Amounts.
Any amounts recoverable by any party pursuant to this
Article 9
with respect to any Purchaser’s Loss or Seller’s Loss, as the case may be, shall be decreased by insurance proceeds relating to such Purchaser’s Loss or Seller’s Loss, as the case may be, paid to such Indemnified Party by any person (other than any Affiliate of such Indemnified Party) not a party to this Agreement.
9.8
Tax Treatment.
All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code (or any comparable provision of any state, local or foreign law).
9.9
Indemnification Proceedings.
In the event that any claim or demand for which a party hereto (an “
Indemnifying Party
”), would be liable to the other party hereto under
Article 9
(an “
Indemnified Party
”) is asserted against or sought to be collected from an Indemnified Party by a third party, the Indemnified Party shall with reasonable promptness notify the Indemnifying Party of such claim or demand, but the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations under this
Article 9
, except to the extent the Indemnifying Party demonstrates that the defense of such claim or demand is materially prejudiced thereby. The Indemnifying Party shall have thirty (30) days from receipt of the above notice from the Indemnified Party (in this
Section 9.10
, the “
Notice Period
”) to notify the Indemnified Party whether or not the Indemnifying Party desires, at the Indemnifying Party’s sole cost and expense, to defend the Indemnified Party against such claim or demand; provided, that the Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party. If the Indemnifying Party elects to assume the defense of any such claim or demand, the Indemnified Party shall have the right to employ separate counsel at its own expense and to participate in the defense thereof. If the Indemnifying Party elects not to assume the defense of such claim or demand (or fails to give notice to the Indemnified Party during the Notice Period), the Indemnified Party shall be entitled to assume the defense of such claim or demand with counsel of its own choice, at the expense of the Indemnifying Party. If the claim or demand is asserted against both the Indemnifying Party and the Indemnified Party and based on the advice of counsel reasonably satisfactory to the Indemnifying Party it is determined that there is a conflict of interest which renders it inappropriate for the same counsel to represent both the Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be responsible for paying separate counsel for the Indemnified Party; provided, however, that the Indemnifying Party shall not be responsible for paying for more than one separate firm of attorneys to represent
46
all of the Indemnified Parties, regardless of the number of Indemnified Parties. If the Indemnifying Party elects to assume the defense of such claim or demand, (i) no compromise or settlement thereof may be effected by the Indemnifying Party without the Indemnified Party’s written consent (which shall not be unreasonably withheld) unless the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (ii) the Indemnifying Party shall have no liability with respect to any compromise or settlement thereof effected without its written consent (which shall not be unreasonably withheld).
9.10
Indemnification Exclusive Remedy.
Except as expressly set forth herein, indemnification pursuant to the provisions of this
Article 9
shall be the exclusive remedy of the parties hereto for any misrepresentation or breach of any warranty, covenant or agreement contained in this Agreement or in any closing document executed and delivered pursuant to the provisions hereof or thereof, or any other claim arising out of the transactions contemplated by this Agreement.
9.11
Limited to Actual Damages.
The indemnification obligations of the parties hereto pursuant to this
Article 9
shall be limited to actual damages and shall not include incidental, consequential, indirect, punitive, or exemplary damages, provided that any incidental, consequential, indirect, punitive, or exemplary damages recovered by a third party (including a Governmental Entity, but excluding any Affiliate of any party) against a party entitled to indemnity pursuant to this
Article 9
shall be included in the damages recoverable under such indemnity.
9.12
Indemnification Despite Negligence.
IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PARTY TO BE INDEMNIFIED PURSUANT TO THIS
ARTICLE 9
SHALL BE INDEMNIFIED AND HELD HARMLESS FROM AND AGAINST ALL DAMAGES AS TO WHICH INDEMNITY IS PROVIDED FOR UNDER THIS
ARTICLE 9
, NOTWITHSTANDING THAT ANY SUCH DAMAGES ARISE OUT OF OR RESULT FROM THE ORDINARY, STRICT, SOLE, OR CONTRIBUTORY NEGLIGENCE OF SUCH PARTY AND REGARDLESS OF WHETHER ANY OTHER PARTY (INCLUDING THE OTHER PARTIES TO THIS AGREEMENT) IS OR IS NOT ALSO NEGLIGENT. THE PARTIES HERETO ACKNOWLEDGE THAT THE FOREGOING COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
9.13
Limited Survivability.
Any action by either party hereto to enforce any indemnification obligation of the other party must be commenced within thirty (30) days following the expiration of the applicable Survival Period for such representation, warranty or covenant.
ARTICLE 10
DISPUTES
10.1
Dispute Resolution.
Subject to the provisions of
Section 10.5
, and excepting disputes arising out of a failure to close, which shall be governed by
Section 3.3
, any dispute arising out of or relating to this Agreement, including, but not limited to, claims for indemnification pursuant to
Article 9
, shall be resolved in accordance with the procedures
47
specified in this
Article 10
, which shall be sole and exclusive procedures for the resolution of any such disputes.
10.2
Negotiation between Executives.
The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives of Seller and executives of Purchaser. Any party may give the other party written notice of any dispute not resolved in the normal course of business. Within fifteen (15) days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and response shall include (a) a statement of each party’s position, and (b) the name and title of the executive who will represent the party during negotiations. Within thirty (30) days after delivery of the disputing party’s notice, the representatives of Seller and Purchaser shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. If the matter has not been resolved by these persons within sixty (60) days of the disputing party’s notice, or if the parties fail to meet within thirty (30) days, either party may initiate mediation as provided hereinafter. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and State Rules of Evidence.
10.3
Mediation.
If the dispute has not been resolved by negotiation as provided herein, the parties shall endeavor to settle the dispute by mediation under the then current Center for Public Resources (“
CPR
”) Model procedure for Mediation of Business Disputes. The neutral third party will be selected from the CPR Panels of Neutrals, with the assistance of CPR, unless the parties agree otherwise.
10.4
Litigation.
If the dispute has not been resolved by non-binding means as provided herein within ninety (90) days of the initiation of such procedure, either party may initiate litigation (upon thirty (30) days written notice to the other party); provided, however, that if one party has requested the other to participate in a non-binding procedure and the other has failed to participate, the requesting party may initiate litigation before expiration of the above period.
10.5
Choice of Forum and Venue.
All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. The Seller and the Purchaser further agree that any dispute arising out of this Agreement may be decided by either the state or federal court sitting in Tarrant County, Texas. The Seller and the Purchaser shall each submit to the jurisdiction of those courts and agree that service of process by certified mail, return receipt requested, shall be sufficient to confer said courts with in personam jurisdiction.
10.6
Waiver of Jury Trial.
IN THE EVENT THAT ANY DISPUTE SHALL ARISE BETWEEN THE PARTIES HERETO, AND LITIGATION ENSUES, WITH RESPECT TO
48
ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR ANY RELATED TRANSACTION, THE PARTIES EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL AND AGREE THAT ANY SUCH LITIGATION SHALL BE TRIED BY A JUDGE WITHOUT A JURY.
10.7
Provisional Remedies.
The procedures specified in this
Article 10
shall be the sole and exclusive procedures for the resolution of disputes between the parties arising out of or relating to this Agreement; provided, however, that either party, without prejudice to the above procedures, may file a complaint (for statute of limitations or venue reasons) or to seek preliminary injunction or other provisional judicial relief, if in its sole judgment such action is necessary to avoid irreparable damage or to preserve the status quo. Despite such action the parties will continue to participate in good faith in the procedures specified in this
Article 10
.
10.8
Tolling Statute of Limitations.
All applicable statutes of limitation and defenses based upon the passage of time shall be tolled while the procedures specified in this
Article 10
are pending. The parties will take such action, if any required to effectuate such tolling.
10.9
Performance to Continue.
Each party is required to continue to perform its obligations under this Agreement pending final resolution of any dispute arising out of or relating to this Agreement.
10.10
Exclusive Remedies In Failure to Close.
The remedies set forth in
Section 3.3
are the exclusive
remedies of either Purchaser or Seller if the other fails to close this transaction.
ARTICLE 11
TERMINATION, AMENDMENT AND WAIVER
11.1
Termination.
This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing in the following manner:
(a)
By mutual written consent of the parties;
(b)
By either Seller or Purchaser, if:
(i)
The Closing shall not have occurred on or before the Termination Date, unless such failure to close shall be due to a breach of this Agreement by the party seeking to terminate this Agreement pursuant to this clause (i); or
(ii)
There shall be any statute, rule, or regulation that makes the consummation of the transactions contemplated hereby illegal or otherwise prohibited or a Governmental Entity shall have issued an order, decree, or ruling or taken any other action permanently restraining, enjoining, or otherwise prohibiting the consummation of the transactions contemplated hereby, and such order, decree, ruling, or other action shall have become final and nonappealable; or
49
(c)
By Seller or Purchaser, if the aggregate amount of the Title Defect Amounts and Environmental Defects, in each case attributable to the Producing Properties, exceeds twenty percent (20%) of the aggregate Allocated Value of the Producing Properties;
(d)
By Seller, if (i) there shall be a material breach of any representation and warranty of Purchaser contained in
Article 5
, or (ii) there shall be a material breach by Purchaser of any of its covenants and agreements contained in this Agreement, which breach, in the case of
clause (i)
or
clause (ii)
, is not capable of being cured or, if it is capable of being cured, has not been cured within ten (10) days after written notice thereof from Seller to Purchaser; or
(e)
By Purchaser, if (i) there shall be a material breach of any representation and warranty of Seller contained in
Article 4
, or (ii) there shall be a material breach by Seller of any of its covenants and agreements contained in this Agreement, which breach, in the case of
clause (i)
or
clause (ii)
, is not capable of being cured or, if it is capable of being cured, has not been cured within ten (10) days after written notice thereof from Purchaser to Seller.
(f)
This
Section 11.1
shall not affect in any manner the right of any party to seek remedies pursuant to
Section 3.3
.
11.2
Effect of Termination.
In the event of the termination of this Agreement pursuant to
Section 11.1
by the Seller on the one hand, or the Purchaser, on the other, written notice thereof shall forthwith be given to the other party or parties specifying the provision hereof pursuant to which such termination is made, and this Agreement shall become void and have no effect, except that the agreements contained in this
Article 11
, in
Sections 1.2
,
3.3
,
5.1(h)
,
6.7
and
7.7
and in
Article 12
(other than
Section 12.2
) shall survive the termination hereof. Nothing contained in this Section shall relieve any party from liability for damages actually incurred as a result of any breach of this Agreement.
11.3
Amendment.
This Agreement may not be amended except by an instrument in writing signed by or on behalf of all the parties hereto.
11.4
Waiver.
Seller on the one hand, or Purchaser, on the other, may: (i) waive any inaccuracies in the representations and warranties of the other contained herein or in any document, certificate, or writing delivered pursuant hereto, or (ii) waive compliance by the other with any of the other’s agreements or fulfillment of any conditions to its own obligations contained herein. Any agreement on the part of a party hereto to any such waiver shall be valid only if set forth in an instrument in writing signed by or on behalf of such party. No failure or delay by a party hereto in exercising any right, power, or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.
ARTICLE 12
MISCELLANEOUS
12.1
Expenses.
Except as otherwise provided in this Agreement, each party hereto shall pay all expenses and disbursements incurred by it, its officers, employees and
50
representatives, in connection with this Agreement and the performance of its obligations hereunder.
12.2
Further Assurances.
Seller will from time to time upon the request of Purchaser, execute and deliver to or upon the order of Purchaser such further instruments and take such other action as Purchaser may reasonably request, in order to more effectively convey, assign, transfer and deliver, or place Purchaser in possession and control of, the Assets or to enable Purchaser to exercise and enjoy all rights and benefits with respect thereto.
12.3
Binding Agreement; Assignment; Parties in Interest.
This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that any assignment of this Agreement by any party hereto without the written consent of the other parties shall be void. Notwithstanding the foregoing, the rights and obligations of Purchaser hereunder may be assigned to or performed by any other entity owned or controlled by Purchaser or its members, without the written consent of Seller provided that such assignment shall not relieve Purchaser of its obligations hereunder. Except as provided herein, nothing in this Agreement, express or implied, is intended or shall be construed to give to any Person other than the parties hereto any right, remedy or claim under or by reason of this Agreement.
12.4
Notices.
All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or transmitted by first-class registered or certified mail, postage prepaid, return receipt requested, or sent by prepaid overnight delivery service, or sent by facsimile transmission, to the parties at the following addresses (or at such other address as shall be specified by the parties by like notice):
If to Seller:
Southridge Energy, LLC
Jerry Steed
President
P.O. Box 3050
Amarillo, TX 79106
Facsimile: (806) 371-4767
With copies to (which shall not constitute notice):
Jeffrey G. Shrader
and
Michelle L. Sibley
Sprouse Shrader Smith P.C.
701 S. Taylor, Suite 500 (79101)
P. O. Box 15008
Amarillo, Texas 79105
Facsimile: (806) 373-3454
51
If to Purchaser:
Jones Energy, Ltd.
Jonny Jones and Jody Crook
807 Las Cimas Boulevard, Suite 350
Austin, Texas 78746
Facsimile: (512) 328-5394
With a copy (which shall not constitute notice) to:
Baker Botts L.L.P.
Mike Bengtson
98 San Jacinto Boulevard, Suite 1500
Austin, Texas 78701
Facsimile: (512) 322-8349
12.5
Publicity.
All notices to third parties and other publicity concerning the transaction contemplated by this Agreement shall be jointly planned and coordinated by and between Seller and Purchaser. No party hereto shall act unilaterally in this regard without the prior written approval of the others; provided, however, that such approval shall not be unreasonably withheld.
12.6
Exhibits and Schedules.
All exhibits and schedules referred to in this Agreement are attached hereto, incorporated herein and made an integral part hereof.
12.7
Entire Agreement; Amendments; Waivers.
This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, representations and understandings of such parties. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.
12.8
Severability.
If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Applicable Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any of Seller or Purchaser. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties hereto as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
12.9
Counterparts.
This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.
52
12.10
Mutual Waiver of Certain Remedies.
EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER PARTY HERETO SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO THE OTHER FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES AS TO ANY ACTION OR OMISSION WHATSOEVER, WHETHER CHARACTERIZED AS A CONTRACT BREACH OR TORT, OR OTHERWISE, WHICH ARISES OUT OF OR RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR NONPERFORMANCE.
12.11
Preparation of Agreement.
Each party hereto has participated in the preparation of this Agreement. This Agreement was subject to revision and modification by both parties hereto and has been accepted and approved as the final form by each party’s counsel. Accordingly, any uncertainty or ambiguity existing in this Agreement shall not be interpreted against any party as a result of the manner of the preparation of this Agreement.
Signatures to follow.
53
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be duly executed and delivered on their behalf as of the day and year first above written.
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“Purchaser”
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JONES ENERGY HOLDINGS, LLC,
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a Delaware limited liability company
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By:
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/s/ Jon R. Jones, Jr.
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Name:
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Jon R. Jones, Jr.
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Title:
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Chief Executive Officer
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54
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“Seller”
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SOUTHRIDGE ENERGY, LLC,
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a Texas limited liability company
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By:
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/s/ Jerry Steed
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Jerry Steed, President
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55
Exhibit 10.7
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
CHALKER ENERGY PARTNERS III, LLC
AND THE LISTED PARTICIPATING OWNERS
AS SELLERS
AND
JONES ENERGY HOLDINGS, LLC
AS BUYER
TEXAS PANHANDLE ASSET SALE
DATED NOVEMBER 28, 2012
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1.
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SALE AND PURCHASE OF THE ASSETS
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1
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1.1
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Acquired Assets
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1
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1.2
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Excluded Assets
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3
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1.3
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Assumed Liabilities; Retained Liabilities
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4
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1.4.
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Revenues and Expenses
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5
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2.
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PURCHASE PRICE
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6
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2.1
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Purchase Price
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6
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2.2
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Earnest Money
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6
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2.3
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Adjustments to the Base Purchase Price
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6
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2.4
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Allocation
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9
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2.5
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Section 1031 Like Kind Exchange
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9
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3.
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CLOSING
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10
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3.1
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Closing
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10
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3.2
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Delivery by Seller
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10
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3.3
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Delivery by Buyer
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11
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3.4
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Further Cooperation
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11
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4.
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ACCOUNTING ADJUSTMENTS
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12
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4.1
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Closing Adjustments
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12
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4.2
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Strapping and Gauging
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12
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4.3
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Post-Closing Adjustments
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12
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4.4
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Suspended Funds
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14
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4.5
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Audit Adjustments
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14
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4.6
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Asset Tax Refunds
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14
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4.7
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Cooperation
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14
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5.
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DUE DILIGENCE; TITLE MATTERS
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14
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5.1
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General Access
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14
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5.2
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Seller’s Title
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15
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5.3
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Good and Marketable Title
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15
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5.4
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Defect Letters
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18
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5.5
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Effect of Title Defect
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19
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5.6
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Possible Upward Adjustment
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22
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6.
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ENVIRONMENTAL ASSESSMENT
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22
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6.1
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Physical Condition of the Assets
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22
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6.2
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Inspection and Testing
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23
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6.3
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Notice of Adverse Environmental Conditions
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24
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6.4
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Rights and Remedies for Adverse Environmental Conditions
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25
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6.5
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Remediation
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26
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i
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7.
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REPRESENTATIONS AND WARRANTIES OF SELLER
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28
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7.1
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Seller’s Representations and Warranties
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28
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7.2
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Scope of Representations of Seller
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33
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8.
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REPRESENTATIONS AND WARRANTIES OF BUYER
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34
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9.
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CERTAIN AGREEMENTS OF SELLER
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35
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9.1
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Maintenance of Assets
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35
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9.2
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Consents
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36
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9.3
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Records and Contracts
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36
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9.4
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Preferential Rights
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37
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9.5
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Financial Statements
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37
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10.
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CERTAIN AGREEMENTS OF BUYER
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38
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10.1
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Plugging Obligation
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38
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10.2
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Plugging Bond
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38
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10.3
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Seller’s Logos
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38
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11.
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CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
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38
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11.1
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No Litigation
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38
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11.2
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Representations and Warranties
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39
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11.3
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Outstanding Preferential Rights and Consents
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39
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11.4
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Transfer of Operatorship
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39
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11.5
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Raptor Amendment
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39
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12.
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CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
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39
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12.1
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No Litigation
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39
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12.2
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Representations and Warranties
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39
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13.
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TERMINATION
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39
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13.1
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Causes of Termination
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39
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13.2
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Effect of Termination
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40
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13.3
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Buyer’s Hedges
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40
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14.
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INDEMNIFICATION
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41
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14.1
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INDEMNIFICATION BY SELLER
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41
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14.2
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INDEMNIFICATION BY BUYER
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42
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14.3
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PHYSICAL INSPECTION
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43
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14.4
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Notification
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43
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14.5
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Escrow Claims
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44
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15.
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MISCELLANEOUS
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45
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15.1
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Casualty Loss
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45
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ii
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15.2
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Confidentiality
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46
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15.3
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Competition
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46
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15.4
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Notice
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46
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15.5
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Press Releases and Public Announcements
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48
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15.6
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Personnel
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48
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15.7
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Compliance with Express Negligence Test
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48
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15.8
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Governing Law
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48
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15.9
|
Exhibits
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50
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15.10
|
Fees, Expenses, Taxes and Recording
|
50
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15.11
|
Assignment
|
50
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15.12
|
Entire Agreement
|
51
|
|
|
|
15.13
|
Severability
|
51
|
|
|
|
15.14
|
Captions
|
51
|
|
|
|
15.15
|
Counterpart Execution
|
51
|
|
|
|
15.16
|
Waiver of Certain Damages
|
51
|
|
|
|
15.17
|
Amendments and Waivers
|
51
|
|
|
|
15.18
|
Chalker As Agent
|
51
|
|
|
|
15.19
|
Right to Set Off
|
52
|
|
|
|
|
|
|
|
|
Exhibits:
|
|
|
|
|
A
|
List of Participating Owners
|
|
|
|
A-1(a)-A-1(f)
|
Interests of Sellers Sold under this Agreement
|
|
|
|
1.1(A)-1
|
Leases
|
|
|
|
1.1(A)-2
|
Wells and Allocations
|
|
|
|
1.1(E)
|
Fee Mineral Tracts
|
|
|
|
1.2(H)
|
Other Excluded Assets
|
|
|
|
2.2
|
Escrow Agreement
|
|
|
|
3.2(A)
|
Form of Assignment
|
|
|
|
3.2(B)
|
Amendment to Development Agreement
|
|
|
|
3.2(C)
|
Certification of Non-Foreign Status
|
|
|
|
3.2(D)
|
Transition Procedures Agreement
|
|
|
|
7.1(D)
|
AFE’s
|
|
|
|
7.1(F)
|
Litigation
|
|
|
|
7.1(I)
|
Imbalances
|
|
|
|
7.1(J)
|
Preferential Rights
|
|
|
|
7.1(K)
|
Consents
|
|
|
|
7.1(O)
|
Hydrocarbon Sales Contracts
|
|
|
|
7.1(P)
|
Material Contracts
|
|
|
|
7.1(S)
|
Royalty Payments
|
|
|
|
7.1(X)
|
Drilling Obligations
|
|
|
|
7.1(Y)
|
Suspense Funds
|
|
|
|
9.1(D)
|
Maintenance of Assets Agreements
|
|
|
|
11.5
|
Amendment to Participation Agreement
|
|
|
|
13.3
|
Buyer’s Hedges
|
|
iii
INDEX OF DEFINED TERMS
|
DEFINED TERM
|
|
SECTION
|
|
Adverse Environmental Condition
|
|
6.3
|
|
Agreement
|
|
Preamble
|
|
Allocated Value/Allocated Values
|
|
2.4
|
|
Asset Tax
|
|
2.3(A)(ii)
|
|
Assets
|
|
1.1
|
|
Assumed Liabilities
|
|
1.3
|
|
Auditor
|
|
9.5
|
|
Base Purchase Price
|
|
2.1
|
|
Buyer
|
|
Preamble
|
|
Buyer Group
|
|
14.1
|
|
Buyer’s Response
|
|
5.4(D)(ii)
|
|
Casualty
|
|
15.1(A)
|
|
Casualty Loss
|
|
15.1(B)
|
|
Closing
|
|
3.1
|
|
Closing Adjustment Statement
|
|
4.1
|
|
Closing Date
|
|
3.1
|
|
Confidential Information
|
|
15.1(A)
|
|
Contracts
|
|
1.1(C)
|
|
Defect Fund
|
|
3.3(B)
|
|
Defect Threshold
|
|
5.4(A)
|
|
Earnest Money
|
|
2.2
|
|
Effective Time
|
|
1.4
|
|
Environmental Consultant
|
|
6.4(D)
|
|
Environmental Defect Notice
|
|
6.3
|
|
Environmental Defect Value
|
|
6.3
|
|
Environmental Laws
|
|
6.2(C)
|
|
Escrow Account
|
|
2.2
|
|
Escrow Agent
|
|
2.2
|
iv
|
Escrow Agreement
|
|
2.2
|
|
Escrow Fund
|
|
2.2
|
|
Excluded Assets
|
|
1.2
|
|
Fundamental Rep
|
|
14.1(D)(i)
|
|
Good and Marketable Title
|
|
5.3
|
|
Indemnity Escrow Fund
|
|
3.3(B)
|
|
Individual Title Benefit Threshold
|
|
5.6
|
|
Individual Title Defect Threshold
|
|
5.4(A)
|
|
Lands
|
|
1.1(A)
|
|
Leases
|
|
1.1(A)
|
|
Litigation
|
|
7.1(F)
|
|
Loss/Losses
|
|
14.1(A)
|
|
Material Contracts
|
|
7.1(P)
|
|
Net Revenue Interest
|
|
5.3(A)(i)
|
|
NORM
|
|
6.1
|
|
Occurrence
|
|
6.5(G)
|
|
Oil and Gas
|
|
1.1(B)
|
|
Party/Parties
|
|
Preamble
|
|
Permitted Encumbrances
|
|
5.3(B)(ii)
|
|
Post-Closing Adjustment Statement
|
|
4.3(A)
|
|
Preferential Rights
|
|
7.1(J)
|
|
Purchase Price
|
|
2.3
|
|
Qualified Intermediary
|
|
2.5
|
|
Raptor
|
|
11.5
|
|
Real and Personal Property Taxes
|
|
2.3(A)(ii)
|
|
Records
|
|
1.1(I)
|
|
Remediate and Remediation
|
|
6.4(C)
|
|
Retained Liabilities
|
|
1.3
|
|
SEC
|
|
9.5
|
|
Sellers
|
|
Preamble
|
v
|
Sellers Group
|
|
6.2(B)
|
|
Sellers’ Response
|
|
5.4(D)(i)
|
|
Statement of Revenues and Expenses
|
|
9.5
|
|
Survival Period
|
|
14.1(D)(i)
|
|
Tax
|
|
4.6
|
|
Threshold Amount
|
|
14.1(D)(iv)
|
|
Title Benefit
|
|
5.6
|
|
Title Consultant
|
|
5.4(D)(iii)
|
|
Title Defect
|
|
5.4(A)
|
|
Title Defect Value
|
|
5.5(B)
|
|
Undeveloped Acreage
|
|
5.3(A)
|
|
Units
|
|
1.1(A)
|
|
Wells
|
|
1.1(A)
|
|
Working Interest
|
|
5.3(A)(ii)
|
vi
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this “Agreement”) is entered into this 28th day of November, 2012, by and between CHALKER ENERGY PARTNERS III, LLC, a Texas limited liability company (“
Chalker
”), and the other Participating Owners listed on Exhibit A, attached hereto and made a part hereof (collectively, “
Sellers
”) and JONES ENERGY HOLDINGS, LLC, a Delaware limited liability company (“
Buyer
”). Buyer and Sellers are collectively referred to herein as the “
Parties
” and sometimes individually referred to as a “
Party
.”
RECITALS:
A.
Sellers desire to sell to Buyer certain oil, gas and mineral properties and other assets on the terms and conditions set forth in this Agreement.
B.
Buyer desires to purchase from Sellers such assets on the terms and conditions set forth in this Agreement.
WITNESSETH:
In consideration of the mutual agreements contained in this Agreement, Buyer and Sellers agree as follows:
1.
SALE AND PURCHASE OF THE ASSETS
.
1.1
Acquired Assets
. Subject to the terms and conditions of this Agreement, each Seller agrees to sell, convey and deliver to Buyer and Buyer agrees to purchase and acquire from each Seller, at the Closing, such Seller’s right, title, interest and estate (of any kind or character, whether legal or beneficial) as set forth on Exhibits A-1(a)-A-1(f) attached hereto in and to the following (collectively, the “
Assets
”):
(A)
(i) The oil, gas and mineral leases described or referred to in Exhibit 1.1(A)-1 (collectively, “
Leases
”) including without limitation, but subject to the Excluded Assets, carried interests, royalty interests, overriding royalty interests, production payments, subleases, reversionary interests and net profits interests; (ii) the lands covered by the Leases or the lands pooled, unitized, communitized or consolidated therewith (the “
Lands
”); (iii) any and all wells located on the Lands, including those wells described in Exhibit 1.1(A)-2 (the “
Wells
”); (iv) all easements, rights of way, and other rights, privileges, benefits and powers with respect to the use and occupation of the surface of, and the subsurface depths under, the Lands, and all tenements, hereditaments and appurtenances belonging thereto or to the Leases; (v) all presently existing unitization, pooling and/or communitization agreements, declarations or designations and statutorily, judicially or administratively created drilling, spacing and/or production units, whether recorded or unrecorded, which relate to the
1
Leases, and all of the Sellers’ interests in and to the properties covered or units created thereby which are attributable to the Leases (the “
Units
”), regardless of whether such unit or pool production comes from wells located within or without the Leases.
(B)
All of the oil and gas and associated hydrocarbons in and under or otherwise attributable to the Leases, the Lands and the Units or produced from the Wells (“
Oil and Gas
”) from and after the Effective Time;
(C)
To the extent assignable and applicable to the Leases, Lands, Wells or Units, servitudes, gas purchase and sale contracts (including interests and rights, if any, with respect to any prepayments, take-or-pay, buydown and buyout agreements) to the extent that the same pertain or relate to periods after the Effective Time, as herein defined, crude oil or other liquid hydrocarbon purchase and sale agreements, farmin agreements, farmout agreements, bottom hole agreements, acreage contribution agreements, operating agreements, unit agreements, processing agreements, options, leases of equipment or facilities, joint venture agreements, pooling agreements, transportation agreements, rights-of-way and all other contracts, agreements and rights, to which any Seller is a party or in which any Seller has an interest and are appurtenant to the Leases, Lands, Wells or Units (collectively, the “
Contracts
”); provided, however, that any currently existing operating agreements affecting only lands covered by the Assets and the only parties to which are Sellers, shall be terminated at Closing.
(D)
All of the real, personal and mixed property and facilities located in or on the Leases, Lands or Units directly used in the operation thereof which are owned by any Seller, in whole or in part, including, without limitation, well equipment; casing; tanks; crude oil, natural gas, condensate or products in storage severed after the Effective Time; tubing; compressors; pumps; motors; fixtures; machinery and other equipment; pipelines; gathering lines; gas systems (for gathering, treating and compression); compressors; field processing equipment; inventory and all other improvements used in the operation thereof (specifically including all geophysical and seismic records, data and information owned by any Seller, subject to restrictions contained in agreements with third parties covering such records and data);
(E)
The lands and/or mineral interests described on Exhibit 1.1(E) owned by any Seller in fee (the “
Fee Mineral Tracts
”);
(F)
To the extent assignable, all governmental permits, licenses and authorizations, as well as any applications for the same, related to the Leases, Lands, Wells or Units or the use thereof;
2
(G)
All rights and benefits arising from or in connection with any gas production, pipeline, storage, processing or other imbalance attributable to Oil and Gas produced from the Wells or Units as of the Effective Time;
(H)
All other rights and interests in, to or under or derived from the Leases, Lands, Wells or Units or directly used or held for use in connection therewith; and
(I)
All of Sellers’ files, records and data relating to the items described in subsections (A), (B), (C), (D), (E), (F) (G) and (H) above, including, without limitation, division orders, title records (including title curative documents); surveys, maps and drawings; contracts; correspondence; geological records and information; production records, electric logs, core data, pressure data, decline curves, graphical production curves and all related matters and construction documents (except (i) to the extent the transfer, delivery or copying of such records may be restricted by contract with a third party; (ii) documents and instruments of a Seller that may be protected by the attorney-client privilege (excluding title opinions, abstracts of title, Leases and Contracts); and (iii) all accounting and Tax files, books, records, tax returns and tax work papers related to the preceding clauses (i) and (ii)) (collectively, the “
Records
”).
