Document:

Exhibit
        4.7

    

     

    SUBORDINATION
      AGREEMENT

     

    This
      Subordination Agreement (this “Subordination
      Agreement”)
      is
      dated [___________, 2008], by and among ___________________, a company organized
      under the laws of the _______________, whose address is
      _____________________________ (“Second
      Lien Investor”),
      KY
      USA ENERGY, INC., a Kentucky corporation, whose address is 321 Somerset Road,
      London, Kentucky 40741 (“Borrower”),
      and
      NSES 12, LLC, a Delaware limited liability company, whose address is 38 Grove
      Street, Building C, Ridgefield, Connecticut 06877 (“Senior
      Creditor”).

    

    Background

     

    1. Borrower
      and Senior Creditor are parties to the Senior Secured Credit Agreement dated
      as
      of the date hereof (as amended, supplemented, modified or restated from time
      to
      time, the “Credit
      Agreement”).
      Borrower’s obligations to the Senior Creditor under the Credit Agreement are
      secured by a senior mortgage lien and first-priority security interest in all
      of
      the real and personal property of Borrower.

     

    2. A
      condition precedent of the Credit Agreement is the subordination of all
      obligations owed by Borrower to the Second Lien Investor to the obligations
      owed
      by Borrower to Senior Creditor under the Credit Agreement and the other Loan
      Documents.

     

    3. Capitalized
      terms used but not defined in this Subordination Agreement shall have the
      meanings set forth in the Credit Agreement.

     

    Agreements

     

    To
      comply
      with the terms and conditions of the Credit Agreement and for other good and
      valuable consideration, the receipt and sufficiency of which hereby are
      acknowledged by the parties, the parties hereto agree as follows:

     

    Subordination
      of Obligations.

     

    (a) The
      payment and performance of any and all Subordinated Obligations (as defined
      below) are expressly subordinated to the Senior Obligations (as defined below),
      to the extent and in the manner set forth in this Subordination Agreement and
      notwithstanding anything to the contrary in any of the Subordinated Loan
      Documents (as defined below), without regard to the date any loan or extension
      of credit is made to Borrower.

     

    (b) Definitions.
      When
      used in this Subordination Agreement, the following terms have the respective
      meanings set forth below:

     

    “Liens”
means
      any interest in property (real or personal) securing an obligation owed to,
      or a
      claim by, a Person other than the owner of the Property, whether such interest
      is based on the common law, statute or contract, and whether such obligation
      or
      claim is fixed or contingent, and including but not limited to (a) the lien
      or
      security interest arising from a mortgage, encumbrance, pledge, security
      agreement, conditional sale or trust receipt or a lease, consignment or bailment
      for security purposes or (b) production payments and the like payable out of
      oil
      and gas properties and the Properties. The term “Lien”
shall
      include easements, restrictions, servitudes, permits, conditions, covenants,
      exceptions or reservations. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Senior
      Creditor”
means
      Lender as defined in the Credit Agreement.

     

    “Senior
      Obligations”
means
      Obligations as defined in the Credit Agreement. 

     

    “Subordinated
      Loan Documents”
means
      all of the documents evidencing the Subordinated Obligations and any amendment,
      modification or extension thereto. 

     

    “Subordinated
      Obligations”
means
      any and all indebtedness, liabilities and obligations of Borrower to the Second
      Lien Investor, including but not limited to any loans or other extensions of
      credit, any shares, warrants or other equity interests, whether absolute or
      contingent, direct or indirect, joint, several or independent, now outstanding
      or owing or which may hereafter be existing or incurred, arising by operation
      of
      law or otherwise, due or to become due, or held or to be held by the Second
      Lien
      Investor, whether created directly or acquired by assignment, as a
      participation, conditionally, as collateral security from another or otherwise,
      including indebtedness, obligations and liabilities of Borrower to the Second
      Lien Investor as a member of any partnership, syndicate, association or other
      group, and whether incurred by Borrower as principal, surety, endorser,
      guarantor, accommodation party or otherwise, including, without limiting the
      generality of the foregoing, all indebtedness, liabilities and obligations
      of
      Borrower to the Second Lien Investor arising out of any guaranty agreement,
      operating agreement or similar agreement between the Second Lien Investor and
      Borrower.

     

    Subordination
      of Liens. Regardless of the time or order of attachment or the time, order
      or
      manner of perfection or the time or order of filing financing statements,
      mortgages or other security agreements or documents, and notwithstanding
      anything to the contrary in any of the Subordinated Loan Documents, any and
      all
      Liens on the assets of the Borrower or any other obligor in favor of Senior
      Creditor shall in all respects be first and senior Liens to secure payment
      of
      the Senior Obligations and shall be superior in all respects to any and all
      Liens on any assets of the Borrower or any other obligor (to the extent such
      obligor also grants a Lien in favor of the Senior Creditor) in favor of the
      Second Lien Investor, and the Second Lien Investor hereby subordinates all
      of
      its Liens to the Liens in favor of Senior Creditor.

     

    Restrictions
      on each of the Second Lien Investors.

     

    (c) Except
      as
      otherwise expressly provided in Section 3(b)
      below,
      during such time as any Senior Obligations remain unpaid, the Second Lien
      Investor will not ask for, demand, sue for, take, receive or accept from the
      Borrower or any obligor, by set off or in any other manner, any payment or
      distribution on account of any of the Subordinated Obligations, nor present
      any
      instrument evidencing any of the Subordinated Obligations for payment (other
      than such presentment as may be necessary to prevent discharge of other liable
      parties on such instrument).

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d) Borrower
      may, however, pay to the Second Lien Investor, and the Second Lien Investor
      may
      receive and accept, amounts owed to the Second Lien Investor in respect of
      the
      Subordinated Obligations (i)
      if an
      Event of Default does not exist, from cash that Borrower is not otherwise
      required under the Credit Agreement to pay to the Senior Creditor in respect
      of
      any of the Senior Obligations or (ii)
      such
      amounts are comprised exclusively of cash equity contributed to the Borrower
      after the date of this Subordination Agreement, if otherwise permitted by the
      Credit Agreement. 

     

    (c) The
      Second Lien Investor agrees and acknowledges that (i)
      it has
      received from the Borrower a true and complete copy of each of the Loan
      Documents, (ii)
      it has
      reviewed or had the opportunity to review with its own counsel each of the
      Loan
      Documents, and (iii)
      it
      understands and appreciates the effect that the terms and conditions of the
      Loan
      Documents may have on Borrower’s ability to repay the Subordinated
      Obligations.

     

    Prohibition
      of All Payments Following an Event of Default. If for any reason any portion
      of
      the Senior Obligations is not paid when due or is not paid on or before the
      maturity thereof, or if there shall occur and be continuing any event which
      with
      the giving of notice or lapse of time or both would constitute a default or
      Event of Default under any instrument or agreement now or hereafter executed
      evidencing, in connection with, as security for or providing for the issuance
      of
      any of the Senior Obligations, then, unless and until such default or Event
      of
      Default shall have been cured, or unless and until the Senior Obligations shall
      be paid in full, the Second Lien Investors may not ask for, sue for, take,
      demand, receive or accept from Borrower or any obligor, by set off or in any
      other manner, any payment or distribution on account of the Subordinated
      Obligations nor present any instrument evidencing the Subordinated Obligations
      for payment (other than such presentment as may be necessary to prevent
      discharge of other liable parties on such instrument).

