Document:

ex103.htm

    Exhibit
10.3

     

    IR
SHARES ESCROW AGREEMENT

     

    This
Escrow Agreement (this “Agreement”) is entered into as of May 2, 2008, by and
between Kentucky USA Energy, Inc., a Delaware corporation (the “Company”), and
Gottbetter & Partners, LLP (the “Escrow Agent”).

     

    WHEREAS,
pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) among the Company, a wholly-owned subsidiary of the Company
(“Acquisition Corp.”) and KY USA Energy, Inc., a Kentucky corporation (“KY
USA”), Acquisition Corp. will merge with and into KY USA (the “Merger”), with KY
USA being the surviving corporation in the Merger;

     

    WHEREAS,
the Company has agreed to issue 5,000,000 shares (the “IR Escrow Shares”) of its
common stock, par value $0.0001 per share (“Common Stock”), to consultants
providing investor relations services to the Company; and

     

    WHEREAS,
the parties hereto desire to establish an escrow account to provide for the
safekeeping of the IR Escrow Shares until such time as the IR Escrow Shares are
released by the Escrow Agent in accordance with the terms and conditions of this
Agreement.

     

    All
capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Merger Agreement.

     

    NOW,
THEREFORE, the parties hereto hereby agree as follows:

     

    1. Escrow and
Consultants.

     

    (a) Escrow of
Shares.  At the Closing of the Merger, the Company shall
deposit with the Escrow Agent certificate(s) representing an aggregate of
5,000,000 shares of Common Stock issued in the name of the Escrow Agent or its
nominee.  The IR Escrow Shares shall be held in trust and shall not be
subject to any lien, attachment, trustee process or any other judicial process
of any creditor of any party hereto.  The Escrow Agent agrees to hold
the IR Escrow Shares in an escrow account (the “Escrow Account”), subject to the
terms and conditions of this Agreement.

     

    (b) IR
Consultants.  The Company agrees that the IR Escrow Shares
shall be held in escrow by the Escrow Agent pursuant to this Agreement for its
benefit as set forth herein and that the IR Escrow Shares shall be released to
consultants retained by the Company to provide public and investor relations
services to the Company.

     

    (c) Dividend,
Etc.  Any securities distributed in respect of or in exchange
for any of the IR Escrow Shares, whether by way of stock dividends, stock splits
or otherwise, shall be issued in the name of the Escrow Agent or its nominee and
shall be delivered to the Escrow Agent, who shall hold such securities in the
Escrow Account.  Such securities shall be considered IR Escrow Shares
for purposes hereof.  Any cash dividends or property (other than
securities) distributed in respect of the IR Escrow Shares shall promptly be
distributed by the Escrow Agent to the Company.

     

    (d) Voting of
Shares.  The Company shall have the right, in its sole
discretion, to direct the Escrow Agent in writing as to the exercise of any
voting rights pertaining to the IR Escrow Shares, and the Escrow Agent shall
comply with any such written instructions.  In the absence of such
instructions, the Escrow Agent shall not vote any of the IR Escrow
Shares.

     

    2. Distribution of IR Escrow
Shares.  Subject to the provisions of Section 4 herein, the
Escrow Agent shall release the IR Escrow Shares as follows:

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

     

    (a) The
Escrow Agent shall distribute the IR Escrow Shares only in accordance with
written instructions, substantially in the form of Exhibit A hereto (the
“Instructions”), delivered to the Escrow Agent that is executed by the Company
and that instructs the Escrow Agent as to the distribution of some or all of the
IR Escrow Shares.

     

    (b) Notwithstanding
the above, upon receipt by the Escrow Agent of a final and non-appealable
judgment, order, decree or award of a court of competent jurisdiction (a “Court
Order”), the Escrow Agent shall deliver the IR Escrow Shares in accordance with
the Court Order.  Any Court Order shall be accompanied by an opinion
of counsel for the party presenting the Court Order to the Escrow Agent (which
opinion shall be satisfactory to the Escrow Agent) to the effect that the court
issuing the Court Order has competent jurisdiction and that the Court Order is
final and non-appealable.

     

    (c) The
Company acknowledges that the only terms and conditions upon which the IR Escrow
Shares are to be released are set forth in this Agreement.  The
Company reaffirms its agreement to abide by the terms and conditions of this
Agreement with respect to the release of the IR Escrow Shares.  Any
dispute with respect to the release of the IR Escrow Shares shall be resolved
pursuant to Section 4 herein or by agreement between the parties.

