Document:

ex109.htm

    Exhibit
10.9

    

    Warrant
Certificate No. __

    

    NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED
OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS.

     

    
      	Effective
      Date:  __________, 2008 	
               Void
      After:  __________, 2013

            

    

     

     

    KENTUCKY
USA ENERGY, INC.

     

    WARRANT
TO PURCHASE COMMON STOCK

    

    Kentucky
USA Energy, Inc., a Delaware corporation (the “Company”), for value received
on __________, 2008 (the “Effective Date”), hereby
issues to __________ (the “Holder”) this Warrant to
Purchase Common Stock (the “Warrant”) to purchase
__________ shares (each such share as from time to time adjusted as hereinafter
provided being a “Warrant
Share” and all such shares being the “Warrant Shares”) of the
Company’s Common Stock (as defined below), at the Exercise Price (as defined
below), as adjusted from time to time as provided herein, on or before
__________, 2013 (the “Expiration Date”), all subject
to the following terms and conditions.

    

    As used
in this Warrant, (i) “Business
Day” means any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York, New York, are authorized or required
by law or executive order to close; (ii) “Common Stock” means the common
stock of the Company, par value $0.0001 per share, including any securities
issued or issuable with respect thereto or into which or for which such shares
may be exchanged for, or converted into, pursuant to any stock dividend, stock
split, stock combination, recapitalization, reclassification, reorganization or
other similar event; (iii) “Exercise Price” means $1.00
per share of Common Stock, subject to adjustment as provided herein; (iv) “Trading Day” means any day on
which the Common Stock is traded on the primary national or regional stock
exchange on which the Common Stock is listed or, if not so listed, the OTC
Bulletin Board, if quoted thereon, is
open for the transaction of business; and (v) “Affiliate” means any person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, a person, as such terms are used
and construed in Rule 144 promulgated under the Securities Act of 1933, as
amended (the “Securities
Act”).

     

     

     

     

    
      
        
        

      

      
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              1.

            	
              DURATION
      AND EXERCISE OF WARRANTS

            

    

    

    (a)           Exercise
Period.  The Holder may exercise this Warrant in whole or in
part on any Business Day on or before 5:00 P.M., Eastern Time, on the Expiration
Date, at which time this Warrant shall become void and of no value.

    

    
      	
               
      

            	
              (b)

            	
              Exercise
      Procedures.

            

    

    

    (i)           While
this Warrant remains outstanding and exercisable in accordance with Section
1(a), in addition to the manner set forth in Section 1(b)(ii) below, the Holder
may exercise this Warrant in whole or in part at any time and from time to time
by:

    

    (A)           delivery
to the Company of a duly executed copy of the Notice of Exercise attached as
Exhibit A;

    

    (B)           surrender
of this Warrant to the Secretary of the Company at its principal offices or at
such other office or agency as the Company may specify in writing to the Holder;
and

    

    (C)           payment
of the then-applicable Exercise Price per share multiplied by the number of
Warrant Shares being purchased upon exercise of the Warrant (such amount, the
“Aggregate Exercise
Price”) made in the form of cash, or by certified check, bank draft or
money order payable in lawful money of the United States of America or in the
form of a Cashless Exercise (as defined below) to the extent permitted in
Section 1(b)(ii) below.

    

    (ii)           At
any time when a registration statement covering the resale of the Warrant Shares
by the Holder is not available after the first anniversary of the Effective
Date, the Holder may, in its sole discretion, exercise all or any part of the
Warrant in a “cashless” or “net-issue” exercise (a “Cashless Exercise”) by
delivering to the Company (1) the Notice of Exercise and (2) the original
Warrant, pursuant to which the Holder shall surrender the right to receive upon
exercise of this Warrant, a number of Warrant Shares having a value (as
determined below) equal to the Aggregate Exercise Price, in which case, the
number of Warrant Shares to be issued to the Holder upon such exercise shall be
calculated using the following formula:

    