     

    Payments
      Cannot Create a Default. The Second Lien Investor will not ask for, demand,
      sue
      for, take, receive or accept from Borrower, by set off or in any other manner,
      any payment or distribution on account of the Subordinated Obligations, if
      the
      making of such payment would constitute, or would result in the occurrence
      of, a
      violation of the provisions of any instrument or agreement evidencing, in
      connection with, as security for or providing for the issuance of any Senior
      Obligations or would result in the occurrence of any event which with the giving
      of notice or lapse of time or both would constitute a default or an Event of
      Default under the Credit Agreement or any other Loan Document.

     

    Unauthorized
      Receipt of Payment by each of the Second Lien Investors. If the Second Lien
      Investor shall receive any payment or distribution on account of the
      Subordinated Obligations which the Second Lien Investor is not entitled to
      receive under this Subordination Agreement, the Second Lien Investor will hold
      any amount so received in trust for Senior Creditor and will promptly (but
      in
      any event on or before the immediately following Business Day) turn over such
      payment to Senior Creditor in the form received by the Second Lien Investor
      (together with any necessary endorsement) to be applied against the Senior
      Obligations.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Restrictions
      on Actions to Recover Subordinated Obligations. Until the Senior Obligations
      are
      irrevocably paid in full and the Senior Creditor’s commitment to extend credit
      under the Credit Agreement has been irrevocably terminated in writing, the
      Second Lien Investor shall not, and shall not solicit any person or entity
      to,
      commence any action or proceeding against Borrower or any obligor to recover
      all
      or any part of the Subordinated Obligations or join with any other creditor
      in
      commencing or maintaining any such action or proceeding, unless Senior Creditor
      shall also join, in bringing any case, proceedings or other actions against
      Borrower or any obligor under any existing or future law or statute of any
      jurisdiction relating to bankruptcy, reorganization, adjustment of debt,
      arrangement of debt, assignment for the benefit of creditors, receivership,
      liquidation or insolvency (a “Proceeding”);
      provided,
      however,
      that in
      the event of any Proceeding, sale of all or substantially all of the assets,
      dissolution, liquidation, or any other marshaling of the assets and liabilities
      of Borrower or any obligor, the Second Lien Investor may, if the Senior Creditor
      shall not have already so requested it to do so as provided in Section
      10
      below,
      file any claim, proof of claim, proof of interest or other instrument of similar
      character necessary to preserve the rights of the Second Lien Investor and
      the
      obligations of Borrower or any obligor, as applicable, in respect of and under
      the Subordinated Obligations.

     

    Marshaling
      and Rights of Subrogation.

     

    (e) The
      Second Lien Investor hereby waives any requirement for marshaling of assets
      thereby in connection with any foreclosure of any security interest or any
      other
      realization upon collateral in respect of the Credit Agreement, or any exercise
      of any rights of set-off or otherwise. The Second Lien Investor and Senior
      Creditor assume all responsibility for keeping themselves informed as to the
      condition (financial or otherwise) of Borrower, the condition of all collateral
      securing the repayment of the Senior Obligations and other circumstances and,
      except for notices expressly required by this Subordination Agreement, neither
      Senior Creditor nor the Second Lien Investor shall have any duty whatsoever
      to
      obtain, advise or deliver information or documents to the other relative to
      such
      condition, business, assets and/or operations. The Second Lien Investor agrees
      that Senior Creditor owes no fiduciary duty to the Second Lien Investor in
      connection with the administration of the Senior Obligations, the Credit
      Agreement and the other Loan Documents, and the Second Lien Investor agrees
      not
      to assert any such claim.

     

    (f) No
      payment or distribution to Senior Creditor pursuant to the provisions of this
      Subordination Agreement shall entitle the Second Lien Investor to exercise
      any
      right of subrogation in respect thereof prior to the payment in full of the
      Senior Obligations, and the Second Lien Investor agrees that prior to the
      satisfaction of all Senior Obligations, it shall not acquire, by subrogation
      or
      otherwise, any lien, estate, right or other interest in any portion of the
      collateral now securing the repayment of the Senior Obligations or the proceeds
      therefrom that is or may be prior to, or of equal priority to, any of the Credit
      Agreement and the other Loan Documents or the liens, rights, estates and
      interests created thereby.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Effectiveness
      in Insolvency Proceedings. This
      Subordination Agreement, which the parties hereto expressly acknowledge is
      a
“subordination agreement” under Section 510(a) of the Bankruptcy Code,
      shall be effective before, during and after the commencement of a Proceeding.
      All references in this Subordination Agreement to Borrower shall include
      Borrower as a debtor-in-possession and any receiver or trustee for Borrower
      in
      any Proceeding.

     

    Insolvency
      or Bankruptcy by Borrowers. In the event of any Proceeding, the sale of all
      or
      substantially all of the assets, dissolution, liquidation, or any other
      marshaling of the assets and liabilities of Borrower, and unless and until
      the
      Senior Obligations are irrevocably paid in full:

     

    (g) the
      Second Lien Investor will, at Senior Creditor’s request, file any claim, proof
      of claim, proof of interest or other instrument of similar character necessary
      to enforce the obligations of Borrower in respect of the Subordinated
      Obligations;

     

    (h) if
      the
      Second Lien Investor shall fail to take any action of the type described in
      Section 10(a)
      above
      and as requested by Senior Creditor, Senior Creditor may, as attorney-in-fact
      for the Second Lien Investor, take such action on behalf of the Second Lien
      Investor;

     

    (i) the
      Second Lien Investor hereby appoints the Senior Creditor as such Second Lien
      Investor’s agent and grants to the Senior Creditor an irrevocable power of
      attorney coupled with an interest, and its proxy, for the purpose of exercising
      any and all rights and taking any and all actions available to the Second Lien
      Investor in connection with any case by or against Borrower or any obligor
      in
      any Proceeding, including, without limitation, the right to (i) prove
      and vote all claims and to receive and collect all dividends and payments to
      which the undersigned would be otherwise entitled, (ii) accept
      or reject to the extent to which the Second Lien Investor would be entitled
      to
      accept or reject, any plan of reorganization, arrangement, extension, or
      composition in any such proceedings, and (iii) make
      any election under Section 1111(b) of the Bankruptcy Code. In addition, the
      Second Lien Investor will execute and deliver to the Senior Creditor such
      further powers of attorney, assignments or other instruments as the Senior
      Creditor may request in order to enable Senior Creditor to enforce any and
      all
      claims upon or with respect to any or all Subordinated Obligations and any
      of
      its other rights hereunder, and to collect and receive any and all payments
      or
      distributions which may be payable or deliverable at any time upon or with
      respect to any Subordinated Obligations; and

     

    (j) no
      payment or distribution shall be made on account of any of the Subordinated
      Obligations, and the Second Lien Investor will hold in trust for Senior Creditor
      and pay over to Senior Creditor, in the form received (with any necessary
      endorsements), to be applied to the Senior Obligations, any and all moneys,
      dividends, or other assets received in any Proceeding on account of the
      Subordinated Obligations; and

     

