Document:

exv10w3

Exhibit 10.3

[FORM OF WARRANT]

THE ISSUANCE AND SALE OF THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. SUCH
SECURITIES MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

NGAS RESOURCES, INC.

Warrant To Purchase Common Shares

Warrant No.: _____

Number of Common Shares: _________

Date of Exchange: January ____, 2010 (“Issuance Date”)

     NGAS RESOURCES, INC., a corporation incorporated under the laws of the Province of
British of Columbia (the “Company”), hereby certifies that, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, [BUYERS] [OTHER BUYERS], the
registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender or exercise of this Warrant to Purchase Common Shares (including any
Warrants to Purchase Common Shares issued in exchange, transfer or replacement hereof, the
“Warrant”), at any time or times on or after the date hereof, but not after 11:59 p.m., New York
time, on the Expiration Date (as defined below), ___fully paid nonassessable Common Shares (as
defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants
to purchase Common Shares issued in exchange for a portion of an outstanding Convertible Note,
dated as of December 14, 2005, with an original principal amount of U.S. $[ ] and an
outstanding principal amount as of the calendar day immediately preceding the Exchange Date of U.S.
$[ ] (the “Existing Note” and such other Convertible Notes, the “Existing Notes”), issued
pursuant to the Securities Purchase Agreement, dated as of December 13, 2005 (the “Subscription
Date”), by and among the Company and the investors (the “Buyers”) referred to therein (the
“Securities Purchase Agreement”), but shall not, except as set forth herein or in the Exchange
Agreements (as defined below), constitute a release of any claim under any Transaction Document (as
defined in the Securities Purchase Agreement). This Warrant is one of an issue of Warrants
(collectively, the “Exchange Warrants”) issued in exchange for a portion of the Existing Notes
pursuant to those certain Exchange Agreements, dated as of January ___, 2010 (the “Exchange Date”),
each by and between the holder of Existing Notes as of the Exchange Date and the Company (the
“Exchange Agreements”).

1. EXERCISE OF WARRANT.

     (a) Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof, in whole or in part, by delivery of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s
election to exercise this Warrant. Within one (1) Trading Day following an exercise of this Warrant
as aforesaid, the Holder shall deliver payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (the “Aggregate Exercise Price”) in cash or wire transfer of immediately available funds
if the Holder did not notify the Company in such Exercise Notice that such exercise was made
pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to
deliver the original Warrant in order to effect an exercise

 

 

hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the
Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a
new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before
the first Business Day following the date on which the Company has received the Exercise Notice,
the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before
the third Business Day following the date on which the Company has received such Exercise Notice
(the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is
participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of Warrant Shares to which the Holder
is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit/Withdrawal at Custodian system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by
overnight courier to the address as specified in the Exercise Notice or a legend is required on the
Common Shares pursuant to Section 4.21 of the Exchange Agreement, a certificate, registered in the
Company’s share register in the name of the Holder or its designee, for the number of Common Shares
to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Notice,
the Holder shall be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such
Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates
evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with
any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this
Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an
exercise, then the Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section
7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior
to such exercise under this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. No fractional Common Shares are to be issued upon the exercise of this
Warrant, but rather the number of Common Shares to be issued shall be rounded up to the nearest
whole number. The Company shall pay any and all taxes which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant. Notwithstanding the
foregoing, if the Holder did not notify the Company in such Exercise Notice that such exercise was
made pursuant to a Cashless Exercise (as defined in Section 1(d)), the Company’s failure to deliver
Warrant Shares to the Holder on or prior to the Trading Day in which the Company receives the
Aggregate Exercise Price shall not be deemed to be a breach of this Warrant.

     (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $2.37,
subject to adjustment as provided herein.

     (c) Company’s Failure to Timely Delivery Securities. If the Company shall fail for
any reason or for no reason to issue to the Holder within the later of (i) three (3) Business Days
after the Company’s receipt of the applicable Exercise Notice and (ii) two (2) Business Days after
the Company’s receipt of the Aggregate Exercise Price (or valid notice of a Cashless Exercise), a
certificate for the number of Common Shares to which the Holder is entitled and register such
Common Shares on the Company’s share register or to credit the Holder’s balance account with DTC
for such number of Common Shares to which the Holder is entitled upon the Holder’s exercise of this
Warrant, then, in addition to all other remedies available to the Holder, the Company shall pay in
cash to the Holder on each day after such third Business Day that the issuance of such Common
Shares is not timely effected an amount equal to 1.5% of the product of (A) the sum of the number
of Common Shares not issued to the Holder on a timely basis and to which the Holder is entitled and
(B) the Closing Sale Price of the Common Shares on the trading day immediately preceding the last
possible date which the Company could have issued such Common Shares to the Holder without
violating Section 1(a). In addition to the foregoing, if within the later of (i) three (3) Business
Days after the Company’s receipt of the applicable Exercise Notice and (ii) two (2) Business Days
after the Company’s receipt of the Aggregate Exercise Price (or valid notice of a Cashless
Exercise) the Company shall fail to issue and deliver a certificate to the Holder and register such
Common Shares on the Company’s share register or credit the Holder’s balance account with DTC for
the number of Common Shares to which the Holder is entitled upon such holder’s exercise hereunder,
and if on or after such Business Day the Holder purchases (in an open market transaction or
otherwise) Common Shares to deliver in satisfaction of a sale by the Holder of Common Shares
issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”),
then the Company shall, within three (3) Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions, if any) for the Common Shares so purchased (the
“Buy-In Price”), at which point the Company’s obligation to

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deliver such certificate (and to issue such Common Shares) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such Common Shares
and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of Common Shares, times (B) the Closing Bid Price on the date of
exercise.

     (d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if a
registration statement covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the Holder may, in its sole discretion, exercise this Warrant in whole or in part 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 Common Shares determined according to the following formula (a “Cashless Exercise”):

	 	 	 	 	 	 	 
	 	 	Net Number = (A x B) — (A x 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 Closing Sale Price of the Common Shares on the Trading Day immediately
preceding the date of the applicable Exercise Notice.

