REGISTRATION
      RIGHTS AGREEMENT

     

    This
      Registration Rights Agreement (this “Agreement”)
      is
      made and entered into effective as of May 29, 2008 by and between Kentucky
      USA
      Energy, Inc., a Delaware corporation (the “Company”),
      and
      the persons who have executed the signature page(s) hereto (each, a
“Buyer”
and
      collectively, the “Buyers”).

     

    RECITALS:

     

    WHEREAS,
      in connection with that certain Securities Purchase Agreement by and among
      the
      parties hereto of even date herewith (the “Securities
      Purchase Agreement”),
      the
      Company has agreed, upon the terms and subject to the conditions set forth
      in
      the Securities Purchase Agreement, to issue and sell to each Buyer (i) 
senior convertible notes of the Company (the “Notes”)
      which
      will, among other things, be convertible into shares of the Company’s common
      stock, par value $0.0001 per share (the “Common
      Stock”)
      (as
      converted, the “Note
      Conversion Shares”),
      in
      accordance with the terms of the Notes, and (ii) warrants (the “Warrants”)
      which
      will be exercisable to purchase a number of shares of Common Stock in accordance
      with the terms of the Warrants (as exercised collectively, the “Warrant
      Shares”).

    


    WHEREAS, to
      induce
      the Buyers to execute and deliver the Securities Purchase Agreement, the Company
      has agreed to provide certain registration rights under the Securities Act
      of
      1933, as amended, and the rules and regulations thereunder, and applicable
      state
      securities laws.

    


    NOW,
      THEREFORE,
      in
      consideration of the mutual promises, representations, warranties, covenants,
      and conditions set forth herein, the parties mutually agree as follows:


     

    1. Certain
      Definitions.
      As used
      in this Agreement, the following terms shall have the following respective
      meanings:

     

    “Approved
      Market”
means
      the Over-the-Counter Bulletin Board, the Nasdaq Stock Market, the New York
      Stock
      Exchange or the American Stock Exchange.

     

    “Blackout
      Period”
means,
      with respect to a registration, a period, in each case commencing on the day
      immediately after the Company notifies the Buyers that they are required,
      because of the occurrence of an event of the kind described in Section 4(f)
      hereof, to suspend offers and sales of Registrable Common Shares during which
      the Company, in the good faith judgment of its board of directors, determines
      (because of the existence of, or in anticipation of, any acquisition, financing
      activity, or other transaction involving the Company, or the unavailability
      for
      reasons beyond the Company’s control of any required financial statements,
      disclosure of information which is in its best interest not to publicly
      disclose, or any other event or condition of similar significance to the
      Company) that the registration and distribution of the Registrable Common Shares
      to be covered by such Registration Statement, if any, would be seriously
      detrimental to the Company and its stockholders and ending on the earlier of
      (1)
      the date upon which the material non-public information commencing the Blackout
      Period is disclosed to the public or ceases to be material and (2) such time
      as
      the Company notifies the selling Holders that sales pursuant to such
      Registration Statement or a new or amended Registration Statement may
      resume.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    “Business
      Day”
means
      any day of the year, other than a Saturday, Sunday, or any other day on which
      the Commission is required or authorized to close.

     

    “Commission”
means
      the U. S. Securities and Exchange Commission or any other federal agency at
      the
      time administering the Securities Act.

     

    “Common
      Stock”
means
      the common stock, par value $0.0001 per share, of the Company and any and all
      shares of capital stock or other equity securities of: (i) the Company which
      are
      added to or exchanged or substituted for the Common Stock by reason of the
      declaration of any stock dividend or stock split, the issuance of any
      distribution or the reclassification, readjustment, recapitalization or other
      such modification of the capital structure of the Company; and (ii) any other
      corporation, now or hereafter organized under the laws of any state or other
      governmental authority, with which the Company is merged, which results from
      any
      consolidation or reorganization to which the Company is a party, or to which
      is
      sold all or substantially all of the shares or assets of the Company, if
      immediately after such merger, consolidation, reorganization or sale, the
      Company or the stockholders of the Company own equity securities having in
      the
      aggregate more than 50% of the total voting power of such other
      corporation.

     

    “Conversion
      Rate”
has
      the
      meaning given it in the Notes.

    


    “Effective
      Date”
means
      the date of the closing of the sale of the Notes pursuant to the Securities
      Purchase Agreement.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      of the Commission promulgated thereunder.

     

    “Family
      Member”
means
      (a) with respect to any individual, such individual’s spouse, any descendants
      (whether natural or adopted), any trust all of the beneficial interests of
      which
      are owned by any of such individuals or by any of such individuals together
      with
      any organization described in Section 501(c)(3) of the Internal Revenue Code
      of
      1986, as amended, the estate of any such individual, and any corporation,
      association, partnership or limited liability company all of the equity
      interests of which are owned by those above described individuals, trusts or
      organizations and (b) with respect to any trust, the owners of the beneficial
      interests of such trust.

     

    “Holder”
means
      each Buyer or any of such Buyer’s respective successors and Permitted Assignees
      who acquire rights with respect to any Registrable Securities directly or
      indirectly from a Buyer or from any Permitted Assignee.

