Document:

EXHIBIT
      10.3

    

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE
      SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE 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.

    

    KENTUCKY
      USA ENERGY, INC.

    WARRANT
      TO PURCHASE COMMON STOCK

    

    Warrant
      No.: 001

    Number
      of
      Shares of Common Stock: 2,500,000

    Date
      of
      Issuance: May 29, 2008 (“Issuance
      Date”)

    

    Kentucky
      USA Energy, Inc., a Delaware corporation (the “Company”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, ________________, the registered
      holder hereof or its permitted assigns (the “Holder”),
      is
      entitled, subject to the terms set forth below, to purchase from the Company,
      at
      the Exercise Price (as defined below) then in effect, upon surrender of this
      Warrant to purchase Common Stock (including any Warrants to purchase Common
      Stock issued in exchange, transfer or replacement hereof, the “Warrant”),
      at
      any time or times on or after the date hereof, but not after 11:59 p.m., New
      York Time, on the Expiration Date (as defined below), Two Million Five Hundred
      (2,500,000) fully paid nonassessable shares of Common Stock (as defined below)
      (the “Warrant
      Shares”).
       Except as otherwise defined herein, capitalized terms in this Warrant
      shall have the meanings set forth in Section 15.  This Warrant is one of
      the Warrants to purchase Common Stock (the “SPA
      Warrants”)
      issued
      pursuant to that certain Securities Purchase Agreement, dated as of May 29,
      2008
      (the “Subscription
      Date”),
      by
      and among the Company and the investors (the “Buyers”)
      referred to therein (the “Securities
      Purchase Agreement”).

    

    1. EXERCISE
      OF WARRANT.

    

    (a) Mechanics
      of Exercise.
       Subject to the terms and conditions hereof (including, without limitation,
      the limitations set forth in Section 1(f)), this Warrant may be exercised by
      the
      Holder on any day on or after the date hereof, in whole or in part, by
      (i) delivery of a written notice, in the form attached hereto as
Exhibit
      A
      (the
“Exercise
      Notice”),
      of
      the Holder’s election to exercise this Warrant and (ii) (A) payment to the
      Company of an amount equal to the applicable Exercise Price multiplied by the
      number of Warrant Shares as to which this Warrant is being exercised (the
“Aggregate
      Exercise Price”)
      in
      cash or by wire transfer of immediately available funds or (B) by notifying
      the
      Company that this Warrant is being exercised pursuant to a Cashless Exercise
      (as
      defined in Section 1(d)).  The Holder shall not be required to deliver the
      original Warrant in order to affect an exercise hereunder.  Execution and
      delivery of the Exercise Notice with respect to less than all of the Warrant
      Shares shall have the same effect as cancellation of the original Warrant and
      issuance of a new Warrant evidencing the right to purchase the remaining number
      of Warrant Shares.  On or before the first (1st)
      Business Day following the date on which the Company has received each of the
      Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
      Exercise) (the “Exercise
      Delivery Documents”),
      the
      Company shall transmit by facsimile an acknowledgment of confirmation of receipt
      of the Exercise Delivery Documents to the Holder and the Company’s transfer
      agent (the “Transfer
      Agent”).
       On or before the second (2nd)
      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, 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 Exercise
      Notice, 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 such Warrant
      Shares are credited to the Holder’s DTC account or the date of delivery of the
      certificates evidencing such Warrant Shares as the case may be.  If this
      Warrant is submitted in connection with any exercise pursuant to this Section
      1(a) and the number of Warrant Shares represented by this Warrant submitted
      for
      exercise is greater than the number of Warrant Shares being acquired upon 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 (in accordance with Section 7(d)) 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.  No fractional shares of Common Stock are to be
      issued upon the exercise of this Warrant, but rather the number of shares of
      Common Stock to be issued shall be rounded up to the nearest whole number.
       The Company shall pay any and all taxes which may be payable with respect
      to the issuance and delivery of Warrant Shares upon exercise of this
      Warrant.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (b) Exercise
      Price.
       For purposes of this Warrant, “Exercise
      Price”
means
      $1.50, subject to any adjustment as provided herein.