1.2
Excluded Assets
. Specifically excepted and reserved from this transaction are the following, hereinafter referred to as “
Excluded Assets
”:
(A)
Sellers’ corporate records, financial and Tax records wholly unrelated to the Assets, reserve estimates and reports, economic analyses, computer programs and applications, pricing forecasts, legal files, legal opinions, attorney-client communications, and attorney work product (except abstracts of title, title opinions, certificates of title, title curative documents, Leases and Contracts, which shall be furnished to Buyer), and all other records and documents subject to confidentiality provisions, or other restrictions on access or transfer; provided, however, that each Seller will, upon Buyer’s request and at no cost or expense to each Seller, request waivers of such restrictions;
(B)
All rights and claims arising, occurring, or existing in favor of Sellers prior to the Effective Time, including, but not limited to, any and all contract rights, claims, penalties, receivables, revenues, recoupment rights, recovery rights, accounting adjustments, mispayments, erroneous payments, personal or corporate injury, property damages, royalty and other rights and claims of any nature in favor of Sellers relating to any time period prior to the Effective Time;
(C)
All of Sellers’ insurance contracts and rights, titles, claims and interests of Sellers related to the Assets for all periods prior to the Effective Time (i)
3
under any policy or agreement of insurance or indemnity, (ii) under any bond or letter of credit or other security device, or (iii) to any insurance or condemnation proceeds or awards, together with all amounts due or payable to Sellers as adjustments to insurance premiums related to the Assets for all periods prior to the Effective Time;
(D)
Claims of Sellers for any refund of or loss carry forwards with respect to (i) production, windfall profit, severance, ad valorem or any other Taxes attributable to the Assets for any period prior to the Effective Time, and (ii) income, occupational or franchise taxes;
(E)
All monies, proceeds, benefits, receipts, credits, income or revenues (and any security or other deposits made) attributable to the Assets or the ownership or operation thereof prior to the Effective Time, including, without limitation, amounts recoverable from audits under operating agreements and any overpayments of royalties to the extent attributable to the period prior to the Effective Time; and
(F)
All rights, obligations, benefits, awards, judgments, settlements, if any, applicable to any litigation pending in which any Seller is a named claimant or plaintiff or holds beneficial rights or interests, to the extent related to periods prior to the Effective Time;
(G)
All hedges relating to the Assets; and
(H)
Any other assets or items identified on Exhibit 1.2(H).
1.3
Assumed Liabilities; Retained Liabilities
. On the Closing Date, except as otherwise provided in this Agreement, Buyer shall assume and agree to timely and fully pay, perform and otherwise discharge, without recourse to Sellers or their affiliates, all of the liabilities and obligations of Sellers and their affiliates, successors, assigns or representatives, direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, which relate, directly or indirectly to the Assets (other than the Excluded Assets), which arise or are related to periods of time or are to be performed on or after the Effective Time (collectively, the “
Assumed Liabilities
”), provided, however, Buyer does not assume any obligations or liabilities of Seller to the extent they are:
(i)
attributable to or arise out of ownership, use or operation of the Excluded Assets, or any assets excluded from the Assets pursuant to the terms hereof;
(ii)
attributable to or arise out of the actions, suits or proceedings set forth in Exhibit 7.1(F);
(iii)
attributable to royalty, overriding royalty and other burdens on production of hydrocarbons from the Assets attributable to periods
4
before the Effective Time, and for shut-in payments payable before the Effective Time (provided further that Sellers shall be responsible for the proper disbursement of such payments prior to the Closing to the extent of any damages in excess of royalty obligations owing as a result of improper disbursements);
(iv)
attributable to royalty, overriding royalty and other burdens on the production of hydrocarbons from the Assets held in suspense by Seller as of Closing, or any interest accrued in any escrow account for any such suspended amount, to the extent that such obligations or liabilities exceed the amount actually transferred by Sellers to Buyer pursuant to Section 4.4;
(v)
any liability of any Seller attributable to (i) any federal, state or local income or franchise Tax of any Seller or (ii) any other Tax that was or is attributable to such Seller’s ownership or operation of the Assets for any taxable period (or portion thereof) before the Effective Time (determined by apportioning Taxes between the period before or after the Effective Time (a) consistently with the method described in Section 2.3(A)(ii) for Real and Personal Property Taxes and (b) on an interim closing of the books method in the case of all other Taxes);
(vi)
Operating and capital expenses for which Seller is responsible under Section 1.4;
(vii)
attributable to any hedge contracts;
(viii)
attributable to the duties of any Seller as operator of any Asset (as distinguished from the duties of Sellers as a joint tenant or joint interest owner in such Asset);
(ix)
any claim arising out of or otherwise relating to any personal injury, illness or death occurring prior to the Closing;
(x)
any Remediation obligation of Sellers pursuant to Section 6.5; or
(xi)
attributable to obligations with respect to the period prior to Closing and payable to any affiliate of a Seller, other than for goods and services furnished in the ordinary course of business;
the liabilities of Seller described in the foregoing clauses (i) - (xi) are referred to herein as the (“
Retained Liabilities
”).
1.4
Revenues and Expenses
. Subject to the provisions of this Agreement, Sellers shall remain entitled to all of the rights of ownership (including the right to all production, proceeds of production and other proceeds) and shall remain
5
responsible for all operating and capital expenses (in each case) attributable to the Assets for the period of time prior to 7:00 a.m. at the location of the Assets, on September 1, 2012 (the “Effective Time”).
2.
PURCHASE PRICE
.
2.1
Purchase Price
. The purchase price for the Assets is Two Hundred Fifty Million Dollars ($250,000,000.00) (the “
Base Purchase Price
”), subject to the adjustments provided for herein.
2.2
Earnest Money
. In connection with this Agreement, Buyer has tendered concurrently with the execution of this Agreement Twelve Million Five Hundred Thousand Dollars ($12,500,000.00) (“
Earnest Money
”) to Wells Fargo Bank, N.A. (the “
Escrow Agent
”) acting pursuant to the terms of an Escrow Agreement dated the date of this Agreement in substantially the same form as Exhibit 2.2 (the “
Escrow Agreement
”) for deposit in the escrow account (the “
Escrow Account
”) established pursuant to the Escrow Agreement by wire transfer of immediately available funds. Said sum is considered and recognized by Buyer and Sellers as a deposit on the above stated Purchase Price and as earnest money for Buyer’s performance hereunder. In the event at Closing, conditions of Buyer in Section 11 have been satisfied, and Buyer fails or refuses to close other than for Sellers’ default, Sellers shall be entitled to the Earnest Money as liquidated damages. The parties hereby agree that the Earnest Money is not a penalty; rather, it is a reasonable sum in light of the anticipated or actual harm which Sellers would incur by Buyer’s default hereunder, and that the actual injury caused to Sellers by Buyer’s unexcused failure to purchase the Assets would be most difficult or impossible to ascertain. In addition, Sellers may, at Sellers’ sole option, be entitled to specific performance of this Agreement. In the event that Sellers pursue their right to seek the specific performance of Buyer to purchase the Assets, then such Earnest Money shall be credited toward the Purchase Price payable by Buyer for such Assets upon such specific performance. In the event this Agreement is terminated for reasons other than Buyer’s default, the Earnest Money shall be returned to Buyer.
2.3
Adjustments to the Base Purchase Price
. At Closing, appropriate adjustments to the Base Purchase Price shall be made on an accrual basis as follows, in accordance with Sections 4, 5 and 6, and the following, provided such adjustments shall be made so as to not have duplicative effect (as adjusted, the “
Purchase Price
”):
(A)
The Base Purchase Price shall be adjusted upward by:
(i)
an amount equal to the proceeds derived from the sale of Oil and Gas in storage or above the applicable pipeline connection produced prior to the Effective Time, net of severance taxes, royalties and similar burdens paid by Buyer, actually received by
6
Buyer and directly attributable to the Wells, attributable to Sellers pursuant to Section 4.2;
(ii)
Asset Taxes paid by Sellers which relate to periods (or portions thereof) beginning on or after the Effective Time and ending on or before the Closing Date, other than such Taxes which either (i) are taken into account in the computations under Section 2.3(B)(ii), or (ii) are assumed and paid by Buyer. For purposes of this Agreement, “
Asset Tax
” shall mean any Tax in the nature of a severance, sales and use or ad valorem Tax which is attributable to any Asset; all ad valorem Taxes, real property Taxes and personal property Taxes for the year in which the Effective Time occurs (“
Real and Personal Property Taxes
”) shall be apportioned as of the Effective Time between Sellers and Buyer. Sellers shall be liable for the portion of such Real and Personal Property Taxes based upon the number of days in the year occurring prior to the Effective Time, and Buyer shall be liable for the portion of such Taxes based upon the number of days in the year occurring on and after the Effective Time. For any year in which an apportionment is required, Buyer shall file all reports and returns required to be filed after the Closing Date. Sellers shall pay to Buyer, at the time of Buyer’s remittance, Sellers’ share of such Taxes to the extent such amounts were not credited to Buyer in calculating adjustments to the Purchase Price pursuant to Section 2.3;
(iii)
an amount equal to the costs, expenses and other expenditures (net to Sellers’ interest) paid by Sellers in accordance with this Agreement that are attributable to the Assets for the period from the Effective Time to the Closing Date;
(iv)
the fixed monthly overhead rate, if any, prorated if necessary, for each active producing Well, as provided in the applicable operating agreement, incurred by Sellers for wells operated by the Sellers while operating the Assets from and after the Effective Time. If Sellers owns a 100% working interest or if no operating agreement applies, the fixed monthly rate per active producing Well shall be Seven Hundred Fifty Dollars ($750); and
(v)
any other amount agreed upon in writing by Sellers and Buyer.
(B)
The Base Purchase Price shall be adjusted downward by:
(i)
an amount equal to the amount of proceeds derived from the sale of Oil and Gas, net of royalties and severance taxes paid by Sellers, actually received by Sellers and directly attributable to the Wells which are attributable to the period of time from and after the
7
Effective Time, provided that to the extent the actual amounts cannot be determined prior to the agreement of Buyer and Sellers with respect to the Closing Adjustment Statement, a reasonable estimate of such proceeds shall be used;
(ii)
Asset Taxes that arise in or are attributable to periods (or portions thereof) prior to the Effective Time, other than any such Asset Taxes which either (a) are taken into account in the compilations under Sections 2.3(A)(ii), or (b) are assumed and paid (or if paid by Buyer, reimbursed to Buyer) by Sellers;
(iii)
an amount equal to all expenditures, liabilities and costs (whether capitalized
or expensed) relating to the Assets (other than Taxes related to the Assets) that are unpaid as of the Closing Date and assessed for or attributable to periods of time prior to the Effective Time regardless of how such expenditures, liabilities and costs are calculated, provided that to the extent the actual amounts cannot be determined prior to the agreement of Buyer and Sellers with respect to the Closing Adjustment Statement, a reasonable estimate of such expenditures, liabilities and costs shall be used (and to such extent Buyer shall assume the liability and responsibility for payment therefor);
(iv)
the amount, if any, by which the aggregate gross expenditures for the drilling of the Laubhan 526 #2H-C, the Waters Ranch 289 #1H-C, the McQuiddy 17 #1H-C and the Peery 331 #1H-C wells (determined through the release of the drilling rig therefor, it being understood that Sellers will not complete these Wells) exceeds Ten Million Dollars ($10,000,000);
(v)
all amounts related to Title Defects as determined pursuant to Section 5.5, Adverse Environmental Conditions as determined pursuant to Section 6.4, Preferential Rights as determined pursuant to Section 9.4 and Casualty Losses as determined pursuant to Section 15.1; and
(vi)
any other amount agreed upon in writing by Sellers and Buyer.
(C)
Sellers shall have the right to collect any receivable, refund or other amounts associated with periods prior to the Effective Time. To the extent that Buyer collects any such receivable, refund or other amounts, then Buyer shall promptly remit any such amounts to Sellers. Buyer shall have the right to collect any receivable, refund or other amounts attributable to periods after the Effective Time. To the extent that Sellers collect any such receivable, refund or other amount associated with periods after the
8
Effective Time, then Sellers shall promptly remit any such amounts to Buyer.
(D)
Provided, however, that the Assets do not include Sellers’ hedges, and the Purchase Price shall not be adjusted upward or downward as a result of such hedges.
2.4
Allocation
.
(A)
The Base Purchase Price shall be allocated to the Assets as set forth in Exhibit 1.1(A)-2. Sellers and Buyer covenant and agree that the values allocated to various portions of the Assets, which are set forth on Exhibit 1.1(A)-2 (singularly with respect to each item, the “
Allocated Value
” and collectively, the “
Allocated Values
”), shall be binding on Sellers and Buyer and shall be used for the purposes of adjusting the Base Purchase Price pursuant to Sections 5.5 (relating to Title Defects), 5.6 (relating to Title Benefits), 6.4 (relating to Adverse Environmental Conditions), 9.4 (relating to Preferential Rights) and 15.1 (relating to Casualty Losses).
(B)
Buyer and Sellers agree that the Base Purchase Price shall be allocated among the Assets, in accordance with the principles of Section 1060 of the Internal Revenue Code and the Treasury Regulations thereunder and reasonably consistent with the allocations in Section 2.4(A), as set forth on a schedule to be prepared by Buyer and delivered to Sellers on or prior to thirty (30) days after Post-Closing Adjustment Statement has become final and binding on the Parties and to which the Parties shall mutually agree. Buyer and Sellers shall cooperate to comply with all substantive and procedural requirements of Section 1060 and the Treasury Regulations thereunder, including, without limitation, the filing by Buyer and Sellers of IRS Form 8594 with their federal income tax returns for the taxable year in which Closing occurs. Buyer and Sellers agree that each will not take for income tax purposes, or permit any affiliate to take, any position inconsistent with the allocation of the Purchase Price under this Section 2.4(B).
2.5
Section 1031 Like Kind Exchange
. Without any liability or increased costs to Sellers, Buyer shall have the right at any time prior to completion of all the transactions that are to occur at Closing to assign all or a portion of its rights under this Agreement to a “
Qualified Intermediary
” (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) in order to accomplish the transaction in a manner that will comply, either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Code. Likewise, without any liability or increased costs to Buyer, Sellers shall have the right at any time prior to completion of all the transactions that are to occur at Closing to assign all or a portion of its rights under this Agreement to a Qualified Intermediary for the same purpose. If Sellers assign all or any of its rights under
9
this Agreement for this purpose, Buyer agrees to (a) consent to Sellers’ assignment of their rights in this Agreement, which assignment shall be in a form reasonably acceptable to Buyer, and (b) pay the Purchase Price (or a designated portion thereof as specified by Sellers) into a qualified escrow or qualified trust account at Closing as directed in writing. If Buyer assigns all or any of its rights under this Agreement for this purpose, Sellers agree to (i) consent to Buyer’s assignment of its rights in this Agreement, which assignment shall be in a form reasonably acceptable to Sellers, (ii) accept the Purchase Price from the qualified escrow or qualified trust account at Closing, and (iii) at Closing, convey and assign directly to Buyer the interests (or any portion thereof) as directed by Buyer. Sellers and Buyer acknowledge and agree that any assignment of this Agreement (or any rights hereunder) to a Qualified Intermediary shall not release any Party from any of its respective liabilities and obligations hereunder, and that neither Party represents to the other that any particular tax treatment will be given to either as a result thereof.
3.
CLOSING
.
3.1
Closing
. Subject to any termination pursuant to Section 13, the sale and purchase of the Assets (“
Closing
”) shall be held on December 31, 2012 or such earlier date as may be mutually agreed by Buyer and Chalker (the “
Closing Date
”). The Closing will take place at the offices of Chalker’s legal counsel or such other place as designated by mutual agreement of the Parties.
3.2
Delivery by Sellers
. At Closing, Sellers shall execute and deliver or cause to be executed and delivered, to Buyer:
(A)
One or more Assignments and Bills of Sale, substantially in the form attached hereto as Exhibit 3.2(A), effecting the sale, transfer, conveyance and assignment of the Assets;
(B)
An Amendment to the Development Agreement dated December 1, 2009, affecting the Assets, in form attached hereto as Exhibit 3.2(B);
(C)
Certifications of Non-Foreign Status substantially in the form attached hereto as Exhibit 3.2(C);
(D)
A Transition Procedures Agreement substantially in the form attached hereto as Exhibit 3.2(D);
(E)
Change of operator forms in form and substance satisfactory to the Buyer for each of the Wells and Units for which the Sellers or their affiliates act as operator evidencing a transfer to the Buyer or the Buyer’s designee of operations on all such Wells and Units;
10
(F)
Transfer orders or letters in lieu in form and substance satisfactory to the Buyer for each purchaser of production with respect to each of the Wells and Units;
(G)
Such releases, termination statements, ratifications, consents, elections and waivers from any party who owns or claims any right, title or interest in and to any of the Assets as might be reasonably requested by the Buyer; and
(H)
Such additional d
ocuments customary in similar transactions as might be reasonably requested by the Buyer to consummate this Agreement.
3.3
Delivery by Buyer
. At Closing, Buyer shall deliver to Sellers or Sellers’ designee:
(A)
the Purchase Price set forth in the Closing Adjustment Statement, net of the Escrow Fund, by wire transfer in immediately available funds to an account designated by Chalker or, if written instructions are provided for payment to individual Seller(s) not later than three (3) days prior to Closing, to that individual Seller or those individual Sellers by wire transfer in immediately available funds to accounts designated by such individual Seller(s) at Closing; that portion of the Purchase Price represented by the Earnest Money shall be paid by wire transfer of immediately available funds by the Escrow Agent from the Escrow Account to the account or accounts designated by Chalker, or, if any Sellers instruct Chalker in writing as to their proportionate share, to one or more accounts as instructed by Sellers; and
(B)
to the Escrow Agent, for deposit in the Escrow Account, an amount equal to the sum of (i) Six Million Dollars ($6,000,000) (the “
Indemnity Escrow Fund
”) and (ii) the aggregate Title Defect Value with respect to all Assets that have incurred title defects that Sellers have elected to attempt to cure under Section 5.5(A)(iii) (the “
Defect Fund
”, and collectively the “
Escrow Fund
”). The Indemnity Escrow Fund shall be applied solely to satisfy claims for indemnification pursuant to Section 14.5, and the Defect Fund shall be applied solely to satisfy Purchase Price refunds pursuant to Section 5.5(A)(iii), subject to the terms and limitations therein. Subject to the foregoing, the Escrow Fund shall be held, invested and disbursed as specified in and pursuant to the terms and conditions of the Escrow Agreement and in accordance with the terms and conditions of Sections 5.5(A)(iii) and 14.5.
3.4
Further Cooperation
. At the Closing and thereafter as may be necessary, Sellers and Buyer shall execute and deliver such other instruments and documents and take such other actions as may be reasonably necessary to evidence and effectuate the transactions contemplated by this Agreement. Buyer and Sellers shall
11
cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax returns related to the Assets and any audit, litigation or other proceeding with respect to Taxes related to the Assets. Such cooperation shall include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.
4.
ACCOUNTING ADJUSTMENTS
.
4.1
Closing Adjustments
. With respect to matters that can be determined as of the Closing, Sellers shall prepare, in accordance with the provisions of Section 2 and this Section 4, a statement (the “
Closing Adjustment Statement
”) with relevant supporting information setting forth each adjustment to the Base Purchase Price submitted by Sellers. Sellers shall submit the Closing Adjustment Statement to Buyer, together with all records or data supporting the calculation of amounts presented on the Closing Adjustment Statement, no later than five (5) days prior to the scheduled Closing Date. Prior to the Closing, Buyer and Sellers shall review the adjustments proposed by Sellers in the Closing Adjustment Statement. Agreed upon adjustments shall be taken into account in computing any adjustments to be made to the Base Purchase Price at the Closing. When available, actual figures will be used for the adjustments at Closing. To the extent actual figures are not available, estimates shall be used subject to final adjustments as described in Section 4.3 below.
4.2
Strapping and Gauging
. Sellers have caused the Oil and Gas in the storage facilities located on, or utilized in connection with, the Leases to be measured, gauged or strapped as of the Effective Time. Sellers have caused the production meter charts (or if such do not exist, the sales meter charts) on the pipelines transporting Oil and Gas from the Leases to be read as of such time. The Oil and Gas in such storage facilities above the pipeline connection or through the meters on the pipelines prior to the Effective Time shall belong to Sellers, and the Oil and Gas placed in such storage facilities from and after the Effective Time and production upstream of the aforesaid meters shall belong to Buyer and become part of the Assets.
4.3
Post-Closing Adjustments
.
(A)
A post-closing adjustment statement (the “
Post-Closing Adjustment Statement
”) based on the actual income and expenses shall be prepared and delivered by Sellers to Buyer within ninety (90) days after the Closing, proposing further adjustments to the calculation of the Purchase Price based on the information then available. The Post-Closing Adjustment Statement will include adjustments for the matters set forth in this Agreement and in addition will include: (i) an upward or downward
12
adjustment, as applicable, for the net mcf amount of the aggregate wellhead gas imbalance attributable to the Wells as of the Effective Time multiplied by Four Dollars and No Cents ($4.00) per mmbtu (upward for an aggregate underage and downward for an aggregate overage); and (ii) an upward or downward adjustment for the total pipeline or throughput obligations as of the Effective Time and, subject to the terms and provisions of the applicable agreements, multiplied by the price actually received per mcf or mmbtu (downward for under deliveries and upward for over deliveries). Sellers or Buyer, as the case may be, shall be given access to and shall be entitled to review and audit the other Party’s records pertaining to the computation of amounts claimed in such Post-Closing Adjustment Statement.
(B)
Within thirty (30) days after receipt of the Post-Closing Adjustment Statement, Buyer shall deliver to Sellers
a written statement describing in reasonable detail its objections (if any) to any amounts or items set forth on
or omitted from the Post-Closing Adjustment Statement. If Buyer does not raise objections within such period, then the Post-Closing Adjustment Statement shall become final
and
binding upon the Parties at the end of such period.
(C)
If Buyer raises objections, the Parties shall negotiate in good faith to resolve any such objections. If the Parties are unable to resolve any disputed item within thirty (30) days after Sellers’ receipt of Buyer’s written objections to the Post-Closing Adjustment Statement, any such disputed item shall be submitted to an independent accounting firm mutually agreeable to the Parties who shall be instructed to resolve such disputed item within thirty (30) days. The resolution of disputes by the accounting firm so selected shall be set forth in writing and shall be conclusive, binding and non-appealable upon the Parties and the Post-Closing Adjustment Statement shall become final and binding upon the Parties on the date of such resolution. The fees and expenses of such accounting firm shall be paid one-half by Buyer and one-half by Sellers.
(D)
After the Post-Closing Adjustment Statement has become final and binding on the Parties,
Sellers or Buyer, as the case may be, shall pay to the other such sums as are due to settle accounts between the Parties due to differences between the estimated Purchase Price paid pursuant to the Closing Adjustment Statement and the actual Purchase Price set forth on the Post-Closing Adjustment Statement, which payments shall be made within ten (10) days after the date the
Post-Closing Adjustment Statement has become final and binding on the Parties
.
(E)
For the avoidance of doubt, the final and binding nature of the Post Closing Adjustment Statement shall not affect the indemnity obligations of the Parties pursuant to Sections 14.1 and 14.2.
13
4.4
Suspended Funds
. Sellers shall transfer to Buyer all of those suspended proceeds at Closing. BUYER SHALL BE RESPONSIBLE FOR PROPER DISTRIBUTION OF ALL THE SUSPENDED PROCEEDS, TO THE EXTENT TURNED OVER TO IT BY SELLERS, TO THE PARTIES LAWFULLY ENTITLED TO THEM AND ANY CLAIMS RELATED THERETO. BUYER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS SELLERS FROM AND AGAINST ANY AND ALL LOSSES AS DEFINED BELOW ARISING OUT OF OR RELATING TO THOSE SUSPENDED PROCEEDS ACTUALLY PAID OVER TO BUYER.
4.5
Audit Adjustments
. Sellers shall retain all rights to adjustments resulting from any operating agreement and other claims asserted against third party operators on transactions occurring prior to the Effective Time (which includes Buyer, if applicable). Any credit received by Buyer pertaining to such a claim shall be paid to Sellers within thirty (30) days after receipt.
4.6
Asset Tax Refunds
. Refunds of Asset Taxes paid or payable with respect to or attributable to the Assets shall be promptly paid as follows (or to the extent payable but not paid due to offset against other Taxes shall be promptly paid by the Party receiving the benefit of the offset as follows) (determined by apportioning Taxes between the period before or after the Effective Time (a) consistently with the method described in Section 2.3(A)(ii) for Real and Personal Property Taxes and (b) on an interim closing of the books method in the case of all other Taxes): (i) to Sellers if attributable to Asset Taxes with respect to any Asset Tax year or portion thereof ending on or before the Effective Time; and (ii) to Buyer if attributable to Taxes with respect to any Asset Tax year or portion thereof beginning from and after the Effective Time. “
Tax
” means any tax (including any income tax, capital gains tax, value-added tax, sales and use tax, franchise tax, payroll tax, withholding tax, property tax, payroll tax, occupation tax, license tax, gross receipts tax, fuel tax, or severance or production tax), levy, assessment, tariff, duty (including any customs duty), deficiency, franchise fee or payment, or other fee or payment imposed, assessed or collected by or under the authority of any governmental body, including any taxes of any other taxpayer for which a person or entity is liable as transferee, successor, by contract or otherwise, and any related charge or amount (including any fine, penalty, interest or addition to tax).
4.7
Cooperation
. Each Party covenants and agrees to promptly inform the other with respect to amounts owing under Sections 4.3, 4.5 and 4.6 hereof.
5.
DUE DILIGENCE; TITLE MATTERS
.
5.1
General Access
. Prior to Closing, Sellers shall:
(A)
Give Buyer and its representatives, employees, consultants, independent contractors, attorneys and other advisors reasonable access to the Leases
14
(to the extent same are Seller operated or controlled, and for those Leases not operated or controlled by Sellers, Sellers agree to use reasonable efforts to afford access to Buyer to such Leases) and other Assets, and all pertinent records, information, and data in Sellers’ possession related to the Assets, during regular office hours for any and all inspections and investigations, subject to such restrictions on disclosure as may exist under confidentiality agreements or other agreements binding on Sellers.
(B)
Furnish to Buyer all other information with respect to the Assets as Buyer may from time to time reasonably request, unless Sellers are prohibited therefrom by any agreement, contract, obligation or duty by which it is bound or by the necessity of any third party approval; provided that, if requested by Buyer, Sellers shall use reasonable efforts to obtain the waiver of any such prohibition or the granting of any such approval.
5.2
Sellers’ Title
. Sellers shall warrant and defend the Assets unto Buyer against every person lawfully claiming the Assets or any part thereof, by, through or under Sellers, but not otherwise. However, except for such limited warranty of title and the representations and warranties set forth in this Agreement and Assignment and Bill of Sale all of Sellers’ interests in the Assets are to be sold AS IS AND WHERE IS AND WITHOUT WARRANTY OF MERCHANTABILITY, CONDITION OR FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED.
5.3
Good and Marketable Title
. As used herein the term “
good and marketable title
” shall mean:
(A)
As to each of the Wells, Units or the Undeveloped Acreage which record title, or contractual rights to earn, of Sellers:
(i)
entitles Sellers to receive from each Well, Unit or the Undeveloped Acreage not less than the interests shown in Exhibit 1.1(A)-2 as the “
Net Revenue Interest
” of all Oil and Gas produced, saved and marketed from each Well, Unit or the Undeveloped Acreage; and
(ii)
obligates Sellers to bear a percentage of the costs and expenses relating to the maintenance and development of, and operations relating to, each Well, Unit or the Undeveloped Acreage not greater than the “
Working Interest
” shown in Exhibits 1.1(A)-2 (without a proportionate increase in the Net Revenue Interest).
As used herein, “
Undeveloped Acreage
” means the leasehold or mineral fee interest to the extent it covers the lands (as to the depths specified on Exhibit 1.2(A)-2) included within the geographic area identified as Undeveloped Acreage on Exhibit 1.1(A)-2.