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

For purposes of Rule 144(d) promulgated under the Securities Act, as in effect on the date
hereof, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed
to have been acquired by the Holder, and the holding period for the Warrant Shares shall be
deemed to have commenced, on the Subscription Date.

     (e) Disputes. In the case of a dispute as to the determination of the Exercise Price
or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder
the number of Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.

     (f) Limitations on Exercises.

(i) Beneficial Ownership. Notwithstanding anything to the contrary contained in this
Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only
to the extent) that the Holder or any of its affiliates would beneficially own in excess of
4.99% (the “Maximum Percentage”) of the Common Shares. To the extent the above limitation
applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other
convertible, exercisable or exchangeable securities owned by the Holder) and of which such
securities shall be exercisable (as among all such securities owned by the Holder) shall,
subject to such Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may be). No
prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on
the applicability of the provisions of this paragraph with respect to any subsequent
determination of exercisability. For the purposes of this paragraph, beneficial ownership
and all determinations and calculations (including, without limitation, with respect to
calculations of percentage ownership) shall be determined in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder. The limitations
contained in this paragraph shall apply to a successor Holder of this Warrant. The holders
of Common Shares shall be third party beneficiaries of this paragraph and the Company may
not waive this paragraph without the consent of holders of a majority of its Common Shares.
For any reason at any time, upon the written or oral request of the Holder, the Company
shall within one (1) Business Day confirm orally and in writing to the Holder the number of
Common Shares then outstanding, including by virtue of any prior conversion or exercise of

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convertible or exercisable securities into Common Shares, including, without limitation,
pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement
or any Exchange Agreement. By written notice to the Company, the Holder may increase or
decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and not to any other holder of Exchange
Warrants.

(ii) Principal Market Regulation. The Company shall not be obligated to issue any
shares of Common Stock upon exercise of this Warrant if the issuance of such Common Stock
would exceed the difference (as calculated immediately following the Exchange Date) between
(x) that number of shares of Common Stock which the Company may issue upon conversion or
exercise, as applicable, of this Warrant or the Exchange Notes or as payment of any
Installment Amount (as defined in the Exchange Notes) or otherwise pursuant to the terms of
the Exchange Notes or this Warrant together with the Exchange Shares (as defined in the
Exchange Agreements) without breaching the Company’s obligations under the rules or
regulations of the Principal Market and (y) the number of Exchange Shares issued pursuant to
any Exchange Agreement (the “Exchange Cap”), except that such limitation shall not apply in
the event that the Company (A) obtains the approval of its stockholders as required by the
applicable rules of the Principal Market for issuances of shares of Common Stock in excess
of such amount or (B) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably satisfactory to the
Required Holders. Until such approval or written opinion is obtained, no purchaser of the
Notes pursuant to the Exchange Agreements (the “Purchasers”) shall be issued in the
aggregate, upon conversion or exercise, as applicable, of Exchange Notes or Exchange
Warrants, or as payment of any Installment Amount hereunder or otherwise hereunder, Common
Shares in an amount greater than the Exchange Cap Allocation of such Holder (as defined in
the Exchange Notes). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser’s Exchange Notes, the transferee shall be allocated a pro rata portion of
such Purchaser’s Exchange Cap Allocation, and the restrictions of the prior sentence shall
apply to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any Purchaser shall sell or otherwise
transfer any Exchange Warrants to any transferee, such Purchaser’s Exchange Cap Allocation
shall not be transferred with such Exchange Warrant to such transferee unless such Purchaser
delivers written notice to the Company specifying (x) the identity of such transferee and
(y) the amount of such Purchaser’s Exchange Cap Allocation being transferred to such
transferee. In the event that any holder of Exchange Notes on any given date shall convert
all of such holder’s Exchange Notes into a number of Common Shares, which together with the
number of Common Shares actually issued to such holder in connection with the Exchange Notes
and Exchange Warrants of such holder on or prior to such date and any Common Shares issuable
upon exercise of the Exchange Warrants of such holder as of such date, in the aggregate, is
less than such holder’s Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the sum of the number of Common Shares (w) actually issued upon
conversion of, or otherwise in connection with, the Exchange Notes of such holder on or
prior to such date, (x) actually issued upon exercise of the Exchange Warrants of such
holder on or prior to such date and (y) issuable upon exercise of the Exchange Warrants of
such holder as of such date shall be allocated to the respective Exchange Cap Allocations of
the remaining holders of Exchange Notes on a pro rata basis in proportion to the aggregate
principal amount of the Exchange Notes then held by each such holder or, if no Exchange
Notes are then outstanding, to the remaining holders of Exchange Warrants on a pro rata
basis in proportion to the shares of Common Stock underlying the Exchange Warrants then held
by each such holder.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as follows:

     (a) Adjustment of Exercise Price upon Subdivision or Combination of Common Shares. If
the Company at any time on or after the Subscription Date subdivides (by any share split, share
dividend, recapitalization or otherwise) one or more classes of its outstanding Common Shares into
a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced. If the Company at any time on or after the Subscription Date combines
(by combination, reverse share split or otherwise) one or more classes of its outstanding Common
Shares into a smaller number of shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.

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3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by
way of return of capital or otherwise (including, without limitation, any distribution of cash,
shares or other securities, property or options by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at
any time after the issuance of this Warrant, then, in each such case:

     (a) any Exercise Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of Common Shares entitled to receive the Distribution shall
be reduced, effective as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the Common Shares on the Trading Day immediately preceding such record date minus the
value of the Distribution (as determined in good faith by the Company’s Board of Directors)
applicable to one Common Share, and (ii) the denominator shall be the Closing Bid Price of the
Common Shares on the Trading Day immediately preceding such record date; and

