EXHIBIT 10.2

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT 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 FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a)
HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

KENTUCKY USA ENERGY, INC.
8% SENIOR CONVERTIBLE NOTE

Issuance Date:  May 29, 2008
Original Principal Amount: U.S. $2,500,000

FOR VALUE RECEIVED, Kentucky USA Energy, Inc., a Delaware corporation (the
“Company”), hereby promises to pay to the order of _______________ or registered
assigns (the “Holder”) the amount set out above as the Original Principal Amount
(as reduced pursuant to the terms hereof pursuant to payment, redemption,
conversion or otherwise, the “Principal”) when due, whether upon the Maturity
Date (as defined below) or any Installment Date (as defined below) with respect
to the Installment Amount (as defined below) due on such Installment Date or
upon acceleration, redemption or otherwise (in each case in accordance with the
terms hereof) and to pay interest (“Interest”) on any outstanding Principal at a
rate per annum equal to the Interest Rate (as defined below), from the date set
out above as the Issuance Date (the “Issuance Date”) until the same becomes due
and payable, whether upon the Maturity Date, an Interest Date (as defined below)
or any Installment Date or upon acceleration, redemption or otherwise (in each
case in accordance with the terms hereof).  This 8% Senior Convertible Note
(including all 8% Senior Convertible Notes issued in exchange, transfer or
replacement hereof, this “Note”) is one of a series of 8% Senior Convertible
Notes issued pursuant to the Securities Purchase Agreement on the Closing Date
(collectively, the “Notes” and such other 8% Senior Convertible Notes, the
“Other Notes”). Unless otherwise defined herein, certain capitalized terms in
this Note are defined in Section 28.

1. PAYMENTS OF PRINCIPAL; MATURITY.  On each Installment Date commencing May 29,
2009 (the “Initial Installment Date”), the Company shall pay to the Holder an
amount equal to the Installment Amount due on such Installment Date. At the
option of the Company, an Installment Amount may be paid either (i) in cash by
wire transfer of immediately available funds or (ii) in shares of Common Stock
based upon eighty-five percent (85%) of the five-day volume weighted average
prices of the Common Stock immediately prior to the applicable Installment Date
as reported by Bloomberg.  Any payment of principal of the Note made by the
Company shall reduce on a dollar for dollar basis the fact amount of the Note.

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The “Maturity Date” shall be May 28, 2011, as may be extended at the option of
the Holder in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default.

2. INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the
Issuance Date at the Interest Rate and shall be computed on the basis of a
360-day year and actual days elapsed and shall be payable in arrears on the
first Business Day of each calendar quarter following the Issuance Date and
ending on, and including, the Maturity Date (each, an “Interest Date”) with the
first Interest Date being August 29, 2008. Interest shall be payable to the
record holder of this Note on the applicable Interest Date, in cash. Any
Interest not paid on the Interest Date shall be added to the Principal of the
Note

3. CONVERSION OF NOTES.  This Note shall be convertible into shares of common
stock of the Company, par value $0.0001 per share (“Common Stock”), on the terms
and conditions set forth in this Section 3.

(a) Conversion Right.  Subject to the provisions of Section 3(d), at any time or
times on or after the Issuance Date, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
fully paid and nonassessable shares of Common Stock in accordance with Section
3(c), at the Conversion Rate (as defined below).  Any conversion pursuant to
this Section 3(a) shall be deemed to be a pre-payment of principal plus accrued
and unpaid interest thereon, without any penalty, and shall be credited against
any future payment of the Installment Amount in reverse chronological order
starting with the last Installment Date. The Company shall not issue any
fraction of a share of Common Stock upon any conversion.  If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up to the nearest whole
share.

(b) Conversion Rate.  The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).

(i) “Conversion Amount” means the portion of the Principal plus any accrued and
unpaid interest thereon at the Interest Rate to be converted, redeemed or
otherwise with respect to which this determination is being made.

(ii) “Conversion Price” means $1.50, subject to any adjustment as provided
herein.
 
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(c) Mechanics of Conversion.

