Exhibit 10.2


 


WARRANT

TO PURCHASE SHARES OF COMMON STOCK

OF

CUBIC ENERGY, INC.


 


THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”), NOR HAS IT BEEN
APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES REGULATORY AUTHORITY OF ANY STATE. 
NEITHER THIS WARRANT NOR ANY INTEREST THEREIN MAY BE OFFERED FOR
SALE, SOLD, MORTGAGED, PLEDGED, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.


 




	
  No. 2010-1

  	
   

  	
  Warrant to Purchase 1,000,000 Shares

  
	
  August 30,
  2010

  	
   

  	
  of Common Stock, $0.05 Par Value Per Share

  






 


WARRANT TO PURCHASE COMMON STOCK

of

CUBIC ENERGY, INC.,

a Texas corporation

Void after the date set forth in the first paragraph hereof


 


This certifies that, for
value received, Wells Fargo Energy Capital, Inc., a Texas corporation, or
its registered assigns (“Holder”) is entitled, subject to the terms set forth
below, to purchase from Cubic Energy, Inc., a Texas corporation (the “Company”),  1,000,000 shares of
Common Stock, $0.05 par value per share, of the Company (such class of stock
being referred to herein as “Common Stock”), as constituted on August 30,
2010 (the “Issue Date”), upon compliance with the exercise provisions set forth
in Section 1 hereof, at the price of $1.00  per share (the “Exercise Price”).  This Warrant must be exercised, if at all,
prior to 5:00 p.m., Dallas, Texas time on December 1, 2014.  The shares of Common Stock issued or issuable
upon exercise of this Warrant are sometimes referred to as the “Warrant  Shares.”  The term “Warrant” as used herein shall
include this Warrant and any warrants delivered in substitution or exchange
therefor as provided herein.


 


Section 1.              Exercise of Warrant.


 


(a)           This Warrant may be
exercised at any time or from time to time, on any business day, for all or
part of the full number of Warrant Shares during the period of time described
above, by (i) delivery of a written notice, in the form of the
subscription notice attached hereto or a reasonable facsimile thereof (the “Exercise
Notice”), to the Company, of Holder’s election to exercise all or a portion of
this Warrant, specifying the number of Warrant Shares to be 


 


1

















 


purchased,
(ii) (A) payment to the Company of an amount equal to the Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the “Aggregate  Exercise Price”) in cash or delivery of a certified
check or bank draft payable to the order of the Company or wire transfer of
immediately available funds or (B) notification to the Company that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(b) of
this Warrant), and (iii) the surrender of this Warrant to a common carrier
for overnight delivery to the Company on the date the Exercise Notice is
delivered to the Company (or evidence of lost Warrant, in accordance with Section 7).  No other form of consideration shall be
acceptable for the exercise of this Warrant. 
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of delivery of the Exercise Notice, this
Warrant and either the Aggregate Exercise Price referred to in clause (ii)(A) above
or notification to the Company of a Cashless Exercise referred to in Section 1(b) of
this Warrant.  The person entitled to
receive the shares of Common Stock issuable upon such exercise shall be treated
for all purposes as the record holder of such shares as of the close of
business on such date.  As soon as
practicable on or after such date, and in any event within 10 days
thereof, the Company shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number of shares of
Common Stock issuable upon such exercise. 
Upon any partial exercise, the Company will issue and deliver to Holder
a new Warrant with respect to the Warrant Shares not previously purchased.  No fractional shares of Common Stock shall be
issued upon exercise of a Warrant.  In
lieu of any fractional share to which Holder would be entitled upon exercise,
the Company shall pay cash equal to the product of such fraction multiplied by
the then Market Price (defined below) of one share of Common Stock, as
determined in good faith by the Company.


 


(b)           Notwithstanding anything
contained herein to the contrary, Holder may, at its election exercised in its
sole discretion, exercise this Warrant as to all or a portion of the Warrant
Shares and, in lieu of making the cash payment otherwise contemplated to be
made to the Company upon such exercise in payment of the Aggregate Exercise
Price, elect instead to receive upon such exercise the “Net Number” of shares
of Common Stock determined according to the following formula (a “Cashless
Exercise”):


 


Net Number = A x (B - C)
                                    B


 


For purposes of the foregoing formula:


 


A=                                the total
number of shares with respect to which this Warrant is then being exercised.