     

    3. Duties and Responsibilities
of Escrow Agent.  The Escrow Agent’s duties and
responsibilities shall be subject to the following terms and
conditions:

     

    (a) The
Company acknowledges and agrees that the Escrow Agent (i) shall not be
responsible for or bound by, and shall not be required to inquire into whether
the Company is entitled to receipt of the IR Escrow Shares pursuant to any other
agreement or otherwise; (ii) shall be obligated only for the performance of such
duties as are specifically assumed by the Escrow Agent pursuant to this
Agreement; (iii) may rely on and shall be protected in acting or refraining from
acting upon any written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by the Escrow Agent in good
faith to be genuine and to have been signed or presented by the proper person or
party, without being required to determine the authenticity or correctness of
any fact stated therein or the propriety or validity or the service thereof;
(iv) may assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than the Escrow Agent gives its own similar property, but in no event
less than a reasonable amount of care; and (vi) may consult with counsel
satisfactory to the Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by the Escrow Agent hereunder in good faith and in accordance with
the opinion of such counsel.

     

    (b) The
Company acknowledges that the Escrow Agent is acting solely as a stakeholder at
its request and that the Escrow Agent shall not be liable for any action taken
by Escrow Agent in good faith and believed by the Escrow Agent to be authorized
or within the rights or powers conferred upon the Escrow Agent by this
Agreement.  The Company agrees to indemnify and hold harmless the
Escrow Agent and any of the Escrow Agent’s partners, employees, agents and
representatives for any action taken or omitted to be taken by the Escrow Agent
or any of them hereunder, including the fees of outside counsel and other costs
and expenses of defending itself against any claim or liability under this
Agreement, except in the case of gross negligence or willful misconduct on the
part of the Escrow Agent committed in its capacity as Escrow Agent under this
Agreement.  The Escrow Agent shall owe a duty only to the Company
under this Agreement and to no other person.

     

    (c) The
Company agrees to reimburse the Escrow Agent for outside counsel fees, to the
extent authorized hereunder and incurred in connection with the performance of
its duties and responsibilities hereunder.

     

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d) The
Escrow Agent may at any time resign as Escrow Agent hereunder by giving thirty
days prior written notice of resignation to the Company.  Prior to the
effective date of the resignation as specified in such notice, the Company will
issue to the Escrow Agent an instruction authorizing delivery of the IR Escrow
Shares to a substitute escrow agent selected by the Company.  If no
successor escrow agent is named by the Company, the Escrow Agent may apply to a
court of competent jurisdiction in the State of New York for appointment of a
successor escrow agent, and to deposit the IR Escrow Shares with the clerk of
any such court.

     

    (e) The
Escrow Agent does not have and will not have any interest in the IR Escrow
Shares, but is serving only as escrow agent in connection therewith, having only
possession thereof.

     

    (f) This
Agreement sets forth exclusively the duties of the Escrow Agent with respect to
any and all matters pertinent thereto and no implied duties or obligations shall
be read into this Agreement.

     

    (g) The
provisions of this Agreement shall survive the resignation of the Escrow Agent
or the termination of this Agreement.

     

    4. Dispute
Resolution.  Resolution of disputes arising under this
Agreement shall be subject to the following terms and conditions:

     

    (a) If any
dispute shall arise with respect to the delivery, ownership, right of possession
or disposition of the IR Escrow Shares, or if the Escrow Agent shall in good
faith be uncertain as to its duties or rights hereunder, the Escrow Agent shall
be authorized, without liability to anyone, to (i) refrain from taking any
action other than to continue to hold the IR Escrow Shares pending receipt of
Instructions from the Company, or (ii) deposit the IR Escrow Shares with any
court of competent jurisdiction in the State of New York, in which event the
Escrow Agent shall give written notice thereof to the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement.  The Escrow Agent may, but shall be under no duty to,
institute or defend any legal proceedings which relate to the IR Escrow
Shares.  The Escrow Agent shall have the right to retain counsel if it
becomes involved in any disagreement, dispute or litigation on account of this
Agreement or otherwise determines that it is necessary to consult
counsel.

     

    (b) The
Escrow Agent is hereby expressly authorized to comply with and obey any Court
Order.  In case the Escrow Agent obeys or complies with a Court Order,
the Escrow Agent shall not be liable to the Company or to any other person,
firm, corporation or entity by reason of such compliance.

     

    5. Termination of
Escrow.  The escrow account established hereby shall terminate
upon the delivery by the Escrow Agent of all of the IR Escrow Shares in
accordance with this Agreement.

     

    6. Notices.  All
notices, instructions and other communications given hereunder or in connection
herewith shall be in writing.  Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail,
return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below.  Any such notice, instruction or communication shall be deemed
to have been delivered five business days after it is sent by registered or
certified mail, return receipt requested, postage prepaid, or one business day
after it is sent via a reputable nationwide overnight courier
service.