(i) Optional Conversion.  To convert any Conversion Amount into shares of Common
Stock on any date on or after the Issuance Date (a “Conversion Date”), the
Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or
prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice
of conversion in the form attached hereto as Exhibit A (the “Conversion Notice”)
to the Company and (B) if required by Section 3(c)(iii), surrender this Note to
a nationally recognized overnight delivery service for delivery to the Company
(or an indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction).  On or before the second (2nd) Trading Day
following the date of receipt of a Conversion Notice (the “Share Delivery
Date”), the Company shall (1) provided that the Transfer Agent is participating
in the Fast Automated Securities Transfer Program of DTC credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the
Holder’s or its designee’s balance account with DTC through its Deposit
Withdrawal Agent Commission system or (2) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled.  If this Note is
physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than three Business Days after receipt of this Note and at
its own expense, issue and deliver to the holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal not converted.  The Person
or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.  In the event
of a partial conversion of this Note pursuant hereto, the principal amount
converted shall be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.

(ii) Company’s Failure to Timely Convert.  If within three (3) Trading Days
after the Company’s receipt of the facsimile copy of a Conversion Notice, the
Company shall fail to issue and deliver a certificate to the Holder or credit
the Holder’s balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon such holder’s conversion of any Conversion
Amount, and if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by the Holder of Common Stock issuable upon such conversion that the Holder
anticipated receiving from the Company, then the Company shall, within three (3)
Business Days after the Holder’s request and provision of trade confirmations
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 and
other out-of-pocket expenses, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock 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 shares of Common Stock times (B) the Closing Bid Price on the
Conversion Date.
 
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(iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of
each Note and the principal amount of the Notes held by such holders (the
“Registered Notes”). The entries in the Register shall be conclusive and binding
for all purposes absent manifest error. The Company and the holders of the Notes
shall treat each Person whose name is recorded in the Register as the owner of a
Note for all purposes, including, without limitation, the right to receive
payments of principal and interest hereunder, notwithstanding notice to the
contrary. A Registered Note may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its receipt of a
request to assign or sell all or part of any Registered Note by a Holder, to the
extent permitted by applicable securities laws, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 17. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note.  The Holder and the Company shall maintain
records showing the Principal and Interest converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon conversion.

(iv) Disputes.  In the event of a dispute as to the number of shares of Common
Stock issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 23.

(d) Limitations on Conversions. 

(i) Beneficial Ownership.  The Company shall not effect any conversion of this
Note, and the Holder of this Note (including any successor, transferee or
assignee) shall not have the right to convert any portion of this Note pursuant
to Section 3(a), to the extent that after giving effect to such conversion, the
Holder (together with the Holder’s affiliates) would beneficially own in excess
of 4.99% of the number of shares of Common Stock outstanding immediately after
giving effect to such conversion; provided, however, the percentage limitation
may be increase to 9.99% at the Holder’s written request to the Company.  For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Note with respect to
which the determination of such sentence is being made, but shall exclude the
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this Section 3(d)(i), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the Company’s most
recent Form 10-K, Form 10-Q, Form 8-K or any other public filing with the
Securities and Exchange Commission, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
 For any reason at any time, upon the written request of the Holder, the Company
shall within two Business Days confirm in writing to the Holder the number of
shares of Common Stock then outstanding.  In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion
or exercise of securities of the Company, including this Note, by the Holder or
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
 
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(ii) Principal Market Regulation.  The Company shall not be obligated to issue
any shares of Common Stock upon conversion of this Note, and the Holder of this
Note shall not have the right to receive upon conversion of this Note any shares
of Common Stock, if the issuance of such shares of Common Stock would exceed the
aggregate number of shares of Common Stock which the Company may issue upon
conversion or exercise, as applicable, of the Notes and Warrants or otherwise
without breaching the Company’s obligations under the rules or regulations of
the Principal Market (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 Securities Purchase Agreement (the “Purchasers”) shall be issued in the
aggregate, upon conversion or exercise, as applicable, of Notes or Warrants,
shares of Common Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the principal amount of
Notes issued to such Purchaser pursuant to the Securities Purchase Agreement on
the Closing Date and the denominator of which is the aggregate principal amount
of all Notes issued to the Purchasers pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each Purchaser, the “Exchange Cap
Allocation”).  In the event that any Purchaser shall sell or otherwise transfer
any of such Purchaser’s 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
holder of Notes shall convert all of such holder’s Notes into a number of shares
of Common Stock which, in the aggregate, is less than such holder’s Exchange Cap
Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall be
allocated to the respective Exchange Cap Allocations of the remaining holders of
Notes on a pro rata basis in proportion to the aggregate principal amount of the
Notes then held by each such holder. To the extent required by the Principal
Market, the provisions of the Exchange Cap shall be modified to comply with the
applicable rules and regulations of the Principal Market, provided that any such
changes shall not, in the Holder’s reasonable discretion, materially change the
terms of the transaction contemplated hereby.
 
