UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Date of Report (date of earliest event reported):  July 30, 2013 (July 26, 2013)

 

Jones Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

001-36006

 

80-0907968

(State or Other Jurisdiction of
Incorporation or Organization)

 

(Commission File
Number)

 

(I.R.S. Employer Identification No.)

 

807 Las Cimas Parkway, Suite 350

Austin, Texas

 

78746

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (512) 328-2953

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 1.01.                                         Entry Into a Material Definitive Agreement.

 

Restructuring Agreement

 

In connection with the initial public offering (the “ Offering ”) of Class A common stock of the Company, par value $0.001 per share (the “ Class A Common Stock ”), Jones Energy, Inc. (the “ Company ”), Jones Energy Holdings, LLC (“ JEH LLC ”) and certain equity owners of JEH LLC (the “ Existing Owners ”) entered into a Restructuring Agreement (the “ Restructuring Agreement ”), pursuant to which the parties agreed to effect a recapitalization of the equity ownership in the Company and JEH LLC (the “ Reorganization ”), immediately prior to the closing of the Offering.  As previously reported, the Offering closed on July 29, 2013.

 

The Restructuring Agreement, in conjunction with the JEH LLC Agreement (as defined below), effected the following recapitalization transactions:

 

·                   Immediately prior to the closing of the Offering, all of the limited liability company interests in JEH LLC held by the Existing Owners were exchanged for a number of new limited liability company interests in JEH LLC (the “ JEH LLC Units ”) equal to 36,836,333 multiplied by such Existing Owner’s proportionate share of JEH LLC;

 

·                   At the closing of the Offering, JEH LLC exchanged its shares of common stock of the Company for shares of Class B common stock of the Company (“ Class B Common Stock ”) and immediately distributed such shares to the Existing Owners in proportion to the number of JEH LLC Units held by each Existing Owner; and

 

·                   Upon consummation of the Offering, the Company contributed the net proceeds from the Offering to JEH LLC in exchange for JEH LLC Units.

 

The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Restructuring Agreement, which is attached as Exhibit 10.2 to this Current Report on Form 8-K and incorporated in this Item 1.01 by reference.

 

Exchange Agreement

 

In connection with the closing of the Offering, the Company entered into an Exchange Agreement with JEH LLC and the Existing Owners. Pursuant to the Exchange Agreement, the Existing Owners and their permitted transferees 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) with JEH LLC for shares of Class A Common Stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions.

 

The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Exchange Agreement, which is attached as Exhibit 10.3 to this Current Report on Form 8-K and incorporated in this Item 1.01 by reference.

 

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Tax Receivable Agreement

 

In connection with the Exchange Agreement described above, the Company entered into a Tax Receivable Agreement.  This agreement generally provides for the payment by the Company of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Offering as a result of (i) the tax basis increases resulting from the exchange of JEH LLC Units for shares of Class A Common Stock (or resulting from a sale of JEH LLC Units for cash) and (ii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the Tax Receivable Agreement.

 

The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Tax Receivable Agreement, which is attached as Exhibit 10.4 to this Current Report on Form 8-K and incorporated in this Item 1.01 by reference.

 

Registration Rights and Stockholders Agreement

 

In connection with the closing of the Offering, the Company entered into a Registration Rights and Stockholders Agreement (the “ Stockholders Agreement ”) with Metalmark Capital Partners (C) II, L.P. and its affiliated entities (“ Metalmark ”) and certain entities directly or indirectly controlled by Jonny Jones, the Company’s chief executive officer (the “ Jones family entities ”). The Stockholders Agreement grants each of Metalmark and the Jones family entities (collectively) the right to nominate two members of the Company’s board of directors so long as Metalmark or the Jones family entities, as applicable, holds not less than 50% of the common stock that they hold immediately following the Offering and the right to nominate one member of the Company’s board of directors so long as they hold not less than 20% of the common stock that they hold immediately following the Offering. The Stockholders Agreement also requires the stockholders party thereto to take all necessary actions, including voting their shares of common stock, for the election of these nominees.

 

In addition, the Stockholders Agreement contains provisions with respect to demand registration rights and piggy-back registration rights as described in the prospectus, dated July 23, 2013 (File No. 333-188896) (the “ Prospectus ”), filed by the Company with the United States Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “ Securities Act ”). At any time after 180 days after the consummation of the Offering, each of Metalmark and the Jones family entities (collectively) will have the right to require the Company by written notice to register the sale of any number of their shares of common stock and will have the right to cause up to an aggregate of three such required or “demand” registrations. The Company is not obligated to effect any demand registration in which the anticipated aggregate offering price included in such offering is equal to or less than $50,000,000 ($25,000,000 where the registration is on a Form S-3). Furthermore, if, at any time, the Company proposes to register an offering of Class A common stock (subject to certain exceptions) for the Company’s own account, then it must give prompt notice to Metalmark and the Jones family entities to allow them to include a specified number of their shares in that registration statement. These registration rights are subject to certain conditions and limitations,

 

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including the right of the underwriters to limit the number of shares to be included in a registration and the Company’s right to delay or withdraw a registration statement under certain circumstances. The Company will generally be obligated to pay all registration expenses in connection with the registration obligations, regardless of whether a registration statement is filed or becomes effective. The Stockholders Agreement also includes customary provisions dealing with indemnification, contribution and allocation of expenses.

 

The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Stockholders Agreement, which is attached as Exhibit 10.5 to this Current Report on Form 8-K and incorporated in this Item 1.01 by reference.

 

Relationships

 

As more fully described in the section “Certain relationships and related party transactions” of the Prospectus, which is incorporated herein by reference, two of the Company’s directors are employees of Metalmark, and Metalmark has various relationships with the Company.  In addition, the Jones family entities have various relationships with the Company.  For further information concerning the material relationships between the Company and Metalmark and the Jones family entities, respectively, see the section entitled “Certain relationships and related party transactions” of the Prospectus.

 

Item 2.01.                                         Completion of Acquisition or Disposition of Assets.

 

Restructuring Agreement

 

The description of the Restructuring Agreement provided above under Item 1.01 is incorporated in this Item 2.01 by reference. A copy of the Restructuring Agreement is attached as Exhibit  10.2 to this Current Report on Form 8-K and is incorporated in this Item 2.01 by reference.

 

Item 3.02.                                         Unregistered Sales of Equity Securities.

 

The description of the Restructuring Agreement provided above under Item 1.01, including the issuance of shares of Class B Common Stock by the Company in exchange for the shares of its common stock held by JEH LLC in connection with the consummation of the transactions contemplated by the JEH LLC Agreement (as defined below) and the Restructuring Agreement, is incorporated in this Item 3.02 by reference. The foregoing transactions were undertaken in reliance upon the exemption from the registration requirements in Section 4(2) of the Securities Act. The Company believes that exemptions other than the foregoing exemption may exist for these transactions.

 

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Item 5.02.                                         Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Jones Energy, Inc. 2013 Omnibus Incentive Plan

 

Effective upon consummation of the Offering, the board of directors of the Company adopted the Jones Energy, Inc. 2013 Omnibus Incentive Plan (the “ LTIP ”) for employees, directors and consultants of the Company and its affiliates. The LTIP may consist of the following components: restricted stock, stock options, performance awards, restricted stock units, bonus stock awards, stock appreciation rights, cash awards, dividend equivalents, and other share-based awards. The LTIP limits the number of shares that may be delivered pursuant to awards to 3,850,000 shares of Class A Common Stock.  The LTIP will be administered by the board of directors of the Company or a committee thereof.

 

The foregoing description is not complete and is qualified in its entirety by reference to the full text of the LTIP, which is filed as Exhibit 10.6 to this Form 8-K and is incorporated in this Item 1.01 by reference.

 

Jones Energy, Inc. Short Term Incentive Plan

 

Effective upon consummation of the Offering, the board of directors of the Company adopted the Jones Energy, Inc. Short Incentive Plan (the “ STIP ”) for employees of the Company. The STIP will be administered by the compensation committee of the board of directors of the Company.  Awards under the STIP will be in the form of cash bonus awards and will be awarded based on the achievement of certain business objectives and other criteria established by the compensation committee.

 

The foregoing description is not complete and is qualified in its entirety by reference to the full text of the STIP, which is filed as Exhibit 10.7 to this Form 8-K and is incorporated in this Item 1.01 by reference.

 

Election of Director

 

Effective upon consummation of the Offering and in accordance with Section 4.1 of the Company’s Restated Bylaws (as defined below), the Company’s board of directors increased the size of the board to five members and elected Alan D. Bell to serve as the fifth director of the board.  Mr. Bell is an independent director and will serve as the chairman of the audit committee of the Company and as a member of the compensation and nominating and corporate governance committees of the Company.

 

Mr. Bell was not elected pursuant to any arrangement or understanding with the Company or any affiliate of the Company.  Mr. Bell has no relationship that is required to be disclosed pursuant to Item 404(a) of Regulation S-K.  The Company entered into an indemnification agreement with Mr. Bell, effective as of July 29, 2013, pursuant to which the Company agreed to indemnify Mr. Bell for certain claims and liabilities arising from Mr. Bell’s actions as a director of the Company.

 

Mr. Bell is a retired senior audit partner in the energy industry. Prior to his retirement in 2006, Mr. Bell served as the Director of the Southwest Area Energy Practice at Ernst & Young

 

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LLP since 1998, after having performed various roles in the firm since joining in 1973. Mr. Bell began his career as a petroleum engineer at Chevron Oil Company from 1969 to 1972. Mr. Bell currently serves as a director of Approach Resources Inc. where he chairs the audit committee and is a director of the National Association of Corporate Directors—North Texas Chapter. Mr. Bell is a NACD Board Leadership Fellow. Mr. Bell previously served as a director of Dune Energy, Inc. from May 2007 until January 2012 and of Toreador Resources Corporation from August 2006 until June 2009. Mr. Bell also served as the Chief Restructuring Officer of Energy Partners Ltd. (now known as EPL Oil & Gas, Inc.) from March to September 2009. Mr. Bell is a member of the American Institute of Certified Public Accountants, the Texas Society of Certified Public Accountants and the Society of Petroleum Engineers. Mr. Bell earned a Petroleum Engineering degree from the Colorado School of Mines and an M.B.A. from Tulane University.

 

Item 5.03.                                         Amendments to Articles of Incorporation or Bylaws; Changes in Fiscal Year.

 

Amended and Restated Certificate of Incorporation of Jones Energy, Inc.

 

In connection with the Offering, the Company amended and restated its Certificate of Incorporation (as amended, the “ Restated Certificate ”). A description of the Restated Certificate is contained in the section of the Prospectus entitled “Description of Capital Stock” and is incorporated herein by reference.

 

The foregoing description and the description contained in the Prospectus are not complete and are qualified in their entirety by reference to the full text of the Restated Certificate, which is filed as Exhibit 3.1 to this Current Report on Form 8-K and is incorporated in this Item 5.03 by reference.

 

Amended and Restated Bylaws of Jones Energy, Inc.

 

On July 29, 2013, in connection with the Offering, the Company amended and restated its bylaws (as amended, the “ Restated Bylaws ”). A description of the Restated Bylaws is contained in the section of the Prospectus entitled “Description of Capital Stock” and is incorporated herein by reference.

 

The foregoing description and the description contained in the Prospectus are not complete and are qualified in their entirety by reference to the full text of the Restated Bylaws, which is filed as Exhibit 3.2 to this Current Report on Form 8-K and is incorporated in this Item 5.03 by reference.

 

Third Amended and Restated Limited Liability Company Agreement of Jones Energy Holdings, LLC

 

In connection with the Reorganization, JEH LLC amended and restated its Limited Liability Company Agreement (as amended, the “ JEH LLC Agreement ”). The amendments to the JEH LLC Agreement included, among other things, recapitalizing the equity ownership of JEH LLC and outlining the rights of the Existing Owners and management by the Company, as sole managing member, of JEH LLC’s business.

 

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The foregoing description is not complete and is qualified in its entirety by reference to the full text of the JEH LLC Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated in this Item 5.03 by reference.

 

Item 9.01.                                         Financial Statements and Exhibits.

 

(d)                                  Exhibits.

 

EXHIBIT
NUMBER

 

DESCRIPTION

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Jones Energy, Inc.

3.2

 

Amended and Restated Bylaws of Jones Energy, Inc.

10.1

 

Third Amended and Restated Limited Liability Company Agreement of Jones Energy Holdings, LLC

10.2

 

Restructuring Agreement

10.3

 

Exchange Agreement

10.4

 

Tax Receivable Agreement

10.5

 

Registration Rights and Stockholders Agreement

10.6

 

Jones Energy, Inc. 2013 Omnibus Incentive Plan

10.7

 

Jones Energy, Inc. Short Term Incentive Plan

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

JONES ENERGY, INC.

 

 

 

 

 

 

Date: July 30, 2013

By:

/s/ Mike S. McConnell

 

 

Mike S. McConnell

 

 

President

 

Signature Page to Form 8-K

 

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INDEX TO EXHIBITS

 

EXHIBIT
NUMBER

 

DESCRIPTION

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Jones Energy, Inc.

3.2

 

Amended and Restated Bylaws of Jones Energy, Inc.

10.1

 

Third Amended and Restated Limited Liability Company Agreement of Jones Energy Holdings, LLC

10.2

 

Restructuring Agreement

10.3

 

Exchange Agreement

10.4

 

Tax Receivable Agreement

10.5

 

Registration Rights and Stockholders Agreement

10.6

 

Jones Energy, Inc. 2013 Omnibus Incentive Plan

10.7

 

Jones Energy, Inc. Short Term Incentive Plan

 

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Exhibit 3.1

 

AMENDED AND RESTATED

 

CERTIFICATE OF INCORPORATION

 

OF

 

JONES ENERGY, INC .

 

The present name of the corporation is Jones Energy, Inc. (the “ Corporation ”). The Corporation was incorporated under the name “Jones Energy, Inc.” by the filing of its original certificate of incorporation (the “ Original Certificate of Incorporation ”) with the Secretary of State of the State of Delaware on March 25, 2013. This Amended and Restated Certificate of Incorporation of the Corporation, which restates and integrates and further amends the provisions of the Original Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware (as amended from time to time, the “ DGCL ”).

 

The Original Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows:

 

ARTICLE I

 

Section 1.1.                                  Name .  The name of the Corporation is Jones Energy, Inc.

 

ARTICLE II

 

Section 2.1.                                  Registered Office; Agent .  The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801; and the name of the registered agent of the Corporation at such address is The Corporation Trust Company.

 

ARTICLE III

 

Section 3.1.                                  Purpose .  The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

 

ARTICLE IV

 

Section 4.1.                                  Capitalization .  The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 850,000,000 shares, consisting of (i) 100,000,000 shares of Preferred Stock, par value $0.001 per share (“ Preferred Stock ”), (ii) 600,000,000 shares of Class A Common Stock, par value $0.001 per share (“ Class A Common Stock ”), and (iii) 150,000,000 shares of Class B Common Stock, par value $0.001 per share (“ Class B Common Stock ” and, together with the Class A Common Stock, the “ Common Stock ”). The number of authorized shares of Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms thereof) the affirmative vote of the holders of a majority in total voting power of the capital stock of the Corporation entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto).  Irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), the number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in total voting power of the capital stock of the Corporation entitled to vote thereon, without a vote of the holders of the Preferred Stock, unless a vote of any such holders is required pursuant to the terms of any series of Preferred Stock.

 

Section 4.2.                                  Reclassification of Existing Common Stock .  Upon this Amended and Restated Certificate of Incorporation becoming effective pursuant to the DGCL (the “ Effective Time ”), each share of the Corporation’s common stock, par value $0.001 per share (the “ Old Common Stock ”), issued and outstanding or held

 

1



 

in treasury, shall automatically and without any action on the part of the holder thereof be reclassified as and become 36,836,333 shares of Class B Common Stock.

 

Section 4.3.                                  Preferred Stock .

 

(A)                                The Board of Directors of the Corporation (the “ Board ”) is hereby empowered to authorize, by resolution or resolutions from time to time, out of the unissued shares of Preferred Stock, the issuance of one or more series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the preferences and relative, participating, optional or other rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series and to cause to be filed with the Secretary of State of the State of Delaware a certificate of designation with respect thereto.  Subject to the rights of any series of Preferred Stock as provided in the certificate of designations relating thereto, the Board is further hereby empowered to increase or decrease the number of shares of Preferred Stock within each series, provided that the Board may not decrease the number of shares within a series below the number of shares within such series that is then outstanding.  The powers, preferences and relative, participating, optional and other rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

 

(B)                                Except as otherwise required by law or as shall expressly be granted thereto by this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to such series), holders of shares of Preferred Stock shall not be entitled to vote on any matter.

 

Section 4.4.                                  Common Stock .

 

(A)                                Voting Rights and other Matters .

 

(1)                                  Each holder of Class A Common Stock, as such, will be entitled to one vote for each share of Class A Common Stock held of record by such holder on all matters submitted to a vote of stockholders at any meeting of the stockholders of the Corporation, except that, to the fullest extent permitted by law, holders of Class A Common Stock, as such, will have no voting power with respect to, and will not be entitled to vote on, any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of the affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon under this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or under the DGCL.

 

(2)                                  Each holder of Class B Common Stock, as such, will be entitled to one vote for each share of Class B Common Stock held of record by such holder on all matters submitted to a vote of stockholders at any meeting of the stockholders of the Corporation, except that, to the fullest extent permitted by law, holders of Class B Common Stock, as such, will have no voting power with respect to, and will not be entitled to vote on, any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of the affected series are entitled, either separately or together with the holders of one or more such other series, to vote thereon under this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or under the DGCL.

 

(3)                                  Except as otherwise required in this Amended and Restated Certificate of Incorporation or by applicable law, the holders of Common Stock shall vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, the holders of the Common Stock and the Preferred Stock shall vote together as a single class).

 

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(4)                                  No stockholder shall, by reason of the holding of shares of any class or series of capital stock of the Corporation, have any preemptive or preferential right to acquire or subscribe for any shares or securities of any class, whether now or hereafter authorized, which may at any time be issued, sold or offered for sale by the Corporation, unless specifically provided for in the terms of a series of Preferred Stock.

 

(B)                                Dividends and Distributions .  Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, dividends may be declared and paid ratably on the Class A Common Stock out of the assets of the Corporation that are by law available therefor at such times and in such amounts as the Board in its discretion shall determine. Dividends and other distributions shall not be declared or paid on the Class B Common Stock unless (i) the dividend consists of shares of Class B Common Stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class B Common Stock paid proportionally with respect to each outstanding share of Class B Common Stock and (ii) a dividend consisting of shares of Class A Common Stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class A Common Stock on equivalent terms is simultaneously paid to the holders of Class A Common Stock. If dividends are declared on the Class A Common Stock or the Class B Common Stock that are payable in shares of Common Stock, or securities convertible into, or exercisable or exchangeable for Common Stock, the dividends payable to the holders of Class A Common Stock shall be paid only in shares of Class A Common Stock (or securities convertible into, or exercisable or exchangeable for Class A Common Stock), the dividends payable to the holders of Class B Common Stock shall be paid only in shares of Class B Common Stock (or securities convertible into, or exercisable or exchangeable for Class B Common Stock), and such dividends shall be paid in the same number of shares (or fraction thereof) on a per share basis of the Class A Common Stock and Class B Common Stock, respectively (or securities convertible into, or exercisable or exchangeable for the same number of shares (or fraction thereof) on a per share basis of the Class A Common Stock and Class B Common Stock, respectively). In no event shall the shares of either Class A Common Stock or Class B Common Stock be split, divided, or combined unless the outstanding shares of the other class shall be proportionately split, divided or combined.

 

(C)                                Liquidation, Dissolution or Winding Up .  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential and other amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Class A Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such stockholder. The holders of shares of Class B Common Stock, as such, shall not be entitled to receive any assets of the Corporation in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.  A dissolution, liquidation or winding up of the Corporation, as such terms are used in this paragraph, shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or part of the assets of the Corporation.

 

(D)                                Reserve For Exchange of Class B Common Stock . Shares of Class B Common Stock shall be convertible into and exchangeable for shares of Class A Common Stock on the terms and subject to the conditions set forth in the Exchange Agreement, dated as of July 29, 2013 among the Corporation, Jones Energy Holdings, LLC, and the holders from time to time of shares of Class B Common Stock signatory thereto, as such exchange agreement may be amended from time to time (the “Exchange Agreement”). The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of issuance upon conversion and exchange of the outstanding shares of Class B Common Stock for Class A Common Stock pursuant to the Exchange Agreement, such number of shares of Class A Common Stock that shall be issuable upon any such conversion and exchange pursuant to the Exchange Agreement; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such conversion and exchange of shares of Class B Common Stock pursuant to the Exchange Agreement by delivering to the holder of shares of Class B Common Stock upon such conversion and exchange, cash in lieu of shares of Class A Common Stock in the amount permitted by and provided in the Exchange Agreement or shares of Class A Common Stock which are held in the treasury of the Corporation. All shares of Class A Common Stock that shall be issued upon any such conversion and exchange will, upon issuance in accordance with the Exchange Agreement, be validly issued, fully paid and non-assessable.

 

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ARTICLE V

 

Section 5.1.                                  Bylaws .  In furtherance and not in limitation of the powers conferred by law, the Board shall have the power to adopt, amend or repeal bylaws of the Corporation (the “ Bylaws ”).  Any adoption, amendment or repeal of any Bylaws by the Board 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 this Amended and Restated 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 that was valid at the time it was taken.

 

ARTICLE VI

 

Section 6.1.                                  Board of Directors .

 

(A)                                Number of Directors .  The business and affairs of the Corporation shall be managed by, or under the direction of, the Board.  Except as otherwise provided for herein or in the terms of any series of Preferred Stock entitled to separately elect one or more directors (any such director being a “ Preferred Stock Director ”), the Board shall consist of not less than 1 nor more than 11 directors, with the then-authorized number of directors to be fixed from time to time solely by resolution of the Board with the approval of a majority of the total number of directors.