    

    (c) Company’s
      Failure to Timely Deliver Securities.
       If within three (3) Trading Days after the Company’s receipt of a copy
      (whether delivered by facsimile or any other method) of an Exercise Delivery
      Documents the Company shall fail to issue and deliver a certificate to the
      Holder and register such shares of Common Stock on the Company’s share register
      or credit the Holder’s balance account with DTC for the 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 Trading 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, then
      the
      Company shall, within three (3) Business Days after the Holder’s request and in
      the Holder’s sole 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 Warrant Shares 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. Nothing
      herein shall limit the holder’s right to pursue actual damages for the Company’s
      failure to maintain a sufficient number of authorized shares of Common Stock
      or
      to otherwise issue shares of Common Stock upon exercise of this Warrant in
      accordance with the terms hereof, and the Holder shall have the right to pursue
      all remedies available at law or in equity (including a decree of specific
      performance and/or injunctive relief).

    
      
        
        

      

      
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    (d) Cashless
      Exercise. Notwithstanding
      anything contained herein to the contrary, if, at the time of exercise of this
      Warrant, a Registration Statement (as defined in the Registration Rights
      Agreement) covering the Warrant Shares that are the subject of the Exercise
      Notice (the “Unavailable
      Warrant Shares”)
      is not
      available for the resale of such Unavailable Warrant Shares, the Holder may,
      in
      its sole discretion, exercise this Warrant in whole or in part and, in lieu
      of
      making the cash payment otherwise contemplated to be made to the Company upon
      such exercise in payment of the Aggregate Exercise Price, elect instead to
      receive upon such exercise the “Net Number” of shares of Common Stock determined
      according to the following formula (a “Cashless
      Exercise”):

    

    Net
      Number = (A
      x
      B) - (A x C)

      
      B

    

    For
      purposes of the foregoing formula:

    

    
      	 	
              A

            	
              =

            	
              the
                total number of shares with respect to which this Warrant is then
                being
                exercised.

            

    

    

    
      	 	
              B

            	
              =

            	
              the
                Closing Sale Price of the shares of Common Stock (as reported by
                Bloomberg) on the date immediately preceding the date of the Exercise
                Notice.

            

    

    

    
      	 	
              C

            	
              =

            	
              the
                Exercise Price then in effect for the applicable Warrant Shares at
                the
                time of such exercise.

            

    

    

    (e) 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 12.

    
      
        
        

      

      
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    (f) Limitations
      on Exercises.

    

    (1) Beneficial
      Ownership.
       The Company shall not effect the exercise of this Warrant, and the Holder
      shall not have the right to exercise this Warrant, to the extent that after
      giving effect to such exercise, the Holder (together with the Holder’s
      affiliates) would beneficially own (directly or indirectly through Warrant
      Shares or otherwise) in excess of 4.99% of the number of shares of Common Stock
      outstanding immediately after giving effect to such exercise; 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 aggregate
      number of shares of Common Stock beneficially owned (directly or indirectly
      through Warrant Shares or otherwise) by the Holder and its affiliates shall
      include the number of shares of Common Stock issuable upon exercise of this
      Warrant with respect to which the determination of such sentence is being made,
      but shall exclude shares of Common Stock which would be issuable upon (i)
      exercise of the remaining, unexercised portion of this Warrant beneficially
      owned by the Holder and its affiliates and (ii) exercise or conversion of the
      unexercised or unconverted portion of any other securities of the Company
      beneficially owned by the Holder and its affiliates (including, without
      limitation, any convertible 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 paragraph, beneficial ownership shall
      be calculated in accordance with Section 13(d) of the Securities Exchange Act
      of
      1934, as amended (the “1934
      Act”).
       For purposes of this Warrant, 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 the SPA Securities and the
      SPA
      Warrants, by the Holder and its affiliates since the date as of which such
      number of outstanding shares of Common Stock was reported.

    