     (b) the number of Warrant Shares shall be increased to a number of shares equal to the number
of Common Shares obtainable immediately prior to the close of business on the record date fixed for
the determination of holders of Common Shares entitled to receive the Distribution multiplied by
the reciprocal of the fraction set forth in the immediately preceding paragraph (a); provided that
in the event that the Distribution is of Common Shares (or common shares) (“Other Common Shares”)
of a company whose common shares are traded on a national securities exchange or a national
automated quotation system, then the Holder may elect to receive a warrant to purchase Other Common
Shares in lieu of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be exercisable into the number
of shares of Other Common Shares that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such record date and with
an aggregate exercise price equal to the product of the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) Purchase Rights. Except with respect to such dividends or other distributions in
which an adjustment has been made to the Conversion Price pursuant to Section 2(a) above, if at any time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase shares, warrants, securities or other property pro rata to the record holders of
any class of Common Shares (the “Purchase Rights”), then the Holder will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of Common Shares acquirable upon complete
exercise of this Warrant (without regard to any limitations on exercise hereof, including without
limitation, the Maximum Percentage) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Shares are to be determined for the grant, issue or sale of such
Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any
such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder
shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership
of such Common Shares as a result of such Purchase Right to such extent) and such Purchase Right to
such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto
would not result in the Holder exceeding the Maximum Percentage)..

     (b) Fundamental Transactions. The Company shall not consummate a Fundamental
Transaction (other than an Involuntary Change of Control) or permit the consummation of any
Involuntary Change of Control unless (i) (x) the Successor Entity (if a Person other than the
Company) assumes in writing all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section (4)(b) pursuant to written
agreements in form and substance reasonably satisfactory to the Required Holders and approved by
the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each
holder of Exchange Warrants in exchange for such Exchange Warrants a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this
Warrant, including, without limitation, an adjusted exercise price equal to the value for the
Common Shares reflected by the terms of such Fundamental Transaction, and exercisable for a
corresponding number of share capital equivalent to the Common

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Shares acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and reasonably
satisfactory to the Required Holders and (y) the Successor Entity (if a Person other than the
Company) is a publicly traded corporation whose common stock is quoted on or listed for trading on
an Eligible Market (a “Public Successor Entity”) (each such Fundamental Transaction, an “Assumption
Fundamental Transaction”) or (ii) solely with respect to Fundamental Transactions that are not
Assumption Fundamental Transactions, no Event of Default (as defined in the Exchange Notes) has
occurred and is continuing and the Company has complied (or will comply in all respects, solely
with respect to the payment of any Black Scholes Value to the Holder in accordance with Section
4(c) below or the delivery of any notice of any Fundamental Transaction that in accordance with
this Section 4 or Section 8 is scheduled to occur after the consummation of such Change of Control)
in all respects with its obligations pursuant to Sections 4(b), 4(c) and 8 hereof, including
without limitation, the delivery of the notice of such Fundamental Transaction and with respect to
any Black Scholes Notice delivered by the Holder either (x) prior to the date of the consummation
of such Change of Control (other than an Involuntary Change of Control) or (y) prior to twenty (20)
Trading Days after either (A) the date of the consummation of such Change of Control (other than an
Involuntary Change of Control) or (B) the later of (I) the date of the consummation of such
Involuntary Change of Control and (II) the date of the Holder’s receipt of a written notice from
the Company with respect to such Involuntary Change of Control, the payment of the Black Scholes
Value to the Holder in accordance with Section 4(c) below on or prior to the applicable Black
Scholes Payment Date. Upon the occurrence of any Assumption Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date of such Assumption
Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer
instead to the Successor Entity), and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Warrant with the same effect as if such
Successor Entity (including its Parent Entity) had been named as the Company herein.
Notwithstanding the foregoing, but except with respect to an Assumption Fundamental Transaction in
which the Company does not survive the consummation thereof, the Holder may elect, at its sole
option, by delivery of written notice to the Company to waive this Section 4(b) to permit the
Assumption Fundamental Transaction without the assumption of this Warrant. Upon consummation of
the Assumption Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any time after the
consummation of the Assumption Fundamental Transaction, in lieu of the Common Shares (or other
securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to
such Assumption Fundamental Transaction, such shares of the publicly traded common stock (or its
equivalent) of the Successor Entity (including its Parent Entity), as adjusted in accordance with
the provisions of this Warrant. In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of
Common Shares are entitled to receive securities or other assets with respect to or in exchange for
Common Shares (a “Corporate Event”), the Company shall (or, with respect to any tender offer
Involuntary Change of Control, shall use its reasonable best efforts to) make appropriate provision
to insure that the Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Fundamental Transaction but prior to the
Expiration Date, in lieu of the Common Shares (or other securities, cash, assets or other property)
purchasable upon the exercise of the Warrant prior to such Fundamental Transaction or the publicly
traded stock (or its equivalents) of the Successor Entity upon an Assumption Fundamental
Transaction, such shares, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction had the Warrant been exercised
immediately prior to such Fundamental Transaction. Provision made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the Required Holders. If
holders of Common Shares are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as to the
consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.
The provisions of this Section shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any limitations on the
exercise of this Warrant.

     (c) Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event of a
Change of Control, if the Holder has not exercised the Warrant in full prior to the consummation of
the Change of Control, then the Holder shall have the right by written notice to the Company (the
“Black Scholes Notice”) to require the Company (or such Successor Entity, as applicable) to
purchase this Warrant from the Holder by paying to the Holder, either (i) concurrently with the
consummation of such Change of Control if such notice is received prior to the consummation of such
Change of Control or (ii) within five (5) Trading Days after the Company’s receipt of

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such Black Scholes Notice otherwise (such applicable payment date, the “Black Scholes Payment
Date”), in lieu of the warrant referred to in Section 4(b), cash in an amount equal to the Black
Scholes Value of the remaining unexercised portion of this Warrant as calculated on either (x) the
date of the consummation of such Change of Control (other than an Involuntary Change of Control) or
(y) the date of the Black Scholes Notice with respect to any Involuntary Change of Control.

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by
amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and will at all times in good faith carry out all the provisions of this
Warrant and take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not increase the par value of any
Common Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares upon the exercise of this
Warrant, and (iii) shall, so long as any of the Exchange Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued Common Shares, solely
for the purpose of effecting the exercise of the Exchange Warrants, 100% of the number of Common
Shares as shall from time to time be necessary to effect the exercise of the Exchange Warrants then
outstanding (without regard to any limitations on exercise).