 

(B)                                Election of Directors .  The directors, other than Preferred Stock Directors, shall be divided into three classes, designated Class I, Class II and Class III.  Each director shall serve for a term expiring on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected, provided that the initial term of the Class I directors shall expire at the annual meeting of the Corporation’s stockholders next following the date of their designation as Class I directors; the initial term of the Class II directors shall expire the second annual meeting of the Corporation’s stockholders next following the date of their designation as Class II directors; and the initial term of the Class III directors shall expire at the third annual meeting of the Corporation’s stockholders next following the date of their designation as Class III directors.  Notwithstanding the foregoing, each director shall hold office until such director’s successor shall have been duly elected and qualified or until such director’s earlier death, resignation or removal.  In no event will a decrease in the number of directors shorten the term of any incumbent director.  The Board is authorized to assign members of the Board already in office to Class I, Class II or Class III.

 

(C)                                Voting .  There shall be no cumulative voting in the election of directors.  Directors of the Corporation need not be elected by written ballot unless the Bylaws shall so require.

 

(D)                                Nominations .  Advance notice of nominations for the election of directors, other than by the Board or a duly authorized committee thereof, and information concerning nominees, shall be given in the manner provided in the Bylaws of the Corporation.

 

(E)                                 Removal .  No director may be removed except for cause, and then only by 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.  Except as may otherwise be provided by law, cause for removal of a director shall be deemed to exist only if:  (i) the director whose removal is proposed has been convicted, or when a director is granted immunity to testify when another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (ii) such director has been found by a court of competent jurisdiction to have been guilty of willful misconduct in the performance of his duties to the Corporation in a matter of substantial importance to the Corporation; or (iii) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a director of the Corporation.

 

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(F)                                  Vacancies .  Vacancies on the Board 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.

 

(G)                                Rights of Preferred Stockholders .  Notwithstanding the foregoing, whenever holders of Preferred Stock are entitled, voting separately as a class or series, to elect one or more Preferred Stock Directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the applicable class or series of Preferred Stock. During any period when the holders of any series of Preferred Stock have the right to elect additional directors as provided for or fixed pursuant to the provisions of Article IV hereof, then upon commencement and for the duration of the period during which such right continues:  (i) the then otherwise total authorized number of directors of the Corporation shall automatically be increased by such specified number of directors, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixed pursuant to said provisions, and (ii) each such additional director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his earlier death, disqualification, resignation or removal.  Except as otherwise provided by the Board in the resolution or resolutions establishing such series, whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate, and the total authorized number of directors of the Corporation shall be reduced accordingly.

 

ARTICLE VII

 

Section 7.1.                                  Consent of Stockholders in Lieu of Meeting .  Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken by written consent (including by electronic transmission) of stockholders without a meeting; provided, however , that any action required or permitted to be taken by the holders of Class B Common Stock, voting separately as a class, or, to the extent expressly permitted by the certificate of designations relating to one or more series of Preferred Stock, by the holders of such series of Preferred Stock, voting separately as a series or separately as a class with one or more other such series, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing (including by electronic transmission), setting forth the action so taken, shall be signed by the holders of outstanding shares of the relevant class or series having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.

 

Section 7.2.                                  Meetings of Stockholders .  The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such date, time and place, if any, as shall be determined solely by the Board.  Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of the stockholders of the Corporation may be called only by or at the direction of the Board, the Chairman of the Board or the Chief Executive Officer of the Corporation, and no special meeting of stockholders may be called by the stockholders or by any other person or persons.

 

ARTICLE VIII

 

Section 8.1.                                  Limited Liability of Directors .  To the fullest extent permitted by law, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.  No amendment to or repeal of this Article VIII, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article VIII, nor, to the fullest extent permitted by law, any modification of law, shall eliminate, reduce or otherwise adversely affect any right or

 

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protection of a current or former director of the Corporation existing at the time of such amendment, repeal, adoption or modification.

 

ARTICLE IX

 

Section 9.1.                                  Competition and Corporate Opportunities .  To the fullest extent permitted by applicable law, the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to 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 and any of their respective affiliates and any of their respective officers, directors, agents, shareholders, members and partners (other than the Corporation and its subsidiaries) (each, a “ Business Opportunities Exempt Party ”).  The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, business opportunities that are from time to time 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 Corporation shall have any duty to communicate or offer such opportunity to the Corporation.  No amendment or repeal of this Section 9.1 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 the Corporation shall be deemed to have notice of and consented to the provisions of this Section 9.1.  To the fullest extent permitted by law, neither the alteration, amendment or repeal of this Section 9.1, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Section 9.1, shall eliminate or reduce the effect of this Section 9.1 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 9.1, 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 Corporation and who is offered a business opportunity of the Corporation reasonably determined by the party receiving the opportunity to be expressly in his or her capacity as a director or officer of the Corporation shall be obligated to communicate and offer such business opportunity to the Corporation, and the Corporation does not renounce any such opportunity.

 

ARTICLE X

 

Section 10.1.                           Exclusive Jurisdiction for Certain Actions.   Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, creditors or other constituents, (iii) any action asserting a claim against the Corporation or any director or officer of the Corporation arising pursuant to any provision of the DGCL or this Amended and Restated Certificate of Incorporation or the Bylaws (as either may be amended from time to time), (iv) any action to interpret, apply, enforce or determine the validity of this Amended and Restated Certificate of Incorporation or the Bylaws, or (v) any action asserting a claim against the Corporation or any director or officer of the Corporation governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensible parties named as defendants therein; provided , that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware with subject matter jurisdiction over the matter.  To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article X.  If any provision or provisions of this Article X shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article X (including, without limitation, each portion of any sentence of this Article X containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

 

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ARTICLE XI

 

Section 11.1.                           Amendments .  Subject to any express provisions of this Amended and Restated Certificate of Incorporation and the requirements of the DGCL, the Corporation shall have the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation. In addition to any other affirmative vote required by applicable law, Sections 5.1, 6.1(A), 6.1(B), 6.1(E), 6.1(F), 7.1 and 7.2 and this Section 11.1 of this Amended and Restated Certificate of Incorporation may not be amended, modified or repealed except by 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. In addition, other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by applicable law. All rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted and held, subject to the rights the Corporation has reserved in this Article XI.

 

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IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by the undersigned duly authorized officer this 26th day of July, 2013.

 

 

 

JONES ENERGY, INC.

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

Signature Page to Amended and Restated Certificate of Incorporation of Jones Energy, Inc.

 


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

 

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(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.

 

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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

 

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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

 

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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 July 10, 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)

 

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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

 

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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

 

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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

 

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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

 

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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

 

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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

 

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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

 

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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

 

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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 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

 

15



 

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 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

 

16



 

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 July 29, 2013.

 

21


Exhibit 10.1

 

 

 


 

JONES ENERGY HOLDINGS, LLC

 


 

THIRD AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

 

Dated as of July 26, 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.

 

 

 



 

ARTICLE I DEFINITIONS

 

4

1.1

 

Definitions

 

4

1.2

 

Interpretative Matters

 

12

 

 

 

ARTICLE II ORGANIZATIONAL MATTERS

 

13

2.1

 

Formation of the Company

 

13

2.2

 

Third Amended and Restated Limited Liability Company Agreement

 

13

2.3

 

Name

 

13

2.4

 

Purpose; Powers

 

14

2.5

 

Principal Office; Registered Office

 

14

2.6

 

Term

 

14

2.7

 

Foreign Qualification

 

14

2.8

 

No State Law Partnership

 

14

 

 

 

ARTICLE III CAPITALIZATION; ADMISSION OF MEMBERS; CAPITAL ACCOUNTS

 

15

3.1

 

Capitalization

 

15

3.2

 

Admission of Members; Additional Members

 

17

3.3

 

Capital Accounts

 

17

3.4

 

Negative Capital Accounts

 

18

3.5

 

No Withdrawal

 

18

3.6

 

Loans From Unitholders

 

18

3.7

 

No Right of Partition

 

18

3.8

 

Non-Certification of Units; Legend; Units Are Securities

 

18

 

 

 

ARTICLE IV DISTRIBUTIONS

 

19

4.1

 

Distributions

 

19

4.2

 

Successors

 

19

4.3

 

Distributions In-Kind

 

19

4.4

 

Tax-Related Distributions

 

19

 

 

 

ARTICLE V ALLOCATIONS

 

20

5.1

 

Allocations

 

20

5.2

 

Special Allocations

 

20

5.3

 

Tax Allocations

 

22

5.4

 

Unitholders’ Tax Reporting

 

23

5.5

 

Indemnification and Reimbursement for Payments on Behalf of a Unitholder

 

23

 

 

 

ARTICLE VI RIGHTS AND DUTIES OF MEMBERS

 

23

6.1

 

Management

 

23

6.2

 

Liability of Unitholders

 

25

6.3

 

Investment Opportunities; Performance of Duties; Conflicts of Interest

 

25

6.4

 

Meetings

 

26

6.5

 

Actions Requiring Member Approval

 

26

 

 

 

ARTICLE VII OFFICERS

 

26

7.1

 

Officers

 

26

7.2

 

Chief Executive Officer

 

27

7.3

 

President

 

27

7.4

 

Chief Financial Officer

 

27

 



 

7.5

 

Vice Presidents

 

27

7.6

 

Secretary

 

28

7.7

 

Further Delegation of Authority

 

28

7.8

 

Fiduciary Duties

 

28

7.9

 

Performance of Duties; Liability of Officers

 

28

7.10

 

Indemnification

 

28

 

 

 

ARTICLE VIII TAX MATTERS

 

30

8.1

 

Preparation of Tax Returns

 

30

8.2

 

Tax Elections

 

30

8.3

 

Tax Controversies

 

31

8.4

 

Tax Allocations

 

31

8.5

 

Fiscal Year; Taxable Year

 

31

 

 

 

ARTICLE IX TRANSFER OF UNITS; SUBSTITUTE MEMBERS

 

31

9.1

 

Restrictions on Transfers

 

31

9.2

 

Recognition of Transfer; Substituted and Additional Members

 

32

9.3

 

Expense of Transfer; Indemnification

 

33

9.4

 

Exchange Agreement

 

33

 

 

 

ARTICLE X DISSOLUTION AND LIQUIDATION

 

33

10.1

 

Dissolution

 

33

10.2

 

Liquidation and Termination

 

34

10.3

 

Complete Distribution

 

34

10.4

 

Cancellation of Certificate

 

34

10.5

 

Reasonable Time for Winding Up

 

35

10.6

 

Return of Capital

 

35

10.7

 

HSR Act

 

35

 

 

 

ARTICLE XI GENERAL PROVISIONS

 

35

11.1

 

Power of Attorney

 

35

11.2

 

Books and Records

 

35

11.3

 

Amendments

 

36

11.4

 

Remedies

 

36

11.5

 

Successors and Assigns

 

36

11.6

 

Severability

 

36

11.7

 

Counterparts

 

36

11.8

 

Applicable Law

 

36

11.9

 

Addresses and Notices

 

36

11.10

 

Creditors

 

37

11.11

 

Waiver

 

37

11.12

 

Further Action

 

37

11.13

 

Entire Agreement

 

37

11.14

 

Delivery by Facsimile or Email

 

37

11.15

 

Survival

 

37

11.16

 

Confidentiality

 

38

 

 

 

 

 

SCHEDULE A

 

Schedule of Members

 

 

 

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 July 26, 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 up to 14,000,000 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

 

3



 

interests in the Company held by the current Members (the “ Prior LLC Interests ”) will be exchanged for 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 36,836,333 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 14,000,000 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.

 

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

 

4



 

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.

 

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).

 

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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.

 

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.

 

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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

 

(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;

 

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(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.

 

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.

 

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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);

 

(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;

 

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(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.

 

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.

 

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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 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

 

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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;

 

(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”;

 

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(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.

 

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.

 

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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 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.

 

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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 14,000,000 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 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.

 

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(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 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,

 

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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 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.

 

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(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 July 26, 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) 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.

 

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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 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

 

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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 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

 

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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 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

 

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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).

 

(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

 

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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).

 

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

 

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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, 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,

 

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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 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

 

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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 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

 

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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 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

 

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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.

 

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

 

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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, 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

 

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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, 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.

 

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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 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

 

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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

 

(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

 

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(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:

 

(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;

 

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(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 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 .

 

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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 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.

 

35



 

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.

 

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

 

36



 

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, 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.

 

37



 

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 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]

 

38



 

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.

 

 

JONES ENERGY HOLDINGS, LLC

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

 

JONES ENERGY DRILLING FUND, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

JONES ENERGY EQUITY PARTNERS, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

JONES ENERGY EQUITY PARTNERS II, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

Signature Page to

Third Amended and Restated LLC Agreement of

Jones Energy Holdings, LLC

 



 

 

JONES ENERGY TEAM 3, LP

 

 

 

By: JET 3 GP, LLC

 

Its: General Partner

 

 

 

By: Jon Rex Jones Jr. Trust V

 

Its: Managing Member

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Trustee

 

 

 

JONES ENERGY, INC.

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

Signature Page to

Third Amended and Restated LLC Agreement of

Jones Energy Holdings, LLC

 



 

 

WELLS FARGO CENTRAL PACIFIC HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gilbert Shen

 

 

Name: Gilbert Shen

 

 

Title: Vice President

 

Signature Page to

Third Amended and Restated LLC Agreement of

Jones Energy Holdings, LLC

 



 

 

MCP (C) II JONES INTERMEDIATE LLC

 

 

 

By: Metalmark Capital Partners II GP, L.P.

 

Its: General Partner

 

 

 

By: Metalmark Capital Holdings LLC

 

Its: General Partner

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II CO-INVESTMENT JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II (TE) AIF JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II (CAYMAN) AIF JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II EXECUTIVE FUND JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

Signature Page to

Third Amended and Restated LLC Agreement of

Jones Energy Holdings, LLC

 

 

39



 

SCHEDULE A

 

SCHEDULE OF MEMBERS

 

Name and Address of Member

 

Number of
Units

 

Percentage
Interest

 

Capital Contributions

 

MCP (C) II Jones Intermediate LLC

 

12,856,825

 

26.1

%

$106,119,479.67

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MCP II Co-Investment Jones Intermediate LLC

 

2,284,083

 

4.6

%

$18,902,445.00

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MCP II Jones Intermediate LLC

 

2,821,725

 

5.7

%

$23,325,457.00

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MCP II (TE) AIF Jones Intermediate LLC

 

2,641,100

 

5.4

%

$21,829,755.00

 

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

 

 

 

 

 

 

 

 



 

Name and Address of Member

 

Number of
Units

 

Percentage
Interest

 

Capital Contributions

 

MCP II (Cayman) AIF Jones Intermediate LLC

 

2,181,884

 

4.4

%

$18,028,313.00

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MCP II Executive Fund Jones Intermediate LLC

 

418,599

 

0.8

%

$3,461,217.00

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jones Energy Drilling Fund, LP

 

5,530,130

 

11.2

%

Jones Contributed Equity

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jones Energy Equity Partners, LP

 

1,843,377

 

3.7

%

$15,000,000.00

 

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

 

 

 

 

 

 

 

 



 

Name and Address of Member

 

Number of
Units

 

Percentage
Interest

 

Capital Contributions

 

Wells Fargo Central Pacific Holdings, Inc.

 

1,308,570

 

2.7

%

$10,648,148.15

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jones Energy Equity Partners II, LP

 

3,095,052

 

6.3

%

$25,185,185.19

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jones Energy Team 3, LP

 

1,854,988

 

3.8

%

$0

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jones Energy, Inc.

 

12,500,000

 

25.3

%

$177,059,374.69 less IPO expenses

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

49,336,333

 

100.0

%

$419,559,374.70 and the Jones Contributed Equity less IPO expenses

 

 


Exhibit 10.2

 

RESTRUCTURING AGREEMENT

 

This RESTRUCTURING AGREEMENT (this “ Agreement ”), dated and effective as of July 11, 2013 (the “ Effective Date ”), is adopted, executed and agreed to, for good and valuable consideration, by and among Jones Energy, Inc., a Delaware corporation (“ JEI ”) and Jones Energy Holdings, LLC, a Delaware limited liability company (“ JEH ”) and the undersigned Members of JEH. The above-named entities are sometimes referred to in this Agreement each as a “ Party ” and collectively as the “ Parties .” Capitalized terms used herein without definition shall have the meaning set forth in the Second Restated LLC Agreement (as defined below).

 

RECITALS:

 

WHEREAS, JEH 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, Jones Energy, Inc. (“ JEI ”), a wholly owned subsidiary of JEH, expects to enter into an underwriting agreement (the “ IPO Underwriting Agreement ”) with the several underwriters named therein (the “ Underwriters ”), providing for the initial public offering (the “ IPO ”) of shares of Class A common stock, par value $0.001 per share, of JEI (the “ Class A Common Stock ”) and the grant of an option to the Underwriters to purchase additional shares of Class A Common Stock (the “ Additional Shares ”) within 30 days of the IPO (the “ Option ”);

 

WHEREAS, in connection with the IPO, it is contemplated that (i) immediately prior to consummation of the IPO, all of the limited liability company interests in JEH held by the current Members (the “ Prior LLC Interests ”) will be exchanged for the number of units of limited liability company interest of JEH (“ Units ”) determined in accordance with the provisions hereof, (ii) at the time at which the IPO closes (the “ Effective Time ”), JEH will exchange its shares of common stock of JEI for shares of Class B common stock of JEI, par value $0.001 per share (the “ 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, and (iii) at the Effective Time, JEI will contribute the net proceeds from the IPO to JEH in exchange for Units (collectively, the “ IPO Transactions ”);

 

WHEREAS, if the Underwriters exercise all or any portion of the Option, (i) at the time at which any such exercise of the Option by the Underwriters closes (the “ Option Closing ”), JEI will purchase from the Members a number of Units (in the aggregate) and a corresponding number of shares of Class B Common Stock equal to the number of Additional Shares issued by JEI at the Option Closing, and (ii) each surrendering Member shall be entitled to receive from JEI a cash payment per Unit surrendered equal to the net per share cash price (i.e., net of underwriting discounts and commissions) received by JEI for the Additional Shares issued in such Option Closing (if all or any portion of the Option is exercised, these transactions will be deemed to be included in the definition of “ IPO Transactions ”);

 

WHEREAS, the undersigned Members wish to effect the IPO and the IPO Transactions in accordance with the terms and conditions set forth herein;

 

WHEREAS, the Parties will have taken all corporate and limited liability company action, as the case may be, required to approve the transactions contemplated by this Agreement;

 

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
IPO TRANSACTIONS

 

1.1                                Restructuring Closing .  Notwithstanding anything contained in this Agreement to the contrary, none of the provisions of Section 1.2 shall be operative or have any effect until the times specified in Section 1.2, at which times all the provisions of Section 1.2 of this Agreement shall be

 



 

effective and operative in accordance with Article II, without further action by any Party hereto.  The closing of the transactions contemplated hereby (the “ Restructuring Closing ”) shall occur immediately prior to (and subject to the occurrence of) consummation of the IPO.

 

1.2                                Exchange of Interests .

 

(a)                                  At the Restructuring Closing, each Member agrees to exchange all the Prior LLC Interests held by such Member for a number of Units equal to (i) 36,836,333 multiplied by (ii) such Member’s Proportionate Share.  The “Proportionate Share” for a Member shall equal the percentage of the distributions that such Member would have received pursuant to Section 4.1 of the Second Restated LLC Agreement if JEH were to make distributions to the Members in an aggregate amount equal to the implied pre-offering equity value of JEH based on the per share initial public offering price of the Class A Common Stock to be sold in the IPO, before the gross spread paid to the underwriters along with related fees and expenses in connection with the offering.

 

(b)                                  At the Effective Time, JEH shall exchange its shares of common stock of JEI for shares of Class B Common Stock and shall distribute to each Member a number of shares of Class B Common Stock equal to the number of Units issued to such Member at the Restructuring Closing.

 

(c)                                   At the Effective Time, JEI shall contribute the net proceeds of the IPO to JEH in exchange for Units.

 

(d)                                  In connection with the Option Closing (if applicable), certain Members have agreed to sell to JEI a number of Units (and a corresponding number of shares of Class B Common Stock) equal to the number of Additional Shares issued to the Underwriters in such Option Closing, in exchange for a cash payment per surrendered Unit equal to the net per share cash price (net of underwriting discounts and commissions) received by JEI for the Additional Shares issued in such Option Closing.   The sale of Units by a Member hereby shall be made in accordance with Section 2.1(a) of the Exchange Agreement and the Members hereby agree that the percentage of the aggregate number of Units (and corresponding number of shares of Class B Common Stock) that each Member is entitled to sell hereby shall be as set forth on Schedule A hereto.

 

1.3                                Closing Deliveries .  At the Restructuring Closing, the Members will enter into:

 

(a)                                  The Third Amended and Restated Limited Liability Company Agreement of JEH in substantially the form attached hereto as Exhibit A;

 

(b)                                  A Registration Rights and Stockholders Agreement in substantially the form attached hereto as Exhibit B;

 

(c)                                   A Tax Receivable Agreement in substantially the form attached hereto as Exhibit C; and

 

(d)                                  An Exchange Agreement in substantially the form attached hereto as Exhibit D.

 

1.4                                Covenants .

 

(a)                                  Immediately prior to the launch of the IPO, if required by the IPO Underwriting Agreement, each Member will enter into, or cause their affiliates to enter into, a

 

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Lock-Up Agreement in substantially the form attached as Exhibit A to the IPO Underwriting Agreement.

 

(b)                                  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 consummate the IPO and the IPO Transactions and carry out the provisions of this Agreement and the consummation of the transactions contemplated hereby or thereby, including any action as may be necessary or appropriate (i) more fully to assure that the applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers and privileges granted by this Agreement, or which are intended to be so granted and (ii) more fully and effectively to vest in the applicable Parties and their respective successors and assigns beneficial and record title to the interests contributed and assigned by this Agreement or intended to be so.

