Document:

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.

 

6

 

2.3                               Removal.

 

If the Metalmark Holders and/or the Jones Holders provide written notice to each other Stockholder entitled to vote in the election of Directors indicating that the Metalmark Holders and/or the Jones Holders desire to remove a Metalmark Director or Jones Director, as applicable, previously designated, then such Metalmark Director or Jones Director, as applicable, shall be removed, and each Stockholder hereby agrees to vote all shares of Common Stock owned or held of record by such Stockholder to effect such removal. Notwithstanding the foregoing, no Metalmark Director or Jones Director shall be removed, with or without cause, without the prior written consent of the Metalmark Holders or the Jones Holders, respectively.

 

2.4                               Vacancies.

 

(a)                                 If a vacancy is created on the Board at any time by death, disability, retirement, resignation or removal (with or without cause) of a Metalmark Director nominated pursuant to this Article II (other than in connection with the resignation of such Metalmark Director as set forth in Section 2.1(a)), a majority in interest of the Metalmark Holders shall be entitled to designate a replacement Metalmark Director to fill such vacancy.

 

(b)                                 If a vacancy is created on the Board at any time by death, disability, retirement, resignation or removal (with or without cause) of a Jones Director nominated pursuant to this Article II (other than in connection with the resignation of such Jones Director as set forth in Section 2.1(b)), a majority in interest of the Jones Holders, as applicable, shall be entitled to designate a replacement Jones Director to fill such vacancy.

 

(c)                                  Any other vacancy on the Board, whether as a result of (i) the initial vacancies on the Board, (ii) an increase in size of the Board, (iii) the resignation of a Metalmark Director required by Section 2.1(a) or the resignation of a Jones Director required by Section 2.1(b), or (iv) the death, disability, retirement, resignation, removal (with or without cause) of any Director other than a Metalmark Director or a Jones Director, as applicable, shall be filled by a Person nominated by the Nominating and Governance Committee, and unanimously approved by all Directors then in office.

 

(d)                                 Each Stockholder entitled to vote in the election of Directors hereby agrees to vote all voting shares of Common Stock owned or held of record by it for the individual designated to fill such vacancies in the manner provided in this Section 2.4; provided, such designee was not previously removed from the Board for cause.

 

2.5                               Termination of Rights.

 

The nomination rights granted in this Article II shall terminate (i) with respect to the Metalmark Holders, upon receipt by the Board of written election by a majority in interest of the Metalmark Holders to waive their nomination rights hereunder, and (ii) with respect to the Jones Holders, upon receipt by the Board of written election by a majority in interest of the Jones Holders to waive their nomination rights hereunder.

 

7

 

ARTICLE III
 REGISTRATION RIGHTS

 

3.1                                                                               Required Registration.

 

(a)                                 If the Company shall receive from a majority in interest of the Jones Holders or a majority in interest of the Metalmark Holders, at any time after one hundred eighty (180) days from the date of the consummation of the Company’s Initial Public Offering, a written request that the Company file a registration statement with respect to such Stockholders’ Registrable Shares, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Stockholders, and subject to the limitations of this Section 3.1, use its commercially reasonable efforts to effect, as soon as reasonably practicable, the registration under the Securities Act of the sale of all Registrable Shares that the Stockholders request to be registered, pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration; provided however, that if the managing underwriter, if any, advises the Company that the inclusion of all Primary Shares, Registrable Shares and Other Shares requested to be included in such registration would interfere with the successful marketing (within a price range acceptable to holders a majority of Registrable Securities that have been requested for inclusion) of the shares of Common Stock proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares proposed to be included in such registration shall be included in the order set forth below:

 

(i)                                     first, the Registrable Shares owned by the Stockholders requesting that their Registrable Shares be included in such registration pursuant to the terms of this Section 3.1, pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration; and

 

(ii)                                  second, the Primary Shares;

 

(iii)                               third, the Other Shares.

 

(b)                                 Notwithstanding anything to the contrary in this Agreement, a Stockholder may request that the Company register the sale of such Registrable Shares on an appropriate form, including a Shelf Registration Statement (so long as the Company is eligible to use Form S-3) and, if the Company is a WKSI, an Automatic Shelf Registration Statement. All long-form registrations shall be underwritten registrations. The Stockholders of a majority of the Registrable Shares initially requesting registration hereunder shall have the right to select the investment banker(s) and manager(s) to administer the offering with the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed). The Company shall not be obligated to take any action to effect any such registration:

 

(i)                                     if the request comes from a majority in interest of the Metalmark Holders, after it has effected (a) three (3) such registrations pursuant to this Section 3.1 on behalf of the Metalmark Holders; provided, however, that a majority in interest of the Metalmark Holders shall be permitted an unlimited amount of requests for registration on a Form S-3 so long as the Company is eligible to use Form S-3; provided

 

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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

 

9

 

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

 

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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,

 

23

 

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.

 

24

 

(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 AgreementExhibit 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

 

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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

 

12

 

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

 

13

 

(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

 

14

 

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

 

15

 

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.

 

16

 

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

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