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of shares, reclassification of shares, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall
be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of
this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information given to the
shareholders of the Company generally, contemporaneously with the giving thereof to the
shareholders.

7. REISSUANCE OF WARRANTS.

     (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder
may request, representing the right to purchase the number of Warrant Shares being transferred by
the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the
right to purchase the number of Warrant Shares not being transferred.

     (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying
this Warrant.

     (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the
right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of
such surrender; provided, however, that no Warrants for fractional Common Shares shall be given.

7

 

     (d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of Common Shares underlying the other new Warrants issued in connection with
such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an Exchange Date, as indicated on the face of such new Warrant which is the same as the
Exchange Date, (iv) shall have an Issuance Date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (v) shall have the same rights and conditions as this
Warrant.

8. NOTICES; CURRENCY; TAXES; PAYMENTS.

     (a) Notices. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 7.7 of the
applicable Exchange Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at
least fifteen days prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Shares, (B) with respect to any
grants, issuances or sales of any Options, Convertible Securities or rights to purchase shares,
warrants, securities or other property to holders of Common Shares (other than pursuant to an
Approved Share Plan) or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such information shall be made
known to the public prior to or in conjunction with such notice being provided to the Holder. To
the extent that any notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of its subsidiaries, the Company shall simultaneously file
such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current
Report on Form 8-K. It is expressly understood and agreed that the time of execution specified by
the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.

     (b) Currency. All amounts owing under this Warrant or any Transaction Document that,
in accordance with their terms, are paid in cash shall be paid in US dollars. All amounts
denominated in other currencies shall be converted to the US dollar equivalent amount in accordance
with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount
of currency to be converted into US dollars pursuant to this Warrant, the US dollar exchange rate
as published in the Wall Street Journal on the relevant date of calculation (it being understood
and agreed that where an amount is calculated with reference to, or over, a period of time, the
date of calculation shall be the final date of such period of time).

     (c) Taxes.

     (i) Any and all payments by the Company hereunder, including any amounts received by
the Holder following the delivery of a Black Scholes Notice, shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, imposed under Part XIII
of the Income Tax Act (Canada) (collectively referred to as “Part XIII Taxes”) and Article
XI of the Canada United States Tax Convention (1980) (together with Part XIII Taxes, the
“Canadian Taxes”) unless the Company is required to withhold or deduct any amounts for, or
on account of, Canadian Taxes pursuant to any applicable law. If the Company shall be
required to withhold or deduct any Canadian Taxes from or in respect of any sum payable
hereunder to the Holder, (x) the sum payable shall be increased by the amount by which the
sum payable would otherwise have to be increased (the “tax make-whole amount”) to ensure
that after making all required withholdings and deductions (including deductions applicable
to the tax make-whole amount) the Holder would receive an amount equal to the sum it would
have received had no such deductions been made, (y) the Company shall make such deductions,
and (z) the Company shall pay the full amount withheld or deducted to the Canada Revenue
Agency within the time required.

8

 

          (ii) In addition, the Company agrees to pay to the relevant governmental authority in
accordance with applicable law any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies that arise from any payment made
hereunder or in connection with the execution, delivery, registration or performance of, or
otherwise with respect to, this Warrant (“Other Taxes”).

          (iii) The Company shall deliver to the Holder official receipts, if any, in respect of
any Canadian Taxes and Other Taxes payable hereunder promptly after payment of such Canadian
Taxes, Other Taxes or other evidence of payment reasonably acceptable to the Holder.

          (iv) If the Company fails to pay any amounts in accordance with this Section 8(c), the
Company shall indemnify the Holder within ten (10) calendar days after written demand
therefor, for the full amount of any Canadian Taxes or Other Taxes, plus any related
interest or penalties, that are paid by the Holder to the Canada Revenue Agency or other
relevant governmental authority as a result of such failure.

          (v) The obligations of the Company under this Section 8(c) shall survive the
termination of this Warrant and the payment of all other amounts payable hereunder.

     (d) Payments. Whenever any payment of cash is to be made by the Company to any Person
pursuant to this Warrant, such payment shall be made in lawful money of the United States of
America via wire transfer of U.S. dollars and immediately available funds in accordance with the
Holder’s wire transfer instructions delivered to the Company on or prior to such payment date or,
in the absence of such instructions, by a check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially be as set forth in
the Exchange Agreement of such Purchaser).

9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the Required Holders (which must include each of the holders of Exchange Warrants on the
Issuance Date (and/or their affiliates, as applicable) that as of such amendment date hold Exchange
Warrants exercisable into at least 50% of the Common Shares underlying such Holder’s (and their
affiliates’, as applicable) Exchange Warrants on the Issuance Date); provided that no such action
may increase the exercise price of any Exchange Warrant or decrease the number of shares or class
of shares obtainable upon exercise of any Exchange Warrant without the written consent of the
Holder. No such amendment shall be effective to the extent that it applies to less than all of the
holders of the Exchange Warrants then outstanding.

10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant 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. The Company 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. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law. In
the event that any provision of this Warrant is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any
such provision which may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Warrant. Nothing contained herein shall be deemed
or operate to preclude the Holder from bringing suit or taking other legal action against the
Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security, if any, for such obligations, or to enforce a judgment or
other court ruling in favor of the Holder. The

9

 

Company hereby appoints C T Corporation System, 4169 Westport Road, Louisville, KY 40207 as its
agent for service of process in the United States. If service of process is effected pursuant to
the above sentence, such service will be deemed sufficient under New York law and the Company shall
not assert otherwise. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. THE COMPANY 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 WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

11. JUDGMENT CURRENCY.

     (a) If for the purpose of obtaining or enforcing judgment against the Company in any court in
any jurisdiction it becomes necessary to convert into any other currency (such other currency being
hereinafter in this Section 11 referred to as the “Judgment Currency”) an amount due in U.S.
dollars under this Warrant, the conversion shall be made at the Exchange Rate prevailing on the
Trading Day immediately preceding:

          (i) the date actual payment of the amount due, in the case of any proceeding in the
courts of New York or in the courts of any other jurisdiction that will give effect to such
conversion being made on such date: or

          (ii) the date on which the foreign court determines, in the case of any proceeding in
the courts of any other jurisdiction (the date as of which such conversion is made pursuant
to this Section 11(a)(ii) being hereinafter referred to as the “Judgment Conversion Date”).