 

ARTICLE II
GENERAL PROVISIONS

 

2.1                                Termination .  This Agreement shall terminate and be of no further force and effect if the IPO has not been consummated by August 16, 2013.

 

2.2                                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.

 

2.3                                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.

 

2.4                                Waiver of Certain 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.

 

2.5                                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.

 

2.6                                Successors and Assigns .  Except as otherwise provided herein, this Agreement will bind and inure to the benefit of and be enforceable by the undersigned Members and any permitted successor, transferree or assignee of their Units. This Agreement is not otherwise assignable or transferable.

 

2.7                                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

 

3



 

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.

 

2.8                                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.

 

2.9                                No Third Party Rights .  The provisions of this Agreement are intended to bind the Parties as to each other and are not intended to and do not create rights in any other person or confer upon any other person any benefits, rights or remedies, and no person is or is intended to be a third party beneficiary of any of the provisions of this Agreement.

 

2.10                         Amendment or Modification .  This Agreement may be amended or modified from time to time only by the written agreement of all the Parties.  Each such instrument shall be reduced to writing and shall be designated on its face as an amendment to this Agreement.

 

2.11                         Deed; Bill of Sale; Assignment .  To the extent required and permitted by applicable law, this Agreement shall also constitute a “deed,” “bill of sale” or “assignment” of the assets and interests referenced herein.

 

[END OF PAGE]
[SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.

 

 

JONES ENERGY, INC.

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

 

 

JONES ENERGY HOLDINGS, LLC

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

 

 

JONES ENERGY DRILLING FUND, LP

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

 

JONES ENERGY EQUITY PARTNERS, LP

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

 

JONES ENERGY EQUITY PARTNERS II, LP

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

 

JONES ENERGY TEAM 3, LP

 

By: JET 3 GP, LLC

 

Its: General Partner

 

By: Jon Rex Jones Jr. Trust V

 

Its: Managing Member

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Trustee

 

Signature Page to

Restructuring Agreement

 



 

 

WELLS FARGO CENTRAL PACIFIC HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gilbert Shen

 

 

Name: Gilbert Shen

 

 

Title: Vice President

 

Signature Page to

Restructuring Agreement

 



 

 

MCP (C) II JONES INTERMEDIATE LLC

 

By: Metalmark Capital Partners II GP, L.P.

 

Its: General Partner

 

By: Metalmark Capital Holdings LLC

 

Its: General Partner

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II CO-INVESTMENT JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II (TE) AIF JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II (CAYMAN) AIF JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

 

 

MCP II EXECUTIVE FUND JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

Signature Page to

Restructuring Agreement

 



 

Schedule A

 

Member

 

Percentage

 

MCP (C) II Jones Intermediate LLC

 

49.9

%

MCP II Co-Investment Jones Intermediate LLC

 

10.5

%

MCP II Jones Intermediate LLC

 

12.1

%

MCP II (TE) AIF Jones Intermediate LLC

 

11.3

%

MCP II (Cayman) AIF Jones Intermediate LLC

 

9.1

%

MCP II Executive Fund Jones Intermediate LLC

 

1.8

%

Wells Fargo Central Pacific Holdings, Inc.

 

5.3

%

 


Exhibit 10.3

 

EXCHANGE AGREEMENT

 

This EXCHANGE AGREEMENT (as amended from time to time, this “ Agreement ”), dated as of July 29, 2013, is hereby entered into by and among Jones Energy, Inc., a Delaware corporation (the “ Corporation ”), Jones Energy Holdings, LLC, a Delaware limited liability company (“ Holdings ”), and each of the Members (as defined herein).

 

RECITALS

 

WHEREAS, the parties hereto desire to provide for the exchange of Units (as defined herein), together with shares of Class B Common Stock (as defined herein), for shares of Class A Common Stock (as defined herein), on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

1.1.                             Definitions .

 

The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.

 

A “ Beneficial Owner ” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.

 

Board ” means the board of directors of the Corporation.

 

Business Day ” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of Texas shall not be regarded as a Business Day.

 

Class A Common Stock ” means the Class A common stock, par value $0.001 per share, of the Corporation.

 

Class B Common Stock ” means the Class B common stock, par value $0.001 per share, of the Corporation.

 

Code ” means the United States Internal Revenue Code of 1986, as amended.

 

Corporation ” means Jones Energy, Inc., a Delaware corporation, and any successor thereto.

 



 

Exchange ” has the meaning set forth in Section 2.1(a) of this Agreement.  The terms “ Exchanging ” and “ Exchanged ” shall have correlative meanings.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Holdings ” means Jones Energy Holdings, LLC, a Delaware limited liability company, and any successor thereto.

 

Holdings LLC Agreement ” means the Third Amended and Restated Limited Liability Company Agreement of Holdings, dated on or about the date hereof, as such agreement may be amended from time to time.

 

Member ” means the parties who are signatories hereto, other than the Corporation and Holdings, and each other Person who from time to time executes a Joinder Agreement in the form attached hereto as Exhibit B.

 

Permitted Transferee ” has the meaning given to such term in Section 4.1 of this Agreement.

 

Person ” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

 

Start Date ” means, with respect to each Member, the earlier of (i) January 20, 2014 or (ii) the date each of J. P. Morgan Securities LLC and Barclays Capital Inc. agree to waive the restriction on sales set forth in the Lock-Up Agreement, dated July 10, 2013, executed by such Member.

 

Unit ” means (i) each Unit (as such term is defined in the Holdings LLC Agreement) issued as of the date hereof and (ii) each Unit or other interest in Holdings that may be issued by Holdings in the future that is designated by the Corporation as a “Unit”.

 

ARTICLE II
EXCHANGES

 

2.1.                             Exchange of Units for Class A Common Stock .

 

(a)                                  From and after the Start Date, each Member shall be entitled at any time and from time to time, upon the terms and subject to the conditions hereof, to surrender Units and a corresponding number of shares of Class B Common Stock to Holdings in exchange for the delivery to such Member of a number of shares of Class A Common Stock that is equal to the number of Units surrendered (such exchange, an “ Exchange ”); provided that any such Exchange is for a minimum of the lesser of 1,000 Units or all of the Units held by such Member, or such lesser amount as the Corporation determines to be acceptable, in its sole discretion. If, in connection with the initial public offering of the Class A Common Stock, the underwriters exercise their option to purchase additional shares of Class A Common Stock (“ Additional Shares ”) within 30 days of the initial public offering (the “ Option ”), the Members shall be entitled to sell (in the aggregate) a number of Units (and a corresponding number of shares of

 

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Class B Common Stock) to JEI equal to the number of Additional Shares issued at the closing of such Option (the “ Option Closing ”), in exchange for a cash payment per Unit surrendered equal to the net per share cash price (i.e., net of underwriting discounts and commissions) received by JEI for the Additional Shares issued in such Option Closing.  The portion of the aggregate number of Units (and corresponding number of shares of Class B Common Stock) that each Member is entitled to sell shall be as set forth on Schedule A hereto.

 

(b)                                  A Member shall exercise its right to Exchange Units as set forth in the first sentence of Section 2.1(a) above by delivering to the Corporation and to Holdings a written election of exchange in respect of the Units to be Exchanged substantially in the form of Exhibit A hereto (an “ Exchange Notice ”), duly executed by such holder or such holder’s duly authorized attorney, in each case delivered during normal business hours at the principal executive offices of the Corporation and of Holdings.  As promptly as practicable following the delivery of an Exchange Notice, Holdings shall deliver or cause to be delivered at the offices of the then-acting registrar and transfer agent of the Class A Common Stock or, if there is no then-acting registrar and transfer agent of the Class A Common Stock, at the principal executive offices of the Corporation, the number of shares of Class A Common Stock deliverable upon such Exchange, registered in the name of the relevant Member.  To the extent the Class A Common Stock is settled through the facilities of The Depository Trust Company, the Corporation will, subject to Section 2.1(c) below, upon the written instruction of a Member, use its reasonable best efforts to deliver the shares of Class A Common Stock deliverable to such Member, through the facilities of The Depository Trust Company, to the account of the participant of The Depository Trust Company designated by such Member.  The Corporation shall take such actions as may be required to ensure the performance by Holdings of its obligations under Section 2.1(a) and this Section 2.1(b), including the issuance and sale of shares of Class A Common Stock to or for the account of Holdings in exchange for the delivery to the Corporation of a number of Units that is equal to the number of Units surrendered by an Exchanging Member.

 

(c)                                   Holdings and each Member shall bear their own expenses in connection with the consummation of any Exchange, whether or not any such Exchange is ultimately consummated, except that Holdings shall bear any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, any Exchange; provided, however, that if any shares of Class A Common Stock are to be delivered in a name other than that of the Member that requested the Exchange, then such Member and/or the person in whose name such shares are to be delivered shall pay to Holdings the amount of any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, such Exchange or shall establish to the reasonable satisfaction of Holdings that such tax has been paid or is not payable.

 

(d)                                  Notwithstanding anything to the contrary herein, to the extent the Corporation or Holdings shall determine that interests in Holdings do not meet the requirements of Treasury Regulation section 1.7704-1(h), the Corporation or Holdings may impose such restrictions on Exchange as the Corporation or Holdings may determine to be necessary or advisable so that Holdings is not treated as a “publicly traded partnership” under Section 7704 of the Code.  Notwithstanding anything to the contrary herein, no Exchange shall be permitted (and, if attempted, shall be void ab initio) if, in the good faith determination of the Corporation or of Holdings, such an Exchange would pose a material risk that Holdings would be a “publicly traded partnership” under Section 7704 of the Code.

 

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(e)                                   For the avoidance of doubt, and notwithstanding anything to the contrary herein, a Member shall not be entitled to Exchange Units to the extent the Corporation determines that such Exchange (i) would be prohibited by law or regulation (including, without limitation, the unavailability of any requisite registration statement filed under the U.S. Securities Act of 1933, as amended) or (ii) would not be permitted under any other agreements with the Corporation or its subsidiaries to which such Member may be party or any written policies of the Corporation related to unlawful or improper trading (including, without limitation, the policies of the Corporation relating to insider trading).

 

(f)                                    Immediately upon the Exchange of any Unit (or the payment of cash for any Unit) pursuant to Section 2.1(a) or (b), an equal number of outstanding shares of Class B Common Stock beneficially owned by the relevant Member automatically shall be deemed cancelled without any action on the part of any Person, including the Corporation.  Any such cancelled shares of Class B Common Stock shall no longer be outstanding, and all rights with respect to such shares shall automatically cease and terminate.

 

2.2.                             Adjustment .  If there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock are converted or changed into another security, securities or other property, then upon any subsequent Exchange, each Member shall be entitled to receive the amount of such security, securities or other property that such Member would have received if such Exchange had occurred immediately prior to the effective date of such reclassification, reorganization, recapitalization or other similar transaction, taking into account any adjustment as a result of any subdivision (by any split, distribution or dividend, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction.  For the avoidance of doubt, if there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock are converted or changed into another security, securities or other property, this Section 2.2 shall continue to be applicable, mutatis mutandis , with respect to such security or other property.  This Agreement shall apply to the Units and shares of Class B Common Stock held by the Members and their Permitted Transferees as of the date hereof, as well as any Units and shares of Class B Common Stock hereafter acquired by a Member and his or her or its Permitted Transferees.  This Agreement shall apply to, mutatis mutandis , and all references to “Units” and “and shares of Class B Common Stock” shall be deemed to include, any security, securities or other property of Holdings which may be issued in respect of, in exchange for or in substitution of Units or shares of Class B Common Stock by reason of any distribution or dividend, split, reverse split, combination, reclassification, reorganization, recapitalization, merger, exchange (other than an Exchange) or other transaction.

 

2.3.                             Class A Common Stock to be Issued .

 

(a)                                  The Corporation shall at all times reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon an Exchange, such number of shares of Class A Common Stock as shall be deliverable upon any such Exchange; provided that nothing contained herein shall be construed to preclude the Corporation or Holdings from satisfying its obligations in respect of the Exchange of the Units

 

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by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation or Holdings or any of their subsidiaries or by delivery of purchased shares of Class A Common Stock (which may or may not be held in the treasury of the Corporation or any subsidiary thereof).  The Corporation and Holdings covenant that all Class A Common Stock issued upon an Exchange will, upon issuance, be validly issued, fully paid and non-assessable.

 

(b)                                  The Corporation and Holdings covenant and agree that, to the extent that a registration statement under the Securities Act is effective and available for shares of Class A Common Stock to be delivered with respect to any Exchange, shares that have been registered under the Securities Act shall be delivered in respect of such Exchange.  In the event that any Exchange in accordance with this Agreement is to be effected at a time when any required registration has not become effective or otherwise is unavailable, upon the request and with the reasonable cooperation of the Member requesting such Exchange, the Corporation and Holdings shall use commercially reasonable efforts to promptly facilitate such Exchange pursuant to any reasonably available exemption from such registration requirements.  The Corporation and Holdings shall use commercially reasonable efforts to list the Class A Common Stock required to be delivered upon Exchange prior to such delivery upon each national securities exchange or inter-dealer quotation system upon which the outstanding Class A Common Stock may be listed or traded at the time of such delivery.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES

 

3.1.                             Representations and Warranties of the Corporation and of Holdings .  Each of the Corporation and Holdings represents and warrants that (i) it is a corporation or limited liability company duly incorporated or formed and is existing in good standing under the laws of the State of Delaware, (ii) it has all requisite corporate or limited liability company power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby and, in the case of the Corporation, to issue the Class A Common Stock in accordance with the terms hereof, (iii) the execution and delivery of this Agreement by it and the consummation by it of the transactions contemplated hereby (including without limitation, in the case of the Corporation, the issuance of the Class A Common Stock) have been duly authorized by all necessary corporate or limited liability company action on its part, and (iv) this Agreement constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

 

3.2.                             Representations and Warranties of the Members .  Each Member, severally and not jointly, represents and warrants that (i) if it is not a natural person, that it is duly incorporated or formed and, to the extent such concept exists in its jurisdiction of organization, is in good standing under the laws of such jurisdiction, (ii) it has all requisite legal capacity and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby, (iii) if it is not a natural person, the execution and delivery of this Agreement by it (and the consummation of the transactions contemplated hereby) have been duly authorized by all necessary corporate or other entity action on the part of such Member, and (iv) this Agreement constitutes a legal, valid and binding obligation of such Member enforceable against it in

 

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accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

 

ARTICLE IV
MISCELLANEOUS

 

4.1.                             Additional Members .  To the extent a Member validly transfers any or all of such Member’s Units to another person in a transaction in accordance with, and not in contravention of, the Holdings LLC Agreement, then such transferee (each, a “ Permitted Transferee ”) shall have the right to execute and deliver a joinder to this Agreement, substantially in the form of Exhibit B hereto, whereupon such Permitted Transferee shall become a Member hereunder.  To the extent Holdings issues Units in the future, then the holder of such Units shall have the right to execute and deliver a joinder to this Agreement, substantially in the form of Exhibit B hereto, whereupon such holder shall become a Member hereunder.

 

4.2.                             Notices .  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) if delivered personally, on the date of delivery, or, if delivered by facsimile, upon confirmation of transmission by the sender’s fax machine if sent on a Business Day (or otherwise, on the Business Day following confirmation of transmission by the sender’s fax machine) or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

 

if to the Corporation, to:

 

Jones Energy, Inc.

807 Las Cimas Parkway

Suite 350

Austin, TX 78746

Attention: Chief Financial Officer

Fax: (512) 328-5394

 

if to Holdings, to:

 

Jones Energy Holdings, LLC

807 Las Cimas Parkway

Suite 350

Austin, TX 78746

Attention: Chief Financial Officer

Fax: (512) 328-5394

 

If to a Member, to the address and facsimile number set forth in Holdings’ records.

 

Any party may change its address or fax number by giving the other party written notice of its new address or fax number in the manner set forth above.

 

6



 

4.3.                             Counterparts .  This Agreement may be executed in one 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 to the other parties, it being understood that all parties need not sign the same counterpart.  Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

 

4.4.                             Entire Agreement; No Third Party Beneficiaries .  This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

4.5.                             Governing Law .  This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.

 

4.6.                             Severability .  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms 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 manner materially adverse to any party. 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 as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

 

4.7.                             Further Action .  The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

 

4.8.                             Binding Effect .  This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, executors, administrators, heirs, legal representatives and assigns.

 

4.9.                             Amendment .  The provisions of this Agreement may be amended only by the affirmative vote or written consent of each of (i) the Corporation, (ii) Holdings and (iii) Members holding a majority of the then outstanding Units (excluding Units held by the Corporation).

 

4.10.                      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 waiver of any such breach of any other covenant, duty, agreement or condition.

 

7



 

4.11.                      Resolution of Disputes .

 

(a)                                  Any and all disputes, including but not limited to any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a “ Dispute ”) shall be finally settled by arbitration conducted by a single arbitrator in Austin, Texas in accordance with this Section 4.11, regardless of whether some or all of any Dispute allegedly (i) is extra-contractual in nature, (ii) sounds in contract, tort or otherwise, (iii) is provided by federal or state statute, common law or otherwise, or (iv) seeks damages or any other relief, whether at law, in equity or otherwise.

 

(b)                                  If the parties to the Dispute fail to agree on the selection of an arbitrator within ten (10) days of the receipt of the request for arbitration, either party may apply to the United States District Court of the Western District of Texas, Austin Division, or any other court of competent jurisdiction, for the appointment of an arbitrator pursuant to the Federal Arbitration Act, 9 U.S.C. § 5.

 

(c)                                   Notwithstanding the fact that any matter in dispute between the parties is to be submitted, or has already been submitted, to arbitration, the parties shall continue to observe and perform their respective obligations and duties under this Agreement during any arbitration proceedings.

 

(d)                                  Subject to any relevant legal privilege, within 30 days of the selection of an arbitrator, each party shall be required to disclose to the other party all documents that are relevant to the Dispute and to identify all persons likely to have knowledge of facts relevant to the dispute.  Absent a showing of undue prejudice and necessity, there shall be no other discovery, whether by requests for production, interrogatories or deposition, in connection with the arbitration.  The arbitrator shall have the power to make all orders necessary for the disclosure contemplated herein, which orders the parties consent in advance to obey.  If a party fails or refuses to comply with an order for disclosure, the arbitrator may take that failure into account when deciding the issues and may infer that the documents not produced would have supported the opposing party’s claims.

 

(e)                                   The presentation of evidence shall be limited to: (1) no more than two pre-hearing written submissions by each party, which shall include witness statements, declarations, or affidavits, expert reports, and all documentary and tangible evidence and legal authority upon which the party relies, and (2) cross-examination at the hearing of only persons submitting statements, declarations, affidavits, or expert reports.

 

(f)                                    Barring extraordinary circumstances as may be determined by the arbitrator, the arbitration proceedings will be concluded within 120 days from the selection of the arbitrator, which time may be extended in the interest of justice and failure to adhere to or meet this limit shall not constitute a basis for challenging the award.  The parties to a Dispute may my mutual written agreement, and with the consent of the arbitrator, extend any of the deadlines of this Section 4.11.

 

(g)                                   In addition to monetary damages, the arbitrator shall be empowered to issue procedural orders or interim measures upon application of any party, including requests for injunctive relief, specific performance of any obligation under this Agreement, and other

 

8



 

equitable remedies, which may be enforced as necessary in any court of competent jurisdiction.  The arbitrator shall not decide a Dispute ex aqueo et bono or as amiable compositeur , and is not empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover punitive, exemplary or similar damages with respect to any Dispute.  The arbitrator shall not have the authority to modify or amend any term or provision of this Agreement.  The award shall be final and binding upon the parties as from the date rendered, and shall be the sole and exclusive remedy between the parties regarding any claims, counterclaims, issues, or accounting presented to the arbitral tribunal.  Judgment upon any award may be entered and enforced in any court having jurisdiction over a party or any of its assets.

 

(h)                                  The award shall include interest, unless the arbitrator determines it is not appropriate.  Interest shall run from the date of any breach or violation of the Agreement, which shall be determined by the arbitrator in its award.  If the arbitrator cannot determine such date or fails to specify such date in its award, interest shall run from the date of serving the request for arbitration.  Interest shall continue to run from the date of award until the award is paid in full.  Interest shall be calculated and compounded monthly at the on-year US$ LIBOR rate as published by the Financial Times on the first business day of the month plus 4 per cent.

 

(i)                                      The arbitrator shall designate a prevailing party (or parties) in its final award and, pursuant to this determination, shall award to the prevailing party (or parties) its attorneys’ fees, costs and expenses of the arbitration (including the arbitrators’ fees and expenses) in full.

 

(j)                                     Notwithstanding the provisions of paragraph (a), the Corporation may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (j), each Member (1) expressly consents to the application of paragraph (i) of this Section 4.11 to any such action or proceeding, (2) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate, and (3) irrevocably appoints the Corporation as such Member’s agent for service of process in connection with any such action or proceeding and agrees that service of process upon such agent, who shall promptly advise such Member of any such service of process, shall be deemed in every respect effective service of process upon the Member in any such action or proceeding.

 

(k)                                  EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS LOCATED IN AUSTIN, TEXAS FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 4.11, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT.  Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award.  The parties acknowledge that the fora designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties’ relationship with one another; and the parties hereby waive, to the fullest extent permitted by

 

9



 

applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in this Section 4.11 and such parties agree not to plead or claim the same.

 

(l)                                      Notwithstanding any provision of this Agreement to the contrary, this Section 4.11 shall be construed to the maximum extent possible to comply with the laws of the State of Delaware, including the Delaware Uniform Arbitration Act (10 Del. C. §5701 et seq.)  (the “ Delaware Arbitration Act ”).  If, nevertheless, it shall be determined by a court of competent jurisdiction that any provision or wording of this Section 4.11 shall be invalid or unenforceable under the Delaware Arbitration Act, or other applicable law, such invalidity shall not invalidate all of this Section 4.11.  In that case, this Section 4.11 shall be construed so as to limit any term or provision so as to make it valid or enforceable within the requirements of the Delaware Arbitration Act or other applicable law, and, in the event such term or provision cannot be so limited, this Section 4.11 shall be construed to omit such invalid or unenforceable provision.