                                    X           =           Y * (A -
B)

                                                               A

    

               with:                      X
=           the number of
Warrant Shares to be issued to the Holder

    

    
      	 	
              Y
      =

            	
              the
      number of Warrant Shares with respect to which the Warrant is being
      exercised

            

    

    

    
      	 	
              A
      =

            	
              the
      fair value per share of Common Stock on the date of exercise of the
      Warrant

            

    

    

    
      	 	
              B
      =

            	
              the
      then-current Exercise Price of the
Warrant

            

    

    

    Solely
for the purposes of this paragraph, “fair value” per share of Common Stock shall
mean (A) the average of the closing sales prices, as quoted on the primary
national or regional stock exchange on which the Common Stock is listed or, if
not listed, the OTC Bulletin Board, if quoted thereon, on the 20 Trading Days
immediately preceding the date on which the Notice of Exercise is deemed to have
been sent to the Company, or (B) if the Common Stock is not publicly traded as
set forth above, as reasonably and in good faith determined by the Board of
Directors of the Company as of the date which the Notice of Exercise is deemed
to have been sent to the Company.

     

     

     

    
      
        
        

      

      
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    Notwithstanding
the foregoing provisions of this Section 1(b)(ii), the Holder may not make a
Cashless Exercise if and to the extent that such exercise would require the
Company to issue a number of shares of Common Stock in excess of its authorized
but unissued shares of Common Stock, less all amounts of Common Stock that have
been reserved for issuance upon the conversion of all outstanding securities
convertible into shares of Common Stock and the exercise of all outstanding
options, warrants and other rights exercisable for shares of Common
Stock.  If the Company does not have the requisite number of
authorized but unissued shares of Common Stock to permit the Holder to make a
Cashless Exercise, the Company shall use commercially reasonable efforts to
obtain the necessary stockholder consent to increase the authorized number of
shares of Common Stock to permit such Holder to make a Cashless Exercise
pursuant to this Section 1(b)(ii).

    

    (iii)           Upon
the exercise of this Warrant in compliance with the provisions of this Section
1(b), and except as limited pursuant to the last paragraph of Section 1(b)(ii),
the Company shall promptly issue and cause to be delivered to the Holder a
certificate for the Warrant Shares purchased by the Holder.  Each
exercise of this Warrant shall be effective immediately prior to the close of
business on the date (the “Date
of Exercise”) that the conditions set forth in Section 1(b) have been
satisfied, as the case may be.  On the first Business Day following
the date on which the Company has received each of the Notice of Exercise and
the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance
with Section 1(b)(ii)) (the “Exercise Delivery Documents”), the
Company shall transmit an acknowledgment of receipt of the Exercise Delivery
Documents to the Company’s transfer agent (the “Transfer Agent”).  On or
before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Notice of Exercise, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares.  If this Warrant is submitted in connection with any
exercise pursuant to Section 1(a) and the number of Warrant Shares represented
by this Warrant submitted for exercise is greater than the actual number of
Warrant Shares being acquired upon such an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant of like
tenor representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is
exercised.

    

    (iv)           If
the Company shall fail for any reason or for no reason to issue to the Holder,
within three Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, and if on or after such Business Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-In”),
then the Company shall, within three Business Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount
equal to the Holder’s total purchase price (including brokerage commissions, if
any) for the 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 shares
of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
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 date of exercise.

    

    (c)           Partial
Exercise.  This Warrant shall be exercisable, either in its
entirety or, from time to time, for part only of the number of Warrant Shares
referenced by this Warrant.  If this Warrant is exercised in part, the
Company shall issue, at its expense, a new Warrant, in substantially the form of
this Warrant, referencing such reduced number of Warrant Shares that remain
subject to this Warrant.

    

    (d)           Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 15.

     

     

    
      
        
        

      

      
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              2.