     

    “Majority
      Holders”
means
      at any time Holders representing a majority of the Registrable Common
      Shares.

     

    “Note
      Conversion Shares”
has
      the
      meaning given it in the recitals of this Agreement, with the number of Note
      Conversion Shares calculated based on the Conversion Rate.


    
      
        
        

      

      
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    “Permitted
      Assignee”
means
      (a) with respect to a partnership, its partners or former partners in accordance
      with their partnership interests, (b) with respect to a corporation, its
      stockholders in accordance with their interest in the corporation, (c) with
      respect to a limited liability company, its members or former members in
      accordance with their interest in the limited liability company, (d) with
      respect to an individual party, any Family Member of such party, (e) an entity
      that is controlled by, controls, or is under common control with a transferor,
      or (f) a party to this Agreement.

     

    The
      terms
“register,”
      “registered,”
and
      “registration”
refer
      to a registration effected by preparing and filing a registration statement
      in
      compliance with the Securities Act, and the declaration or ordering of the
      effectiveness of such registration statement.

     

    “Registrable
      Common Shares”
means
      the Note Conversion Shares and the Warrant Shares, but excluding (i) any
      Registrable Common Shares that have been publicly sold or may be sold
      immediately without volume or manner of sale limitations and without
      registration under the Securities Act either pursuant to Rule 144 of the
      Securities Act or otherwise; (ii) any Registrable Common Shares sold by a person
      in a transaction pursuant to a registration statement filed under the Securities
      Act, or (iii) any Registrable Common Shares that are at the time subject to
      an
      effective registration statement under the Securities Act. 

     

    “Registrable
      Securities”
means
      the Note Conversion Shares together with the Warrant Shares. 

     

    “Registration
      Statement”
means
      the registration statement that the Company is required to file pursuant to
      this
      Agreement to register the Registrable Common Shares.

     

    “Rule
      145”
means
      Rule 145 promulgated by the Commission under the Securities Act, as such rule
      may be amended or supplemented from time to time, or any similar successor
      rule
      that may be promulgated by the Commission.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission under the Securities Act, as such rule
      may be amended or supplemented from time to time, or any similar successor
      rule
      that may be promulgated by the Commission. 

     

    “Rule
      415”
means
      Rule 415 promulgated by the Commission under the Securities Act, as such rule
      may be amended or supplemented from time to time, or any similar successor
      rule
      that may be promulgated by the Commission. 

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, or any similar federal statute
      promulgated in replacement thereof, and the rules and regulations of the
      Commission thereunder, all as the same shall be in effect at the
      time.

     

    “SEC
      Effective Date”
means
      the date the Registration Statement is declared effective by the
      Commission.

     

    “Trading
      Day”
means
      any day on which the national securities exchange, the Nasdaq Stock Market,
      the
      Over-the-Counter Bulletin Board or such other securities market or quotation
      system, which at the time constitutes the principal securities market for the
      Common Stock, is open for general trading of securities.


    
      
        
        

      

      
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    “Warrant
      Shares”
has
      the
      meaning given it in the recitals of this Agreement.

     

    2. Term.
      This
      Agreement shall continue in full force and effect for a period of two years
      from
      the Effective Date, unless terminated sooner hereunder.

     

    3. Registration.

     

    (a) Registration
      on Form S-1.
      The
      Company shall file with the Commission a Registration Statement on Form S-1,
      or
      other applicable form, relating to the resale by the Holders of all of the
      Registrable Common Shares, and the Company shall use its commercially reasonable
      efforts to cause such Registration Statement to be declared effective;
provided,
      that
      the Company shall not be obligated to effect any such registration,
      qualification or compliance pursuant to this Section, or keep such registration
      effective pursuant to the terms hereunder in any particular jurisdiction in
      which the Company would be required to qualify to do business as a foreign
      corporation or as a dealer in securities under the securities laws of such
      jurisdiction or to execute a general consent to service of process in effecting
      such registration, qualification or compliance, in each case where it has not
      already done so. Notwithstanding the foregoing, in the event that the Commission
      limits the amount of Registrable Common Shares that may be sold, the Company
      may
      scale back from the Registration Statement such number of Registrable Common
      Shares on behalf of all of the Buyers on a pro-rata basis. In such event, the
      Company shall give the Buyers prompt notice of the number of Registrable Common
      Shares excluded therein.

     

    (b) Other
      Registrations.
      Before
      such date that is six months following the SEC Effective Date, the Company
      will
      not, without the prior written consent of the Majority Holders, file any other
      registration statement with the Commission or request the acceleration of any
      other registration statement filed with the Commission, and during any time
      subsequent to the SEC Effective Date when the Registration Statement for any
      reason is not available for use by any Holder for the resale of any Registrable
      Common Shares, the Company shall not, without the prior written consent of
      the
      Majority Holders, file any other registration statement or any amendment thereto
      with the Commission under the Securities Act or request the acceleration of
      the
      effectiveness of any other registration statement previously filed with the
      Commission, other than (i) any registration statement on Form S-8 or Form S-4
      and (ii) any registration statement or amendment which the Company is required
      to file or as to which the Company is required to request acceleration pursuant
      to any obligation in effect on the date of execution and delivery of this
      Agreement.