    (2) Principal
      Market Regulation.
       The Company shall not be obligated to issue any shares of Common Stock
      upon exercise of this Warrant, and the Holder shall not have the right to
      receive upon exercise of this Warrant 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 exercise, redemption
      or
      conversion, as applicable, of the SPA Warrants and SPA Securities 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 Buyer shall be issued in the aggregate, upon exercise or conversion, as
      applicable, of any SPA Warrants or SPA Securities, 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 total number of shares of Common Stock underlying
      the SPA Warrants issued to such Buyer pursuant to the Securities Purchase
      Agreement on the Issuance Date and the denominator of which is the aggregate
      number of shares of Common Stock underlying the SPA Warrants issued to the
      Buyers pursuant to the Securities Purchase Agreement on the Issuance Date (with
      respect to each Buyer, the “Exchange
      Cap Allocation”).
       In the event that any Buyer shall sell or otherwise transfer any of such
      Buyer’s SPA Warrants, the transferee shall be allocated a pro rata portion of
      such Buyer’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
      SPA Warrants shall exercise all of such holder’s SPA Warrants 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 SPA Warrants on a pro rata basis in proportion to the
      number of shares of Common Stock underlying the SPA Warrants 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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    (g) Insufficient
      Authorized Shares.
       If at any time while any of the Warrants remain outstanding the Company
      does not have a sufficient number of authorized and unreserved shares of Common
      Stock (an “Authorized
      Share Failure”)
      to
      satisfy its obligation to reserve for issuance upon exercise of the Warrants
      at
      least a number of shares of Common Stock equal to the number of shares of Common
      Stock as shall from time to time be necessary to effect the exercise of all
      of
      the SPA Warrants then outstanding  (the “Required
      Reserve Amount”),
      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 Warrants 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 stockholders
      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
      stockholder with a proxy statement and shall use its reasonable best efforts
      to
      solicit its stockholders’ approval of such increase in authorized shares of
      Common Stock and to cause its board of directors to recommend to the
      stockholders that they approve such proposal.

    
      
        
        

      

      
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    2. ADJUSTMENT
      OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

    

    The
      Exercise Price and the number of Warrant Shares shall be adjusted from time
      to
      time as follows:

    

    (a) Adjustment
      upon Issuance of Common Stock.
       In the event the Company shall at any time prior to the Expiration 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 2(a), 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 Subscription
      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 Subscription Date;
      (ii)
      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
      Section 2(b) and Section 3 below; or (iii) 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 2(a) shall not operate to increase the Exercise
      Price.

    

    (b) Adjustment
      upon Subdivision or Combination of Common Stock.
       If the Company at any time 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
      Exercise Price in effect immediately prior to such subdivision will be
      proportionately reduced and the number of Warrant Shares will be proportionately
      increased.  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
      Exercise Price in effect immediately prior to such combination will be
      proportionately increased and the number of Warrant Shares will be
      proportionately decreased.  Any adjustment under this Section 2(b) shall
      become effective at the close of business on the date the subdivision or
      combination becomes effective.

    
      
        
        

      

      
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    (c) Other
      Events.
       If any event occurs of the type contemplated by the provisions of this
      Section 2 but not expressly provided for by such provisions (including, without
      limitation, the granting of stock appreciation rights, phantom stock rights
      or
      other rights with equity features), then the Company’s Board of Directors will
      make an appropriate adjustment in the Exercise Price and the number of Warrant
      Shares so as to protect the rights of the Holder; provided that no such
      adjustment pursuant to this Section 2(c) will increase the Exercise Price or
      decrease the number of Warrant Shares as otherwise determined pursuant to this
      Section 2.

    

    3. RIGHTS
      UPON DISTRIBUTION OF ASSETS.

    

    If
      the
      Company shall declare or make any dividend or other distribution of its assets
      (or rights to acquire its assets) to holders of shares of Common Stock, by
      way
      of return of capital or otherwise (including, without limitation, any
      distribution of cash, stock or other securities, property or options by way
      of a
      dividend, spin off, reclassification, corporate rearrangement, scheme of
      arrangement or other similar transaction) (a “Distribution”),
      at
      any time after the issuance of this Warrant, then, in each such
      case:

    

    (a) any
      Exercise Price in effect immediately prior to the close of business on the
      record date fixed for the determination of holders of shares of Common Stock
      entitled to receive the Distribution shall be reduced, effective as of the
      close
      of business on such record date, to a price determined by multiplying such
      Exercise Price by a fraction of which (i) the numerator shall be the Closing
      Bid
      Price of a share of Common Stock on the Trading Day immediately preceding such
      record date minus the value of the Distribution (as determined in good faith
      by
      the Company’s Board of Directors) applicable to one share of Common Stock, and
(ii)
      the
      denominator shall be the Closing Bid Price of a share of Common Stock on the
      Trading Day immediately preceding such record date; and

    