            	
              ISSUANCE
      OF WARRANT SHARES

            

    

    

    (a)           The
Company covenants that all Warrant Shares will, upon issuance in accordance with
the terms of this Warrant, be (i) duly authorized, fully paid and
non-assessable, and (ii) free from all liens, charges and security interests,
with the exception of claims arising through the acts or omissions of any Holder
and except as arising from applicable federal and state securities
laws.

    

    (b)           The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose in the name of the record holder of such Warrant from time to
time.  The Company may deem and treat the registered Holder of this Warrant
as the absolute owner thereof for the purpose of any exercise thereof, any
distribution to the Holder thereof and for all other purposes.

    

    (c)           The
Company will not, by amendment of its certificate of incorporation, by-laws or
through any reorganization, transfer of assets, consolidation, merger,
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 to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all action necessary or appropriate in order to protect the rights of
the Holder to exercise this Warrant, or against impairment of such
rights.

    

    
      	
              3.

            	
              ADJUSTMENTS
      OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT
  SHARES

            

    

    

    (a)           The
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3(a); provided, that
notwithstanding the provisions of this Section 3, the Company shall not be
required to make any adjustment if and to the extent that such adjustment would
require the Company to issue a number of shares of Common Stock in excess of its
authorized but unissued shares of Common Stock, less all amounts of Common Stock
that have been reserved for issuance upon the conversion of all outstanding
securities convertible into shares of Common Stock and the exercise of all
outstanding options, warrants and other rights exercisable for shares of Common
Stock.  If the Company does not have the requisite number of
authorized but unissued shares of Common Stock to make any adjustment, the
Company shall use its commercially reasonable efforts to obtain the necessary
stockholder consent to increase the authorized number of shares of Common Stock
to make such an adjustment pursuant to this Section 3(a).

    

    (i)           Subdivision or Combination
of Stock.  In case the Company shall at any time subdivide (whether
by way of stock dividend, stock split or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of Warrant Shares shall be proportionately increased, and conversely, in
case the outstanding shares of Common Stock of the Company shall be combined
(whether by way of stock combination, reverse stock split or otherwise) into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
shall be proportionately decreased.  The Exercise Price and the
Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this
Section 3(a)(i).

    

    (ii)           Dividends in Stock,
Property, Reclassification.  If at any time, or from time to time,
the holders of Common Stock (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefore:

    

    (A)           any
shares of stock or other securities that are at any time directly or indirectly
convertible into or exchangeable for Common Stock, or any rights or options to
subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or

    

    (B)           additional
stock or other securities or property (including cash) by way of spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than shares of Common Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3(a)(i)
above),

    

    then and
in each such case, the Exercise Price and the number of Warrant Shares to be
obtained upon exercise of this Warrant shall be adjusted proportionately, and
the Holder hereof shall, upon the exercise of this Warrant, be entitled to
receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to above) that such Holder would hold on the date of such exercise had
such Holder been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such shares
or all other additional stock and other securities and property.  The
Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive event or events described
in this Section 3(a)(ii).

     

     

     

    
      
        
        

      

      
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    (iii)           Reorganization,
Reclassification, Consolidation, Merger or Sale.  If any
recapitalization, reclassification or reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets or other transaction shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or other assets or property (an “Organic Change”), then, as a
condition of such Organic Change, lawful and adequate provisions shall be made
by the Company whereby the Holder hereof shall thereafter have the right to
purchase and receive (in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented by this Warrant) such shares of stock, securities or other
assets or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable assuming the full exercise of the rights represented by this Warrant.
 In the event of any Organic Change, appropriate provision shall be made by
the Company with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of stock, securities or other assets or
property thereafter deliverable upon the exercise hereof.  The Company will
not effect any such consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument reasonably satisfactory in form
and substance to the Holder executed and mailed or delivered to the registered
Holder hereof at the last address of such Holder appearing on the books of the
Company, the obligation to deliver to such Holder such shares of stock,
securities or other assets or property as, in accordance with the foregoing
provisions, such Holder may be entitled to purchase. If there is
an Organic Change, then the Company shall cause to be mailed to the Holder at
its last address as it shall appear on the
books and records of the Company, at least 10 calendar days before the effective
date of the Organic Change, a notice stating the date on which such Organic
Change is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares for such shares of
stock, securities or other assets or property delivered upon such Organic Change;
provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall
not affect the validity of the corporate action required to be specified in such
notice.  The Holder is entitled to exercise this Warrant during the
10-day period commencing on the date of such notice to the effective
date of the event triggering such notice.  In any event, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall be
deemed to assume such obligation to deliver to such Holder such shares of stock,
securities or other assets or property even in the absence of a written
instrument assuming such obligation to the extent such assumption occurs by
operation of law.