     

    4. Registration
      Procedures for Registrable Securities.
      The
      Company will keep each Holder reasonably advised as to the filing and
      effectiveness of the Registration Statement. At its expense with respect to
      the
      Registration Statement, the Company will:

     

    (a) prepare
      and file with the Commission with respect to the Registrable Common Shares,
      a
      Registration Statement on Form S-1, or any other form for which the Company
      then
      qualifies or which counsel for the Company shall deem appropriate and which
      form
      shall be available for the sale of the Registrable Common Shares in accordance
      with the intended methods of distribution thereof, and use its commercially
      reasonable efforts to cause such Registration Statement to become effective
      and
      shall remain effective for a period of one year or for such shorter period
      ending on the earlier to occur of (i) the sale of all Registrable Common Shares
      and (ii) the availability under Rule 144 for the Holder to sell the Registrable
      Common Shares (the “Effectiveness
      Period”);


    
      
        
        

      

      
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    (b) if
      the
      Registration Statement is subject to review by the Commission, promptly respond
      to all comments and diligently pursue resolution of any comments to the
      satisfaction of the Commission;

     

    (c) prepare
      and file with the Commission such amendments and supplements to such
      Registration Statement as may be necessary to keep such Registration Statement
      effective during the Effectiveness Period;

     

    (d) furnish,
      without charge, to each Holder of Registrable Common Shares covered by such
      Registration Statement (i) a reasonable number of copies of such Registration
      Statement (including any exhibits thereto other than exhibits incorporated
      by
      reference), each amendment and supplement thereto as such Holder may reasonably
      request, (ii) such number of copies of the prospectus included in such
      Registration Statement (including each preliminary prospectus and any other
      prospectus filed under Rule 424 of the Securities Act) as such Holders may
      reasonably request, in conformity with the requirements of the Securities Act,
      and (iii) such other documents as such Holder may require to consummate the
      disposition of the Registrable Common Shares owned by such Holder, but only
      during the Effectiveness Period;

     

    (e) use
      its
      commercially reasonable efforts to register or qualify such registration under
      such other applicable securities laws of such jurisdictions as any Holder of
      Registrable Common Shares covered by such Registration Statement reasonably
      requests and as may be necessary for the marketability of the Registrable Common
      Shares (such request to be made by the time the applicable Registration
      Statement is deemed effective by the Commission) and do any and all other acts
      and things necessary to enable such Holder to consummate the disposition in
      such
      jurisdictions of the Registrable Common Shares owned by such Holder;
provided,
      that
      the Company shall not be required to (i) qualify generally to do business in
      any
      jurisdiction where it would not otherwise be required to qualify but for this
      paragraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
      consent to general service of process in any such jurisdiction.

     

    (f) as
      promptly as practicable after becoming aware of such event, notify each Holder
      of Registrable Common Shares, the disposition of which requires delivery of
      a
      prospectus relating thereto under the Securities Act, of the happening of any
      event, which comes to the Company’s attention, that will after the occurrence of
      such event cause the prospectus included in such Registration Statement, if
      not
      amended or supplemented, to contain an untrue statement of a material fact
      or an
      omission to state a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading and the Company shall promptly
      thereafter prepare and furnish to such Holder a supplement or amendment to
      such
      prospectus (or prepare and file appropriate reports under the Exchange Act)
      so
      that, as thereafter delivered to the purchasers of such Registrable Common
      Shares, such prospectus shall not contain an untrue statement of a material
      fact
      or omit to state any material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, unless suspension of the use of
      such
      prospectus otherwise is authorized herein or in the event of a Blackout Period,
      in which case no supplement or amendment need be furnished (or Exchange Act
      filing made) until the termination of such suspension or Blackout Period;



    
      
        
        

      

      
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    (g) comply,
      and continue to comply during the Effectiveness Period, in all material respects
      with the Securities Act and the Exchange Act and with all applicable rules
      and
      regulations of the Commission with respect to the disposition of all securities
      covered by such Registration Statement;

     

    (h) as
      promptly as practicable after becoming aware of such event, notify each Holder
      of Registrable Common Shares being offered or sold pursuant to the Registration
      Statement of the issuance by the Commission of any stop order or other
      suspension of effectiveness of the Registration Statement;

     

    (i) use
      its
      commercially reasonable efforts to cause all the Registrable Common Shares
      covered by the Registration Statement to be quoted on the OTC Bulletin Board
      or
      such other principal securities market on which securities of the same class
      or
      series issued by the Company are then listed or traded; 

     

    (j) provide
      a
      transfer agent and registrar, which may be a single entity, for the shares
      of
      Common Stock at all times;

     