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4. RIGHTS UPON EVENT OF DEFAULT.

(a) Event of Default.  Each of the following events shall constitute an “Event
of Default “:

(i) the Company’s failure to pay to the Holder any amount of Principal
(including, without limitation, any redemption or make-whole payments), Interest
or other amounts when and as due under this Note or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby to which the Holder is a
party, except, in the case of a failure to pay Interest when and as due, in
which case only if such failure continues for a period of at least five (5)
Business Days;

(ii) any default under, redemption of or acceleration prior to maturity of any
Indebtedness in excess of $100,000, in the aggregate, of the Company or any of
its Subsidiaries (as defined in the Securities Purchase Agreement);

(iii) the Company or any of its Subsidiaries, pursuant to or within the meaning
of Title 11, U.S. Code, or any similar federal, foreign or state law for the
relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary
case, (B) consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;

(iv) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or
any of its Subsidiaries or (C) orders the liquidation of the Company or any of
its Subsidiaries;

(v) a final judgment or judgments for the payment of money aggregating in excess
of $250,000 are rendered against the Company or any of its Subsidiaries and
which judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $250,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;
 
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(vi) the Company breaches any material representation, warranty, covenant or
other term or condition of any Transaction Document, except, in the case of a
breach of a covenant which is curable, only if such breach continues for a
period of at least ten (10) consecutive Business Days;

(vii) any breach or failure in any respect to comply with Section 15 of this
Note; and

(viii) any Event of Default (as defined in the Other Notes) occurs with respect
to any Other Notes.

5. RIGHTS UPON FUNDAMENTAL TRANSACTION AND OTHER CORPORATE EVENTS.

(a) Assumption.  The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing all of the
obligations of the Company under this Note and the other Transaction Documents
in accordance with the provisions of this Section 5(a) pursuant to written
agreements in form and substance satisfactory to the Required Holders and
approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Notes in exchange for such
Notes a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to the Notes, including, without
limitation, having a principal amount and interest rate equal to the principal
amounts and the interest rates of the Notes held by such holder, having similar
conversion rights as the Notes and having similar ranking to the Notes, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note 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 Note
with the same effect as if such Successor Entity had been named as the Company
herein.  Upon consummation of the Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of the
Fundamental Transaction, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) issuable upon the conversion of the
Notes prior to such Fundamental Transaction, such shares of publicly traded
common stock (or its equivalent) of the Successor Entity (including its Parent
Entity) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Note been converted immediately prior
to such Fundamental Transaction, as adjusted in accordance with the provisions
of this Note.  The provisions of this Section shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion of this Note.
 
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(b) Other Corporate Events.  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 shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive, at the
Holder’s option, upon a conversion of this Note (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate.  Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Required Holders.  The provisions of
this Section shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.

6. ADJUSTMENT OF CONVERSION PRICE.

(a) Adjustment of Conversion Price upon Issuance of Common Stock.  If at any
time after the Subscription Date and prior to repayment in full or conversion in
full of this Note, the Company issues or sells, or in accordance with this
Section 6(a) is deemed to have issued or sold, any shares of Common Stock
(excluding shares of Common Stock deemed to have been issued or sold by the
Company in connection with any Excluded Securities) for a consideration per
share (the “New Issuance Price”) less than a price (the “Applicable Price”)
equal to the Conversion Price in effect immediately prior to such issue or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Conversion Price then in effect shall be reduced to the New
Issuance Price.  For purposes of determining the adjusted Conversion Price under
this Section 6(a), the following shall be applicable:

