Exhibit 10.4



 






EXHIBIT 10.4




REGISTRATION RIGHTS AGREEMENT




          REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of December 13, 2005, by and
among NGAS Resources, Inc., a corporation incorporated under the laws of the Province of British
Columbia, with headquarters located at 120 Prosperous Place, Suite 201, Lexington, Kentucky 40509
(the “Company”), and the undersigned buyers (each, a “Buyer”, and collectively, the “Buyers”).




          WHEREAS:




          A. In connection with the Securities Purchase Agreement by and among the parties hereto of
even date herewith (the “Securities Purchase Agreement”), the Company has agreed, upon the terms
and subject to the conditions set forth in the Securities Purchase Agreement, to issue and sell to
the Buyers (i) convertible notes of the Company (the “Notes”) which will, among other things, be
convertible and/or redeemable into shares of the Company’s common stock, no par value (the “Common
Shares”) (as converted, the “Conversion Shares”) in accordance with the terms of the Notes and (ii)
warrants (the “Warrants”) which will be exercisable to purchase additional shares of Common Stock
(as exercised collectively, the “Warrant Shares”).




          B. To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company
has agreed to provide the registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”),
and applicable state securities laws set forth in this Agreement.




          NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each of the Buyers hereby agree as follows:




     1. Definitions. 



          Capitalized terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in this Agreement, the following
terms shall have the following meanings:




               (a) “Business Day” means any day other than Saturday, Sunday or any other day on which
commercial banks in The City of New York are authorized or required by law to remain closed.



               (b) “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement.



               (c) “Effective Date” means the date the Registration Statement has been declared effective by
the SEC.



               (d) “Effectiveness Deadline” means the date which is (i) if the Registration Statement does
not become subject to review by the SEC, ninety (90) days after the Closing Date, or (ii) if the
Registration Statement becomes subject to review by the SEC, one hundred and twenty (120) days
after the Closing Date.



               (e) “Filing Deadline” means the date which is thirty (30) days after the Closing Date.



               (f) “Investor” means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee
assigns its rights under this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.



 









 





               (g) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.



               (h) “register,” “registered,” and “registration” refer to a registration effected by preparing
and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act
and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.



               (i) “Registrable Securities” means (i) the Conversion Shares issued or issuable upon
conversion of the Notes, (ii) the Warrant Shares issued or issuable upon exercise of the Warrants
and (iii) any share capital of the Company issued or issuable with respect to the Conversion
Shares, the Notes, the Warrant Shares or the Warrants as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of the Notes or exercises of the Warrants.



               (j) “Registration Statement” means a registration statement or registration statements of the
Company filed under the 1933 Act covering the Registrable Securities.



               (k) “Required Holders” means the holders of at least a majority of the Registrable Securities.



               (l) “Required Registration Amount” means 130% of the sum of (i) the number of Conversion
Shares issued and issuable pursuant to the Notes as of the trading day immediately preceding the
applicable date of determination and (ii) the number of Warrant Shares issued and issuable pursuant
to the Warrants as of the trading day immediately preceding the applicable date of determination,
subject to adjustment as provided in Section 2(d), without regard to any limitations on conversions
or redemptions of the Notes or exercises of the Warrants.



               (m) “Rule 415” means Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis.



               (n) “SEC” means the United States Securities and Exchange Commission.



     2. Registration.



               (a) Mandatory Registration. The Company shall prepare, and, as soon as practicable,
but in no event later than the Filing Deadline, file with the SEC the Registration Statement on
Form S-3 covering the resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is available for such
a registration on another appropriate form reasonably acceptable to the Required Holders, subject
to the provisions of Section 2(d). The Registration Statement prepared pursuant hereto shall
register for resale at least the number of shares of Common Stock equal to the Required
Registration Amount as of the date the Registration Statement is initially filed with the SEC. The
Registration Statement shall contain (except if otherwise directed by the Required Holders) the
“Selling Shareholders” and “Plan of Distribution” sections in substantially the
form attached hereto as Exhibit B subject to any changes necessary to make such sections
complete, accurate and not misleading in all material respects. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC as soon as practicable,
but in no event later than the Effectiveness Deadline.



