Document:

Exhibit 10.2

 

WARRANT

TO PURCHASE SHARES OF COMMON STOCK

OF

CUBIC ENERGY, INC.

 

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

 

	
  No. 2010-1

  	
   

  	
  Warrant to Purchase 1,000,000 Shares

  
	
  August 30,
  2010

  	
   

  	
  of Common Stock, $0.05 Par Value Per Share

  

 

WARRANT TO PURCHASE COMMON STOCK

of

CUBIC ENERGY, INC.,

a Texas corporation

Void after the date set forth in the first paragraph hereof

 

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

 

Section 1.              Exercise of Warrant.

 

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

 

1

 

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

 

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

 

Net Number = A x (B - C)
                                    B

 

For purposes of the foregoing formula:

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

Section 3.              Transfer
and Exchange.

 

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

 

Section 4.              Certain Adjustments.

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

7

 

(f)            In the event that:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

Section 6.  Certain Notices, Etc.

 

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

 

Section 7.              Loss
or Mutilation.

 

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

 

Section 8.              Reservation
of Common Stock.

 

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

 

10

 

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

 

Section 9.              Notices
of Record Date.

 

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

 

Section 10.            Investment
Representation and Restriction on Transfer.

 

(a)           Securities
Law Requirements.

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

(b)           Legends;
Stop Transfer.

 

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

 

12

 

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

 

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

 

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

 

Section 11.            Company
Indemnification.

 

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

 

Section 12.            Notices.

 

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

 

13

 

Section 13.            Change;
Waiver.

 

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

 

Section 14.            Headings.

 

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

 

Section 15.            Governing
Law.

 

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

 

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

 

	
   

  	
  CUBIC
  ENERGY, INC.,

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Calvin
  A. Wallen III

  
	
   

  	
  Name:
  Calvin A. Wallen III

  
	
   

  	
  Title:
  Chief Executive Officer and President

  

 

14

 

SUBSCRIPTION NOTICE

(To be executed only upon exercise of Warrant)

 

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

 

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

 

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

 

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

 

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

 

 

	
  DATED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature
  of Holder)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Street
  Address)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (City)         (State)         (Zip)

  

 

 

FORM OF ASSIGNMENT

 

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

 

	
  Name
  of Assignee

  	
   

  	
  Address

  	
   

  	
  No. of Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

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

 

	
  DATED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Witness)Exhibit 10.3

 

SECOND
AMENDED AND RESTATED

REGISTRATION
RIGHTS AGREEMENT

 

THIS
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
is entered into as of August 30, 2010 by and between Cubic Energy, Inc.,
a Texas corporation (the “Company”), and Wells Fargo Energy Capital, Inc.,
a Texas corporation (the “Holder”), and amends and restates that certain
Registration Rights Agreement, dated March 5, 2007, by and between the
parties to this Agreement that was previously amended and restated by the
Amended and Restated Registration Rights Agreement, dated December 18,
2009.

 

WHEREAS,
previously, (a) the Company entered into that certain Credit Agreement
(together with the amendments described below collectively herein referred to
as the “Credit Agreement”), dated as of March 5, 2007, with the
Holder pursuant to which the Holder made loans, including a “Term Loan”
(as defined in the Credit Agreement) to the Company that is convertible into
shares of the common stock, par value $0.05 per share (the “Common Stock”),
issued by the Company as provided in Section 2.15 of the Credit Agreement,
(b)  the Company issued to the Holder that certain Warrant To Purchase
Shares of Common Stock of Cubic Energy, Inc. (the “Warrant”) to
purchase shares of Common Stock as provided therein, and (c) entered into
the Registrations Rights Agreement, dated March 5, 2007 and referenced
above;

 

WHEREAS,
on May 8, 2008, the Company and the Holder executed a First Amendment to
Credit Agreement, which, among other things deleted the need for the
Supplemental Warrant (as that term was defined in the original Credit
Agreement);

 

WHEREAS,
on December 18, 2009, the Company and the Holder executed a Second
Amendment to Credit Agreement (the “Second Amendment”), pursuant to
which, amount other things, (a) the maturity of the Term Loan was extended
by the execution and delivery of a replacement Term Note, (b) the terms of
the Warrant were amended and restated by the execution and delivery of an
Amended and Restated Warrant To Purchase Shares of Common Stock of Cubic Energy, Inc.
(No. 2007-1A) (the “A&R Warrant”), and (c) the Company
issued to the Holder a second Warrant to Purchase Shares of Common Stock of
Cubic Energy, Inc. (No. 2009-1) (the “Second Warrant”);

 

WHEREAS,
contemporaneously with the execution of this Agreement, the Company and the
Holder have executed a Third Amendment to Credit Agreement (the “Third
Amendment”) of even date, pursuant to which, among other things, (a) the
Borrowing Base was increased from $25,000,000 to $30,000,000, and (b) the
Company issued to the Holder a third Warrant to Purchase Shares of Common Stock
of Cubic Energy, Inc. (No. 2010-1) (the “Third Warrant”);

 

WHEREAS,
this Agreement provides a method for the registration of the shares of Common
Stock to be issued pursuant to Section 2.15 of the Credit Agreement and
upon exercise of the A&R Warrant, the Second Warrant or the Third Warrant
or any of the foregoing (the “Shares”); and

 

WHEREAS,
among other things, the Third Amendment requires the simultaneous execution and
delivery of this Agreement and the Third Warrant as conditions precedent to the
effectiveness of the Third Amendment;

 

1

 

NOW,
THEREFORE, in consideration of the foregoing, the mutual promises and
agreements set forth herein, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:

 

1.                                      Certain Definitions.

 

As
used in this Agreement, in addition to the other terms defined herein, the
following capitalized defined terms shall have the following meanings:

 

“A&R
Warrant” shall have the meaning set forth in the recitals to this
Agreement.