    (k) cooperate
      with the Holders of Registrable Common Shares being offered pursuant to the
      Registration Statement to issue and deliver, or cause its transfer agent to
      issue and deliver, certificates representing Registrable Common Shares to be
      offered pursuant to the Registration Statement within a reasonable time after
      the delivery of certificates representing the Registrable Common Shares to
      the
      transfer agent or the Company, as applicable, and enable such certificates
      to be
      in such denominations or amounts as the Holders may reasonably request and
      registered in such names as the Holders may request;

     

    (l) during
      the Effectiveness Period, refrain from bidding for or purchasing any Common
      Stock or any right to purchase Common Stock or attempting to induce any person
      to purchase any such security or right if such bid, purchase or attempt would
      in
      any way limit the right of the Holders to sell Registrable Securities by reason
      of the limitations set forth in Regulation M of the Exchange Act;
      and

     

    (m) take
      all
      other reasonable actions necessary to expedite and facilitate the disposition
      by
      the Holders of the Registrable Common Shares pursuant to the Registration
      Statement.

     

    5. Suspension
      of Offers and Sales.
      Each
      Holder agrees that, upon receipt of any notice from the Company of the happening
      of any event of the kind described in Section 4(f) hereof or of the commencement
      of a Blackout Period, such Holder shall discontinue the disposition of
      Registrable Common Shares included in the Registration Statement until such
      Holder’s receipt of the copies of the supplemented or amended prospectus
      contemplated by Section 4(f) hereof or notice of the end of the Blackout Period,
      and, if so directed by the Company, such Holder shall deliver to the Company
      (at
      the Company’s expense) all copies (including, without limitation, any and all
      drafts), other than permanent file copies, then in such Holder’s possession, of
      the prospectus covering such Registrable Common Shares current at the time
      of
      receipt of such notice.


    
      
        
        

      

      
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    6. Registration
      Expenses.
      The
      Company shall pay all expenses in connection with any registration obligation
      provided herein, including, without limitation, all registration, filing, stock
      exchange fees, printing expenses, all fees and expenses of complying with
      applicable securities laws, and the fees and disbursements of counsel for the
      Company and of its independent accountants; provided,
      that,
      in any underwritten registration, each party shall pay for its own underwriting
      discounts and commissions and transfer taxes. Except as provided in this Section
      and Section 9, the Company shall not be responsible for the expenses of any
      attorney or other advisor employed by a Holder.

     

    7. Assignment
      of Rights.
      No
      Holder may assign its rights under this Agreement to any party without the
      prior
      written consent of the Company; provided,
      however,
      that
      any Holder may assign its rights under this Agreement without such consent
      to a
      Permitted Assignee as long as (a) such transfer or assignment is effected in
      accordance with applicable securities laws; (b) such transferee or assignee
      agrees in writing to become subject to the terms of this Agreement; and (c)
      such
      Holder notifies the Company in writing of such transfer or assignment, stating
      the name and address of the transferee or assignee and identifying the
      Registrable Securities with respect to which such rights are being transferred
      or assigned.

     

    8. Information
      by Holder.
      Holders
      included in any registration shall furnish to the Company such information
      as
      the Company may reasonably request in writing regarding such Holders and the
      distribution proposed by such Holders.

     

    9. Indemnification.

     

    (a) In
      the
      event of the offer and sale of Registrable Securities under the Securities
      Act,
      the Company shall, and hereby does, indemnify and hold harmless, to the fullest
      extent permitted by law, each Holder, its directors, officers, partners, each
      other person who participates as an underwriter in the offering or sale of
      such
      securities, and each other person, if any, who controls or is under common
      control with such Holder or any such underwriter within the meaning of Section
      15 of the Securities Act, against any losses, claims, damages or liabilities,
      joint or several, and expenses to which the Holder or any such director,
      officer, partner or underwriter or controlling person may become subject under
      the Securities Act or otherwise, insofar as such losses, claims, damages,
      liabilities or expenses (or actions or proceedings, whether commenced or
      threatened, in respect thereof) arise out of or are based upon any untrue
      statement of any material fact contained in any registration statement prepared
      and filed by the Company under which Registrable Securities were registered
      under the Securities Act, any preliminary prospectus, final prospectus or
      summary prospectus contained therein, or any amendment or supplement thereto,
      or
      any omission to state therein a material fact required to be stated or necessary
      to make the statements therein in light of the circumstances in which they
      were
      made not misleading, and the Company shall reimburse the Holder, and each such
      director, officer, partner, underwriter and controlling person for any legal
      or
      any other expenses reasonably incurred by them in connection with investigating,
      defending or settling any such loss, claim, damage, liability, action or
      proceeding; provided,
      that
      such indemnity agreement found in this Section 9(a) shall in no event exceed
      the
      net proceeds from the sale of the Notes received by the Company; and
provided
      further,
      that
      the Company shall not be liable in any such case (i) to the extent that any
      such
      loss, claim, damage, liability (or action or proceeding in respect thereof)
      or
      expense arises out of or is based upon an untrue statement in or omission from
      such registration statement, any such preliminary prospectus, final prospectus,
      summary prospectus, amendment or supplement in reliance upon and in conformity
      with written information furnished to the Company for use in the preparation
      thereof or (ii) if the person asserting any such loss, claim, damage, liability
      (or action or proceeding in respect thereof) who purchased the Registrable
      Securities that are the subject thereof did not receive a copy of an amended
      preliminary prospectus or the final prospectus (or the final prospectus as
      amended or supplemented) at or prior to the written confirmation of the sale
      of
      such Registrable Securities to such person because of the failure of such Holder
      or underwriter to so provide such amended preliminary or final prospectus and
      the untrue statement or omission of a material fact made in such preliminary
      prospectus was corrected in the amended preliminary or final prospectus (or
      the
      final prospectus as amended or supplemented). Such indemnity shall remain in
      full force and effect regardless of any investigation made by or on behalf
      of
      the Holders, or any such director, officer, partner, underwriter or controlling
      person and shall survive the transfer of such shares by the
      Holder.