    (b) the
      number of Warrant Shares shall be increased to a number of shares equal to
      the
      number of shares of Common Stock obtainable immediately prior to the close
      of
      business on the record date fixed for the determination of holders of shares
      of
      Common Stock entitled to receive the Distribution multiplied by the reciprocal
      of the fraction set forth in the immediately preceding paragraph (a); provided
      that in the event that the Distribution is of shares of Common Stock (or common
      stock) (“Other
      Shares of Common Stock”)
      of a
      company whose common shares are traded on a national securities exchange or
      a
      national automated quotation system, then the Holder may elect to receive a
      warrant to purchase Other Shares of Common Stock in lieu of an increase in
      the
      number of Warrant Shares, the terms of which shall be identical to those of
      this
      Warrant, except that such warrant shall be exercisable into the number of shares
      of Other Shares of Common Stock that would have been payable to the Holder
      pursuant to the Distribution had the Holder exercised this Warrant immediately
      prior to such record date and with an aggregate exercise price equal to the
      product of the amount by which the exercise price of this Warrant was decreased
      with respect to the Distribution pursuant to the terms of the immediately
      preceding paragraph (a) and the number of Warrant Shares calculated in
      accordance with the first part of this paragraph (b).

    
      
        
        

      

      
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    4. FUNDAMENTAL
      TRANSACTIONS; CHANGE OF CONTROL.

    

    (a) Fundamental
      Transactions.
      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 Warrant and the other Transaction Documents in accordance
      with the provisions of this Section 4 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 Warrants in exchange for such Warrants a security of the
      Successor Entity evidenced by a written instrument substantially similar in
      form
      and substance to this Warrant, including, without limitation, an adjusted
      exercise price equal to the value for the shares of Common Stock reflected
      by
      the terms of such Fundamental Transaction, and exercisable for a corresponding
      number of shares of capital stock equivalent to the shares of Common Stock
      acquirable and receivable upon exercise of this Warrant (without regard to
      any
      limitations on the exercise of this Warrant) prior to such Fundamental
      Transaction, 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 Warrant referring to the
      “Company” shall refer instead to the Successor Entity), the Company and may
      exercise every right and power of the Company and shall assume all of the
      obligations of the Company under this Warrant 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 exercise of this Warrant at any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of the Common Stock (or other securities, cash, assets or other property)
      issuable upon the exercise of the Warrant prior to such Fundamental Transaction,
      such shares of the 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
      Warrant been converted immediately prior to such Fundamental Transaction, as
      adjusted in accordance with the provisions of this Warrant.  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 an exercise
      of this Warrant at any time after the consummation of the Fundamental
      Transaction but prior to the Expiration Date, in lieu of the shares of the
      Common Stock otherwise issuable upon the exercise of the Warrant prior to such
      Fundamental Transaction, such shares of stock, securities, cash, assets or
      any
      other property whatsoever (including warrants or other purchase or subscription
      rights) which the Holder would have been entitled to receive upon the happening
      of such Fundamental Transaction had the Warrant been exercised immediately
      prior
      to such Fundamental Transaction. Provisions made pursuant to the preceding
      sentence shall be in the form and substance reasonably satisfactory to the
      Required Holders. The provisions of this Section shall apply similarly and
      equally to successive Fundamental Transactions and Corporate Events and shall
      be
      applied without regard to any limitations on the exercise of this
      Warrant.

    
      
        
        

      

      
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    (b) Change
      of Control.
      In
      addition to and not in substitution for any other rights hereunder, 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 pay the Black-Scholes value of
      this
      Warrant subject to a volatility cap of 60.

    

    5. 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 Warrant, and will at
      all
      times in good faith carry out all the provisions of this Warrant and take all
      action as may be required to protect the rights of the Holder.  Without
      limiting the generality of the foregoing, the Company (i) shall not
      increase the par value of any shares of Common Stock receivable upon the
      exercise of this Warrant above the Exercise Price then in effect,
      (ii) shall take all such actions as may be necessary or appropriate in
      order that the Company may validly and legally issue fully paid and
      nonassessable shares of Common Stock upon the exercise of this Warrant, and
      (iii) shall, so long as any of the SPA Warrants are outstanding, take all action
      necessary to reserve and keep available out of its authorized and unissued
      shares of Common Stock, solely for the purpose of effecting the exercise of
      the
      SPA Warrants, the number of shares of Common Stock as shall from time to time
      be
      necessary to effect the exercise of the SPA Warrants then outstanding (without
      regard to any limitations on exercise).