    

    (b)           Certificate as to
Adjustments.  Upon the occurrence of each adjustment or readjustment
pursuant to this Section 3, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.  The Company shall promptly furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; and (ii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.

    

    (c)           Certain Events.
 If any event occurs as to which the other provisions of this Section 3 are
not strictly applicable but the lack of any adjustment would not fairly protect
the purchase rights of the Holder under this Warrant in accordance with the
basic intent and principles of such provisions, or if strictly applicable would
not fairly protect the purchase rights of the Holder under this Warrant in
accordance with the basic intent and principles of such provisions, then the
Company’s Board of Directors will, in good faith, make an appropriate adjustment
to protect the rights of the Holder; provided, that no
such adjustment pursuant to this Section 3(c) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 3.

     

     

     

    
      
        
        

      

      
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    (d)           Adjustment of Exercise Price
upon Issuance of Additional
Shares of
Common Stock.  In the event the Company shall at any time prior
to the twelfth month anniversary of the Effective Date issue Additional Shares
of Common Stock (as defined below) without consideration or for a consideration
per share less than the Exercise Price in effect immediately prior to such
issue, then the Exercise Price shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) determined by multiplying such
Exercise Price by a fraction, (A) the numerator of which shall be (1) the number
of shares of Common Stock outstanding immediately prior to such issue plus (2)
the number of shares of Common Stock which the aggregate consideration received
or to be received by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such Exercise Price; and (B) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued; provided that, (i)
for the purpose of this Section 3(d), all shares of Common Stock issuable upon
conversion or exchange of convertible securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) the number of shares
of Common Stock deemed issuable upon conversion or exchange of such outstanding
convertible securities shall be determined without giving effect to any
adjustments to the conversion or exchange price or conversion or exchange rate
of such convertible securities resulting from the issuance of Additional Shares
of Common Stock that is the subject of this calculation.  For purposes
of this Warrant, “Additional Shares of Common Stock” shall mean all shares of
Common Stock issued by the Company after the Effective Date (including without
limitation any shares of Common Stock issuable upon conversion or exchange of
any convertible securities or upon exercise of any option or warrant, on an
as-converted basis), other than: (i) shares of Common Stock issued or
issuable upon conversion or exchange of any convertible securities or exercise
of any options outstanding on the Effective Date; (ii) shares of Common Stock
issued or issuable pursuant to warrants issued subsequent to the Effective Date
but as part of the same Offering pursuant to a Subscription Agreement
substantially identical to that referenced herein or to the Placement Agents or
its designees in connection with such Offering; (iii) shares of Common
Stock issued or issuable by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that is covered by Sections 3(a)(i)
through 3(a)(iii) above; or (iv) shares of Common Stock (or options with
respect thereto) issued or issuable to employees or directors of, or consultants
to, the Company or any of its subsidiaries pursuant to a plan, agreement or
arrangement approved by the Board of Directors of the Company.  The
provisions of this Section 3(d) shall not operate to increase the Exercise
Price.

    

    
      	
              4.