     (b) If in the case of any proceeding in the court of any jurisdiction referred to in Section
11(a)(ii) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion
Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted
amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which
could have been purchased with the amount of Judgment Currency stipulated in the judgment or
judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.

     (c) Any amount due from the Company under this provision shall be due as a separate debt and
shall not be affected by judgment being obtained for any other amounts due under or in respect of
this Warrant.

12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and the Holder and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.

13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within two Business Days of receipt of the
Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and
the Company are unable to agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or arithmetic calculation
being submitted to the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holder of the results no later
than ten Business Days from the time it receives the disputed determinations or calculations. Such
investment bank’s or accountant’s determination or calculation, as the case may be, shall be
binding upon all parties absent demonstrable error.

14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in
this Warrant shall be cumulative and in addition to all other remedies available under this
Warrant, the

10

 

Exchange Agreements, the Securities Purchase Agreement and the other Transaction Documents, at law
or in equity (including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the Holder right to pursue actual damages for any failure
by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without
the consent of the Company, except as may otherwise be required by Section 2(f) of the Securities
Purchase Agreement.

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the
following meanings:

     (a) “Approved Share Plan” means any employee benefit plan which has been approved by the board
of directors of the Company prior to or subsequent to the date hereof pursuant to which Common
Shares and standard options to purchase Common Shares may be issued to any employee, officer or
director for services provided to the Company in their capacity as such.

     (b) “Bloomberg” means Bloomberg Financial Markets.

     (c) “Black Scholes Value” means the value of this Warrant based on the Black and Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of
consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining
term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c), (ii) an
expected volatility equal to the greater of 60% and the 180 day volatility obtained from the HVT
function on Bloomberg as of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction and, if applicable, (iii) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash, if any, plus the
value of any non-cash consideration, if any, being offered in the applicable Fundamental
Transaction.

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

     (e) “Change of Control” means any Fundamental Transaction (including, without limitation, any
Involuntary Change of Control) other than (i) any merger of the Company or any of its, direct or
indirect, wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any
reorganization, recapitalization or reclassification of the Common Shares in which holders of the
Company’s voting power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or reclassification to hold
publicly traded securities and, directly or indirectly, are, in all material respects, the holders
of the voting power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a corporation) of
such entity or entities) after such reorganization, recapitalization or reclassification, or (iii)
pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or any of its Subsidiaries.

     (f) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such security, the last closing bid price
or last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by

11

 

Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately adjusted for any share
dividend, share split, share combination or other similar transaction during the applicable
calculation period.

     (g) “Common Shares” means (i) the Company’s Common Shares, no par value, and (ii) any share
capital into which such Common Shares shall have been changed or any share capital resulting from a
reclassification of such Common Shares.

     (h) “Convertible Securities” means any shares or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common Shares.

     (i) “Eligible Market” means the Principal Market, The New York Stock Exchange, NYSE Amex, The
Nasdaq Global Market or The Nasdaq Capital Market.

     (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended and the rules and
regulations thereunder.

     (k) “Exchange Notes” means those certain Amortizing Convertible Notes issued pursuant to the
Exchange Agreements.

     (l) “Expiration Date” means the fifth anniversary of the Issuance Date, or, if such date falls
on a day other than a Business Day or on which trading does not take place on the Principal Market
(a “Holiday”), the next date that is not a Holiday.

     (m) “Fundamental Transaction” means that (A) the Company or any of its Significant
Subsidiaries shall, directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company or any of its Significant Subsidiaries is the
surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the Company or any of
its Significant Subsidiaries to another Person, or (iii) allow another Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares
of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer), or (iv) consummate a securities purchase agreement or
other business combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such securities purchase or
other business combination), or (v) reorganize, recapitalize or reclassify the Voting Stock of the
Company or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the
Company.

     (n) “Involuntary Change of Control” means any Fundamental Transaction pursuant to clause
(A)(iii) or clause (B) of the definition of Fundamental Transaction herein that does not involve
any prior, direct or indirect, agreement, support or other assistance by the Company or any of its
Subsidiaries (or any employee, officer, director, consultant or agent of the Company or any of its
Subsidiaries) (other than the Company’s compliance with Regulation 14D under the Exchange Act).

     (o) “Options” means any rights, warrants or options to subscribe for or purchase Common Shares
or Convertible Securities.

12

 

     (p) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

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

     (r) “Principal Market” means The Nasdaq Global Select Market.

     (s) “Required Holders” means the holders of the Exchange Warrants representing at least a
majority of Common Shares underlying the Exchange Warrants then outstanding.

     (t) “Significant Subsidiaries” means “significant subsidiaries” (as defined in Rule 1-02 of
Regulation S-X, except that all references to “10 percent” set forth therein shall be deemed
replaced with “20 percent”).

     (u) “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent
Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

     (v) “Trading Day” means any day on which the Common Shares is traded on the Principal Market,
or, if the Principal Market is not the principal trading market for the Common Shares, then on the
principal securities exchange or securities market on which the Common Shares is then traded;
provided that “Trading Day” shall not include any day on which the Common Shares is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Shares is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time).

     (w) “Voting Stock” of a Person means capital shares of such Person of the class or classes
pursuant to which the holders thereof have the general voting power to elect, or the general power
to appoint, at least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital shares of any other class or classes shall have
or might have voting power by reason of the happening of any contingency).

[Signature Page Follows]

13

 

     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Shares to be duly
executed as of the Issuance Date set out above.

	 	 	 	 	 
	 	NGAS RESOURCES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title 	 
	 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON SHARES

NGAS RESOURCES, INC.