    

    6. WARRANT
      HOLDER NOT DEEMED A STOCKHOLDER.

    

    Except
      as
      otherwise specifically provided herein, the Holder, solely in such Person’s
      capacity as a holder of this Warrant, shall not be entitled to vote or be deemed
      the holder of share capital of the Company for any purpose, nor shall anything
      contained in this Warrant be construed to confer upon the Holder, solely in
      such
      Person’s capacity as the Holder of this Warrant, any of the rights of a
      stockholder of the Company or any right to vote, give or withhold consent to
      any
      corporate action (whether any reorganization, issue of stock, reclassification
      of stock, consolidation, merger, conveyance or otherwise), receive notice of
      meetings, or subscription rights, or otherwise, prior to the issuance to the
      Holder of the Warrant Shares which such Person is then entitled to receive
      upon
      the due exercise of this Warrant.  In addition, nothing contained in this
      Warrant shall be construed as imposing any liabilities on the Holder to purchase
      any securities (upon exercise of this Warrant or otherwise) or as a stockholder
      of the Company, whether such liabilities are asserted by the Company or by
      creditors of the Company. Notwithstanding this Section 6, the Company shall
      provide the Holder with copies of the same notices and other information given
      to the stockholders of the Company generally, contemporaneously with the giving
      thereof to the stockholders.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    7. REISSUANCE
      OF WARRANTS.

    

    (a) Transfer
      of Warrant.
       If this Warrant is to be transferred, the Holder shall surrender this
      Warrant to the Company, whereupon the Company will issue promptly following
      satisfaction of the transfer provisions contained in the Securities Purchase
      Agreement and deliver upon the order of the Holder a new Warrant (in accordance
      with Section 7(d)), in the name of the validly registered assignee or
      transferee, representing the right to purchase the number of Warrant Shares
      being transferred by the Holder and, if less than the total number of Warrant
      Shares then underlying this Warrant is being transferred, a new Warrant (in
      accordance with Section 7(d)) to the Holder representing the right to purchase
      the number of Warrant Shares not being transferred.

    

    (b) Lost,
      Stolen or Mutilated Warrant.
       Upon receipt by the Company of evidence reasonably satisfactory to the
      Company of the loss, theft, destruction or mutilation of this Warrant 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 Warrant, the Company shall execute and deliver to the Holder a new
      Warrant (in accordance with Section 7(d)) representing the right to purchase
      the
      Warrant Shares then underlying this Warrant.

    

    (c) Exchangeable
      for Multiple Warrants.
       This Warrant is exchangeable, upon the surrender hereof by the Holder at
      the principal office of the Company, for a new Warrant or Warrants (in
      accordance with Section 7(d)) representing in the aggregate the right to
      purchase the number of Warrant Shares then underlying this Warrant, and each
      such new Warrant will represent the right to purchase such portion of such
      Warrant Shares as is designated by the Holder at the time of such surrender;
      provided,
      however,
      that no
      Warrants for fractional shares of Common Stock shall be given.

    

    (d) Issuance
      of New Warrants.
       Whenever the Company is required to issue a new Warrant pursuant to the
      terms of this Warrant, such new Warrant (i) shall be of like tenor with this
      Warrant, (ii) shall represent, as indicated on the face of such new Warrant,
      the
      right to purchase the Warrant Shares then underlying this Warrant (or in the
      case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c),
      the
      Warrant Shares designated by the Holder which, when added to the number of
      shares of Common Stock underlying the other new Warrants issued in connection
      with such issuance, does not exceed the number of Warrant Shares then underlying
      this Warrant), (iii) shall have an issuance date, as indicated on the face
      of
      such new Warrant which is the same as the Issuance Date, and (iv) shall have
      the
      same rights and conditions as this Warrant.

    

    8. NOTICES.

    

    Whenever
      notice is required to be given under this Warrant, 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 Warrant, 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 Exercise
      Price, setting forth in reasonable detail, and certifying, the calculation
      of
      such adjustment and (ii) at least fifteen (15) 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 shares of Common Stock or (B) 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.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    9. AMENDMENT
      AND WAIVER.

    

    Except
      as
      otherwise provided herein, the provisions of this Warrant may be amended and
      the
      Company may take any action herein prohibited, or omit to perform any act herein
      required to be performed by it, only if the Company has obtained the written
      consent of the Required Holders; provided that no such action may increase
      the
      exercise price of any SPA Warrant or decrease the number of shares or class
      of
      stock obtainable upon exercise of any SPA Warrant without the written consent
      of
      the Holder.  No such amendment shall be effective to the extent that it
      applies to less than all of the holders of the SPA Warrants then
      outstanding.