(i) Issuance of Options.  If the Company in any manner grants or sells any
options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such option or upon conversion or exchange or
exercise of any convertible securities issuable upon exercise of such option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such option for such price per share.  For purposes of
this Section 6(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such option or upon conversion or
exchange or exercise of any convertible securities issuable upon exercise of
such option” shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the option, upon exercise of the option
and upon conversion or exchange or exercise of any convertible security issuable
upon exercise of such option.  No further adjustment of the Conversion Price
shall be made upon the actual issuance of such share of Common Stock or of such
convertible securities upon the exercise of such options or upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
convertible securities.
 
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(ii) Issuance of Convertible Securities.  If the Company in any manner issues or
sells any convertible securities and the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such convertible securities for such price
per share.  For the purposes of this Section 6(a)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange or exercise” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the issuance or sale of the convertible security
and upon the conversion or exchange or exercise of such convertible security. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or exercise
of such convertible securities, and if any such issue or sale of such
convertible securities is made upon exercise of any options for which adjustment
of the Conversion Price had been or are to be made pursuant to other provisions
of this Section 6(a), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion.  If the purchase price
provided for in any options, the additional consideration, if any, payable upon
the issue, conversion,  exchange or exercise of any convertible securities, or
the rate at which any convertible securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be adjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.  For purposes of this Section 6(a)(iii), if
the terms of any option or convertible security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such option or convertible security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change.  No adjustment shall
be made if such adjustment would result in an increase of the Conversion Price.
 
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(iv) Calculation of Consideration Received.  In case any option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such options by the parties thereto, the options will be deemed to
have been issued for such consideration as determined in good faith by the Board
of Directors of the Company.  If any Common Stock, options or convertible
securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the net amount received
by the Company therefor.  If any Common Stock, options or convertible securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Company, except where such consideration consists of securities, in which case
the amount of consideration received by the Company will be the Closing Sale
Price of such securities on the date of receipt.  If any Common Stock, options
or convertible securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, options or convertible securities, as the
case may be.  Except as otherwise provided in this Section 6(a)(iv), the fair
value of any consideration other than cash or securities will be determined
jointly by the Company and the Required Holders.  If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”), the fair value of such consideration will be
determined by an independent, reputable appraiser jointly selected by the
Company and the Required Holders within five (5) Business Days after the tenth
day following the Valuation Event.  The determination of such appraiser shall be
deemed binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne by the Company.

(v) Record Date.  If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, options or in convertible securities or
(B) to subscribe for or purchase Common Stock, options or convertible
securities, then such record date will be deemed to be the date of the issue or
sale of the Notes deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.

(b) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock.If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion 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 stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
 
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7. COMPANY RIGHT OF REDEMPTION.

(a) General. The Company at its option shall have the right to redeem, with
three (3) Business Days advance written notice (the “Company Redemption
Notice”), a portion or all the outstanding principal of the Note. The redemption
price shall be the greater of (i) One Hundred and Twenty percent (120%) of the
principal amount to be redeemed or (ii) the product of (x) the principal amount
of the Note to be redeemed divided by the Conversion Price and (y) the Closing
Sale Price of the Common Stock on the day immediately before date of such
Company Redemption Notice (the “Company Redemption Price”), plus, in each case,
any accrued interest an unpaid interest.

(b) Mechanics of Company Redemption.  If the Company elects to redeem the Note
in accordance with Section 7(a), then the Company Redemption Price, if any,
which is to be paid to the Holder, shall be paid, by wire transfer of
immediately available funds, an amount in cash equal to 100% of the Company
Redemption Price.

8. CHANGE OF CONTROL. In the event the Company consummates a stock purchase
agreement or other business combination with another Person whereby such other
Person acquires more than the 50% of either the outstanding shares of Voting
Stock (not including any shares of Voting Stock 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 stock purchase agreement or other business
combination), the Holder at its option shall have the right to cause the Company
to repurchase a portion or all the outstanding principal of the Note. The
repurchase price shall be the greater of (i) One Hundred percent (100%) of the
principal amount to be repurchased or (ii) One Hundred Fifty percent (150%) of
the product of (x) the principal amount of the Note to be repurchased divided by
the Conversion Price and (y) the Closing Sale Price of the Common Stock on the
day immediately before date of such repurchase, plus, in each case, any accrued
interest an unpaid interest.