    (k) the
      Second Lien Investors shall not request judicial relief that would hinder,
      delay, limit or prohibit the lawful exercise or enforcement of any right or
      remedy otherwise available to the Senior Creditor, or oppose or otherwise
      contest any request for judicial relief made by the Senior Creditor.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (l) To
      the
      extent that the Second Lien Investor has or acquires any rights under
      Section 362, 363 or 364 of the Bankruptcy Code with respect to the
      Collateral, the Second Lien Investor hereby agrees not to assert such rights
      without the prior written consent of the Senior Creditor; provided
      that, if
      requested by the Senior Creditor, the Second Lien Investor shall seek to
      exercise such rights in the manner requested by the Senior Creditor, including
      the rights in payments in respect of such rights. Without limiting the
      generality of the foregoing sentence, to the extent that Senior Creditor
      consents to Borrower’s use of cash collateral under Section 363 of the
      Bankruptcy Code or Senior Creditor agrees to provide financing to Borrower
      under
      Section 364 of the Bankruptcy Code, the Second Lien Investor hereby agrees
      not to impede, object to (on grounds of lack of adequate protection, or
      otherwise), or otherwise interfere with such use of cash collateral or
      financing. The Second Lien Investor specifically agrees that in connection
      with
      such cash collateral usage or such financing, Borrower (or a trustee appointed
      for the estate of Borrower) may grant to the Senior Creditor, for the benefit
      of
      the Senior Creditor, liens and security interests upon all or any part of the
      assets of Borrower, which liens and security interests: (i) shall
      secure payments of all Senior Obligations (whether such Senior Obligations
      arose
      prior to the filing of a Proceeding or thereafter); and (ii) shall
      be superior in priority to the liens on and security interests in the assets
      of
      Borrower held by the Second Lien Investor. The Second Lien Investor (both in
      its
      capacity as a Second Lien Investor and in its capacity (if any) as a party
      which
      may be obligated to Borrower or their respective affiliates with respect to
      contracts which are part of the Senior Creditor’s Collateral) agrees not to
      initiate or prosecute or encourage any other person or entity to initiate or
      prosecute any claim, action, objection or other proceeding (A) challenging
      the enforceability of the claim of Senior Creditor, (B) challenging the
      enforceability of any liens or security interests in any assets securing the
      Senior Obligations, or (C) asserting any claims which Borrower may hold
      with respect to Senior Creditor. The Second Lien Investor agrees that it will
      not object to or oppose a sale or other disposition of any assets securing
      the
      Senior Obligations (or any portion thereof) free and clear of its security
      interests, liens or other claims under Section 363 of the Bankruptcy Code
      or any other provision of the Bankruptcy Code (provided that the lien and
      security interest of the Second Lien Investor shall attach to the proceeds
      of
      such sale, and such lien and security interest shall be subject in all respects
      to the applicable provisions of this Subordination Agreement) if the Senior
      Creditor has consented to such sale or disposition of such assets. The Second
      Lien Investor agrees not to assert any right it may have to “adequate
      protection” of its interest in the Collateral in any Proceeding and agrees that
      it will not seek to have the automatic stay lifted with respect to such
      security, without the prior written consent of the Senior Creditor. The Second
      Lien Investor waives any claim it may now or hereafter have against the Senior
      Creditor in any Proceeding of the application of Section 1111(b)(2) of the
      Bankruptcy Code, and/or out of any cash collateral arrangement, or financing
      arrangement, or out of any grant of a security interest, under Section 363
      or 364 of the Bankruptcy Code, with or by Borrower, as a debtor-in-possession
      (or with or by any trustee for the Borrower). The Second Lien Investor agrees
      that it will not, in any capacity whatsoever: (a) propose, vote to accept,
      or otherwise support confirmation of, a plan of reorganization opposed by the
      Senior Creditor, or (b) object to the confirmation of, or otherwise oppose
      confirmation of, a plan of reorganization supported by the Senior
      Creditor.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Senior
      Creditor’s Rights. Senior Creditor may, at any
      time, and from time to time, without the consent of or notice to the Second
      Lien
      Investor, without incurring responsibility to the Second Lien Investor and
      without impairing or releasing any of Senior Creditor’s rights or any of the
      obligations of the Second Lien Investor under this Subordination
      Agreement:

     

    (m) Change
      the amount, manner, place or terms of payment, or change or extend for any
      period the time of payment of, or renew, rearrange or otherwise modify or alter,
      the Senior Obligations or any instrument or agreement now or hereafter executed
      evidencing, in connection with, as security for or providing for the issuance
      of
      any of the Senior Obligations in any manner, or enter into or amend in any
      manner any other agreement relating to the Senior Obligations (including
      provisions restricting or further restricting payments of the Subordinated
      Obligations);

     

    (n) Sell,
      exchange, release or otherwise deal with all or any part of any property by
      whomsoever at any time pledged or mortgaged to secure, howsoever securing,
      any
      of the Senior Obligations;

     

    (o) Release
      any Person liable in any manner for payment or collection of the Senior
      Obligations;

     

    (p) Exercise
      or refrain from exercising any rights against Borrower or others (including
      the
      Second Lien Investor); and

     

    (q) Apply
      any
      sums received by Senior Creditor, by whomsoever paid and however realized,
      to
      payment of the Senior Obligations in such a manner as Senior Creditor, in its
      sole discretion, may deem appropriate.

     

    Documentation
      of Subordinated Obligations. The Second Lien Investor shall:

     

    (r) cause
      all
      Subordinated Obligations to be evidenced by a note, debenture or other
      instrument evidencing the Subordinated Obligations,

     

    (s) at
      Senior
      Creditor’s request, promptly surrender or cause to be surrendered any such note,
      debenture, or instrument evidencing the Subordinated Obligations so that a
      statement or legend may be entered thereon to the effect that such note,
      debenture, or other instrument is subordinated to the Senior Obligations in
      favor of Senior Creditor in the manner and to the extent set forth in this
      Subordination Agreement,

     

    (t) mark
      the
      books of the Second Lien Investor to show that the Subordinated Obligations
      are
      subordinated to the Senior Obligations in the manner and to the extent set
      forth
      in this Subordination Agreement,

     

    (u) cause
      all
      financial statements of the Second Lien Investor hereafter prepared for delivery
      to any person to make specific reference to the provisions of this Subordination
      Agreement, and

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (e) at
      Senior
      Creditor’s request, promptly provide such documentary evidence as Senior
      Creditor may request to confirm the Second Lien Investor’s compliance with the
      requirements of this Section 12.

     

    Execution
      of Instruments. The Second Lien Investor agrees to execute any and all other
      instruments necessary as required by the Senior Creditor to subordinate the
      Subordinated Obligations to the Senior Obligations as herein
      provided.

     

    Assignment
      by each of the Second Lien Investors. The Second Lien Investor will not assign
      or transfer (or agree to assign or transfer) to any other Person any claim
      the
      Second Lien Investor has or may have against Borrower as long as any of the
      Senior Obligations remain outstanding, except upon at least ten (10) days
      prior written notice to the Senior Creditor and unless such assignment or
      transfer (or agreement to make such assignment or transfer) is expressly made
      subject to this Subordination Agreement.

     

    Warranties
      and Representations. The Second Lien Investor represents and warrants that
      (a) the execution, delivery and performance of this Subordination Agreement
      by the Second Lien Investor (i) has
      been duly authorized by all necessary corporate or company action and
      (ii) does
      not require the consent or approval of any other Person, (b) neither the
      execution nor delivery of this Subordination Agreement nor fulfillment of or
      compliance with the terms and provisions hereof will conflict with, or result
      in
      a breach of the terms, conditions or provisions of, or constitute a default
      under, any agreement or instrument (including, without limitation, any of its
      formation or governing documents) to which the Second Lien Investor is now
      subject, (c) this Subordination Agreement constitutes a legal, valid and
      binding obligation of the Second Lien Investor, enforceable against it in
      accordance with its terms, and (d) none of the Subordinated Obligations is
      or will be subordinated to any other indebtedness of Borrower other than the
      Senior Obligations unless otherwise agreed by Senior Creditor.