 

4.12.                      Tax Treatment .  This Agreement shall be treated as part of the partnership agreement of Holdings as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)( h ) and 1.761-1(c) of the Treasury Regulations promulgated thereunder.  As required by the Code and the Treasury Regulations, the parties shall report any Exchange consummated hereunder as a taxable sale of the Units by a Member to the Corporation, and no party shall take a contrary position on any income tax return, amendment thereof or communication with a taxing authority unless an alternate position is permitted under the Code and Treasury Regulations and the Corporation consents in writing.

 

4.13.                      Specific Performance .  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to specific performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity.

 

4.14.                      Independent Nature of Members’ Rights and Obligations .  The obligations of each Member hereunder are several and not joint with the obligations of any other Member, and no Member shall be responsible in any way for the performance of the obligations of any other Member hereunder.  The decision of each Member to enter into this Agreement has been made by such Member independently of any other Member.  Nothing contained herein, and no action taken by any Member pursuant hereto, shall be deemed to constitute the Members as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Members are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby and the Corporation acknowledges that the Members are not acting in concert or as a group, and the Corporation will not assert any such claim with respect to such obligations or the transactions contemplated hereby.

 

4.15.                      Headings .  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

10



 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above.

 

 

JONES ENERGY, INC.

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

 

 

 

JONES ENERGY HOLDINGS, LLC

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

Signature Page to Exchange Agreement

 



 

 

MEMBERS

 

 

 

JONES ENERGY DRILLING FUND, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

 

JONES ENERGY EQUITY PARTNERS, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

 

JONES ENERGY EQUITY PARTNERS II, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

 

 

JONES ENERGY TEAM 3, LP

 

 

 

By: JET 3 GP, LLC

 

Its: General Partner

 

 

 

By: Jon Rex Jones Jr. Trust V

 

Its: Managing Member

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Trustee

 

Signature Page to Exchange Agreement

 



 

 

WELLS FARGO CENTRAL PACIFIC HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gilbert Shen

 

 

Name:  Gilbert Shen

 

 

Title:  Vice President

 

Signature Page to Exchange Agreement

 



 

 

MCP (C) II JONES INTERMEDIATE LLC

 

By: Metalmark Capital Partners II GP, L.P.

 

Its: General Partner

 

By: Metalmark Capital Holdings LLC

 

Its: General Partner

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name:  Gregory D. Myers

 

 

Title:  Managing Director

 

 

 

 

MCP II CO-INVESTMENT JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name:  Gregory D. Myers

 

 

Title:  Managing Director

 

 

 

 

MCP II JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name:  Gregory D. Myers

 

 

Title:  Managing Director

 

 

 

 

MCP II (TE) AIF JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name:  Gregory D. Myers

 

 

Title:  Managing Director

 

 

 

 

MCP II (CAYMAN) AIF JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name:  Gregory D. Myers

 

 

Title:  Managing Director

 

 

 

 

MCP II EXECUTIVE FUND JONES INTERMEDIATE LLC

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name:  Gregory D. Myers

 

 

Title:  Managing Directo

 

Signature Page to Exchange Agreement

 



 

SCHEDULE A

 

SCHEDULE OF MEMBER SALES

 

Member

 

Percentage

 

MCP (C) II Jones Intermediate LLC

 

49.9

%

MCP II Co-Investment Jones Intermediate LLC

 

10.5

%

MCP II Jones Intermediate LLC

 

12.1

%

MCP II (TE) AIF Jones Intermediate LLC

 

11.3

%

MCP II (Cayman) AIF Jones Intermediate LLC

 

9.1

%

MCP II Executive Fund Jones Intermediate LLC

 

1.8

%

Wells Fargo Central Pacific Holdings, Inc.

 

5.3

%

 



 

EXHIBIT A

 

[FORM OF]

 

ELECTION OF EXCHANGE

 

Jones Energy, Inc.

807 Las Cimas Parkway

Suite 350

Austin, TX 78746

Attention: Chief Financial Officer
Fax: (512) 328-5394

 

Jones Energy Holdings, LLC

807 Las Cimas Parkway

Suite 350

Austin, TX 78746

Attention: Chief Financial Officer
Fax: (512) 328-5394

 

Reference is hereby made to the Exchange Agreement, dated as of [   ], 2013 (the “ Exchange Agreement ”), among Jones Energy, Inc., a Delaware corporation, Jones Energy Holdings, LLC, a Delaware limited liability company, and the holders of Units (as defined herein) from time to time party thereto.  Capitalized terms used but not defined herein shall have the meanings given to them in the Exchange Agreement.

 

The undersigned Member hereby transfers to Holdings, the number of Units set forth below in Exchange for shares of Class A Common Stock to be issued in its name as set forth below, as set forth in the Exchange Agreement.

 

Legal Name of Member:                                                   

 

Address:                                                   

 

Number of Units to be Exchanged:                                                   

 

The undersigned hereby represents and warrants that (i) the undersigned has full legal capacity to execute and deliver this Election of Exchange and to perform the undersigned’s obligations hereunder; (ii) this Election of Exchange has been duly executed and delivered by the undersigned and is the legal, valid and binding obligation of the undersigned enforceable against it in accordance with the terms thereof or hereof, as the case may be, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and the availability of equitable remedies; (iii) the Units subject to this Election of Exchange are being transferred to the Corporation free and clear of any pledge, lien, security interest, encumbrance, equities or claim; and (iv) no consent, approval, authorization, order, registration or qualification of any third party or with any court or governmental agency or body having jurisdiction over the

 



 

undersigned or the Units subject to this Election of Exchange is required to be obtained by the undersigned for the transfer of such Units to the Corporation.

 

The undersigned hereby irrevocably constitutes and appoints any officer of the Corporation or of Holdings as the attorney of the undersigned, with full power of substitution and resubstitution in the premises, to do any and all things and to take any and all actions that may be necessary to transfer to Holdings, the Units subject to this Election of Exchange and to deliver to the undersigned the shares of Class A Common Stock to be delivered in Exchange therefor.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Election of Exchange to be executed and delivered by the undersigned or by its duly authorized attorney.

 

 

 

 

Name:

 

 

 

 

 

Dated:

 

 



 

EXHIBIT B

 

[FORM OF]

 

JOINDER AGREEMENT

 

This Joinder Agreement (“ Joinder Agreement ”) is a joinder to the Exchange Agreement, dated as of [  ], 2013 (the “ Agreement ”), among Jones Energy, Inc., a Delaware corporation (the “ Corporation ”), Jones Energy Holdings, LLC, a Delaware limited liability company (“ Holdings ”), and each of the Members from time to time party thereto.  Capitalized terms used but not defined in this Joinder Agreement shall have their meanings given to them in the Agreement.  This Joinder Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware.  In the event of any conflict between this Joinder Agreement and the Agreement, the terms of this Joinder Agreement shall control.

 

The undersigned hereby joins and enters into the Agreement having acquired Units in Holdings.  By signing and returning this Joinder Agreement to the Corporation and Holdings, the undersigned (i) accepts and agrees to be bound by and subject to all of the terms and conditions of and agreements of a Member contained in the Agreement, with all attendant rights, duties and obligations of a Member thereunder and (ii) makes each of the representations and warranties of a Member set forth in Section 3.2 of the Agreement as fully as if such representations and warranties were set forth herein.  The parties to the Agreement shall treat the execution and delivery hereof by the undersigned as the execution and delivery of the Agreement by the undersigned and, upon receipt of this Joinder Agreement by the Corporation and by Holdings, the signature of the undersigned set forth below shall constitute a counterpart signature to the signature page of the Agreement.

 

Signature:

 

 

 

 

 

 

 

Name:

 

 

 

 

 

 

Address for Notices:

 

With copies to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attention:

 

 

 

 


Exhibit 10.4

 

TAX RECEIVABLE AGREEMENT

 

This TAX RECEIVABLE AGREEMENT (as amended from time to time, this “ Agreement ”), dated as of July 29, 2013, is hereby entered into by and among Jones Energy, Inc., a Delaware corporation (the “ Corporation ”), Jones Energy Holdings, LLC, a Delaware limited liability company (“ Holdings ”), and each of the Members (as defined herein).

 

RECITALS

 

WHEREAS, the Members hold member interests (“ Units ”) in Holdings, which is treated as a partnership for United States federal income tax purposes;

 

WHEREAS, the Corporation is the managing member of, and holds and will hold Units in, Holdings;

 

WHEREAS, the Units held by the Members are exchangeable for Class A common stock, par value $0.001 per share, (the “ Class A Shares ”) of the Corporation;

 

WHEREAS, Holdings and each of its direct and indirect subsidiaries treated as a partnership for United States federal income tax purposes will have in effect an election under Section 754 of the United States Internal Revenue Code of 1986, as amended (the “ Code ”), for each Taxable Year (as defined below) in which an exchange of Units for Class A Shares occurs, which election is intended to result in an adjustment to the tax basis of the assets owned by Holdings and such subsidiaries (solely with respect to the Corporation) at the time (such time, the “ Exchange Date ”) of an exchange of Units for Class A Shares, or any other acquisition by the Corporation of Units, for cash or otherwise (collectively, an “ Exchange ”) by reason of such Exchange and the payments under this Agreement;

 

WHEREAS, the income, gain, loss, expense and other Tax (as defined below) items of (i) the Corporation, as a member of Holdings (and in respect of each of Holdings’ direct and indirect subsidiaries treated as disregarded entities or partnerships for United States federal income tax purposes), may be affected by the Basis Adjustments (as defined below) and (ii) the Corporation may be affected by the Imputed Interest (as defined below); and

 

WHEREAS, the parties to this Agreement desire to make certain arrangements with respect to the actual or deemed effect of the Basis Adjustments and the Imputed Interest on the liability for Taxes of the Corporation.

 

NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I.
DEFINITIONS

 

Definitions .  As used in this Agreement, the terms set forth in this ARTICLE I shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).

 

1



 

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 Control with, such first Person.

 

Agreed Rate ” means LIBOR plus 200 basis points.

 

Agreement ” is defined in the preamble of this Agreement.

 

Amended Schedule ” is defined in Section 2.4(b) of this Agreement.

 

                “ Available Cash ” means all cash and cash equivalents of the Corporation on hand, less the amount of cash reserves reasonably established in good faith by the Corporation to (i) provide for the proper conduct of the business of the Corporation, (ii) comply with applicable law or any Senior Obligations, or (iii) make payments under this Agreement; provided, however , that on any Payment Date the Corporation shall be deemed to have Available Cash in amount no less than the remainder of (x) the aggregate amount of tax distributions received by the Corporation from Holdings pursuant to Section 4.4 of the LLC Agreement since the first Exchange Date minus (y) the sum of (A) the aggregate amount of all payments made by the Corporation in respect of taxes or under this Agreement since the first Exchange Date plus (B) the amount of tax distributions received by the Corporation pursuant to Section 4.4 of the LLC Agreement during the quarter for which Available Cash is then being determined or during the immediately preceding quarter, but only to the extent such tax distributions are reasonably expected to be utilized by the Corporation after the date of determination to pay tax liabilities of the Corporation for such quarter or the immediately succeeding quarter.

 

Basis Adjustment ” means, in respect of an Exchanging Member, the deemed adjustment to the Tax basis of an Exchange Reference Asset in respect of such Exchanging Member, in each case, arising in respect of an Exchange by such Exchanging Member, as calculated under Section 2.1 of this Agreement, under the principles of Sections 732 and 1012 of the Code (in a situation where, as a result of one or more Exchanges, Holdings becomes an entity that is disregarded as separate from its owner for tax purposes) or Sections 743(b) and 754 of the Code (including in situations where, following an Exchange, Holdings remains in existence as an entity for tax purposes) and, in each case, comparable sections of state, local and foreign Tax laws. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred.

 

Beneficial Owner ” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.

 

Board ” means the board of directors of the Corporation.

 

2



 

Business Day ” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of Texas shall not be regarded as a Business Day.

 

Change of Control ” means the occurrence of any of the following events:

 

(a)           any Person or any group of Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act, or any successor provisions thereto (excluding a corporation or other entity owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing more than fifty percent (50%) of the combined voting power of the Corporation’s then outstanding voting securities (excluding any Person or any group of Persons who, on the date of the consummation of the initial public offering of Class A Common Stock, is the Beneficial Owner, directly or indirectly, of securities of the Corporation representing more than fifty percent (50%) of the combined voting power of the Corporation’s then outstanding voting securities); or

 

(b)           the following individuals cease for any reason to constitute a majority of the number of directors of the Corporation then serving: individuals who, on the date of the consummation of the initial public offering of Class A Shares, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to an election of directors of the Corporation) whose appointment or election by the Board or nomination for election by the Corporation’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date of the consummation of the initial public offering of Class A Shares or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (b); or

 

(c)           there is consummated a merger or consolidation of the Corporation with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the Board immediately prior to the merger or consolidation does not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a subsidiary, the ultimate parent thereof, or (y) all of the Persons who were the respective Beneficial Owners of the voting securities of the Corporation immediately prior to such merger or consolidation do not Beneficially Own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the Person resulting from such merger or consolidation; or

 

(d)           the shareholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by the Corporation of all or substantially all of the Corporation’s assets, other than such sale or other disposition by the Corporation of all or substantially all of the Corporation’s assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by shareholders

 

3



 

of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale.

 

Notwithstanding the foregoing, except with respect to clause (b) and clause (c)(x) above, a “Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of the Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions.

 

Class A Shares ” is defined in the Recitals of this Agreement.

 

Code ” is defined in the Recitals of this Agreement.

 

Consolidated Group ” means any group of corporations filing consolidated, combined or unitary tax returns of which the Corporation is a member.

 

Control ” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

Corporation ” is defined in the Preamble of this Agreement.

 

Corporation Return ” means the United States federal, state, local and/or foreign Tax Return, as applicable, of the Corporation or any Consolidated Group filed with respect to Taxes of any Taxable Year.

 

Cumulative Net Realized Tax Benefit ” in respect of an Exchanging Member for a Taxable Year means the cumulative amount of Realized Tax Benefits in respect of such Exchanging Member for all Taxable Years of the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments in respect of such Exchanging Member for the same period. The Realized Tax Benefit and Realized Tax Detriment in respect of an Exchanging Member for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule in respect of such Exchanging Member, if any, in existence at the time of such determination.

 

Default Rate ” means LIBOR plus 500 basis points.

 

Determination ” shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of state, local and foreign Tax law, as applicable, or any other event (including the execution of an IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.

 

Dispute ” has the meaning set forth in Section 3.1(b).

 

Early Termination Date ” means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.

 

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Early Termination Notice ” is defined in Section 4.2 of this Agreement.

 

Early Termination Payment ” is defined in Section 4.3(b) of this Agreement.

 

Early Termination Rate ” means LIBOR plus 100 basis points.

 

Early Termination Schedule ” is defined in Section 4.2 of this Agreement.

 

Exchange ” is defined in the Recitals of this Agreement, and “Exchanged” and “Exchanging” shall have correlative meanings.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Exchange Basis Schedule ” is defined in Section 2.2 of this Agreement.

 

Exchange Date ” is defined in the Recitals of this Agreement.

 

Exchange Payment ” is defined in Section 5.1.

 

Exchange Reference Asset ” in respect of an Exchanging Member means an asset that is held by Holdings, or by any of its direct or indirect subsidiaries treated as a partnership or disregarded entity for purposes of the applicable Tax, at the time of an Exchange by such Exchanging Member. An Exchange Reference Asset also includes any asset that is “substituted basis property” under Section 7701(a)(42) of the Code with respect to an Exchange Reference Asset.

 

Exchanging Member ” means a Member that Exchanges some or all of its Units.

 

Expert ” is defined in Section 7.9 of this Agreement.

 

Hypothetical Tax Liability ” in respect of an Exchanging Member means, with respect to any Taxable Year, the liability for Taxes of, without duplication, (a) any Consolidated Group and the Corporation and (b) Holdings, but only with respect to the Corporation’s and any other Consolidated Group members’ proportionate share of the Taxes imposed on Holdings, in each case using the same methods, elections, conventions and similar practices used on the relevant Corporation Return, but (i) using the Non-Stepped Up Tax Basis in respect of such Exchanging Member (as reflected on the applicable Exchange Basis Schedule including amendments thereto for the Taxable Year) and (ii) excluding any deduction attributable to Imputed Interest in respect of such Exchanging Member for the Taxable Year.  For the avoidance of doubt, Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any Tax item (or portions thereof) that is attributable to the Basis Adjustment or Imputed Interest, as applicable.

 

Imputed Interest ” in respect of an Exchanging Member shall mean any interest imputed under Section 1272, 1274 or 483 or other provision of the Code and any similar provision of state, local and foreign Tax law with respect to the Corporation’s payment obligations in respect of such Exchanging Member under this Agreement.

 

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Interest Amount ” is defined in Section 3.1(b) of this Agreement.

 

IPO ” means the initial public offering of Class A Shares by the Corporation.

 

IPO Date ” means the date on which the Corporation contributes to Holdings the net proceeds received by the Corporation in connection with the IPO.

 

IRS ” means the United States Internal Revenue Service.

 

LIBOR ” means for each month (or portion thereof) during any period, an interest rate per annum equal to the rate per annum reported, on the date two days prior to the first day of such month, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page “LIBOR07” or by any other publicly available source of such market rate) for London interbank offered rates for United States dollar deposits for such month (or portion thereof).

 

LLC Agreement ” means, with respect to Holdings, the Third Amended and Restated Limited Liability Company Agreement of Holdings, dated on or about the date hereof, as such agreement may be amended from time to time.

 

Market Value ” shall mean the closing price of the Class A Shares on the applicable Exchange Date on the national securities exchange or interdealer quotation system on which such Class A Shares are then traded or listed, as reported by the Wall Street Journal; provided that if the closing price is not reported by the Wall Street Journal for the applicable Exchange Date, then the Market Value shall mean the closing price of the Class A Shares on the Business Day immediately preceding such Exchange Date on the national securities exchange or interdealer quotation system on which such Class A Shares are then traded or listed, as reported by the Wall Street Journal; provided further, that if the Class A Shares are not then listed on a National Securities Exchange or Interdealer Quotation System, “Market Value” shall mean the cash consideration paid for Class A Shares, or the fair market value of the other property delivered for Class A Shares, as determined by the Board of Directors of the Corporation in good faith.

 

Material Objection Notice ” has the meaning set forth in Section 4.2.

 

Members ” means the parties who are signatories hereto, other than the Corporation and Holdings, and each other Person who from time to time executes a Joinder Agreement in the form attached hereto as Exhibit A.

 

Net Tax Benefit ” is defined in Section 3.1(b) of this Agreement.

 

Non-Stepped Up Tax Basis ” in respect of any Exchanging Member means, with respect to any asset at any time, the Tax basis that such asset would have had at such time if no Basis Adjustment had been made in respect of such Exchanging Member.

 

Objection Notice ” has the meaning set forth in Section 2.4(a).

 

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Original Members ” means the members of Holdings on the date of, but immediately preceding, the initial public offering of Class A Shares.

 

Payment Date ” means any date on which a payment is required to be made pursuant to this Agreement.

 

Person ” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

 

Pre-Exchange Transfer ” means any transfer (including upon the death of a Member) or distribution of one or more Units (i) that occurs prior to an Exchange of such Units, and (ii) to which Section 743(b) of the Code applies.

 

Realized Tax Benefit ” in respect of any Exchanging Member means, for a Taxable Year and for all Taxes collectively, the net excess, if any, of the Hypothetical Tax Liability in respect of such Exchanging Member over the “actual” liability for Taxes of any Consolidated Group and the Corporation (or Holdings, but only with respect to Taxes imposed on Holdings and allocable to the Consolidated Group or the Corporation) for such Taxable Year, such “actual” liability to be computed in accordance with Section 2.1 of this Agreement. If all or a portion of the actual liability for Taxes of any Consolidated Group or the Corporation (or Holdings, but only with respect to Taxes imposed on Holdings and allocable to the Consolidated Group or the Corporation) for such Taxable Year for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.

 

Realized Tax Detriment ” in respect of any Exchanging Member means, for a Taxable Year and for all Taxes collectively, the net excess, if any, of the “actual” liability for Taxes of any Consolidated Group or the Corporation (or Holdings, but only with respect to Taxes imposed on Holdings and allocable to the Consolidated Group or the Corporation) for such Taxable Year, such “actual” liability to be computed in accordance with Section 2.1 of this Agreement, over the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the actual liability for Taxes of the Consolidated Group or the Corporation (or Holdings, but only with respect to Taxes imposed on Holdings and allocable to the Consolidated Group or the Corporation) for such Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.

 

Reconciliation Dispute ” has the meaning set forth in Section 7.9.

 

Reconciliation Procedures ” shall mean those procedures set forth in Section 7.9 of this Agreement.

 

Schedule ” means any Exchange Basis Schedule or Tax Benefit Schedule and the Early Termination Schedule.

 

Senior Obligations ” is defined in Section 5.1 of this Agreement.

 

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Subsidiaries ” means, with respect to any Person, as of any date of determination, any other Person as to which such first Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting shares or other similar interests or the sole general partner interest or managing member or similar interest of such other Person.

 

Tax Benefit Payment ” is defined in Section 3.1(b) of this Agreement.

 

Tax Benefit Schedule ” is defined in Section 2.3 of this Agreement.

 

Tax Return ” means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.

 

Taxable Year ” means a taxable year of the Corporation as defined in Section 441(b) of the Code or comparable section of state, local or foreign Tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is prepared), ending on or after the IPO Date.