9. SECURITY.  This Note and the Other Notes are secured to the extent and in the
manner set forth in the Security Documents (as defined in the Securities
Purchase Agreement).

10. NONCIRCUMVENTION.  The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate 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 Note, and will at all times in good faith carry out all of the
provisions of this Note and take all reasonable action as may be required to
protect the rights of the Holder of this Note.

11. RESERVATION OF AUTHORIZED SHARES.

(a) Reservation.  The Company initially shall reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock for each of the Notes
equal to the Conversion Rate with respect to the Conversion Amount of each such
Note as of the Issuance Date.  So long as any of the Notes are outstanding, the
Company shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, the number of shares of Common Stock as shall from time
to time be necessary to effect the conversion of all of the Notes then
outstanding; provided that at no time shall the number of shares of Common Stock
so reserved be less than the number of shares required to be reserved of the
previous sentence (without regard to any limitations on conversions) (the
“Required Reserve Amount”). The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined
in the Securities Purchase Agreement) or increase in the number of reserved
shares, as the case may be (the “Authorized Share Allocation”). In the event
that a holder shall sell or otherwise transfer any of such holder’s Notes, each
transferee shall be allocated a pro rata portion of such holder’s Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.
 
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(b) Insufficient Authorized Shares.  If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding.
 Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its shareholders for the
approval of an increase in the number of authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each shareholder with a
proxy or information statement and shall use its reasonable best efforts to
solicit its shareholders’ approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal.

12. [Intentionally Omitted]

13. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS.  Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem, repurchase or declare or
pay any cash dividend or distribution on its capital stock without the prior
express written consent of the Required Holders.

14. VOTING RIGHTS.  The Holder shall have no voting rights as the holder of this
Note, except as required by law, including but not limited to Chapter 78 of the
Delaware Revised Statutes, and as expressly provided in this Note.
 
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15. COVENANTS.  

(a) Rank. All payments due under this Note shall rank pari passu with all Other
Notes and no other Indebtedness of the Company and its Subsidiaries shall be
senior to the Indebtedness of the Company and its Subsidiary evidenced by the
Note and the Other Notes, other than Permitted Indebtedness.

(b) Incurrence of Indebtedness.  So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) Indebtedness evidenced by this Note and (ii)
Permitted Indebtedness.

(c) Existence of Liens.  So long as this Note is outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, “Liens”), other than Permitted Liens.

(d) Restricted Payments.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on such Indebtedness, if at the time such payment
is due or is otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being cured would
constitute, an Event of Default has occurred and is continuing.

(e) Subsidiary Internal Accounting Controls.  So long as this Note is
outstanding, the Company and each of its Subsidiaries shall maintain, in all
material respects, a system of internal accounting controls consistent with the
Internal Accounting Controls (as defined in the Securities Purchase Agreement).

16. VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting of
the Required Holders shall be required for any change or amendment to this Note
or the Other Notes.

17. TRANSFER.  The Holder acknowledges and agrees that this Note may be offered,
sold, assigned or transferred by the Holder without the consent of the Company,
provided that the provisions of Section 2(f) of the Securities Purchase
Agreement are complied with in all respects.

18. REISSUANCE OF THIS NOTE.

(a) Transfer.  If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will issue, promptly following
the satisfaction of the provisions of Section 2(f) of the Securities Purchase
Agreement, and deliver upon the order of the Holder a new Note (in accordance
with Section 18(d)), in the name of the validly registered assigns or
transferee, representing the outstanding Principal being transferred by the
Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 18(d)) to the Holder representing the
outstanding Principal not being transferred.  The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) and this Section 18(a), following conversion or redemption
of any portion of this Note, the outstanding Principal represented by this Note
may be less than the Principal stated on the face of this Note.
 
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(b) Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, 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 Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.