15
(B)
That title of Sellers to the Assets:
(i)
at Closing, is free and clear of mortgages, liens, burdens and other encumbrances (except for Permitted Encumbrances as defined in subsection (ii) below) and with respect to real property interests to be transferred to Buyer, real property interests are of record in the relevant counties or parishes;
(ii)
as used herein the term “
Permitted Encumbrances
” shall mean any one (1) or more of the following described below or created or described in documents described below:
(1)
The terms and conditions of the Leases, including without limitation lessors’ royalties, overriding royalties, net profits interests, carried interests, production payments, reversionary interests and similar burdens, if the net cumulative effect of the burdens does not operate to reduce the interest of Sellers with respect to all Oil and Gas produced from any Well, Unit or the Undeveloped Acreage below the Net Revenue Interest for such Well, Unit or Undeveloped Acreage set forth in Exhibit 1.1(A)-2 or increase the Working Interest with respect to such Well, Unit or Undeveloped Acreage;
(2)
The division orders and sales contracts terminable without penalty upon no more than ninety (90) days notice to the purchaser;
(3)
Preferential Rights and required third party consents to assignment and similar agreements with respect to which waivers or consents are obtained from the appropriate parties, or the appropriate time period for asserting any such right has expired without an exercise of the right;
(4)
Materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business for obligations that are not delinquent or that will be paid and discharged in the ordinary course of business;
(5)
All rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests therein if they are routinely obtained subsequent to the sale or conveyance;
16
(6)
Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations that do not interfere with the oil and gas operations to be conducted on any Well, Unit or the Undeveloped Acreage or the economical operation of any Asset;
(7)
All rights reserved to or vested in any governmental, statutory or public authority to control or regulate any of the Assets in any manner, and all applicable laws, rules and orders of governmental authority;
(8)
All operating agreements, unit agreements, unit operating agreements, pooling agreements and pooling designations and other agreements affecting the Assets that are of record in Sellers’ chain of title or are reflected or referenced in Sellers’ files to the extent such agreements do not reduce the interest of Sellers with respect to all Oil and Gas produced from any Well, Unit or the Undeveloped Acreage below the Net Revenue Interest set forth in Exhibit 1.1(A)-2 for such Well, Unit or Undeveloped Acreage, and/or do not increase the portion of the costs and expenses relating to any Well, Unit or the Undeveloped Acreage that Sellers are obligated to pay above the Working Interest set forth in Exhibit 1.1(A)-2 for such Well, Unit or Undeveloped Acreage (without a proportionate increase in Net Revenue Interest);
(9)
All other liens, charges, encumbrances, contracts, agreements, instruments, obligations, defects and irregularities affecting the Assets that individually or in the aggregate are not such as to interfere with the operation, value or use of any of the Assets, do not prevent Buyer from receiving the proceeds of production from any of the Wells, Units or the Undeveloped Acreage, do not reduce the interest of Sellers with respect to all Oil and Gas produced from any Well, Unit or the Undeveloped Acreage below the Net Revenue Interest set forth in Exhibit 1.1(A)-2 for such Well, Unit or Undeveloped Acreage, and/or do not increase the portion of the costs and expenses relating to any Well, Unit or the Undeveloped Acreage that Sellers are obligated to pay above the Working Interest set forth in Exhibit 1.1(A)-2 for such Well, Unit or Undeveloped Acreage (without a proportionate increase in Net Revenue Interest); Title Defects Buyer may have expressly waived in writing, any Title Defects for which an adjustment to the Base Purchase Price is made pursuant to Section 5.5, or any
17
Title Defects for which the applicable Asset is not transferred pursuant to this Agreement due to the election of Sellers not to cure a Title Defect and not transfer such Asset pursuant to Section 5.5 or which are otherwise deemed to have become Permitted Encumbrances under this Agreement;
(10)
Any Adverse Environmental Conditions waived by Buyer pursuant to Section 6.3;
(11)
Sellers’ ownership of rights in and to the Cleveland formation (or its stratigraphic equivalent as found between the depths of 8,435’ and 8,874 on the Schlumberger Compensated Neutron — Formation Density Log in the Enron Oil and Gas operated, Cleveland #1-107 Well (API# 42-295-31806) located in Section 107, Block 43, H&TC Survey Lipscomb County Texas) within Section 103, Block 43, H&TC RR Co Survey, Lipscomb County, Texas, that are based on or relate to Buyer’s potential ownership of any rights to the Cleveland formation derived from Buyer’s operated Jones Energy Cleveland 103-3H well
;
(12)
Regulatory issues with the Texas Railroad Commission or other administrative agency regarding the spacing or density of Wells located in Section 83, Block 13, H&TC RR Co Survey, Ochiltree County, Texas.
5.4
Defect Letters
.
(A)
Buyer may from time to time and no later than seven (7) days prior to Closing notify Chalker in writing of any liens, contracts, obligations, encumbrances, defects of title which would cause title to all or part of the Assets not to be good and marketable as defined in Section 5.3 hereof or which would cause a breach of a representation or warranty of Sellers (“
Title Defect
”), provided that no Title Defect shall be deemed to exist unless (i) the Title Defect Value thereof exceeds Seventy-Five Thousand Dollars ($75,000.00) (the “
Individual Title Defect Threshold
”) (provided, that with regard to a particular Asset, a series of common defects in or failures to Sellers’ Title may be aggregated in respect of determining whether the Individual Title Defect Threshold has been exceeded); and, (ii) the aggregate Title Defect Values plus the aggregate Environmental Defect Values less Title Benefits exceed Five Million Dollars ($5,000,000) (the “
Defect Threshold
”), but in the event that the sum of all Title Defect Values and all Environmental Defect Values less all Title Benefits exceeds the Defect Threshold, then any adjustments to the Purchase Price or other remedies for Title Defects provided by Seller shall
18
include all Title Defect Values that exceed the Individual Title Defect Threshold. In order to provide Sellers a reasonable opportunity to cure any Title Defects prior to Closing, Buyer shall use reasonable efforts to provide the notice as soon as reasonably possible after becoming aware of or making its determination of the Title Defect.
(B)
In the notice, Buyer must describe with reasonable detail each alleged Title Defect it has discovered, include Buyer’s reasonable estimate of the Title Defect Value attributable to each, and include all data and information in Buyer’s possession or control bearing thereon.
(C)
Buyer shall be deemed to have conclusively waived all Title Defects not disclosed to Sellers in a notice as provided in Section 5.4(A) herein.
(D)
Upon timely delivery of a notice by Buyer:
(i)
on or before three (3) days prior to Closing, Chalker shall notify Buyer whether Sellers agree with Buyer’s claimed Title Defects and/or the proposed Title Defect Values therefor (“
Sellers’ Response
”) or provide Buyer with curative information or documents satisfactory to Buyer that the asserted Title Defect is cured. If Sellers do not agree with any claimed Title Defect and/or the proposed Title Defect Value therefor, then the Parties shall enter into good faith negotiations and shall attempt to agree on such matters;
(ii)
for any Title Defect which Sellers allege to have cured, one (1) day prior to Closing after Sellers’ notice of its cure of a Title Defect, Buyer shall notify Chalker if Buyer disagrees with Sellers’ proposed cure of a Title Defect (“
Buyer’s Response
”). If Buyer does not agree with any such cure, then the Parties shall enter into good faith negotiations and shall attempt to agree on such matters.
5.5
Effect of Title Defect
.
(A)
Subject to Section 5.4 and Section 5.5(C) herein, for those Title Defects not cured by Closing, Sellers may, at their sole discretion:
(i)
adjust the Base Purchase Price in the amount of the Title Defect Value of the Asset to which such Title Defect relates and proceed to Closing on all of the Assets; or
(ii)
proceed with Closing on those Assets not affected by the valid Title Defects and such Assets to which a Title Defect relates but for which Sellers have elected to proceed to Closing with an adjustment of the Base Purchase Price in the amount of the Title Defect Value of such Assets and retain the affected Assets and
19
reduce the Base Purchase Price by the Allocated Value of the affected Assets; or
(iii)
with respect to any Asset affected by a valid Title Defect which Sellers elect to attempt a cure after Closing, proceed with Closing on those Assets without adjustment to the Base Purchase Price and for a period of up to one hundred twenty (120) days after Closing Sellers shall have the right to attempt to cure such Title Defect; if the Title Defect is not fully cured or the Title Defect is not waived by Buyer within such time period, Sellers shall refund to Buyer out of the Defect Fund the uncured Title Defect Value pertaining to such Asset, not to exceed the Allocated Value of such Asset. Any amounts remaining in the Defect Fund shall be returned to Sellers following the cure or waiver by Buyer of all Title Defects which Sellers have elected to cure.
The Parties recognize that the existence of a Title Defect or a Title Defect Value may not be agreed to by the Parties or determined by the Title Consultant by the Closing, and that for purposes of this Section 5.5(A), the existence of any disputed Title Defect or the amount of any disputed Title Defect Value shall be as determined by Buyer, subject to adjustment if the Parties otherwise agree or the Title Consultant otherwise determines in respect thereto.
(B)
The diminution in value of an Asset attributable to a Title Defect (the “
Title Defect Value
”) notified in a notice shall be determined by the following:
(i)
if the Title Defect asserted is that the actual Net Revenue Interest attributable to any Well, Unit or Undeveloped Acreage is less than that stated in the applicable Exhibit, then the Title Defect Value is the product of the Allocated Value attributed to such Asset, multiplied by a fraction, the numerator of which is the difference between the Net Revenue Interest set forth in the applicable Exhibit and the actual Net Revenue Interest, and the denominator of which is the Net Revenue Interest stated in the applicable Exhibit; or
(ii)
if the Title Defect represents an encumbrance upon the affected Asset (including any increase in Working Interest for which there is not a proportionate increase in Net Revenue Interest), the amount of the Title Defect Value is to be determined by taking into account the Allocated Value of the Asset, the portion of the Asset affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the
20
affected Asset, and the Title Defect Values placed upon the Title Defect by Buyer and Sellers.
Notwithstanding the above, in no event shall the total of the Title Defect Values related to a particular Asset exceed the Allocated Value of such Asset.
(C)
Title Consultant.
(i)
If the Parties cannot reach agreement concerning the existence of a Title Defect, Sellers’ proposed cure of a Title Defect, or a Title Defect Value by Closing, and to the extent that Sellers do not elect to proceed under Section 5.5(A) above, upon either Party’s request, the Parties shall mutually agree on and employ an attorney experienced in title examination in the state where the Assets are located (“
Title Consultant
”) to resolve all points of disagreement relating to Title Defects and Title Defect Values.
(ii)
The cost of any such Title Consultant shall be borne fifty percent (50%) by Sellers and fifty percent (50%) by Buyer. Each Party shall present a written statement of its position on the Title Defect and/or Title Defect Value in question to the Title Consultant within three (3) days after the Title Consultant is selected, and the Title Consultant shall make a determination of all points of disagreement in accordance with the terms and conditions of this Agreement within seven (7) days of receipt of such position statements. The determination by the Title Consultant shall be conclusive and binding on the Parties, and shall be enforceable against any Party in any court of competent jurisdiction. If necessary, the Closing Date shall be deferred and the Base Purchase Price adjusted downward by the corresponding Allocated Values only as to those Assets affected by any unresolved disputes regarding the existence of a Title Defect and/or the Title Defect Value until the Title Consultant has made a determination of the disputed issues with respect thereto and all subsequent dates and required activities with respect to any such Assets having reference to the Closing Date shall be correspondingly deferred; provided, however, that, unless Sellers and Buyer mutually agree to the contrary, the Closing Date shall not be deferred in any event beyond December 31, 2012.
(iii)
If at any time any Title Consultant so chosen fails or refuses to perform hereunder, a new Title Consultant shall be chosen by the Parties.
21
Title Benefits
. Should Sellers determine that the ownership of any Well entitles Sellers to a larger Net Revenue Interest or a smaller Working Interest than that set forth on Exhibit 1.1(A)-2, so that Sellers’ ownership in the Well is greater than that contemplated by this transaction, then Sellers shall notify Buyer of such increase no later than seven (7) days prior to the Closing Date describing in such notice with reasonable detail each alleged increase it has discovered, Sellers’ reasonable estimate of the value attributable to each, and including all data and information in Sellers’ possession or control bearing thereon (a “
Title Benefit
”), provided that in no event shall an increase be treated as a Title Benefit under this Agreement unless the increase in Allocated Value directly attributable thereto exceeds Seventy-Five Thousand Dollars ($75,000.00) (the “
Individual Title Benefit Threshold
”). To the extent that there are both Title Benefits and Title Defects they shall be netted prior to determining whether the Defect Threshold as been reached. The amount of such adjustment shall be determined in the same manner as provided in Section 5.5 (B)(i). Title Benefits finally determined in accordance with this Agreement may be used exclusively to offset Title Defect Values. For the avoidance of doubt, the Parties agree that under no circumstances will the Purchase Price be increased in respect of any Title Benefits that exceed the aggregate amount of all Title Defect Values. Sellers shall be deemed to have conclusively waived any Title Benefit of which the Sellers fails to notify Buyer in writing in the manner described above.
6.
ENVIRONMENTAL ASSESSMENT
.
6.1
Physical Condition of the Assets
. The Assets have been used for oil and gas drilling and production operations and possibly for the storage and disposal of waste materials or hazardous substances related to standard oil field operations. Physical changes in or under the Assets or adjacent lands may have occurred as a result of such uses. The Assets also may contain buried pipelines and other equipment, whether or not of a similar nature, the locations of which may not now be known by Sellers or be readily apparent by a physical inspection of the Assets. In addition, Buyer acknowledges that some oil field production equipment located on the Assets may contain asbestos and/or naturally occurring radioactive material (“
NORM
”). In this regard, Buyer expressly understands that NORM may affix or attach itself to inside of wells, materials and equipment as scale or in other forms, and that wells, materials and equipment located on the Assets described herein may contain NORM and that NORM-containing materials may be buried or have been otherwise disposed of on the Assets. Buyer also expressly understands that special procedures may be required for the removal and disposal of asbestos and NORM from the Assets where they may be found, and that Buyer assumes all liability when such activities are performed. Buyer understands that Sellers do not have the requisite information with which to determine the exact nature or condition of the Assets nor the effect any prior use has had on the physical condition of the Assets. Pursuant to the Safe Water Drinking and Toxic Enforcement Act of 1986, Buyer is hereby notified and assumes the risk that detectable amounts of chemicals known to cause cancer, birth defects and other
22
reproductive harm may be found in, on or around the Assets. Buyer shall assume the risk that the Assets may contain waste or contaminants and those adverse physical conditions, including the presence of waste or contaminants, may not have been revealed by Buyer’s investigation. Except as expressly set forth in this Agreement, all responsibility and liability of Sellers attributable to the period prior to Closing related to disposal, spills, waste or contamination on or below the Assets shall be transferred from Sellers to Buyer.
6.2
Inspection and Testing
.
(A)
Prior to Closing, Buyer shall have the right, at its sole cost and risk, to conduct a physical inspection of the Assets, including a Phase I environmental assessment of the Assets; provided that Sellers shall have the right to review and approve any plan to conduct such an environmental assessment, with such approval not to be unreasonably withheld, delayed or conditioned by Sellers. Any data obtained shall be provided to Sellers as part of the Environmental Defect Notice, including copies of any final reports prepared by Buyer’s environmental consultant. Sellers and Buyer shall keep all information strictly confidential whether or not Closing occurs, except as may be required pursuant to any Environmental Laws.
(B)
Buyer waives and releases all claims against Sellers, their parents and subsidiary companies, and each of their respective directors, officers, employees, agents and other representatives and their successors and assigns (collectively, the “
Sellers Group
”), for injury to or death of persons, or damage to property, arising in any way from the exercise of rights granted to Buyer hereby or the activities of Buyer or its employees, agents or contractors on the Assets. BUYER SHALL INDEMNIFY THE SELLERS GROUP AGAINST AND HOLD EACH AND ALL OF SAID INDEMNITEES HARMLESS FROM ANY AND ALL LOSSES WHATSOEVER ARISING OUT OF (I) ANY AND ALL STATUTORY OR COMMON LAW LIENS OR OTHER ENCUMBRANCES FOR LABOR OR MATERIALS FURNISHED IN CONNECTION WITH SUCH TESTS, SAMPLINGS, STUDIES OR SURVEYS AS BUYER MAY CONDUCT WITH RESPECT TO THE ASSETS; AND (II) ANY INJURY TO OR DEATH OF PERSONS OR DAMAGE TO PROPERTY OCCURRING IN, ON OR ABOUT THE ASSETS AS A RESULT OF SUCH EXERCISE OR ACTIVITIES.
(C)
“
Environmental Laws
” means all applicable local, state, and federal laws, rules, regulations, and orders regulating or otherwise pertaining to: (i) the use, generation, migration, storage, removal, treatment, remedy, discharge, release, transportation, disposal, or cleanup of pollutants, contamination, hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants; (ii) surface waters, ground waters, ambient air and any other environmental medium on or off any Lease; or (iii) the
23
environment or health and safety-related matters; including the following as from time to time amended: the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act, as amended, the Toxic Substance Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act, the Occupational and Health Act, and all regulations promulgated pursuant thereto.
6.3
Notice of Adverse Environmental Conditions
. No later than seven (7) days prior to Closing, Buyer shall notify Sellers in writing of any Adverse Environmental Condition with respect to the Assets discovered by Buyer. Such notice shall describe in reasonable detail the Adverse Environmental Condition and include the estimated Environmental Defect Value attributable thereto (the “
Environmental Defect Notice
”). Buyer shall not send such a notice to Sellers unless (i) the Environmental Defect Value exceeds Seventy-Five Thousand Dollars ($75,000.00) in each individual case; and (ii) the aggregate Environmental Defect Values of all Adverse Environmental Conditions and the aggregate Title Defect Values less Title Benefits exceed the Defect Threshold. The “
Environmental Defect Value
” attributable to any Adverse Environmental Condition shall be the estimated amount (net to Sellers’ interest) of all reasonable costs and claims associated with the Remediation of the Adverse Environmental Conditions, as reasonably determined and estimated by Buyer. The term “
Adverse Environmental Condition
” means (i) the failure of the Assets to be in compliance with any applicable Environmental Laws; (ii) the Assets being subject to any agreements, consent orders, decrees or judgments currently in existence based on any environmental conditions or Environmental Laws that negatively and materially impact the future use of any portion of the Assets or that require any material change in the present conditions of any of the Assets; or (iii) the Assets being subject to any material uncured remediation or liability obligation under, uncured notices of violations of, or material non-compliance with, any applicable Environmental Laws. Buyer also shall be deemed to have conclusively waived all Adverse Environmental Conditions not disclosed to Sellers before seven (7) days prior to Closing. Buyer waives any remedy against Sellers for Adverse Environmental Conditions if the sum of the aggregate Environmental Defect Values and the aggregate Title Defect Values less the aggregate Title Benefits do not exceed the Defect Threshold; provided, however, if such sum exceeds the Defect Threshold, Buyer shall be entitled to recover all amounts to which it is entitled in respect of any Adverse Environmental Conditions as provided for in Section 6.4.
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6.4
Rights and Remedies for Adverse Environmental Conditions
.
(A)
With respect to any Adverse Environmental Conditions affecting one or more of the Assets which exceed the Defect Threshold, Sellers and Buyer may on an Asset by Asset basis mutually agree to either (i) Remediate the Adverse Environmental Conditions, but Sellers shall have no obligation to do so, and proceed to Closing with no adjustment of the Base Purchase Price; (ii) proceed to Closing and adjust the Base Purchase Price in an amount equal to the applicable Environmental Defect Value; or (iii) retain the affected Asset and reduce the Base Purchase Price by the Allocated Value of the affected Asset. In the event Buyer and Sellers fail to mutually agree with respect to an affected Asset, they shall be deemed to have elected clause (iii).
(B)
Buyer waives any Adverse Environmental Condition for which Buyer has received an adjustment to the Base Purchase Price in accordance with Section 6.4(A).
(C)
The term “
Remediate
” and “Remediation” means, with respect to any valid Adverse Environmental Condition, the undertaking and completion of those actions and activities necessary to remediate such Adverse Environmental Condition to the degree sufficient that such Adverse Environmental Condition no longer constitutes an Adverse Environmental Condition as defined above or to a degree sufficient to obtain agency approval that no further action is necessary based on the application of applicable remediation standards, implementation of institutional controls, or other legally acceptable mechanisms that allow for cleanup to a lesser standard.
(D)
If Sellers and Buyer are unable to agree on the amount of the Environmental Defect Value within three (3) days after Sellers’ receipt of the Environmental Defect Notice, any proposed Remediation of an Adverse Environmental Condition by Sellers or that an Adverse Environmental Condition exists, has been Remediated or is required to be Remediated, or on the cost that would have been incurred by Sellers to complete Remediation of an Adverse Environmental Condition but for an Occurrence then the dispute will be submitted to a mutually acceptable environmental consulting company (the “
Environmental Consultant
”) whose determination shall be final and binding upon the Parties. Sellers and Buyer shall each bear their respective costs and expenses incurred in connection with any such dispute, and one-half (1/2) of the fees, costs and expenses charged by the Environmental Consultant. Each Party shall present a written statement of its position on the Adverse Environmental Condition and/or the Environmental Defect Value in question to the Environmental Consultant within five (5) days after the Environmental Consultant is selected, and the Environmental Consultant shall make a
25
determination of all points of disagreement in accordance with the terms and conditions of this Agreement within ten (10) days of receipt of such position statements. If necessary, the Closing Date shall be deferred only as to those Assets affected by any unresolved disputes regarding the existence of an Adverse Environmental Condition and/or the Environmental Defect Value until the Environmental Consultant has made a determination of the disputed issues with respect thereto and all subsequent dates and required activities with respect to any such Assets having reference to the Closing Date shall be correspondingly deferred; provided, however, that, unless Sellers and Buyer mutually agree to the contrary, the Closing Date shall not be deferred in any event for more than forty five (45) days beyond the scheduled Closing Date in Section 3.1. All Assets as to which no such dispute(s) exist shall be conveyed to Buyer along with the remaining Assets subject to the terms of this Agreement at Closing. Once the Environmental Consultant’s determination has been expressed to both Parties, if applicable, Sellers shall have five (5) days in which to advise Buyer in writing which of the options available to Sellers under Section 6.4 Sellers elect regarding each of the Assets as to which the Environmental Consultant has made a determination.
6.5
Remediation
. If Sellers and Buyer agree to have Sellers Remediate an Adverse Environmental Condition or Sellers are required by a governmental or regulatory agency to Remediate an Adverse Environmental Condition, the following will govern the Remediation:
(A)
Sellers shall be responsible for all negotiations and contacts with federal, state, and local agencies and authorities with regard to the Adverse Environmental Condition or Remediation but shall keep Buyer informed of the status of the Adverse Environmental Condition and the Remediation, shall provide Buyer with copies of all final reports and material written communications relating to the Adverse Environmental Condition or the Remediation, and shall afford Buyer the right to attend material in person and telephone meetings with agencies and authorities concerning the Adverse Environmental Condition or the Remediation. Buyer may not make any independent contacts with any agency, authority, or other third party with respect to the Adverse Environmental Condition or Remediation and shall keep all information regarding the Adverse Environmental Condition and Remediation confidential, except in each instance to the extent required by applicable law.
(B)
Sellers shall Remediate the Adverse Environmental Condition to the level agreed upon by Sellers and Buyer (or failing such agreement to the level determined by the Environmental Consultant), but in no event shall Sellers be required to Remediate the Adverse Environmental Condition beyond the level required by the Environmental Laws in effect at the Effective Time.
26
(C)
Buyer shall grant and warrant access and entry to the Assets after Closing to Sellers and third parties conducting assessments or Remediation, to the extent and as long as necessary to conduct and complete the assessment or Remediation work, to remove equipment and facilities, and to perform any other activities reasonably necessary in connection with assessment or Remediation.
(D)
Buyer shall use reasonable efforts not to interfere with Sellers’ ingress and egress or assessment or Remediation activities. Sellers shall make reasonable efforts to perform the work so as to minimize disruption to Buyer’s business activities and shall coordinate access to the Assets with Buyer and shall comply and cause its consultants and contractor to comply with Buyer’s written safety and security standards that are provided to Sellers.
(E)
Sellers shall continue Remediation of the Adverse Environmental Condition until the first of the following occurs:
(i)
the appropriate governmental authorities provide notice to Sellers or Buyer that no further Remediation of the Adverse Environmental Condition is required; or
(ii)
the Adverse Environmental Condition has been Remediated to the level required by the Environmental Laws or as agreed in writing by all Parties.
Upon the occurrence of either (i) or (ii) above, Sellers shall notify Buyer that Remediation of the Adverse Environmental Condition is complete and provide a copy of the notification described in (i) above, if applicable. Upon delivery of said valid notice, Sellers shall be released from all liability and have no further obligations under any provisions of this Agreement in connection with such Adverse Environmental Condition.
(F)
Until Sellers complete Remediation of an Adverse Environmental Condition, Sellers and Buyer shall each notify the other of any pending or threatened claim, action, or proceeding by any authority or private party that relates to or would affect the environmental condition, the assessment, or the Remediation of the Assets affected by such Adverse Environmental Condition.
(G)
After delivery of possession of the Assets (or Closing, whichever occurs first) and before Sellers have completed Remediation of an Adverse Environmental Condition, if a leak, spill, or discharge of any material or substance occurs on the affected Assets (“
Occurrence
”), Buyer shall promptly notify Sellers and act promptly to minimize the effects of the Occurrence. If there is an Occurrence that is not caused by Sellers, and Sellers and Buyer jointly determine that it will affect the area where
27
Sellers are conducting Remediation or assessment, Sellers and Buyer will agree to the cost that would have been incurred by Sellers to complete the Remediation but for the Occurrence. As consideration for such payment, Buyer shall accept the environmental condition of the affected Assets as they exist on the date of the payment, assume full responsibility for conducting Remediation of the affected Assets in accordance with this Agreement, and agree to release, not to sue, indemnify, hold harmless, and defend Sellers as to claims and liabilities arising from the Occurrence. If Sellers cause the Occurrence, Sellers agree to continue the Remediation and broaden its scope as necessary to encompass the Occurrence and will assume responsibility for Remediation of the affected Assets in accordance with the terms of this Agreement.
(H)
If Sellers undertake Remediation as to any Assets in which Sellers’ ownership was less than one hundred percent (100%), Buyer shall bill the other working interest owners for their share of the Remediation expenses if and to the extent permitted under applicable agreements. Buyer shall refund to Sellers any amounts received by Buyer from any of the other working interest owners.
7.
REPRESENTATIONS AND WARRANTIES OF SELLERS
.
7.1
Sellers’ Representations and Warranties
. Subject to the disclosures set forth in the Exhibits referred to in this Section 7, Sellers, severally but not jointly, represent and warrant as to the Assets as follows:
(A)
Status
. With respect to each Seller that is an entity, such Seller is duly organized, validly existing, and in good standing under the laws of the state of its formation and is qualified to conduct business in each state in which the Assets are located. With respect to each Seller that is an individual, such Seller is an individual with a legal domicile in the United States.
(B)
Authority
. Sellers own the Assets and have the requisite power and authority to enter into this Agreement, to carry out the transactions contemplated hereby, to transfer the Assets in the manner contemplated by this Agreement, and to undertake all of the obligations of Sellers set forth in this Agreement.
(C)
Validity of Obligations; No Conflicts
. This Agreement and any documents or instruments delivered by Sellers at the Closing shall constitute legal, valid and binding obligations of Sellers, enforceable in accordance with their terms. The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Sellers at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized
28
by all necessary corporate and company action (as applicable) on the part of Sellers. The execution, delivery and performance of this Agreement by Sellers, and the consummation of the transactions contemplated by this Agreement shall not (i) violate any provision of the governing documents or instruments of Sellers, (ii) result in a default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation, or acceleration under any material note, bond, mortgage, indenture, or other financing instrument to which any Seller is a party or by which it is bound, (iii) violate any judgment, order, ruling, or decree applicable to a Seller as a party in interest, or (iv) violate any laws applicable to any Seller.
(D)
AFE’s
. Except as set forth in Exhibit 7.1(D), there are no material outstanding calls or payments under authorities for expenditures for payments relating to the Assets which exceed (i) individually, One Hundred Fifty Thousand Dollars ($150,000.00) (net to Sellers’ interest) or (ii) in the aggregate, One Million Dollars ($1,000,000) (net to Sellers’ interest), in each case which are due or which Sellers have committed to make which have not been made.
(E)
Contractual Restrictions
. Sellers have not entered into any contracts for or received prepayments under or pursuant to take-or-pay arrangements, buydowns, buyouts or similar agreements for Oil and Gas, or storage of the same relating to the Assets which Buyer shall be obligated to honor and make deliveries of Oil and Gas or pay refunds of amounts previously paid under such contracts or arrangements.
(F)
Litigation
. Except as disclosed on Exhibit 7.1(F) (the “
Litigation
”), to the knowledge of Sellers there is no suit or action pending, arising out of, or with respect to the ownership, operation or environmental condition of the Assets.
(G)
Permits
. With respect to Assets for which Sellers are the operator, and to Sellers’ knowledge with respect to Assets operated by third parties, Sellers or such third parties, as applicable, have acquired all material permits, licenses, approvals and consents from appropriate governmental bodies, authorities and agencies to conduct operations on the Assets, which are in full force and effect, and the ownership and operation of the Assets is in compliance with all such permits, licenses, approvals and consents in all material respects. To Sellers’ knowledge, the Assets are in compliance with applicable laws, rules, regulations, ordinances and orders.
(H)
Brokers’ Fees
. Except for possible fees owed to Raymond James and Associates for which Sellers will have sole responsibility, Sellers have incurred no obligation or liability, contingent or otherwise, for brokers’ or finders’ fees in respect of the matters provided for in this Agreement, and,
29
if any such obligation or liability exists, it shall remain an obligation of Sellers, and Buyer shall have no responsibility therefor.
(I)
Imbalances
. Except as set forth on Exhibit 7.1(I) or for normal pipeline imbalances that are adjusted by the pipeline each month, there are no wellhead imbalances or other imbalances attributable to the Assets as of the Effective Time which would be a liability to or require payment from Buyer to a third party.
(J)
Preferential Rights
. Exhibit 7.1(J) lists all preferential rights to purchase (“
Preferential Rights
”) attributable or with respect to any of the Assets and applicable to the transaction contemplated hereby.
(K)
Consents
. Except as declared on Exhibit 7.1(K) there are no material required consents, approvals or authorizations (“
Consent
” or “
Consents
”) from any person or entity (excluding any of the foregoing customarily obtained following Closing), in each case, that are applicable to the transactions contemplated hereby. Provided, however, the failure to declare a Consent from any person or entity shall be deemed to be a Title Defect and not a breach of a representation or warranty made in this Agreement if the existence thereof is known to Buyer prior to Closing.