 

“Additional
Shares” means shares or other securities issued by the Company with respect
to the Common Stock in connection with any stock dividend, stock distribution,
stock split or similar issuance.

 

“Affiliate”
shall mean, with respect to any Person, a Person that directly, or indirectly
though one or more intermediaries, controls, is controlled by, or is under
common control with the first mentioned Person.

 

“Agreement”
shall have the meaning set forth in the preamble to this Agreement.

 

“Business
Day” means any day other than a day on which the SEC is closed.

 

“Common
Stock” shall have the meaning set forth in the recitals to this Agreement.

 

“Company”
shall mean Cubic Energy, Inc., a Texas corporation.

 

“Credit
Agreement” shall have the meaning set forth in the recitals to this
Agreement.

 

“Effective
Time” means each of the four (4) dates the Holder shall have given the
Registration Notice.

 

“End
of Suspension Notice” shall have the meaning set forth in Section 3(b) hereof.

 

“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

“Holder”
has the meaning assigned in the preamble and any other lawful assignee of the
rights in this Agreement.

 

“Indemnitee”
shall have the meaning set forth in Section 9 hereof.

 

“NYSE
Amex” shall mean the national securities exchange operated by the NYSE Amex
LLC on which the Common Stock is admitted for trading.

 

“Person”
shall mean an individual, partnership, corporation, trust, or unincorporated
organization, or a government or agency or political subdivision thereof.

 

“Prospectus”
shall mean the prospectus included in a Registration Statement, including any
preliminary prospectus, as amended or supplemented by any prospectus supplement
with 

 

2

 

respect
to the terms of the offering of any portion of the Registrable Shares covered
by such Registration Statement, and by all other amendments and supplements to
such prospectus, including post-effective amendments, and in each case
including all material incorporated by reference therein.

 

“Registrable
Shares” shall mean all Shares issued upon conversion of the Term Loan as
provided in Section 2.15 of the Credit Agreement and upon exercise of the
A&R Warrant, the Second Warrant, or the Third Warrant, or any of the
foregoing, or other securities issued or issuable in respect of the Common
Stock by way of spin-off, dividend or stock split or in connection with a
combination of shares, reclassification, merger, consolidation or
reorganization; provided, however,
that “Registrable Shares” shall not include (i) Common Stock for which a
Registration Statement relating to the sale thereof shall have become effective
under the Securities Act and which have been disposed of, as applicable, under
such Registration Statement, (ii) Common Stock sold pursuant to Rule 144,
(iii) Common Stock which
otherwise have been transferred by Holder, for which the Company has delivered
a new certificate not bearing a legend restricting further transfer (or
registered such Common Stock in an uncertificated registration without
restriction on further transfers) and such Common Stock may be resold without
subsequent registration under the Securities Act or (iv) Common Stock eligible
for sale pursuant to Rule 144(b)(1)(i) free of the requirement
contained in Rule 144(c)(1) (or any successor provision) by the
Holder.

 

“Registration
Expenses” shall mean any and all expenses incident to the performance of or
compliance with this Agreement, including without limitation: (a) all
registration and filing fees; (b) all fees and expenses associated with a
required listing of the Registrable Shares on any securities exchange;
(c) fees and expenses with respect to filings required to be made with an
exchange or any securities industry self-regulatory body; (d) fees and
expenses of compliance with securities or “blue sky” laws (including reasonable
fees and disbursements of counsel for the underwriters or holders of securities
in connection with blue sky qualifications of the securities and determination
of their eligibility for investment under the laws of such jurisdictions);
(e) printing, messenger, telephone and delivery expenses of the Company;
(f) fees and disbursements of counsel for the Company and customary fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters, or costs associated
with the delivery by independent certified public accountants of a comfort
letter or comfort letters, if such comfort letter or comfort letters is
required by the managing underwriter); (g) securities acts liability
insurance, if the Company so desires; (h) all internal expenses of the
Company (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties); (i) the
expense of any annual audit; (j) the fees and expenses of any Person,
including special experts, retained by the Company; and (k) the reasonable
out-of-pocket expenses of one legal
counsel (who shall be reasonably acceptable to the Company) for the Holders
in connection with providing the information with respect to the Holders that
is required to be included in the Registration Statements filed by the Company
pursuant to this Agreement and the review of that information in the
Registration Statement, in an amount not to exceed Five Thousand Dollars
($5,000.00) for each Registration Statement filed provided, however, that Registration Expenses shall not
include, and the Company shall not have any obligation to pay, any underwriting
fees, discounts or commissions attributable to the sale of such Registrable
Shares, or any legal fees and expenses of counsel to any Holder (except as
specifically provided above).