    

    10. GOVERNING
      LAW.

    

    This
      Warrant shall be governed by and construed and enforced in accordance with,
      and
      all questions concerning the construction, validity, interpretation and
      performance of this Warrant 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.

    

    11. CONSTRUCTION;
      HEADINGS.

    

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

    

    12. 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 Exercise Notice 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 (such approval not to be unreasonably
      withheld or delayed) 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.  Such investment bank’s or
      accountant’s determination or calculation, as the case may be, shall be binding
      upon all parties absent demonstrable error.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    13. REMEDIES,
      OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

    

    The
      remedies provided in this Warrant shall be cumulative and in addition to all
      other remedies available under this Warrant and 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 right of the Holder
      right
      to pursue actual damages for any failure by the Company to comply with the
      terms
      of this Warrant.  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
      of
      this Warrant 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.

    

    14. TRANSFER.

    

    This
      Warrant 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

    

    15. CERTAIN
      DEFINITIONS.

    

    For
      purposes of this Warrant, the following terms shall have the following
      meanings:

    

    (a) “Bloomberg”
means
      Bloomberg Financial Markets.

    

    (b) “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.

    

    (c) “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 12.  All such determinations to be appropriately adjusted for
      any stock dividend, stock split, stock combination or other similar transaction
      during the applicable calculation period.

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    (d) “Common
      Stock”
means
      (i) the Company’s shares of Common Stock, par value $0.0001 per share, and
      (ii) any share capital into which such Common Stock shall have been changed
      or any share capital resulting from a reclassification of such Common
      Stock.

    

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

    

    (f) “Expiration
      Date”
means
      the date five (5) years after the Issuance Date or, if such date falls on a
      day
      other than a Business Day or on which trading does not take place on the
      Principal Market (a “Holiday”),
      the
      next date that is not a Holiday.

    

    (g) “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 Common Stock (not including any shares
      of
      Common Stock held by the Person or Persons making or party to, or associated
      or
      affiliated with the 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 the outstanding shares of Common Stock (not
      including any shares of Common 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.

    

    (h) “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.

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    (i) “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.

    

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

    

    (k) “Registration
      Rights Agreement”
means
      that certain registration rights agreement by and among the Company and the
      Buyers.

    

    (l) “Required
      Holders”
means
      the holders of the SPA Warrants representing at least a majority of shares
      of
      Common Stock underlying the SPA Warrants then outstanding.

    

    (m) “SPA
      Securities”
means
      the Notes issued pursuant to the Securities Purchase Agreement.

    

    (n) “Successor
      Entity”
means
      the Person (or, if so elected by the Required Holders, the Parent Entity) formed
      by, resulting from or surviving any Fundamental Transaction or the Person (or,
      if so elected by the Required Holders, the Parent Entity) with which such
      Fundamental Transaction shall have been entered into.

     

    [Remainder
      of Page Intentionally Left Blank]

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      Company has caused this Warrant to Purchase Common Stock 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

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    EXERCISE
      NOTICE

    TO
      BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE

    WARRANT
      TO PURCHASE COMMON STOCK

    

    KENTUCKY
      USA ENERGY, INC.

    

    The
      undersigned holder hereby exercises the right to purchase __________ of the
      shares of Common Stock (“Warrant
      Shares”)
      of
      Kentucky USA Energy, Inc., a Delaware corporation (the “Company”),
      evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
      Capitalized terms used herein and not otherwise defined shall have the
      respective meanings set forth in the Warrant.

    

    1.
       Form
      of Exercise Price.
       The Holder intends that payment of the Exercise Price shall be made
      as:

    

    
      	 	
              ·

            	
              a
                “Cash
                Exercise”
                with respect to __________ Warrant
                Shares

            

    

    

    and/or

    

    
      	 	
              ·

            	
              a
                “Cashless
                Exercise”
                with respect to __________ Warrant
                Shares.

            

    

    

    2.
       Payment
      of Exercise Price.
       In the event that the holder has elected a Cash Exercise with respect to
      some or all of the Warrant Shares to be issued pursuant hereto, the holder
      shall
      pay the Aggregate Exercise Price in the sum of $__________ to the Company in
      accordance with the terms of the Warrant.

    

    3.
       Delivery
      of Warrant Shares.
       The Company shall deliver to the holder __________ Warrant Shares in
      accordance with the terms of the Warrant.