     The undersigned holder hereby exercises the right to purchase                                          of the
Common Shares (“Warrant Shares”) of NGAS RESOURCES, INC., corporation incorporated under the laws
of the Province of British Columbia (the “Company”), evidenced by the attached Warrant to Purchase
Common Shares (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. The Holder intends that payment of the Exercise Price
shall be made as:

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

                               a “Cashless Exercise” with respect to                                         
Unavailable Warrant Shares (as defined in Section 1(d) of the
Warrant).

     2. Payment of Exercise Price. Except in the event that the holder is entitled to
Cashless Exercise for Unavailable Warrant Shares under Section 1(d) of the Warrant, the holder
shall pay the Aggregate Exercise Price in the sum of $                                         to the Company in
accordance with the terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder                     
Warrant Shares in accordance with the terms of the Warrant.

     4. Maximum Percentage. Notwithstanding anything to the contrary contained herein,
this Exercise Notice shall constitute a representation by the Holder of the Warrant submitting this
Exercise Notice that, after giving effect to the conversion provided for in this Exercise Notice ,
such Holder (together with its affiliates) will not have beneficial ownership (together with the
beneficial ownership of such Person’s affiliates) of a number of Common Shares which exceeds the
Maximum Percentage (as defined in the Warrant) of the total outstanding Common Shares of the
Company as determined pursuant to the provisions of Section 1(f) of the Warrant.

Date:                                          ,                

                                                       
                         

 Name of Registered Holder

	 	 	 	 	 
	 	 
	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 

 

 

ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs Computershare
Investor Services Inc. to issue the above indicated number of Common Shares in accordance with the
Transfer Agent Instructions dated January ___, 2010 from the Company and acknowledged and agreed to
by Computershare Investor Services Inc.

	 	 	 	 	 
	 	NGAS RESOURCES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:exv10w4

Exhibit 10.4

Fourth Amendment to Amended and Restated Credit Agreement

     This Fourth Amendment to Amended and Restated Credit Agreement (this “Fourth
Amendment”) executed effective as of the
11th day of January, 2010 (the “Fourth Amendment
Effective Date”) is among NGAS Resources, Inc., a corporation formed under the laws of
the Province of British Columbia (“Holdings”), Daugherty Petroleum, Inc., a
corporation formed under the laws of the Commonwealth of Kentucky (the “Borrower”);
KeyBank National Association, as administrative agent for the Lenders (in such capacity,
together with its successors, the “Administrative Agent”), and the Lenders signatory
hereto.

Recitals

     A. Holdings, the Borrower, the Administrative Agent and the Lenders are parties to that
certain Amended and Restated Credit Agreement dated as of May 30, 2008, as amended by that First
Amendment dated as of June 30, 2008, the Second Amendment dated as of December 31, 2008 and the
Third Amendment dated as of June 2, 2009 (the “Credit Agreement”), pursuant to which the
Lenders have made certain credit available to and on behalf of the Borrower.

     B. Holdings and the Borrower have requested, and the Administrative Agent and the Lenders have
agreed to amend certain provisions of the Credit Agreement subject to compliance with the terms and
conditions of this Fourth Amendment to permit the Borrower to make certain distributions to
Holdings to be used by Holdings to redeem all or a portion of the NGAS Convertible Notes.

     C. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

     Section 1. Defined Terms. Each capitalized term which is defined in the Credit
Agreement, but which is not defined in this Fourth Amendment, shall have the meaning ascribed such
term in the Credit Agreement. Unless otherwise indicated, all section references in this Fourth
Amendment refer to the Credit Agreement.

     Section 2. Amendments to Credit Agreement.

     2.1 Amendments to Section 1.01. Section 1.01 is hereby amended by (a) deleting the
defined term “NGAS Registration Rights Agreement” in its entirety, (b) deleting the defined terms
“NGAS Convertible Notes”, “NGAS Securities Purchase Agreement” and NGAS Securities Purchase
Documents” in their entirety and replacing them with the following and (c) adding the definitions
“Fourth Amendment Effective Date” and “NGAS Convertible Note Dividend” in the appropriate
alphabetical order:

     “‘NGAS Convertible Notes’ means the 6% Amortizing Convertible Notes due
May 1, 2012 to be issued by Holdings in the aggregate original principal amount of
$28,700,000, together with certain additional consideration, in exchange for 6%
Convertible Notes due December 15, 2010 issued by Holdings pursuant to the NGAS
Securities Purchase Agreement, as amended and in effect on the Fourth Amendment
Effective Date.

     ‘NGAS Securities Purchase Agreement’ means the Securities Purchase
Agreement dated as of December 13, 2005, among Holdings and the investors specified
therein, as amended and superseded by a separate Exchange Agreement among Holdings
and the investors named therein in connection with the exchange of NGAS Convertible
Notes, each as in effect on the Fourth Amendment Effective Date.

     ‘NGAS Securities Purchase Documents’ means the NGAS Securities Purchase
Agreement, the NGAS Convertible Notes to be issued by Holdings on the Fourth
Amendment Effective Date, and all other agreements, instruments and documents
relating to any of the foregoing, each as in effect on the Fourth Amendment
Effective Date.

 

 

     ‘Fourth Amendment Effective Date’ has the meaning specified in the
Fourth Amendment to the Credit Agreement dated as of January 11, 2010.

     ‘NGAS Convertible Note Dividends’ has the meaning specified in Section
7.06(c).”

     2.2 Amendment to Section 7.06(b). Section 7.06(b) is hereby amended in its entirety
by replacing it with the following:

     “(b) so long as no Default or Event of Default shall have occurred and be
continuing or would result therefrom, the Borrower may pay dividends to Holdings to
be used by Holdings solely to make regularly scheduled interest payments on (i) the
NGAS Convertible Notes, provided that such dividends for payment of regularly
scheduled interest on the NGAS Convertible Notes shall not exceed $2,220,000 in the
aggregate per calendar year from and after the Fourth Amendment Effective Date, and
(ii) any other unsecured Indebtedness incurred by Holdings after the date hereof (A)
no part of the principal of which is required to be paid or prepaid prior to the
date occurring three (3) months after the Termination Date and (B) that has been
approved in writing by the Required Lenders prior to the incurrence of such
Indebtedness.”