 


B=                                the Market
Price of the Common Stock on the trading day immediately preceding the date of
the Exercise Notice.


 


C=                                the Exercise Price then in effect for the applicable Warrant Shares at
the time of such exercise.


 


“Market
Price” on any date specified herein, means the amount
per share of the Common Stock, equal to (a) the last sale price of such
Common Stock, regular way, on such date or, if no 


 


2

















 


such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which such Common
Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is traded in an over-the-counter market, the last trading price of the
Common Stock on such date, or (c) if there shall have been no trading on
such date, the average of the closing bid and asked prices of the Common Stock
on such date as shown by the automated quotation system or over-the-counter
market, or (d) if such Common Stock is not then listed or admitted to
trading on any national exchange or quoted in an over-the-counter market, the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within 20 days of the date as of which the
determination is to be made.


 


Section 2.              Payment
of Taxes.              All
shares of Common Stock issued upon the exercise of a Warrant shall be duly
authorized, validly issued and outstanding, fully paid and non-assessable.  Holder shall pay all taxes and other
governmental charges that may be imposed in respect of the issue or delivery
thereof and any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock in any name
other than that of the registered Holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company’s
satisfaction that no tax or other charge is due.


 


Section 3.              Transfer
and Exchange.


 


Subject to the restrictions
set forth in Section 10(a)(iv), this Warrant and all rights
hereunder are transferable, in whole or in part.  This Warrant is transferable on the books of
the Company maintained for such purpose at its principal office by Holder in
person or by duly authorized attorney, upon surrender of this Warrant properly
endorsed and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer.  Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable
and that when this Warrant shall have been so endorsed, the Holder hereof may
be treated by the Company and all other persons dealing with this Warrant as
the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented hereby or to the transfer hereof on the books of
the Company, any notice to the contrary notwithstanding; but until such
transfer on such books, the Company may treat the registered Holder hereof as
the owner for all purposes.


 


Section 4.              Certain Adjustments.


 


(a)           In order to prevent
dilution of the rights granted hereunder, the Exercise Price shall be subject
to adjustment from time to time in accordance with this Section 4.  For purposes of this Section 4,
the term “Number of Common Shares Deemed Outstanding” at any given time shall
mean the number of shares of Common Stock outstanding at such time on a fully
diluted basis, including all options, warrants and securities convertible into
or exchangeable for shares of Common Stock and, without duplication, the number
of shares of the Common Stock deemed to be outstanding under paragraphs 4(b)(1) to
(10), inclusive, at such time, but excluding the issuance of (i) up to
3,750,000 shares of Common Stock (as adjusted for stock splits, reverse 


 


3

















 


stock
splits and stock dividends) or grants of options to acquire shares of Common
Stock issued or granted as equity-based compensation to certain of the Company’s
directors, executive officers or employees under the Company’s Director and
Officer Compensation Plan approved by its shareholders on December 29,
2005 (the “Plan”) and (ii) up to an additional 2,000,000 shares of Common
Stock (as adjusted for stock splits, reverse stock splits and stock dividends)
or grants of options to acquire shares of Common Stock issued or granted as
equity-based compensation to certain of the Company’s directors, executive
officers or employees pursuant to an increase in the number of shares subject
to the Plan or otherwise. 
Notwithstanding anything herein to the contrary, the Exercise Price
shall not be subject to adjustment as a result of the consummation of the
transactions described in the Company’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 1, 2009, including
any conversion of shares of preferred stock that may be issued in connection
therewith.