 

3

 

“Registration
Notice” shall have the meaning set forth in Section 2(a) hereof.

 

“Registration
Statement” shall mean any registration statement of the Company that covers
the sale or resale of any of the Registrable Shares under the Securities Act on
an appropriate form, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all materials
incorporated by reference therein.

 

“Resale
Shelf Registration Expiration Date” shall have the meaning set forth in Section 2(b) hereof.

 

“Resale
Shelf Registration Statement” shall have the meaning set forth in Section 2(b) hereof.

 

“Rule 144”
means Rule 144 under the Securities Act (or any successor provision).

 

“SEC”
shall mean the Securities and Exchange Commission.

 

“Second
Amendment” shall have the meaning set forth in the recitals to this
Agreement.

 

“Second
Warrant” shall have the meaning set forth in the recitals to this
Agreement.

 

“Securities
Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Shares”
shall have the meaning set forth in the recitals of this Agreement.

 

“Subsequent
Shelf Registration Statement” shall have the meaning set forth in Section 3(d) hereof.

 

“Suspension
Event” shall have the meaning set forth in Section 3(a) hereof.

 

“Suspension
Notice” shall have the meaning set forth in Section 3(b) hereof.

 

“Term
Loan” shall have the meaning assigned in the recitals of this Agreement.

 

“Third
Amendment” shall have the meaning set forth in the recitals
to this Agreement.

 

“Third
Warrant” shall have the meaning set forth in the recitals to this
Agreement.

 

“Warrant”
shall have the meaning assigned in the recitals of this Agreement.

 

2.                                      Resale Registration Rights.

 

(a)           Registration
Notice. At any time that the Holder is the holder of Registrable Shares, the
Holder may give a notice (the “Registration Notice”) stating that the Holder is
exercising the right granted in Section 2(b) of this Agreement and
stating the number of Registrable Shares to be registered, which shall be no
less than (i) in the case of the first, second and third exercises under
this Section 2, One Million (1,000,000) Shares, and (ii) in
the 

 

4

 

case
of the fourth exercise, the lesser of One Million (1,000,000) Shares or all of
the Registrable Shares then held by the Holder.

 

(b)           Registration
Statement Covering Resale of Registrable Shares.  As soon as practicable, but in no event more
than forty-five (45) days, after each Effective Time, the Company shall
(i) file with the SEC, or (ii) have
filed with the SEC prior to the Effective Time a shelf Registration Statement (the “Resale Shelf Registration
Statement”) pursuant to Rule 415 under the Securities Act pursuant to
which all of the Registrable Shares to be registered shall be included (on the
initial filing or by supplement thereto) to enable the public resale on a
delayed or continuous basis of such Registrable Shares by the Holder. The Company
shall file the Resale Shelf Registration Statement on such form as the Company
may then utilize under the rules of the SEC and use its commercially
reasonable efforts to have the Resale Shelf Registration Statement declared
effective under the Securities Act as soon as practicable. The Company agrees
to use its commercially reasonable efforts to maintain the effectiveness of the
Resale Shelf Registration Statement, including by filing any necessary
post-effective amendments and prospectus supplements, or, alternatively, by
filing new registration statements relating to the Registrable Shares as
required by Rule 415 under the Securities Act, continuously until the date
(the “Resale Shelf Registration Expiration Date”) that is the earlier of
(i) two (2) years following the date of effectiveness of the Resale
Shelf Registration Statement or (ii) the date on which the Holder no
longer holds any Registrable Shares covered by such Resale Shelf Registration
Statement.  The Company shall not be
obligated to file more than four (4) Resale Shelf Registration Statements
pursuant to this Section 2(b).

 

(c)           Notification and
Distribution of Materials.  The
Company shall notify the Holder of the effectiveness of any Registration
Statement applicable to the Registrable Shares and shall furnish to the
Holders, without charge, such number of copies of the Registration Statement
(including any amendments, supplements and exhibits), the Prospectus contained
therein (including each preliminary prospectus and all related amendments and
supplements) and any documents incorporated by reference in the Registration
Statement or such other documents as the Holder may reasonably request in order
to facilitate the sale of the Registrable Shares in the manner described in the
Registration Statement.

 

(d)           Amendments and
Supplements.  Subject to Section 3,
(i) the Company shall promptly prepare and file with the SEC from time to
time such amendments and supplements to each Registration Statement and
Prospectus used in connection therewith as may be necessary to keep that
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all the Registrable Shares so
registered until the Resale Shelf Registration Expiration Date and (ii) upon
five (5) Business Days’ notice, the Company shall file any supplement or
post-effective amendment to the Registration Statement with respect to the plan
of distribution or the Holder’s ownership interests in his, her or its
Registrable Shares that is reasonably necessary to permit the sale of the
Holder’s Registrable Shares pursuant to the Registration Statement.  Notwithstanding anything herein to the
contrary, any period of time during which any Resale Shelf Registration
Statement and Prospectus is not available for use by the Holders because of
action taken pursuant to clause (ii) of the preceding sentence shall not
be considered with respect to the calculation of any other period of time
referred to herein.