    
      
        
        

      

      
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    (b) As
      a
      condition to including Registrable Securities in any registration statement
      filed pursuant to this Agreement, each Holder agrees to be bound by the terms
      of
      this Section 9 and to indemnify and hold harmless, to the fullest extent
      permitted by law, the Company, its directors and officers, and each other
      person, if any, who controls the Company within the meaning of Section 15 of
      the
      Securities Act, against any losses, claims, damages or liabilities, joint or
      several, to which the Company or any such director or officer or controlling
      person may become subject under the Securities Act or otherwise, insofar as
      such
      losses, claims, damages or liabilities (or actions or proceedings, whether
      commenced or threatened, in respect thereof) that arises out of or is based
      upon
      an untrue statement in or omission from such registration statement, any such
      preliminary prospectus, final prospectus, summary prospectus, amendment or
      supplement in reliance upon and in conformity with written information furnished
      by the Holder for use in the preparation thereof, and such Holder shall
      reimburse the Company, and each such director, officer, and controlling person
      for any legal or other expenses reasonably incurred by them in connection with
      investigating, defending, or settling any such loss, claim, damage, liability,
      action, or proceeding; provided,
      however,
      that
      such indemnity agreement found in this Section 9(b) shall in no event exceed
      the
      net proceeds received by such Holder as a result of the sale of Registrable
      Securities pursuant to such registration statement. Such indemnity shall remain
      in full force and effect, regardless of any investigation made by or on behalf
      of the Company or any such director, officer or controlling person and shall
      survive the transfer by any Holder of such shares.

     

    (c) Promptly
      after receipt by an indemnified party of notice of the commencement of any
      action or proceeding involving a claim referred to in this Section (including
      any governmental action), such indemnified party shall, if a claim in respect
      thereof is to be made against an indemnifying party, give written notice to
      the
      indemnifying party of the commencement of such action; provided,
      that
      the failure of any indemnified party to give notice as provided herein shall
      not
      relieve the indemnifying party of its obligations under this Section, except
      to
      the extent that the indemnifying party is actually prejudiced by such failure
      to
      give notice. In case any such action is brought against an indemnified party,
      unless in the reasonable judgment of counsel to such indemnified party a
      conflict of interest between such indemnified and indemnifying parties may
      exist
      or the indemnified party may have defenses not available to the indemnifying
      party in respect of such claim, the indemnifying party shall be entitled to
      participate in and to assume the defense thereof, with counsel reasonably
      satisfactory to such indemnified party and, after notice from the indemnifying
      party to such indemnified party of its election so to assume the defense
      thereof, the indemnifying party shall not be liable to such indemnified party
      for any legal or other expenses subsequently incurred by the latter in
      connection with the defense thereof, unless in such indemnified party’s
      reasonable judgment a conflict of interest between such indemnified and
      indemnifying parties arises in respect of such claim after the assumption of
      the
      defenses thereof or the indemnifying party fails to defend such claim in a
      diligent manner, other than reasonable costs of investigation. Neither an
      indemnified nor an indemnifying party shall be liable for any settlement of
      any
      action or proceeding effected without its consent. No indemnifying party shall,
      without the consent of the indemnified party, consent to entry of any judgment
      or enter into any settlement, which does not include as an unconditional term
      thereof the giving by the claimant or plaintiff to such indemnified party of
      a
      release from all liability in respect of such claim or litigation.
      Notwithstanding anything to the contrary set forth herein, and without limiting
      any of the rights set forth above, in any event any party shall have the right
      to retain, at its own expense, counsel with respect to the defense of a
      claim.


    
      
        
        

      

      
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    (d) If
      an
      indemnifying party does or is not permitted to assume the defense of an action
      pursuant to Sections 9(c) or in the case of the expense reimbursement obligation
      set forth in Sections 9(a) and (b), the indemnification required by Sections
      9(a) and 9(b) shall be made by periodic payments of the amount thereof during
      the course of the investigation or defense, as and when bills received or
      expenses, losses, damages, or liabilities are incurred.