(L)
Taxes
. All ad valorem, property, production, severance and similar Taxes and assessments based on or measured by the ownership of property comprising the Assets or the production or removal of hydrocarbons or the receipt of proceeds therefrom (including applicable escheatment requirements) have been timely paid when due and are not in arrears. There are no Tax liens with respect to any of the Assets.
(M)
Non-Foreign Representation
. None of the Sellers is a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in Internal Revenue Code and Income Tax Regulations).
(N)
Leases
. To the best of Sellers’ knowledge, the Leases have been maintained according to their terms, are in compliance in all material respects with the agreements to which the Leases are subject, are presently in full force and effect, and there has not occurred any event, fact or circumstance which, with the lapse of time or the giving of notice, or both, would constitute such a breach or default of the leases on behalf of the Sellers or with respect to any other parties.
(O)
Hydrocarbon Sales Contracts
. Except as set forth on Exhibit 7.1(O), no hydrocarbons produced from the Assets are subject to a sales contract other than division orders or sales agreements terminable on no more than ninety (90) days notice. Proceeds from the sale of hydrocarbons produced from the Assets are being received in all respects by Sellers in a timely
30
manner and are not being held in suspense by the purchaser for any reason. To Sellers’ knowledge, Sellers are presently receiving a price for all production from, or attributable to, each Asset covered by a hydrocarbon sales contract in accordance with the terms of such contract.
(P)
Material Contracts
. Exhibit 7.1(P) lists all of the contracts and agreements that (i) are required to operate and maintain the Assets, including without limitation operating agreements, pooling agreements, unitization agreements, gathering, treatment and processing agreements, and farm-out and farm-in agreements, (ii) involve expenditures by or revenues to Sellers in the aggregate in excess of $150,000 or (iii) are confidentiality agreements or agreements relating to areas of mutual interest (“
Material Contracts
”). All Material Contracts are in full force and effect and Sellers are not in default with respect to any of the obligations thereunder.
(Q)
Tax Partnerships and Other Entities
. None of the Assets are held in any arrangement that is reported as a partnership for federal, state, or local income or franchise tax purposes or are otherwise treated as an interest in any entity for such purposes, provided, however, that this shall not be deemed to be a representation of the Tax status of any Seller.
(R)
Bankruptcy
. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Sellers’ knowledge, threatened against Sellers or any affiliate of Sellers.
(S)
Royalty Payments
. Except as noted in Exhibit 7.1(S), all royalties, including shut-in royalties, overriding royalties and other royalties or similar burdens on production with respect to the Assets that have become due and payable by Sellers as of the Effective Time have been duly paid (other than royalties or other burdens held in escrow or suspense accounts). .
(T)
Environmental Matters
. To Sellers’ knowledge, as of the date of this Agreement, (i) there is no condition relating to the Assets that constitutes a material violation of or would reasonably be expected to give rise to a material remediation obligation of the operator of the Assets under Environmental Laws; and (ii) Sellers have not received any written notice of material violation of or a material remediation obligation under any Environmental Laws by any governmental authority or other person relating to the Assets where such violation or remediation obligation has not been previously cured or otherwise remedied.
(U)
Compliance with Laws
. Sellers’ operation of the Assets has been in accordance in all material respects with all laws, orders, rules and regulations of all governmental authorities having or asserting jurisdiction
31
relating to the ownership and operation of the Assets, including the production of all hydrocarbons attributable to the Assets. All necessary material governmental certificates, consents, permits, licenses or other authorizations with regard to Sellers’ ownership or operation of the Assets have been obtained and no violations exist or have been recorded in respect of such licenses, permits or authorizations, since the Effective Time, and Sellers have not received any written notice of any such violation.
(V)
Wells
. There are no Wells that constitute a part of the Assets (i) in respect of which Sellers have received an order from any governmental authority or other person requiring that such Well be plugged and abandoned, or (ii) that are neither in use for purposes of production or injection, nor suspended or temporarily abandoned in accordance with applicable law, that have not been plugged and abandoned in accordance with applicable law. To Sellers’ knowledge, all Wells have been drilled and completed within the boundaries of all applicable Leases, the applicable Contracts and pooling or unit orders. To Sellers’ knowledge, no Well is subject to penalties on allowables after the Effective Time because of overproduction.
(W)
Non-Consent
. Sellers have not failed to elect to participate in any operation or activity proposed with respect to the Assets that could result in any of Sellers’ interest in any Asset becoming subject to a penalty or forfeiture as a result of such election not to participate in such operation or activity.
(X)
Drilling Obligations
. Except as set forth on Exhibit 7.1(X), or to the extent of those obligations previously fulfilled by Sellers or any of its predecessors, none of the Leases or any applicable Contract contain express provisions obligating Sellers to drill any Wells on the Assets (other than provisions requiring optional drilling a condition of maintaining or earning all or a portion of a presently non-producing Lease).
(Y)
Suspense Funds
. Exhibit 7.1(Y) lists (i) all funds held in suspense by Sellers as of the date hereof that are attributable to the Assets, (ii) a description of the source of such funds and the reason they are being held in suspense and (iii) if known, the name or names of the Persons claiming such funds or to whom such funds are owed.
(Z)
Payout Balance
. As of the Effective Time, the total project payout balance for the Assets, as defined in the Participation Agreement referenced in Section 11.5, is not more than Sixty Seven Million Sixty Three Thousand Four Hundred Sixty Seven Dollars and Thirty Eight Cents ($67,063,467.38).
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7.2
Scope of Representations of Sellers
.
Information About the Assets
. Except as expressly set forth in this Agreement and in the Assignment and Bill of Sale, Sellers disclaim all liability and responsibility for any representation, warranty, statements or communications (orally or in writing) to Buyer, including any information contained in any opinion, information or advice that may have been provided to Buyer by any employee, officer, director, agent, consultant, engineer or engineering firm, trustee, representative, investment banker, financial advisor, partner, member, beneficiary, stockholder or contractor of Sellers wherever and however made, including those made in any data room or internet site and any supplements or amendments thereto or during any negotiations with respect to this Agreement or any confidentiality agreement previously executed by the Parties with respect to the Assets. EXCEPT AS SET FORTH IN THIS AGREEMENT AND THE ASSIGNMENT AND BILL OF SALE, SELLERS MAKE NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE ASSETS OR OTHERWISE CONSTITUTING A PORTION OF THE ASSETS; (ii) THE PRESENCE, QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE ASSETS, INCLUDING WITHOUT LIMITATION SEISMIC DATA AND SELLERS’ INTERPRETATION AND OTHER ANALYSIS THEREOF; (iii) THE ABILITY OF THE ASSETS TO PRODUCE HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES; (iv) IMBALANCE OR PAYOUT ACCOUNT INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS; (v) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE ASSETS; (vi) THE ENVIRONMENTAL CONDITION OF THE ASSETS; (vii) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR; (viii) THE TAX ATTRIBUTES OF ANY ASSET; (ix) THE TRANSFER OF THE OPERATOR DUTIES TO BUYER; OR (x) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO BUYER BY SELLERS OR OTHERWISE CONSTITUTING A PORTION OF THE ASSETS. ANY DATA, INFORMATION OR OTHER RECORDS FURNISHED BY SELLERS ARE PROVIDED TO BUYER AS A CONVENIENCE AND BUYER’S RELIANCE ON OR USE OF THE SAME IS AT BUYER’S SOLE RISK.
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8.
REPRESENTATIONS AND WARRANTIES OF BUYER
.
Buyer’s Representations and Warranties
. Buyer represents and warrants as follows:
(A)
Status of Formation
. Buyer is a limited liability company, duly formed, validly existing and in good standing under the laws of the state of Delaware.
(B)
Authority
. Buyer has the power and authority to enter into this Agreement, to carry out the transactions contemplated hereby and to undertake all of the obligations of Buyer set out in this Agreement.
(C)
Validity of Obligations
. The execution, delivery and performance of this Agreement and the performance of the transactions contemplated by this Agreement will not in any respect violate, nor be in conflict with, any provision of Buyer’s partnership agreement or other governing documents, or any agreement or instrument to which Buyer is a party or is bound, or any judgment, decree, order, statute, rule or regulation applicable to Buyer (subject to governmental consents and approvals customarily obtained after the Closing). This Agreement constitutes legal, valid and binding obligations of Buyer, enforceable in accordance with its terms.
(D)
Qualification and Bonding
. At Closing, Buyer shall be in compliance with the bonding and liability insurance requirements of all applicable state or federal laws or regulations applicable to the Assets and that at Closing it will be qualified to own any federal, Indian or state oil and gas leases that constitute part of the Assets.
(E)
Non-Security Acquisition
. Buyer intends to acquire the Assets for its own benefit and account and is not acquiring said Assets with the intent of distributing fractional undivided interests thereof such as would be subject to regulation by federal or state securities laws.
(F)
Financing
. At Closing, Buyer will have sufficient cash, available lines of credit or other sources of immediately available funds to enable it to pay the Purchase Price to Sellers at the Closing.
(G)
Brokers’ Fees
. Buyer has incurred no obligation or liability, contingent or otherwise, for brokers’ or finders’ fees in respect of the matters provided for in this Agreement, and, if any such obligation or liability exists, it shall remain an obligation of Buyer, and Sellers shall have no responsibility therefor.
(H)
Independent Investigation
. Buyer has, or by Closing will have, made its own independent investigation, analysis and evaluation of the transactions contemplated by this Agreement (including Buyer’s own estimate and
34
appraisal of the extent and value of Sellers’ Oil and Gas reserves attributable to the Assets and an independent assessment and appraisal of the environmental risks and liabilities associated with the acquisition of the Assets). Buyer has had, or will have prior to Closing, access to all information necessary to perform its investigation and has not relied upon any representation by Sellers other than those expressly set forth in this Agreement.
(I)
Waiver of Deceptive Trade Practices Acts
. BUYER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES ACT SECTION 17.41 et seq., TEXAS BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS, AND UNDER SIMILAR STATUTES ADOPTED IN OTHER STATES, TO THE EXTENT THEY HAVE APPLICABILITY TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. AFTER CONSULTATION WITH AN ATTORNEY OF ITS SELECTION, BUYER CONSENTS TO THIS WAIVER.
9.
CERTAIN AGREEMENTS OF SELLERS
. Sellers agree and covenant that, unless Buyer shall have otherwise agreed in writing, the following provisions shall apply:
9.1
Maintenance of Assets
. From the date of this Agreement until Closing, Sellers agree that, for any Wells which are operated by a Seller, Sellers shall:
(A)
Administer and operate the Wells in accordance with the applicable operating agreements.
(B)
Not introduce any new methods of management, operation or accounting with respect to any or all of the Assets, or, except in the ordinary course of business and as is consistent with past practice, file, amend, or revoke any material form or return with respect to Taxes relating to any or all of the Assets.
(C)
Use commercially reasonable efforts to maintain and keep the Assets in full force and effect; and fulfill all contractual or other covenants, obligations and conditions imposed upon Sellers with respect to the Assets, including, but not limited to, payment of royalties, delay rentals, shut-in gas royalties and any and all other required payments.
(D)
Except as set forth on Exhibit 9.1(D) and to the extent necessary or advisable to avoid forfeiture or penalties, not enter into agreements to drill new wells or to rework, plug back, deepen, plug or abandon any Well, nor commence any drilling, reworking or completing or other operations on the Leases which requires expenditures exceeding One Hundred Fifty Thousand Dollars ($150,000.00) (net to Sellers’ interest) for each operation (except for emergency operations and operations required under
35
presently existing contractual obligations) without obtaining the prior written consent of Buyer (which consent shall not be unreasonably withheld, delayed or conditioned); provided that the terms of this paragraph (D) shall not apply to any expenditures of Sellers which will not be charged to Buyer.
(E)
Not voluntarily relinquish its position as operator to anyone other than Buyer with respect to any of the Wells or Leases or voluntarily abandon any of the Wells or Leases other than as required pursuant to the terms of a Lease or by regulation.
(F)
Not without the prior written consent of Buyer (which consent shall not be unreasonably withheld, delayed or conditioned) (i) enter into any agreement or arrangement transferring, selling or encumbering any of the Assets (other than ordinary course sales of production); (ii) grant any preferential or other right to purchase or agree to require the consent of any party not otherwise required to consent to the transfer and assignment of the Assets to Buyer; (iii) enter into any new sales contracts or supply contracts which cannot be cancelled upon sixty (60) days prior notice; or (iv) incur or agree to incur any contractual obligation or liability (absolute or contingent) with respect to the Assets except as otherwise provided herein.
(G)
To the extent known to Sellers, provide Buyer with written notice of (i) any claims, demands, suits or actions made against Sellers which materially affect the Assets; or (ii) any proposal from a third party to engage in any material transaction (e.g., a farmout) with respect to the Assets.
(H)
Maintain current insurance covering the Assets until Closing.
(I)
Provide prompt notice to Buyer of any notice received by Sellers of a default, claim, obligation or suit which affects any of the Assets.
9.2
Consents
. Sellers shall exercise commercially reasonable efforts to obtain all such permissions, approvals and consents by governmental authorities and others which are reasonably obtainable by Closing and are required to vest good and marketable title to the Assets in Buyer or as may be otherwise reasonably requested by Buyer. Sellers will execute all necessary or appropriate transfer orders (or letters in lieu thereof) designating Buyer as the appropriate party for payment effective as of the Effective Time. The failure to obtain such permission, approval or consent shall be deemed a Title Defect with respect to the Asset affected and shall not otherwise be grounds for the failure of Buyer to Close or terminate this Agreement.
9.3
Records and Contracts
. Sellers shall have the right to make and retain copies of the Records and Contracts as Sellers may desire prior to the delivery of the
36
Records and Contracts to Buyer. Sellers will deliver to Buyer all Records and Contracts as soon as practicable, but in no event more than thirty (30) days after Closing. Buyer, for a period of three (3) years after the Closing Date, shall make available to Sellers (at the location of such Records and Contracts in Buyer’s organization) access to such Records and Contracts as Buyer may have in its possession (or to which it may have access) upon written request of Sellers, during normal business hours; provided, however, that Buyer shall not be liable to Sellers for the loss of any Records or Contracts by reason of clerical error or inadvertent loss or destruction of Records or Contracts.
9.4
Preferential Rights
.
(A)
Chalker, on behalf of Sellers, agrees that it will request from the holders of Preferential Rights as identified in Exhibit 7.1(J) (and in accordance with the documents creating such rights), execution of waivers of each Preferential Right.
(B)
If the holder of a Preferential Right exercises such right, Sellers shall tender to such party the required interest in the affected Asset at a price equal to the Allocated Value (reduced appropriately, as determined by mutual agreement of Buyer and Sellers, if less than the entire Asset must be tendered), and to the extent that such Preferential Right is exercised and such interest in such Asset is actually sold to the party so exercising such right, such interest shall be excluded from the transaction contemplated hereby and the Base Purchase Price will be adjusted downward by the Allocated Value for such interest.
(C)
If, on the Closing Date, the holder of a Preferential Right has not indicated whether or not it will exercise such Preferential Right and the time period within which the holder of the Preferential Right must exercise its right has not lapsed, then the Parties shall proceed with Closing on those Assets not affected by the Preferential Right and adjust the Base Purchase Price downward by the Allocated Value of such Asset. Upon receipt of waiver of such Preferential Right or lapse of time within which to exercise same, Sellers shall convey the Asset to the Buyer and Buyer shall tender to Sellers the Allocated Value attributable to such Asset.
9.5
Financial Statements
. For a period of twenty four (24) months following the Closing Date, at the request of Buyer, each of Chalker and Raptor, or their successors, shall assist Buyer in the preparation of audited statements of revenues and direct operating expenses for the Assets for up to the most recent three (3) fiscal years ending prior to the Closing Date and all notes and schedules related thereto (including a footnote satisfying the requirements of FAS 69) in accordance with the rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), together with any quarterly or interim period statement of revenues and direct operating expenses (in accordance with the rules and
37
regulations adopted by the SEC) (collectively, the “Statements of Revenues and Expenses”). If requested by Buyer’s external auditor (“Auditor”), each of Chalker and Raptor shall execute and deliver to Auditor such representation letters, in form and substance customary for representation letters provided to external audit firms by management of the company whose financial statements are the subject of an audit or are the subject of a review pursuant to Statement of Auditing Standards 100 (Interim Financial Information), as may be reasonably requested by Auditor, with respect to the Statements of Revenue and Expenses; provided, however, that Buyer shall provide customary indemnity for any officer of Chalker or Raptor executing and delivering such representation letters to Auditor. Chalker will provide suitable electronic detail in the form of lease operating statements by adequately supporting all statements provided. Buyer shall bear all fees charged by Auditor, including those reasonable and necessary fees and expenses incurred by Chalker or Raptor to comply with the requirements provided for in this paragraph, if any. Sellers and Buyer shall sign an engagement letter for Auditor and provide such information as may be reasonably requested from time to time by Auditor. Sellers shall reasonably cooperate in the completion of such audit and delivery of the Statements of Revenue and Expenses to Buyer as soon as reasonably practicable following the request therefor by Buyer.
10.
CERTAIN AGREEMENTS OF BUYER
. Buyer agrees and covenants that unless Sellers shall have consented otherwise in writing, the following provisions shall apply:
10.1
Plugging Obligation
. Buyer shall perform and assume all liability for the necessary and proper plugging and abandonment of all Wells.
10.2
Plugging Bond
. Buyer has and will maintain the necessary bonds or letters of credit as required by the state in which the Leases are located for the plugging of all Wells.
10.3
Sellers’ Logos
. Commencing no later than sixty (60) days after Closing, Buyer shall promptly cover or cause to be covered by decals or new signage any names and marks used by Sellers, and all variations and derivatives thereof and logos relating thereto, from the Assets and shall not thereafter make any use whatsoever of such names, marks and logos.
11.
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
. All obligations of Buyer under this Agreement are, at Buyer’s election, subject to the fulfillment, prior to or at the Closing, of each of the following conditions:
11.1
No Litigation
. At the Closing, no suit, action or other proceeding shall be pending before any court or governmental agency which attempts to prevent the occurrence of the transactions contemplated by this Agreement.
38
11.2
Representations and Warranties
. All representations and warranties of Sellers contained in this Agreement shall be true in all material respects as of the Closing as if such representations and warranties were made as of the Closing Date (except for those representations or warranties that are expressly made only as of another specific date, which representations and warranties shall be true in all material respects as of such other date) and Sellers shall have performed and satisfied in all material respects all covenants and fulfilled all conditions required by this Agreement to be performed and satisfied by Sellers at or prior to the Closing.
11.3
Outstanding Preferential Rights and Consents
. There shall be no unwaived or outstanding Preferential Rights or Consents, except for such Preferential Rights and Consents that pertain to Assets with a cumulative Allocated Value that total less than 20% of the Base Purchase Price.
11.4
Transfer of Operatorship
. Effective as of the Closing, Buyer shall be named the successor operator of all the Assets currently operated by any Seller, as such matter is controlled by the applicable joint operating agreements and governmental regulations.
11.5
Raptor Amendment
. Raptor Petroleum, LLC (“
Raptor
”), shall have executed and delivered to Buyer an amendment to that certain Participation Agreement dated as of February 15, 2010, between Raptor and Buyer in the form attached hereto as Exhibit 11.5.
12.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS
. All obligations of Sellers under this Agreement are, at Sellers’ election, subject to the fulfillment, prior to or at the Closing, of each of the following conditions:
12.1
No Litigation
. At the Closing, no suit, action or other proceeding shall be pending before any court or governmental agency which attempts to prevent the occurrence of the transactions contemplated by this Agreement.
12.2
Representations and Warranties
. All representations and warranties of Buyer contained in this Agreement shall be true in all material respects as of the Closing, as if such representations and warranties were made as of the Closing Date (except for those representations and warranties that are expressly made only as of another specific date, which representations and warranties shall be true in all material respects as of such other date) and Buyer shall have performed and satisfied in all material respects all covenants and fulfilled all conditions required by this Agreement to be performed and satisfied by Buyer at or prior to the Closing.
13.
TERMINATION
.
13.1
Causes of Termination
. This Agreement and the transactions contemplated herein may be terminated:
39
(A)
At any time by mutual consent of the Parties;
(B)
By either Party if the Closing shall not have occurred by December 31, 2012, despite the good faith reasonable efforts of the Parties, and if the Party desiring to terminate is not in breach of this Agreement, provided, however, such December 31, 2012, date shall not apply to any Asset for which Closing has been deferred pursuant to the terms of this Agreement;
(C)
By either Party if the cumulative total reduction in the Base Purchase Price due to Title Defects (net of any Title Benefits), Adverse Environmental Conditions and Casualty Loss exceeds fifteen percent (15%) of the Base Purchase Price;
(D)
By Buyer if, on the Closing Date, any of the conditions set forth in Section 11 hereof shall not have been satisfied or waived by Buyer;
(E)
By Sellers if, on the Closing Date, any of the conditions set forth in Section 12 hereof shall not have been satisfied or waived by Sellers;
provided in the case of (D) or (E), a Party shall not be entitled to terminate under such subsections if Closing has failed to occur because such Party failed to perform or observe in any material respect its covenants or agreements or is in breach of its representations or warranties under this Agreement.
13.2
Effect of Termination
. In the event of the termination of this Agreement pursuant to the provisions of this Section 13 or elsewhere in this Agreement, except as provided in Section 13.3, this Agreement shall become void and have no further force and effect and, except for the indemnities provided for in Sections 6.2(B) and 14.3, any breach of this Agreement prior to such termination and any continuing confidentiality requirement, neither Party shall have any further right, duty or liability to the other hereunder. Upon termination, Buyer agrees to use its best efforts to return to Sellers or destroy, all materials, documents and copies thereof provided, obtained or discovered in the course of any due diligence investigations. If this Agreement is terminated by Buyer pursuant to Section 13.1(A), 13.1(B), 13.1(C), or 13.1(D), the Earnest Money shall be returned to Buyer and such return shall be Buyer’s sole remedy for Sellers’ breach of this Agreement. In the event Sellers terminate this Agreement pursuant to Section 13.1(E), and Sellers elect to retain the Earnest Money, the Earnest Money will be retained by Sellers as liquidated damages in lieu of all other damages, except to the extent Sellers obtain specific performance as set forth in Section 2.2, in which case the Earnest Money will be applied to the Purchase Price.
13.3
Buyer’s Hedges
. Sellers acknowledge that in connection with the execution and delivery of this Agreement Buyer will be entering into hedging transactions at current NYMEX strip prices for the quantities of hydrocarbons set forth in
Exhibit 13.3
(the “
Buyer Hedges
”). In the event on the Closing Date all conditions to the obligations of Sellers to close have been satisfied or waived and Sellers fail or
40
refuse to close, Sellers shall promptly pay to Buyer (in addition to any other damages that Buyer may be entitled to receive) the aggregate cost to Buyer for the termination or unwinding of the Buyer Hedges.
14.
INDEMNIFICATION.
14.1
INDEMNIFICATION BY SELLERS
. UPON CLOSING, SELLERS SHALL, TO THE FULLEST EXTENT PERMITTED BY LAW, RELEASE, DEFEND, INDEMNIFY, AND HOLD HARMLESS BUYER, ITS PARENT AND SUBSIDIARY COMPANIES, AND EACH OF THEIR RESPECTIVE PARTNERS, MEMBERS, MANAGERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND OTHER REPRESENTATIVES (THE “
BUYER GROUP
”) FROM AND AGAINST THE FOLLOWING:
(A)
MISREPRESENTATIONS
. ALL CLAIMS, DEMANDS, LIABILITIES, JUDGMENTS, TAXES, LOSSES AND REASONABLE COSTS, EXPENSES AND REASONABLE ATTORNEYS’ FEES (INDIVIDUALLY A “
LOSS
” AND COLLECTIVELY, THE “
LOSSES
”) ARISING FROM THE BREACH BY SELLERS OF ANY REPRESENTATION OR WARRANTY SET FORTH IN THIS AGREEMENT THAT SURVIVES CLOSING;
(B)
BREACH OF COVENANTS
. ALL LOSSES ARISING FROM THE BREACH BY SELLERS OF ANY COVENANT SET FORTH IN THIS AGREEMENT;
(C)
RETAINED LIABILITIES
. ALL LOSSES ARISING FROM THE RETAINED LIABILITIES; AND
(D)
TITLE MATTERS. ALL LOSSES ARISING OUT OF ANY BREACH BY SELLERS OF SELLERS’ LIMITED WARRANTY OF TITLE CONTAINED IN SECTION 5.2(A).
(E)
Notwithstanding the above, the following limitations shall apply to Sellers’ indemnification obligations:
(i)
Sellers shall not be obligated to indemnify
Buyer for any Loss under Section 14.1(A) unless Buyer has delivered a written notice of such Loss within one (1) year after Closing; provided that this limitation shall not apply in respect of breach of the representations contained in Section 7.1(A), (B), (C), (H), (L), (M), or (Q) (each as “
Fundamental Rep
”).
(ii)
The indemnification obligations of Sellers pursuant to this Agreement shall be limited to actual Losses and shall not include incidental, consequential, indirect, punitive, or exemplary Losses or damages;
41
(iii)
Sellers’ aggregate liabilities and obligations under Section 14(A) shall not exceed twenty percent (20%) of the Base Purchase Price, provided that this limitation shall not apply to breaches of any Fundamental Rep;
(iv)
Sellers shall have no liability or obligation for any Losses under Section 14(A), unless and until the aggregate Losses for which Buyer is entitled to recover under this Agreement exceeds two and one half percent (2.5%) of the Base Purchase Price (the “
Threshold Amount
”); provided, however, once such amount exceeds the Threshold Amount, the Buyer Group will be entitled to recover all amounts to which they are entitled in excess of the Threshold Amount; provided, further, that this limitation shall not apply in respect of breach of the representations contained in Section 7.1 (H), (L), (M), or (Q);
(v)
Sellers shall have no liability in excess of the Allocated Value for an Asset, less any prior adjustments to the Base Purchase Price, for any Losses associated with the claim that Sellers do not have good and marketable title associated with a particular Asset;
(vi)
The amount of Losses required to be paid by Sellers to indemnify Buyer pursuant to this Agreement shall be reduced to the extent of any amounts actually received by Buyer pursuant to the terms of the insurance policies (if any) covering such claim; and
(vii)
Buyer acknowledges and agrees that the indemnification provisions in this Section 14 and the termination rights and obligations in Section 13 shall be the exclusive remedies of Buyer with respect to the transactions contemplated by this Agreement.
14.2
INDEMNIFICATION BY BUYER
. UPON CLOSING, BUYER SHALL TO THE FULLEST EXTENT PERMITTED BY LAW, RELEASE, DEFEND, INDEMNIFY, AND HOLD HARMLESS SELLERS GROUP FROM AND AGAINST THE FOLLOWING:
(A)
MISREPRESENTATIONS
. ALL LOSSES ARISING FROM THE BREACH BY BUYER OF ANY REPRESENTATION OR WARRANTY SET FORTH IN THIS AGREEMENT;
(B)
BREACH OF COVENANTS
. ALL LOSSES ARISING FROM THE BREACH BY BUYER OF ANY COVENANT SET FORTH IN THIS AGREEMENT;
(C)
OWNERSHIP AND OPERATION
. ALL LOSSES ARISING FROM THE ASSUMED LIABILITIES, AND THE OWNERSHIP AND
42
OPERATION OF THE ASSETS FROM AND AFTER THE EFFECTIVE TIME;
(D)
ENVIRONMENTAL LIABILITIES
.
EXCEPT FOR THE RETAINED LIABILITIES, ALL ENVIRONMENTAL LIABILITIES, REGARDLESS OF WHEN SUCH ENVIRONMENTAL LIABILITIES AROSE OR ACCRUED, INCLUDING ANY PLUGGING AND ABANDONMENT OBLIGATIONS, WHETHER SUCH RIGHTS AND REMEDIES ARE PURSUANT TO COMMON LAW, STATUTE OR OTHERWISE.
14.3
PHYSICAL INSPECTION
. BUYER INDEMNIFIES AND AGREES TO RELEASE, DEFEND, INDEMNIFY AND HOLD HARMLESS THE SELLERS GROUP FROM AND AGAINST ANY AND ALL LOSSES ARISING FROM BUYER’S INSPECTING AND OBSERVING THE ASSETS, INCLUDING (A) LOSSES FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF THE BUYER, ITS CONTRACTORS, AGENTS, CONSULTANTS AND REPRESENTATIVES, AND DAMAGE TO THE PROPERTY OF BUYER OR OTHERS ACTING ON BEHALF OF BUYER; AND (B) LOSSES FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF THE SELLERS GROUP OR THIRD PARTIES, AND DAMAGE TO THE PROPERTY OF THE SELLERS GROUP OR THIRD PARTIES, PROVIDED, HOWEVER, THE BUYER WILL HAVE NO RESPONSIBILITY TO INDEMNIFY THE SELLERS GROUP HEREUNDER WITH RESPECT TO ANY LOSS THAT ARISES OUT OF OR IS ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY OF THE SELLERS GROUP. THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE SELLERS GROUP FROM AND AGAINST LOSSES ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE ASSETS OR THE SELLERS GROUP’S SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR FAULT.
14.4
Notification
. As soon as reasonably practical after obtaining knowledge thereof, the indemnified Party shall notify the indemnifying Party of any claim or demand which the indemnified Party has determined has given or could give rise to a claim for indemnification under this Section 14. Such notice shall specify the agreement, representation or warranty with respect to which the claim is made, the facts giving rise to the claim and the alleged basis for the claim, and the amount (to the extent then determinable) of liability for which indemnity is asserted. In the event any action, suit or proceeding is brought with respect to which a Party may be liable under this Section 14, the defense of the action, suit or proceeding (including all settlement negotiations and arbitration, trial, appeal, or other proceeding) shall be at the discretion of and conducted by the indemnifying Party. If an indemnified Party shall settle any such action, suit or proceeding without the written consent of the indemnifying Party (which consent shall not be unreasonably withheld), the right of the indemnified Party to make
43
any claim against the indemnifying Party on account of such settlement shall be deemed conclusively denied. An indemnified Party shall have the right to be represented by its own counsel at its own expense in any such action, suit or proceeding, and if an indemnified Party is named as the defendant in any action, suit or proceeding, it shall be entitled to have its own counsel and defend such action, suit or proceeding with respect to itself at its own expense. Subject to the foregoing provisions of this Section 14, neither Party shall, without the other Party’s written consent, settle, compromise, confess judgment or permit judgment by default in any action, suit or proceeding if such action would create or attach any liability or obligation to the other Party. The Parties agree to make available to each other, and to their respective counsel and accountants, all information and documents reasonably available to them which relate to any action, suit or proceeding, and the Parties agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding.