     2.3 Amendment to Section 7.06. Section 7.06 is hereby amended by adding the following
subsections (c), (d) and (e):

     “(c) so long as no Default or Event of Default shall have occurred and be
continuing or would result therefrom, the Borrower may pay dividends to Holdings to
be used by Holdings solely to redeem certain of the NGAS Convertible Notes, which
amount shall solely be payable during the time frames specified below and subject to
the limitations specified therewith (the “NGAS Convertible Note Dividends”):

          (i) on or before March 31, 2010, the Borrower may pay NGAS Convertible Note
Dividends up to a maximum amount not to exceed $3,000,000;

          (ii) beginning June 1, 2010, the Borrower may pay NGAS Convertible Note
Dividends, provided that Holdings has on or before such date made a distribution or
distributions to the Borrower in an amount equal to such NGAS Convertible Note
Dividend and the sum of all previous NGAS Convertible Note Dividends;

     (d) notwithstanding anything to the contrary in this Section 7.06, no
distribution shall be made in accordance with Sections 7.06 (b) or (c) if before or
after such distribution the Aggregate Outstanding Credit would exceed 80% of the
lesser of (i) the Borrowing Base or (ii) the Total Commitment, each as then in
effect.”

          2.4 Amendment to Section 7.08. Section 7.08 is hereby amended in its entirety by
replacing it with the following:

     “Section 7.08 Optional Payments and Modifications of Certain Instruments;
Synthetic Debt. Except as provided in the NGAS Securities Documents, (a) make
or offer to make any optional or voluntary payment, prepayment, repurchase or
redemption of or otherwise optionally or voluntarily defease or segregate funds with
respect to the NGAS Convertible Notes, (b) make any payment, repurchase or
redemption with respect to the NGAS Convertible Notes, (c) amend, modify, waive or
otherwise change, or consent or agree to any amendment, modification, waiver or
other change to, any of the terms of the NGAS Securities Purchase Documents (other
than any such amendment, modification, waiver or other change that (i) would extend
the maturity or reduce the amount of any payment of principal thereof or reduce the
rate or extend any date for payment of interest thereon and (ii) does not involve
the payment of a consent fee), or (d) incur or be obligated under, or make any
payment under, any Synthetic Debt;”

     2.5 Amendment to Section 8.01(m). Section 8.01(m) is hereby amended in its entirety
by replacing it with the following:

Page 2

 

     “(m) except pursuant to the NGAS Securities Documents, (i) any “person” or
“group” (as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), shall become, or
obtain rights (whether by means or warrants, options or otherwise) to become, the
“beneficial owner” (as defined in Rules 13(d) 3 and 13(d) 5 under the Exchange Act),
directly or indirectly, of more than 30% of any outstanding class of Equity
Interests of Holdings having ordinary voting power for the election of directors of
Holdings; (ii) the board of directors of Holdings shall cease to consist of a
majority of Continuing Directors; and (iii) Holdings shall cease to own and control,
of record and beneficially, directly, 100% of each class of outstanding Equity
Interests of the Borrower free and clear of all Liens (except Liens created by the
Security Documents); or

     Section 3. Borrowing Base.

     3.1 Reduction. The Borrowing Base shall be reduced by $1,000,000 on the first day of
each calendar month, beginning on February 1, 2010, until the next redetermination of the Borrowing
Base in accordance with Section 2.02(b).

     3.2 Repayment of Distribution. On June 30, 2010, the Borrowing Base shall be reduced
by an amount equal to the excess on such date, if any, of the NGAS Convertible Note Dividend paid
by the Borrower pursuant to Section 7.06(c)(i) of the Credit Agreement over any distributions from
Holdings to the Borrower after the payment of such NGAS Convertible Note Dividend.

     Section 4 Conditions Precedent. The effectiveness of this Fourth Amendment is subject
to the receipt by the Administrative Agent of the following documents and satisfaction of the other
conditions provided in this Section 4, each of which shall be reasonably satisfactory to the
Administrative Agent in form and substance:

     4.1 Fourth Amendment. The Administrative Agent shall have received multiple
counterparts as requested of this Fourth Amendment from the Borrower and the Required Lenders.

     4.2 Payment of Outstanding Invoices. Payment by the Borrower to the Administrative
Agent of (a) an amendment fee to the Administrative Agent for each Lender approving this Fourth
Amendment in an amount equal to 25 bps times the Commitment of each such Lender and (b) all other
fees and other amounts due and payable on or prior to the Fourth Amendment Effective Date,
including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower (including, without limitation, the fees and expenses of
Vinson & Elkins L.L.P., counsel to the Administrative Agent).

     4.3 No Default. No Default or Event of Default shall have occurred and be continuing
as of the Fourth Amendment Effective Date.

     Section 5. Representations and Warranties; Etc. Each of Holdings, the Borrower and
the other Loan Parties hereby represents and warrants that:

     5.1 The execution, delivery and performance by Holdings, the Borrower and each Loan Party of
this Fourth Amendment have been duly authorized by all necessary corporate, limited partnership or
limited liability company action, as appropriate, including, without limitation, where a Party is a
limited partnership, all necessary action by its general and limited partners, and that this
Amendment is a legal, valid and binding obligation of Holding, the Borrower and each Loan Party
enforceable against it in accordance with its terms, except as the enforcement hereof may be
subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors’ rights generally or to general principles of equity.

     5.2 The execution, delivery and performance of this Amendment by Holdings, the Borrower and
each Loan Party does not, and will not, contravene or conflict with any provision of (a) law, (b)
any judgment, decree or order, or (c) the certificate of incorporation or formation or bylaws,
limited liability company agreement or limited partnership agreement of Holdings, the Borrower or
any Loan Party, as applicable, and does not, and will not, contravene or conflict with, or cause
any Lien to arise under, any provision of any agreement, mortgage, lease, instrument or other
document binding upon or otherwise affecting the Borrower, any Loan Party or any property of the
Borrower, any Loan Party or any Subsidiary thereof.