     

    (e) If
      the
      indemnification provided for in Section 9(a) or 9(b) is held by a court of
      competent jurisdiction to be unavailable to an indemnified party with respect
      to
      any loss, liability, claim, damage or expense referred to herein, the
      indemnifying party, in lieu of indemnifying such indemnified party hereunder,
      shall (i) contribute to the amount paid or payable by such indemnified party
      as
      a result of such loss, liability, claim, damage or expense as is appropriate
      to
      reflect the proportionate relative fault of the indemnifying party on the one
      hand and the indemnified party on the other (determined by reference to, among
      other things, whether the untrue or alleged untrue statement of a material
      fact
      or omission relates to information supplied by the indemnifying party or the
      indemnified party and the parties’ relative intent, knowledge, access to
      information and opportunity to correct or prevent such untrue statement or
      omission), or (ii) if the allocation provided by clause (i) above is not
      permitted by applicable law or provides a lesser sum to the indemnified party
      than the amount hereinafter calculated, not only the proportionate relative
      fault of the indemnifying party and the indemnified party, but also the relative
      benefits received by the indemnifying party on the one hand and the indemnified
      party on the other, as well as any other relevant equitable considerations.
      No
      indemnified party guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the Securities Act) shall be entitled to contribution from
      any
      indemnifying party who was not guilty of such fraudulent
      misrepresentation.


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    


    10. Rule
      144.
      For
      the
      period of time following the Effective Date and extending through the life
      of
      the Notes,
      the
      Company will use its commercially reasonable efforts to timely file all reports
      required to be filed by the Company after the date hereof under the Securities
      Act and the Exchange Act and the rules and regulations adopted by the Commission
      thereunder, and if the Company is not required to file reports pursuant to
      such
      sections, it will prepare and furnish to the Buyers and make publicly available
      in accordance with Rule 144 such information as is required for the Buyers
      to
      sell shares of Common Stock under Rule 144.

     

    11. Corporate
      Existence.
      So long
      as any Holder owns any Registrable Securities, the Company shall not directly
      or
      indirectly consummate an Organizational Change, unless, prior to the
      consummation of an Organizational Change, the Company obtains the written
      consent of the Majority Holders. For purposes of this Agreement, “Organizational
      Change”
means
      (i) an acquisition by an individual or legal entity or “group” (as described in
      Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
      (whether through legal or beneficial ownership of capital stock of the Company,
      by contract or otherwise) of in excess of 50% of the voting securities of the
      Company, or (ii) the Company merges into or consolidates with any other person,
      or any person merges into or consolidates with the Company and, after giving
      effect to such transaction, the stockholders of the Company immediately prior
      to
      such transaction own less than 50% of the aggregate voting power of the Company
      or the successor entity of such transaction, or (iii) the Company sells or
      transfers all or substantially all of its assets to another person and the
      stockholders of the Company immediately prior to such transaction own less
      than
      50% of the aggregate voting power of the acquiring entity immediately after
      the
      transaction, or (iv) the execution by the Company of an agreement to which
      the
      Company is a party or by which it is bound, providing for any of the events
      set
      forth in clauses (i) through (iii) above.

     

    12. Independent
      Nature of Each Buyer’s Obligations and Rights.
      The
      obligations of each Buyer under this Agreement are several and not joint with
      the obligations of any other Buyer, and each Buyer shall not be responsible
      in
      any way for the performance of the obligations of any other Buyer under this
      Agreement. Nothing contained herein and no action taken by any Buyer pursuant
      hereto shall be deemed to constitute such Buyers as a partnership, an
      association, a joint venture, or any other kind of entity, or create a
      presumption that the Buyers are in any way acting in concert or as a group
      with
      respect to such obligations or the transactions contemplated by this Agreement.
      Each Buyer shall be entitled to independently protect and enforce its rights,
      including without limitation the rights arising out of this Agreement, and
      it
      shall not be necessary for any other Buyer to be joined as an additional party
      in any proceeding for such purpose.

     

    13. Miscellaneous.

     

    (a) Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      United States of America and the State of New York, both substantive and
      remedial, without regard to New York conflicts of law principles. Any
      judicial proceeding brought against either of the parties to this Agreement
      or
      any dispute arising out of this Agreement or any matter related hereto shall
      be
      brought in the courts of the State of New York, New York County, or in the
      United States District Court for the Southern District of New York and, by
      its
      execution and delivery of this Agreement, each party to this Agreement accepts
      the jurisdiction of such courts. The foregoing consent to jurisdiction shall
      not
      be deemed to confer rights on any person other than the parties to this
      Agreement.


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


    (b) Remedies.
      In the
      event of a breach by the Company or by a Holder of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, shall be entitled to
      specific performance of its rights under this Agreement. The Company and each
      Holder agree that monetary damages would not provide adequate compensation
      for
      any losses incurred by reason of a breach by it of any of the provisions of
      this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall not assert or shall
      waive the defense that a remedy at law would be adequate.

     

    (c) Successors
      and Assigns.
      Except
      as otherwise provided herein, the provisions hereof shall inure to the benefit
      of, and be binding upon, the successors, Permitted Assignees, executors and
      administrators of the parties hereto.

     

    (d) No
      Inconsistent Agreements.
      The
      Company has not entered, as of the date hereof, and shall not enter, on or
      after
      the date of this Agreement, into any agreement with respect to its securities
      that would have the effect of impairing the rights granted to the Holders in
      this Agreement or otherwise conflicts with the provisions hereof.

