Exhibit 10.1
 
SUBSCRIPTION AGREEMENT
FOR INDIVIDUALS
KH FUNDING COMPANY COMMON STOCK

KH Funding Company
10801 Lockwood Drive
Suite 370
Silver Spring, Maryland 20901

Attention:  Corporate Secretary

Ladies/Gentlemen:

This Subscription Agreement is being furnished to KH Funding Company, a Maryland
corporation (the “Corporation”), by the undersigned subscriber (the “Purchaser”)
in connection with the proposed purchase by the Purchaser from the Corporation
of ___________ shares (the “Shares”) of its common stock, par value $.01 per
share (the “Common Stock”), at a price of $1.00 per share, or an aggregate
purchase price of $_________ (the “Subscription Price”) in a private
transaction, as described herein.

In connection with the such purchase, the Purchaser hereby agrees as follows:

1.           Purchase.  The Purchaser hereby subscribes to purchase the Shares
at the Subscription Price.  A check in the amount of the Subscription Price
payable to the Corporation accompanies this Subscription Agreement.  Please
deduct purchase price from my KH account # ___________.

2.           Acceptance or Rejection of Subscription.  The Corporation has the
right to reject this subscription for the Shares for any reason.  In the event
of the rejection of this subscription, this Subscription Agreement shall have no
force or effect and the Corporation shall continue to be indebted to the
Investor as described above.

3.           Representation and Warranties of the Investor.

(i)               The Investor is acquiring the Shares solely for investment,
solely for the Investor's own account, not for the account of any other person,
and not for distribution, assignment or resale to others and no other person has
a direct or indirect beneficial interest in any Shares so acquired.

(ii)                      The Investor has carefully read this Subscription
Agreement and, to the extent the Investor believes necessary, has discussed with
the Investor’s professional and tax advisors with respect to the financial and
tax consequences of an investment in the Corporation, as well as the suitability
of this investment, based on the Investor's individual circumstances.

(iii)                      The Investor represents and acknowledges that the
Investor has had a reasonable opportunity, at a reasonable time prior to the
Investor's investment in the Corporation, to ask questions of and receive
answers from the Corporation or other representative of the Corporation
concerning the terms and conditions of the offering of the Shares, and the
Corporation and its operations, and all such questions have been answered to the
Investor's full satisfaction.  The Investor further acknowledges that the
Investor has had a reasonable opportunity to obtain any relevant information
which the Corporation possesses or can acquire without unreasonable effort or
expense.
 
-1-

--------------------------------------------------------------------------------

(iv)                      The Investor represents and acknowledges that no oral
representations have been made in connection with the offering of the Shares
which are in any manner inconsistent with the materials that have been disclosed
to the Investor.

(v)               The Investor has neither relied upon nor seen any form of
advertising or general or public solicitation, including communications
published in or broadcasted by any print or electronic medium and mass mailings,
in connection with the offering of the Shares, and are aware of no such
solicitation or advertisement received by others.

(vi)                      The Investor is an “accredited investor” within the
meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended
(the “Securities Act”), and has checked the box(es) below which are next to the
category or categories under which the Investor qualifies as an accredited
investor:

A. ___ I certify that I am an accredited investor, as that term is defined in
Rule 501(a) under the Securities Act (an “Accredited Investor”) because I have
an individual net worth, or my spouse and I have a combined net worth, in excess
of $1,000,000.  For purposes of this Subscription Agreement, “net worth” means
the excess of total assets at fair market value, including home1, home
furnishings, and automobiles, over total liabilities.

B. ___  I certify that I am an Accredited Investor because I had individual
income (exclusive of any income attributable to my spouse) of more than $200,000
in each of the last two years or joint income with my spouse in excess of
$300,000 for each of those years, and I reasonably expect to reach the same
income level in the current year.  For purposes of this Subscription Agreement,
individual income means adjusted gross income, as reported for U.S. federal
income tax purposes, less any income attributable to a spouse or to property
owned by a spouse, increased by the following amounts (but not including any
amounts attributable to a spouse or to property owned by a spouse):  (1) the
amount of any tax-exempt interest income under Section 103 of the U.S. Internal
Revenue Code of 1986 (the “Code”) received, (2) the amount of losses claimed as
a limited partner in a limited partnership as reported on Schedule E of Form
1040, and (3) any deduction claimed for depletion under Section 611 et seq. of
the Code.