Page 3

 

     5.3 All of the representations and warranties contained in the Credit Agreement and each other
Loan Document are true and correct in all material respects on and as of the date hereof as if made
on the date hereof and no Default or Event of Default exists under the Credit Agreement or any
other Loan Document or will exist after or be triggered by the execution and delivery of this
Amendment. In addition, Holdings, the Borrower and each Loan Party hereby represent and warrant
that the Credit Agreement and each of the other Loan Documents remain in full force and effect.

     5.4 No consent or authorization of, filing with, notice to or other act by or in respect of,
any governmental authority or any other Person is required to be obtained by Holdings, the Borrower
or any other Loan Party in connection with the execution, delivery, performance, validity or
enforceability of this Amendment.

     5.5 There are no liquidation or dissolution proceedings pending or to the knowledge of
Holdings, the Borrower or any other Loan Party threatened against Holdings, the Borrower or any
other Loan Party, nor has any other event occurred adversely affecting or threatening the continued
limited partnership, limited liability company or corporate existence, as appropriate, of Holdings,
the Borrower or any other Loan Party.

     Section 6. Miscellaneous.

     6.1 Confirmation. The provisions of the Credit Agreement (as amended by this Fourth
Amendment) shall remain in full force and effect in accordance with its terms following the
effectiveness of this Fourth Amendment.

     6.2 Ratification and Affirmation of the Borrower. The Borrower hereby expressly (a)
acknowledges the terms of this Fourth Amendment, (b) ratifies and affirms its obligations under the
Credit Agreement and the other Security Instruments to which it is a party, (c) acknowledges its
continued liability under the Credit Agreement and the other Security Instruments to which it is a
party remains in full force and effect with respect to the Indebtedness, as renewed and extended
hereby.

     6.3 Counterparts. This Fourth Amendment may be executed by one or more of the parties
hereto in any number of separate counterparts, and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.

     6.4 No Oral Agreement. This written Fourth Amendment, the Credit Agreement and
the other Loan Documents executed in connection herewith and therewith represent the final
agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or
unwritten oral agreements of the parties. There are no subsequent oral agreements between the
parties as of the Fourth Amendment Effective Date.

     6.5 Governing Law. This Fourth Amendment (including, but not limited to, the
validity and enforceability hereof) shall be governed by, and construed in accordance with, the
laws of the State of Texas.

     6.6 Release of Lenders. IN CONSIDERATION OF THIS FOURTH AMENDMENT AND, SUBJECT TO
THE CONDITIONS STATED HEREIN, EACH OF HOLDINGS, THE BORROWER AND THE GUARANTORS HEREBY RELEASES,
ACQUITS, FOREVER DISCHARGES, AND COVENANTS NOT TO SUE, THE ADMINISTRATIVE AGENT AND EACH OF THE
LENDERS, ALONG WITH ALL OF THEIR BENEFICIARIES, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SERVANTS,
ATTORNEYS AND REPRESENTATIVES, AS WELL AS THEIR RESPECTIVE HEIRS, EXECUTORS, LEGAL REPRESENTATIVES,
ADMINISTRATORS, PREDECESSORS IN INTEREST, SUCCESSORS AND ASSIGNS (EACH INDIVIDUALLY, A
“RELEASED PARTY” AND COLLECTIVELY, THE “RELEASED PARTIES”) FROM ANY AND ALL CLAIMS,
DEMANDS, DEBTS, LIABILITIES, SUITS, OFFSETS AGAINST THE INDEBTEDNESS EVIDENCED BY THE LOAN
DOCUMENTS AND ACTIONS, CAUSES OF ACTION OR CLAIMS FOR RELIEF OF WHATEVER KIND OR NATURE, WHETHER
KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED BY BORROWER OR ANY OBLIGOR, WHICH HOLDINGS, THE
BORROWER, ANY GUARANTOR, ANY OBLIGOR, OR ANY SUBSIDIARY MAY HAVE OR WHICH MAY HEREAFTER ACCRUE
RELATED TO ANY ACTIONS

Page 4

 

OR FACTS OCCURRING PRIOR TO THE FOURTH AMENDMENT EFFECTIVE DATE AGAINST ANY RELEASED PARTY,
FOR OR BY REASON OF ANY MATTER, CAUSE OR THING WHATSOEVER OCCURRING ON OR PRIOR TO THE FOURTH
AMENDMENT EFFECTIVE DATE, WHICH RELATE TO, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY THE CREDIT
AGREEMENT, ANY HEDGE AGREEMENT, ANY NOTE, ANY SECURITY DOCUMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS EVIDENCED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY DISBURSEMENTS UNDER THE CREDIT
AGREEMENT, ANY HEDGE AGREEMENT, ANY NOTES, THE NEGOTIATION OF ANY OF THE CREDIT AGREEMENT, THE
HEDGE AGREEMENTS, THE NOTES, OR THE OTHER LOAN DOCUMENTS, THE TERMS THEREOF, OR THE APPROVAL,
ADMINISTRATION, ENFORCEMENT OR SERVICING THEREOF.

[Remainder of page intentionally left blank]

Page 5

 

     IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed
effective as of the Fourth Amendment Effective Date.

	 	 	 	 	 
	HOLDINGS: 	 NGAS RESOURCES, INC.,

a British Columbia corporation

 	 
	 	By:  	/s/ Michael P. Windisch
 	 
	 	 	Title:  Chief Financial Officer 	 
	 	 	Date: January 11, 2010	 
	 
	BORROWER: 
a Kentucky corporation	 DAUGHERTY PETROLEUM, INC.,

 	 
	 	By:  	/s/ Michael P. Windisch
 	 
	 	 	Title:  Chief Financial Officer 	 
	 	 	Date: January 11, 2010 	 
	 

Fourth Amendment

Signature Page — 6

 

 

	 	 	 	 	 
	ADMINISTRATIVE AGENT: 	 KEYBANK NATIONAL ASSOCIATION,

as Administrative Agent and Lender

 	 
	 	By:  	/s/ Thomas Rajan
 	 
	 	 	Title: Senior Vice President 	 
	 	 	Date: January 11, 2010 	 
	 

Fourth Amendment

Signature Page — 7

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