Document:

Exhibit 10.5

 

AMENDED AND RESTATED WARRANT
 TO PURCHASE SHARES OF COMMON STOCK
 OF
 CUBIC ENERGY, INC.

 

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

 

	
No. 2010-1AWarrant to Purchase 1,000,000 Shares
    
	
Originally issued: August 30, 2010 of Common   Stock, $0.05 Par Value Per Share
    
	
Amended   and Restated: Effective December 31, 2012
    	
 
    

 

AMENDED AND RESTATED WARRANT TO PURCHASE COMMON STOCK
 of
 CUBIC ENERGY, INC.,
 a Texas corporation
 Void after the date set forth in the first paragraph hereof

 

This certifies that, for value received, Wells Fargo Energy Capital, Inc., a Texas corporation, or its registered assigns (“Holder”) is entitled, subject to the terms set forth below, to purchase from Cubic Energy, Inc., a Texas corporation (the “Company”),  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 $0.20  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, 2017.  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.

 

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This Amended and Restated Warrant to Purchase Common Stock of Cubic Energy, Inc. amends and restates that certain Warrant to Purchase Common Stock of Cubic Energy, Inc., No. 2010-1, dated August 30, 2010.

 

Section 1.                                          Exercise of Warrant.

 

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

 

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

 

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Net Number =
    	
A   x (B - C)
    
	
 
    	
B
    

 

For purposes of the foregoing formula:

 

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

 

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

 

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

 

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

 

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

 

Section 3.                                          Transfer and Exchange.

 

Subject to the restrictions set forth in Section 10(a)(iv), this Warrant and all rights hereunder are transferable, in whole or in part.  This Warrant is transferable on the books of the Company maintained for such purpose at its principal office by Holder in person or

 

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by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer.  Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable and that when this Warrant shall have been so endorsed, the Holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered Holder hereof as the owner for all purposes.

 

Section 4.                                          Certain Adjustments.

 

(a)                                 In order to prevent dilution of the rights granted hereunder, from and after January     , 2013, the Exercise Price shall be subject to adjustment from time to time in accordance with this Section 4.  For purposes of this Section 4, the term “Number of Common Shares Deemed Outstanding” at any given time shall mean the number of shares of Common Stock outstanding at such time on a fully diluted basis, including all options, warrants and securities convertible into or exchangeable for shares of Common Stock and, without duplication, the number of shares of the Common Stock deemed to be outstanding under paragraphs 4(b)(1) to (10), inclusive, at such time, but excluding the issuance of (i) up to 3,750,000 shares of Common Stock (as adjusted for stock splits, reverse stock splits and stock dividends) or grants of options to acquire shares of Common Stock issued or granted as equity-based compensation to certain of the Company’s directors, executive officers or employees under the Company’s Director and Officer Compensation Plan approved by its shareholders on December 29, 2005 (the “Plan”) and (ii) up to an additional 2,000,000 shares of Common Stock (as adjusted for stock splits, reverse stock splits and stock dividends) or grants of options to acquire shares of Common Stock issued or granted as equity-based compensation to certain of the Company’s directors, executive officers or employees pursuant to an increase in the number of shares subject to the Plan or otherwise.  Notwithstanding anything herein to the contrary, the Exercise Price shall not be subject to adjustment as a result of the consummation of the transactions described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 1, 2009, including any conversion of shares of preferred stock that may be issued in connection therewith.

 

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

 

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hundredth of a cent) determined by multiplying the Exercise Price immediately preceding the new share issuance by a fraction:

 

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

 

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

 

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

 

(1)                                 In case the Company at any time shall in any manner (A) grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or other securities convertible into or exchangeable for Common Stock, (such rights or options being herein called “Options” and such convertible or exchangeable stock or securities being herein called “Convertible Securities”), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, other than Options (and the securities issued in exercise thereof) with respect to the 3,750,000 shares of Common Stock (as adjusted for stock splits, reverse stock splits and stock dividends) issuable under the Plan or the additional 2,000,000 shares of Common Stock described in Section 4(a)(ii), and (B) the price per share for which the Common Stock is issuable upon exercise, conversion or exchange (determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus, in the case of Options that relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities) shall be less than the Exercise Price in effect immediately prior to the time of the granting of such Option, then the total maximum amount of Common Stock issuable upon the exercise of such Options or in the case of Options for Convertible Securities, upon the conversion or exchange of such Convertible Securities shall (as of the date of granting of such Options) be