     

    Waiver
      of
      Notice of Acceptance. Notice of acceptance of this Subordination Agreement
      is
      waived, acceptance on the part of Senior Creditor being conclusively presumed
      by
      its request for this Subordination Agreement and delivery of the same to
      it.

     

    Assignment
      by Senior Creditor. This Subordination Agreement may be assigned, in whole
      or in
      part, by Senior Creditor in connection with any assignment or transfer of all
      or
      any portion of the Senior Obligations.

     

    Section
      2. Notices.
      All
      notices and other communications provided for hereunder shall be in writing
      (including by facsimile transmission). All such written notices shall be mailed,
      faxed or delivered, to the applicable address, or facsimile number set out
      below
      or to such other address, or facsimile number, as shall be designated by such
      party in a notice to the other parties. All such notices and other
      communications shall be deemed to be given or made upon the earlier to occur
      of
      (i) actual
      receipt by the relevant party hereto and (ii) (A) if
      delivered by hand or by courier, upon delivery; (B) if delivered by mail,
      four (4) Business Days after deposit in the mails, postage prepaid; and
      (C) if delivered by facsimile, when sent and the sender has received
      electronic confirmation of error free receipt. In no event shall a voicemail
      message be effective as a notice, communication or confirmation
      hereunder.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    If
      to
      Senior Creditor: 

    

    NSES
      12,
      LLC

    38
      Grove
      Street, Building C

    Ridgefield,
      Connecticut 06877

    Attention: 
          Roger
      Eustance

    Telephone:    (203)
      431-0330 x872

    Facsimile:  
                     

    E-Mail:        reustance@newstreamcapital.com 

     

    If
      to
      Second Lien Investor: 

    

    Attention:                                                                                   
      

    Telephone:                                                                                 

    Facsimile:                                                                                   
      

    E-Mail:                                                                                       
      

     

    If
      to the
      Borrowers:

     

    KY
      USA
      Energy, Inc.

    321
      Somerset Road

    London,
      Kentucky 40741

    Attention: 

    Telephone: 

    Facsimile: 

    

    Section
      3. Governing
      Law.
      This
      Subordination Agreement shall be construed under and governed by the laws of
      the
      State of New York and applicable federal law.

     

    Severability.
      If any provision (or portion of any provision) of this Subordination Agreement
      is rendered or declared invalid, illegal or unenforceable by reason of any
      existing or subsequently enacted legislation or by a final decision of any
      court
      of competent jurisdiction, the parties shall promptly meet and negotiate
      substitute provisions for those rendered invalid, illegal or unenforceable,
      but
      all of the remaining provisions will remain in full force and
      effect.

     

    Section
      4. SUBMISSION
      TO JURISDICTION; WAIVER OF JURY TRIAL.

     

    (a) SECOND
      LIEN INVESTOR AND BORROWER EACH, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
      KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
      COUNSEL, (i) SUBMITS
      TO PERSONAL JURISDICTION IN THE STATE OF NEW YORK FOR ANY SUIT, ACTION OR
      PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT,
      (ii) AGREES
      THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL
      COURT OF COMPETENT JURISDICTION SITTING IN THE STATE OF NEW YORK, (iii) SUBMITS
      TO THE JURISDICTION OF SUCH COURTS, AND (iv) TO
      THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT THEY WILL NOT BRING ANY ACTION,
      SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE
      RIGHT
      OF LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER
      FORUM).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (b) SECOND
      LIEN INVESTOR, BORROWER AND LENDER EACH, BY ACCEPTING THIS AGREEMENT, TO THE
      FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY,
      WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER
      FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
      ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT
      OR
      OMISSION OF LENDER, SECOND LIEN INVESTOR OR BORROWER, OR ANY OF THEIR RESPECTIVE
      DIRECTORS, OFFICERS, PARTNERS, MEMBERS, MANAGERS, EMPLOYEES, AGENTS OR
      ATTORNEYS, OR ANY OTHER PERSON AFFILIATED WITH LENDER, SECOND LIEN INVESTOR
      OR
      BORROWER, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT
      OR
      OTHERWISE. SECOND LIEN INVESTOR AND BORROWER EACH HEREBY CONSENTS AND AGREES
      TO
      SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS, IN CONNECTION WITH
      ANY
      SUIT, ACTION OR PROCEEDING ARISING FROM OR RELATING TO THIS AGREEMENT BY
      REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED
      TO
      SECOND LIEN INVESTOR OR BORROWER, AS APPLICABLE, AT THE ADDRESS SET FORTH
      HEREINABOVE.

     

    Counterparts.
      This Subordination Agreement may be executed in two or more counterparts, and
      it
      shall not be necessary that the signatures of all parties be contained together
      on any one counterpart of this Subordination Agreement. Each counterpart will
      be
      deemed an original, but all counterparts taken together will constitute one
      and
      the same agreement.

     

    Entire
      Agreement; Amendment. THIS SUBORDINATION AGREEMENT REFLECTS THE ENTIRE AGREEMENT
      OF THE PARTIES WITH RESPECT TO THE MATTERS COVERED BY THIS SUBORDINATION
      AGREEMENT AND CANNOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
      OR
      SUBSEQUENT ORAL AGREEMENTS AMONG ANY OF THE PARTIES. THERE ARE NO UNWRITTEN
      ORAL
      AGREEMENTS AMONG THE PARTIES. This Subordination Agreement may be amended and
      the rights of any party under this Subordination Agreement may be waived only
      pursuant to a written agreement signed by each of the parties to this
      Subordination Agreement.

     

    [Signatures
      Begin on the Following Page]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers effective as of the date first set
      forth above.

    
       

      
        	 	 	 
	 	 	SECOND LIEN INVESTORS:
	 
 	 
 	 
 
	 	 	By:
                _______________________________________
	 	Name:_____________________________________
	 	Title:______________________________________

      

    

     

    Signature
      Page to the Subordination Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers effective as of the date first set
      forth above. 

     

    
       

      
        	 	 	 
	 	 	BORROWERS:
	 	 	
              
	 	 	
                
                  KY
                    USA Energy, Inc.,
                    

                  a
                    Kentucky corporation 

                

              
	 
 	 
 	 
 
	 	 	By:
                _______________________________________
	 	Name:_____________________________________
	 	Title:______________________________________

      

       

    

    Signature
      Page to the Subordination Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers effective as of the date first set
      forth above.

     

    
      	 	 	 
	 	 	SENIOR CREDITOR:
	 	 	
            
	 	 	
              NSES
                12, LLC,

              a
                Delaware limited liability company

            
	 
 	 
 	 
 
	 	 	By:
              _______________________________________
	 	Name:_____________________________________
	 	Title:______________________________________

    

     

    
      
        Signature
          Page to the Subordination AgreementExhibit
      4.8

    
SUBORDINATION
      AGREEMENT

     

    This
      Subordination Agreement (this “Subordination
      Agreement”)
      is
      dated [___________, 2008], by and among __________________, a company organized
      under the laws of the ______________, whose address is
      ________________________________ (“Second
      Lien Investor”),
      Kentucky USA Energy, Inc., a Delaware corporation, whose address is 321 Somerset
      Road, London, Kentucky 40741 (“Parent”),
      and
      NSES 12, LLC, a Delaware limited liability company, whose address is 38 Grove
      Street, Building C, Ridgefield, Connecticut 06877 (“Senior
      Creditor”).