               (b) Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the number of Registrable
Securities included therein shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time the Registration Statement covering such
initial number of Registrable Securities or increase thereof is declared effective by the SEC. In
the event that an Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such transferor. Any Shares of
Common Stock included in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement shall be allocated
to the remaining Investors, pro rata based on the number of Registrable Securities then held by
such Investors which are covered by such Registration Statement.



2









 




The Company shall not include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required Holders.




               (c) Legal Counsel. Subject to Section 5 hereof, the Required Holders shall have the
right to select one legal counsel to review and oversee any registration pursuant to this Section 2
(“Legal Counsel”), which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
designated by the Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company’s obligations under this Agreement.



               (d) Ineligibility for Form S-3. In the event that Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the Company shall (i) register the
resale of the Registrable Securities on another appropriate form reasonably acceptable to the
Required Holders and (ii) undertake to register the Registrable Securities on Form S-3 as soon as
either such form is available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC or the Company is no
longer obligated to maintain a registration statement for the Registrable Securities pursuant to
the terms hereof.



               (e) Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover
all of the Registrable Securities required to be covered by such Registration Statement or an
Investor’s allocated portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least the Required
Registration Amount as of the trading day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable, but in any event not
later than thirty (30) days after the necessity therefor arises. The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed “insufficient to cover all of the
Registrable Securities” if at any time the number of shares of Common Stock available for resale
under the Registration Statement is less than the product determined by multiplying (i) the
Required Registration Amount as of such time by (ii) 0.90. The calculation set forth in the
foregoing sentence shall be made without regard to any limitations on the conversion of the Notes
or the exercise of the Warrants and such calculation shall assume that the Notes are then
convertible into shares of Common Stock at the then prevailing Conversion Rate (as defined in the
Notes) and that the Warrants are then exercisable for shares of Common Stock at the then prevailing
Exercise Price (as defined in the Warrants).



               (f) Effect of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement. If (i) a Registration Statement covering all of the Registrable Securities required
to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not
filed with the SEC on or before the respective Filing Deadline (a “Filing Failure”) or (B) filed
with the SEC but not declared effective by the SEC on or before the respective Effectiveness
Deadline (an “Effectiveness Failure”) or (ii) on any day after the Effective Date sales of all of
the Registrable Securities required to be included on such Registration Statement cannot be made
(other than during an Allowable Grace Period (as defined in Section 3(r)) pursuant to such
Registration Statement (including, without limitation, because of a failure to keep such
Registration Statement effective, to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement or to register a sufficient number of shares of Common
Stock) (a “Maintenance Failure”) then, as partial relief for the damages to any holder by reason of
any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities relating to such Registration Statement an
amount in cash, without duplication, equal to one percent (1.0%) of the aggregate Purchase Price
(as such term is defined in the Securities Purchase Agreement) of such Investor’s Registrable
Securities included in such Registration Statement on each of the following dates: (i) the day of
a Filing Failure and on every thirtieth day (pro rated for periods totaling less than thirty (30)
days) after a Filing Failure until such Filing Failure is cured; (ii) the day of an Effectiveness
Failure and on every thirtieth day (pro rated for periods totaling less than thirty (30) days)
after an Effectiveness Failure until such Effectiveness Failure is cured; and (iii) the initial day
of a Maintenance Failure and on every thirtieth day (pro rated for periods totaling less than
thirty (30) days) after a Maintenance Failure until such Maintenance Failure is cured. The
payments to which a holder shall be entitled pursuant to this Section 2(f) are referred to herein
as



3









 




“Registration Delay Payments.” Registration Delay Payments shall be paid on the day of the
Filing Failure, Effectiveness Failure and the initial day of a Maintenance Failure, as applicable,
and thereafter on the earlier of (I) the thirtieth day after the event or failure giving rise to
the Registration Delay Payments has occurred and (II) the third Business Day after the event or
failure giving rise to the Registration Delay Payments is cured. In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of one percent (1.0%) per month (prorated for partial months) until paid in
full.




          3. Related Obligations.




          At such time as the Company is obligated to file a Registration Statement with the SEC
pursuant to Section 2(a) or 2(d), the Company will use its best efforts to effect the registration
of the Registrable Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:




               (a) The Company shall submit to the SEC, within two (2) Business Days after the Company learns
that no review of a particular Registration Statement will be made by the staff of the SEC or that
the staff has no further comments on a particular Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a time and date not
later than 48 hours after the submission of such request. The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which
the Investors may sell all of the Registrable Securities covered by such Registration Statement
without restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under the 1933
Act or (ii) the date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement (the “Registration Period”). The Company shall ensure that
each Registration Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the statements therein (in the
case of prospectuses, in the light of the circumstances in which they were made) not misleading.