 

5

 

(e)           Notice of Certain
Events.  The Company shall promptly
and in any event within three (3) Business Days notify the Holders of, and
confirm in writing, any request by the SEC for any amendment or supplement to,
or additional information in connection with, any Registration Statement
required to be prepared and filed hereunder (or Prospectus relating thereto).
The Company shall promptly and in any event within three (3) Business Days
notify each Holder of, and confirm in writing, the filing of the Registration
Statement or any Prospectus, amendment or supplement related thereto or any
post-effective amendment to the Registration Statement and the effectiveness of
any post-effective amendment.

 

(f)            Stop Orders.  During the period referred to in Section 2(b),
the Company shall use its commercially reasonable efforts to avoid the issuance
of, or if issued, to obtain the withdrawal of, any order enjoining or
suspending the use or effectiveness of a Registration Statement or suspending
the qualification (or exemption from qualification) of any of the Registrable
Shares for sale in any jurisdiction, as promptly as practicable.

 

(g)           Eligibility for Form S-3
or S-1; Conversion to Form S-3. 
The Company represents and warrants that it meets the requirements for
the use of SEC Form S-3 or S-1 for the registration of the sale by the
Holders of the Registrable Shares.  The
Company agrees to file all reports required to be filed by the Company with the
SEC in a timely manner so as to remain eligible or become eligible, as the case
may be, and thereafter to maintain its eligibility, for the use of Form S-3.  If the Company is not currently eligible to
use SEC Form S-3, not later than five (5) business days after the
Company first meets the registration eligibility and transaction requirements
for the use of Form S-3 (or any successor form) for registration of the
offer and sale by the Holders of the Registrable Shares, the Company shall file
a Registration Statement on Form S-3 (or such successor form) with respect
to the Registrable Shares covered by the Registration Statement on Form S-1,
filed pursuant to this Section 2 (and include in such Registration
Statement on Form S-3 the information required by Rule 429 under the
Securities Act) or convert the Registration Statement on Form S-1,
whichever is applicable, filed pursuant to this Section 2 to a Form S-3
pursuant to Rule 429 under the Securities Act and cause such Registration
Statement (or such amendment) to be declared effective no later than thirty
(30) days after filing.

 

(h)           Underwriter.  In the event Holders holding a
majority-in-interest of the Registrable Shares being registered determine to
engage the services of an underwriter, the Company agrees to enter into and
perform the Company’s obligations under an underwriting agreement in the usual
and customary form for secondary offerings at the time of execution, including,
without limitation, indemnification and contribution obligations customary for
issuers, and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Shares included in
the registration statement.

 

3.                                      Suspension of Registration Requirement; Restriction on Sales.

 

(a)           As promptly as
practicable after becoming aware of such event, the Company shall notify each
Holder of the happening of any event (a “Suspension Event”), of which
the Company has knowledge, as a result of which the prospectus included in any
Resale Shelf Registration Statement, as then in effect, includes an untrue statement
of a material fact or omission to state a material fact required to be stated
therein or necessary to make the statements 

 

6

 

therein
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to any Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Holder as such Holder may reasonably request; provided, however, that, for not more than fifteen (15) consecutive
trading days (or a total of not more than thirty (30) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or Resale
Shelf Registration Statement updating) the disclosure of which at the time is
not, in the good faith opinion of the Company, in the best interests of the
Company; provided, further, that, if the Resale Shelf Registration
Statement was not filed on Form S-3, such number of days shall not include
the fifteen (15) calendar days following the filing of any Form 8-K, Form 10-Q
or Form 10-K, or other comparable form, for purposes of filing a
post-effective amendment to the Resale Shelf Registration Statement.

 

(b)           Upon a Suspension
Event, the Company shall give written notice (a “Suspension Notice”)
to each Holder to suspend sales of the Registrable Shares, and such notice shall state that such suspension shall continue only
for so long as the Suspension Event or its effect is continuing and the Company
is pursuing with reasonable diligence the completion of the matter giving rise
to the Suspension Event or otherwise taking all reasonable steps to terminate
suspension of the effectiveness or use of the Registration Statement within the
time limits contemplated pursuant to Section 3(a).  In no
event shall the Company, without the prior written consent of a Holder,
disclose to the Holder any of the facts or circumstances giving rise to the
Suspension Event. The Holder shall not effect any sales of the Registrable
Shares pursuant to such Registration Statement (or such filings) at any time
after it has received a Suspension Notice and prior to receipt of an End of
Suspension Notice.  The Holder may resume
effecting sales of the Registrable Shares under the Registration Statement (or
such filings) following further notice to such effect (an “End of Suspension
Notice”) from the Company.  This End
of Suspension Notice shall be given by the Company to the Holder in the manner
described above promptly following the conclusion of any Suspension Event and
its effect.

 

(c)           Notwithstanding any
provision herein to the contrary, if the Company gives a Suspension Notice
pursuant to this Section 3 with respect to the Resale Shelf Registration
Statement, the Company shall extend the period during which such Resale Shelf
Registration Statement shall be maintained effective under this Agreement by
the number of days during the period from the date of the giving of the
Suspension Notice to and including the date when Holders shall have received
the End of Suspension Notice and copies of the supplemented or amended
Prospectus necessary to resume sales; provided,
however,
such period of time shall not be extended beyond the date that the Shares are
no longer Registrable Shares.