 


(b)           Except as provided
in Section 4(c), 4(d) or 4(e) hereof, if and whenever
after the date hereof the Company shall issue or sell, or shall in accordance
with paragraphs 4(b)(1) to (10), inclusive, be deemed to have issued
or sold any shares of its Common Stock for a consideration per share less than
the Exercise Price in effect immediately prior to the time of such issue or
sale, then forthwith upon such issue or sale (the “Triggering Transaction”),
the Exercise Price shall, subject to paragraphs (1) to (10) of this Section 4(b),
be reduced to an adjusted Exercise Price (calculated to the nearest hundredth
of a cent) determined by multiplying the Exercise Price immediately preceding
the new share issuance by a fraction:


 


(i)            the numerator of
which shall be an amount equal to the sum of (x) the product of the Number
of Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction multiplied by the prior Exercise Price, as previously adjusted,
plus (y) the consideration, if any, received by the Company upon
consummation of the Triggering Transaction; and


 


(ii)           the denominator of
which shall be the Number of Common Shares Deemed Outstanding immediately prior
to such Triggering Transaction plus (y) the number of shares of Common
Stock issued (or deemed to be issued in accordance with paragraphs 4(b)(1) to
(10)) in connection with the Triggering Transaction.


 


For purposes of determining
the adjusted Exercise Price under this Section 4(b), the following
paragraphs (1) to (10), inclusive, shall be applicable:


 


(1)           In case the Company
at any time shall in any manner (A) grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock, (such
rights or options being herein called “Options” and such convertible or
exchangeable stock or securities being herein called “Convertible Securities”),
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, other than Options (and the
securities issued in exercise thereof) with respect to the 3,750,000 shares of
Common Stock (as adjusted for stock splits, reverse stock splits and stock
dividends) issuable under the Plan or the additional 2,000,000 shares of Common
Stock described in Section 4(a)(ii), and (B) the price per share for
which the Common Stock is 


 


4

















 


issuable
upon exercise, conversion or exchange (determined by dividing (x) the
total amount, if any, received or receivable by the Company as consideration
for the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of all such
Options, plus, in the case of Options that relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or the conversion or exchange
of such Convertible Securities) shall be less than the Exercise Price in effect
immediately prior to the time of the granting of such Option, then the
total maximum amount of Common Stock issuable upon the exercise of such Options
or in the case of Options for Convertible Securities, upon the conversion or
exchange of such Convertible Securities shall (as of the date of granting of
such Options) be deemed to be outstanding and to have been issued and sold by
the Company for such price per share.  No
additional adjustment of the Exercise Price shall be made upon the actual issue
of such shares of Common Stock or such Convertible Securities upon the exercise
of such Options, except as otherwise provided in paragraph (3) below.


 


(2)           In case the Company
at any time shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (x) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Exercise Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall
(as of the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued and sold by the Company for such
price per share.  No additional
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock upon exercise of the rights to exchange or convert under such
Convertible Securities, except as otherwise provided in paragraph (3) below.


 


(3)           If the purchase
price provided for in any Options referred to in paragraph (1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in paragraphs (1) or (2), or the rate
at which any Convertible Securities referred to in paragraphs (1) or (2) are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution of the type set forth in Section 4), the Exercise Price in
effect at the time of such change shall forthwith be readjusted to the Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold.


 


5

















 


(4)           On the expiration of
any Option or the termination of any right to convert or exchange any
Convertible Securities described in paragraphs (1), (2) or (3), the
Exercise Price then in effect hereunder shall forthwith be increased to the
Exercise Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.


 


(5)           In case any Options
shall be issued in connection with the issue or sale of other securities of the
Company, together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued without consideration.


 


(6)           In case any shares
of Common Stock, Options or Convertible Securities shall be issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the Company therefor.  In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration as determined in good
faith by the Board of Directors.  In case
any shares of Common Stock, Options or Convertible Securities shall be issued
in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be as determined in good faith by the
Board of Directors.


 


(7)           The number of shares
of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any shares so
owned or held shall be considered an issue or sale of Common Stock for the
purpose of this Section 4(b).


 


(8)           In case the Company
shall declare a dividend or make any other distribution upon the stock of the
Company payable in Options or Convertible Securities, then in such case any
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration.


 


(9)           For purposes of this
Section 4(b), in case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (x) to
receive a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (y) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right or subscription or
purchase, as the case may be.


 


6

















 


(10)         Notwithstanding
anything herein to the contrary, any grants of Common Stock, Options,
appreciation or other rights under the Plan, or the additional 2,000,000 shares
of Common Stock described in Section 4(a)(ii), or the exercise of such
Options or rights prior to or after the Issue Date shall not be considered for
purposes of making the adjustments to the Exercise Price provided in this Section 4(b).