     

    (e) Entire
      Agreement.
      This
      Agreement constitutes the full and entire understanding and agreement between
      the parties with regard to the subjects hereof.

     

    (f) Notices,
      etc.
      All
      notices or other communications which are required or permitted under this
      Agreement shall be in writing and sufficient if delivered by hand, by facsimile
      transmission, by registered or certified mail, postage pre-paid, by electronic
      mail, or by courier or overnight carrier, to the persons at the addresses set
      forth below (or at such other address as may be provided hereunder), and shall
      be deemed to have been delivered as of the date so delivered: 

     

    If
      to the
      Company to:

    


    Kentucky
      USA Energy, Inc.

    321
      Somerset Road

    Kexington,
      KY 40741

    Attention:
      Steven D. Eversole, Chief Executive Officer

    Facsimile:
      

    


    with
      copy
      to:

    


    Gottbetter
      & Partners, LLP

    488
      Madison Avenue, 12th
      Floor

    New
      York,
      NY 10022

    Attention:
      Adam S. Gottbetter, Esq. 

    Facsimile:
      (212) 400-6901


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    If
      to the
      Buyers:

    


    To
      each
      Buyer at the address set forth on the signature page hereto;

    


    or
      at
      such other address as any party shall have furnished to the other parties in
      writing.

     

    (g) Delays
      or Omissions.
      No
      delay or omission to exercise any right, power or remedy accruing to any Holder,
      upon any breach or default of the Company under this Agreement, shall impair
      any
      such right, power or remedy of such Holder nor shall it be construed to be
      a
      waiver of any such breach or default, or an acquiescence therein, or of any
      similar breach or default thereunder occurring; nor shall any waiver of any
      single breach or default be deemed a waiver of any other breach or default
      theretofore or thereafter occurring. Any waiver, permit, consent or approval
      of
      any kind or character on the part of any Holder of any breach or default under
      this Agreement, or any waiver on the part of any Holder of any provisions or
      conditions of this Agreement, must be in writing and shall be effective only
      to
      the extent specifically set forth in such writing. All remedies, either under
      this Agreement, or by law or otherwise afforded to any holder, shall be
      cumulative and not alternative.

     

    (h) Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      enforceable against the parties actually executing such counterparts, and all
      of
      which together shall constitute one instrument. In the event that any signature
      is delivered by facsimile transmission, such signature shall create a valid
      and
      binding obligation of the party executing (or on whose behalf such signature
      is
      executed) with the same force and effect as if such facsimile signature page
      were an original thereof.

     

    (i) Severability.
      In the
      case any provision of this Agreement shall be invalid, illegal or unenforceable,
      the validity, legality and enforceability of the remaining provisions shall
      not
      in any way be affected or impaired thereby.

     

    (j) Amendments.
      The
      provisions of this Agreement may be amended at any time and from time to time,
      and particular provisions of this Agreement may be waived, with and only with
      an
      agreement or consent in writing signed by the Company and the Majority Holders.
      The Buyers acknowledge that by the operation of this Section, the Majority
      Holders may have the right and power to diminish or eliminate all rights of
      the
      Buyers under this Agreement.

     

    [Remainder
      of Page Intentionally Left Blank]


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    


    This
      Registration Rights Agreement is hereby executed as of the date first above
      written.

     

    
      	
              COMPANY:

            
	 
	
              KENTUCKY
                USA ENERGY, INC.

            
	 	 
	
              By:
                

            	   

	
              Name: Steven
                D. Eversole

            
	
              Title:
                Chief
                Executive Officer

            


    

    


     

    [SIGNATURE
      PAGE OF PURCHASER FOLLOWS]


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


    This
      Registration Rights Agreement is hereby executed as of the date first above
      written.

     

    
      	
              PURCHASER
                (Individual)

            
	 
	  

	 
	  

	
              (Print
                Name)

            
	 
	
              PURCHASER
                (Entity)

            
	 
	
              By:
                

            	  

	 	 
	  

	
              (Print
                Name)

            
	 
	   

	
              (Print
                Title)

            
	 
	 
	
              Address
                for notices:

            
	 
	  

	 
	  

	 
	  

	
              City

            	
                         State

            	
                       Zip Code

            


    

    



    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    Annex A

     

    KENTUCKY USA ENERGY,
      INC.

     

    Selling
      Securityholder Notice and Questionnaire

     

    The
      undersigned beneficial owner of Registrable Securities of Kentucky USA Energy,
      Inc., a Delaware corporation (the “Company”),
      understands that the Company has filed or intends to file with the Securities
      and Exchange Commission a registration statement (the “Registration
      Statement”)
      for
      the registration and resale under Rule 415 of the Securities Act of 1933, as
      amended, of the Registrable Securities, in accordance with the terms of the
      Registration Rights Agreement (the “Registration
      Rights Agreement”)
      to
      which this document is annexed. A copy of the Registration Rights Agreement
      is
      available from the Company upon request at the address set forth below. All
      capitalized terms not otherwise defined herein shall have the meanings ascribed
      thereto in the Registration Rights Agreement.