C. ___ I certify that I am an Accredited Investor because I am a director, or
executive officer of the Corporation.
 
 
________________________
1 Notwithstanding anything to the contrary herein, for purposes of determining
“net worth”, the principal residence owned by an individual shall be valued
either at (A) cost, including the cost of improvements, or (B) the appraised
value of the property as determined by an institutional lender, net of current
encumbrances upon the property.
 
-2-

--------------------------------------------------------------------------------

(vii)                     The Investor, if a natural person, has his or her
principal residence in the state listed on the signature page hereof, and has no
present intention of changing such residence; and, if an entity, has its
principal office in the state listed on the signature page hereof, and has no
present intention of changing such principal office.

(viii)                    The Investor acknowledges that an investment in the
Corporation involves a high degree of risk, and, having made Investor’s own
evaluation of the risks associated with this investment, the Investor is aware
and has been advised that the Investor must bear the economic risks of a
purchase of the Shares indefinitely.

(ix)                      The Investor acknowledges that the Shares have not
been registered under the Securities Act or any applicable State securities laws
(the “State Acts”), and are being offered and sold pursuant to exemptions from
registration under the Securities Act by virtue of Section 4(2) of the Act
and/or the provisions of Regulation D promulgated under Section 3(b) of the
Securities Act, and such exemptions depend in part upon the accuracy of the
statements, representations and agreements made by the Investor in this
Subscription Agreement.  The Investor understands that the merits of investment
in the Shares have not been reviewed by, passed on, or submitted for review to
any federal or state agency or other regulatory organization.

(x)               The Investor understands that there is no market for the
Shares, that none may develop, and that limited rights exist to transfer the
Shares.

(xi)              Not applicable.

(xi)                      The Investor is aware that the Corporation may offer
and sell additional shares of Common Stock in the future, thereby diluting the
Investor’s percentage equity ownership of the Corporation.

(xii)                      As of the date or dates of the Investor's acquisition
of the Shares in the Corporation (i) the value of all securities owned by the
Investor of all issuers that are or would be, but for the exemption set forth in
Section 3(c)(1)(A) of the Investment Company Act of 1940, as amended, excluded
from the definition of “investment company” under such Act solely by reason of
Section 3(c)(1) thereof, will not exceed 10% of the value of the Investor's
total assets, and (ii) the Investor is not relying on Section 3(c)(1) of the
Investment Company Act of 1940 as an exemption from classification as an
investment company.

(xiii)                    The foregoing representations and warranties and all
other information which the Investor has provided to the Corporation concerning
such Investor, the financial position of the Investor, and the Investor's
knowledge of financial and business matters, or in the case of persons investing
as joint tenants or a corporation, partnership, trust or other entity, the
knowledge of financial and business matters of the person making the investment
decision on behalf of such joint tenants or entity, including all information
contained herein, are true and accurate as of this date and shall be true and
accurate as of the date of the issuance of the Shares.  If in any respect such
representations, warranties or information shall not be true and accurate at any
time prior to the Investor's admission to the Corporation, the Investor will
give written notice of such fact to the Corporation, specifying which
representations, warranties or information are not true and accurate and the
reasons therefor.
 
-3-

--------------------------------------------------------------------------------

4.           Covenants of the Investor.  The Investor covenants and agrees that
the Investor will not take, or cause to be taken any action with respect to the
Shares that would cause the Investor to be deemed an “underwriter” as defined in
Section 2(11) of the Securities Act.

5.           Investor Questionnaire.  The Investor has previously completed and
delivered to the Corporation, or is concurrently with the delivery hereof
delivering, an Investor Questionnaire in the form attached hereto. The Investor
understands and acknowledges that the Corporation is relying on the accuracy of
the information set forth in the Investor Questionnaire in complying with
applicable federal and state securities laws.

6.           Indemnification.  The Investor understands and acknowledges that
the Corporation and its control persons are relying on the representations,
warranties and agreements made by the Investor in this Subscription Agreement
and the Investor agrees to indemnify and hold harmless the Corporation, its
control persons, the corporation's affiliates and anyone acting on its behalf
from and against all damages, losses, costs and expenses (including reasonable
attorneys' fees) which they may incur by reason of my failure to fulfill any of
the terms or conditions of this Subscription Agreement, or by reason of any
breach of the representations and warranties made by the Investor herein, or in
any document provided by the Investor to the Corporation.