 


(c)           In the event the
Company shall declare a dividend upon the Common Stock (other than a dividend
payable in Common Stock) payable otherwise than out of earnings or earned
surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as “Liquidating
Dividends”), then, as soon as possible after the exercise of this Warrant, the
Company shall pay to the person converting this Warrant an amount equal to the
aggregate value at the time of such exercise of all Liquidating Dividends to
which such holder would have been entitled if such holder had converted this
Warrant to Common Stock prior to the declaration of the Liquidating Dividends,
at the then applicable Exercise Price. 
For the purposes of this Section 4(c), a dividend other than
in cash shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or earned surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors.


 


(d)           In case the Company
shall at any time (i) subdivide the outstanding Common Stock or (ii) issue
a dividend on its outstanding Common Stock payable in shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of the Warrant
shall be proportionately increased by the same ratio as the subdivision or
dividend (with appropriate adjustments to the Exercise Price in effect
immediately prior to such subdivision or dividend).  In case the Company shall at any time combine
its outstanding Common Stock, the number of shares issuable upon exercise of
this Warrant immediately prior to such combination shall be proportionately
decreased by the same ratio as the combination (with appropriate adjustments to
the Exercise Price in effect immediately prior to such combination).


 


(e)           If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or other property with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holders of this Warrant shall have the right to acquire and receive
upon exercise of the Warrant such shares of stock, securities, cash or other
property issuable or payable (as part of the reorganization, reclassification,
consolidation, merger or sale) with respect to or in exchange for such number
of outstanding shares of Common Stock as would have been received upon exercise
of the Warrant at the relevant Exercise Price then in effect.  The Company will not effect any such
consolidation, merger or sale, unless prior to or contemporaneously with the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger or the Company purchasing such assets shall assume
by written instrument mailed or delivered to the holders of the Warrant at the
last address of each such holder appearing on the books of the Company, the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to purchase.


 


7

















 


(f)            In the event that:


 


(1)           The Company shall
declare any cash dividend upon its Common Stock, or


 


(2)           The Company shall
declare any dividend upon its Common Stock payable in stock or make any special
dividend or other distribution to the holders of its Common Stock, or


 


(3)           The Company shall
offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights, or


 


(4)           there shall be any
capital reorganization or reclassification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock, or consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation, or


 


(5)           there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company;


 


then,
in connection with such event, the Company shall give to the holders of this
Warrant:


 


(i)            at
least twenty (20) days prior written notice of the date on which the books of
the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up; and


 


(ii)           in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least twenty (20) days prior
written notice of the date when the same shall take place.


 


Notice given in accordance
with the foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the record date on which the
holders of Common Stock shall be entitled thereto, and notice given in
accordance with the foregoing clause (ii) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.  Each
such written notice shall be given by first class mail, postage prepaid,
addressed to the holders of this Warrant at the address of each such holder as
shown on the books of the Company.


 


(g)           If at any time or
from time to time after the date hereof the Company shall grant, issue or sell
any Options, Convertible Securities or rights to purchase property (the “Purchase  Rights”) pro rata to
the record holders of any class of Common Stock and such grants, issuances or
sales do not result in an adjustment of the Exercise Price under Section 4(b) hereof,
then each holder of a Warrant shall be entitled to acquire (within thirty (30)
days after the later to occur of the initial exercise date of such Purchase
Rights or receipt by such holder of the notice 


 


8

















 


concerning
Purchase Rights to which such holder shall be entitled under Section 4(g))
upon the terms applicable to such Purchase Rights either:


 


(i)            the aggregate
Purchase Rights which such holder could have acquired if it had held the number
of shares of Common Stock acquirable upon exercise of the Warrant immediately
before the grant, issuance or sale of such Purchase Rights; provided that if
any Purchase Rights were distributed to holders of Common Stock without the
payment of additional consideration by such holders, corresponding Purchase
Rights shall be distributed to the holders of the Warrants as soon as possible
and it shall not be necessary for the exercising holder of the Warrants
specifically to request delivery of such rights; or


 


(ii)           in the event that
any such Purchase Rights shall have expired or shall expire prior to the end of
the 30-day period, the number of shares of Common Stock or the amount of
property which such holder could have acquired upon such exercise at the time
or times at which the Company granted, issued or sold such expired Purchase
Rights.