            	
              TRANSFERS
      AND EXCHANGES OF WARRANT AND WARRANT
SHARES

            

    

    

    (a)           Registration of Transfers
and Exchanges.  Subject to Section 4(c), upon the Holder’s surrender
of this Warrant, with a duly executed copy of the Form of Assignment attached as
Exhibit B, to the
Secretary of the Company at its principal offices or at such other office or
agency as the Company may specify in writing to the Holder, the Company shall
register the transfer of all or any portion of this Warrant.  Upon such
registration of transfer, the Company shall issue a new Warrant, in
substantially the form of this Warrant, evidencing the acquisition rights
transferred to the transferee and a new Warrant, in similar form, evidencing the
remaining acquisition rights not transferred, to the Holder requesting the
transfer.

    

    (b)           Warrant Exchangeable for
Different Denominations.  The Holder may exchange this Warrant for a
new Warrant or Warrants, in substantially the form of this Warrant, evidencing
in the aggregate the right to purchase the number of Warrant Shares which may
then be purchased hereunder, each of such new Warrants to be dated the date of
such exchange and to represent the right to purchase such number of Warrant
Shares as shall be designated by the Holder.  The Holder shall surrender
this Warrant with duly executed instructions regarding such re-certification of
this Warrant to the Secretary of the Company at its principal offices or at such
other office or agency as the Company may specify in writing to the
Holder.

    

    (c)           Restrictions on
Transfers.  This Warrant may not be transferred at any time without
(i) registration under the Securities Act or (ii) an exemption from such
registration and a written opinion of legal counsel addressed to the Company
that the proposed transfer of the Warrant may be effected without registration
under the Securities Act, which opinion will be in form and from counsel
reasonably satisfactory to the Company.

     

     

    
      
        
        

      

      
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    (d)           Permitted Transfers and
Assignments.  Notwithstanding any provision to the contrary in
this Section 4, the Holder may transfer, with or without consideration, this
Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s
Affiliates (as such term is defined under Rule 144 of the Securities Act)
without obtaining the opinion from counsel that may be required by Section
4(c)(ii), provided, that the
Holder delivers to the Company and its counsel certification, documentation, and
other assurances reasonably required by the Company’s counsel to enable the
Company’s counsel to render an opinion to the Company’s Transfer Agent that such
transfer does not violate applicable securities laws.

    

    
      	
              5.

            	
              MUTILATED
      OR MISSING WARRANT CERTIFICATE

            

    

    

    If this
Warrant is mutilated, lost, stolen or destroyed, upon request by the Holder, the
Company will, at its expense, issue, in exchange for and upon cancellation of
the mutilated Warrant, or in substitution for the lost, stolen or destroyed
Warrant, a new Warrant, in substantially the form of this Warrant, representing
the right to acquire the equivalent number of Warrant Shares; provided, that as a
prerequisite to the issuance of a substitute Warrant, the Company may require
satisfactory evidence of loss, theft or destruction as well as an indemnity from
the Holder of a lost, stolen or destroyed Warrant.

    

    
      	
              6.

            	
              PAYMENT
      OF TAXES

            

    

    

    The
Company will pay all transfer and stock issuance taxes attributable to the
preparation, issuance and delivery of this Warrant and the Warrant Shares (and
replacement Warrants) including, without limitation, all documentary and stamp
taxes; provided, however, that the
Company shall not be required to pay any tax in respect of the transfer of this
Warrant, or the issuance or delivery of certificates for Warrant Shares or other
securities in respect of the Warrant Shares to any person or entity other than
to the Holder.

    

    7.           FRACTIONAL
WARRANT SHARES

    

    No
fractional Warrant Shares shall be issued upon exercise of this Warrant. 
The Company, in lieu of issuing any fractional Warrant Share, shall round up the
number of Warrant Shares issuable to the nearest whole share.

    

    
      	
              8.

            	
              NO
      STOCK RIGHTS AND LEGEND

            

    

    

    No holder
of this Warrant, as such, shall be entitled to vote or be deemed the holder of
any other securities of the Company that may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the holder of this Warrant, as such, the rights of a stockholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise (except as provide herein).