14.5
Escrow Claims
.
(A)
Subject to the applicable limitations set forth in this Section 14, any amounts due to Buyer Group under Section 14.1 for the recovery of indemnifiable Losses may, at Buyer’s option, be satisfied from the Indemnity Escrow Fund or directly from Sellers.
(B)
In the event Sellers do not dispute a claim for indemnification made by a member of Buyer Group that pursuant to Section 14.5(A) Buyer has elected to be satisfied from the Indemnity Escrow Fund (in whole or in part), Chalker and Buyer shall provide written instructions to the Escrow Agent in accordance with the Escrow Agreement to disburse to Buyer the amount of the undisputed claim. Upon final determination of liability (or a settlement between the Parties) with respect to any claim for indemnification made by any member of Buyer Group that pursuant to Section 14.5(A) Buyer has elected to be satisfied from the Indemnity Escrow Fund (in whole or in part), Chalker and Buyer shall provide written instructions to the Escrow Agent to disburse to Buyer the amount determined by such final determination or settlement to be due and which amount is then remaining in the Indemnity Escrow Fund.
(C)
On the 180th day following the Closing Date (not counting the Closing Date but counting such 180th day), Buyer and Chalker shall instruct the Escrow Agent to release to an account designated by Chalker, or, if any Sellers instruct Chalker in writing as to their proportionate share, to one or more accounts as instructed by Sellers, from the Indemnity Escrow Fund an amount equal to two-thirds (2/3) of the original amount of the Indemnity Escrow Fund minus the aggregate amount of prior disbursements and the aggregate amount of all unsatisfied claims for
44
indemnification that Buyer Group has made against the Indemnity Escrow Fund on or before such 180th day pursuant to Section 14.
(D)
On the first anniversary of the Closing Date, Buyer and Chalker shall instruct the Escrow Agent to release to an account designated by Chalker, or, if any Sellers instruct Chalker in writing as to their proportionate share, to one or more accounts as instructed by Sellers, of the positive difference (if any) between the then-remaining amount of the Indemnity Escrow Fund minus the aggregate amount of all unsatisfied claims for indemnification that Buyer Group has made on or before the date of such first anniversary against the Indemnity Escrow Fund. Any amount remaining in the Indemnity Escrow Fund for such unsatisfied claims shall remain in escrow until a final determination of liability (or a settlement between the parties) with respect to such claims is made pursuant to this Agreement.
(E)
In all other cases where a Party is entitled to a payment from the Escrow Account, Chalker and Buyer shall jointly instruct the Escrow Agent to make such payment to the Party or Parties entitled thereto.
15.
MISCELLANEOUS
.
15.1
Casualty Loss
.
(A)
An event of casualty means volcanic eruptions, acts of God, terrorist action, fire, explosion, earthquake, wind storm, flood, drought, condemnation, the exercise of any right of eminent domain, confiscation and seizure (a “
Casualty
”). A Casualty does not include depletion due to normal production and depreciation or failure of equipment or casing.
(B)
If, prior to Closing, a Casualty occurs (or Casualties occur) which results in a reduction in the value of the Assets (“
Casualty Loss
”), and the Agreement is not terminated pursuant to Section 13.1(c), then this Agreement shall remain in full force and effect notwithstanding any such Casualty Loss, and, upon agreement of the Parties, (i) Sellers may retain such Asset and such Asset shall be the subject of an adjustment to the Base Purchase Price in the same manner set forth in Section 5.5 hereof, or (ii) if Buyer agrees, at the Closing, Sellers shall pay to Buyer all sums paid to Sellers by reason of such Casualty Loss; provided, however, that the Base Purchase Price shall not be adjusted by reason of such payment, and Sellers shall assign, transfer and set over unto Buyer all of the right, title and interest of Sellers in and to such Asset and any unpaid awards or other payments arising out of such Casualty Loss.
(C)
For purposes of determining the diminution in value of an Asset as a result of a Casualty Loss, the Parties shall use the same methodology as applied
45
in determining the diminution in value of an Asset as a result of a Title Defect as set forth in Section 5.
15.2
Confidentiality
.
(A)
Prior to Closing, to the extent not already public, Buyer shall exercise all due diligence in safeguarding and maintaining secure all engineering, geological and geophysical data, seismic data, reports and maps, the results and findings of Buyer with regard to its due diligence associated with the Assets (including without limitation with regard to due diligence associated with environmental and title matters) and other data relating to the Assets (collectively, the “
Confidential Information
”). Buyer acknowledges that, prior to Closing, all Confidential Information shall be treated as confidential and shall not be disclosed to third parties without the prior written consent of Sellers.
(B)
In the event of termination of this Agreement for any reason, Buyer shall not use or knowingly permit others to use such Confidential Information in a manner detrimental to Sellers, and will not disclose any such Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, except to Sellers or to a governmental agency pursuant to a valid subpoena or other order or pursuant to applicable governmental regulations, rules or statutes.
(C)
The undertaking of confidentiality shall not diminish or take precedence over any separate confidentiality agreement between the Parties, including the Confidentiality Agreement. Should this Agreement terminate, such separate confidentiality agreement shall remain in full force and effect.
15.3
Competition
. Buyer acknowledges that Sellers may presently own interests or have leads, prospects, information or ideas on properties or leaseholds adjacent to, adjoining or in the vicinity of the Assets. Unless otherwise expressly agreed to in writing, Sellers shall not be prohibited in any way from competing with Buyer or pursuing any activity or business opportunity on property not being transferred to Buyer pursuant to this Agreement.
15.4
Notice
. Unless otherwise specifically provided herein, any notice, request, demand, or consent required or permitted to be given hereunder shall be in writing and delivered in person or by certified letter, with return receipt requested or by prepaid overnight delivery service, or by facsimile addressed to the Party for whom intended at the following addresses:
46
SELLERS:
Chalker Energy Partners III, LLC
Attn:
Douglas G. Krenek, President
777 Walker Street, Suite 2520
Houston, Texas 77002
Tel:
713-586-6858
Fax:
713-586-6859
Email:
doug@chalkerenergy.com
With a copy to:
Greenberg Traurig, LLP
Attn:
Douglas C. Atnipp
1000 Louisiana Street, Suite 1700
Houston, Texas 77002
Tel:
713-374-3515
Fax:
713-754-7515
Email:
atnippd@gtlaw.com
BUYER:
Jones Energy Holdings, LLC
Attn:
Jody Crook
807 Las Cimas Parkway
Suite 350
Austin, TX 78746
Tel:
512-328-2953 x 245
Fax:
512-328-5394
Email:
jcrook@jonesenergy.com
With a copy to:
Baker Botts LLP
Attn:
Mike Bengtson
98 San Jacinto Blvd
Suite 1500
Austin, TX 78701
Tel:
512-322-2661
Fax:
512-322-8349
Email:
mike.bengtson@bakerbotts.com
or at such other address as any of the above shall specify by like notice to the other. All notices shall be deemed to have been duly given at the time of receipt by the Party to whom such notice is addressed.
47
15.5
Press Releases and Public Announcements
. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior review and prior written approval of the other Party (which approval will not be unreasonably withheld); provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its or its affiliates’ publicly-traded securities (in which case the disclosing Party shall use all reasonable efforts to advise the other Party, and give the other Party an opportunity to comment on the proposed disclosure, prior to making the disclosure).
15.6
Personnel
. Without the other Party’s prior written consent, for a period of twelve (12) months from the Effective Time, neither Party will directly or indirectly solicit for employment any person who is now employed by the other Party or its affiliates in an executive, management, technical or professional position; provided, however, the foregoing restriction shall not apply to circumstances where a Party’s employees are responding to public solicitation for employment by the other Party.
15.7
Compliance with Express Negligence Test
. THE PARTIES AGREE THAT THE INDEMNIFICATION OBLIGATIONS OF THE INDEMNIFYING PARTY SHALL BE WITHOUT REGARD TO THE NEGLIGENCE OR STRICT LIABILITY OF THE INDEMNIFIED PERSON(S), WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE.
15.8
Governing Law and Dispute Resolution
. THIS AGREEMENT IS GOVERNED BY AND MUST BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS-OF-LAW RULE OR PRINCIPLE THAT MIGHT APPLY THE LAW OF ANOTHER JURISDICTION. Any dispute under this Agreement and all claims, counterclaims, demands, causes of action, disputes, controversies, and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach of any such provision or in any way relating to the subject matter of this Agreement or the relationship between the Parties created by this Agreement, involving the Parties and/or their respective representatives (all of which are referred to herein as “
Disputes
”), even though some or all of such Disputes allegedly are extra-contractual in nature, whether such Disputes sound in contract, tort, or otherwise, at law or in equity, under State or federal law, whether provided by statute or the common law, for damages or any other relief, shall be resolved by binding arbitration in accordance with this Section 15.8.
(A)
The validity, construction, and interpretation of this Section 15.8, and all procedural aspects of the arbitration conducted pursuant to this Section 15.8, including but not limited to, the determination of the issues that are subject to arbitration (i.e., arbitrability), the scope of the arbitrable
48
issues, allegations of “fraud in the inducement” to enter into this Agreement, or this arbitration provision, allegations of waiver, laches, delay or other defenses to arbitrability, and the rules governing the conduct of the arbitration shall be decided by the arbitrators. The arbitration shall be administered by the American Arbitration Association (the “
AAA
”), and shall be conducted pursuant to the Commercial Arbitration Rules of the AAA, as modified by the Agreement. In deciding the substance of the Parties’ Disputes, the arbitrators shall refer to the substantive laws of the State of Texas for guidance (excluding Texas choice-of-law principles that might call for the application of some other state’s law). Notwithstanding any other provision in this Section 15.8 to the contrary, the Parties expressly agree that the arbitrators shall have absolutely no authority to award consequential, incidental, special, treble, exemplary or punitive damages of any type under any circumstances regardless of whether such damages may be available under Texas law, the law of any other state, or federal law, or under the Commercial Arbitration Rules of the AAA, the Parties hereby waiving their right, if any, to recover consequential, incidental, special, treble, exemplary or punitive damages in connection with any such Disputes.
(B)
The arbitration proceeding shall be conducted in Houston, Texas, before a panel of three arbitrators appointed in accordance with the Commercial Arbitration Rules of the AAA consisting of persons from any of the following categories: (i) attorneys having practiced in the area of oil and gas law for at least ten years, (ii) engineers with at least ten years of experience in the oil and gas industry, or (iii) certified public accountants with at least ten years of experience in the oil and gas industry dealing with joint interest billings; provided, however, that if the dispute relates solely to the final accounting statement or any other predominantly accounting issue, all three arbitrators chosen shall be accountants as set forth in the preceding clause (iii). The arbitrators shall conduct a hearing as soon as reasonably practicable after appointment of the third arbitrator, and a final decision completely disposing of all Disputes that are the subject of the arbitration proceedings shall be rendered by the arbitrators within thirty (30) days after the hearing, to the extent reasonably practicable. The arbitrators’ ultimate decision after final hearing shall be in writing. In case the arbitrators award monetary damages to either Party, the arbitrators shall certify in their award that they have not included any consequential, incidental, special, treble, exemplary or punitive damages.
(C)
The arbitrators shall designate a prevailing Party in their final award. Pursuant to this determination, the arbitrators shall award to the prevailing Party its reasonable attorneys’ fees, costs and expenses of the arbitration (including the arbitrators’ fees and expenses) in full.
49
(D)
To the fullest extent permitted by law, the arbitration proceeding and the arbitrators’ award shall be maintained in confidence by the Parties.
(E)
The award of the arbitrators shall be binding upon the parties and final and nonappealable to the maximum extent permitted by law, and judgment thereon may be entered in a court of competent jurisdiction and enforced by any Party as a final judgment of such court.
15.9
Exhibits
. The Exhibits attached to this Agreement are incorporated into and made a part of this Agreement.
15.10
Fees, Expenses, Taxes and Recording
.
(A)
Each Party shall be solely responsible for all costs and expenses incurred by it in connection with this transaction (including, but not limited to fees and expenses of its counsel and accountants) and shall not be entitled to any reimbursements from the other Party, except as otherwise provided in this Agreement.
(B)
Buyer shall file all necessary Tax returns and other documentation with respect to all transfer, documentary, sales, use, stamp, registration and other similar Taxes and fees, and, if required by applicable law, Sellers shall join in the execution of any such Tax returns and other documentation. Notwithstanding anything set forth in this Agreement to the contrary, Buyer shall pay any transfer, documentary, sales, use, stamp, registration and other similar Taxes and fees incurred in connection with this Agreement and the transactions contemplated hereby. Buyer and Sellers shall cooperate, to the extent possible, in qualifying the transactions contemplated by this Agreement for exemption from such Taxes.
(C)
Buyer shall, at its own cost, promptly record all instruments of conveyance and sale in the appropriate office of the state and county in which the lands covered by such instrument are located. Buyer shall promptly file for and obtain the necessary approval of all federal, Indian, tribal or state government agencies to the assignment of the Assets. The assignment of any state, federal or Indian tribal oil and gas leases shall be filed in the appropriate governmental offices on a form required and in compliance with the applicable rules of the applicable government agencies. Buyer shall supply Sellers with a true and accurate photocopy reflecting the recording information of all the recorded and filed assignments within a reasonable period of time after their recording and filing.
15.11
Assignment
. This Agreement or any part hereof may not be assigned by a Party without the prior written consent of the other Parties; provided, however, upon notice to the other Parties, a Party shall have the right to assign all or part of its
50
rights (but none of its obligations) under this Agreement in order to qualify transfer of the Assets as a “like-kind” exchange for federal tax purposes. Subject to the foregoing, this Agreement is binding upon the Parties hereto and their respective successors and assigns.
15.12
Entire Agreement
. This Agreement constitutes the entire agreement reached by the Parties with respect to the subject matter hereof, superseding all prior negotiations, discussions, agreements and understandings, whether oral or written, relating to such subject matter, except that the Confidentiality Agreement dated October 2, 2012, between the Parties (the “
Confidentiality Agreement
”), and incorporated by reference herein, shall remain in full force and effect in accordance with its terms through and until the Closing. The Parties agree that this Agreement is made subject to the terms of the Confidentiality Agreement.
15.13
Severability
. In the event that any one or more covenants, clauses or provisions of this Agreement shall be held invalid or illegal, such invalidity or unenforceability shall not affect any other provisions of this Agreement.
15.14
Captions
. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
15.15
Counterpart Execution
. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original, and all of which together shall constitute one and the same instrument.
15.16
Waiver of Certain Damages
. Each of the Parties hereby waives and agrees not to seek consequential or punitive damages with respect to any claim, controversy, or dispute arising out of or relating to this Agreement or the breach thereof.
15.17
Amendments and Waivers
. This Agreement may not be modified or amended except by an instrument in writing signed by the Parties. Any Party hereto may, only by an instrument in writing, waive compliance by another Party with any term or provision of this Agreement on the part of such other Party hereto to be performed or complied with. The waiver by any Party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.
15.18
Chalker as Agent
. Buyer acknowledges that Chalker shall serve as agent for the Sellers for the following limited purposes in the administration of this Agreement. Chalker, at its sole discretion, will exclusively negotiate the terms and conditions of this Agreement including any exhibits and any ancillary documents thereto. Chalker shall have the authority to receive all notices as required hereunder on behalf of Sellers prior to Closing. Sellers agree that Chalker may so act on their behalf, and further agree that Chalker shall have no liability to them with respect to their actions in such capacity in the absence of bad faith or willful misconduct. Sellers further agree that, unless otherwise specifically provided herein, Buyer
51
shall have no obligation to notify Sellers other than Chalker with respect to such matters, and Sellers hereby agree to be bound by the actions of Chalker in all respects in connection with such matters. Sellers will execute such further instruments and take such further actions as may be necessary or advisable from time to time to carry out the intentions of the parties set forth herein. To the extent notice or other written communication is required to or from Sellers as provided for in this Agreement, all Parties hereto agree that Chalker shall act as agent for the Sellers prior to Closing. Chalker shall act as agent for Sellers for purposes of Buyer’s payment of and entitlement to the Earnest Money, the Purchase Price, except as otherwise instructed by any individual Seller pursuant to Section 3.3(A), and any funds held in escrow pursuant to the Escrow Agreement. Chalker shall retain and not distribute the Earnest Money until Closing or termination of this Agreement, as applicable.
15.19
Right to Set Off
. Buyer shall have the right to set off any amounts owed by any Seller to Buyer against any amounts owed by Buyer to such Seller or that Buyer may hold on behalf of such Seller, including any amounts held by Buyer on behalf of such Seller under a joint interest account.
[Signatures begin on the following page]
52
Executed as of the day and year first above written.
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SELLERS:
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CHALKER ENERGY PARTNERS III, LLC
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By:
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/s/
Doug G. Krenek
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Doug G. Krenek, President
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BMW INVESTMENTS, L.P.
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By:
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BMW Ventures, LLC,
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its General Partner
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By:
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/s/ Wesley J. Mahone
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Wesley J. Mahone, President
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ARK-LA-TEX PROPERTY INVESTMENTS, LP
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By:
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Ark-La-Tex Property Management, LLC, it General Partner
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By:
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/s/ Wesley J. Mahone
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Wesley J. Mahone, President
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R. BYRON ROACH, TRUSTEE, LLC
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By:
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/s/ R. Byron Roach
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R. Byron Roach, Managing Member
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REMORA OIL & GAS, LLC
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By:
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/s/ Edward Kremer
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Edward Kremer, President
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SELLERS:
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RAPTOR PETROLEUM, LLC
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By:
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/s/ Dustin Faulkner
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Dustin Faulkner, Director of Operations
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EASTERN REDBUD, LLC
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By:
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/s/ Jason Perkins
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Jason Perkins, Manager
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MICHAEL FAULKNER
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By:
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/s/ Michael Faulkner
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Michael Faulkner
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JIMMY SUTTON
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By:
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/s/ Jimmy Sutton
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Jimmy Sutton
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VICENERGY, LLC
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By:
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/s/ Daniel Victor
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Daniel Victor, Manager
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TERRA GEOLOGICAL, LLC
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By:
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/s/ Chris Faulkner
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Chris Faulkner, President
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SELLERS:
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JERRY CAYLOR
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By:
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/s/ Jerry Caylor
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Jerry Caylor
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LARRY CAYLOR
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By:
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/s/ Larry Caylor
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Larry Caylor
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JOHN TALLEY
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By:
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/s/ John Talley
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John Talley
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ERICKSON RESOURCES, LLC
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By:
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/s/ Eric Erickson
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Eric Erickson, President
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1ST AMENDMENT TO THE RICHARD E. AND BETTY V. KREMER LIVING TRUST DATED 1/3/2002
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By:
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/s/ John G. Kremer
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John G. Kremer, Trustee
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RUSSELL L. ROACH
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By:
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/s/ Russell L. Roach
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Russell L. Roach
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SELLERS:
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M&D EXPLORATION, LLC
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By:
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/s/ Mark Warren
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Mark Warren, President
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JOE D. NOBLES
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By:
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/s/ Joe D. Nobles
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Joe D. Nobles
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BUYER:
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JONES ENERGY HOLDINGS, LLC
,
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a Delaware limited liability company
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By:
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/s/ Jon R. Jones, Jr.
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Jon R. Jones, Jr.
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Chief Executive Officer
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Exhibit 10.23
JONES ENERGY HOLDINGS, LLC
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of [
·
], 2013
THE COMPANY INTERESTS REPRESENTED BY THIS THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM AND COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
THE COMPANY INTERESTS REPRESENTED BY THIS THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET FORTH IN THIS AGREEMENT.
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ARTICLE I DEFINITIONS
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4
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1.1
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Definitions
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4
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1.2
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Interpretative Matters
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12
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ARTICLE II ORGANIZATIONAL MATTERS
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13
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2.1
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Formation of the Company
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13
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2.2
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Third Amended and Restated Limited Liability Company Agreement
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13
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2.3
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Name
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14
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2.4
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Purpose; Powers
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14
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2.5
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Principal Office; Registered Office
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14
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2.6
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Term
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14
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2.7
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Foreign Qualification
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14
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2.8
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No State Law Partnership
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14
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ARTICLE III CAPITALIZATION; ADMISSION OF MEMBERS; CAPITAL ACCOUNTS
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15
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3.1
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Capitalization
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15
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3.2
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Admission of Members; Additional Members
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17
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3.3
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Capital Accounts
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17
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3.4
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Negative Capital Accounts
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18
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3.5
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No Withdrawal
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18
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3.6
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Loans From Unitholders
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18
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3.7
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No Right of Partition
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18
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3.8
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Non-Certification of Units; Legend; Units Are Securities
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18
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ARTICLE IV DISTRIBUTIONS
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19
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4.1
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Distributions
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19
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4.2
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Successors
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19
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4.3
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Distributions In-Kind
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19
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4.4
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Tax-Related Distributions.
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19
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ARTICLE V ALLOCATIONS
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20
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5.1
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Allocations
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20
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5.2
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Special Allocations.
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20
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5.3
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Tax Allocations
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22
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5.4
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Unitholders’ Tax Reporting
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23
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5.5
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Indemnification and Reimbursement for Payments on Behalf of a Unitholder
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23
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ARTICLE VI RIGHTS AND DUTIES OF MEMBERS
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24
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6.1
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Management
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24
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6.2
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Liability of Unitholders
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25
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6.3
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Investment Opportunities; Performance of Duties; Conflicts of Interest.
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25
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6.4
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Meetings
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26
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6.5
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Actions Requiring Member Approval
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26
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ARTICLE VII OFFICERS
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26
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7.1
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Officers
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26
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7.2
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Chief Executive Officer
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27
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7.3
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President
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27
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7.4
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Chief Financial Officer
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27
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7.5
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Vice Presidents
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28
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7.6
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Secretary
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28
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7.7
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Further Delegation of Authority
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28
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7.8
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Fiduciary Duties
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28
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7.9
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Performance of Duties; Liability of Officers
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28
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7.10
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Indemnification
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29
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ARTICLE VIII TAX MATTERS
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30
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8.1
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Preparation of Tax Returns
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30
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8.2
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Tax Elections
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31
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8.3
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Tax Controversies
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31
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8.4
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Tax Allocations
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31
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8.5
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Fiscal Year; Taxable Year
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31
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ARTICLE IX TRANSFER OF UNITS; SUBSTITUTE MEMBERS
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31
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9.1
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Restrictions on Transfers
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31
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9.2
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Recognition of Transfer; Substituted and Additional Members
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32
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9.3
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Expense of Transfer; Indemnification
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33
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9.4
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Exchange Agreement
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33
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ARTICLE X DISSOLUTION AND LIQUIDATION
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33
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10.1
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Dissolution
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33
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10.2
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Liquidation and Termination
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34
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10.3
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Complete Distribution
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34
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10.4
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Cancellation of Certificate
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34
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10.5
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Reasonable Time for Winding Up
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35
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10.6
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Return of Capital
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35
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10.7
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HSR Act
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35
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ARTICLE XI GENERAL PROVISIONS
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35
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11.1
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Power of Attorney
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35
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11.2
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Books and Records
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35
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11.3
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Amendments
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36
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11.4
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Remedies
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36
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11.5
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Successors and Assigns
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36
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11.6
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Severability
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36
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11.7
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Counterparts
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36
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11.8
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Applicable Law
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37
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11.9
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Addresses and Notices
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37
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11.10
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Creditors
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37
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11.11
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Waiver
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37
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11.12
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Further Action
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37
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11.13
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Entire Agreement
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37
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11.14
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Delivery by Facsimile or Email
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37
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11.15
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Survival
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38
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11.16
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Confidentiality
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38
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SCHEDULE A
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Schedule of Members
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2
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
JONES ENERGY HOLDINGS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “
Agreement
”) of Jones Energy Holdings, LLC (the “
Company
”), dated and effective as of [
·
], 2013 (the “
Effective Date
”), is adopted, executed and agreed to, for good and valuable consideration, by and among the Company and each other Person who is or at any time becomes a Member in accordance with the terms of this Agreement and the Act. Any reference in this Agreement to any Member shall include such Member’s Successors in Interest to the extent such Successors in Interest have become Substituted Members in accordance with the provisions of this Agreement.
RECITALS:
WHEREAS, the Company was formed by Jones Energy Drilling Fund, LP, a Texas limited partnership (“
JEDF
”) and Jones Energy Equity Partners, LP, a Texas limited partnership (“
JEEP
”) as a limited liability company under the Act by filing a Certificate of Formation with the Secretary of State of the State of Delaware on December 16, 2009 (the “
Certificate
”);
WHEREAS, JEDF and JEEP, as the Company’s initial members, entered into an initial limited liability company agreement with the Company on December 16, 2009 (such agreement, the “
Original Agreement
”);
WHEREAS, JEDF, JEEP, Metalmark Capital Partners (C) II, L.P., a Delaware limited partnership, and Wells Fargo Central Pacific Holdings, Inc., a Delaware corporation, entered into the Amended and Restated Limited Liability Company Agreement with the Company, dated as of December 31, 2009 (the “
Restated LLC Agreement
”), with such Restated LLC Agreement amending and restating the Original Agreement and setting forth the rights, powers and interests of the Members with respect to the Company and their Membership Interests therein and providing for the management of the business and operations of the Company;
WHEREAS, the Company and all of its Members entered into that certain Second Amended and Restated Limited Liability Company Agreement, dated as of December 20, 2012 (the “
Second Restated LLC Agreement
”);
WHEREAS, through transactions effected on March 30, 2012 and May 13, 2013, Metalmark Capital Partners (C) II, L.P. transferred its interests in the Company to the following entities: (i) MCP (C) II Jones Intermediate LLC, (ii) MCP II Co-Investment Jones Intermediate LLC, (iii) MCP II Jones Intermediate LLC, (iv) MCP II (TE) AIF Jones Intermediate LLC, (v) MCP II (Cayman) AIF Jones Intermediate LLC and (vi) MCP II Executive Fund Jones Intermediate LLC (the transferee entities collectively referred to herein as “
Metalmark
”);
WHEREAS, Jones Energy, Inc. (“
JEI
”) has entered into an underwriting agreement (the “
IPO Underwriting Agreement
”) with the several underwriters (the “
IPO Underwriters
”) named therein, providing for the initial public offering (the “
IPO
”) of [
·
] shares of Class A Common Stock;
WHEREAS, in connection with the IPO, it is contemplated that pursuant to this Agreement (i) immediately prior to consummation of the IPO (the “
Effective Time
”), all of the limited liability company interests in the Company held by the current Members (the “
Prior LLC Interests
”) will be exchanged for
3
the number of Units set forth opposite each such Member’s name in
Schedule A
hereto, (ii) immediately after the IPO, the Company will exchange its shares of common stock of JEI for [
·
]
shares of Class B Common Stock and will immediately distribute such shares of Class B Common Stock to the current Members in proportion to the number of Units held by each current Member, (iii) immediately after the IPO, JEI will contribute the net proceeds thereof to the Company in exchange for [
·
]
Units, and (iv) if and to the extent the IPO Underwriters exercise their option to purchase Option Shares (as defined below) pursuant to the terms of the IPO Underwriting Agreement, JEI will issue additional shares of Class A Common Stock and use the net proceeds thereof to purchase an equal number of Units from the Company, (collectively, the “
IPO Transactions
”);
WHEREAS, the Company and the Members set forth on
Schedule A
attached hereto now wish to amend and restate the Second Restated LLC Agreement as set forth herein to give effect to IPO Transactions and to reflect the admission of JEI as a Member and as sole managing member;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto, each intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions
. Unless the context otherwise requires, the following terms shall have the following meanings for purposes of this Agreement:
“
Act
” means the Delaware Limited Liability Company Act, 6 Del. L. Sections 18-101,
et seq.
“
Additional Member
” means any Person that has been admitted to the Company as a Member after the Effective Date pursuant to
Section 3.2(b)
by virtue of having received its Membership Interest from the Company and not from any other Member or Assignee.
“
Adjusted Capital Account Deficit
” means, with respect to any Person’s Capital Account as of the end of any taxable year, the amount by which the balance in such Capital Account is less than zero. For this purpose, such Capital Account balance shall be (i) reduced for any items described in Regulations Section 1.704-1(b)(2)(ii)
(d)(4)
,
(5)
and
(6)
, and (ii) increased for any amount such Person is obligated to contribute or is treated as being obligated to contribute to the Company pursuant to Regulations Sections 1.704-1(b)(2)(ii)
(c)
(relating to partner liabilities to a partnership) or 1.704-2(g)(1) and 1.704-2(i) (relating to minimum gain).
“
Affiliate
” when used with reference to another Person means any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such other Person. In addition, Affiliates of a Member shall include all its partners, officers, employees and former partners in their capacities as such.
“
Agreement
” has the meaning set forth in the preamble.
4
“
Assignee
” means any Transferee to which a Member or another Assignee has Transferred all or a portion of its interest in the Company in accordance with the terms of this Agreement, but that is not a Member.
“
Assumed Tax Rate
” means, for any taxable year, the highest marginal effective rate of federal, state and local income tax applicable to an individual resident in New York, New York (or, if higher, a corporation doing business in New York, New York) determined by applying the rates applicable to ordinary income (in cases where taxes are being determined on ordinary income allocated to a Member) and capital gains (in cases where taxes are being determined on capital gains allocated to a Member), and by assuming that state and local income taxes are not deductible in computing a Unitholder’s liability for federal income tax.