 

(d)           If any Additional
Shares are issued or distributed to the Holder after the later of (i) the
effectiveness of the Resale Shelf Registration Statement or (ii) the
Effective Time, or such Additional Shares were otherwise not included in a
prior Registration Statement, then the Company shall as soon as practicable, at
the option of the Company and subject to compliance with Section 2(b) with
respect to the Holder of the Registrable Shares with respect to which such Additional
Shares are issued, either (A) file an additional shelf Registration Statement
(including the Prospectus, amendments and supplements to such Registration
Statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement, a 

 

7

 

“Subsequent
Shelf Registration Statement”) covering such Additional Shares on behalf of
the Holders thereof in the same manner, and subject to the same provisions in
this Agreement as the Resale Shelf Registration Statement or (B) file a
supplement to the Resale Shelf Registration Statement to include therein and
cover such Additional Shares on behalf of the Holders.

 

4.             Holder’s Obligations.  In connection with the
registration of the Registrable Securities, each Holder shall have the
following obligations:

 

(a)           It shall be a
condition precedent to the obligations of the Company to complete each
registration pursuant to this Agreement with respect to the Registrable Shares
that each Holder shall have furnished to the Company such information regarding
itself, the Registrable Shares held by it and the intended method of disposition
of the Registrable Shares held by it as shall be reasonably required to effect
the registration of such Registrable Shares and shall execute such
questionnaires addressing these matters in connection with a registration as
the Company may reasonably request. 
At least five (5) Business Days prior to the first anticipated
filing date of any Registration Statement (and any other amendments) hereunder,
the Company shall notify each Holder of the information the Company requires
from each such Holder.

 

(b)           Each Holder agrees
that, upon receipt of any Suspension Notice, such Holder will immediately
discontinue disposition of Registrable Shares pursuant to the Registration
Statement covering such Registrable Shares until such Holder’s receipt of the
End of Suspension Notice and, if so directed by the Company, such Holder shall
deliver to the Company (at the expense of the Company) or destroy all copies in
such Holder’s possession, of the prospectus covering such Registrable Shares
current at the time of receipt of the Suspension Notice.

 

(c)           In the event Holder(s) holding
a majority-in-interest of the Registrable Shares being registered determine to
engage the services of an underwriter, each Holder agrees to enter into and
perform such Holder’s obligations under an underwriting agreement, in usual and
customary form for secondary offerings, at the time of execution, including,
without limitation, indemnification and contribution obligations customary for
selling security holders, and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the Registrable
Shares, unless such Holder has notified the Company in writing of such Holder’s
election to exclude all of such Holder’s Registrable Shares from such
Registration Statement.

 

(d)           No Holder may
participate in any underwritten registration hereunder unless such Holder
(i) agrees to sell such Holder’s Registrable Shares on the basis provided
in any underwriting arrangements entered into by the Company, in usual and
customary form, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and
(iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 8 below.

 

5.             Rule 144 Reporting and Other
Covenants.  The Company covenants and agrees with each
Holder, that:

 

8

 

(a)           Exchange Act Filings.  For so long as a Holder holds Registrable
Shares and may not sell those shares pursuant to Rule 144(b)(1)(i) free
of the requirement contained in Rule 144(c)(1), the Company agrees:

 

(i)           to make and keep public information
available, as those terms are understood and defined in Rule 144(c);

 

(ii)          to use its commercially reasonable
efforts to file with the SEC in a timely manner all reports and other documents
required to be filed by the Company under the Exchange Act so long as the
Company has a class of securities outstanding that is registered under Section 12(b) or
12(g) of the Exchange Act and the filing of reports and other documents is
required for the provisions of Rule 144 applicable to the Holder’s sale of
the Shares; and

 

(iii)         to furnish to any Holder promptly upon
request a written statement by the Company as to its compliance in all material
respects with the reporting requirements of Rule 144 and of the Exchange
Act, furnish or make available to any Holder a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company, and take such reasonable further actions consistent with this Section 5,
as a Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Holder to sell any such Registrable Shares
under Rule 144 without registration.

 

(b)           Other Financial Information.  If  at
any time after the date hereof the Company is not subject to the requirements
of Section 13 or 15(d) of the Exchange Act and the Holder holds
Registrable Shares, the Company shall provide or cause to be provided to the
Holder all of the following, in form and detail satisfactory to the Holder:

 

(i) not later than 90 days after and as of the end of each fiscal
year, an audited financial statement of the Company, audited by an independent
accounting firm, to include consolidated balance sheets and consolidated
statements of income, retained earnings and cash flow, in accordance with generally
accepted accounting principles, together with an opinion of such auditors on
the financial statements;

 

(ii) not later than 45 days after and as of the end of each
calendar quarter, a financial statement of the Company, prepared by the
Company, to include consolidated balance sheets and consolidated statements of
income, retained earnings and cash flow, in accordance with generally accepted
accounting principles, certified by a senior financial officer; and

 

(iii) from time to time such other information as the holder may
reasonably request.