     

    Background

     

    1. Parent
      and Senior Creditor are parties to that certain Guaranty Agreement dated as
      of
      the date hereof (as amended, supplemented, modified or restated from time to
      time, the “Guaranty”)
      pursuant to which Parent unconditionally agreed to guaranty the full and final
      payment and performance of the Obligations of KY USA Energy, Inc (“Borrower”)
      under
      the Senior Secured Credit Agreement with Senior Creditor dated as of the date
      hereof (as amended, supplemented, modified or restated from time to time, the
      “Credit
      Agreement”).

     

    2. A
      condition precedent of the Credit Agreement is the subordination of all
      obligations owed by Parent to the Second Lien Investor to the obligations owed
      by Parent to Senior Creditor under the Guaranty.

     

    3. Guarantor
      will benefit, directly or indirectly, from the making of the loans to Borrower
      by Senior Creditor under the terms and conditions of the Credit Agreement and
      other Loan Documents.

     

    4. Capitalized
      terms used but not defined in this Subordination Agreement shall have the
      meanings set forth in the Credit Agreement.

     

    Agreements

     

    To
      comply
      with the terms and conditions of the Credit Agreement and for other good and
      valuable consideration, the receipt and sufficiency of which hereby are
      acknowledged by the parties, the parties hereto agree as follows:

     

    Subordination
      of Obligations.

     

    (a) The
      payment and performance of any and all Subordinated Obligations (as defined
      below) are expressly subordinated to the Senior Obligations (as defined below),
      to the extent and in the manner set forth in this Subordination Agreement and
      notwithstanding anything to the contrary in any of the Subordinated Loan
      Documents (as defined below), without regard to the date any loan or extension
      of credit is made to Parent.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Definitions.
      When
      used in this Subordination Agreement, the following terms have the respective
      meanings set forth below:

     

    “Liens”
means
      any interest in property (real or personal) securing an obligation owed to,
      or a
      claim by, a Person other than the owner of the Property, whether such interest
      is based on the common law, statute or contract, and whether such obligation
      or
      claim is fixed or contingent, and including but not limited to (a) the lien
      or
      security interest arising from a mortgage, encumbrance, pledge, security
      agreement, conditional sale or trust receipt or a lease, consignment or bailment
      for security purposes or (b) production payments and the like payable out of
      oil
      and gas properties and the Properties. The term “Lien”
shall
      include easements, restrictions, servitudes, permits, conditions, covenants,
      exceptions or reservations. 

     

    “Senior
      Creditor”
means
      Lender as defined in the Credit Agreement.

     

    “Senior
      Obligations”
means
      Obligations as defined in the Credit Agreement. 

     

    “Subordinated
      Loan Documents”
means
      all of the documents evidencing the Subordinated Obligations and any amendment,
      modification or extension thereto. 

     

    “Subordinated
      Obligations”
means
      any and all indebtedness, liabilities and obligations of Parent to the Second
      Lien Investor, including but not limited to any loans or other extensions of
      credit, any shares, warrants or other equity interests, whether absolute or
      contingent, direct or indirect, joint, several or independent, now outstanding
      or owing or which may hereafter be existing or incurred, arising by operation
      of
      law or otherwise, due or to become due, or held or to be held by the Second
      Lien
      Investor, whether created directly or acquired by assignment, as a
      participation, conditionally, as collateral security from another or otherwise,
      including indebtedness, obligations and liabilities of Parent to the Second
      Lien
      Investor as a member of any partnership, syndicate, association or other group,
      and whether incurred by Parent as principal, surety, endorser, guarantor,
      accommodation party or otherwise, including, without limiting the generality
      of
      the foregoing, all indebtedness, liabilities and obligations of Parent to the
      Second Lien Investor arising out of any guaranty agreement, operating agreement
      or similar agreement between the Second Lien Investor and Parent.

     

    Subordination
      of Liens. Regardless of the time or order of attachment or the time, order
      or
      manner of perfection or the time or order of filing financing statements,
      mortgages or other security agreements or documents, and notwithstanding
      anything to the contrary in any of the Subordinated Loan Documents, any and
      all
      Liens on the assets of the Parent or any other obligor in favor of Senior
      Creditor shall in all respects be first and senior Liens to secure payment
      of
      the Senior Obligations and shall be superior in all respects to any and all
      Liens on any assets of the Parent or any other obligor (to the extent such
      obligor also grants a Lien in favor of the Senior Creditor) in favor of the
      Second Lien Investor, and the Second Lien Investor hereby subordinates all
      of
      its Liens to the Liens in favor of Senior Creditor.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    Restrictions
      on each of the Second Lien Investors.

     

    (c) Except
      as
      otherwise expressly provided in Section 3(b)
      below,
      during such time as any Senior Obligations remain unpaid, the Second Lien
      Investor will not ask for, demand, sue for, take, receive or accept from the
      Parent or any obligor, by set off or in any other manner, any payment or
      distribution on account of any of the Subordinated Obligations, nor present
      any
      instrument evidencing any of the Subordinated Obligations for payment (other
      than such presentment as may be necessary to prevent discharge of other liable
      parties on such instrument).

     

    (d) Parent
      may, however, pay to the Second Lien Investor, and the Second Lien Investor
      may
      receive and accept, amounts owed to the Second Lien Investor in respect of
      the
      Subordinated Obligations (i)
      if an
      Event of Default does not exist, from cash that Parent is not otherwise required
      under the Credit Agreement to pay to the Senior Creditor in respect of any
      of
      the Senior Obligations or (ii)
      such
      amounts are comprised exclusively of cash equity contributed to the Parent
      after
      the date of this Subordination Agreement, if otherwise permitted by the Credit
      Agreement. 

     

    (c) The
      Second Lien Investor agrees and acknowledges that (i)
      it has
      received from the Parent a true and complete copy of each of the Loan Documents,
      (ii)
      it has
      reviewed or had the opportunity to review with its own counsel each of the
      Loan
      Documents, and (iii)
      it
      understands and appreciates the effect that the terms and conditions of the
      Loan
      Documents may have on Parent’s ability to repay the Subordinated
      Obligations.

     

    Prohibition
      of All Payments Following an Event of Default. If for any reason any portion
      of
      the Senior Obligations is not paid when due or is not paid on or before the
      maturity thereof, or if there shall occur and be continuing any event which
      with
      the giving of notice or lapse of time or both would constitute a default or
      Event of Default under any instrument or agreement now or hereafter executed
      evidencing, in connection with, as security for or providing for the issuance
      of
      any of the Senior Obligations, then, unless and until such default or Event
      of
      Default shall have been cured, or unless and until the Senior Obligations shall
      be paid in full, the Second Lien Investors may not ask for, sue for, take,
      demand, receive or accept from Parent or any obligor, by set off or in any
      other
      manner, any payment or distribution on account of the Subordinated Obligations
      nor present any instrument evidencing the Subordinated Obligations for payment
      (other than such presentment as may be necessary to prevent discharge of other
      liable parties on such instrument).