 

Taxes ” means any and all United States federal, state, local and foreign taxes, assessments or similar charges that are based on or measured with respect to net income or profits, whether as an exclusive or on an alternative basis, and any interest related thereto.

 

Taxing Authority ” shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.

 

Treasury Regulations ” means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.

 

Units ” is defined in the Recitals of this Agreement.

 

Valuation Assumptions ” in respect of any Exchanging Member shall mean, as of an Early Termination Date, the assumptions that (1) in each Taxable Year ending on or after such Early Termination Date, each Consolidated Group and the Corporation will have taxable income sufficient to fully use the deductions and/or losses (including, as applicable and for the avoidance of doubt, any deductions taken as a result of applying the Valuation Assumptions) arising from any Basis Adjustment or Imputed Interest in respect of such Exchanging Member during such Taxable Year or future Taxable Years (including, as applicable and for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available, (2) the federal income tax rates and state, local and foreign income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date, (3) any loss carryovers generated by any Basis Adjustment or Imputed Interest in respect of such Exchanging Member and available as of the date of the Early Termination Schedule will be used by the Corporation or such Consolidated Group on a pro rata basis from the date of the Early

 

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Termination Schedule through the scheduled expiration date of such loss carryovers, (4) any non-amortizable assets will be disposed of (A) in the case of short-term investments, after 12 months and (B) in the case of all other non-amortizable assets, on the fifteenth anniversary of the earlier of the Basis Adjustment and the Early Termination Date, (5) if, at the Early Termination Date, there are Units that have not been Exchanged, then each such Unit shall be deemed to be Exchanged for the Market Value of the Class A Shares and the amount of cash that would be transferred if the Exchange occurred on the Early Termination Date and (6) for purposes of calculating depletion deductions and resulting reductions in adjusted tax basis with respect to depletable properties held by Holdings and its Subsidiaries that are treated as disregarded entities or partnerships for U.S. federal tax purposes, (A) the remaining recoverable reserves with respect to each such property are equal to the recoverable reserves estimated in the most recent reserve report relating to such property (or, if there is no reserve report with respect to such property, the most recent estimate of recoverable reserves with respect to such property which is reflected in the financial records of Holdings) and (B) Holdings will recover the remaining recoverable reserves with respect to each such depletable property within the time estimated and at the rate reflected in the most recent reserve reports relating to such property (or, if there is no reserve report with respect to such property, the most recent estimate of the rate of recovery of recoverable reserves with respect to such property which is reflected in the financial records of Holdings).

 

ARTICLE II.
DETERMINATION OF CUMULATIVE REALIZED TAX BENEFIT

 

2.1.         Applicable Calculation Principles .  Subject to Section 3.3(a), Section 3.3(a) and Section 3.3(a), the Realized Tax Benefit or Realized Tax Detriment in respect of each Exchanging Member for each Taxable Year is intended to measure the decrease or increase in the actual liability for Taxes of, without duplication, each Consolidated Group and the Corporation for such Taxable Year attributable to the Basis Adjustments and Imputed Interest, as applicable, determined using a “with and without” methodology.  For the avoidance of doubt, the actual liability for Taxes will take into account the deduction of the portion of the Tax Benefit Payment that must be accounted for as interest under the Code based upon the characterization of Tax Benefit Payments as additional consideration payable by the Corporation for the Units acquired in an Exchange. Carryovers or carrybacks of any Tax item attributable to the Basis Adjustments and Imputed Interest, as applicable, shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local income and franchise tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type.  If a carryover or carryback of any Tax item includes a portion that is attributable to the Basis Adjustments or Imputed Interest, as applicable, and another portion that is not, such portions shall be considered to be used in accordance with the “with and without” methodology. The parties agree that (i) any Tax Benefit Payment exceeding $100 in respect of an Exchanging Member attributable to the Basis Adjustments in respect of such Exchanging Member (other than amounts accounted for as interest under the Code) will (A) be treated as a subsequent upward purchase price adjustment and (B) have the effect of creating additional Basis Adjustments in respect of such Exchanging Member to Exchange Reference Assets in the year of payment, and (ii) as a result, such additional Basis Adjustments in respect of such Exchanging Member will be incorporated into the current year calculation and into future year calculations, as appropriate.

 

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2.2.         Exchange Basis Schedule .  Within 60 days after the filing of the United States federal income tax return of the Corporation or any Consolidated Group for each Taxable Year, the Corporation shall deliver to each Exchanging Member a schedule (an “ Exchange Basis Schedule ”) that shows, in reasonable detail, for purposes of Taxes, (i) the Non-Stepped Up Tax Basis of the Exchange Reference Assets attributable to such Exchanging Member as of each applicable Exchange Date, (ii) the Basis Adjustment attributable to such Exchanging Member with respect to the Exchange Reference Assets as a result of the Exchanges effected in such Taxable Year by such Exchanging Member, calculated in the aggregate, (iii) the period or periods, if any, over which the Exchange Reference Assets are estimated to be depletable, amortizable and/or depreciable, and (iv) the period or periods, if any, over which each Basis Adjustment attributable to such Exchanging Member is estimated to be depletable, amortizable and/or depreciable (which, for non-amortizable assets shall be based on the Valuation Assumptions).

 

2.3.         Tax Benefit Schedule .  Within 60 days after the filing of the United States federal income tax return of the Corporation or any Consolidated Group for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to each Exchanging Member a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment attributable to such Exchanging Member for such Taxable Year (a “ Tax Benefit Schedule ”). The Schedule will become final as provided in Section 2.4(a) and may be amended as provided in Section 2.4(b) (subject to the procedures set forth in Section 2.4(b)).

 

2.4.         Procedures, Amendments .

 

(a)           Procedure .  Every time the Corporation delivers to an Exchanging Member an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule or amended Early Termination Schedule, the Corporation shall also (x) deliver to the Exchanging Member schedules and work papers, as determined by the Corporation or reasonably requested by the Exchanging Member, providing reasonable detail regarding the preparation of the Schedule and (y) allow the Exchanging Member reasonable access at no cost to the appropriate representatives at the Corporation in connection with a review of such Schedule.  Without limiting the application of the preceding sentence, each time the Corporation delivers to an Exchanging Member a Tax Benefit Schedule, in addition to the Tax Benefit Schedule duly completed, the Corporation shall deliver to such Exchanging Member a reasonably detailed calculation by the Corporation of the applicable Hypothetical Tax Liability in respect of such Exchanging Member, a reasonably detailed calculation by the Corporation of the actual Tax liability (determined as specified in Section 2.1), as well as any other work papers as determined by the Corporation or reasonably requested by such Exchanging Member. The applicable Schedule shall become final and binding on all parties unless the Exchanging Member, within 30 calendar days after receiving an Exchange Basis Schedule or amendment thereto or a Tax Benefit Schedule or amendment thereto, provides the Corporation with notice of a material objection to such Schedule (“ Objection Notice ”) made in good faith. If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days of receipt by the Corporation of an Objection Notice, if with respect to an Exchange Basis Schedule or a Tax

 

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Benefit Schedule, the Corporation and the Exchanging Member shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the “ Reconciliation Procedures ”).

 

(b)           Amended Schedule .  The applicable Schedule in respect of an Exchanging Member for any Taxable Year may be amended from time to time by the Corporation (i) in connection with a Determination affecting such Schedule, (ii) to correct material inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to the Exchanging Member, (iii) to comply with the Expert’s determination under the Reconciliation Procedures, (iv) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment in respect of the Exchanging Member for such Taxable Year attributable to a carryback or carryforward of a loss or other tax item to such Taxable Year, (v) to reflect a material change in the Realized Tax Benefit or Realized Tax Detriment in respect of the Exchanging Member for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust the Exchange Basis Schedule to take into account payments made pursuant to this Agreement (such Schedule, an “ Amended Schedule ”). The Corporation shall provide any Amended Schedule to the Exchanging Member, within 30 calendar days of the occurrence of an event referred to in clauses (i) through (vi) of the preceding sentence, and any such Amended Schedule shall be subject to approval procedures similar to those described in Section 2.4(a).

 

ARTICLE III.
TAX BENEFIT PAYMENTS

 

3.1.         Payments .

 

(a)           Payments .  Subject to the last sentence of Section 4.1(b), within thirty (30) calendar days of a Tax Benefit Schedule that was delivered to an Exchanging Member becoming final in accordance with Section 2.4(a), the Corporation shall pay to such Exchanging Member for such Taxable Year the Tax Benefit Payment determined pursuant to Section 3.1(b). Each such Tax Benefit Payment shall be made by wire transfer (or as otherwise directed by the Exchanging Member) of immediately available funds to a bank account of the Exchanging Member previously designated by such Exchanging Member to the Corporation. For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including, without limitation, federal estimated income tax payments.

 

(b)           A “ Tax Benefit Payment ” in respect of an Exchanging Member means an amount, not less than zero, equal to the sum of the Net Tax Benefit and the Interest Amount attributable to such Exchanging Member.  For the avoidance of doubt, for Tax purposes, the Interest Amount shall not be treated as interest but instead shall be treated as additional consideration for the acquisition of Units or other assets in Exchanges unless otherwise required by law.  The “ Net Tax Benefit ” for each Taxable Year shall be an amount equal to the excess, if any, of 85% of the Cumulative Net Realized Tax Benefit in respect of the Exchanging Member as of the end of such Taxable Year over the total amount of payments previously made under this Section 3.1 in respect of such Exchanging Member, excluding payments attributable to the Interest Amount; provided, however, that for the avoidance of doubt, no Member shall be required to return any portion of any previously made Tax Benefit Payment. The “ Interest Amount ” for a given Taxable Year shall equal the interest on the Net Tax Benefit for such

 

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Taxable Year calculated at the Agreed Rate from the due date (without extensions) for filing the Corporation Return with respect to Taxes for the most recently ended Taxable Year until the Payment Date.  The Net Tax Benefit and the Interest Amount shall be determined separately with respect to each separate Exchange, on a Unit-by-Unit basis by reference to the resulting Basis Adjustment to the Corporation.

 

(c)           The Corporation shall use good faith efforts to ensure that it has sufficient Available Cash to make all payments due under this Agreement without regard to the last sentence of Section 4.1(b).

 

3.2.         No Duplicative Payments .  Notwithstanding anything in this Agreement to the contrary, it is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions of this Agreement will result in 85% of the Corporation’s Cumulative Net Realized Tax Benefit, and the Interest Amount thereon, being paid to the Members pursuant to this Agreement. The provisions of this Agreement shall be construed in the appropriate manner so that these fundamental results are achieved.

 

3.3.         Pro Rata Payments; Coordination of Benefits .

 

(a)           Notwithstanding anything in Section 3.1 to the contrary, to the extent that the aggregate tax benefit of the Corporation or any Consolidated Group’s deduction with respect to the Basis Adjustments or Imputed Interest in respect of all Exchanging Members under this Agreement is limited in a particular Taxable Year because the Corporation or applicable Consolidated Group does not have sufficient taxable income, the limitation on the tax benefit for the Corporation or the applicable Consolidated Group shall be allocated among the Exchanging Members in proportion to the respective amounts of Realized Tax Benefits that would have been determined under this Agreement in respect of each Exchanging Member if the Corporation or applicable Consolidated Group had sufficient taxable income so that there were no such limitation.

 

(b)           If for any reason the Corporation does not fully satisfy its payment obligations to make all Tax Benefit Payments due under this Agreement in respect of a particular Taxable Year, then the Corporation and the Exchanging Members agree that (i) the Corporation shall pay the same proportion of each Tax Benefit Payment due under this Agreement in respect of such Taxable Year, without favoring one obligation over the other, and (ii) no Tax Benefit Payment shall be made in respect of any Taxable Year until all Tax Benefit Payments in respect of prior Taxable Years have been made in full.

 

ARTICLE IV.
TERMINATION

 

4.1.         Early Termination and Breach of Agreement .

 

(a)           The Corporation may terminate this Agreement with respect to all of the Units held (or previously held and Exchanged) by all Members at any time by paying to each Member the Early Termination Payment attributable to each such Member; provided, however, that this Agreement shall only terminate upon the receipt of the Early Termination Payment by

 

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all Members, and provided, further, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payments by the Corporation, neither the Members nor the Corporation shall have any further payment obligations under this Agreement, other than for any (a) Tax Benefit Payment agreed to by the Corporation and the Member as due and payable but unpaid as of the Early Termination Notice and (b) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (b) is included in the Early Termination Payment).  For the avoidance of doubt, if an Exchange occurs after the Corporation makes the Early Termination Payments with respect to all Members, the Corporation shall have no obligations under this Agreement with respect to such Exchange, and its only obligations under this Agreement in such case shall be its obligations to all Members under Section 4.3(a).

 

(b)           In the event that the Corporation breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but shall not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of a breach, (2) any Tax Benefit Payment in respect of a Member agreed to by the Corporation and such Members as due and payable but unpaid as of the date of a breach, and (3) any Tax Benefit Payment due for the Taxable Year ending with or including the date of a breach. Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement, the Members shall be entitled to elect to receive the amounts set forth in clauses (1), (2) and (3) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due. Notwithstanding anything in this Agreement to the contrary, it shall not be a breach of this Agreement if the Corporation fails to make any Tax Benefit Payment (other than an Early Termination Payment or any payment due on or after a Change of Control pursuant to Section 4.1(c)) when due to the extent that the Corporation has insufficient Available Cash to make such payment; provided, however , that the interest provisions of Section 5.2 shall apply to such late payment (unless the Corporation does not have Available Cash to make such payment as a result of limitations imposed by existing credit agreements to which Holdings is a party, in which case Section 5.2 shall apply, but the Default Rate shall be replaced by the Agreed Rate).

 

(c)           In the event of a Change of Control, then all obligations hereunder shall be accelerated and such obligations shall be calculated pursuant to this Article IV as if an Early Termination Notice had been delivered on the closing date of the Change of Control and shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the effective date of a Change of Control, (2) any Tax Benefit Payment in respect of a Member agreed to by the Corporation and such Members as due and payable but unpaid as of the Early Termination Notice and (3) any Tax Benefit Payment due

 

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for any Taxable Year ending prior to, with or including the effective date of a Change of Control. In the event of a Change of Control, the Early Termination Payment shall be calculated utilizing the Valuation Assumptions and by substituting in each case the terms “the closing date of a Change of Control” for an “Early Termination Date.”

 

4.2.         Early Termination Notice .  If the Corporation chooses to exercise its right of early termination under Section 4.1 above, the Corporation shall deliver to each present or former Member notice of such intention to exercise such right (“ Early Termination Notice ”) and a schedule (the “ Early Termination Schedule ”) specifying the Corporation’s intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment for that Member. The Early Termination Schedule shall become final and binding on a Member (and on the Corporation as to that Member) unless the Member, within 30 calendar days after receiving the Early Termination Schedule, provides the Corporation with notice of a material objection to such Schedule made in good faith (“ Material Objection Notice ”). If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days after receipt by the Corporation of the Material Objection Notice, the Corporation and the Member shall employ the Reconciliation Procedures as described in Section 7.9 of this Agreement.  All Early Termination Schedules affected by any changes resulting from a Material Objection Notice shall be updated and the Early Termination Payment(s) due in respect thereof shall be recalculated by the Corporation to take into account such changes.

 

4.3.         Payment upon Early Termination .

 

(a)           Within thirty (30) days calendar days after agreement between the Member and the Corporation of the Early Termination Schedule, the Corporation shall pay to the Member an amount equal to the Early Termination Payment determined for such Member. Such payment shall be made by wire transfer (or as otherwise directed by the Exchanging Member) of immediately available funds to a bank account designated by the Member.

 

(b)           The “ Early Termination Payment ” as of the date of the delivery of an Early Termination Schedule shall equal with respect to any Member the sum of (i) the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by the Corporation to the Member beginning from the Early Termination Date and assuming that the Valuation Assumptions are applied and (ii) without duplication of any amounts referred to in (i), amounts deferred pursuant to the last sentence of Section 4.1(b) (including interest).

 

ARTICLE V.
SUBORDINATION AND LATE PAYMENTS

 

5.1.         Subordination .  Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporation to the Members under this Agreement (an “ Exchange Payment ”) shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of the Corporation and its Subsidiaries (“ Senior Obligations ”) and shall rank pari passu with all current or future unsecured obligations of the Corporation that are not Senior Obligations.

 

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5.2.         Late Payments by the Corporation .  The amount of all or any portion of any Exchange Payment not made to any Member when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such Exchange Payment was due and payable.

 

ARTICLE VI.
NO DISPUTES; CONSISTENCY; COOPERATION

 

6.1.         Original Member Participation in the Corporation’s and Holdings’ Tax Matters .  Except as otherwise provided herein, the Corporation shall have full responsibility for, and sole discretion over, all Tax matters concerning the Corporation, and Consolidated Group and Holdings, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, the Corporation shall notify the applicable Original Member of, and keep the applicable Original Member reasonably informed with respect to, the portion of any audit of the Corporation, and Consolidated Group and Holdings by a Taxing Authority the outcome of which is reasonably expected to affect the applicable Original Member’s rights and obligations under this Agreement, and shall provide to the applicable Original Member reasonable opportunity to provide information and other input to the Corporation, Holdings and their respective advisors concerning the conduct of any such portion of such audit; provided, however, that the Corporation and Holdings shall not be required to take any action that is inconsistent with any provision of the LLC Agreement.

 

6.2.         Consistency .  Except for items that are explicitly described as “deemed” or in similar manner by the terms of this Agreement, the Corporation and the Exchanging Member agree to report and cause to be reported for all purposes, including federal, state, and local Tax purposes and financial reporting purposes, all Tax-related items (including without limitation the Basis Adjustment and each Tax Benefit Payment) in a manner consistent with that specified by the Corporation in any Schedule required to be provided by or on behalf of the Corporation under this Agreement.

 

6.3.         Cooperation .  Each Exchanging Member shall (a) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and the Corporation shall reimburse the Exchanging Member for any reasonable third-party costs and expenses incurred pursuant to this Section.

 

ARTICLE VII.
MISCELLANEOUS

 

7.1.         Notices .  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) if delivered

 

15



 

personally, on the date of delivery,  or, if delivered by facsimile, upon confirmation of transmission by the sender’s fax machine if sent on a Business Day (or otherwise, on the Business Day following confirmation of transmission by the sender’s fax machine) or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

 

if to the Corporation, to:

 

Jones Energy, Inc.

807 Las Cimas Parkway

Suite 350

Austin, TX 78746

Attention: Chief Financial Officer

Fax: (512) 328-5394

 

if to Holdings, to:

 

Jones Energy Holdings, LLC

807 Las Cimas Parkway

Suite 350

Austin, TX 78746

Attention: Chief Financial Officer

Fax: (512) 328-5394

 

If to a Member, to the address and facsimile number set forth in Holdings’ records.

 

Any party may change its address or fax number by giving the other party written notice of its new address or fax number in the manner set forth above.

 

7.2.         Counterparts .  This Agreement may be executed in one 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 to the other parties, it being understood that all parties need not sign the same counterpart.  Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

 

7.3.         Entire Agreement; No Third Party Beneficiaries .  This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

16



 

7.4.         Governing Law .  This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.

 

7.5.         Severability .  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms 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 manner materially adverse to any party. 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 as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

 

7.6.         Successors; Assignment; Amendments; Waivers .  No Member may assign this Agreement to any person without the prior written consent of the Corporation; provided, however, that (i) to the extent Units are effectively transferred in accordance with the terms of the LLC Agreement, the transferring Member shall have the option to assign to the transferee of such Units the transferring Member’s rights under this Agreement with respect to such transferred Units, as long as such transferee has executed and delivered, or, in connection with such transfer, executes and delivers, a Joinder Agreement in the form attached hereto as Exhibit A, agreeing to become a “Member” for all purposes of this Agreement, except as otherwise provided in such Joinder Agreement, and (ii) once an Exchange has occurred, any and all payments that may become payable to a Member pursuant to this Agreement with respect to the Exchanged Units may be assigned to any Person or Persons, including a liquidating trust, as long as any such Person has executed and delivered, or, in connection with such assignment, executes and delivers, a Joinder Agreement in the form attached hereto as Exhibit A, agreeing to be bound by Section 7.13 and acknowledging specifically the terms of the next paragraph. For the avoidance of doubt, if a Person transfers Units (regardless of whether the transferee is a “Permitted Transferee” under the terms of the LLC Agreement) but does not assign to the transferee of such Units such Person’s rights, if any, under this Agreement with respect to such transferred Units, such Person shall be entitled to receive the Tax Benefit Payments, if any, due hereunder with respect to, including any Tax Benefit Payments arising in respect of a subsequent Exchange of, such Units.

 

Notwithstanding the foregoing provisions of this Section 7.6, no transferee described in clause (i) of the immediately preceding paragraph shall have the right to enforce the provisions of Sections 2.4, 4.2, 6.1 or 6.2 of this Agreement, and no assignee described in clause (ii) of the immediately preceding paragraph shall have any rights under this Agreement except for the right to enforce its right to receive payments under this Agreement.

 

No provision of this Agreement may be amended unless such amendment is approved in writing by each of the Corporation and Holdings and by Original Members who would be entitled to receive at least two-thirds of the Early Termination Payments payable to all Original Members hereunder if the Corporation had exercised its right of early termination on the date of the most recent Exchange prior to such amendment (excluding, for purposes of this sentence, all payments made to any Original Member pursuant to this Agreement since the date of such most

 

17



 

recent Exchange); provided, that no such amendment shall be effective if such amendment will have a disproportionate effect on the payments certain Members will or may receive under this Agreement unless all such Members disproportionately affected consent in writing to such amendment.  No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.

 

All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. Notwithstanding anything to the contrary herein, in the event an Original Member transfers his Units to a Permitted Transferee (as defined in the LLC Agreement), excluding any other Original Member, such Original Member shall have the right, on behalf of such transferee, to enforce the provisions of Sections 2.4, 4.2 or 6.1 with respect to such transferred Units.