 


(h)           If any event occurs
as to which, in the opinion of the Board of Directors of the Company, the
provisions of this Section 4 are not strictly applicable or if
strictly applicable would not fairly protect the rights of the Holder of this
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid, but in no event shall
any adjustment have the effect of increasing the Exercise Price as otherwise
determined pursuant to any of the provisions of this Section 4
except in the case of a combination of shares of a type contemplated in Section 4(d) hereof
and then in no event to an amount larger than the Exercise Price as adjusted
pursuant to Section 4(d) hereof.


 


Section 5.              Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets.


 


If the Company shall
reorganize its capital, reclassify its capital stock, consolidate or merge with
or into another corporation or entity (where the Company is not the surviving
corporation or where there is a change in or distribution with respect to the
shares of Common Stock of the Company) or sell, transfer or otherwise dispose
of all or substantially all its property, assets or business to another
corporation or other entity (such successor or acquiring corporation or entity,
an “Acquiring Entity”), and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, common shares
of the Acquiring Entity, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common shares of the Acquiring
Entity (“Other Property”), are to be received by or distributed to the holders
of Common Stock of the Company, then the Holder of this Warrant shall have the
right thereafter to receive in lieu of the Common Stock described in Section 1,
the number of shares of common stock of the Acquiring Entity or Common Stock of
the Company, if it is the surviving corporation, and Other Property receivable
upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of shares of Common
Stock that the Holder of this Warrant would have owned or been entitled to 


 


9

















 


receive had Common Stock
been issued to such Holder under Section 1 on full exercise of this
Warrant immediately prior to such event. 
In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the Acquiring Entity (if other than the
Company) shall expressly assume all the obligations and liabilities of the
Company hereunder, subject to such modifications as may be deemed appropriate
(as determined in good faith by resolution of the board of directors of the
Company) in order to provide for adjustments of shares of Common Stock issuable
under Section 1 which shall be as nearly equivalent as practicable
to the adjustments provided for in Section 4.  For purposes of this Section 5, “common
shares of the Acquiring Entity” shall include shares or other ownership
interests of such Acquiring Entity of any class which is not preferred as to dividends
or assets over any other class of stock or other ownership interests of such
Acquiring Entity and which is not subject to redemption and shall also include
any evidences of indebtedness, shares or other securities which are convertible
into or exchangeable for any such shares or other ownership interests, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock or other ownership interests. 
The foregoing provisions of this Section 5 shall similarly
apply to successive reorganizations, reclassifications, mergers,
consolidations, spin-offs, or dispositions of assets.


 


Section 6.  Certain Notices, Etc.


 


Whenever the Exercise Price
shall be adjusted as provided in Section 4 hereof, the Company
shall forthwith file at each office designated for the exercise of Warrants, a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Exercise Price that will be effective after
such adjustment.  The Company shall also
cause a notice setting forth any such adjustments to be sent by mail, first
class, postage prepaid, to each record holder of a Warrant at his or its
address appearing on the stock register. 
If such notice relates to an adjustment resulting from an event referred
to in Section 4(f) hereof, such notice shall be included as
part of the notice required to be mailed and published under the provisions of Section 4(f) hereof.


 


Section 7.              Loss
or Mutilation.


 


Upon receipt by the Company
of evidence satisfactory to it (in the exercise of reasonable discretion) of
the ownership of and the loss, theft, destruction or mutilation of any Warrant
and (in the case of loss, theft or destruction) of indemnity satisfactory to it
(in the exercise of reasonable discretion), and (in the case of mutilation)
upon surrender and cancellation thereof, the Company will execute and deliver in
lieu thereof a new Warrant of like tenor; provided
however, if the Holder is other than Wells Fargo Energy Capital, Inc.,
Wells Fargo & Co. or any direct or indirect subsidiary of
Wells Fargo & Co., the Company may require the Holder to furnish a
customary bond in the event of the replacement of a lost Warrant.


 


Section 8.              Reservation
of Common Stock.