 

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deemed to be outstanding and to have been issued and sold by the Company for such price per share.  No additional adjustment of the Exercise Price shall be made upon the actual issue of such shares of Common Stock or such Convertible Securities upon the exercise of such Options, except as otherwise provided in paragraph (3) below.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(10)                          Notwithstanding anything herein to the contrary, any grants of Common Stock, Options, appreciation or other rights under the Plan, or the additional 2,000,000 shares of Common Stock described in Section 4(a)(ii), or the

 

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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

 

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by written instrument mailed or delivered to the holders of the Warrant at the last address of each such holder appearing on the books of the Company, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase.

 

(f)                                   In the event that:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Notice given in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the record date on which the holders of Common Stock shall be entitled thereto, and notice given in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.  Each such written notice shall

 

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be given by first class mail, postage prepaid, addressed to the holders of this Warrant at the address of each such holder as shown on the books of the Company.

 

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

 

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

 

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

 

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

 

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

 

If the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation or entity (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the

 

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shares of Common Stock of the Company) or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation or other entity (such successor or acquiring corporation or entity, an “Acquiring Entity”), and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, common shares of the Acquiring Entity, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common shares of the Acquiring Entity (“Other Property”), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder of this Warrant shall have the right thereafter to receive in lieu of the Common Stock described in Section 1, the number of shares of common stock of the Acquiring Entity or Common Stock of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock that the Holder of this Warrant would have owned or been entitled to receive had Common Stock been issued to such Holder under Section 1 on full exercise of this Warrant immediately prior to such event.  In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the Acquiring Entity (if other than the Company) shall expressly assume all the obligations and liabilities of the Company hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the board of directors of the Company) in order to provide for adjustments of shares of Common Stock issuable under Section 1 which shall be as nearly equivalent as practicable to the adjustments provided for in Section 4.  For purposes of this Section 5, “common shares of the Acquiring Entity” shall include shares or other ownership interests of such Acquiring Entity of any class which is not preferred as to dividends or assets over any other class of stock or other ownership interests of such Acquiring Entity and which is not subject to redemption and shall also include any evidences of indebtedness, shares or other securities which are convertible into or exchangeable for any such shares or other ownership interests, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock or other ownership interests.  The foregoing provisions of this Section 5 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations, spin-offs, or dispositions of assets.

 

Section 6.  Certain Notices, Etc.

 

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

 

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event referred to in Section 4(f) hereof, such notice shall be included as part of the notice required to be mailed and published under the provisions of Section 4(f) hereof.

 

Section 7.                                          Loss or Mutilation.

 

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

 

Section 8.                                          Reservation of Common Stock.

 

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

 

Section 9.                                          Notices of Record Date.

 

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

 

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dissolution, liquidation or winding up is expected to become effective, and (3) the date, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

 

Section 10.                                   Investment Representation and Restriction on Transfer.

 

(a)                                 Securities Law Requirements.

 

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

 

(ii)                                  By its acceptance of this Warrant, Holder understands that this Warrant is not, and the Warrant Shares will not be, registered under the Securities Act of 1933 (the “Securities Act”), on the basis that the issuance of this Warrant and the Warrant Shares are exempt from registration under the Act pursuant to Section 4(2) thereof, and that the Company’s reliance on such exemption is predicated on Holder’s representations and warranties set forth herein.

 

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

 

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

 

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

 

(b)                                 Legends; Stop Transfer.

 

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

 

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

 

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

 

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

 

Section 11.                                   Company Indemnification.

 

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

 

Section 12.                                   Notices.

 

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

 

Section 13.                                   Change; Waiver.

 

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

 

Section 14.                                   Headings.

 

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

 

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Section 15.                                   Governing Law.