 

7.7.         Titles and Subtitles .  The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

 

7.8.         Resolution of Disputes .

 

(a)           Any and all disputes, including but not limited to any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a “ Dispute ”) shall be finally settled by arbitration conducted by a single arbitrator in Austin, Texas in accordance with this Section 7.8, regardless of whether some or all of any Dispute allegedly (i) is extra-contractual in nature, (ii) sounds in contract, tort or otherwise, (iii) is provided by federal or state statute, common law or otherwise, or (iv) seeks damages or any other relief, whether at law, in equity or otherwise.

 

(b)           If the parties to the Dispute fail to agree on the selection of an arbitrator within ten (10) days of the receipt of the request for arbitration, either party may apply to the United States District Court of the Western District of Texas, Austin Division, or any other court of competent jurisdiction, for the appointment of an arbitrator pursuant to the Federal Arbitration Act, 9 U.S.C. § 5.

 

(c)           Notwithstanding the fact that any matter in dispute between the parties is to be submitted, or has already been submitted, to arbitration, the parties shall continue to observe and perform their respective obligations and duties under this Agreement during any arbitration proceedings.

 

(d)           Subject to any relevant legal privilege, within 30 days of the selection of an arbitrator, each party shall be required to disclose to the other party all documents that are relevant to the Dispute and to identify all persons likely to have knowledge of facts relevant to the dispute.  Absent a showing of undue prejudice and necessity, there shall be no other

 

18



 

discovery, whether by requests for production, interrogatories or deposition, in connection with the arbitration.  The arbitrator shall have the power to make all orders necessary for the disclosure contemplated herein, which orders the parties consent in advance to obey.  If a party fails or refuses to comply with an order for disclosure, the arbitrator may take that failure into account when deciding the issues and may infer that the documents not produced would have supported the opposing party’s claims.

 

(e)           The presentation of evidence shall be limited to: (1) no more than two pre-hearing written submissions by each party, which shall include witness statements, declarations, or affidavits, expert reports, and all documentary and tangible evidence and legal authority upon which the party relies, and (2) cross-examination at the hearing of only persons submitting statements, declarations, affidavits, or expert reports.

 

(f)            Barring extraordinary circumstances as may be determined by the arbitrator, the arbitration proceedings will be concluded within 120 days from the selection of the arbitrator, which time may be extended in the interest of justice and failure to adhere to or meet this limit shall not constitute a basis for challenging the award.  The parties to a Dispute may my mutual written agreement, and with the consent of the arbitrator, extend any of the deadlines of this Section 7.8.

 

(g)           In addition to monetary damages, the arbitrator shall be empowered to issue procedural orders or interim measures upon application of any party, including requests for injunctive relief, specific performance of any obligation under this Agreement, and other equitable remedies, which may be enforced as necessary in any court of competent jurisdiction.  The arbitrator shall not decide a Dispute ex aqueo et bono or as amiable compositeur , and is not empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover punitive, exemplary or similar damages with respect to any Dispute.  The arbitrator shall not have the authority to modify or amend any term or provision of this Agreement.  The award shall be final and binding upon the parties as from the date rendered, and shall be the sole and exclusive remedy between the parties regarding any claims, counterclaims, issues, or accounting presented to the arbitral tribunal.  Judgment upon any award may be entered and enforced in any court having jurisdiction over a party or any of its assets.

 

(h)           The award shall include interest, unless the arbitrator determines it is not appropriate.  Interest shall run from the date of any breach or violation of the Agreement, which shall be determined by the arbitrator in its award.  If the arbitrator cannot determine such date or fails to specify such date in its award, interest shall run from the date of serving the request for arbitration.  Interest shall continue to run from the date of award until the award is paid in full.  Interest shall be calculated and compounded monthly at the on-year US$ LIBOR rate as published by the Financial Times on the first business day of the month plus 4 per cent.

 

(i)            The arbitrator shall designate a prevailing party (or parties) in its final award and, pursuant to this determination, shall award to the prevailing party (or parties) its attorneys’ fees, costs and expenses of the arbitration (including the arbitrators’ fees and expenses) in full.

 

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(j)                                     Notwithstanding the provisions of paragraph (a), the Corporation may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (j), each Member (1) expressly consents to the application of paragraph (i) of this Section 7.8 to any such action or proceeding, (2) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate, and (3) irrevocably appoints the Corporation as such Member’s agent for service of process in connection with any such action or proceeding and agrees that service of process upon such agent, who shall promptly advise such Member of any such service of process, shall be deemed in every respect effective service of process upon the Member in any such action or proceeding.

 

(k)                                  EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS LOCATED IN AUSTIN, TEXAS FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.8, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT.  Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award.  The parties acknowledge that the fora designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties’ relationship with one another; and the parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in this Section 7.8 and such parties agree not to plead or claim the same.

 

7.9.                             Reconciliation .  In the event that the Corporation and the Exchanging Member are unable to resolve a disagreement with respect to the matters governed by Sections 2.4, 4.2 and 6.2 within the relevant period designated in this Agreement (“ Reconciliation Dispute ”), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the “ Expert ”) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner in a nationally recognized accounting firm or a law firm, and the Expert shall not, and, unless the Exchanging Member agrees otherwise, the firm that employs the Expert shall not, have any material relationship with either the Corporation or the Exchanging Member or other actual or potential conflict of interest. If the parties are unable to agree on an Expert within fifteen (15) days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the International Chamber of Commerce Centre for Expertise. The Expert shall resolve any matter relating to the Exchange Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within 30 calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within 15 calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on such date and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution.

 

20



 

The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporation except as provided in the next sentence. The Corporation and each Exchanging Member shall bear their own costs and expenses of such proceeding, unless an Exchanging Member has a prevailing position that is more than 10% of the payment at issue, in which case the Corporation shall reimburse such Exchanging Member for any reasonable out-of-pocket costs and expenses in such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.9 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporation and the Exchanging Member and may be entered and enforced in any court having jurisdiction.

 

7.10.                      Withholding .  The Corporation shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Exchanging Member.

 

7.11.                      Tax Covenant .  The Corporation, Holdings and each of the Members hereby acknowledge that, as of the date of this Agreement, the aggregate value of the Tax Benefit Payments cannot reasonably be ascertained for United States federal income tax or other applicable Tax purposes.

 

7.12.                      Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets .

 

(a)                                  If the Corporation becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state, local or foreign law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.

 

(b)                                  If any entity that is obligated to make an Exchange Payment hereunder transfers one or more assets to a corporation with which such entity does not file a consolidated tax return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Exchange Payment (e.g., calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset, plus (i) the amount of debt to which such asset is subject, in the case of a contribution of an encumbered asset or (ii) the amount of debt allocated to such asset, in the case of a contribution of a partnership interest.

 

7.13.                      Confidentiality .  Each Member and assignee acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to

 

21



 

enforce the terms of this Agreement, such person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation and its Affiliates and successors, concerning Holdings and its Affiliates and successors or the other Members, learned by the Member heretofore or hereafter. This clause 7.13 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of such Member in violation of this Agreement) or is generally known to the business community and (ii) the disclosure of information to the extent necessary for a Member to prepare and file his or her Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such returns. Notwithstanding anything to the contrary herein, each Member and assignee (and each employee, representative or other agent of such Member or assignee, as applicable) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Corporation, Holdings, the Members and their Affiliates, and any of their transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to the Members relating to such tax treatment and tax structure.

 

If a Member or assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.13, the Corporation shall have the right and remedy to have the provisions of this Section 7.13 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries or the other Members and the accounts and funds managed by the Corporation and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.

 

7.14.                      LLC Agreement .  This Agreement shall be treated as part of the partnership agreement of Holdings as described in Section 761(c) of the Internal Revenue Code of 1986, as amended, and Sections 1.704-1(b)(2)(ii)( h ) and 1.761-1(c) of the Treasury Regulations.

 

7.15.                      Independent Nature of Exchanging Members’ Rights and Obligations .  The obligations of each Exchanging Member hereunder are several and not joint with the obligations of any other Exchanging Member, and no Exchanging Member shall be responsible in any way for the performance of the obligations of any other Exchanging Member hereunder. The decision of each Exchanging Member to enter into this Agreement has been made by such Exchanging Member independently of any other Exchanging Member. Nothing contained herein, and no action taken by any Exchanging Member pursuant hereto, shall be deemed to constitute the Exchanging Members as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Exchanging Members are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby and the Corporation acknowledges that the Exchanging Members are not acting in concert or as a group, and the Corporation will not assert any such claim, with respect to such obligations or the transactions contemplated hereby.

 

7.16.                      Headings .  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

22



 

IN WITNESS WHEREOF, the Corporation, Holdings and each Original Member have duly executed this Agreement as of the date first written above.

 

 

 

JONES ENERGY, INC.

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

 

JONES ENERGY HOLDINGS, LLC

 

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

JONES ENERGY DRILLING FUND, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

JONES ENERGY EQUITY PARTNERS, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

Signature Page to Tax Receivable Agreement

 



 

 

JONES ENERGY EQUITY PARTNERS II, LP

 

 

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

JONES ENERGY TEAM 3, LP

 

 

 

By:

 JET 3 GP, LLC

 

Its:

 General Partner

 

 

 

 

By:

 Jon Rex Jones Jr. Trust V

 

Its:

 Managing Member

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Trustee

 

Signature Page to Tax Receivable Agreement

 



 

 

WELLS FARGO CENTRAL PACIFIC HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Gilbert Shen

 

 

Name: Gilbert Shen

 

 

Title: Vice President

 

Signature Page to Tax Receivable Agreement

 



 

 

METALMARK CAPITAL PARTNERS (C) II, L.P.

 

By: Metalmark Capital Partners II GP, L.P.

 

Its: General Partner

 

By: Metalmark Capital Holdings LLC

 

Its: General Partner

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

METALMARK CAPITAL PARTNERS II CO-INVESTMENT, LP

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

METALMARK CAPITAL PARTNERS II, LP

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

MCP II (TE) AIF, LP

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

MCP II (CAYMAN) AIF, LP

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

 

METALMARK CAPITAL PARTNERS II EXECUTIVE FUND, LP

 

 

 

 

 

By:

/s/ Gregory D. Myers

 

 

Name: Gregory D. Myers

 

 

Title: Managing Director

 

Signature Page to Tax Receivable Agreement

 



 

EXHIBIT A

 

JOINDER

 

This JOINDER (this “ Joinder ”) to the Tax Receivable Agreement, dated as of                           , by and among Jones Energy, Inc., a Delaware corporation (the “ Corporation ”), Jones Energy Holdings, LLC, a Delaware limited liability company (“ Holdings ”) and                                        (“ Permitted Transferee ”).

 

WHEREAS, on                                     , Permitted Transferee acquired (the “ Acquisition ”) Units in Holdings and the corresponding shares of Class B common stock of the Corporation (collectively, “ Interests ” and, together with all other Interests hereinafter acquired by Permitted Transferee from Transferor and its Permitted Transferees (as defined in the Tax Receivable Agreement), the “ Acquired Interests ”) from                                  (“ Transferor ”); and

 

WHEREAS, Transferor, in connection with the Acquisition, has required Permitted Transferee to execute and deliver this Joinder pursuant to Section 7.6 of the Tax Receivable Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, Permitted Transferee hereby agrees as follows:

 

Section 1.1.                                  Definitions . To the extent capitalized words used in this Joinder are not defined in this Joinder, such words shall have the meaning set forth in the Tax Receivable Agreement.

 

Section 1.2.                                  Joinder . Permitted Transferee hereby acknowledges and agrees to become a “Member” (as defined in the Tax Receivable Agreement) for all purposes of the Tax Receivable Agreement, including but not limited to, being bound by Sections 2.4, 4.2, 6.1, 6.2 and 7.12 of the Tax Receivable Agreement, with respect to the Acquired Interests.

 

Section 1.3.                                  Notice . All notices, requests, consents and other communications hereunder to Permitted Transferee shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by facsimile (provided a copy is thereafter promptly delivered as provided in this Section 1.3) or nationally recognized overnight courier, addressed to Permitted Transferee at the address or facsimile number set forth below or such other address or facsimile number as may hereafter be designated in writing by Permitted Transferee:

 

Section 1.4.                                  Governing Law . THIS JOINDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.

 



 

IN WITNESS WHEREOF, this Joinder has been duly executed and delivered by Permitted Transferee as of the date first above written.

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

Signature Page — Joinder to Tax Receivable Agreement

 


Exhibit 10.5

 

 

 

JONES ENERGY, INC.

 

REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT

 

DATED AS OF JULY 29, 2013

 

 

 



 

TABLE OF CONTENTS

 

 

Page

 

 

ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION

1

1.1

Definitions

1

1.2

Rules of Construction

5

ARTICLE II BOARD OF DIRECTORS

6

2.1

Composition of Board

6

2.2

Election

6

2.3

Removal

7

2.4

Vacancies

7

2.5

Termination of Rights

7

ARTICLE III REGISTRATION RIGHTS

8

3.1

Required Registration

8

3.2

Piggyback Registration

10

3.3

Holdback Agreement

12

3.4

Preparation and Filing

12

3.5

Expenses

16

3.6

Indemnification

16

3.7

Underwriting Agreement

18

3.8

Information by Holder

19

3.9

Exchange Act Compliance

20

3.10

Postponement and Suspension

20

ARTICLE IV AMENDMENT AND WAIVER

21

4.1

Amendment

21

4.2

Waiver

21

ARTICLE V MISCELLANEOUS

21

5.1

Severability

21

5.2

Entire Agreement

21

5.3

Independence of Agreements and Covenants

21

5.4

Successors and Assigns

21

5.5

Counterparts; Validity

22

5.6

Remedies

22

5.7

Notices

22

5.8

Governing Law

23

5.9

Waiver of Jury Trial

23

5.10

Further Assurances

24

5.11

Conflicting Agreements

24

5.12

Third Party Reliance

24

 

i



 

REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT

 

This Registration Rights and Stockholders Agreement, dated as of July 29, 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.

 

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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.

 

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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).

 

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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.

 

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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

 

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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.

 

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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.

 

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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

 

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further that a registration shall not count as one of the permitted registrations pursuant to 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

 

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request the Company to withdraw or not to file the registration statement. In that event, unless 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

 

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Primary Shares promptly and the Company shall use its commercially reasonable efforts to cause 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.

 

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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” 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

 

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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;

 

(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

 

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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 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

 

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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.

 

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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

 

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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

 

17



 

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

 

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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.

 

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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.

 

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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

 

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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

 

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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,

 

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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.

 

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(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]

 

25



 

IN WITNESS WHEREOF, the undersigned have executed this Registration Rights and Stockholders Agreement as of the date set forth above.

 

 

COMPANY:

 

 

 

JONES ENERGY, INC.

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

Signature Page to Registration Rights and Stockholders Agreement

 



 

 

JONES HOLDERS:

 

 

 

JONES ENERGY HOLDINGS, LLC

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Chief Executive Officer

 

 

 

JONES ENERGY DRILLING FUND, LP

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

JONES ENERGY EQUITY PARTNERS, LP

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

JONES ENERGY EQUITY PARTNERS II, LP

 

By:

Jones Energy Management, LLC, its General Partner

 

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Manager

 

 

JONES ENERGY TEAM 3, LP

 

By: JET 3 GP, LLC, its General Partner

 

By: Jon Rex Jones Jr. Trust V, its Managing Member

 

 

 

By:

/s/ Jonny Jones

 

 

Jonny Jones

 

 

Trustee

 

Signature Page to Registration Rights and Stockholders Agreement

 



 

 

METALMARK HOLDERS:

 

 

 

MCP (C) II JONES INTERMEDIATE LLC

 

By: Metalmark Capital Partners II GP, L.P., its General Partner

 

By: Metalmark Capital Holdings LLC, its General Partner

 

 

 

By:

/s/ Gregory D. Myers

 

 

Gregory D. Myers

 

 

Managing Director

 

 

MCP II CO-INVESTMENT JONES INTERMEDIATE LLC

 

 

 

By:

/s/ Gregory D. Myers

 

 

Gregory D. Myers

 

 

Managing Director

 

 

MCP II JONES INTERMEDIATE LLC

 

 

 

By:

/s/ Gregory D. Myers

 

 

Gregory D. Myers

 

 

Managing Director

 

 

MCP II (TE) AIF JONES INTERMEDIATE LLC

 

 

 

By:

/s/ Gregory D. Myers

 

 

Gregory D. Myers

 

 

Managing Director

 

 

MCP II (CAYMAN) AIF JONES INTERMEDIATE LLC

 

 

 

By:

/s/ Gregory D. Myers

 

 

Gregory D. Myers

 

 

Managing Director

 

 

MCP II EXECUTIVE FUND JONES INTERMEDIATE LLC

 

 

 

By:

/s/ Gregory D. Myers

 

 

Gregory D. Myers

 

 

Managing Director

 

Signature Page to Registration Rights and Stockholders Agreement

 


Exhibit 10.6

 

JONES ENERGY, INC.
2013 OMNIBUS INCENTIVE PLAN

 



 

JONES ENERGY, INC.

2013 OMNIBUS INCENTIVE PLAN

 

Table of Contents

 

 

 

Page

1.

Plan

1

2.

Objectives

1

3.

Definitions

1

4.

Eligibility

5

5.

Common Stock Available for Awards

5

6.

Administration

7

7.

Delegation of Authority

8

8.

Employee Awards

8

9.

Consultant and Director Awards

12

10.

Award Payment; Dividends and Dividend Equivalents

12

11.

Option Exercise

13

12.

Taxes

13

13.

Amendment, Modification, Suspension or Termination

13

14.

Assignability

13

15.

Adjustments

14

16.

Restrictions

15

17.

Unfunded Plan

15

18.

Code Section 409A

15

19.

Awards to Foreign Nationals and Employees Outside the United States

16

20.

Governing Law

16

21.

Right to Continued Service or Employment

16

22.

Clawback Right

17

23.

Usage

17

24.

Headings

17

25.

Effectiveness

17

 

i



 

JONES ENERGY, INC.

2013 OMNIBUS INCENTIVE PLAN

 

1.                                        Plan .  Jones Energy, Inc., a Delaware corporation (the “ Company ”), established this Jones Energy, Inc. 2013 Omnibus Incentive Plan (this “ Plan ”), effective as of July 29, 2013 (the “ Effective Date ”)  This Plan shall continue in effect for a term of 10 years after the Effective Date unless sooner terminated by action of the Board of Directors of the Company.

 

2.                                        Objectives .  This Plan is designed to attract and retain employees and consultants of the Company and its Subsidiaries (as defined herein), to attract and retain qualified non-employee directors of the Company, to encourage the sense of proprietorship of such employees, consultants and directors and to stimulate the active interest of such persons in the development and financial success of the Company and its Subsidiaries.  These objectives are to be accomplished by making Awards under this Plan and thereby providing Participants (as defined herein) with a proprietary interest in the growth and performance of the Company and its Subsidiaries.

 

3.                                        Definitions .  As used herein, the terms set forth below shall have the following respective meanings:

 

Authorized Officer ” means the Chairman of the Board, the Chief Executive Officer of the Company (or any other senior officer of the Company to whom any of such individuals shall delegate the authority to execute any Award Agreement).

 

Award ” means the grant of any Option, Stock Appreciation Right, Stock Award, or Cash Award, any of which may be structured as a Performance Award, whether granted singly, in combination or in tandem, to a Participant pursuant to such applicable terms, conditions, and limitations as the Committee may establish in accordance with the objectives of this Plan.

 

Award Agreement ” means the document (in written or electronic form) communicating the terms, conditions and limitations applicable to an Award.  The Committee may, in its discretion, require that the Participant execute such Award Agreement, or may provide for procedures through which Award Agreements are made effective without execution.  Any Participant who is granted an Award and who does not affirmatively reject the applicable Award Agreement shall be deemed to have accepted the terms of Award as embodied in the Award Agreement.

 

Board ” means the Board of Directors of the Company.

 

Cash Award ” means an Award denominated in cash.

 

Change in Control ” means a Change in Control as defined in Attachment A to this Plan.

 

1



 

Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

Committee ” means the Compensation Committee of the Board, and any successor committee thereto or such other committee of the Board as may be designated by the Board to administer this Plan in whole or in part including any subcommittee of the Board as designated by the Board.

 

Common Stock ” means the Class A Common Stock, par value $0.001 per share, of the Company.

 

Company ” means Jones Energy, Inc., a Delaware corporation, or any successor thereto.

 

Consultant ” means an individual providing services to the Company or any of its Subsidiaries, other than an Employee or a Director, and an individual who has agreed to become a consultant of the Company or any of its Subsidiaries and actually becomes such a consultant following such date of agreement.

 

Consultant Award ” means the grant of any Award (other than an Incentive Stock Option), whether granted singly, in combination, or in tandem, to a Participant who is a Consultant pursuant to such applicable terms, conditions, and limitations established by the Committee.

 

Covered Employee ” means any Employee who is or may be a “covered employee,” as defined in Code Section 162(m).

 

Director ” means an individual serving as a member of the Board who is not an Employee or a Consultant and an individual who has agreed to become a director of the Company or any of its Subsidiaries and actually becomes such a director following such date of agreement.

 

Director Award ” means the grant of any Award (other than an Incentive Stock Option), whether granted singly, in combination, or in tandem, to a Participant who is a Director pursuant to such applicable terms, conditions, and limitations established by the Board.

 

Disability ” means (1) if the Participant is an Employee, a disability that entitles the Employee to benefits under the Company’s long-term disability plan, as may be in effect from time to time, as determined by the plan administrator of the long-term disability plan or (2) if the Participant is a Director or a Consultant, a disability whereby the Director or Consultant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.  Notwithstanding the foregoing, if an Award is subject to Code Section 409A, the definition of Disability shall conform to the requirements of Treasury Regulation § 1.409A-3(i)(4)(i).