7.           Transferability and Resale.

(i)               The Investor acknowledges that the Shares have not been
registered under the Securities Act or the State Acts, and may not be sold,
pledged, hypothecated, donated or otherwise transferred (whether or not for
consideration) by the Investor unless registered pursuant to the Securities Act
and the State Acts, or upon presentation to the Corporation of evidence
satisfactory to the Corporation, or submission to the Corporation of a favorable
opinion of counsel acceptable to the Corporation, to the effect that any such
transfer is subject to an applicable exemption under and will not be in
violation of the Securities Act and the State Acts, and will not prejudice the
“S” tax status of the Corporation.

(ii)                      The Investor acknowledges that the Corporation is not
expected to file periodic reports with the Securities and Exchange Commission
pursuant to the requirements of Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934, as amended.  The Investor also understands that the
Corporation is under no obligation to register the Shares for distribution in
accordance with the provisions of the Securities Act and the State Acts, or to
assist the Investor in complying with any exemption under the Securities Act and
the State Acts for the transfer of the Shares. However, the Corporation does
make periodic filings with the Securities and Exchange Commission pursuant to
the issuance of debt securities by the Corporation.

(iii)                      The Investor acknowledges that, as a result of the
strict limitations on the ability to transfer the Shares, the Investor may be
required to hold the Shares indefinitely and therefore may not realize any
liquidity from any sale of the Shares.
 
-4-

--------------------------------------------------------------------------------

 
18.           Restrictive Legends.  The Shares shall bear the following legend:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.  THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO KH FUNDING COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."

9.           Binding Effect; Successors and Assigns.  This Subscription
Agreement will be binding upon the parties hereto, the successors and assigns of
the Corporation and the heirs, personal representatives, successors and assigns
of the Investor.  This Subscription Agreement will inure to the benefit of the
Corporation and its successors and assigns.  Neither this Subscription Agreement
nor any part of it will be assignable by the Investor.

10.           Option to Purchase Shares.  The purchaser shall receive an option
to purchase half as many shares as are being purchased hereunder for the price
of $1.00 per share (the “Option Agreement”).  The Option Agreement shall expire
five (5) years from the date of issuance of the stock purchased herein.

11.           [Intentionally omitted].
 
12.           Miscellaneous.

(i)               This Subscription Agreement constitutes the entire agreement
among the parties hereto with respect to the subscription of the Investor's
Shares and may be amended only by a writing executed by the parties hereto.

(ii)                      Within 10 days after receipt of a written request from
the Corporation, the Investor agrees to provide such information and to execute
and deliver such documents as reasonably may be necessary to comply with any and
all laws and ordinances to which the Corporation is subject.

(iii)                      In this Subscription Agreement the singular shall
include the plural and the masculine gender shall include the feminine and
neuter and vice versa, as the context requires.

(iv)                      Each provision of this Subscription Agreement shall be
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid or contrary to applicable law, such invalidity
shall not impair the operation of or affect the remaining portions of this
Subscription Agreement.
 
-5-

--------------------------------------------------------------------------------

(v)               Paragraph titles are for descriptive purposes only and shall
not control or alter the meaning of this Subscription Agreement as set forth in
the text.

(vi)              This Subscription Agreement may not be orally modified or
amended, but may be modified or amended only in a writing duly executed by each
of the parties hereto.  All communications hereunder shall be in writing and
shall be delivered personally or sent by registered or certified mail or by a
recognized overnight delivery service (with postage and costs prepaid).

(vii)                     This Subscription Agreement shall be construed in
accordance with the laws of the State of Maryland, without regard to principles
of conflict of laws.
 

[SIGNATURE PAGE FOLLOWS]
 
-6-

--------------------------------------------------------------------------------

 
SIGNATURE PAGE FOR PURCHASE OF
KH FUNDING COMPANY COMMON STOCK

IN WITNESS WHEREOF, the undersigned has executed and sealed this Subscription
Agreement as of this ___ day of ___________, 2009.

Check One:
 
____
Tenants-in-common
      
(SEAL)
____
Joint tenants
Signature of Investor
 
____
Tenants by the entireties
   
____
Individual
         
 
 
Typed or Printed Name of Investor
           
 
    
(SEAL)
 
 
Signature of Co-Investor (if any)
           
 
      
 
Typed or Printed Name of Co-Investor (if any)
                      
 
Residence or Business Address
                                    
 
City         State        Zip
 
                    
 
Telephone Number
                         
 
Social Security Number
 

 

ACCEPTED THIS ____ DAY OF ______________, ______

KH FUNDING COMPANY

            By:
    
   
 
  Name    
 
  Title     
 
 

-7-

--------------------------------------------------------------------------------