     

    Certain
      legal consequences arise from being named as a selling securityholder in the
      Registration Statement and the related prospectus. Accordingly, holders and
      beneficial owners of Registrable Securities are advised to consult their own
      securities law counsel regarding the consequences of being named or not being
      named as a selling securityholder in the Registration Statement and the related
      prospectus.

     

    NOTICE

     

    The
      undersigned beneficial owner (the “Selling
      Securityholder”)
      of
      Registrable Securities hereby elects to include the Registrable Securities
      owned
      by it in the Registration Statement.

     

    The
      undersigned hereby provides the following information to the Company and
      represents and warrants that such information is accurate:

     

    QUESTIONNAIRE

     

    1.
      Name:

     

    
      	 	
              (a)

            	
              Full
                Legal Name of Selling
                Securityholder

            


    

     

    
      	 
	 


    

    


    
      	 	
              (b)

            	
              Full
                Legal Name of Registered Holder (if not the same as (a) above) through
                which Registrable Securities are
                held:

            


    

     

    
      
        	 
	 


      

    

     

    


    
      	 	
              (c)

            	
              Full
                Legal Name of Natural Control Person (which means a natural person
                who
                directly or indirectly alone or with others has power to vote or
                dispose
                of the securities covered by the
                questionnaire):

            


    

    
       

      
        	 
	 


      

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    2.
      Address for Notices to Selling Securityholder:

     

    
      	 

	 

	 

	
              Telephone:

            	  	 	
              Fax:

            	  



    

    
      	
              Email:

            	  



    

    
      	
              Contact Person:

            	  



    

    


    3.
      Broker-Dealer Status:

     

    
      	 	
              (a)

            	
              Are
                you a broker-dealer?

            


    

     

    Yes o
No
o

     

    
      	 	
              (b)

            	
              If
                “yes” to Section 3(a), did you receive your Registrable Securities as
                compensation for investment banking services to the
                Company?

            


    

     

    Yes
o
No
o

     

    
      	 	
              Note:

            	
              If
                no, the Commission’s staff has indicated that you should be identified as
                an underwriter in the Registration
                Statement.

            


    

     

    
      	 	
              (c)

            	
              Are
                you an affiliate of a
                broker-dealer?

            


    

     

    Yes
o
No
o

     

    
      	 	
              (d)

            	
              If
                you are an affiliate of a broker-dealer, do you certify that you
                bought
                the Registrable Securities in the ordinary course of business, and
                at the
                time of the purchase of the Registrable Securities to be resold,
                you had
                no agreements or understandings, directly or indirectly, with any
                person
                to distribute the Registrable
                Securities?

            


    

     

    Yes
o
No
o

     

    
      	 	
              Note:

            	
              If
                no, the Commission’s staff has indicated that you should be identified as
                an underwriter in the Registration
                Statement.

            


    

     

    4.
      Beneficial Ownership of Securities of the Company Owned by the Selling
      Securityholder:

     

    Except
      as set forth below in this Item 4, the undersigned is not the beneficial or
      registered owner of any securities of the Company other than the securities
      issuable pursuant to the sale of the Notes.

     

    
      	 	
              (a)

            	
              Type
                and Amount of other securities (other than the Registrable Securities)
                beneficially owned by the Selling
                Securityholder:

            


    

    
       

      
        	 
	 


      

    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    5.
      Relationships with the Company:

     

    Except
      as set forth below, neither the undersigned nor any of its affiliates, officers,
      directors or principal equity holders (owners of 5% of more of the equity
      securities of the undersigned) has held any position or office or has had any
      other material relationship with the Company (or its predecessors or affiliates)
      during the past three years.

     

    State
      any
      exceptions here:

    
       

      
        	 
	 


      

    

     

    The
      undersigned agrees to promptly notify the Company of any inaccuracies or changes
      in the information provided herein that may occur subsequent to the date hereof
      at any time while the Registration Statement remains effective.

     

    By
      signing below, the undersigned consents to the disclosure of the information
      contained herein in its answers to Items 1 through 5 and the inclusion of such
      information in the Registration Statement and the related prospectus and any
      amendments or supplements thereto. The undersigned understands that such
      information will be relied upon by the Company in connection with the
      preparation or amendment of the Registration Statement and the related
      prospectus.

     

    IN
      WITNESS WHEREOF the undersigned, by authority duly given, has caused this
      Selling Securityholder Notice and Questionnaire to be executed and delivered
      either in person or by its duly authorized agent.

    


    
      	
              Dated:
                

            	   
              	 	
              Beneficial Owner: 

            	   
              


    

    
      	 	 	
              By:

            	   

	 	 	 	
              Name:

            
	 	 	 	
              Title:

            


    

    


    PLEASE
      FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
      THE ORIGINAL BY OVERNIGHT MAIL, TO:

    


    Gottbetter
      & Partners, LLP

    488
      Madison Avenue, 12th Floor

    New
      York,
      NY 10022

    Attention:
      Rachel L. DeGenaro

    Facsimile:
      (212) 400-6901


    
      
        
        

      

      
        3