“
Bankruptcy
” means, with respect to any Person, the occurrence of any of the following events: (a) the filing of an application by such Person for, or a consent to, the appointment of a trustee or custodian of such Person’s assets; (b) the filing by such Person of a voluntary petition in Bankruptcy or the seeking of relief under Title 11 of the United States Code, as now constituted or hereafter amended, or the filing of a pleading in any court of record admitting in writing such Person’s inability to pay its debts as they become due; (c) the failure of such Person to pay its debts as such debts become due; (d) the making by such Person of a general assignment for the benefit of creditors; (e) the filing by such Person of an answer admitting the material allegations of, or such Person’s consenting to, or defaulting in answering, a Bankruptcy petition filed against him in any Bankruptcy proceeding or petition seeking relief under Title 11 of the United States Code, as now constituted or as hereafter amended; or (f) the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating such Person a bankrupt or insolvent or for relief in respect of such Person or appointing a trustee or custodian of such Person’s assets and the continuance of such order, judgment or decree unstayed and in effect for a period of 60 consecutive calendar days.
“
Business Day
” means any calendar day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required to close.
“
Capital Account
” has the meaning set forth in
Section 3.3(a)
.
“
Capital Contributions
” means any cash, cash equivalents or, at the consent of the Managing Member, the Fair Market Value of other property that a Member contributes to the Company with respect to any Unit or other Equity Securities issued pursuant to
Article III
(net of liabilities assumed by the Company or to which such property is subject).
“
Certificate
” has the meaning set forth in the preamble.
“
Chief Executive Officer
” has the meaning set forth in
Section 7.2
.
“
Chief Financial Officer
” has the meaning set forth in
Section 7.4
.
“
Class A Common Stock
” means the shares of Class A common stock, par value $0.001 per share, of JEI.
“
Class B Common Stock
” means the shares of Class B common stock, par value $0.001 per share, of JEI.
“
Code
” means the United States Internal Revenue Code of 1986.
5
“
Company
” has the meaning set forth in the preamble.
“
Company Minimum Gain
” has the meaning set forth for the term “partnership minimum gain” in Regulations Section 1.704-2(d).
“
control
” means, when used with reference to any Person, the power to direct the management or policies of such Person, directly or indirectly, by or through stock or other equity ownership, agency or otherwise, or pursuant to or in connection with an agreement, arrangement or other understanding (written or oral); and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing.
“
Depreciation
” has the meaning set forth in the definition of “Net Income” or “Net Loss” under paragraph (e) therein.
“
Distribution
” means each distribution after the Effective Date made by the Company to a Unitholder, whether in cash, property or securities of the Company, pursuant to, or in respect of,
Article IV
or
Article X
.
“
Economic Interest
” means the right to allocations of items of income, gain, loss, deduction, credit or similar items and the right to Distributions of cash and other property as provided in
Article IV, Article V
and
Article X
of this Agreement and the Act, but shall not include any right to participate in the management or affairs of the Company or any right to receive information concerning the business and affairs of the Company, in each case, except as expressly otherwise provided in this Agreement or required by the Act.
“
Effective Date
” has the meaning set forth in the preamble.
“
Effective Time
” has the meaning set forth in the recitals.
“
Equity Securities
” means, as applicable, (a) any capital stock, membership interests or other share capital, (b) any securities directly or indirectly convertible into or exchangeable for any capital stock, membership interests or other share capital or containing any profit participation features, (c) any rights or options directly or indirectly to subscribe for or to purchase any capital stock, membership interests, other share capital or securities containing any profit participation features or to subscribe for or to purchase any securities directly or indirectly convertible into or exchangeable for any capital stock, membership interests, other share capital or securities containing any profit participation features, (d) any share appreciation rights, phantom share rights or other similar rights, or (e) any Equity Securities issued or issuable with respect to the securities referred to in clauses (a) through (d) above in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.
“
Event of Withdrawal
” means the death, retirement, resignation, expulsion, Bankruptcy or dissolution of a Unitholder or the occurrence of any other event that terminates the continued membership of a Member in the Company.
“
Exchange Agreement
” means the Exchange Agreement dated on or about the date hereof between the Company, the Members and JEI.
“
Fair Market Value
” means, with respect to any asset or securities, the fair market value for such assets or securities as between a willing buyer and a willing seller in an arm’s length transaction occurring on the date of valuation, taking into account all relevant factors determinative of value, as determined in good faith by the Managing Member.
6
“
Family Group
” means for any individual, such individual’s current or former spouse, their respective parents, descendants of such parents (whether natural or adopted) and the spouses of such descendants, and any trust, limited partnership, corporation or limited liability company established solely for the benefit of such individual or such individual’s current or former spouse, their respective parents, descendants of such parents (whether natural or adopted) or the spouses of such descendants.
“
Fiscal Year
” means the fiscal year of the Company and its Subsidiaries, ending on December 31 of each calendar year.
“
Governmental Entity
” means the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government, including any court, in each case, having jurisdiction over the Company or any of its Subsidiaries or any of the property or other assets of the Company or any of its Subsidiaries.
“
Gross Asset Value
” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a)
the initial Gross Asset Value of any asset contributed by a Unitholder to the Company shall be the gross Fair Market Value of such asset on the date of the contribution (which, in the case of the assets contributed by JEDF pursuant to the Jones Contribution Agreement (net of any liabilities securing such assets that the Company is considered to assume or take subject to), shall be deemed to equal $45,000,000);
(b)
the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross Fair Market Values as of the following times:
(i)
the acquisition of an additional interest in the Company after the Effective Date by a new or existing Unitholder in exchange for more than a
de minimis
Capital Contribution, if the Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative Economic Interests of the Unitholders in the Company;
(ii)
the grant of an interest in the Company (other than a
de minimis
interest) as consideration for the provision of services to or for the benefit of the Company or any of its Subsidiaries by an existing or a new Member acting in a “partner capacity,” or in anticipation of becoming a “partner” (in each case within the meaning of Regulations Section 1.704-1(b)(2)(iv)
(d)
).
(iii)
the Distribution by the Company to a Unitholder of more than a
de minimis
amount of Company property as consideration for an interest in the Company, if the Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative Economic Interests of the Unitholders in the Company;
(iv)
the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)
(g)
;
(v)
immediately prior to the exchange of the Prior LLC Interests for Units which is described in the first sentence of
Section 3.1(b)
; and
7
(vi)
such other times as the Managing Member shall reasonably determine to be necessary or advisable in order to comply with Regulations promulgated under Subchapter K of Chapter 1 of the Code;
(c)
the Gross Asset Value of any Company asset distributed to a Unitholder shall be the gross Fair Market Value of such asset on the date of Distribution;
(d)
the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)
(m)
;
provided
,
however
, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that the Managing Member determines that an adjustment pursuant to subparagraph (b) of this definition of Gross Asset Value is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d);
(e)
with respect to any asset that has a Gross Asset Value that differs from its adjusted tax basis, Gross Asset Value shall be adjusted by the amount of Depreciation rather than any other depreciation, amortization or other cost recovery method; and
(f)
The Gross Asset Value of any depletable property held directly or indirectly by the Company shall be adjusted by Simulated Depletion in lieu of any depletion otherwise allowable for federal income tax purposes.
“
HSR Act
” has the meaning set forth in
Section 10.7
.
“
Income
” means individual items of Company income and gain determined in accordance with the definitions of Net Income and Net Loss.
“
IPO Transactions
” has the meaning set forth in the recitals.
“
IPO Underwriting Agreement
” has the meaning set forth in the recitals.
“
IPO Underwriters
” has the meaning set forth in the recitals.
“
JEDF
” has the meaning set forth in the recitals.
“
JEEP
” has the meaning set forth in the recitals.
“
JEI Excess Tax Distribution
” has the meaning set forth in
Section 4.4(b)
.
“
Jones Built-in Gain
” means the excess of the initial Gross Assets Value, over the adjusted tax basis, of the assets contributed by JEDF to the Company pursuant to the Jones Contribution Agreement.
“
Jones Contribution Agreement
” means that certain Contribution Agreement, dated as of December 16, 2009, by and between the Company and JEDF.
“
Loss
” means individual items of Company loss and deduction determined in accordance with the definitions of Net Income and Net Loss.
“
Managing Member
” means JEI.
8
“
Member
” means each Person listed on
Schedule A
attached hereto and each other Person who is hereafter admitted as a Member in accordance with the terms of this Agreement and the Act. The Members shall constitute the “members” (as such term is defined in the Act) of the Company. Except as otherwise set forth herein or in the Act, the Members shall constitute a single class or group of members of the Company for all purposes of the Act and this Agreement.
“
Member Minimum Gain
” means minimum gain attributable to Member Nonrecourse Debt determined in accordance with Regulations Section 1.704-2(i).
“
Member Nonrecourse Debt
” has the meaning set forth for the term “partner nonrecourse debt” in Regulations Section 1.704-2(b)(4).
“
Membership Interest
” means, with respect to each Member, such Member’s Economic Interest and rights as a Member.
“
Metalmark
” has the meaning set forth in recitals.
“
Net Income
” or “
Net Loss
” means, for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss for such Fiscal Year or other period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in such taxable income or loss), with the following adjustments:
(a)
any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be added to such taxable income or loss;
(b)
any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(
i
), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be subtracted from such taxable income or loss;
(c)
in the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain (if the adjustment increases the Gross Asset Value of the asset) or loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d)
gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;
(e)
in lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, with respect to a Company asset having a Gross Asset Value that differs from its adjusted basis for tax purposes, “Depreciation” with respect to such asset shall be computed by reference to the asset’s Gross Asset Value in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g);
9
(f)
to the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)
(m)
to be taken into account in determining Capital Accounts as a result of a Distribution other than in liquidation of a Unitholder’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss;
(g)
For purposes of determining Net Income and Net Loss, the allocation of depletable basis in, depletion allowances with respect to, and taxable gain or loss from the sale, exchange or other disposition of, the Company’s depletable properties provided for in Section 613A(c)(7)(D) of the Code and/or otherwise computed for federal income tax purposes shall be disregarded. Instead, Net Income and Net Loss shall be determined by taking into account Simulated Depletion and Simulated Gain or Loss, as determined and defined in the following sentence. For purposes of determining Simulated Depletion and Simulated Gain or Loss, (i) the Company shall determine its tax basis in its depletable properties (“
Simulated Basis
”) without regard to the special rules set forth in Section 613A(c)(7)(D) of the Code, (ii) the Company shall determine depletion allowances (“
Simulated Depletion
”) with respect to such depletable properties by using either the cost depletion method or the percentage depletion method (as determined by the Managing Member on a property by property basis), (iii) the Company shall reduce the Simulated Basis of such depletable properties by the Simulated Depletion attributable to such depletable properties, and (iv) the Company shall compute gain or loss on a sale, exchange, or other disposition of such depletable properties by subtracting Simulated Basis from the amount realized by the Company upon such disposition (“
Simulated Gain or Loss
”); and
(h)
Any Income or Loss that is allocated under
Section 5.2
shall be excluded for purposes of computing Net Income or Net Loss.
“
Notice
” has the meaning set forth in
Section 3.1(g)(i)
.
“
Officers
” has the meaning set forth in
Section 7.1
.
“
Option Shares
” as used herein has the meaning ascribed to it in the IPO Underwriting Agreement.
“
Original Agreement
” has the meaning set forth in the recitals.
“
Percentage Interest
” of each Member is set forth on
Schedule A
hereto, which may be amended from time to time and which shall be equal to a fraction (expressed as a percentage), the numerator of which is the number of Units held by such Member and the denominator of which is the number of Units held by all the Members (it being understood that if the Company hereafter issues any Equity Securities other than the Units, then this definition shall be changed pursuant to an amendment of this Agreement in accordance with the terms hereof).
“
Permitted Transferee
” means, with respect to any Unitholder, (a) its Affiliates (including, in the case of any Member that is an entity, any distribution by such Member to its members, partners or shareholders (the “
Member’s Owners
”), and any related distributions by the Member’s Owners to their respective members, partners or shareholders), and (b) in the case of an individual, any member of its Family Group.
10
“
Person
” means an individual, a partnership (including a limited partnership), a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, association or other entity or a Governmental Entity.
“
President
” has the meaning set forth in
Section 7.3
.
“
Prior LLC Interests
” has the meaning set forth in the recitals.
“
Proceeding
” means any action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) involving an Indemnitee, by reason of the fact that the Indemnitee is or was an Officer, or is or was serving at the request of the Company as a manager, director, officer, employee, fiduciary or agent of another limited liability company or of a corporation partnership, joint venture, trust or other enterprise.
“
Quarterly Estimated Tax Periods
” means the two, three, and four calendar month periods with respect to which Federal quarterly estimated tax payments are made. The first such period begins on January 1 and ends on March 31. The second such period begins on April 1 and ends on May 31. The third such period begins on June 1 and ends on August 31. The fourth such period begins on September 1 and ends on December 31.
“
Regulations
” means the regulations, including temporary regulations, promulgated by the United States Treasury Department under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
“
Regulatory Allocations
” has the meaning set forth in
Section 5.2(g)
.
“
Restated LLC Agreement
” has the meaning set forth in the recitals.
“
Second Restated LLC Agreement
” has the meaning set forth in the recitals.
“
Secretary
” has the meaning set forth in
Section 7.6
.
“
Securities Act
” means the United States Securities Act of 1933 and applicable rules and regulations thereunder. Any reference herein to a specific section, rule or regulation of the Securities Act shall be deemed to include any corresponding provisions of future law.
“
Simulated Basis
” has the meaning set forth in clause (g) of the definition of “
Net Income
” and “
Net Loss
.”
“
Simulated Depletion
” has the meaning set forth in clause (g) of the definition of “
Net Income
” and “
Net Loss
.”
“
Simulated Gain or Loss
” has the meaning set forth in clause (g) of the definition of “
Net Income
” and “
Net Loss
.”
“
Subsidiary
” means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a
11
majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity (other than a corporation) if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing member, general partner or analogous controlling Person of such limited liability company, partnership, association or other business entity. For purposes hereof, references to a “Subsidiary” of any Person shall be given effect only at such times that such Person has one or more Subsidiaries and, unless otherwise indicated, the term “Subsidiary” refers to a Subsidiary of the Company.
“
Substituted Member
” means any Person that has been admitted to the Company as a Member pursuant to
Section 9.2
by virtue of such Person receiving all or a portion of a Membership Interest from a Member or its Assignee and not from the Company.
“
Successor in Interest
” means any (a) trustee, custodian, receiver or other Person acting in any Bankruptcy or reorganization proceeding with respect to, (b) assignee for the benefit of the creditors of, (c) trustee or receiver, or current or former officer, director or partner, or other fiduciary acting for or with respect to the dissolution, liquidation or termination of, or (d) other Transferee, executor, administrator, committee, legal representative or other successor or assign of, any Unitholder, whether by operation of law or otherwise (including any Person acquiring (whether by merger, consolidation, sale, exchange or otherwise) all or substantially all of the assets or Equity Securities of the Company and its Subsidiaries).
“
Tax Distribution
” has the meaning set forth in
Section 10.7
.
“
Tax Matters Member
” has the meaning set forth in Section 6231 of the Code.
“
Tax Receivable Agreement
” means the Tax Receivable Agreement dated on or about the date hereof between JEI, the Company and the current Members.
“
Transaction Documents
” means, collectively, this Agreement, the Exchange Agreement and the Tax Receivable Agreement.
“
Transfer
” means any sale, transfer, assignment, pledge, mortgage, exchange, hypothecation, grant of a security interest or other direct or indirect disposition or encumbrance of an interest (whether with or without consideration, whether voluntarily or involuntarily or by operation of law). The terms “
Transferee
,” “
Transferor
,” “
Transferred
,” and other forms of the word “
Transfer
” shall have the correlative meanings.
“
Unit
” has the meaning set forth in
Section 3.1(a)
.
“
Unitholder
” means a Member or Assignee that holds an Economic Interest in any of the Units.
“
Vice President
” has the meaning set forth in
Section 7.5
.
1.2
Interpretative Matters
. In this Agreement, unless otherwise specified or where the context otherwise requires:
(a)
the headings of particular provisions of this Agreement are inserted for convenience only and will not be construed as a part of this Agreement or serve as a limitation or expansion on the scope of any term or provision of this Agreement;
12
(b)
words importing any gender shall include other genders;
(c)
words importing the singular only shall include the plural and vice versa;
(d)
the words “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”;
(e)
the words “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement;
(f)
references to “Articles,” “Exhibits,” “Sections” or “Schedules” shall be to Articles, Exhibits, Sections or Schedules of or to this Agreement;
(g)
references to any Person include the successors and permitted assigns of such Person;
(h)
the use of the words “or,” “either” and “any” shall not be exclusive;
(i)
wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict;
(j)
references to “$” or “dollars” means the lawful currency of the United States of America;
(k)
references to any agreement, contract or schedule, unless otherwise stated, are to such agreement, contract or schedule as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; and
(l)
the parties hereto have participated jointly in the negotiation and drafting of this Agreement; accordingly, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provisions of this Agreement.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1
Formation of the Company
. The Company was formed on December 16, 2009 as a Delaware limited liability company pursuant to the provisions of the Act.
2.2
Third Amended and Restated Limited Liability Company Agreement
. The Members agree to continue the Company as a limited liability company under the Act, upon the terms and subject to the conditions set forth in this Agreement. This Agreement shall amend and restate the terms and conditions of the Second Restated LLC Agreement in order to give effect to the IPO Transactions. During the term of the Company set forth in
Section 2.6
, the rights, powers, duties, obligations and liabilities of the Unitholders shall be determined pursuant to the Act and this Agreement. To the extent that the rights, powers, duties, obligations and liabilities of any Unitholders are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control.
13
2.3
Name
. The name of the Company shall be “Jones Energy Holdings, LLC.” The Managing Member may change the name of the Company at any time and from time to time. Prompt notification of any such change shall be given to all Members. The Company’s business may be conducted under its name or any other name or names deemed advisable by the Managing Member.
2.4
Purpose; Powers
.
(a)
General Powers
. The nature of the business or purposes to be conducted or promoted by the Company is to engage in any lawful act or activity for which limited liability companies may be organized under the Act. The Company may engage in any and all activities necessary, desirable or incidental to the accomplishment of the foregoing. Notwithstanding anything herein to the contrary, nothing set forth herein shall be construed as authorizing the Company to possess any purpose or power, or to do any act or thing, forbidden by law to a limited liability company organized under the laws of the State of Delaware.
(b)
Company Action
. Subject to the provisions of this Agreement and except as prohibited by applicable law, (i) the Company may, with the approval of the Managing Member, enter into and perform any and all documents, agreements and instruments, all without any further act, vote or approval of any Member, and (ii) the Managing Member may authorize any Person (including any Member or Officer) to enter into and perform any document, agreement or instrument on behalf of the Company.
2.5
Principal Office; Registered Office
. The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the initial registered agent named in the Certificate or such other office (which need not be a place of business of the Company) as the Managing Member may designate from time to time in the manner provided by law. The initial principal office of the Company shall be located at 807 Las Cimas Parkway, Suite 350, Austin, Texas, 78746, and may be any such other place as the Managing Member may from time to time designate, which need not be in the State of Delaware, and the Company shall maintain records at such place. The Company may maintain offices at such other place or places as the Managing Member deems advisable. Prompt notice of any change in the principal office shall be given to all Members.
2.6
Term
. The term of the Company commenced on December 16, 2009, by filing the Certificate of Formation with the office of the Secretary of State of the State of Delaware and shall continue in existence perpetually until termination or dissolution in accordance with the provisions of
Article X
.
2.7
Foreign Qualification
. The Company shall comply, to the extent procedures are available and those matters are reasonably within the control of the Officers, with all requirements necessary to qualify the Company as a foreign limited liability company in each jurisdiction where its assets or operations require it to be so qualified.
2.8
No State Law Partnership
. The Unitholders intend that the Company shall not be a partnership (including a limited partnership) or joint venture, and that no Unitholder or Officer shall be a partner or joint venturer of any other Unitholder or Officer by virtue of this Agreement, for any purposes other than as is set forth in the last sentence of this
Section 2.8
, and this Agreement shall not be construed to the contrary. The Unitholders intend that the Company shall be treated as a partnership for federal and, if applicable, state or local income tax purposes, and
14
each Unitholder and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment.
ARTICLE III
CAPITALIZATION; ADMISSION OF MEMBERS; CAPITAL ACCOUNTS
3.1
Capitalization
.
(a)
Units; Capitalization
. Each Member’s interest in the Company, including such Member’s interest, if any, in the capital, income, gains, losses, deductions and expenses of the Company shall be represented by units of limited liability company interest (each a “
Unit
”). As of the Effective Time, the Company shall have one authorized class of Units. All Units shall have identical rights and privileges in all respects. The Company shall have the authority to issue an unlimited number of Units. The ownership by a Unitholder of Units shall invest such Unitholder with the Economic Interest therein (except to the extent Transferred to an Assignee). For purposes of this Agreement, Units held by the Company or any of its Subsidiaries shall be deemed not to be outstanding. The Company may issue fractional Units, and all Units shall be rounded to the fourth decimal place.
(b)
Issuance of Units in IPO Transactions
. At the Effective Time, all of the Prior LLC Interests held by each Member immediately prior to the Effective Time will be automatically exchanged for the number of Units of the Company set forth opposite each Member’s name in
Schedule A
. Immediately after the IPO, JEI will contribute the net proceeds thereof to the Company in exchange for [
·
]
Units, and, if and to the extent the IPO Underwriters exercise their option to purchase Option Shares (as defined below) pursuant to the terms of the IPO Underwriting Agreement, JEI will issue additional shares of Class A Common Stock and use the net proceeds thereof to purchase an equal number of Units from the Company.
(c)
Distribution of Class B Common Stock
. Immediately after the Company exchanges its shares of common stock of JEI for shares of Class B Common Stock pursuant to the IPO, the Company shall distribute such shares of the Class B Common Stock to the Members (other than JEI) on a pro rata basis in accordance with the number of Units owned by each such Member.
(d)
Issuance of Additional Units
. The Managing Member shall have the right to cause the Company to issue and/or create and issue at any time after the date hereof, and for such amount and form of consideration as the Managing Member may determine, additional Units or other Equity Securities of the Company (including creating classes or series thereof having such powers, designations, preferences and rights as may be determined by the Managing Member), subject to
Section 11.3
. The Managing Member shall have the power to make such amendments to this Agreement in order to provide for such powers, designations, preferences and rights as the Managing Member in its discretion deems necessary or appropriate to give effect to such additional authorization or issuance in accordance with the provisions of this
Section 3.1(d)
and
Section 11.3
.
(i)
If, following the IPO, JEI issues shares of Class A Common Stock (other than an issuance of the type covered by
Section 3.1(d)(ii)
), JEI shall
15
promptly contribute to the Company all the net proceeds (if any) received by JEI with respect to such Class A Common Stock. Upon the contribution by JEI to the Company of all of such net proceeds (if any) so received by JEI, the Managing Member shall cause the Company to issue a number of Units equal to the number of shares of Class A Common Stock issued, registered in the name of JEI, such that, at all times, the number of Units held by JEI equals the number of outstanding shares of Class A Common Stock.
(ii)
At any time JEI issues one or more shares of Class A Common Stock in connection with an equity incentive program, whether such share or shares are issued upon exercise (including cashless exercise) of an option, settlement of a restricted stock unit, as restricted stock or otherwise, the Managing Member shall cause the Company to issue an equal number of Units, registered in the name of JEI; provided that JEI shall be required to contribute all (but not less than all) the net proceeds (if any) received by JEI from or otherwise in connection with such issuance of one or more shares of Class A Common Stock, including the exercise price of any option exercised, to the Company. If any such shares of Class A Common Stock so issued by JEI in connection with an equity incentive program are subject to vesting or forfeiture provisions, then the Units that are issued by the Company to JEI in connection therewith in accordance with the preceding provisions of this
Section 3.1(d)(ii)
shall be subject to vesting or forfeiture on the same basis; if any of such shares of Class A Common Stock vest or are forfeited, then an equal number of Units issued by the Company in accordance with the preceding provisions of this
Section 3.1(d)(ii)
shall automatically vest or be forfeited. Any cash or property held by either JEI or the Company or on either’s behalf in respect of dividends paid on restricted Class A Common Stock that fail to vest shall be returned to the Company upon the forfeiture of such restricted Class A Common Stock.
(iii)
For purposes of this
Section 3.1(d)
, “net proceeds” means gross proceeds to JEI from the issuance of Class A Common Stock or other securities less all bona fide out-of-pocket expenses of JEI, the Company and their respective Subsidiaries in connection with such issuance.
(e)
Repurchase or Redemption of Class A Common Stock
. If, at any time, any shares of Class A Common Stock are repurchased or redeemed (whether by exercise of a put or call, pursuant to an open market purchase, automatically or by means of another arrangement) by JEI for cash and subsequently cancelled, then the Managing Member shall cause the Company, immediately prior to such repurchase or redemption of Class A Common Stock, to redeem an equal number of Units held by JEI, at an aggregate redemption price equal to the aggregate purchase or redemption price of the Class A Common Stock being repurchased or redeemed by JEI (plus any expenses related thereto) and upon such other terms as are the same for the Class A Common Stock being repurchased or redeemed by JEI.
(f)
Changes in Class A Common Stock
. Any subdivision (by stock split, stock dividend, reclassification, recapitalization or otherwise) or combination (by reverse stock split, reclassification, recapitalization or otherwise) of Class A Common Stock shall be accompanied by an identical subdivision or combination, as applicable, of Units.
(g)
Safe Harbor Election
.
(i)
By executing this Agreement, each Member authorizes and directs the Company to elect to have the “safe harbor” described in the proposed Revenue Procedure set forth in Internal Revenue Service Notice 2005-43 (the “
Notice
”) apply to
16
any interest in the Company transferred to a service provider by the Company on or after the effective date of such Revenue Procedure in connection with services provided to the Company. For purposes of making such safe harbor election, the Tax Matters Member is hereby designated as the “partner who has responsibility for federal income tax reporting” by the Company and, accordingly, for execution of a “safe harbor election” in accordance with Section 3.03(1) of the Notice. The Company and each Member hereby agree to comply with all requirements of the safe harbor described in the Notice, including the requirement that each Member shall prepare and file all federal income tax returns reporting the income tax effects of each safe harbor partnership interest issued by the Company in a manner consistent with the requirements of the Notice.
(ii)
Each Member authorizes the Tax Matters Member to amend
Section 3.1(g)
of this Agreement to the extent necessary to achieve substantially the same tax treatment with respect to any interest in the Company transferred to a service provider by the Company in connection with services provided to the Company as set forth in Section 4 of the Notice (
e.g.
, to reflect changes from the rules set forth in the Notice in subsequent Internal Revenue Service or Treasury Department guidance);
provided
that such amendment is not materially adverse to any Member (as compared with the after-tax consequences that would result if the provisions of the Notice applied to all interests in the Company transferred to a service provider by the Company in connection with services provided to the Company).
3.2
Admission of Members; Additional Members
.
(a)
Schedule of Members
. The Company shall maintain and keep at its principal executive office a schedule of Members (attached hereto as
Schedule A
) on which it shall set forth the names and address of each Member, the aggregate number of Units of each class and the aggregate amount of cash Capital Contributions that have been made by such Member at any time, as applicable, and the Fair Market Value of any property other than cash contributed by such Member with respect to the Units (including, if applicable, a description and the amount of any liability assumed by the Company or to which contributed property is subject).
(b)
Addition or Withdrawal of Members
. The Managing Member shall cause
Schedule A
to be amended from time to time to reflect the admission of any Additional Member, the withdrawal or termination of any Member, receipt by the Company of notice of any change of address of a Member or the occurrence of any other event requiring amendment of
Schedule A
.
3.3
Capital Accounts
.
(a)
The Company shall maintain a separate capital account for each Unitholder according to the rules of Regulations Section 1.704-1(b)(2)(iv) (each a “
Capital Account
”). The Capital Account of each Unitholder shall be credited initially with an amount equal to such Unitholder’s cash contributions and the initial Gross Asset Value of property contributed to the Company by the Unitholder (net of any liabilities securing such contributed property that the Company is considered to assume or take subject to).
(b)
The Capital Account of each Unitholder shall (i) be credited with all Income and Net Income allocated to such Unitholder pursuant to
Section 5.1
and
Section 5.2
, and with the amount of cash and the initial Gross Asset Value of property subsequently contributed to the Company by the Unitholder (net of any liabilities securing such contributed property that the
17
Company is considered to assume or take subject to) following the Effective Date, and (ii) be debited with all Loss and Net Loss allocated to such Unitholder pursuant to
Section 5.1
and
Section 5.2
, and with the amount of cash and the Gross Asset Value of any property (net of liabilities assumed by such Unitholder and liabilities to which such property is subject) distributed by the Company to such Unitholder.
(c)
The Company may, upon the occurrence of the events specified in Regulations Section 1.704-1(b)(2)(iv)(f), increase or decrease the Capital Accounts of the Unitholders in accordance with the rules of such Regulations and Regulations Section 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Company property.
3.4
Negative Capital Accounts
. No Unitholder shall be required to pay to any other Unitholder or the Company any deficit or negative balance that may exist from time to time in such Unitholder’s Capital Account (including upon and after dissolution of the Company).
3.5
No Withdrawal
. No Person shall be entitled to withdraw any part of such Person’s Capital Contributions or Capital Account or to receive any Distribution from the Company, except as expressly provided herein.
3.6
Loans From Unitholders
. Loans by Unitholders to the Company shall not be considered Capital Contributions. If any Unitholder shall loan funds to the Company, then the making of such loans shall not result in any increase in the Capital Account balance of such Unitholder. The amount of any such loans shall be a debt of the Company to such Unitholder and shall be payable or collectible in accordance with the terms and conditions upon which such loans are made.