    

    Each
certificate for Warrant Shares initially issued upon the exercise of this
Warrant, and each certificate for Warrant Shares issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:

    

    “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH
REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER
OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS.”

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
 

    9.           REGISTRATION
UNDER THE SECURITIES ACT

    

    The
Company agrees to provide “piggyback” registration rights for the resale of the
Warrant Shares under the Securities Act.

     

    10.           NOTICES

    

    All
notices, consents, waivers, and other communications under this Warrant must be
in writing and will be deemed given to a party when (a) delivered to the
appropriate address by hand or by nationally recognized overnight courier
service (costs prepaid); (b) sent by facsimile or e-mail with confirmation of
transmission by the transmitting equipment; (c) received or rejected by the
addressee, if sent by certified mail, return receipt requested, if to the
registered Holder hereof; or (d) seven days after the placement of the notice
into the mails (first class postage prepaid), to the Holder at the address,
facsimile number, or e-mail address furnished by the registered Holder to the
Company, or to the Company at 321 Somerset Road, London, KY 40741,
Attention: Steven D. Eversole, Chief Executive Officer (or to such other
address, facsimile number, or e-mail address as the Holder or the Company as a
party may designate by notice the other party) with a copy to Gottbetter &
Partners, LLP, 488 Madison Avenue, New York, NY 10022, Attention: Adam S.
Gottbetter, Esq.

    

    11.           SEVERABILITY

    

    If a
court of competent jurisdiction holds any provision of this Warrant invalid or
unenforceable, the other provisions of this Warrant will remain in full force
and effect.  Any provision of this Warrant held invalid or unenforceable
only in part or degree will remain in full force and effect to the extent not
held invalid or unenforceable.

    

    12.           BINDING
EFFECT

    

    This
Warrant shall be binding upon and inure to the sole and exclusive benefit of the
Company, its successors and assigns, the registered Holder or Holders from time
to time of this Warrant and the Warrant Shares.

    

    13.           SURVIVAL
OF RIGHTS AND DUTIES

    

    This
Warrant shall terminate and be of no further force and effect on the earlier of
(i) 5:00 P.M., Eastern Time, on the Expiration Date or (ii) the date on which
this Warrant has been exercised in full and all Warrant Shares issuable pursuant
to such exercises have been delivered to Holder or as directed by
Holder.

    

    14.           GOVERNING
LAW

    

    This
Warrant will be governed by and construed under the laws of the State of
Delaware without regard to conflicts of laws principles that would require the
application of any other law.

    

    15.           DISPUTE
RESOLUTION

    

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

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
 

    
      	
              16.

            	
              NOTICES
      OF RECORD DATE

            

    

    

    Upon (a)
any establishment by the Company of a record date of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or right or option to acquire
securities of the Company, or any other right, or (b) any capital
reorganization, reclassification, recapitalization, merger or consolidation of
the Company with or into any other corporation, any transfer of all or
substantially all the assets of the Company, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or the sale, in a single
transaction, of a majority of the Company’s voting stock (whether newly issued,
or from treasury, or previously issued and then outstanding, or any combination
thereof), the Company shall mail to the Holder at least ten calendar days,
or such longer period as may be required by law, prior to the record date
specified therein, a notice specifying (i) the date established as the record
date for the purpose of such dividend, distribution, option or right and a
description of such dividend, option or right, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up, or sale is expected to become effective and (iii) the
date, if any, fixed as to when the holders of record of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolation, merger, dissolution, liquidation or winding up.

    

    
      	
              17.

            	
              RESERVATION
      OF SHARES

            

    

    

    The
Company shall reserve and keep available out of its authorized but unissued
shares of Common Stock for issuance upon the exercise of this Warrant, free from
pre-emptive rights, such number of shares of Common Stock for which this Warrant
shall from time to time be exercisable.  The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation.  Without limiting the generality of the foregoing, the Company
covenants that it will use commercially reasonable efforts to take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares upon the exercise
of this Warrant and use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents, including but not limited to consents
from the Company’s stockholders or Board of Directors or any public regulatory
body, as may be necessary to enable the Company to perform its obligations under
this Warrant.