 

(c)           Transactions with Affiliates.  For so long as any of the A&R
Warrant, the Second Warrant or the Third Warrant is outstanding, the Company
shall not, and shall not permit any of its Subsidiaries (i) to enter into
any transaction, including without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate of the
Company unless such transactions are in the ordinary course of its business or
are upon fair and reasonable terms no less favorable to it than the Company
would obtain in a comparable 

 

9

 

arm’s-length
transaction with a person not an Affiliate, or (ii) other than issuances
of securities pursuant to the Company’s 2005 Stock Option Plan which shall be
issued as incentive compensation and issuances of Common Stock upon exercise of
the A&R Warrant, the Second Warrant or the Third Warrant, to issue, or
agree to issue, any shares of capital stock (including rights or warrants with
respect thereto) or stock appreciation rights, stock benefit plans, phantom
stock rights or plans or any similar plans or rights or other rights measured
by earnings, profits, or revenues of the Company or its Subsidiaries to any
Affiliate including shareholders, directors and officers and their respective
Affiliates, unless such transaction is fair to the Company.  If a transaction referred to in subsection (i) or
(ii) hereof is approved by a majority of Independent Directors (for example,
if the Company has four directors — two of whom are Independent Directors and
two of whom are not — and a transaction is approved by a majority of the
directors including both Independent Directors, that approval constitutes a
majority of Independent Directors), that approval shall be presumptive evidence
that such transaction complies with the provisions of this Section. As used
herein, an Independent Director shall mean any director who does not have an
economic interest in the proposed transaction and who is not related by blood
or marriage to any person who has an economic interest. As used herein, “Affiliate”
means any person controlled by, controlling or under common control with
another person; provided however,
the Holder and its direct and indirect wholly-owned subsidiaries and the
Persons that directly or indirectly own the Holder shall not be deemed
Affiliates of the Company. 
Notwithstanding anything herein to the contrary, the consummation of the
transactions described in the Company’s Current Report on Form 8-K filed
with the SEC on December 1, 2009, including any conversion of shares of
the preferred stock described in that filing, shall be deemed not to violate
the provisions hereof.

 

(d)           Restrictions on Dividend Payments. For so
long as any of the A&R Warrant, the Second Warrant or the Third Warrant is
outstanding, the Company shall not pay any dividends with respect to its Common
Stock (other than dividends payable in shares of its Common Stock) out of its
surplus or otherwise or return any capital to its stockholders as such or
authorize or make any other distribution, payment or delivery of property or
cash to its holders of Common Stock as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration (otherwise than
in exchange for, or from the proceeds of the substantially concurrent sale of,
other shares of capital stock of the Company), any shares of any class of its
Common Stock now or hereafter outstanding, unless the Company has provided
notice to the Holder not less than five (5) business days prior to the
record date thereof.

 

6.             State Securities Laws.  Subject to the conditions
set forth in this Agreement, the Company shall, in connection with the filing
of any Registration Statement hereunder, file such documents as may be
necessary to register or qualify the Registrable Shares under the securities or
“blue sky” laws of such states as the Holders may reasonably request in
connection with the offer and sale of Registrable Shares pursuant to the
intended methods of disposition by the Holders as set forth in the applicable
Registration Statement, and the Company shall use its commercially reasonable
efforts to cause such filings to become effective in a timely manner; provided, however, that the Company shall not be required in connection therewith or as a
condition thereto to (a) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 6,
(b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction
(other than customary consents to service of process filed with state
securities administrators), (d) provide

 

10

 

any
undertakings that are not customary in similar registrations of securities and
cause the Company undue expense or burden, or (e) make any change in its
charter or bylaws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
shareholders. Once effective, the Company shall use its
commercially reasonable efforts to keep such filings effective until the
earlier of (x) such time as all of the Registrable Shares so registered
have been disposed of in accordance with the intended methods of disposition by
the Holders as set forth in the applicable Registration Statement, (y) in
the case of a particular state, the applicable Holders have notified the
Company that they no longer require an effective filing in such state in
accordance with their original request for filing or (z) the date on which
the applicable Registration Statement ceases to be effective.

 

7.             Listing.  The Company’s Common Stock is
currently listed for trading on the NYSE Amex, and the Company has listed all
of the Registrable Shares for trading on the NYSE Amex, other than the
Registrable Shares issuable upon exercise of the Third Warrant which the
Company shall cause to be listed for trading on the NYSE Amex within sixty (60)
days after the execution of this Agreement. 
Should the Common Stock be listed or otherwise eligible for full trading
privileges on any other securities exchange, the Company shall, not later than
ten (10) Business Days after the date on which the Registrable Shares are
issued by the Company to the Holder, cause the Registrable Shares to be listed
for trading.  The Company will use its
commercially reasonable efforts to continue the listing or trading privilege
for all Registrable Shares on the NYSE Amex and any such exchange or market for
so long as such listing or trading privileges are generally available to the
Common Stock. The Company will as promptly as practicable notify the Holder of,
and confirm in writing, the delisting of the Common Stock by such exchange or
market.