(c) Note Exchangeable for Different Denominations.  This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 18(d) and in principal
amounts of at least $100,000) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of
such outstanding Principal as is designated by the Holder at the time of such
surrender.

(d) Issuance of New Notes.  Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 18(a) or Section 18(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued Interest on
the Principal and Interest of this Note, from the Issuance Date.

19. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF.  The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of 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 Holder’s right to
pursue actual and consequential damages for any failure by the Company to comply
with the terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  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
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.

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20. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
reasonable attorneys’ fees and disbursements.

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

22. FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

23. DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the
Closing Bid Price or the arithmetic calculation of the Conversion Rate or the
Company Redemption Price, the Company shall submit the disputed determinations
or arithmetic calculations via facsimile within one (1) Business Day of receipt
of the Conversion Notice or the Company Redemption Notice or other event 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 within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one (1) Business Day
submit via facsimile (a) the disputed determination of the Closing Bid Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder  (such approval not to be unreasonably withheld or delayed) or (b)
the disputed arithmetic calculation of the Conversion Rate or the Company
Redemption Price to the Company’s independent, outside accountant.  The Company,
at the Company’s expense, shall cause 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 five (5) 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.

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24. NOTICES; PAYMENTS.

(a) Notices.  Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section
8(f) of the Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, 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 Conversion
Price, setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least twenty  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 Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock 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.

(b) Payments.  Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, such payment shall be made in lawful money of the
United States of America 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 on the Schedule of Note Buyers
attached to the Securities Purchase Agreement); provided that the Holder may
elect to receive a payment of cash via wire transfer of immediately available
funds by providing the Company with prior written notice setting out such
request and the Holder’s wire transfer instructions.  Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining the amount of Interest due on
such date.

25. CANCELLATION.  After all Principal, accrued Interest and other amounts at
any time owed on this Note has been paid in full, this Note shall automatically
be deemed canceled, shall be surrendered to the Company for cancellation and
shall not be reissued.

26 WAIVER OF NOTICE.  To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement.

27. GOVERNING LAW; JURISDICTION; JURY TRIAL.  This Note shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note 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.  The Company 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 it set forth
on the signature page hereto 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.  In the event that any provision of this Note 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 Note.
 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 for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder.   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 NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

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28. CERTAIN DEFINITIONS.  For purposes of this Note, the following terms shall
have the following meanings:

(a) "Approved Stock Plan" means any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, consultant, officer or
director for services provided to the Company.

(b) “Bloomberg” means Bloomberg Financial Markets.

(c) “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.

(d) “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 last trade price, respectively, of such security
prior to 4:00 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 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 23.  All such determinations
to be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable calculation
period.

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(e) “Closing Date” shall have the meaning set forth in the Securities Purchase
Agreement, which date is the date the Company initially issued Notes pursuant to
the terms of the Securities Purchase Agreement.

(f) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

(g) “Eligible Market” means, the Principal Market, The New York Stock Exchange,
Inc., the Nasdaq National Market, the Nasdaq National Market or the American
Stock Exchange.

(h) “Excluded Securities” means any options or other securities issued in
connection with any Approved Stock Plan and any Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) upon conversion of, or in
exchange for, the Notes or the exercise of the Warrants; (iii) in connection
with any acquisition by the Company, whether through an acquisition of stock or
a merger of any business, assets or technologies the primary purpose of which is
not to raise equity capital; (iv) securities issued in connection with corporate
partnering transactions on terms approved by the Board of Directors of the
Company and the primary purpose of which is not to raise equity capital; and (v)
upon conversion of any options or convertible securities which are outstanding
on the day immediately preceding the Subscription Date, provided that the terms
of such options or convertible securities are not amended, modified or changed
on or after the Subscription Date.

(i) “Fundamental Transaction” means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company 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 the 50% of the outstanding shares of
Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Person or
Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock 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 either the outstanding shares of Voting Stock (not including any
shares of Voting Stock 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
stock purchase agreement or other business combination).

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(j) “GAAP” means United States generally accepted accounting principles,
consistently applied.