3.7
No Right of Partition
. No Unitholder shall have the right to seek or obtain partition by court decree or operation of law of any property of the Company or any of its Subsidiaries or the right to own or use particular or individual assets of the Company or any of its Subsidiaries, or, except as expressly contemplated by this Agreement, be entitled to Distributions of specific assets of the Company or any of its Subsidiaries.
3.8
Non-Certification of Units; Legend; Units Are Securities
.
(a)
Units shall be issued in non-certificated form; provided that the Managing Member may cause the Company to issue certificates to a Unitholder representing the Units held by such Unitholder. If any Unit certificate is issued, then such certificate shall bear a legend substantially in the following form:
This certificate evidences Units representing an interest in Jones Energy Holdings, LLC and shall be a security within the meaning of Article 8 of the Uniform Commercial Code.
The interest in Jones Energy Holdings, LLC represented by this certificate is subject to restrictions on transfer set forth in that certain Third Amended and Restated Limited Liability Company Agreement of Jones Energy Holdings, LLC, dated as of [
·
], 2013, by and among Jones Energy Holdings, LLC and each of the members from time to time party thereto, as the same may be amended from time to time.
(b)
The Company hereby irrevocably elects that all Units will be deemed to be “securities” within the meaning of Section 8-102(a)(15) and as provided by Section 8-103(c)
18
of the Uniform Commercial Code as in effect from time to time in the State of Delaware or analogous provisions in the Uniform Commercial Code in effect in any other jurisdiction.
ARTICLE IV
DISTRIBUTIONS
4.1
Distributions
. To the extent permitted by Applicable Law and hereunder, distributions to Members may be declared by the Managing Member out of funds legally available therefor in such amounts and on such terms (including the payment dates of such distributions) as the Managing Member shall determine using such record date as the Managing Member may designate; such distribution shall be made to the Members as of the close of business on such record date on a pro rata basis (except that repurchases or redemptions made in accordance with
Section 3.1(e)
or payments made in accordance with
Section 7.10
need not be on a pro rata basis); in accordance with the number of Units owned by each Member as of the close of business on such record date; provided, however, that the Managing Member shall have the obligation to make distributions as set forth in
Sections 3.1(e), 4.4
and
7.10
; and provided further that, notwithstanding any other provision herein to the contrary, no distributions shall be made to any Member to the extent such distribution would render the Company insolvent. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a distribution pursuant to this
Section 4.1
, the Managing Member shall give notice to each Member of the record date, the amount and the terms of the distribution and the payment date thereof.
4.2
Successors
. For purposes of determining the amount of Distributions, each Unitholder shall be treated as having made the Capital Contributions and as having received the Distributions made to or received by its predecessors in respect of any of such Unitholder’s Units.
4.3
Distributions In-Kind
. To the extent that the Company distributes property in-kind to the Unitholders, the Company shall be treated as making a Distribution equal to the Fair Market Value of such property for purposes of
Section 4.1
and such property shall be treated as if it were sold for an amount equal to its Fair Market Value. Any resulting gain or loss shall be allocated to the Unitholders’ Capital Accounts in accordance with
Section 5.1
and
Section 5.2
.
4.4
Tax-Related Distributions.
(a)
Subject to the Act and to any restrictions contained in any agreement to which the Company is bound and notwithstanding the provisions of Section 4.1, no later than the tenth day following the end of the Quarterly Estimated Tax Period in the case of the first three Quarterly Estimated Tax Periods of each calendar year, and no later than twenty days prior to the end of the Quarterly Estimated Tax Period in the case of the last Quarterly Estimated Tax Period of each calendar year, the Company shall, to the extent that the Company has cash available therefor, make a Distribution in cash (each, a “Tax Distribution”) among the Unitholders, on a pro rata basis in accordance with the number of Units owned by each Unitholder, in an amount equal to the excess of (a) the product of (i) the taxable income of the Company attributable to such Quarterly Estimated Tax Period and all prior Quarterly Estimated Tax Periods in such calendar year, based upon information available to the Company and adjusted to take into account good faith projections by the Company of taxable income or loss for the remainder of the calendar year, multiplied by (ii) the Assumed Tax Rate, over (b) distributions made by the Company pursuant to this Section 4.4(a) with respect to such calendar year;
provided, however
, that if the Tax Distributions made during a calendar year are less than the product of (x) the actual
19
taxable income of the Company for the calendar year (calculated as described in the last sentence of this Section 4.4(a)) multiplied by (y) the Assumed Tax Rate, the Company shall, to the extent of available cash and borrowings of the Company, make a “true up” Tax Distribution with respect to such calendar year equal to such difference no later than March 15 of the following year. For purposes of clauses (a)(i) and (x) above, the taxable income of the Company shall be determined by disregarding any adjustment to the taxable income of any Member that arises under Section 743(b) of the Code and is attributable to the acquisition by such Member of an interest in the Company in a transaction described in Section 743(a) of the Code.
(b)
If the cumulative amount of actual federal, state and local income tax liabilities payable by JEI, plus the cumulative amount of payments made by JEI under the Tax Receivable Agreement, through the end of any particular Quarterly Estimated Tax Period or calendar year exceeds the sum of the cumulative amount of Tax Distributions, distributions under Section 4.1 and JEI Excess Tax Distributions (as defined below) made to JEI through the end of such Quarterly Estimated Tax Period or calendar year, the Managing Member shall, to the extent permitted by Applicable Law, but subject to the Act and any restrictions contained in any agreement to which the Company is bound, make additional tax distributions to JEI in an amount equal to such excess (a “
JEI Excess Tax Distribution
”). Any such JEI Excess Tax Distribution shall be treated as an advance against and, thus, shall reduce (without duplication), any future distributions that would otherwise be made to JEI pursuant to Sections 4.1 and 4.4(a).
(c)
The Managing Member shall, to the extent permitted by Applicable Law, but subject to the Act and any restrictions contained in any agreement to which the Company is bound, make distributions to the Members, pro rata in proportion to the number of Units owned by each Member, in such amounts as shall (when combined with the distributions made to JEI pursuant to Sections 4.1 and 4.4(a)) enable JEI to meet its obligations pursuant to the Tax Receivable Agreement.
ARTICLE V
ALLOCATIONS
5.1
Allocations
. Except as otherwise provided in
Section 5.2
, Net Income and Net Loss (and, if necessary in the Fiscal Year in which the Company commences liquidation and all subsequent Fiscal Years, individual items of Income and Loss) shall be allocated annually (and at such other times as the Managing Member determines) to the Unitholders in such manner that the Capital Account balance of each Unitholder shall, to the greatest extent possible, be equal to the amount, positive or negative, that would be distributed to such Unitholder (in the case of a positive amount) or for which such Unitholder would be liable to the Company under this Agreement (in the case of a negative amount), if (a) the Company were to sell the assets of the Company for their Gross Asset Values, (b) all Company liabilities were satisfied (limited with respect to each nonrecourse liability to the Gross Asset Values of the assets securing such liability), (c) the Company were to distribute the proceeds of sale pursuant to
Section 4.1
and (d) the Company were to dissolve pursuant to
Article X
, minus such Unitholder’s share of Company Minimum Gain or Member Minimum Gain, computed immediately prior to the hypothetical sale of assets.
5.2
Special Allocations
.
(a)
Loss attributable to Member Nonrecourse Debt shall be allocated in the manner required by Regulations Section 1.704-2(i). If there is a net decrease during a taxable year in Member Minimum Gain, Income for such taxable year (and, if necessary, for subsequent
20
taxable years) shall be allocated to the Unitholders in the amounts and of such character as is determined according to Regulations Section 1.704-2(i)(4). This
Section 5.2(a)
is intended to be a “partner nonrecourse debt minimum gain chargeback” provision that complies with the requirements of Regulations Section 1.704-2(i)(4), and shall be interpreted in a manner consistent therewith.
(b)
Except as otherwise provided in
Section 5.2(a)
, if there is a net decrease in Company Minimum Gain during any taxable year, each Unitholder shall be allocated Income for such taxable year (and, if necessary, for subsequent taxable years) in the amounts and of such character as is determined according to Regulations Section 1.704-2(f). This
Section 5.2(b)
is intended to be a “minimum gain chargeback” provision that complies with the requirements of Regulations Section 1.704-2(f), and shall be interpreted in a manner consistent therewith.
(c)
If any Unitholder that unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(
d
)(
4
), (
5
) or (
6
) has an Adjusted Capital Account Deficit as of the end of any taxable year, computed after the application of
Section 5.2(a)
and
Section 5.2(b)
but before the application of any other provision of
Section 5.1
,
Section 5.2
and
Section 5.3
, then Income for such taxable year shall be allocated to such Unitholder in proportion to, and to the extent of, such Adjusted Capital Account Deficit. This
Section 5.2(c)
is intended to be a “qualified income offset” provision as described in Regulations Section 1.704-1(b)(2)(ii)(
d
) and shall be interpreted in a manner consistent therewith.
(d)
“Nonrecourse deductions” (as defined in Treasury Regulations §§ 1.704-2(b)(l) and (c)) shall be allocated among the Unitholders pro rata in accordance with the number of Units owned by each of them.
(e)
No Loss or Net Loss shall be allocated to a Unitholder to the extent such allocation would cause or increase an Adjusted Capital Account Deficit for such Unitholder. Instead, such Loss or Net Loss shall be allocated among the other Unitholders in the same ratios that such other Unitholders are allocated Net Loss for such year under
Section 5.1
.
(f)
Income and Loss described in clause (d) of the definition of Gross Asset Value shall be allocated in a manner consistent with the manner that the adjustments to the Capital Accounts are required to be made pursuant to Regulations Section 1.704-1(b)(2)(iv)(
m
).
(g)
The allocations set forth in
Section 5.2(a)
through
Section 5.2(f)
inclusive (the “
Regulatory Allocations
”) are intended to comply with certain requirements of Section 1.704-1(b) and 1.704-2 of the Regulations. The Regulatory Allocations may not be consistent with the manner in which the Unitholders intend to allocate Income and Loss of the Company or to make Distributions. Accordingly, notwithstanding the other provisions of
Section 5.1
,
Section 5.2
and
Section 5.3
, but subject to the Regulatory Allocations, items of Income and Loss of the Company shall be allocated among the Unitholders so as to eliminate the effect of the Regulatory Allocations and thereby cause the respective Capital Account balances of the Unitholders to be in the amounts (or as close thereto as possible) they would have been if Income and Loss had been allocated without reference to the Regulatory Allocations. In general, the Unitholders anticipate that this shall be accomplished by specially allocating other Income and Loss among the Unitholders so that the net amount of Regulatory Allocations and such special allocations to each such Unitholder is zero.
(h)
In the case of a sale or other disposition of depletable property, the portion of the amount realized on such sale or other disposition that does not exceed the
21
Company’s Simulated Basis in the depletable property shall be allocated among the Unitholders in the same ratios that the aggregate adjusted tax basis of the property was allocated under the last sentence of
Section 5.3(f)
. The portion of the amount realized on the sale or other disposition of each such depletable property that exceeds the Company’s Simulated Basis in the property shall be allocated among the Unitholders in the same manner that Net Income (i.e., Simulated Gain) is allocated pursuant to
Section 5.1
.
5.3
Tax Allocations
.
(a)
The income, gains, losses and deductions of the Company shall be allocated for federal, state and local income tax purposes among the Unitholders in accordance with the allocation of such income, gains, losses and deductions among the Unitholders for purposes of computing their Capital Accounts; except that if any such allocation is not permitted by the Code or other applicable law, then the Company’s subsequent income, gains, losses and deductions for tax purposes shall be allocated among the Unitholders so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts.
(b)
Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company prior to the Effective Time shall be allocated among the Unitholders in accordance with Code Section 704(c) so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Gross Asset Value using the traditional method described in Regulations Section 1.704-3(c);
provided
, that the Company shall use the traditional method with curative allocations described in Regulations Section 1.704-3(c) with respect to some or all of the Company’s properties to the extent possible to maximize the allocation of Jones Built-in Gain to JEDF (including through the allocation of depletable basis and deductions to Metalmark) without allocating an overall tax loss to Metalmark (and the Company shall use the traditional method described in Treasury Regulation Section 1.704-3(b) with respect to any Company property for which the traditional with curative allocations method is not utilized under the foregoing provisions). It is the intent of the parties to maximize, within permissible allocation schemes, the tax burden of the Jones Built-in Gain allocable to JEDF without increasing the aggregate amount of tax distributions to be made by the Company. Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company after the Effective Time shall be allocated among the Unitholders in accordance with Code Section 704(c) so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Gross Asset Value using such method or methods described in Regulations Section 1.704-3 as are selected by the Managing Member.
(c)
If the Gross Asset Value of any Company asset is adjusted pursuant to the requirements of Regulations Section 1.704-1(b)(2)(iv)(
e
) or (
f
), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c). If the Gross Asset Value of any Company assets is adjusted on or after the Effective Time pursuant to the requirements of Regulations Section 1.704-1(b)(2)(iv)(e) or (f), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value using the traditional method with curative allocations described in Regulations Section 1.704 3(c), but limited to curative allocations of gain from the sale or other disposition of each such asset (and, for the avoidance of doubt, with no curative allocations for depreciation, amortization, or depletion with respect to each such asset).
22
(d)
Tax credits, tax credit recapture and any items related thereto shall be allocated to the Unitholders according to their interests in such items as reasonably determined by the Managing Member taking into account the principles of Regulations Sections 1.704-1(b)(4)(ii) and 1.704-1T(b)(4)(xi).
(e)
Depreciation, depletion, intangible drilling cost, and amortization recapture amounts under Sections 1245, 1250 or 1254 of the Code, if any, resulting from any sale or disposition of tangible or intangible depreciable, depletable, or amortizable property shall be allocated to the Unitholders in the same proportions that the depreciation, depletion, intangible drilling cost, or amortization being recaptured was allocated.
(f)
Cost and percentage depletion deductions with respect to, and any gain or loss on the sale or other disposition of, any property the production from which is or would be (in the case of nonproducing properties) subject to depletion shall be determined in a manner that is consistent with Section 613A(c)(7)(D) of the Code. For purposes of making such determination, the Company’s adjusted tax basis in each depletable property shall be allocated under Section 613A(c)(7)(D) of the Code among the Unitholders in proportion to the number of Units held by each of them.
(g)
Allocations pursuant to this
Section 5.3
are solely for the purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Unitholder’s Capital Account or share of Income, Loss, Distributions or other Company items pursuant to any provision of this Agreement.
5.4
Unitholders’ Tax Reporting
. The Unitholders acknowledge and are aware of the income tax consequences of the allocations made pursuant to this
Article V
and, except as may otherwise be required by applicable law or regulatory requirements, hereby agree to be bound by the provisions of this
Article V
in reporting their shares of Company income, gain, loss, deduction and credit for federal, state and local income tax purposes.
5.5
Indemnification and Reimbursement for Payments on Behalf of a Unitholder
. If the Company is required by applicable law to make any payment to a Governmental Entity that is specifically attributable to a Unitholder or a Unitholder’s status as such (including federal withholding taxes, state or local personal property taxes and state or local unincorporated business taxes), then such Unitholder shall indemnify the Company in full for the entire amount paid (including interest, penalties and related expenses). The Managing Member may offset Distributions to which a Person is otherwise entitled under this Agreement against such Person’s obligation to indemnify the Company under this
Section 5.5
. A Unitholder’s obligation to indemnify the Company under this
Section 5.5
shall survive termination, dissolution, liquidation and winding up of the Company, and for purposes of this
Section 5.5
, the Company shall be treated as continuing in existence. The Company may pursue and enforce all rights and remedies it may have against each Unitholder under this
Section 5.5
, including instituting a lawsuit to collect such indemnification, with interest calculated at a rate equal to 10 percentage points per annum (but not in excess of the highest rate per annum permitted by applicable law).
23
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS
6.1
Management
.
(a)
Management of the Company
. The business and affairs of the Company shall be managed by the Managing Member consistent with this Agreement, the Exchange Agreement and the JEI Amended and Restated Certificate of Incorporation dated on or about the date hereof (the “
JEI Certificate
”). Subject to the express limitations contained in any provision of this Agreement, including
Section 6.5
and the requirement to conduct the affairs and business of the Company in accordance with the terms of the Exchange Agreement, the Managing Member shall have complete and absolute control of the affairs and business of the Company, and shall possess all powers necessary, convenient or appropriate to carrying out the purposes and business of the Company, including, without limitation, doing all things and taking all actions necessary to carry out the terms and provisions of this Agreement. Subject to the rights and powers of the Managing Member and the limitations thereon contained herein and in the Exchange Agreement, the Managing Member may delegate to any person any or all of its powers, rights and obligations under this Agreement and may appoint, contract or otherwise deal with any person to perform any acts or services for the Company as the Managing Member may reasonably determine. The Managing Member is specifically authorized to execute, sign, seal and deliver in the name of and on behalf of the Company any and all agreements, certificates, instruments or other documents requisite to carrying out the intentions and purposes of this Agreement and of the Company.
(b)
Necessary Approvals
. Any action taken by the Managing Member pursuant to this Agreement shall be subject to the necessary approval of the board of directors of the Managing Member as and to the extent required by this Agreement, the JEI Certificate and to the extent consistent therewith, the bylaws of JEI. All matters material to the affairs and business of the Company shall be determined by the board of directors of the Managing Member.
(c)
Fiduciary Duties
.
(i)
Subject to, and as limited by the provisions of this Agreement, the Managing Member shall owe the to the Company and the Members duties of loyalty and due care of the type owed under the laws of the State of Delaware by the board of the Managing Member to the Managing Member and the stockholders of the Managing Member. The provisions of this Agreement, to the extent that they restrict the duties (including fiduciary duties) and liabilities of the Managing Member otherwise existing at law or in equity or by operation of the preceding sentence, are agreed by the Members to replace such duties and liabilities of the Managing Member.
(ii)
Except as otherwise expressly provided in this Agreement, nothing contained in this Agreement shall be deemed to constitute any Member an agent or legal representative of any other Member or to create any fiduciary relationship for any purpose whatsoever, apart from such obligations between the members of a limited liability company as may be created by the Act. The Managing Member shall not have any authority to act for, or to assume any obligation or responsibility on behalf of, any other Member.
(iii)
In performing its duties, the Managing Member shall be entitled to rely in good faith on the provisions of this Agreement and on information, opinions,
24
reports or statements (including financial statements and information, opinions, reports or statements as to the value or amount of the assets, liabilities, profits or losses of the Company and its Subsidiaries or any facts pertinent to the existence and amount of assets from which Distributions to Unitholders might properly be paid), of the following other Persons or groups: (A) one or more Officers or employees of the Company or any of its Subsidiaries, (B) any attorney, independent accountant or other Person employed or engaged by the Company or any of its Subsidiaries, or (C) any other Person who has been selected with reasonable care by or on behalf of the Company or any of its Subsidiaries, in each case, as to matters which such relying Person reasonably believes to be within such other Person’s professional or expert competence. The preceding sentence shall in no way limit any Person’s right to rely on information to the extent provided in Section 18-406 of the Act.
(iv)
No individual acting on behalf of the Managing Member shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise solely by reason of acting on behalf of the Managing Member.
6.2
Liability of Unitholders
.
(a)
No Personal Liability
. Except as otherwise required by applicable law or as expressly set forth in this Agreement (including in
Section 10.3
), no Unitholder shall have any personal liability whatsoever in such Unitholder’s capacity as a Unitholder, whether to the Company, to any of the other Unitholders, to the creditors of the Company or to any other third Person for the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise (including those arising as a Unitholder or an equityholder, an owner or a shareholder of another Person). Each Unitholder shall be liable only to make such Unitholder’s Capital Contribution to the Company, if applicable, and the other payments provided for expressly herein.
(b)
Return of Distributions
. Under the Act, a Unitholder of a limited liability company may, under certain circumstances, be required to return amounts previously distributed to such Unitholder. It is the intent of the Unitholders that no Distribution to any Unitholder pursuant to
Article IV
or
Article X
shall be deemed to constitute money or other property paid or distributed in violation of the Act, and the Unitholders agree that each such Distribution shall constitute a compromise of the Unitholders within the meaning of Section 18-502(b) of the Act, and the Unitholder receiving such Distribution shall not be required to return to any Person any such money or property, except as otherwise expressly set forth herein. If, however, any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Unitholder is obligated to make any such payment, such obligation shall be the obligation of such Unitholder and not of the other Unitholders.
6.3
Investment Opportunities; Performance of Duties; Conflicts of Interest
.
(a)
To the fullest extent permitted by applicable law, the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to Metalmark or Wells Fargo Central Pacific Holdings, Inc., a Delaware corporation, and any of their respective affiliates and any of their respective officers, directors, agents, shareholders, members, partners, affiliates and subsidiaries (other than the Company and its subsidiaries) (each, a “
Business Opportunities Exempt Party
”). The Company renounces any interest or expectancy of the Company in, or in being offered an opportunity to participate in, business opportunities that are from time to time
25
presented to any Business Opportunity Exempt Party. No Business Opportunity Exempt Party who acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an opportunity for the Company shall have any duty to communicate or offer such opportunity to the Company. No amendment or repeal of this
Section 6.3
shall apply to or have any effect on the liability or alleged liability of any Business Opportunities Exempt Party for or with respect to any opportunities of which any such Business Opportunities Exempt Party becomes aware prior to such amendment or repeal. Any Person purchasing or otherwise acquiring any interest in any shares of stock of JEI or any Units shall be deemed to have notice of and consented to the provisions of this
Section 6.3
. Neither the alteration, amendment or repeal of this
Section 6.3
, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this
Section 6.3
, shall eliminate or reduce the effect of this
Section 6.3
in respect of any business opportunity first identified or any other matter occurring, or any cause of action, suit or claim that, but for this
Section 6.3
, would accrue or arise, prior to such alteration, amendment, repeal or adoption. Notwithstanding the foregoing, a Business Opportunity Exempt Party who is a director or officer of the Managing Member and who is offered a business opportunity of the Managing Member reasonably determined by the party receiving the opportunity to be expressly in his or her capacity as a director or officer of the Managing Member shall be obligated to communicate and offer such business opportunity to the Managing Member and the Managing Member and the Company do not renounce any such opportunity. Nothing this
Section 6.3
shall limit the confidentiality obligations set forth in
Section 11.16
or any fiduciary obligations of the directors of the Managing Member.
(b)
In performing its, his or her duties, each of the Members shall be entitled to rely in good faith on the provisions of this Agreement and on information, opinions, reports or statements (including financial statements and information, opinions, reports or statements as to the value or amount of the assets, liabilities, profits or losses of the Company and its Subsidiaries), of the following other Persons or groups: (i) one or more officers or employees of such Member or the Company or any of its Subsidiaries, (ii) any attorney, independent accountant or other Person employed or engaged by such Member or the Company or any of its Subsidiaries, or (iii) any other Person who has been selected with reasonable care by or on behalf of such Member or the Company or any of its Subsidiaries, in each case, as to matters which such relying Person reasonably believes to be within such other Person’s professional or expert competence. The preceding sentence shall in no way limit any Person’s right to rely on information to the extent provided in Section 18-406 of the Act.
6.4
Meetings
. No meetings of the Members are required to be held.
6.5
Actions Requiring Member Approval
. The prior written consent of the Managing Member and Members holding a majority of the Units (other than those held by the Managing Member) shall be required for the following:
(a)
any amendment to the Certificate; and
(b)
any amendment to this Agreement.
ARTICLE VII
OFFICERS
7.1
Officers
. The Company shall have individuals as officers (the “
Officers
”), which may include a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents and a Secretary, and unless determined otherwise by the Managing Member or the
26
Chief Executive Officer, each other officer of the Managing Member shall also be an officer of the Company, with the same title. All officers shall be appointed by the Managing Member (or by the Chief Executive Officer to the extent the Managing Member delegates such authority to the Chief Executive Officer) and shall hold office until their successors are appointed by the Managing Member (or by the Chief Executive Officer to the extent the Managing Member delegates such authority to the Chief Executive Officer). Two or more offices may be held by the same individual. The officers of the Company may be removed by the Managing Member (or by the Chief Executive Officer to the extent the Managing Member delegates such authority to the Chief Executive Officer) at any time for any reason or no reason. Any Officer may resign his or her office at any time. The Managing Member may appoint such other officers and agents as it may deem necessary or advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Managing Member.
7.2
Chief Executive Officer
. The Chief Executive Officer of the Company (the “
Chief Executive Officer
”) shall perform such duties as may be assigned to him or her from time to time by the Managing Member. Subject to the direction of the Managing Member, he or she shall perform all duties incident to the office of a president in a corporation organized under the Delaware General Corporation Law. The Chief Executive Officer shall see that all resolutions and orders of the Managing Member are carried into effect, and in connection with the foregoing, shall be authorized to delegate to the President, Chief Financial Officer or a Vice President and the other Officers such of his or her powers and such of his or her duties as the Managing Member may deem to be advisable.
7.3
President
. The president of the Company (the “
President
”) shall perform such duties as may be assigned to him or her from time to time by the Managing Member or the Chief Executive Officer. Subject to the direction of the Managing Member and the Chief Executive Officer, he or she shall have, and exercise, direct charge of, and general supervision over, the business and affairs of the Company. He or she shall from time to time report to the Managing Member and the Chief Executive Officer all matters within his or her knowledge that the interest of the Company may require to be brought to its notice, and shall also have such other powers and perform such other duties as may be specifically assigned to him or her from time to time by the Managing Member. In case of the absence or disability of the Chief Executive Officer, the duties of the office shall, if the Managing Member or the Chief Executive Officer has so authorized, be performed by the President. The President shall see that all resolutions and orders of the Managing Member and all directives of the Chief Executive Officer in accordance with such resolutions and orders are carried into effect, and in connection with the foregoing, shall be authorized to delegate to the Chief Financial Officer, a Vice President and the other Officers such of his or her powers and such of his or her duties as the Managing Member may deem to be advisable.
7.4
Chief Financial Officer
. The Chief Financial Officer (the “
Chief Financial Officer
”) shall have the custody of the Company’s funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all monies and other valuable effects in the name and to the credit of the Company, in such depositories as may be designated by the Managing Member or by any Officer authorized by the Managing Member to make such designation. The Chief Financial Officer shall exercise such powers and perform such duties as generally pertain or are necessarily incident to his or her office and shall perform such other duties as may be specifically assigned to him or her from time to time by the Managing Member the Chief Executive Officer or, the President. In case of the absence or disability of the Chief Executive Officer or the President, the duties of the office of
27
Chief Executive Officer shall, if the Managing Member or the President has so authorized, be performed by the Chief Financial Officer.
7.5
Vice Presidents
. The Vice President of the Company (a “
Vice President
”), or if there be more than one, the Vice Presidents, shall perform such duties as may be assigned to them from time to time by the Managing Member or as may be designated by the Chief Executive Officer or the President. The Managing Member, the Chief Executive Officer and the President may, from time to time, designate any number of Vice Presidents as “Senior Vice Presidents,” and that certain Vice Presidents report to such Senior Vice Presidents.
7.6
Secretary
. The secretary of the Company (the “
Secretary
”) shall keep all documents described in
Section 11.2
and such other documents as may be required under the Act. The Secretary shall perform such other duties and have such other authority as may be prescribed elsewhere in this Agreement or from time to time by the Chief Executive Officer or the Managing Member. The Secretary shall have the general duties, powers and responsibilities of a secretary of a corporation.
7.7
Further Delegation of Authority
. The Managing Member may, from time to time delegate to any Person (including any Member or Officer) such authority and powers to act on behalf of the Company as it shall deem advisable in its discretion. Any delegation pursuant to this
Section 7.7
may be revoked at any time and for any reason or no reason by the Managing Member.
7.8
Fiduciary Duties
. Subject to, and as limited by the provisions of this Agreement, the Officers, in the performance of their duties as such, shall owe to the Company and the Members duties of loyalty and due care of the type owed under the laws of the State of Delaware by the officers of the Managing Member to the Managing Member and the stockholders of the Managing Member. The provisions of this Agreement, to the extent that they restrict the duties (including fiduciary duties) and liabilities of an Officer otherwise existing at law or in equity or by operation of the preceding sentence, are agreed by the Members to replace such duties and liabilities of such Officer.
7.9
Performance of Duties; Liability of Officers
. In performing his or her duties, each of the Officers shall be entitled to rely in good faith on the provisions of this Agreement and on information, opinions, reports or statements (including financial statements and information, opinions, reports or statements as to the value or amount of the assets, liabilities, profits or losses of the Company and its Subsidiaries or any facts pertinent to the existence and amount of assets from which Distributions to Unitholders might properly be paid), of the following other Persons or groups: (a) one or more Officers or employees of the Company or any of its Subsidiaries, (b) any attorney, independent accountant or other Person employed or engaged by the Company or any of its Subsidiaries, or (c) any other Person who has been selected with reasonable care by or on behalf of the Company or any of its Subsidiaries, in each case, as to matters which such relying Person reasonably believes to be within such other Person’s professional or expert competence. The preceding sentence shall in no way limit any Person’s right to rely on information to the extent provided in Section 18-406 of the Act. No individual who is an Officer shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise solely by reason of being an Officer.
28
7.10
Indemnification
.
(a)
Indemnification
. The Company shall indemnify and advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or executive officer of the Company or the Managing Member or, while a director or executive officer of the Company or the Managing Member, is or was serving at the request of the Company or the Managing Member as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by the Act; provided that the foregoing shall not require the Company to indemnify or advance expenses to any person in connection with any action, suit, proceeding or claim initiated by or on behalf of such person or any counterclaim against the Company or the Managing Member initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any bylaw, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Neither amendment nor repeal of this Section
7.10
nor the adoption of any provision of this Agreement inconsistent with this Section
7.10
, nor, to the fullest extent permitted by the Act, any modification of law, shall eliminate, reduce or otherwise adversely affect any right or protection of any person granted pursuant hereto in respect of any matter occurring, or any cause of action, suit or claim that, but for this Section
7.10
, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
(b)
Rights Non-Exclusive
. The rights to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this
Section 7.10
, shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Agreement, any other agreement, any vote of Members or otherwise.