 

8.             Expenses.  The Company shall bear all
Registration Expenses incurred in connection with the registration of the
Registrable Shares pursuant to this Agreement and the Company’s performance of
its other obligations under the terms of this Agreement. The Holder shall bear
all underwriting fees, discounts or commissions attributable to the sale of
securities by the Holder, or any legal fees and expenses of counsel to the
Holder (except those expenses included in Registration Expenses and as
otherwise specifically provided herein) and all other expenses incurred by the
Holder in connection with the performance by the Holder of its obligations, and
exercise of its rights, under the terms of this Agreement.

 

9.             Indemnification by the Company.  The Company agrees to indemnify
the Holder and, if a Holder is a Person other than an individual, such Holder’s
officers, directors, employees, agents, representatives and Affiliates, and
each Person, if any, that controls a Holder within the meaning of the
Securities Act, and each other Person, if any, subject to liability because of
his, her or its connection with a Holder (each, an “Indemnitee”), against any
and all losses, claims, damages, actions, liabilities, costs and expenses
(including without limitation reasonable fees, expenses and disbursements of
attorneys and other professionals), joint or several, arising out of or based
upon any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company under the terms of this Agreement or in
connection with any Registration Statement or Prospectus, or upon any untrue or
alleged untrue statement of material fact contained in any Registration
Statement or any Prospectus, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the 

 

11

 

statements therein, in
light of the circumstances under which they were made, not misleading; provided, however, that the Company shall not be liable to
such Indemnitee or any Person who participates as an underwriter in the
offering or sale of Registrable Shares or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission (a) made
in such Registration Statement or in any such Prospectus in reliance upon and
in conformity with information regarding such Indemnitee or its plan of
distribution or ownership interests which was furnished in writing to the
Company pursuant to an investor questionnaire or otherwise expressly for use in
connection with such Registration Statement or the Prospectus contained therein
by such Indemnitee; (b) made in any preliminary prospectus if the Holder
failed to deliver or make available a 
copy of the Prospectus with or prior to delivery of written confirmation
of the sale by the Holder to the party asserting the claim and such Prospectus
would have corrected such untrue statement or admission; or (c) made in
any Prospectus if any untrue statement or omission was corrected in an
amendment or supplement to such Prospectus delivered to the Holder prior to the
sale of Registrable Shares and the Holder failed to deliver or make available
such amendment or supplement prior to or concurrently with the sale of
Registrable Shares to the party asserting the claim.  The indemnity provided for herein shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Indemnitee.

 

10.          Covenants of Holder.  The Holder hereby agrees
(a) to cooperate with the Company and to furnish to the Company all such
information (including customary investor questionnaires) concerning its plan
of distribution and ownership interests with respect to its Registrable Shares
in connection with the preparation of each Registration Statement with respect
to the Holder’s Registrable Shares and any filings with any state securities
commissions as the Company may reasonably request, (b) to indemnify the
Company, its officers, directors, employees, agents, representatives and
Affiliates, and each Person, if any, who controls the Company within the
meaning of the Securities Act, and each other Person, if any, subject to
liability because of his, her or its connection with the Company, against any
and all losses, claims, damages, actions, liabilities, costs and expenses
(including without limitation reasonable fees, expenses and disbursements of
attorneys and other professionals), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of material fact
contained in any such Registration Statement or the Prospectus contained
therein, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, if and
only to the extent that such statement or omission occurs from reliance upon
and in conformity with written information regarding the Holder, his, her or
its plan of distribution or his, her or its ownership interests, that was
furnished to the Company in writing by the Holder pursuant to an investor
questionnaire or otherwise expressly for use therein unless such statement or
omission was corrected in writing to the Company prior to the date one day
prior to the date of the final Prospectus (as supplemented or amended, as the
case may be).

 

11.          Indemnification Procedures.  Any Person entitled to
indemnification under this Agreement shall notify promptly the indemnifying
party in writing of the commencement of any action or proceeding with respect
to which a claim for indemnification may be made hereunder, but the failure of
any indemnified party to provide such notice shall not relieve the indemnifying

 

12

 

party of its obligations
hereunder, except to the extent the indemnifying party is materially prejudiced
thereby and shall not relieve the indemnifying party from any liability which
it may have to any indemnified party otherwise than hereunder. In case any
action or proceeding is brought against an indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, unless in the reasonable
opinion of outside counsel to the indemnified party a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, to assume the defense thereof (alone or jointly with any other
indemnifying party similarly notified), to the extent that it chooses, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party that it so chooses (provided
that in connection with such assumption the indemnifying parties provide the
indemnified parties a full release of any costs or other expenses in connection
therewith), the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof; provided,
however, that
(a) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the action or proceeding within twenty (20) Business Days
after receiving notice from such indemnified party that the indemnified party
believes it has failed to do so; or (b) if such indemnified party who is a
defendant in any action or proceeding that is also brought against the indemnifying
party shall have reasonably concluded, based on the advice of counsel, that
there may be one or more legal defenses available to such indemnified party
which are not available to the indemnifying party; or (c) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction) and the indemnifying party shall be liable for
any expenses therefor.  No indemnifying
party shall, without the written consent of the indemnified party (which shall
not be unreasonably withheld), effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or (to the
knowledge of the indemnifying party) threatened action or claim in respect of
which indemnification or contribution may be sought hereunder (whether or not
the indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (x) includes an
unconditional release of the indemnified party from all liability arising out
of such action or claim, (y) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of any
indemnified party and (z) does not and is not likely to materially
adversely affect the indemnified party.