    

    4.
       Delivery
      of Warrant.
       The Registered Holder shall deliver the Warrant to the
      Company.

    

    Date:
      __________ __, ____

    

    Name
      of Registered Holder

    

    
      	
              By:
                

            	 
	 	
              Name:

            
	 	
              Title:REGISTRATION
      RIGHTS AGREEMENT

     

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

     

    RECITALS:

     

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

    

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

    

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

     

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

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

    

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

     

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

     

    3. Registration.

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

    9. Indemnification.

     

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

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

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

     

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

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

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

     

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

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

    13. Miscellaneous.

     

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

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

    If
      to the
      Company to:

    

    Kentucky
      USA Energy, Inc.

    321
      Somerset Road

    Kexington,
      KY 40741

    Attention:
      Steven D. Eversole, Chief Executive Officer

    Facsimile:
      

    

    with
      copy
      to:

    

    Gottbetter
      & Partners, LLP

    488
      Madison Avenue, 12th
      Floor

    New
      York,
      NY 10022

    Attention:
      Adam S. Gottbetter, Esq. 

    Facsimile:
      (212) 400-6901

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    If
      to the
      Buyers:

    

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

    

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

     

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

     

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

     

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

     

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

     

    [Remainder
      of Page Intentionally Left Blank]

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

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

     

    
      	
              COMPANY:

            
	 
	
              KENTUCKY
                USA ENERGY, INC.

            
	 	 
	
              By:
                

            	   

	
              Name: Steven
                D. Eversole

            
	
              Title:
                Chief
                Executive Officer

            

    

    

     

    [SIGNATURE
      PAGE OF PURCHASER FOLLOWS]

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

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

     

    
      	
              PURCHASER
                (Individual)

            
	 
	  

	 
	  

	
              (Print
                Name)

            
	 
	
              PURCHASER
                (Entity)

            
	 
	
              By:
                

            	  

	 	 
	  

	
              (Print
                Name)

            
	 
	   

	
              (Print
                Title)

            
	 
	 
	
              Address
                for notices:

            
	 
	  

	 
	  

	 
	  

	
              City

            	
                         State

            	
                       Zip Code

            

    

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    Annex A

     

    KENTUCKY USA ENERGY,
      INC.

     

    Selling
      Securityholder Notice and Questionnaire

     

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

     

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

     

    NOTICE

     

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

     

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

     

    QUESTIONNAIRE

     

    1.
      Name:

     

    
      	 	
              (a)

            	
              Full
                Legal Name of Selling
                Securityholder

            

    

     

    
      	 
	 

    

    

    
      	 	
              (b)

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

            

    

     

    
      
        	 
	 

      

    

     

    

    
      	 	
              (c)

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

            

    

    
       

      
        	 
	 

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2.
      Address for Notices to Selling Securityholder:

     

    
      	 

	 

	 

	
              Telephone:

            	  	 	
              Fax:

            	  

    

    
      	
              Email:

            	  

    

    
      	
              Contact Person:

            	  

    

    

    3.
      Broker-Dealer Status:

     

    
      	 	
              (a)

            	
              Are
                you a broker-dealer?

            

    

     

    Yes o
No
o

     

    
      	 	
              (b)

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

            

    

     

    Yes
o
No
o

     

    
      	 	
              Note:

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

            

    

     

    
      	 	
              (c)

            	
              Are
                you an affiliate of a
                broker-dealer?

            

    

     

    Yes
o
No
o

     

    
      	 	
              (d)

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

            

    

     

    Yes
o
No
o

     

    
      	 	
              Note:

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

            

    

     

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

     

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

     

    
      	 	
              (a)

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

            

    

    
       

      
        	 
	 

      

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    5.
      Relationships with the Company:

     

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

     

    State
      any
      exceptions here:

    
       

      
        	 
	 

      

    

     

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

     

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

     

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

    

    
      	
              Dated:
                

            	   
              	 	
              Beneficial Owner: 

            	   
              

    

    
      	 	 	
              By:

            	   

	 	 	 	
              Name:

            
	 	 	 	
              Title:

            

    

    

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

    

    Gottbetter
      & Partners, LLP

    488
      Madison Avenue, 12th Floor

    New
      York,
      NY 10022

    Attention:
      Rachel L. DeGenaro

    Facsimile:
      (212) 400-6901

    
      
        
        

      

      
        3

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