               (b) The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used in connection with
such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under
the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during
the Registration Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities shall have been
disposed of in accordance with the intended methods of disposition by the seller or sellers thereof
as set forth in such Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form 10-K or
any analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the
Company shall have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend or supplement such
Registration Statement.



               (c) The Company shall (A) permit Legal Counsel to review and comment upon (i) a Registration
Statement at least five (5) Business Days prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on Form 10-K, and Reports
on Form 10-Q and any similar or successor reports) within a reasonable number of days prior to
their filing with the SEC, and (B) not file any Registration Statement or amendment or supplement
thereto in a form to which Legal Counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or any amendment or
supplement thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) copies of
any correspondence from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the
SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if requested by an
Investor, and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy
of the prospectus included in such Registration Statement and all amendments and supplements



4









 




thereto. The Company shall reasonably cooperate with Legal Counsel in performing the
Company’s obligations pursuant to this Section 3.




               (d) The Company shall furnish to each Investor whose Registrable Securities are included in
any Registration Statement, without charge, (i) promptly after the same is prepared and filed with
the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by reference, if requested
by an Investor, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.



               (e) The Company shall use its best efforts to (i) register and qualify, unless an exemption
from registration and qualification applies, the resale by Investors of the Registrable Securities
covered by a Registration Statement under such other securities or “blue sky” laws of all
applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in connection therewith or
as a condition thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation
in any such jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any of the Registrable Securities for sale under
the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual
notice of the initiation or threatening of any proceeding for such purpose.



               (f) The Company shall notify Legal Counsel and each Investor in writing of the happening of
any event, as promptly as practicable after becoming aware of such event, as a result of which the
prospectus included in a 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, in the light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile or e-mail on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the Company’s reasonable
determination that a post-effective amendment to a Registration Statement would be appropriate.



               (g) The Company shall use its best efforts to prevent the issuance of any stop order or other
suspension of effectiveness of a Registration Statement, or the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension
is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and
to notify Legal Counsel and each Investor who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual notice of the initiation
or threat of any proceeding for such purpose.



               (h) To the extent any Investor is deemed, or may be deemed, to be an underwriter, at the
reasonable request of any Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the Company’s independent
certified public accountants in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,



5









 




addressed to the Investors, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form, scope and substance
as is customarily given in an underwritten public offering, addressed to the Investors.




               (i) To the extent any Investor is deemed, or may be deemed, to be an underwriter, the Company
shall make available for inspection by (i) any Investor, (ii) Legal Counsel and (iii) one firm of
accountants or other agents retained by the Investors (collectively, the “Inspectors”), all
pertinent financial and other records, and pertinent corporate documents and properties of the
Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector,
and cause the Company’s officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, that each Inspector shall agree to hold in
strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or
other information which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration Statement or is
otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of competent jurisdiction,
or (c) the information in such Records has been made generally available to the public other than
by disclosure in violation of this or any other agreement of which the Inspector has knowledge.
Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or
by a court or governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.
Nothing herein (or in any other confidentiality agreement between the Company and any Investor)
shall be deemed to limit the Investors’ ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.



               (j) The Company shall hold in confidence and not make any disclosure of information concerning
an Investor provided to the Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws or applicable rules and regulations of Nasdaq or any
other relevant market or exchange, (ii) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt written notice to such Investor and allow such Investor, at the
Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.



               (k) The Company shall use its best efforts either to (i) cause all of the Registrable
Securities covered by a Registration Statement to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii)
secure designation and quotation of all of the Registrable Securities covered by a Registration
Statement on the American Stock Exchange or (iii) if, despite the Company’s best efforts to
satisfy, the preceding clauses (i) or (ii) the Company is unsuccessful in satisfying the preceding
clauses (i) or (ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for such
Registrable Securities and, without limiting the generality of the foregoing, to use its best
efforts to arrange for at least two market makers to register with the National Association of
Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation under this Section
3(k).



               (l) The Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable Securities to be
offered and resold pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.