 

2



 

Dividend Equivalents ” means, in the case of Restricted Stock Units or Performance Units, an amount equal to all dividends and other distributions (or the economic equivalent thereof) that are payable to stockholders of record during the Restriction Period or performance period, as applicable, on a like number of shares of Common Stock that are subject to the Award.

 

Employee ” means an employee of the Company or any of its Subsidiaries and an individual who has agreed to become an employee of the Company or any of its Subsidiaries and actually becomes such an employee following such date of agreement.

 

Employee Award ” means the grant of any Award, whether granted singly, in combination, or in tandem, to an Employee pursuant to such applicable terms, conditions, and limitations established by the Committee.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

 

Exercise Price ” means the price at which a Participant may exercise his right to receive cash or Common Stock, as applicable, under the terms of an Award.

 

Fair Market Value ” of a share of Common Stock means, as of a particular date, (1) if shares of Common Stock are listed on a national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (2) if the Common Stock is not so listed, the average of the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by an inter-dealer quotation system, (3) if shares of Common Stock are not publicly traded, the most recent value determined by an independent appraiser appointed by the Committee for such purpose, or (4) if none of the above are applicable, the Fair Market Value of a share of Common Stock as determined in good faith by the Committee; provided, however , that with respect to any Awards granted on the date of the initial public offering of the Common Stock, Fair Market Value shall mean the opening sales price per share price of the Common Stock offered in connection with such initial public offering.

 

Grant Date ” means the date an Award is granted to a Participant pursuant to this Plan.

 

Incentive Stock Option ” means an Option that is intended to comply with the requirements set forth in Code Section 422.

 

Nonqualified Stock Option ” means an Option that is not intended to comply with the requirements set forth in Code Section 422.

 

3



 

Option ” means a right to purchase a specified number of shares of Common Stock at a specified Exercise Price, which is either an Incentive Stock Option or a Nonqualified Stock Option.

 

Participant ” means an Employee, Consultant or Director to whom an Award has been made under this Plan.

 

Performance Award ” means an Award made pursuant to this Plan to a Participant which is subject to the attainment of one or more Performance Goals.

 

Performance Goal ” means one or more standards established by the Committee to determine in whole or in part whether a Performance Award shall be earned.

 

Performance Unit ” means a unit evidencing the right to receive in specified circumstances one share of Common Stock or equivalent value in cash, the value of which at the time it is settled is determined as a function of the extent to which established performance criteria have been satisfied.

 

Performance Unit Award ” means an Award in the form of Performance Units.

 

Qualified Performance Awards ” has the meaning set forth in Paragraph 8(a)(vii)(B).

 

Restricted Stock ” means a share of Common Stock that is restricted or subject to forfeiture provisions.

 

Restricted Stock Award ” means an Award in the form of Restricted Stock.

 

Restricted Stock Unit ” means a unit evidencing the right to receive in specified circumstances one share of Common Stock or equivalent value in cash that is restricted or subject to forfeiture provisions.

 

Restricted Stock Unit Award ” means an Award in the form of Restricted Stock Units.

 

Restriction Period ” means a period of time beginning as of the date upon which a Restricted Stock Award or Restricted Stock Unit Award is made pursuant to this Plan and ending as of the date upon which such Award is no longer restricted or subject to forfeiture provisions.

 

Stock Appreciation Right ” or “ SAR ” means a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the right is exercised over a specified Exercise Price.

 

4



 

Stock Award ” means an Award in the form of shares of Common Stock, including a Restricted Stock Award, and a Restricted Stock Unit Award or Performance Unit Award that may be settled in shares of Common Stock, and excluding Options and SARs.

 

Stock-Based Award Limitations ” has the meaning set forth in Paragraph 5.

 

Subsidiary ” means (1) in the case of a corporation, any corporation of which the Company directly or indirectly owns shares representing 50% or more of the combined voting power of the shares of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the stockholders of such corporation, and (2) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Company directly or indirectly owns 50% or more of the voting, capital or profits interests (whether in the form of partnership interests, membership interests or otherwise).

 

4.                                        Eligibility .

 

(a)                                   Employees .  All Employees are eligible for Employee Awards under this Plan, provided, however , that if the Committee makes an Employee Award to an individual whom it expects to become an Employee following the Grant Date of such Award, such Award shall be subject to (among other terms and conditions) the individual actually becoming an Employee.

 

(b)                                  Consultants .  All Consultants are eligible for Consultant Awards under this Plan, provided, however , that if the Committee makes a Consultant Award to an individual whom it expects to become a Consultant following the Grant Date of such Award, such Award shall be subject to (among other terms and conditions) the individual actually becoming a Consultant.

 

(c)                                   Directors .  All Directors are eligible for Director Awards under this Plan, provided, however , that if the Board makes a Director Award to an individual whom it expects to become a Director following the Grant Date of such Award, such Award shall be subject to (among other terms and conditions) the individual actually becoming a Director.

 

The Committee (or the Board, in the case of Director Awards) shall determine the type or types of Awards to be made under this Plan and shall designate from time to time the Employees, Consultants or Directors who are to be granted Awards under this Plan.

 

5.                                        Common Stock Available for Awards .  Subject to the provisions of Paragraph 15 hereof, there shall be available for Awards under this Plan granted wholly or partly in Common Stock (including rights or Options that may be exercised for or settled in Common Stock) an aggregate of 3,850,000 shares of Common Stock (the “Maximum Share Limit”), all of which shall be available for Incentive Stock Options.

 

5



 

Awards settled in cash shall not reduce the Maximum Share Limit under the Plan.  If an Award expires or is terminated, cancelled or forfeited, the shares of Common Stock associated with the expired, terminated, cancelled or forfeited Award shall again be available for Awards under the Plan, and the Maximum Share Limit shall be increased by the number of shares subject to such Award.  The following shares of Common Stock shall also become available again for Awards under the Plan other than Awards of Incentive Stock Options:

 

(i)                                      Shares of Common Stock that are tendered by a Participant or withheld as full or partial payment of minimum withholding taxes or as payment for the Exercise Price of an Award; and

 

(ii)                                   Shares of Common Stock reserved for issuance upon grant of an SAR, to the extent the number of reserved shares of Common Stock exceeds the number of shares of Common Stock actually issued upon exercise or settlement of such SAR.

 

The foregoing notwithstanding, subject to New York Stock Exchange listing requirements, the Maximum Share Limit shall not be reduced by (x) shares of Common Stock issued under Awards granted in assumption, substitution or exchange for previously granted awards of a company acquired by the Company and (y) available shares under a stockholder approved plan of an acquired company (as appropriately adjusted to reflect the transaction) and such shares shall be available for Awards under the Plan.

 

The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards.

 

Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to any Awards made hereunder:

 

(a)                                   No Employee may be granted during any calendar year Awards consisting of Options or SARs that are exercisable for more than 1,000,000 shares of Common Stock;

 

(b)                                  No Employee may be granted during any calendar year Qualified Performance Awards that are Stock Awards covering or relating to more than 1,000,000 shares of Common Stock (the limitation set forth in this clause (b), together with the limitation set forth in clause (a) above, being hereinafter collectively referred to as the “ Stock-Based Award Limitations ”);

 

(c)                                   No Employee may be granted during any calendar year Qualified Performance Awards that are (1) Cash Awards or (2) Restricted Stock Unit Awards or Performance Unit Awards that may be settled solely in cash having a value determined on the Grant Date in excess of $5,000,000; and

 

(d)                                  No Director may be granted during any calendar year Awards having a value determined on the Grant Date in excess of $500,000.

 

6



 

Shares delivered by the Company in settlement of Awards may be authorized and unissued shares of Common Stock, shares of Common Stock held in the treasury of the Company, shares of Common Stock purchased on the open market or by private purchase or any combination of the foregoing.

 

6.                                        Administration .

 

(a)                                   Authority of the Committee .  Except as otherwise provided in this Plan with respect to actions or determinations by the Board, this Plan shall be administered by the Committee; provided, however , that (i) any and all members of the Committee shall satisfy any independence requirements prescribed by any stock exchange on which the Company lists its Common Stock; (ii) Awards may be granted to individuals who are subject to Section 16(b) of the Exchange Act only if the Committee is comprised solely of two or more “Non-Employee Directors” as defined in Securities and Exchange Commission Rule 16b-3 (as amended from time to time, and any successor rule, regulation or statute fulfilling the same or similar function); and (iii) any Award intended to qualify for the “performance-based compensation” exception under Code Section 162(m) shall be granted only if the Committee is comprised solely of two or more “outside directors” within the meaning of Code Section l62(m) and regulations pursuant thereto.  Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof.  The Committee shall also have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan.  Subject to Paragraph 6(c) hereof, the Committee may, in its discretion, (x) provide for the extension of the exercisability of an Award, or (y) in the event of death, Disability, retirement or Change in Control, accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any restrictions contained in an Award, waive any restriction or other provision of this Plan or an Award or otherwise amend or modify an Award in any manner that is, in either case, (1) not materially adverse to the Participant to whom such Award was granted, (2) consented to by such Participant or (3) authorized by Paragraph 15(c) hereof; provided, however , that except as expressly provided in Paragraph 8(a)(i) or 8(a)(ii) hereof, no such action shall permit the term of any Option or SAR to be greater than 10 years from its Grant Date.  The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award Agreement in the manner and to the extent the Committee deems necessary or desirable to further this Plan’s purposes.  Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned.  The Board shall have the same powers as the Committee with respect to Director Awards.

 

(b)                                  Indemnity .  No member of the Board or the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of Paragraph 7 of this Plan shall be liable for anything done or omitted to be done by him, by any member of the Board or the Committee or by any officer of the

 

7



 

Company in connection with the performance of any duties under this Plan, except for his own willful misconduct or as expressly provided by statute.

 

(c)                                   Prohibition on Repricing of Awards .  Subject to the provisions of Paragraph 15 hereof, the terms of outstanding Award Agreements may not be amended without the approval of the Company’s stockholders so as to (i) reduce the Exercise Price of any outstanding Options or SARs or (ii) cancel any outstanding Options or SARs in exchange for cash or other Awards, or Options or SARs with an Exercise Price that is less than the Exercise Price of the original Options or SARs.

 

7.                                        Delegation of Authority .  The Committee may delegate any of its authority to grant Awards to Employees who are not subject to Section 16(b) of the Exchange Act and Consultants, subject to Paragraph 6(a) above, to the Board or to any other committee of the Board, provided such delegation is made in writing and specifically sets forth such delegated authority.  The Committee may also delegate to an Authorized Officer authority to execute on behalf of the Company any Award Agreement.  The Committee and the Board, as applicable, may engage or authorize the engagement of a third party administrator to carry out administrative functions under this Plan.  Any such delegation hereunder shall only be made to the extent permitted by applicable law.

 

8.                                        Employee Awards .

 

(a)                                   The Committee shall determine the type or types of Employee Awards to be made under this Plan and shall designate from time to time the Employees who are to be the recipients of such Awards.  Each Award shall be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee, in its sole discretion, and, if required by the Committee, shall be signed by the Participant to whom the Award is granted and by an Authorized Officer for and on behalf of the Company.  Awards may consist of those listed in this Paragraph 8(a) hereof and may be granted singly, in combination or in tandem.  Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other plan of the Company or any of its Subsidiaries, including the plan of any acquired entity; provided, however , that, except as contemplated in Paragraph 15 hereof, no Option or SAR may be issued in exchange for the cancellation of an Option or SAR with a higher Exercise Price nor may the Exercise Price of any Option or SAR be reduced.  All or part of an Award may be subject to conditions established by the Committee.  Upon the termination of employment by a Participant who is an Employee, any unexercised, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement or in any other written agreement the Company has entered into with the Participant.

 

(i)                                      Options .  An Employee Award may be in the form of an Option.  An Option awarded pursuant to this Plan may consist of either an Incentive Stock Option or a Nonqualified Stock Option.  The price at which shares of Common Stock may be purchased upon the exercise of an Option shall be not less than the Fair Market Value of the Common Stock on the Grant Date, subject to adjustment as provided in Paragraph 15 hereof.  The term of an Option shall not exceed 10

 

8



 

years from the Grant Date; provided, however , if the term of a Nonqualified Option (but not an Incentive Option) expires when trading in the Common Stock is prohibited by law or the Company’s insider trading policy, then the term of such Nonqualified Option shall expire on the 30th day after the expiration of such prohibition.  Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Option, including, but not limited to, the term of any Option and the date or dates upon which the Option becomes vested and exercisable, shall be determined by the Committee.

 

(ii)                                   Stock Appreciation Rights .  An Employee Award may be in the form of an SAR.  The Exercise Price for an SAR shall not be less than the Fair Market Value of the Common Stock on the Grant Date, subject to adjustment as provided in Paragraph 15 hereof.  The holder of a tandem SAR may elect to exercise either the Option or the SAR, but not both.  The exercise period for an SAR shall extend no more than 10 years after the Grant Date; provided, however , if the term of an SAR expires when trading in the Common Stock is prohibited by law or the Company’s insider trading policy, then the term of such SAR shall expire on the 30th day after the expiration of such prohibition.  Subject to the foregoing provisions, the terms, conditions, and limitations applicable to any SAR, including, but not limited to, the term of any SAR and the date or dates upon which the SAR becomes vested and exercisable, shall be determined by the Committee.

 

(iii)                                Stock Awards .  An Employee Award may be in the form of a Stock Award.  The terms, conditions and limitations applicable to any Stock Award, including, but not limited to, vesting or other restrictions, shall be determined by the Committee, and subject to the minimum Restriction Period and performance period requirements and any other applicable requirements described in this Paragraph 8(a) hereof.

 

(iv)                               Restricted Stock Unit Awards .  An Employee Award may be in the form of a Restricted Stock Unit Award.  The terms, conditions and limitations applicable to a Restricted Stock Unit Award, including, but not limited to, the Restriction Period, shall be determined by the Committee.  Subject to the terms of this Plan, the Committee, in its sole discretion, may settle Restricted Stock Units in the form of cash or in shares of Common Stock (or in a combination thereof) equal to the value of the vested Restricted Stock Units.

 

(v)                                  Performance Unit Awards .  An Employee Award may be in the form of a Performance Unit Award.  Each Performance Unit shall have an initial value that is established by the Committee on the Grant Date.  Subject to the terms of this Plan, after the applicable performance period has ended, the Participant shall be entitled to receive settlement of the value and number of Performance Units earned by the Participant over the performance period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.  Settlement of earned Performance Units shall be as determined by the Committee and as evidenced in an Award Agreement.  Subject

 

9



 

to the terms of this Plan, the Committee, in its sole discretion, may settle earned Performance Units in the form of cash or in shares of Common Stock (or in a combination thereof) equal to the value of the earned Performance Units as soon as practicable after the end of the performance period and following the Committee’s determination of actual performance against the performance measures and related goals established by the Committee.

 

(vi)                               Cash Awards .  An Employee Award may be in the form of a Cash Award.  The terms, conditions and limitations applicable to a Cash Award, including, but not limited to, vesting or other restrictions, shall be determined by the Committee.

 

(vii)                            Performance Awards .  Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Employee Award may be in the form of a Performance Award.  The terms, conditions and limitations applicable to an Award that is a Performance Award shall be determined by the Committee.  The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met, will determine the value and/or amount of Performance Awards that will be paid out to the Participant and/or the portion of an Award that may be exercised.

 

(A)                               Nonqualified Performance Awards .  Performance Awards granted to Employees that are not intended to qualify as qualified performance-based compensation under Code Section 162(m) shall be based on achievement of such Performance Goals and be subject to such terms, conditions and restrictions as the Committee or its delegate shall determine.

 

(B)                                 Qualified Performance Awards .  Performance Awards granted to Employees under this Plan that are intended to qualify as qualified performance-based compensation under Code Section 162(m) shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Goals established by the Committee prior to the earlier to occur of (1) 90 days after the commencement of the period of service to which the Performance Goal relates and (2) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain.  A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met.  One or more of such goals may apply to the Employee, one or more business units, divisions or sectors of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies.  A Performance Goal shall include one or more of the following:  (1) earnings per share; (2) base production; (3) increase in cash flow; (4) increase in cash flow from operations; (5) increase in cash flow return; (6) return on net assets; (7) return on assets; (8) return on investment; (9) return on

 

10



 

capital; (10) return on equity; (11) economic value added; (12) operating margin; (13) increase in production; (14) net income; (15) net income per share; (16) pretax earnings; (17) pretax earnings before interest, depreciation and amortization; (18) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (19) total stockholder return; (20) debt reduction; (21) finding and development costs; (22) operating income; (23) internal rate of return; (24) safety; (25) operating expenses per barrel of oil equivalent; (26) capital efficiency; (27) barrels of oil equivalent produced per day; and (28) any of the above goals determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparable companies.

 

Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria).  In interpreting Plan provisions applicable to Qualified Performance Awards, it is the intent of this Plan to conform with the standards of Code Section 162(m) and Treasury Regulation § 1.162-27(e)(2)(i), as to grants to Covered Employees and the Committee in establishing such goals and interpreting this Plan shall be guided by such provisions.  Prior to the payment of any compensation based on the achievement of Performance Goals applicable to Qualified Performance Awards, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied.  For this purpose, approved minutes of the Committee meeting in which the certification is made shall be treated as such written certification.  Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Qualified Performance Awards made pursuant to this Plan shall be determined by the Committee.  The Committee may provide in any such Performance Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year, (f) acquisitions or divestitures, (g) foreign exchange gains and losses and (h) settlement of hedging activities.

 

(C)                                 Adjustment of Performance Awards . Awards that are intended to be Qualified Performance Awards may not be adjusted

 

11



 

upward. The Committee may retain the discretion to adjust such Performance Awards downward, either on a formula or discretionary basis or any combination, as the Committee determines.

 

9.                                        Consultant and Director Awards .

 

(a)                                   Consultant Awards .  The Committee has the sole authority to grant Consultant Awards from time to time in accordance with this Paragraph 9(a).  Consultant Awards may consist of the forms of Award described in Paragraph 8, with the exception of Incentive Stock Options, may be granted singly, in combination, or in tandem and shall be granted subject to such terms and conditions as specified in Paragraph 8.  Each Consultant Award shall be embodied in an Award Agreement, which shall contain such terms, conditions, and limitations as shall be determined by the Committee, in its sole discretion.

 

(b)                                  Director Awards .  The Board has the sole authority to grant Director Awards from time to time in accordance with this Paragraph 9(b).  Director Awards may consist of the forms of Award described in Paragraph 8, with the exception of Incentive Stock Options, may be granted singly, in combination, or in tandem and shall be granted subject to such terms and conditions as specified in Paragraph 8.  Each Director Award may, in the discretion of the Board, be embodied in an Award Agreement, which shall contain such terms, conditions, and limitations as shall be determined by the Board, in its sole discretion.

 

10.                                  Award Payment; Dividends and Dividend Equivalents .

 

(a)                                   General .  Payment of Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee (or the Board, in the case of Director Awards) shall determine, including, but not limited to, in the case of Common Stock, restrictions on transfer and forfeiture provisions.  For a Restricted Stock Award, the certificates evidencing the shares of such Restricted Stock (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto.  For a Restricted Stock Unit Award that may be settled in shares of Common Stock, the shares of Common Stock that may be issued at the end of the Restriction Period shall be evidenced by book entry registration or in such other manner as the Committee may determine.

 

(b)                                  Dividends and Dividend Equivalents .  Rights to (1) dividends will be extended to and made part of any Restricted Stock Award and (2) Dividend Equivalents may be extended to and made part of any Restricted Stock Unit Award and Performance Unit Award, subject in each case to such terms, conditions and restrictions as the Committee may establish; provided, however , that no such dividends or Dividend Equivalents shall be paid with respect to unvested Stock Awards, including Stock Awards subject to Performance Goals.  Dividends or Dividend Equivalents paid with respect to unvested Stock Awards may, in the discretion of the Committee, be

 

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accumulated and paid to the Participant at the time that such Stock Award vests.  Dividends and/or Dividend Equivalents shall not be made part of any Options or SARs.

 

11.                                  Option Exercise .  The Exercise Price shall be paid in full at the time of exercise in cash or, if permitted by the Committee and elected by the Participant, the Participant may purchase such shares by means of the Company withholding shares of Common Stock otherwise deliverable on exercise of the Award or tendering Common Stock valued at Fair Market Value on the date of exercise, or any combination thereof.  The Committee, in its sole discretion, shall determine acceptable methods for Participants to tender Common Stock or other Awards.  The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award (including cashless exercise procedures approved by the Committee involving a broker or dealer approved by the Committee).  The Committee may adopt additional rules and procedures regarding the exercise of Options from time to time, provided that such rules and procedures are not inconsistent with the provisions of this Paragraph 11.

 

12.                                  Taxes .  The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of required withholding taxes or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes; provided, however , that the number of shares of Common Stock withheld for payment of required withholding taxes must equal no more than the required minimum withholding taxes.  The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Award with respect to which withholding is required.  If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made.

 

13.                                  Amendment, Modification, Suspension or Termination .  The Board may amend, modify, suspend or terminate this Plan (and the Committee may amend an Award Agreement) for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (1) no amendment or alteration that would materially adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (2) no amendment or alteration shall be effective prior to its approval by the stockholders of the Company to the extent stockholders approval is otherwise required by applicable legal requirements or the requirements of the securities exchange on which the Company’s stock is listed, including any amendment that expands the types of Awards available under this Plan, materially increases the number of shares of Common Stock available for Awards under this Plan, materially expands the classes of persons eligible for Awards under this Plan, materially extends the term of this Plan, materially changes the method of determining the Exercise Price of Options, deletes or limits any provisions of this Plan that prohibit the repricing of Options or SARs.