 

12.          Limitations on Registration Rights.  Neither the Company nor any of
its security holders (other than the Holder acting pursuant to this Agreement)
may include securities of the Company in any Registration Statement filed
pursuant to this Agreement other than Registrable Securities.

 

13.                               Contribution.

 

(a)           If the
indemnification provided for in Section 9 or Section 10
is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a 

 

13

 

result
of such losses, claims, damages, actions, liabilities, costs or expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, actions, liabilities, costs or expenses as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party, on the one hand, and of the indemnified party, on the other hand, shall
be determined by reference to, among other factors, whether the untrue or
alleged untrue statement of a material fact or omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission; provided, however, that in no event shall the obligation of any
indemnifying party to contribute under this Section 13 exceed the
amount that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under Section 9
or Section 10 hereof had been available under the circumstances.

 

(b)           The Company and the
Holder agree that it would not be just and equitable if contribution pursuant
to this Section 13 were determined by pro  rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph.

 

(c)           Notwithstanding the
provisions of this Section 13, the Holder shall not be required to
contribute any amount in excess of the amount by which the gross proceeds from
the sale of Registrable Shares exceeds the amount of any damages that the
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission. No indemnified party that has made a fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any indemnifying party
who was not guilty of such fraudulent misrepresentation.

 

14.          Amendments and Waivers.  The provisions of this Agreement
may not be amended, modified, or supplemented or waived without the prior
written consent of the Company and the Holder.

 

15.          Notices.  Any notice required or permitted
to be given under or in connection with this Agreement or any of the other Loan
Documents (except as may otherwise be expressly required therein) shall be in
writing and shall be mailed by certified mail, return receipt requested,
postage prepaid, or sent by telex, telegram, telecopy, facsimile,
electronically by e-mail or other similar form of rapid transmission confirmed
by mailing (by certified mail, return receipt requested, postage prepaid)
written confirmation at substantially the same time as such rapid transmission,
or personally delivered to an officer of the receiving party.  All such communications shall be mailed,
sent, delivered, faxed or e-mailed,

 

(a)           if to the Company
to:

 

Cubic Energy, Inc.

9870 Plano Road

Dallas,
Texas 75238

Attn: Larry G. Badgley

 

14

 

Telephone: (972) 681-8047

Fax: (972) 681-9687

e-mail: larry@cubicenergyinc.com

 

or
to such other address or to such individual’s or department’s attention as the
Borrower may have furnished the Lender in writing; and

 

(b) if to the Holder to:

 

Wells Fargo Energy Capital, Inc.

1000 Louisiana

9th Floor

MAC T5002-090

Houston, Texas 77002

Attn: Gary Milavec

Telephone: (713) 319-1612

Fax:  (713)
652-5874

e-mail:  milavega@wellsfargo.com

 

or
to such other address or to such individual’s or department’s attention as the
Lender may have furnished the Borrower in writing.

 

16.          Successors and Assigns; Third Party
Beneficiaries.  Neither the Company, or Holder shall be
entitled to assign any of its rights or obligations under this Agreement
without, in the case of the Company, the consent of a majority of the aggregate
number of the outstanding Registrable Shares or, in the case of the Holder,
upon the prior written consent of the Company (which consent the Company may
withhold in its sole discretion); provided,
however, the Holder may assign its rights hereunder pro rata to any
subsequent transferee of Registrable Shares. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties hereto and shall inure to the benefit of each Holder.  The Indemnities shall be third-party
beneficiaries of Section 9, Section 10, Section 11,
Section 12 and Section 13 of this Agreement, but no
other Person not a party hereto shall have any rights under this Agreement.

 

17.          Counterparts.  This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.

 

18.          Governing Law.  This Agreement shall be governed
by and construed in accordance with the laws of the State of Texas applicable
to contracts made and to be performed wholly within said State.

 

19.          Severability.  In the event that any one or more
of the provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired 

 

15

 

thereby, it being intended
that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.

 

20.          Entire Agreement.  This Agreement is intended by the
parties as a final expression of their agreement and intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein, with respect to such subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.

 

21.          Survival.  The indemnification and
contribution obligations under Section 9, Section 10, Section 11
and Section 13 shall survive the completion or termination of the
Company’s obligations under Section 2.

 

[The Remainder of This Page Has
Been Intentionally Left Blank.]

 

16

 

IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date first written above.

 

	
   

  	
   

  	
  CUBIC ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/Calvin A. Wallen III

  
	
   

  	
   

  	
  Name: Calvin A. Wallen III

  
	
   

  	
   

  	
  Title: Chief Executive
  Officer and President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WELLS FARGO ENERGY
  CAPITAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/Chris Carter

  
	
   

  	
   

  	
  Name: Chris Carter

  
	
   

  	
   

  	
  Title: Director

  

 

17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00178-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00178-of-00352.parquet"}]]