    

    
      	
              18.

            	
              NO
      THIRD PARTY RIGHTS

            

    

    

    This
Warrant is not intended, and will not be construed, to create any rights in any
parties other than the Company and the Holder, and no person or entity may
assert any rights as third-party beneficiary hereunder.

    

    

    [SIGNATURE
PAGE FOLLOWS]

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

     

     

     

                  IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of
the date first set forth above.

     

    
      
        	 	KENTUCKY
      USA ENERGY, INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:   Steven
      D. Eversole	 
	 	 	Title: Chief
      Executive Officer	 
	 	 	 	 

      

          

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    

    

    EXHIBIT
A

    

    NOTICE OF
EXERCISE

    

    (To be
executed by the Holder of Warrant if such Holder desires to exercise
Warrant)

    

    To
Kentucky USA Energy, Inc.:

    

    The
undersigned hereby irrevocably elects to exercise this Warrant and to purchase
thereunder, __________ full shares of Kentucky USA Energy, Inc. common stock
issuable upon exercise of the Warrant and delivery of:

    

    (1)           $__________
(in cash as provided for in the foregoing Warrant) and any applicable taxes
payable by the undersigned pursuant to such Warrant; and

    

    (2)           __________
shares of Common Stock (pursuant to a Cashless Exercise in accordance with
Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to
deliver an unspecified number of shares equal the number sufficient to effect a
Cashless Exercise [___]).

    

    The
undersigned requests that certificates for such shares be issued in the name
of:

    

                                                                               

    (Please
print name, address and social security or

    federal
employer identification number (if applicable))

    

                                                                               

     

                                                                               

    

    If the
shares issuable upon this exercise of the Warrant are not all of the Warrant
Shares which the Holder is entitled to acquire upon the exercise of the Warrant,
the undersigned requests that a new Warrant evidencing the rights not so
exercised be issued in the name of and delivered to:

    

                                                                               

     

    
      	 	 	 
	 	
               (Please print
      name, address and social security or

            	 
	 	
               federal
      employer identification number (if applicable))

            	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	
               Name of Holder
      (print):

            	 
	 	 	 
	 	
               (Signature): 

            	 
	 	 	 
	 	
               By:

            	 
	 	 	 
	 	
               Title: 

            	 
	 	 	 
	 	
               Dated:

            	 
	 	 	 

    

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

     

    

     

    

     

    EXHIBIT
B

    

    FORM OF
ASSIGNMENT

    

    FOR VALUE
RECEIVED, ___________________________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
under the Warrant (as defined in and evidenced by the attached Warrant) to
acquire the number of Warrant Shares set opposite the name of such assignee
below and in and to the foregoing Warrant with respect to said acquisition
rights and the shares issuable upon exercise of the Warrant:

    

    

    
      	
              Name
      of Assignee

            	
              Address

            	
              Number
      of Shares

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

    

    

    

    If the
total of the Warrant Shares are not all of the Warrant Shares evidenced by the
foregoing Warrant, the undersigned requests that a new Warrant evidencing the
right to acquire the Warrant Shares not so assigned be issued in the name of and
delivered to the undersigned.

     

     

    
      	 	  

               Name of Holder
      (print):

            	 
	 	 	 
	 	 	 
	 	
               (Signature): 

            	 
	 	 	 
	 	
               By:

            	 
	 	 	 
	 	
               Title: 

            	 
	 	 	 
	 	
               Dated:

            	 
	 	 	 

       

       

       

      12Exhibit 10.7

 

Addendum

License Agreement

 

Addendum make July 15, 1997 between Infrared Systems International, Inc. and Kollsman, Inc.

 

See attached PDF document to this filing.

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