     

    Payments
      Cannot Create a Default. The Second Lien Investor will not ask for, demand,
      sue
      for, take, receive or accept from Parent, by set off or in any other manner,
      any
      payment or distribution on account of the Subordinated Obligations, if the
      making of such payment would constitute, or would result in the occurrence
      of, a
      violation of the provisions of any instrument or agreement evidencing, in
      connection with, as security for or providing for the issuance of any Senior
      Obligations or would result in the occurrence of any event which with the giving
      of notice or lapse of time or both would constitute a default or an Event of
      Default under the Credit Agreement or any other Loan Document.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    Unauthorized
      Receipt of Payment by each of the Second Lien Investors. If the Second Lien
      Investor shall receive any payment or distribution on account of the
      Subordinated Obligations which the Second Lien Investor is not entitled to
      receive under this Subordination Agreement, the Second Lien Investor will hold
      any amount so received in trust for Senior Creditor and will promptly (but
      in
      any event on or before the immediately following Business Day) turn over such
      payment to Senior Creditor in the form received by the Second Lien Investor
      (together with any necessary endorsement) to be applied against the Senior
      Obligations.

     

    Restrictions
      on Actions to Recover Subordinated Obligations. Until the Senior Obligations
      are
      irrevocably paid in full and the Senior Creditor’s commitment to extend credit
      under the Credit Agreement has been irrevocably terminated in writing, the
      Second Lien Investor shall not, and shall not solicit any person or entity
      to,
      commence any action or proceeding against Parent or any obligor to recover
      all
      or any part of the Subordinated Obligations or join with any other creditor
      in
      commencing or maintaining any such action or proceeding, unless Senior Creditor
      shall also join, in bringing any case, proceedings or other actions against
      Parent or any obligor under any existing or future law or statute of any
      jurisdiction relating to bankruptcy, reorganization, adjustment of debt,
      arrangement of debt, assignment for the benefit of creditors, receivership,
      liquidation or insolvency (a “Proceeding”);
      provided,
      however,
      that in
      the event of any Proceeding, sale of all or substantially all of the assets,
      dissolution, liquidation, or any other marshaling of the assets and liabilities
      of Parent or any obligor, the Second Lien Investor may, if the Senior Creditor
      shall not have already so requested it to do so as provided in Section
      10
      below,
      file any claim, proof of claim, proof of interest or other instrument of similar
      character necessary to preserve the rights of the Second Lien Investor and
      the
      obligations of Parent or any obligor, as applicable, in respect of and under
      the
      Subordinated Obligations.

     

    Marshaling
      and Rights of Subrogation.

     

    (e) The
      Second Lien Investor hereby waives any requirement for marshaling of assets
      thereby in connection with any foreclosure of any security interest or any
      other
      realization upon collateral in respect of the Credit Agreement, or any exercise
      of any rights of set-off or otherwise. The Second Lien Investor and Senior
      Creditor assume all responsibility for keeping themselves informed as to the
      condition (financial or otherwise) of Parent, the condition of all collateral
      securing the repayment of the Senior Obligations and other circumstances and,
      except for notices expressly required by this Subordination Agreement, neither
      Senior Creditor nor the Second Lien Investor shall have any duty whatsoever
      to
      obtain, advise or deliver information or documents to the other relative to
      such
      condition, business, assets and/or operations. The Second Lien Investor agrees
      that Senior Creditor owes no fiduciary duty to the Second Lien Investor in
      connection with the administration of the Senior Obligations, the Credit
      Agreement and the other Loan Documents, and the Second Lien Investor agrees
      not
      to assert any such claim.

     

    (f) No
      payment or distribution to Senior Creditor pursuant to the provisions of this
      Subordination Agreement shall entitle the Second Lien Investor to exercise
      any
      right of subrogation in respect thereof prior to the payment in full of the
      Senior Obligations, and the Second Lien Investor agrees that prior to the
      satisfaction of all Senior Obligations, it shall not acquire, by subrogation
      or
      otherwise, any lien, estate, right or other interest in any portion of the
      collateral now securing the repayment of the Senior Obligations or the proceeds
      therefrom that is or may be prior to, or of equal priority to, any of the Credit
      Agreement and the other Loan Documents or the liens, rights, estates and
      interests created thereby.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    Effectiveness
      in Insolvency Proceedings. This Subordination Agreement, which the parties
      hereto expressly acknowledge is a “subordination agreement” under
      Section 510(a) of the Bankruptcy Code, shall be effective before, during
      and after the commencement of a Proceeding. All references in this Subordination
      Agreement to Parent shall include Parent as a debtor-in-possession and any
      receiver or trustee for Parent in any Proceeding.

     

    Insolvency
      or Bankruptcy by Parent. In the event of any Proceeding, the sale of all or
      substantially all of the assets, dissolution, liquidation, or any other
      marshaling of the assets and liabilities of Parent, and unless and until the
      Senior Obligations are irrevocably paid in full:

     

    (g) the
      Second Lien Investor will, at Senior Creditor’s request, file any claim, proof
      of claim, proof of interest or other instrument of similar character necessary
      to enforce the obligations of Parent in respect of the Subordinated
      Obligations;

     

    (h) if
      the
      Second Lien Investor shall fail to take any action of the type described in
      Section 10(a)
      above
      and as requested by Senior Creditor, Senior Creditor may, as attorney-in-fact
      for the Second Lien Investor, take such action on behalf of the Second Lien
      Investor;

     

    (i) the
      Second Lien Investor hereby appoints the Senior Creditor as such Second Lien
      Investor’s agent and grants to the Senior Creditor an irrevocable power of
      attorney coupled with an interest, and its proxy, for the purpose of exercising
      any and all rights and taking any and all actions available to the Second Lien
      Investor in connection with any case by or against Parent or any obligor in
      any
      Proceeding, including, without limitation, the right to (i) prove
      and vote all claims and to receive and collect all dividends and payments to
      which the undersigned would be otherwise entitled, (ii) accept
      or reject to the extent to which the Second Lien Investor would be entitled
      to
      accept or reject, any plan of reorganization, arrangement, extension, or
      composition in any such proceedings, and (iii) make
      any election under Section 1111(b) of the Bankruptcy Code. In addition, the
      Second Lien Investor will execute and deliver to the Senior Creditor such
      further powers of attorney, assignments or other instruments as the Senior
      Creditor may request in order to enable Senior Creditor to enforce any and
      all
      claims upon or with respect to any or all Subordinated Obligations and any
      of
      its other rights hereunder, and to collect and receive any and all payments
      or
      distributions which may be payable or deliverable at any time upon or with
      respect to any Subordinated Obligations; and

     

    (j) no
      payment or distribution shall be made on account of any of the Subordinated
      Obligations, and the Second Lien Investor will hold in trust for Senior Creditor
      and pay over to Senior Creditor, in the form received (with any necessary
      endorsements), to be applied to the Senior Obligations, any and all moneys,
      dividends, or other assets received in any Proceeding on account of the
      Subordinated Obligations; and

     

    (k) the
      Second Lien Investors shall not request judicial relief that would hinder,
      delay, limit or prohibit the lawful exercise or enforcement of any right or
      remedy otherwise available to the Senior Creditor, or oppose or otherwise
      contest any request for judicial relief made by the Senior Creditor.