(k) “Indebtedness” of any Person means, without duplication (i) all indebtedness
for borrowed money, (ii) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services, including (without limitation)
“capital leases” in accordance with generally accepted accounting principles
(other than trade payables entered into in the ordinary course of business),
(iii) all reimbursement or payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (iv) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, (viii) all obligations
issued, undertaken or assumed as part of any financing facility with respect to
accounts receivables of the Company and its Subsidiaries, including, without
limitation, any factoring arrangement of such accounts receivables and (ix) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (i) through (viii) above.

(l) “Initial Issuance Date” means May 29, 2008.

(m) “Installment Amount” means with respect to any Installment Date, the
original principal amount of the Note divided by 24. In the event the Holder
shall sell or otherwise transfer any portion of this Note, the transferee shall
be allocated a pro rata portion of the each unpaid Installment Amount hereunder.

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(n) “Installment Date” means the Initial Installment Date and the first Business
Day of each subsequent full calendar month.

(o) “Interest Rate” means eight percent (8%) per annum.

(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) “Permitted Indebtedness” means (A) Indebtedness to banks and other senior
debt lenders existing as of the Subscription Date, including, without
limitation, any Indebtedness to NSES 12, LLC (the “Senior Debt Lender”) whether
existing as of the Subscription Date or thereafter, (B) Indebtedness incurred by
the Company that is made expressly subordinate in right of payment to the
Indebtedness evidenced by this Note, (C) Indebtedness secured by Permitted
Liens, (D) Indebtedness to trade creditors incurred in the ordinary course of
business, and (E) extensions, refinancings and renewals of any items of
Permitted Indebtedness, provided that the principal amount is not increased or
the terms modified to impose more burdensome terms upon the Company or its
Subsidiary, as the case may be.

(r) “Permitted Liens” means (i) any Lien granted in connection with any
Permitted Indebtedness, including, without limitation, Lien granted to the
Senior Debt Lender, (ii) any Lien for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP, (iii) any statutory Lien arising
in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iv) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (v) Liens securing the Company’s obligations under the
Notes, (vi) Liens (A) upon or in any equipment (as defined in the Security
Agreement) acquired or held by the Company or any of its Subsidiaries to secure
the purchase price of such equipment or indebtedness incurred solely for the
purpose of financing the acquisition or lease of such equipment, or (B) existing
on such equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such equipment, (vii) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (i) and (vi) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (viii) leases or subleases and licenses
and sublicenses granted to others in the ordinary course of the Company’s
business, not interfering in any material respect with the business of the
Company and its Subsidiaries taken as a whole, (ix) Liens in favor of customs
and revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods; (x) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(v) and (vi) Liens with respect to Indebtedness not
individually in excess of $25,000 or in the aggregate in excess of $100,000,
which individually and in aggregate are not material to the Company.

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(s) “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.

(t) “Principal Market” means the NASD Over-the-Counter Bulletin Board.

(u) “Registration Rights Agreement” means that certain registration rights
agreement between the Company and the initial holders of the Notes relating to,
among other things, the registration of the resale of the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants.

(v) “Required Holders” means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding.
 
(w) “Securities Purchase Agreement” means that certain securities purchase
agreement dated the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

(x) “Subscription Date” means May 29, 2008.

(y) “Successor Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with which
such Fundamental Transaction shall have been made, provided that if such Person
is not a publicly traded entity whose common stock or equivalent equity security
is quoted or listed for trading on an Eligible Market, Successor Entity shall
mean such Person’s Parent Entity.

(z) “Trading Day” means any day on which the Common Stock are traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock are then traded; provided that
“Trading Day” shall not include any day on which the Common Stock are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are 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 p.m., New York Time).

(aa) “Voting Stock” of a Person means capital stock 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 stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

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(bb) “Warrants” has the meaning ascribed to such term in the Securities Purchase
Agreement, and shall include all warrants issued in exchange therefor or
replacement thereof.

29. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information, relating to the Company or its Subsidiaries,
the Company shall indicate to the Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]
 
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IN WITNESS WHEREOF, the Company has caused this Senior Convertible Note to be
duly executed as of the Issuance Date set out above.

KENTUCKY USA ENERGY, INC.
 
By:
 
Name: Steven D. Eversole
Title: Chief Executive Officer

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