(c)
Indemnification Agreements and Insurance
. The Company may enter into agreements with the Managing Member or any Officer to provide for indemnification consistent with the terms and conditions set forth in this
Section 7.10
. Unless otherwise agreed by the Managing Member, the Company shall maintain insurance, at its expense, on its own behalf and on behalf of the Indemnitees against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the Company would have the power to indemnify such person against such liability under this
Section 7.10
.
(d)
Expenses
. Expenses incurred by an Indemnitee in defending a Proceeding shall be paid by the Company in advance of such Proceeding’s final disposition upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Managing Member deems appropriate. The indemnification and advancement of expenses set forth in this
Section 7.10
shall continue as to an Indemnitee who has ceased to be a named Indemnitee and shall inure to the benefit of the heirs, executors, administrators, successors and permitted assigns of such a Person.
(e)
Employees and Agents
. Persons who are not covered by the foregoing provisions of this
Section 7.10
and who are or were Members, employees or agents of the Company, or who are or were serving at the request of the Company as employees or agents of another limited liability company, corporation, partnership, joint venture, trust or other enterprise,
29
may be indemnified to the extent authorized at any time or from time to time by the Managing Member.
(f)
Contract Rights
. The provisions of this
Section 7.10
shall be deemed to be a contract right between the Company and each Officer who serves in such capacity at any time while this
Section 7.10
and the relevant provisions of the Act or other applicable law are in effect, and any repeal or modification of this
Section 7.10
or any such law shall not affect any rights or obligations then existing with respect to any state of facts or Proceeding then existing. The indemnification and other rights provided for in this
Section 7.10
shall inure to the benefit of the heirs, executors and administrators of any Indemnitee. Except as provided in
Section 7.10
or
Section 7.10
, the Company shall indemnify any such Person seeking indemnification in connection with a Proceeding initiated by such Person only if such Proceeding was authorized by the Managing Member.
(g)
Merger or Consolidation; Other Enterprises
. For purposes of this
Section 7.10
, references to “the Company” shall include, in addition to the resulting company, any constituent company (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its managers, directors, officers, employees or agents, so that any Person who is or was a manager, director, officer, employee or agent of such constituent company, or is or was serving at the request of such constituent company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, shall stand in the same position under this
Section 7.10
with respect to the resulting or surviving company as he or she would have with respect to such constituent company if its separate existence had continued. For purposes of this
Section 7.10
, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a Person with respect to any employee benefit plan; and references to “serving at the request of the Company” shall include any service as a manager, officer, employee or agent of the Company that imposes duties on, or involves services by, such manager, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a Person who acted in good faith and in a manner such Person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Section 7.10
.
(h)
No Member Recourse
. Anything herein to the contrary notwithstanding, any indemnity by the Company relating to the matters covered in this
Section 7.10
shall be provided out of and to the extent of Company assets only and no Member (unless such Member otherwise agrees in writing or is found in a final decision of a court of competent jurisdiction to have personal liability on account thereof) shall have personal liability on account thereof or shall be required to make additional Capital Contributions to help satisfy such indemnity of the Company.
ARTICLE VIII
TAX MATTERS
8.1
Preparation of Tax Returns
. The Tax Matters Member shall arrange for the preparation and timely filing of all returns required to be filed by the Company. Each Member will upon request supply to the Tax Matters Member (a) all pertinent information in its possession relating to the operations of the Company necessary to enable the Company’s returns to be prepared and filed and (b) information available to the Member regarding the amount of depletion deductions claimed by, and adjusted tax basis of, such Member (and to the extent applicable,
30
direct and indirect owners of the Member) with respect to the depletable properties of the Company and its Subsidiaries.
8.2
Tax Elections
. The taxable year shall be the Fiscal Year unless the Managing Member shall determine otherwise in compliance with applicable laws. The Tax Matters Member shall determine whether to make or revoke any available election pursuant to the Code. Each Member will upon request supply any information necessary to give proper effect to such election.
8.3
Tax Controversies
. The Managing Member is hereby designated as the Tax Matters Member and is authorized and required to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith. Each Member agrees to cooperate reasonably with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings. The Tax Matters Member shall keep the Members reasonably informed of the progress of any examinations, audits or other proceedings, and shall provide the Members with information on a full and timely basis.
8.4
Tax Allocations
. All matters concerning allocations for United States federal, state, and local and non-United States income tax purposes, including accounting procedures, not expressly provided for by the term of this Agreement shall be determined in good faith by the Managing Member.
8.5
Fiscal Year; Taxable Year
. Each of the Fiscal Year and the taxable year of the Company shall end on December 31 of each calendar year;
provided
that the taxable year of the Company shall end on a different date if necessary to comply with Section 706 of the Code.
ARTICLE IX
TRANSFER OF UNITS; SUBSTITUTE MEMBERS
9.1
Restrictions on Transfers
.
(a)
Transfer Restrictions
. Other than as provided for below in this
Section 9.1
, no Member may sell, assign, transfer, grant a participation in, pledge, hypothecate, encumber or otherwise dispose of (such transaction being herein collectively called a “
Transfer
”) all or any portion of its Membership Interest except with the written consent of the Managing Member, which may be granted or withheld in its sole discretion. Without the consent of the Managing Member (but otherwise in compliance with
Sections 9.1)
, a Member may, at any time, (a) Transfer any portion of such Member’s Membership Interest pursuant to the Exchange Agreement, or (b) Transfer any portion of such Member’s Membership Interest to a Permitted Transferee of such Member. Any purported Transfer of all or a portion of a Member’s Membership Interest not complying with this
Section 9.1
shall be void
ab initio
and shall not create any obligation on the part of the Company or the other Members to recognize that purported Transfer or to recognize the Person to which the Transfer purportedly was made as a Member. A Person acquiring a Member’s Membership Interest pursuant to this
Section 9.1
shall not be admitted as a substituted or Additional Member except in accordance with the requirements of
Section 9.2
, but such Person shall, to the extent of the Membership Interest transferred to it, be entitled to such Member’s (i) share of distributions, (ii) share of profits and losses, including Net Profits and Net Losses, and (iii) Capital Account in accordance with
Section
31
3.3
. Notwithstanding anything in this
Section 9.1
or elsewhere in this Agreement to the contrary, if a Member Transfers all or any portion of its Membership Interest after the designation of a record date and declaration of a distribution pursuant to
Section 4.1
and before the payment date of such distribution, the transferring Member (and not the Person acquiring all or any portion of its Membership Interest) shall be entitled to receive such distribution in respect of such transferred Membership Interest.
(b)
Transfer of JEI’s Interest
. JEI may not Transfer all or any portion of its Membership Interest, except with the written consent of Members other than the Managing Member that, in the aggregate, own more than 50% of the Percentage Interests owned by all such other Members.
9.2
Recognition of Transfer; Substituted and Additional Members
.
(a) Except for transfers made pursuant to the Exchange Agreement, no direct or indirect Transfer of all or any portion of a Member’s Membership Interest may be made, and no purchaser, assignee, transferee or other recipient of all or any part of such Membership Interest shall be admitted to the Company as a substituted or Additional Member hereunder, unless:
(i) the provisions of this Article IX, as applicable, shall have been complied with;
(ii) in the case of a proposed Substituted or Additional Member that is (i) a competitor or potential competitor of JEI, the Company or their Subsidiaries, (ii) a Person with whom the JEI, the Company or their Subsidiaries has had or is expected to have a material commercial or financial relationship or (iii) likely to subject JEI, the Company or their Subsidiaries to any material legal or regulatory requirement or obligation, or materially increase the burden thereof, in each case as determined by the Managing Member in its sole discretion, the admission of the purchaser, assignee, transferee or other recipient as a Substituted or Additional Member shall have been approved by the Managing Member;
(iii) the Managing Member shall have been furnished with the documents effecting such Transfer, in form and substance reasonably satisfactory to the Managing Member, executed and acknowledged by both the seller, assignor or transferor and the purchaser, assignee, transferee or other recipient, and the Managing Member shall have executed (and the Managing Member hereby agrees to execute) any other documents on behalf of itself and the Members required to effect the Transfer;
(iv) the Managing Member shall be reasonably satisfied that such Transfer will not (A) result in a violation of the Securities Act or any other applicable law; or (B) cause an assignment under the Investment Company Act;
(v) such Transfer would not cause the Company to lose its status as a partnership for federal income tax purposes and, without limiting the generality of the foregoing, such Transfer shall not be effected on or through an “established securities market” or a “secondary market or the substantial equivalent thereof,” as such terms are used in Section 1.7704-1 of the Treasury Regulations;
(vi) the Managing Member shall have received the opinion of counsel, if any, required by Section 9.2(c) in connection with such Transfer; and
32
(vii) all necessary instruments reflecting such Transfer and/or admission shall have been filed in each jurisdiction in which such filing is necessary in order to qualify the Company to conduct business or to preserve the limited liability of the Members.
(b) Each Substituted Member and Additional Member shall be bound by all of the provisions of this Agreement. Each Substituted Member and Additional Member, as a condition to its admission as a Member, shall execute and acknowledge such instruments (including a counterpart of this Agreement or a joinder agreement in customary form), in form and substance reasonably satisfactory to the Managing Member, as the Managing Member reasonably deems necessary or desirable to effectuate such admission and to confirm the agreement of such substituted or Additional Member to be bound by all the terms and provisions of this Agreement with respect to the Membership Interest acquired by such substituted or Additional Member. The admission of a Substituted or Additional Member shall not require the consent of any Member other than the Managing Member (if and to the extent such consent of the Managing Member is expressly required by this Article IX). As promptly as practicable after the admission of a Substituted or Additional Member, the books and records of the Company and
Schedule A
shall be changed to reflect such admission.
(c) As a further condition to any Transfer of all or any part of a Member’s Membership Interest, other than Transfers pursuant to the Exchange Agreement, the Managing Member may, in its discretion, require a written opinion of counsel to the transferring Member reasonably satisfactory to the Managing Member, obtained at the sole expense of the transferring Member, reasonably satisfactory in form and substance to the Managing Member, as to such matters as are customary and appropriate in transactions of this type, including, without limitation (or, in the case of any Transfer made to a Permitted Transferee, limited to an opinion) to the effect that such Transfer will not result in a violation of the registration or other requirements of the Securities Act or any other federal or state securities laws. No such opinion, however, shall be required in connection with a Transfer made pursuant to the Exchange Agreement.
9.3
Expense of Transfer; Indemnification
. All reasonable costs and expenses incurred by the Managing Member and the Company in connection with any Transfer of a Member’s Membership Interest, including any filing and recording costs and the reasonable fees and disbursements of counsel for the Company, shall be paid by the transferring Member. In addition, the transferring Member hereby indemnifies the Managing Member and the Company against any losses, claims, damages or liabilities to which the Managing Member, the Company, or any of their Affiliates may become subject arising out of or based upon any false representation or warranty made by, or breach or failure to comply with any covenant or agreement of, such transferring Member or such transferee in connection with such Transfer.
9.4
Exchange Agreement
. In connection with any Transfer of any portion of a Member’s Membership Interest pursuant to the Exchange Agreement, the Managing Member shall cause the Company to take any action as may be required under the Exchange Agreement or requested by any party thereto to effect such Transfer promptly.
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1
Dissolution
. The Company shall not be dissolved by the admission of Additional Members or Substituted Members. The Company shall be dissolved and its affairs wound up upon the occurrence of any of the following events:
33
(a) an election by the Managing Member to dissolve, wind up or liquidate the Company;
(b) the sale, disposition or transfer of all or substantially all of the assets of the Company;
(c) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Act; or
(d) at any time there are no members of the Company, unless the Company is continued in accordance with the Act.
Except as otherwise set forth in this
Section 10.1
, the Company is intended to have perpetual existence. An Event of Withdrawal shall not cause a dissolution of the Company, and the Company shall continue in existence subject to the terms and conditions of this Agreement.
10.2
Liquidation and Termination
.
(a) On the dissolution of the Company, the Managing Member shall act as liquidator or (in its sole discretion) may appoint one (1) or more representatives, Members or other Persons as liquidator(s). The liquidators shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidators shall continue to operate the Company with all of the power and authority of the Managing Member. The steps to be accomplished by the liquidators are as follows:
(i) the liquidators shall pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations of the Company (including all expenses incurred in liquidation) or otherwise make adequate provision for payment and discharge thereof (including the establishment of a cash fund for contingent liabilities in such amount and for such term as the liquidators may reasonably determine); and
(ii) after payment or provision for payment of all of the Company’s liabilities has been made in accordance with
Section 10.1
, all remaining assets of the Company shall be distributed in accordance with
Section 4.1
(including, if applicable, the provisions of
Section 4.4
), after giving effect to all prior Distributions, and a final allocation of all items of income, gain, loss and expense shall be made in such a manner that, immediately before distribution of such remaining assets, the balance of each Unitholder’s Capital Account shall be equal to the respective net amounts, positive or negative, that would be distributed to such Unitholder or for which such Unitholder would be liable to the Company as provided herein and in the Act.
10.3
Complete Distribution
. The distribution to a Unitholder in accordance with the provisions of
Section 4.1
constitutes a complete return to the Unitholder of its Capital Contributions and a complete distribution to the Unitholder of its interest in the Company and all the Company’s property and constitutes a compromise to which all Unitholders have consented within the meaning of the Act.
10.4
Cancellation of Certificate
. On completion of the distribution of Company assets as provided herein, the Company is terminated (and the Company shall not be terminated prior to such time), and the Managing Member (or such other Person or Persons as the Act may require or
34
permit) shall file a certificate of cancellation with the Secretary of State of the State of Delaware, cancel any other filings made pursuant to this Agreement that are or should be canceled and take such other actions as may be necessary to terminate the Company. The Company shall be deemed to continue in existence for all purposes of this Agreement until it is terminated pursuant to this
Section 10.4
.
10.5
Reasonable Time for Winding Up
. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to
Section 10.2
to minimize any losses otherwise attendant upon such winding up.
10.6
Return of Capital
. The liquidators shall not be personally liable for the return of Capital Contributions or any portion thereof to the Unitholders (it being understood that any such return shall be made solely from Company assets).
10.7
HSR Act
. Notwithstanding any other provision in this Agreement, in the event that the Hart-Scott-Rodino Antitrust Improvements Act of l976 (the “
HSR Act
”) is applicable to any Unitholder by reason of the fact that any assets of the Company shall be distributed to such Unitholder in connection with the dissolution of the Company, the dissolution of the Company shall not be consummated until such time as the applicable waiting periods (and extensions thereof) under the HSR Act have expired or otherwise been terminated with respect to each such Unitholder.
ARTICLE XI
GENERAL PROVISIONS
11.1
Power of Attorney
. Each Member hereby constitutes and appoints the Managing Member and the liquidators, with full power of substitution, as his, her or its true and lawful agent and attorney-in-fact, with full power and authority in his, her or its name, place and stead, to execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) this Agreement, all certificates and other instruments and all amendments thereof in accordance with the terms hereof that the Managing Member deems appropriate or necessary to form, qualify, or continue the qualification of, the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (b) all instruments that the Managing Member deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the Managing Member or the liquidators deem appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to the terms of this Agreement, including a certificate of cancellation; and (d) all instruments relating to the admission, withdrawal or substitution of any Member pursuant to
Article III
or
Article IV
. The foregoing power of attorney is irrevocable and coupled with an interest, and shall survive the death, disability, incapacity, dissolution, bankruptcy, insolvency or termination of any Member and the Transfer of all or any portion of his, her or its Units and shall extend to such Member’s heirs, successors, assigns and personal representatives.
11.2
Books and Records
. Any Member holding at least five (5) percent of the Units or any of their respective designated representatives, in person or by attorney or other agent, shall, upon written demand stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose any of the foregoing books or records; provided, that for purposes of this sentence, a proper purpose shall mean any purpose reasonably related to such Person’s interest as a Member. In every instance where an attorney or other agent shall be the
35
Person who seeks the right to inspection, the demand shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the Member. The demand shall be directed to the Company at its registered office in the State of Delaware or at its principal place of business.
11.3
Amendments
. This Agreement may be amended, modified, or waived only by the prior written consent of the Managing Member and Members holding a majority of the Units (other than those held by the Managing Member);
provided
, that if any such amendment, modification or waiver would affect in any material and adverse way any Member disproportionately to any other Member similarly situated, such amendment, modification or waiver shall also require the written consent of the Members so materially and adversely affected. Notwithstanding the foregoing, any amendment that would require any Unitholder to contribute or loan additional funds to the Company or impose personal liability upon any Unitholder shall not be effective against such Unitholder without its written consent.
11.4
Remedies
. Each Unitholder shall have all rights and remedies set forth in this Agreement and all rights and remedies that such Person has been granted at any time under any other agreement or contract and all of the rights that such Person has under any applicable law. Any Person having any rights under any provision of this Agreement or any other agreements contemplated hereby shall be entitled to enforce such rights specifically (without posting a bond or other security) to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by applicable law.
11.5
Successors and Assigns
. All covenants and agreements contained in this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective Successors in Interest;
provided
that no Person claiming by, through or under a Member (whether as such Member’s Successor in Interest or otherwise), as distinct from such Member itself, shall have any rights as, or in respect to, a Member (including the right to approve or vote on any matter or to notice thereof).
11.6
Severability
. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
11.7
Counterparts
. This Agreement may be executed simultaneously in two or more separate counterparts, any one of which need not contain the signatures of more than one party, but each of which shall be an original and all of which together shall constitute one and the same agreement binding on all the parties hereto.
36
11.8
Applicable Law
. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any dispute relating hereto shall be heard in the state or federal courts of Delaware, and the parties agree to jurisdiction and venue therein.
11.9
Addresses and Notices
. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given or made when (a) delivered personally to the recipient, (b) sent by facsimile to the recipient (with hard copy sent to the recipient by reputable overnight courier service (charges prepaid) that same day) if sent by facsimile before 5:00 p.m. New York time on a Business Day, and otherwise on the next Business Day, or (c) one Business Day after being sent to the recipient by reputable overnight courier service (charges prepaid). Such notices, demands and other communications shall be sent to the address for such recipient set forth on
Schedule A
attached hereto, or in the Company’s books and records, or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Any notice to the Managing Member or the Company shall be deemed given if received by the Managing Member at the principal office of the Company designated pursuant to
Section 2.5
.
11.10
Creditors
. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company or any of its Affiliates, and no creditor who makes a loan to the Company or any of its Affiliates may have or acquire (except pursuant to the terms of a separate agreement executed by the Company in favor of such creditor) at any time as a result of making the loan any direct or indirect interest in Company profits, losses, Distributions, capital or property other than as a secured creditor.
11.11
Waiver
. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.
11.12
Further Action
. The parties agree to execute and deliver all documents, provide all information and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement.
11.13
Entire Agreement
. This Agreement, the other Transaction Documents, those documents expressly referred to herein and other documents dated as of the Effective Date related to the subject matter hereof embody the complete agreement and understanding among the parties hereto and supersede and preempt any prior understandings, agreements or representations by or among the parties hereto, written or oral, that may have related to the subject matter hereof in any way.
11.14
Delivery by Facsimile or Email
. This Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or email with scan or facsimile attachment, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument,
37
each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or email as a defense to the formation or enforceability of a contract, and each such party forever waives any such defense.
11.15
Survival
.
Sections 5.4
,
5.5
,
6.2
,
7.10, 8.3
,
11.14
,
11.15
, and
11.16
shall survive and continue in full force in accordance with its terms, notwithstanding any termination of this Agreement or the dissolution of the Company.
11.16
Confidentiality
.
(a) The Company shall not, nor shall it permit any Subsidiary to, disclose any Member’s name or identity as an investor in the Company in any press release or other public announcement or in any document or material filed with any Governmental Entity, without the prior written consent of such Member, which shall not be unreasonably withheld or delayed, unless such disclosure is otherwise required by applicable law or by any regulatory or self-regulatory organization having jurisdiction or by order of a court of competent jurisdiction, in which case (except with respect to disclosure that is required in connection with the filing of federal, state and local tax returns) prior to making such disclosure the Company shall give written notice to such Member describing in reasonable detail the proposed content of such disclosure and shall permit such Member to review and comment upon the form and substance of such disclosure and allow such Member to seek confidential treatment therefor.
(b) Each Member expressly agrees to maintain, for so long as such Person is a Member and for two (2) years thereafter, the confidentiality of, and not to disclose to any Person other than the Company (and any successor of the Company or any Person acquiring (whether by merger, consolidation, sale, exchange or otherwise) all or a material portion of the assets or Equity Securities of the Company or any of its Subsidiaries), another Member or a Person designated by the Company or any of their respective financial planners, accountants, attorneys or other advisors, any information relating to the business (current or proposed), financial structure, financial position or financial results, clients or affairs of the Company or any of its Subsidiaries that shall not be generally known to the public, except (i) as otherwise required by applicable law or by any regulatory or self-regulatory organization having jurisdiction or by order of a court of competent jurisdiction, in which case (except with respect to disclosure that is required in connection with the filing of federal, state and local tax returns or by any regulatory or self-regulatory organization) prior to making such disclosure such Member shall give written notice to the Company describing in reasonable detail the proposed content of such disclosure and shall permit the Company to review and comment upon the form and substance of such disclosure and allow the Company to seek confidential treatment therefor, and (ii) in the case of any Member who is employed by the Company or any of its Subsidiaries, in the ordinary course of his or her duties to the Company or any of its Subsidiaries;
provided
,
however
, that a Member may report to its stockholders, limited partners, members or other owners, as the case may be, regarding the general status of its investment in the Company (without disclosing specific confidential information). Notwithstanding the provisions of this
Section 11.16
to the contrary, if any Unitholder desires to undertake any Transfer of its Units permitted by this Agreement, such holder may, upon the execution of a confidentiality agreement (in form reasonably acceptable to the Company’s legal counsel) by any
bona fide
potential Transferee, disclose to such potential Transferee information of the sort otherwise restricted by this
Section 11.16
if such holder
38
reasonably believes such disclosure is necessary for the purpose of Transferring such Units to the
bona fide
potential Transferee.
[END OF PAGE]
[SIGNATURE PAGES FOLLOW]
39
SIGNATURE PAGES TO
LIMITED LIABILITY COMPANY AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.
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JONES ENERGY HOLDINGS, LLC
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By:
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Jonny Jones
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Chief Executive Officer
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JONES ENERGY DRILLING FUND, LP
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By:
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Jones Energy Management, LLC, its General Partner
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By:
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Jonny Jones
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Manager
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JONES ENERGY EQUITY PARTNERS, LP
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By:
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Jones Energy Management, LLC, its General Partner
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By:
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Jonny Jones
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Manager
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JONES ENERGY EQUITY PARTNERS II, LP
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By:
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Jones Energy Management, LLC, its General Partner
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By:
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Jonny Jones
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Manager
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Signature Page to
Third Amended and Restated LLC Agreement of
Jones Energy Holdings, LLC
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JONES ENERGY TEAM 3, LP
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By: JET 3 GP, LLC
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Its: General Partner
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By: Jon Rex Jones Jr. Trust V
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Its: Managing Member
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By:
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Jonny Jones
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Trustee
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JONES ENERGY, INC.
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By:
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Jonny Jones
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Chief Executive Officer
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Signature Page to
Third Amended and Restated LLC Agreement of
Jones Energy Holdings, LLC
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WELLS FARGO CENTRAL PACIFIC HOLDINGS, INC.
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By:
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Name:
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Title:
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Signature Page to
Third Amended and Restated LLC Agreement of
Jones Energy Holdings, LLC
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MCP (C) II JONES INTERMEDIATE LLC
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By: Metalmark Capital Partners II GP, L.P.
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Its: General Partner
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By:
Metalmark Capital Holdings LLC
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Its: General Partner
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By:
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Name: Gregory D. Myers
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Title: Managing Director
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MCP II CO-INVESTMENT JONES INTERMEDIATE LLC
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By:
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Name: Gregory D. Myers
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Title: Managing Director
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MCP II JONES INTERMEDIATE LLC
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By:
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Name: Gregory D. Myers
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Title: Managing Director
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MCP II (TE) AIF JONES INTERMEDIATE LLC
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By:
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Name: Gregory D. Myers
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Title: Managing Director
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MCP II (CAYMAN) AIF JONES INTERMEDIATE LLC
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By:
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Name: Gregory D. Myers
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Title: Managing Director
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Signature Page to
Third Amended and Restated LLC Agreement of
Jones Energy Holdings, LLC
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MCP II EXECUTIVE FUND JONES INTERMEDIATE LLC
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By:
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Name: Gregory D. Myers
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Title: Managing Director
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Signature Page to
Third Amended and Restated LLC Agreement of
Jones Energy Holdings, LLC
SCHEDULE A
SCHEDULE OF MEMBERS
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Name and Address of Member
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Number of
Units
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Percentage
Interest
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Capital
Contributions
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MCP (C) II Jones Intermediate LLC
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, NY 10036
Attention: Gregory D. Myers
Fax No: (212) 823 1949
with a copy, which shall not constitute notice, to
:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Frederick Tanne, P.C. and Joshua M. Kogan
Facsimile No.: (212) 446 6460
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$
106,119,479.67
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MCP II Co-Investment Jones Intermediate LLC
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, NY 10036
Attention: Gregory D. Myers
Fax No: (212) 823 1949
with a copy, which shall not constitute notice, to
:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Frederick Tanne, P.C. and Joshua M. Kogan
Facsimile No.: (212) 446 6460
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$
18,902,445.00
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MCP II Jones Intermediate LLC
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, NY 10036
Attention: Gregory D. Myers
Fax No: (212) 823 1949
with a copy, which shall not constitute notice, to
:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Frederick Tanne, P.C. and Joshua M. Kogan
Facsimile No.: (212) 446 6460
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$
23,325,457.00
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MCP II (TE) AIF Jones Intermediate LLC
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, NY 10036
Attention: Gregory D. Myers
Fax No: (212) 823 1949
with a copy, which shall not constitute notice, to
:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Frederick Tanne, P.C. and Joshua M. Kogan
Facsimile No.: (212) 446 6460
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$
21,829,755.00
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Name and Address of Member
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Number of
Units
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Percentage
Interest
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Capital
Contributions
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MCP II (Cayman) AIF Jones Intermediate LLC
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, NY 10036
Attention: Gregory D. Myers
Fax No: (212) 823 1949
with a copy, which shall not constitute notice, to
:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Frederick Tanne, P.C. and Joshua M. Kogan
Facsimile No.: (212) 446 6460
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$
18,028,313.00
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MCP II Executive Fund Jones Intermediate LLC
c/o Metalmark Capital Holdings, LLC
1177 Avenue of the Americas, 40th Floor
New York, NY 10036
Attention: Gregory D. Myers
Fax No: (212) 823 1949
with a copy, which shall not constitute notice, to
:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Frederick Tanne, P.C. and Joshua M. Kogan
Facsimile No.: (212) 446 6460
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$
3,461,217.00
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Jones Energy Drilling Fund, LP
807 Las Cimas Parkway, Suite 370
Austin, Texas 78746
Attention: Robin Picard
Facsimile No.: (512) 328 6971
with a copy, which shall not constitute notice, to
:
Baker Botts LLP
1500 San Jacinto Center
Austin, Texas 78701
Attention: Mike Bengtson
Facsimile No.: (512) 322 8349
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Jones Contributed Equity
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Jones Energy Equity Partners, LP
807 Las Cimas Parkway, Suite 370
Austin, Texas 78746
Attention: Robin Picard
Facsimile No.: (512) 328 6971
with a copy, which shall not constitute notice, to
:
Baker Botts LLP
1500 San Jacinto Center
Austin, Texas 78701
Attention: Mike Bengtson
Facsimile No.: (512) 322 8349
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$
15,000,000.00
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Name and Address of Member
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Number of
Units
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Percentage
Interest
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Capital
Contributions
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Wells Fargo Central Pacific Holdings, Inc.
600 California Street, 20th Floor
San Francisco, CA 94108
Attention: Gilbert Shen
Facsimile No.: (415) 362- 5081
with a copy, which shall not constitute notice, to
:
Thompson & Knight LLP
333 Clay Street
Suite 3300
Houston, Texas 77002
Attention: Barry Davis
Facsimile No,: (832) 397 8104
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$10,648,148.15
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Jones Energy Equity Partners II, LP
807 Las Cimas Parkway, Suite 370
Austin, Texas 78746
Attention: Robin Picard
Facsimile No.: (512) 328 6971
with a copy, which shall not constitute notice, to
:
Baker Botts LLP
1500 San Jacinto Center
Austin, Texas 78701
Attention: Mike Bengtson
Facsimile No.: (512) 322 8349
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$25,185,185.19
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Jones Energy Team 3, LP
807 Las Cimas Parkway, Suite 370
Austin, Texas 78746
Attention: Robin Picard
Facsimile No.: (512) 328 6971
with a copy, which shall not constitute notice, to
:
Baker Botts LLP
1500 San Jacinto Center
Austin, Texas 78701
Attention: Mike Bengtson
Facsimile No.: (512) 322 8349
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$0
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Jones Energy, Inc.
807 Las Cimas Parkway, Suite 350
Austin, Texas 78746
Attention: Robin Picard
Facsimile No.: (512) 328 6971
with a copy, which shall not constitute notice, to
:
Baker Botts LLP
1500 San Jacinto Center
Austin, Texas 78701
Attention: Mike Bengtson
Facsimile No.: (512) 322 8349
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$[
·
]
|
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|
Name and Address of Member
|
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Number of
Units
|
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Percentage
Interest
|
|
Capital
Contributions
|
|
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|
|
|
|
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TOTAL
|
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$
242,500,000 and the Jones Contributed Equity
|
|