 


The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the Warrant,
such number of its shares of Common Stock as shall from time to time be
sufficient to


 


10
















 


effect exercise of the
Warrant; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect such exercise, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.  Before taking any action that would cause an
adjustment reducing the Exercise Price below the then par value of the shares of
Common Stock issuable upon exercise of the Warrants, the Company will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully-paid and nonassessable
shares of such Common Stock at such adjusted exercise price.


 


Section 9.              Notices
of Record Date.


 


In the event of (i) any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company, any merger or consolidation of the Company with or into any other
corporation (other than a merger of a wholly owned subsidiary into the
Company), or any transfer of all or substantially all of the assets of the
Company to any other person or any voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall provide to the
Holder, at least twenty (20) days prior to the record date specified therein, a
notice specifying (1) the date on which any such record is to be taken for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.


 


Section 10.            Investment
Representation and Restriction on Transfer.


 


(a)           Securities
Law Requirements.


 


(i)            By its acceptance
of this Warrant, Holder hereby represents and warrants to the Company that this
Warrant and the Warrant Shares will be acquired for investment for its own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that it has no present intention of
selling, granting participations in or otherwise distributing the same.  By acceptance of this Warrant, Holder further
represents and warrants that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to any person, with respect to this Warrant or the Warrant
Shares.


 


(ii)           By its acceptance
of this Warrant, Holder understands that this Warrant is not, and the Warrant
Shares will not be, registered under the Securities Act of 1933 (the “Securities
Act”), on the basis that the issuance of this Warrant and the Warrant Shares
are exempt from registration under the Act pursuant to Section 4(2) thereof,
and 


 


11

















 


that
the Company’s reliance on such exemption is predicated on Holder’s representations
and warranties set forth herein.


 


(iii)          By its acceptance
of this Warrant, Holder understands that the Warrant and the Warrant Shares may
not be sold, transferred, or otherwise disposed of without registration under
the Act, or an exemption therefrom, and that in the absence of an effective
registration statement covering the Warrant and the Warrant Shares or an
available exemption from registration under the Securities Act, the Warrant and
the Warrant Shares must be held indefinitely. 
In particular, Holder is aware that the Warrant and the Warrant Shares
may not be sold pursuant to Rule 144 promulgated under the Securities Act
unless all of the conditions of Rule 144 applicable to Holder are
satisfied.  Among the conditions for use
of Rule 144 in certain instances are the availability of current
information about the Company to the public, prescribed holding periods which
will commence only upon Holder’s payment for the securities being sold, manner
of sale restrictions, volume limitations and certain other restrictions.  By its acceptance of this Warrant, Holder
represents and warrants that, in the absence of an effective registration
statement covering the Warrant or the Warrant Shares, it will sell, transfer or
otherwise dispose of the Warrant and the Warrant Shares only in a manner
consistent with its representations and warranties set forth herein and then
only in accordance with the provisions of Section 10(a)(iv).


 


(iv)          By its acceptance of
this Warrant, Holder agrees that in no event will it transfer or dispose of any
of the Warrants or the Warrant Shares other than pursuant to an effective
registration statement under the Securities Act, unless and until
(i) Holder shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the disposition and adequate assurance that the transferee is an “accredited
investor” as defined in Rule 501 of Regulation D promulgated under the
Securities Act, and (ii) if requested by the Company, at the expense of
the Holder or transferee, it shall have furnished to the Company an opinion of
counsel, reasonably satisfactory to the Company, to the effect that
(A) such transfer may be made without registration under the Act and (B) such
transfer or disposition will not cause the termination or the non-applicability
of any exemption to the registration and prospectus delivery requirements of
the Securities Act or to the qualification or registration requirements of
the securities laws of any other jurisdiction on which the Company relied in
issuing the Warrant or the Warrant Shares; provided,
however, no legal opinion shall be required for any transfer of this
Warrant to Wells Fargo & Co., any of its direct or indirect
subsidiaries or any investor that is a “qualified institutional buyer” as
defined in Rule 144A under the Securities Act.


 


(v)           Holder represents
and warrants that it is an “accredited investor.”


 


(b)           Legends;
Stop Transfer.