               (m) If requested by an Investor, the Company shall (i) as soon as practicable incorporate in a
prospectus supplement or post-effective amendment such information as an Investor reasonably
requests to be included therein relating to the sale and distribution of Registrable Securities,
including, without limitation,



6









 




information with respect to the number of Registrable Securities being offered or sold, the
purchase price being paid therefor and any other terms of the offering of the Registrable
Securities to be sold in such offering; (ii) as soon as practicable make all required filings of
such prospectus supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any Registration Statement if reasonably requested by
an Investor holding any Registrable Securities.




               (n) The Company shall use its best efforts to cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such Registrable Securities.



               (o) The Company shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the first day of the
Company’s fiscal quarter next following the effective date of a Registration Statement.



               (p) The Company shall otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.



               (q) Within two (2) Business Days after a Registration Statement which covers Registrable
Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.



               (r) Notwithstanding anything to the contrary herein, at any time after the Registration
Statement has been declared effective by the SEC, the Company may delay the disclosure of material,
non-public information concerning the Company the disclosure of which at the time is not, in the
good faith opinion of the Board of Directors of the Company and its counsel, in the best interest
of the Company and, in the opinion of counsel to the Company, otherwise required (a “Grace
Period”); provided, that the Company shall promptly (i) notify the Investors in writing of the
existence of material, non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public information to the
Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in
writing of the date on which the Grace Period ends; and, provided further, that no Grace Period
shall exceed five (5) consecutive days and during any three hundred sixty five (365) day period
such Grace Periods shall not exceed an aggregate of twenty (20) days and the first day of any Grace
Period must be at least two (2) trading days after the last day of any prior Grace Period (each, an
“Allowable Grace Period”). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the notice referred to in
clause (i) and shall end on and include the later of the date the Investors receive the notice
referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(g)
hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with
respect to the information giving rise thereto unless such material, non-public information is no
longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended Shares of Common Stock to a transferee of an Investor in accordance
with the terms of the Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for sale, and delivered a
copy of the prospectus included as part of the applicable Registration Statement, prior to the
Investor’s receipt of the notice of a Grace Period and for which the Investor has not yet settled.



          4. Obligations of the Investors.




               (a) At least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of the information the
Company requires from each such Investor if such Investor elects to have any of such Investor’s
Registrable Securities included in such Registration Statement. It shall be a condition precedent
to the obligations of the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such



7









 




Investor shall furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such registration as the
Company may reasonably request.




               (b) Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such Investor has notified
the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable
Securities from such Registration Statement.



               (c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f)
or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the
contrary, the Company shall cause its transfer agent to deliver unlegended Shares of Common Stock
to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an Investor has entered
into a contract for sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first sentence of 3(f) and for
which the Investor has not yet settled.



               (d) Unless exempt from the prospectus delivery requirements of the 1933 Act, pursuant to Rule
172 of the 1933 Act, in connection with sales of Registrable Securities pursuant to the
Registration Statement, each Investor covenants and agrees that it will comply with the prospectus
delivery requirements Act as applicable to it in connection with sales of Registrable Securities
pursuant to the Registration Statement.



          5. Expenses of Registration.




          All reasonable expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including,
without limitation, all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company shall be paid by the Company. The
Company shall also reimburse the Investors for the fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $10,000.




          6. Indemnification.




          In the event any Registrable Securities are included in a Registration Statement under this
Agreement:




               (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold
harmless and defend each Investor, the directors, officers, members, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid
in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken
from the foregoing by or before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact
in a Registration Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other “blue sky” laws of
any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission
or alleged omission to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or



8









 




supplement thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in the light of the circumstances
under which the statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of
this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively,
"Violations”). Subject to Section 6(c), the Company shall reimburse the Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification agreement contained
in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or
based upon a Violation which occurs in reliance upon and in conformity with information furnished
in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company pursuant to Section
3(d); (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such
Person from whom the Person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any Person controlling such Person) if the untrue
statement or omission of material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(d), and the Indemnified Person was promptly advised in writing not to
use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it or failed to deliver the correct prospectus as
required by the 1933 Act and such correct prospectus was timely made available pursuant to Section
3(d); (iii) shall not be available to the extent such Claim is based on a failure of the Investor
to deliver or to cause to be delivered the prospectus made available by the Company, including a
corrected prospectus, if such prospectus or corrected prospectus was timely made available by the
Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.