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (l) To
      the
      extent that the Second Lien Investor has or acquires any rights under
      Section 362, 363 or 364 of the Bankruptcy Code with respect to the
      Collateral, the Second Lien Investor hereby agrees not to assert such rights
      without the prior written consent of the Senior Creditor; provided
      that, if
      requested by the Senior Creditor, the Second Lien Investor shall seek to
      exercise such rights in the manner requested by the Senior Creditor, including
      the rights in payments in respect of such rights. Without limiting the
      generality of the foregoing sentence, to the extent that Senior Creditor
      consents to Parent’s use of cash collateral under Section 363 of the
      Bankruptcy Code or Senior Creditor agrees to provide financing to Parent under
      Section 364 of the Bankruptcy Code, the Second Lien Investor hereby agrees
      not to impede, object to (on grounds of lack of adequate protection, or
      otherwise), or otherwise interfere with such use of cash collateral or
      financing. The Second Lien Investor specifically agrees that in connection
      with
      such cash collateral usage or such financing, Parent (or a trustee appointed
      for
      the estate of Parent) may grant to the Senior Creditor, for the benefit of
      the
      Senior Creditor, liens and security interests upon all or any part of the assets
      of Parent, which liens and security interests: (i) shall
      secure payments of all Senior Obligations (whether such Senior Obligations
      arose
      prior to the filing of a Proceeding or thereafter); and (ii) shall
      be superior in priority to the liens on and security interests in the assets
      of
      Parent held by the Second Lien Investor. The Second Lien Investor (both in
      its
      capacity as a Second Lien Investor and in its capacity (if any) as a party
      which
      may be obligated to Parent or their respective affiliates with respect to
      contracts which are part of the Senior Creditor’s Collateral) agrees not to
      initiate or prosecute or encourage any other person or entity to initiate or
      prosecute any claim, action, objection or other proceeding (A) challenging
      the enforceability of the claim of Senior Creditor, (B) challenging the
      enforceability of any liens or security interests in any assets securing the
      Senior Obligations, or (C) asserting any claims which Parent may hold with
      respect to Senior Creditor. The Second Lien Investor agrees that it will not
      object to or oppose a sale or other disposition of any assets securing the
      Senior Obligations (or any portion thereof) free and clear of its security
      interests, liens or other claims under Section 363 of the Bankruptcy Code
      or any other provision of the Bankruptcy Code (provided that the lien and
      security interest of the Second Lien Investor shall attach to the proceeds
      of
      such sale, and such lien and security interest shall be subject in all respects
      to the applicable provisions of this Subordination Agreement) if the Senior
      Creditor has consented to such sale or disposition of such assets. The Second
      Lien Investor agrees not to assert any right it may have to “adequate
      protection” of its interest in the Collateral in any Proceeding and agrees that
      it will not seek to have the automatic stay lifted with respect to such
      security, without the prior written consent of the Senior Creditor. The Second
      Lien Investor waives any claim it may now or hereafter have against the Senior
      Creditor in any Proceeding of the application of Section 1111(b)(2) of the
      Bankruptcy Code, and/or out of any cash collateral arrangement, or financing
      arrangement, or out of any grant of a security interest, under Section 363
      or 364 of the Bankruptcy Code, with or by Parent, as a debtor-in-possession
      (or
      with or by any trustee for the Parent). The Second Lien Investor agrees that
      it
      will not, in any capacity whatsoever: (a) propose, vote to accept, or
      otherwise support confirmation of, a plan of reorganization opposed by the
      Senior Creditor, or (b) object to the confirmation of, or otherwise oppose
      confirmation of, a plan of reorganization supported by the Senior
      Creditor.

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    Senior
      Creditor’s Rights. Senior Creditor may, at any time, and from time to time,
      without the consent of or notice to the Second Lien Investor, without incurring
      responsibility to the Second Lien Investor and without impairing or releasing
      any of Senior Creditor’s rights or any of the obligations of the Second Lien
      Investor under this Subordination Agreement:

     

    (m) Change
      the amount, manner, place or terms of payment, or change or extend for any
      period the time of payment of, or renew, rearrange or otherwise modify or alter,
      the Senior Obligations or any instrument or agreement now or hereafter executed
      evidencing, in connection with, as security for or providing for the issuance
      of
      any of the Senior Obligations in any manner, or enter into or amend in any
      manner any other agreement relating to the Senior Obligations (including
      provisions restricting or further restricting payments of the Subordinated
      Obligations);

     

    (n) Sell,
      exchange, release or otherwise deal with all or any part of any property by
      whomsoever at any time pledged or mortgaged to secure, howsoever securing,
      any
      of the Senior Obligations;

     

    (o) Release
      any Person liable in any manner for payment or collection of the Senior
      Obligations;

     

    (p) Exercise
      or refrain from exercising any rights against Parent or others (including the
      Second Lien Investor); and

     

    (q) Apply
      any
      sums received by Senior Creditor, by whomsoever paid and however realized,
      to
      payment of the Senior Obligations in such a manner as Senior Creditor, in its
      sole discretion, may deem appropriate.

     

    Documentation
      of Subordinated Obligations. The Second Lien Investor shall:

     

    (r) cause
      all
      Subordinated Obligations to be evidenced by a note, debenture or other
      instrument evidencing the Subordinated Obligations,

     

    (s) at
      Senior
      Creditor’s request, promptly surrender or cause to be surrendered any such note,
      debenture, or instrument evidencing the Subordinated Obligations so that a
      statement or legend may be entered thereon to the effect that such note,
      debenture, or other instrument is subordinated to the Senior Obligations in
      favor of Senior Creditor in the manner and to the extent set forth in this
      Subordination Agreement,

     

    (t) mark
      the
      books of the Second Lien Investor to show that the Subordinated Obligations
      are
      subordinated to the Senior Obligations in the manner and to the extent set
      forth
      in this Subordination Agreement,

     

    (u) cause
      all
      financial statements of the Second Lien Investor hereafter prepared for delivery
      to any person to make specific reference to the provisions of this Subordination
      Agreement, and

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (e) at
      Senior
      Creditor’s request, promptly provide such documentary evidence as Senior
      Creditor may request to confirm the Second Lien Investor’s compliance with the
      requirements of this Section 12.

     

    Execution
      of Instruments. The Second Lien Investor agrees to execute any and all other
      instruments necessary as required by the Senior Creditor to subordinate the
      Subordinated Obligations to the Senior Obligations as herein
      provided.

     

    Assignment
      by each of the Second Lien Investors. The Second Lien Investor will not assign
      or transfer (or agree to assign or transfer) to any other Person any claim
      the
      Second Lien Investor has or may have against Parent as long as any of the Senior
      Obligations remain outstanding, except upon at least ten (10) days prior
      written notice to the Senior Creditor and unless such assignment or transfer
      (or
      agreement to make such assignment or transfer) is expressly made subject to
      this
      Subordination Agreement.

     

    Warranties
      and Representations. The Second Lien Investor represents and warrants that
      (a) the execution, delivery and performance of this Subordination Agreement
      by the Second Lien Investor (i) has
      been duly authorized by all necessary corporate or company action and
      (ii) does
      not require the consent or approval of any other Person, (b) neither the
      execution nor delivery of this Subordination Agreement nor fulfillment of or
      compliance with the terms and provisions hereof will conflict with, or result
      in
      a breach of the terms, conditions or provisions of, or constitute a default
      under, any agreement or instrument (including, without limitation, any of its
      formation or governing documents) to which the Second Lien Investor is now
      subject, (c) this Subordination Agreement constitutes a legal, valid and
      binding obligation of the Second Lien Investor, enforceable against it in
      accordance with its terms, and (d) none of the Subordinated Obligations is
      or will be subordinated to any other indebtedness of Parent other than the
      Senior Obligations unless otherwise agreed by Senior Creditor.

