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.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    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.

    


    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (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.

    


    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (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).

    


    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (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]

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    


    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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