               (b) In connection with any Registration Statement in which an Investor is participating, each
such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against
any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the
1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon
any Violation, in each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement or any post-effective amendment
thereof or any prospectus contained therein; and, subject to Section 6(c), such Investor will
reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection
with investigating or defending any such Claim as promptly as such expenses are incurred and are
due and payable; provided, however, that the indemnity agreement contained in this Section 6(b) and
the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld or delayed; provided, further, however,
that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure
to the benefit of any Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then
amended or supplemented.



               (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of



9









 




the commencement thereof, and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person
or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. In the case of an Indemnified Person, legal
counsel referred to in the immediately preceding sentence shall be selected by the Investors
holding at least a majority in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or defense of any such action
or Claim by the indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person reasonably
apprised at all times as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim or litigation.
Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to
all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party
is prejudiced in its ability to defend such action.




               (d) The indemnification required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.



               (e) The indemnity agreements contained herein shall be in addition to (i) any cause of action
or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.



          7. Contribution.




          To the extent any indemnification by an indemnifying party is prohibited or limited by law,
the indemnifying party agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person
is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to contribution from any Person involved in such sale
of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution
by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to such Registration
Statement.




          8. Reports Under the 1934 Act. 




          With a view to making available to the Investors the benefits of Rule 144 promulgated under
the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration (“Rule 144”), the
Company agrees to:




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



10









 





               (b) file with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such
requirements and the filing of such reports and other documents is required for the applicable
provisions of Rule 144; and



               (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual report of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the Investors to sell such
securities pursuant to Rule 144 without registration.



          9. Assignment of Registration Rights. 




          The rights under this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of such Investor’s Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such assignment; (ii) the
Company is, within a reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities by the transferee
or assignee is restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause (ii) of this
sentence the transferee or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein; and (v) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement.




          10. Amendment of Registration Rights.




          Provisions of this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Required Holders. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.




          11. Miscellaneous.




               (a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or
is deemed to own of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or election received from
such record owner of such Registrable Securities.



               (b) Any notices, consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have been delivered:
(i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:



     If to the Company:


NGAS Resources, Inc.

120 Prosperous Place

Suite 201

Lexington, Kentucky 40509




11









 







Telephone: (859) 263-3948

Facsimile: (859) 263-4228

Attention: William G. Barr, III, Vice President



With a copy (for informational purposes only) to:



Stahl & Zelmanovitz

767 Third Avenue

Suite 1401

New York, New York 10017

Telephone: (212)826-6435

Facsimile: (212)826-6402

Attention: Douglas Stahl, Esq.




     If to Legal Counsel:


Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Telephone: (212) 756-2000

Facsimile: (212) 593-5955

Attention: Eleazer N. Klein, Esq.



If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers, or to
such other address and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii)
above, respectively.




               (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or
delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.



               (d) All questions concerning the construction, validity, enforcement and interpretation of
this Agreement shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the State of New York
or any other jurisdictions) that would cause the application of the laws of any jurisdictions other
than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.



12









 





               (e) This Agreement, the other Transaction Documents (as defined in the Securities Purchase
Agreement) and the instruments referenced herein and therein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the other Transaction Documents and the instruments referenced
herein and therein supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.



               (f) Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and
be binding upon the permitted successors and assigns of each of the parties hereto.



               (g) The headings in this Agreement are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.



               (h) This Agreement may be executed in identical counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this Agreement.



               (i) Each party shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.



               (j) All consents and other determinations required to be made by the Investors pursuant to
this Agreement shall be made, unless otherwise specified in this Agreement, by the Required
Holders.



               (k) The language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will be applied against
any party.



               (l) This Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.



               (m) The obligations of each Buyer hereunder are several and not joint with the obligations of
any other Buyer, and no provision of this Agreement is intended to confer any obligations on any
Buyer vis-à-vis any other Buyer. Nothing contained herein, and no action taken by any Buyer
pursuant hereto, shall be deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are in any way acting
in concert or as a group with respect to such obligations or the transactions contemplated herein.



* * * * * *




13









 








     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first written above.



	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	NGAS RESOURCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 






14









 






     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Registration Rights Agreement to be duly executed as of the date first written above.



	 	 	 	 	 	 	 
	 	 	BUYERS:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 






15









 






EXHIBIT 99.1