     

    Waiver
      of
      Notice of Acceptance. Notice of acceptance of this Subordination Agreement
      is
      waived, acceptance on the part of Senior Creditor being conclusively presumed
      by
      its request for this Subordination Agreement and delivery of the same to
      it.

     

    Assignment
      by Senior Creditor. This Subordination Agreement may be assigned, in whole
      or in
      part, by Senior Creditor in connection with any assignment or transfer of all
      or
      any portion of the Senior Obligations.

     

    Section
      2. Notices.
      All
      notices and other communications provided for hereunder shall be in writing
      (including by facsimile transmission). All such written notices shall be mailed,
      faxed or delivered, to the applicable address, or facsimile number set out
      below
      or to such other address, or facsimile number, as shall be designated by such
      party in a notice to the other parties. All such notices and other
      communications shall be deemed to be given or made upon the earlier to occur
      of
      (i) actual
      receipt by the relevant party hereto and (ii) (A) if
      delivered by hand or by courier, upon delivery; (B) if delivered by mail,
      four (4) Business Days after deposit in the mails, postage prepaid; and
      (C) if delivered by facsimile, when sent and the sender has received
      electronic confirmation of error free receipt. In no event shall a voicemail
      message be effective as a notice, communication or confirmation
      hereunder.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      
        	 	
                If
                  to Senior Creditor:

              
	 	 
	 	 	
                NSES
                  12, LLC

              
	 	 	
                38
                  Grove Street, Building C

              
	 	 	
                Ridgefield,
                  Connecticut 06877

              
	 	 	
                Attention:

              	
                Roger
                  Eustance

              
	 	 	
                Telephone:

              	
                (203)
                  431-0330 x872

              
	 	 	
                Facsimile:

              	
                 

              	 
	 	 	
                E-Mail:

              	
                reustance@newstreamcapital.com

              
	 	 	 	 
	 	
                If
                  to Second Lien Investor:

              
	 	 
	 	 	
                Attention:

              	
                 

              	 
	 	 	
                Telephone:

              	
                 

              	 
	 	 	
                Facsimile:

              	
                 

              	 
	 	 	
                E-Mail:

              	
                 

              	 
	 	 	 	 
	 	
                If
                  to the Parent:

              
	 	 
	 	 	
                Kentucky
                  USA Energy, Inc.

              
	 	 	
                321
                  Somerset Road

              
	 	 	
                London,
                  Kentucky 40741

              
	 	 	
                Attention:

              	
                Steven
                  D. Eversole

              
	 	 	
                Telephone:
                  

              	
                (606)
                  878-5987

              
	 	 	
                Facsimile:

              	
                (606)
                  878-[____]

              

      

       

    

    Section
      3. Governing
      Law.
      This
      Subordination Agreement shall be construed under and governed by the laws of
      the
      State of New York and applicable federal law.

     

    Severability.
      If any provision (or portion of any provision) of this Subordination Agreement
      is rendered or declared invalid, illegal or unenforceable by reason of any
      existing or subsequently enacted legislation or by a final decision of any
      court
      of competent jurisdiction, the parties shall promptly meet and negotiate
      substitute provisions for those rendered invalid, illegal or unenforceable,
      but
      all of the remaining provisions will remain in full force and
      effect.

     

    Section
      4. SUBMISSION
      TO JURISDICTION; WAIVER OF JURY TRIAL.

     

    (a) SECOND
      LIEN INVESTOR AND PARENT EACH, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
      KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
      COUNSEL, (i) SUBMITS
      TO PERSONAL JURISDICTION IN THE STATE OF NEW YORK FOR ANY SUIT, ACTION OR
      PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT,
      (ii) AGREES
      THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL
      COURT OF COMPETENT JURISDICTION SITTING IN THE STATE OF NEW YORK, (iii) SUBMITS
      TO THE JURISDICTION OF SUCH COURTS, AND (iv) TO
      THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT THEY WILL NOT BRING ANY ACTION,
      SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE
      RIGHT
      OF LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER
      FORUM).

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (b) SECOND
      LIEN INVESTOR, PARENT AND LENDER EACH, BY ACCEPTING THIS AGREEMENT, TO THE
      FULL
      EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH
      AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER
      FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
      ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT
      OR
      OMISSION OF LENDER, SECOND LIEN INVESTOR OR PARENT, OR ANY OF THEIR RESPECTIVE
      DIRECTORS, OFFICERS, PARTNERS, MEMBERS, MANAGERS, EMPLOYEES, AGENTS OR
      ATTORNEYS, OR ANY OTHER PERSON AFFILIATED WITH LENDER, SECOND LIEN INVESTOR
      OR
      PARENT, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT
      OR
      OTHERWISE. SECOND LIEN INVESTOR AND PARENT EACH HEREBY CONSENTS AND AGREES
      TO
      SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS, IN CONNECTION WITH
      ANY
      SUIT, ACTION OR PROCEEDING ARISING FROM OR RELATING TO THIS AGREEMENT BY
      REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED
      TO
      SECOND LIEN INVESTOR OR PARENT, AS APPLICABLE, AT THE ADDRESS SET FORTH
      HEREINABOVE.

     

    Counterparts.
      This Subordination Agreement may be executed in two or more counterparts, and
      it
      shall not be necessary that the signatures of all parties be contained together
      on any one counterpart of this Subordination Agreement. Each counterpart will
      be
      deemed an original, but all counterparts taken together will constitute one
      and
      the same agreement.

     

    Entire
      Agreement; Amendment. THIS SUBORDINATION AGREEMENT REFLECTS THE ENTIRE AGREEMENT
      OF THE PARTIES WITH RESPECT TO THE MATTERS COVERED BY THIS SUBORDINATION
      AGREEMENT AND CANNOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
      OR
      SUBSEQUENT ORAL AGREEMENTS AMONG ANY OF THE PARTIES. THERE ARE NO UNWRITTEN
      ORAL
      AGREEMENTS AMONG THE PARTIES. This Subordination Agreement may be amended and
      the rights of any party under this Subordination Agreement may be waived only
      pursuant to a written agreement signed by each of the parties to this
      Subordination Agreement.

    

      [SIGNATURES
        BEGIN ON THE FOLLOWING PAGE]

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers effective as of the date first set
      forth above.

    

      
        	 	
                SECOND
                  LIEN INVESTORS:

              
	 	 
	 	 
	 	
                By:

              	 	 
	 	
                Name:

              	 	 
	 	
                Title:

              	 	 

      

    

    Signature
      Page to the Subordination Agreement

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers effective as of the date first set
      forth above. 

    

    
      	
               

            	
              PARENT:

            
	 	 
	 	
              KENTUCKY
                USA Energy, Inc.,

            
	 	
              a
                Delaware corporation

            
	 	 
	 	 
	 	
              By:

            	 
	 	 	
              Steven
                D. Eversole

            
	 	 	
              President
                and Chief Executive Officer

            

    

    

      Signature
        Page to the Subordination Agreement

       

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this instrument to be executed
      by
      their duly authorized undersigned officers effective as of the date first set
      forth above.

     

    
      	 	
              SENIOR
                CREDITOR:

            
	 	 
	 	
              NSES
                12, LLC,

            
	 	
              a
                Delaware limited liability company

            
	 	 
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 

    

     

    
      Signature
        Page to the Subordination Agreement

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