 

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

 

16

 

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

 

 

	
 
    	
CUBIC   ENERGY, INC.,
    
	
 
    	
a   Texas corporation
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Calvin A. Wallen III
    
	
 
    	
 
    	
Calvin   A. Wallen III
    
	
 
    	
 
    	
Chief   Executive Officer and President
    

 

ACKNOWLEDGEMENT

 

The undersigned Wells Fargo Energy Capital, Inc. acknowledges delivery of the foregoing Amended and Restated Warrant to Purchase Common Stock of Cubic Energy, Inc. (No. 2010-1A), dated effective December 31, 2012, executed by Cubic Energy, Inc. and agrees that this instrument is give in substitution and replacement for that certain Warrant to Purchase Common Stock of Cubic Energy, Inc. (No. 2010-1), dated August 30, 2010.

 

	
 
    	
WELLS FARGO ENERGY   CAPITAL, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Printed Name:
    	
 
    
	
January 28, 2013
    	
Title:
    	
 
    

 

17

 

SUBSCRIPTION NOTICE
  (To be executed only upon exercise of Warrant)

 

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

 

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

 

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

 

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

 

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

 

 

	
DATED:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Signature   of Holder)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Street   Address)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(City)
    	
(State)
    	
(Zip)
    

 

18

 

FORM OF ASSIGNMENT

 

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

 

	
Name of Assignee
    	
 
    	
Address
    	
 
    	
No. of Shares
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

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

 

	
DATED:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Signature)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Witness)
    

 

19Exhibit 10.6

 

THIRD AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

 

THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into effective as of December 31, 2012 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 Second Amended and Restated Registration Rights Agreement dated August 30, 2010 by and between the parties to this Agreement, which amended and restated that certain Amended and Restated Registration Rights Agreement dated December 18, 2009 by and between the parties to this Agreement, which amended and restated that certain Registration Rights Agreement dated March 5, 2007 by and between the parties to this Agreement.

 

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 “First 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 First 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 First 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, on August 30, 2010, 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, on June 18, 2012, the Company and the Holder have executed a Fourth Amendment to Credit Agreement (the “Fourth Amendment”);

 

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WHEREAS, contemporaneously with the execution of this Agreement, the Company and the Holder have executed a Fifth Amendment to Credit Agreement (the “Fifth Amendment”) of even date, pursuant to which, among 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 A&R First Warrant were amended and restated by the execution and delivery of a Second Amended and Restated Warrant To Purchase Shares of Common Stock of Cubic Energy, Inc. (No. 2007-1B) (the “Second A&R First Warrant”) (c) the terms of the Second 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. 2009-1A) (the “A&R Second Warrant”), and (d) the terms of the Third 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. 2010-1A) (the “A&R 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 Second A&R First Warrant, the A&R Second Warrant or the A&R Third Warrant or any of the foregoing (the “Shares”); and

 

WHEREAS, among other things, the Fifth Amendment requires the simultaneous execution and delivery of this Agreement, the Second A&R First Warrant, the A&R Second Warrant and the A&R Third Warrant as conditions precedent to the effectiveness of the Fifth Amendment;

 

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

 

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

 

“A&R Third 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.

 

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“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.

 

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

 

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

 

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

 

“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 MKT” shall mean the national securities exchange operated by the NYSE MKT 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 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 Second A&R First Warrant, the A&R Second Warrant, or the A&R 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

 

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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).

 

“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).

 

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“SEC” shall mean the Securities and Exchange Commission.

 

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

 

“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.

 

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 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

 

5

 

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.

 

(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.

 

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(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 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

 

7

 

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 “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

 

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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:

 

(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

 

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(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 Second A&R First Warrant, the A&R Second Warrant or the A&R 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 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 Second A&R First Warrant, the A&R Second Warrant or the A&R 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

 

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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 Second A&R First Warrant, the A&R Second Warrant or the A&R 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 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 MKT, and the Company has listed all of the Registrable Shares for trading on the NYSE MKT.  Should the Common Stock be listed or otherwise eligible for full trading privileges on

 

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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 MKT 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 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

 

12

 

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 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

 

13

 

(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 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

 

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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

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

 

15

 

(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: (724) 942-5839

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 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

 

16

 

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.]

 

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

 

	
 
    	
CUBIC   ENERGY, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
WELLS   FARGO ENERGY CAPITAL, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

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