Document:

Exhibit 10.4

 

AMENDED AND RESTATED 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. 2007-1A

  	
   

  	
  Warrant to
  Purchase 2,500,000 Shares

  
	
  Originally issued:
  March 5, 2007

  	
   

  	
  of Common Stock,
  $0.05 Par Value Per Share

  
	
  Amended and Restated:
  December 18, 2009

  	
   

  	
   

  

 

AMENDED AND RESTATED 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”),  2,500,000 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 March 5, 2007 (the “Issue Date”), upon
compliance with the exercise provisions set forth in Section 1
hereof, at the price of $0.9911  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.

 

1

 

This Amendment and
Restated Warrant to Purchase Common Stock of Cubic Energy, Inc. amends and
restated that certain Warrant to Purchase Common Stock of Cubic Energy, Inc.,
No. 2007-1, dated March 5, 2007.

 

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 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”):

 

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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 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 

 

3

 

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, from and after December 18, 2009, 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 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 

 

4

 

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 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 

 

5

 

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.

 

(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.

 

6

 

(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.

 

(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 

 

7

 

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 

 

8

 

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.

 

(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 

 

9

 

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 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

 

10

 

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 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 

 

11

 

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 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, 

 

12

 

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 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).

 

13

 

(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:

 

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.

 

14

 

(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.

 

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.

 

15

 

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.

 

16

 

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

 

	
   

  	
  CUBIC ENERGY,
  INC., 

  a Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Calvin
  Wallen, III

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  

 

ACKNOWLEDGEMENT

 

The undersigned Wells Fargo Energy Capital, Inc.
acknowledges delivery of the foregoing Amended and Restated Warrant to Purchase
Common Stock of Cubic Energy, Inc. (No. 2007-1A), dated December 18,
2009, executed by Cubic Energy, Inc. and agrees that this instrument is
give in substitution and replacement for that certain Warrant to Purchase
Common Stock of Cubic Energy, Inc. (No. 2007-1), dated March 5,
2007.

 

	
   

  	
  WELLS FARGO ENERGY CAPITAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Gary Milavec, Senior
  Vice President

  
	
  December 18, 2009

  	
   

  	
   

  

 

17

 

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:

 

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

 

“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)

  

 

18

 

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)

  

 

19Exhibit 10.5

 

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. 2009-1

  	
  Warrant to Purchase 5,000,000 Shares

  
	
  December 18, 2009

  	
  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”),  5,000,000 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 December 18, 2009 (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:

  	
   

  
	
   

  	
  Name:

  	
  Calvin
  Wallen, III

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  

 

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:

 

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

 

“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)

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