 


(i)            All certificates
evidencing the Warrant Shares shall bear a legend in substantially the
following form:


 


12

















 


THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS.  THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY NOT BE OFFERED FOR
SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND CONTENT TO THE ISSUER THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT.


 


(ii)           The certificates
evidencing the Warrant Shares shall also bear any legend required by any
applicable state securities law.


 


(iii)          In addition, the
Company shall make, or cause its transfer agent to make, a notation regarding
the transfer restrictions of the Warrant and the Warrant Shares in its stock
books, and the Warrant and the Warrant Shares shall be transferred on the books
of the Company only if transferred or sold pursuant to an effective
registration statement under the Securities Act covering the same or pursuant
to and in compliance with the provisions of Section 4 and Section 10(a)(iv).


 


Section 11.            Company
Indemnification.


 


The
Company shall indemnify and hold harmless the Holder, and its respective
officers, directors, employees, agents, representatives and affiliates
(collectively “Indemnitees”) from and against any and all expenses, claims,
charges, losses, damages, fines or penalties, including without limitation
reasonable attorneys’ fees incurred in defending or resisting any claims,
actions or proceedings or in enforcing this indemnity (hereinafter “Damages”),
that an Indemnitee may suffer, sustain, incur or become subject to, whether
directly or indirectly, arising out of, based upon, or resulting from any
violation or inaccuracy of any representations, warranties, obligations or
covenants of the Company set forth in this Warrant other than with respect to
Damages resulting from the Holder’s own gross negligence or willful misconduct.


 


Section 12.            Notices.


 


All notices and other
communications from the Company to the Holder of this Warrant shall be mailed
by hand delivery, by telecopier, by courier guaranteeing overnight delivery or
by first-class mail, return receipt requested, and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier, (iii) one (1) Business Day after being deposited with
such courier, if made by overnight courier or (iv) on the date indicated
on the notice of receipt, if made by first-class mail.


 


13

















 


Section 13.            Change;
Waiver.


 


Neither this Warrant nor any
term hereof may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.


 


Section 14.            Headings.


 


The headings in this Warrant
are for purposes of convenience in reference only, and shall not be deemed to
constitute a part hereof.


 


Section 15.            Governing
Law.


 


This Warrant shall be
construed and enforced in accordance with and governed by the internal laws,
and not the law of conflicts, of the State of Texas.


 


************************


 


	
   

  	
  CUBIC
  ENERGY, INC.,

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Calvin
  A. Wallen III

  
	
   

  	
  Name:
  Calvin A. Wallen III

  
	
   

  	
  Title:
  Chief Executive Officer and President

  



 


14

















 


SUBSCRIPTION NOTICE

(To be executed only upon exercise of Warrant)


 


The undersigned, registered owner of this Warrant,
irrevocably exercises this Warrant and purchases
                        
of the number of shares of Common Stock, $0.05 par value per share (“Warrant
Shares”), of Cubic Energy, Inc., a Texas corporation (the “Company”),
purchasable with the attached Warrant (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.


 


1.             Form of
Exercise Price:  Holder
intends that payment of the Exercise Price shall be made as:


 


o            “Cash Exercise” with respect to
                
Warrant Shares; and/or


 


o            “Cashless Exercise” with respect to
                
Warrant Shares (to the extent permitted by the terms of the Warrant)


 


2.             Payment
of Exercise Price:  In the
event that Holder has elected a Cash Exercise with respect to some or all of
the Warrant Shares to be issued pursuant hereto, Holder shall pay the sum of
$                                
to the Company in accordance with the terms of the Warrant.


 


 


	
  DATED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature
  of Holder)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Street
  Address)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (City)         (State)         (Zip)

  



 

















 


FORM OF ASSIGNMENT


 


FOR VALUE RECEIVED the undersigned, registered owner of
this Warrant, hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common Stock, $0.05 par value per share, set forth
below:


 


	
  Name
  of Assignee

  	
   

  	
  Address

  	
   

  	
  No. of Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  



 


and does hereby irrevocably constitute and appoint
                                                  
                         
                           
                      
                        
Attorney to make such transfer on the books of Cubic Energy, Inc., a Texas
corporation, maintained for the purpose, with full power of substitution in the
premises.


 


	
  DATED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Witness)