 

14.                                  Assignability .  Unless otherwise determined by the Committee (or the Board in the case of Director Awards) or expressly provided for in an Award Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable except

 

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(1) by will or the laws of descent and distribution or (2) pursuant to a domestic relations order issued by a court of competent jurisdiction that is not contrary to the terms and conditions of this Plan or applicable Award and in a form acceptable to the Committee.  The Committee may prescribe and include in applicable Award Agreements other restrictions on transfer.  Any attempted assignment of an Award or any other benefit under this Plan in violation of this Paragraph 14 shall be null and void.  Notwithstanding the foregoing, no Award may be transferred for value or consideration.

 

15.                                  Adjustments .

 

(a)                                   The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above.

 

(b)                                  In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (1) the number of shares of Common Stock reserved under this Plan, (2) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (3) the Exercise Price or other price in respect of such Awards, (4) the Stock-Based Award Limitations, and (5) the appropriate Fair Market Value and other price determinations for such Awards shall each be proportionately adjusted by the Committee as appropriate to reflect such transaction.  In the event of any other recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), the Committee shall make appropriate adjustments to (i) the number and kind of shares of Common Stock covered by Awards in the form of Common Stock or units denominated in Common Stock, (ii) the Exercise Price or other price in respect of such Awards, (iii) the appropriate Fair Market Value and other price determinations for such Awards, and (iv) the Stock-Based Award Limitations to reflect such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without increasing, the value of such Awards.

 

(c)                                   In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee may make such adjustments to Awards or other provisions for the disposition of Awards as it deems equitable, and shall be authorized, in its discretion, (1) to provide for the substitution of a new Award or other arrangement (which, if applicable, may be exercisable for such property or stock as the Committee determines) for an Award or the assumption of the

 

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Award, regardless of whether in a transaction to which Code Section 424(a) applies, (2) to provide, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, the Award and, if the transaction is a cash merger, provide for the termination of any portion of the Award that remains unexercised at the time of such transaction, or (3) to cancel any such Awards and to deliver to the Participants cash in an amount that the Committee shall determine in its sole discretion is equal to the Fair Market Value of such Awards on the date of such event, which in the case of Options or Stock Appreciation Rights shall be the excess (if any) of the Fair Market Value of Common Stock on such date over the Exercise Price of such Award.

 

(d)                                  No adjustment or substitution pursuant to this Paragraph 15 shall be made in a manner that results in noncompliance with the requirements of Code Section 409A, to the extent applicable.

 

16.                                  Restrictions .  No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws.  Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation and any applicable federal or state securities law.  The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions.

 

17.                                  Unfunded Plan .  This Plan is unfunded.  Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience.  The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan.  Any liability or obligation of the Company to any Participant with respect to an Award of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company.  None of the Company, the Board or the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.  With respect to this Plan and any Awards granted hereunder, Participants are general and unsecured creditors of the Company and have no rights or claims except as otherwise provided in this Plan or any applicable Award Agreement.

 

18.                                  Code Section 409A .

 

(a)                                   Awards made under this Plan are intended to comply with or be exempt from Code Section 409A, and ambiguous provisions hereof, if any, shall be construed

 

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and interpreted in a manner consistent with such intent.  No payment, benefit or consideration shall be substituted for an Award if such action would result in the imposition of taxes under Code Section 409A.  Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under this Plan would result in the imposition of an additional tax under Code Section 409A, that Plan provision or Award shall be reformed, to the extent permissible under Code Section 409A, to avoid imposition of the additional tax, and no such action shall be deemed to adversely affect the Participant’s rights to an Award.

 

(b)                                  Unless the Committee provides otherwise in an Award Agreement, each Restricted Stock Unit Award, Performance Unit Award or Cash Award (or portion thereof if the Award is subject to a vesting schedule) shall be settled no later than the 15th day of the third month after the end of the first calendar year in which the Award (or such portion thereof) is no longer subject to a “substantial risk of forfeiture” within the meaning of Code Section 409A.  If the Committee determines that a Restricted Stock Unit Award, Performance Unit Award or Cash Award is intended to be subject to Code Section 409A, the applicable Award Agreement shall include terms that are designed to satisfy the requirements of Code Section 409A.

 

(c)                                   If the Participant is identified by the Company as a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) on the date on which the Participant has a “separation from service” (other than due to death) within the meaning of Treasury Regulation § 1.409A-1(h), any Award payable or settled on account of a separation from service that is deferred compensation subject to Code Section 409A shall be paid or settled on the earliest of (1) the first business day following the expiration of six months from the Participant’s separation from service, (2) the date of the Participant’s death, or (3) such earlier date as complies with the requirements of Code Section 409A.

 

19.                                  Awards to Foreign Nationals and Employees Outside the United States .  The Committee may, without amending this Plan, (1) establish special rules applicable to Awards granted to Participants who are foreign nationals, are employed or otherwise providing services outside the United States, or both, including rules that differ from those set forth in this Plan, and (2) grant Awards to such Participants in accordance with those rules.

 

20.                                  Governing Law .  This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Delaware.

 

21.                                  Right to Continued Service or Employment .  Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate any Participant’s employment or other service relationship with the Company or its Subsidiaries at any time, nor confer upon any Participant any right to continue in the capacity in which he is employed or otherwise serves the Company or its Subsidiaries.

 

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22.                                  Clawback Right .  Notwithstanding any other provisions in this Plan, any Award shall be subject to recovery or clawback by the Company under any clawback policy adopted by the Company whether before or after the date of grant of the Award.

 

23.                                  Usage .  Words used in this Plan in the singular shall include the plural and in the plural the singular, and the gender of words used shall be construed to include whichever may be appropriate under any particular circumstances of the masculine, feminine or neuter genders.

 

24.                                  Headings .  The headings in this Plan are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Plan.

 

25.                                  Effectiveness .  This Plan, as approved by the Board on July 10, 2013, shall be effective as of the Effective Date.  This Plan shall continue in effect for a term of 10 years commencing on the Effective Date, unless earlier terminated by action of the Board.  Notwithstanding the foregoing, the adoption of this Plan is expressly conditioned upon the approval by the holders of a majority of shares of Common Stock present, or represented, and entitled to vote at a meeting of the Company’s stockholders on or before July 29, 2013.  If the stockholders of the Company should fail to so approve this Plan on or before such date, (i) this Plan shall not be of any force or effect and (ii) any grants of Awards hereunder shall be null and void.

 

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ATTACHMENT A

 

JONES ENERGY, INC. 2013 OMNIBUS INCENTIVE PLAN

 

DEFINITION OF
CHANGE IN CONTROL

 

Except as otherwise provided in an Award Agreement, for purposes of this Plan, a “ Change in Control ” shall be deemed to have occurred upon the occurrence of any of the following after the date hereof:

 

(a)                                  40% Ownership Change :  Any Person, the Company, or an Affiliate, other than the Jones Family Entities or Metalmark Capital, makes an acquisition of Outstanding Voting Stock and is, immediately thereafter, the beneficial owner of 40% or more of the then Outstanding Voting Stock, unless such acquisition is made directly from the Company in a transaction approved by a majority of the Incumbent Directors; or any group is formed that is the beneficial owner of 40% or more of the Outstanding Voting Stock; or

 

(b)                                  Major Mergers and Acquisitions :  Consummation of a Business Combination unless, immediately following such Business Combination, (i) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Voting Stock immediately before such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of voting stock of the parent corporation resulting from such Business Combination in substantially the same relative proportions as their ownership, immediately before such Business Combination, of the Outstanding Voting Stock, (ii) no Person (other than any corporation resulting from such Business Combination or Jones Family Entities or Metalmark Capital) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of voting stock of the parent corporation resulting from such Business Combination and (iii) a majority of the members of the board of directors of the parent corporation resulting from such Business Combination were Incumbent Directors of the Company immediately before consummation of such Business Combination; or

 

(c)                                   Major Asset Dispositions :  Consummation of a Major Asset Disposition unless, immediately following such Major Asset Disposition, (i) individuals and entities that were beneficial owners of the Outstanding Voting Stock immediately before such Major Asset Disposition beneficially own, directly or indirectly, more than 70% of the then outstanding shares of voting stock of the Company (if it continues to exist) and of the entity that acquires the largest portion of such assets (or the entity, if any, that owns a majority of the outstanding voting stock of such acquiring entity) and (ii) a majority of the members of the Board (if it continues to exist) and of the entity that acquires the largest portion of such assets (or the entity, if any, that owns a majority of the outstanding voting stock of such

 

A-1



 

acquiring entity) were Incumbent Directors of the Company immediately before consummation of such Major Asset Disposition.

 

Anything in this definition to the contrary notwithstanding, no Change in Control shall be deemed to have occurred unless such event constitutes an event specified in Code Section 409A(a)(2)(A)(v) and the Treasury Regulations promulgated thereunder.

 

For purposes of the definition of a “Change in Control”,

 

(1)                                  Affiliate ” means an Affiliate within the meaning of Rule 12b-2 promulgated under Section 12 of the Exchange Act.

 

(2)                                  beneficial owner ” is used as it is defined for purposes of Rule 13d-3 under the Exchange Act;

 

(3)                                  Business Combination ” means

 

(x)                                  a merger or consolidation involving the Company or its stock or

 

(y)                                  an acquisition by the Company, directly or through one or more subsidiaries, of another entity or its stock or assets;

 

(4)                                  election contest ” is used as it is defined for purposes of Rule 14a-11 under the Exchange Act;

 

(5)                                  group ” is used as it is defined for purposes of Section 13(d)(3) of the Exchange Act;

 

(6)                                  Incumbent Director ” means a director of the Company (x) who was a director of the Company on the effective date of the Plan or (y) who becomes a director after such date and whose election, or nomination for election by the Company’s stockholders, was approved by a vote of a majority of the Incumbent Directors at the time of such election or nomination, except that any such director will not be deemed an Incumbent Director if his or her initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies by or on behalf of a Person other than the Board;

 

(7)                                  Jones Family Entities ” means entities directly or indirectly controlled by Jonny Jones, Chairman and Chief Executive Officer of the Company, and/or his immediate family.

 

(8)                                  Major Asset Disposition ” means the sale or other disposition in one transaction or a series of related transactions of 80% or more of the assets of the Company and its subsidiaries on a consolidated basis; and any specified percentage or portion of the assets of the Company will be based

 

A-2



 

on fair market value, as determined by a majority of the Incumbent Directors.

 

(9)                                  Metalmark Capital ” means Metalmark Capital Partners (C) II, L.P. and its affiliated investment funds.

 

(10)                           Outstanding Voting Stock ” means outstanding voting securities of the Company entitled to vote generally in the election of directors; and any specified percentage or portion of the Outstanding Voting Stock (or of other voting stock) is determined based on the combined voting power of such securities;

 

(11)                           parent corporation resulting from a Business Combination ” means the Company if its stock is not acquired or converted in the Business Combination and otherwise means the entity which as a result of such Business Combination owns the Company or all or substantially all the Company’s assets either directly or through one or more subsidiaries; and

 

(12)                           Person ” means an individual, entity or group.

 

A-3


Exhibit 10.7

 

JONES ENERGY, INC.

SHORT TERM INCENTIVE PLAN

(Effective as of July 29, 2013)

 

1.                                        Purpose :  The purpose of the Jones Energy, Inc. Short Term Incentive Plan (the “ Plan ”) is to encourage a high level of corporate performance through the establishment of predetermined corporate, Subsidiary or business unit and/or individual goals, the attainment of which will require a high degree of competence and diligence on the part of those Employees (including officers) of Jones Energy, Inc. (the “ Company ”) or of its participating Subsidiaries selected to participate in the Plan, and which will be beneficial to the owners and customers of the Company.

 

2.                                        Definitions :  Unless the context otherwise clearly requires, the following definitions are applicable to the Plan:

 

Award : An incentive compensation award granted to a Participant with respect to a particular Plan Year pursuant to any applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan.

 

Board : The Board of Directors of the Company.

 

Code :  The Internal Revenue Code of 1986, as amended.

 

Committee :  The Compensation Committee of the Board or any successor committee of the Board designated by the Board consisting of at least two directors.

 

Company :  Jones Energy, Inc. or any successor thereto.

 

Compensation :  Compensation or eligible earnings during the year means the actual base salary paid to a salaried exempt Participant during the Plan Year, including vacation, holiday and sick time.  Eligible earnings exclude all special payments, bonuses, allowances, reimbursements, and payments in lieu of overtime.  Compensation or eligible earnings during the year means the actual gross wages paid to a hourly or salaried non-exempt Participant during the Plan Year, including vacation, holiday and sick time. Eligible earnings exclude all special payments, bonuses, allowances, reimbursements, but include overtime pay in a manner consistent with the requirements of applicable labor law.

 

Employee :  An employee of the Company or any of its Subsidiaries who is a regular full or part-time employee and who regularly works at least 20 hours per week.

 

Employer :  The Company and each Subsidiary which is designated by the Committee as an Employer under this Plan.

 

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Exchange Act :  The Securities Exchange Act of 1934, as amended from time to time.

 

Participant :  An Employee who is selected to participate in the Plan.

 

Payment Date :  The date an Award shall be paid as provided in Section 8(b) of the Plan.

 

Performance Award :  An Award made to a Participant pursuant to this Plan that is subject to the attainment of one or more Performance Goals.

 

Performance Goals :  The performance objectives of the Company, its Subsidiaries or its business units and/or individual Participants established for the purpose of determining the level of Awards, if any, earned during a Plan Year.

 

Plan :  This Jones Energy, Inc. Short Term Incentive Plan, as amended from time to time.

 

Plan Year :  The calendar year.

 

Subsidiary :  A subsidiary corporation with respect to the Company as defined in Section 424(f) of the Code.

 

A pronoun or adjective in the masculine gender includes the feminine gender, and the singular includes the plural, unless the context clearly indicates otherwise.

 

3.                                        Participation :  The Committee shall select the Employees who will be Participants for each Plan Year.  No Employee shall at any time have the right (a) to be selected as a Participant in the Plan for any Plan Year, (b) if so selected, to be entitled to an Award, or (c) if selected as a Participant in one Plan Year, to be selected as a Participant in any subsequent Plan Year.  The terms and conditions under which a Participant may participate in the Plan shall be determined by the Committee in its sole discretion.

 

4.                                        Eligibility :  Except as otherwise determined by the Committee, only Employees who (a) are employed on the last day of the Plan Year and (b) are employed on the Payment Date are eligible for the payment of an Award under the Plan.

 

5.                                        Plan Administration :  The Plan shall be administered by the Committee.  All decisions of the Committee shall be binding and conclusive on the Participants.  The Committee, on behalf of the Participants, shall enforce this Plan in accordance with its terms and shall have all powers necessary for the accomplishment of that purpose, including, but not by way of limitation, the following powers:

 

(a)                                   To select the Participants;

 

(b)                                  To interpret, construe, approve and adjust all terms, provisions, conditions and limitations of this Plan;

 

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(c)                                   To decide any questions arising as to the interpretation or application of any provision of the Plan;

 

(d)                                  To prescribe forms and procedures to be followed by Employees for participation in the Plan, or for other occurrences in the administration of the Plan;

 

(e)                                   To establish the terms and conditions of any Agreement under which an Award may be earned and paid; and

 

(f)                                     In addition to all other powers granted herein, the Committee shall make and enforce such rules and regulations for the administration of the Plan as are not inconsistent with the terms set forth herein.

 

No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of Section 6 of this Plan shall be liable for anything done or omitted to be done by him, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his own willful misconduct or as expressly provided by statute.

 

6.                                        Delegation of Authority :  The Committee may delegate any of its authority (i) to select Participants, (ii) grant Awards and (iii) determine the value of Awards granted to Participants to any other committee of the Board or to the Company’s Chief Executive Officer, provided such delegation is made in writing and specifically sets forth such delegated authority.  The foregoing notwithstanding, the Committee may not delegate its authority with respect to Awards granted to a Participant who is subject to Code Section 162(m).  The officers of the Company, for and on behalf of the Company, may engage or authorize the engagement of a third party administrator to carry out administrative functions under this Plan.  Any such delegation hereunder shall only be made to the extent permitted by applicable law.

 

7.                                        Awards :

 

(a)                                   General .  The Committee shall determine the terms and conditions of Awards to be made under this Plan and shall designate from time to time the individuals who are to be the recipients of Awards. Awards may also be made in combination or in tandem with, in replacement of, or as alternative to, grants or rights under this Plan or any other employee plan of the Company or any of its Subsidiaries, including the plan of any acquired entity.  An Award may provide for the grant or issuance of additional, replacement or alternative Awards upon the occurrence of specified events.  All or part of an Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific individual and/or business objectives, increases in specified indices, attainment of specified growth rates and other comparable measurements of performance.  Unless specified otherwise by the Committee, the amount payable pursuant to an Award shall be based on a percentage of the Participant’s Compensation.

 

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(b)                                  Performance Award s.  An Award may be in the form of a Performance Award.  A Performance Award shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Goals established by the Committee prior to the earlier to occur of (x) 90 days after the commencement of such period of service to which the Performance Goal relates and (y) the lapse of 25% of such period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain.  A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met.  Such a Performance Goal may be based on one or more business criteria that apply to the individual, one or more business units of the Company, or the Company as a whole.  Performance Goals shall be based upon targets established by the Committee with respect to one or more of the following financial or operational factors, as applied to the Company or a business unit, as applicable:  (1) earnings per share; (2) base production; (3) increase in cash flow; (4) increase in cash flow from operations; (5) increase in cash flow return; (6) return on net assets; (7) return on assets; (8) return on investment; (9) return on capital; (10) return on equity; (11) economic value added; (12) operating margin; (13) increase in production; (14) net income; (15) net income per share; (16) pretax earnings; (17) pretax earnings before interest, depreciation and amortization; (18) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (19) total stockholder return; (20) debt reduction; (21) finding and development costs; (22) operating income; (23) internal rate of return; (24) safety; (25) operating expenses per barrel of oil equivalent; (26) capital efficiency; (27) barrels of oil equivalent produced per day; and (28) any of the above goals determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparable companies.

 

Prior to the payment of any compensation based on the achievement of Performance Goals, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied.  The Committee, in its sole discretion, may decrease the amount payable pursuant to a Performance Award, but in no event shall the Committee have discretion to increase the amount payable to a Participant who is a “Covered Employee” as defined under Code Section 162(m) and accompanying guidance issued thereunder pursuant to a Performance Award in a manner inconsistent with the requirements for qualified performance-based compensation under Code Section 162(m).  However, the Committee may increase the amount of a Performance Award to any Participant who is not a Covered Employee.  For purposes of clarity, the Committee may exercise the discretion provided for by the foregoing in a non-uniform manner among Participants.

 

In interpreting Plan provisions applicable to Performance Goals and Performance Awards, it is the intent of the Plan to conform with the standards of Code Section 162(m) applicable to qualified performance-based compensation, and the Committee in establishing such Performance Goals and interpreting the Plan shall be guided by such provisions (including, for the avoidance of doubt, any transition relief afforded

 

4



 

thereunder).  Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Performance Awards pursuant to this Plan shall be determined by the Committee.  No Participant may be granted Performance Awards which will result in the payment of more than $5,000,000 per Plan Year.

 

8.                                        Payment of Awards :  The Committee has sole and absolute authority and discretion to determine whether an Award shall be paid under this Plan and if so such payment will be made in accordance with the following:

 

(a)                                   Form of Payment :  In the discretion of the Committee, payment of Awards shall be made in (i) a lump sum cash payment, (ii) Company common stock under the Company’s Long Term Incentive Plan or other equity plan (as applicable, the “ Equity Plan ”) or (iii) a combination of (i) and (ii).  Award payments may be subject to such restrictions as the Committee shall determine.

 

(b)                                  Date of Payment :  Payment of any Awards for a Plan Year (“ Award Plan Year ”) shall be made as soon as practicable after the close of the Award Plan Year (as determined by the Committee), but in no event later than March 15th of the Plan Year immediately following the close of the Award Plan Year (“ Payment Date ”).

 

9.                                        Assignability :  Unless otherwise determined by the Committee and provided in the Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable, except by will or the laws of descent and distribution.  Any attempted assignment of an Award or any other benefit under this Plan in violation of this Section 9 shall be null and void.

 

10.                                  Tax Withholding :  The Company shall have the right to withhold applicable taxes from any Award payment and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes.

 

11.                                  Finality of Determinations :  Any determination by the Committee in carrying out or administering this Plan shall be final and binding for all purposes and upon all interested persons and their heirs, successors, and personal representatives.

 

12.                                  Employee Rights Under the Plan :  No Employee or other person shall have any claim or right to be granted an Award under this Plan.  Neither the Plan nor any action taken thereunder shall be construed as giving an Employee any right to be retained in the employ of the Company or an Employer.  No Participant shall have any lien on any assets of the Company or an Employer by reason of any Award made under this Plan.

 

13.                                  Amendment, Modification, Suspension or Termination :  The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (a) no amendment or alteration that would materially and adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (b) no amendment or alteration shall be effective prior to its approval by the

 

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stockholders of the Company; provided, however, that clause (b) shall only apply if, and to the extent, such approval is required by applicable legal requirements.

 

14.                                  Governing Law :  This Plan and all determinations made and actions taken pursuant hereto, shall be governed by and construed in accordance with the laws of the State of Delaware.

 

15.                                  Effective Date :  The Plan is effective as of July 29, 2013.

 

16.                                  Exclusion from Section 409A :  This Plan is intended to provide “short-term deferrals” as described in Treasury Regulation § 1.409A-1(b)(4) under Section 409A of the Code (or successor guidance thereto), and not to be a “nonqualified deferred compensation plan” for purposes of Section 409A of the Code.  The Plan shall be administrated and interpreted consistent with that intent.

 

17.                                  Clawback Right :  Notwithstanding any other provisions in this Plan, any Award which is subject to recovery under any law, government regulation, or stock exchange listing requirement shall be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement.

 

18.                                  Unfunded Status of Plan : The Company shall not have any obligation to establish any separate fund or trust or other segregation of assets to provide for payments under the Plan.  To the extent any person acquires any rights to receive payments hereunder from the Company, such rights shall be no greater than those of an unsecured creditor.

 

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