     

    If to the
Company:

    

    Kentucky
USA Energy, Inc.

    321
Somerset Road

    London,
KY  40741

    Attn:  Steven
D. Eversole, Chief Executive Officer

    

    with a
copy to (which shall not constitute notice hereunder):

    

    Gottbetter
& Partners, LLP

    488
Madison Avenue, 12th
Floor

    New York,
NY  10022

    Attn:  Adam
S. Gottbetter, Esq.

    Facsimile:  (212)
400-6901

    

    If to the
Escrow Agent:

    

    Gottbetter
& Partners, LLP

    488
Madison Avenue, 12th
Floor

    New York,
NY  10022

    Attn:  Adam
S. Gottbetter, Esq.

    Facsimile:  (212)
400-6901

    

    Any party
may give any notice, instruction or communication in connection with this
Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the party to
whom it was sent.  Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this
Section 6.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

     

    7. General.

     

    (a) Governing Law;
Assigns.  This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
conflict-of-law principles and shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns.

     

    (b) Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

     

    (c) Entire
Agreement.  This Agreement constitutes the entire understanding
and agreement of the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter
hereof.

     

    (d) Waivers.  No
waiver by any party hereto of any condition or of any breach of any provision of
this Agreement shall be effective unless in writing.  No waiver by any
party of any such condition or breach, in any one instance, shall be deemed to
be a further or continuing waiver of any such condition or breach or a waiver of
any other condition or breach of any other provision contained
herein.

     

    (e) Amendment.  This
Agreement may be amended only with the written consent of the Company and the
Escrow Agent.

     

    (f) Consent to Jurisdiction and
Service.  The parties hereby absolutely and irrevocably consent
and submit to the jurisdiction of the courts in the State of New York and of any
federal court located in the State of New York in connection with any actions or
proceedings brought against any party hereto by the Escrow Agent arising out of
or relating to this Agreement.  In any such action or proceeding, the
parties hereby absolutely and irrevocably waive personal service of any summons,
complaint, declaration or other process and hereby absolutely and irrevocably
agree that the service thereof may be made by certified or registered
first-class mail directed to such party, at their respective addresses in
accordance with Section 6 hereof.

     

    (g) Acknowledge and Waiver of
Conflict.  The parties hereby acknowledge that the Escrow Agent
has represented the Company in connection with the Merger.  The
Company hereby waives any conflict of interest arising by virtue of the Escrow
Agent’s representation of the Company, and hereby agrees to acknowledge and
approve the taking of any action by the Escrow Agent reasonably necessary to
protect and preserve its rights under this Agreement.

     

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     

    IN
WITNESS WHEREOF, the parties have duly executed this IR Shares Escrow Agreement
as of the day and year first above written.

     

    KENTUCKY
USA ENERGY, INC.

    

    

    By:        /s/ Steven D.
Eversole

    Name:   Steven
D. Eversole

    Title:      Chief
Executive Officer

    

    

    

    GOTTBETTER
& PARTNERS, LLP

    

    

    By:        /s/ Adam S.
Gottbetter

    Name:   Adam
S. Gottbetter

    Title:      Partner

     

     

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
 

    EXHIBIT
A

     

    Form of
Instructions

    

    

    Mr. Adam
S. Gottbetter

    Gottbetter
& Partners, LLP

    488
Madison Ave., 12th Floor

    New York,
NY  10022

    Phone:  212-400-6900

    Facsimile:  212-400-6901

    

    Re:           Kentucky
USA Energy, Inc.

    

    Dear Mr.
Gottbetter:

    

    With
respect to the IR Shares Escrow Agreement by and between Kentucky USA Energy,
Inc. and Gottbetter & Partners, LLP, as escrow agent, we hereby authorize
the release of the IR Escrow Shares to the following public and investor
relations firms:

     

    
    

     

    
      	Name
      of Firm  	 	Number
      of Shares
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

    

     

    
      
        	 	KENTUCKY USA ENERGY,
      INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:  Steven
      D. Eversole	 
	 	 	

                Title:     Chief
      Executive Officer

              	 
	 	 	 	 

      

    

    
 

                                                                             

    

    

    6Unassociated Document

    Exhibit
10.4

    

    May 2,
2008

    

    Kentucky
USA Energy, Inc.

    111 W.
Gutierrez St.

    Santa
Barbara, CA 93101

    Attention:  Christopher
Greenwood, President

    

    Dear
Sir:

    

               Reference
is made to the Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) by and among KY USA Energy, Inc., a Kentucky corporation (“KY USA”),
Kentucky USA Energy, Inc., a Delaware corporation (the “Company”), and KY
Acquisition Corp., a Kentucky corporation and a wholly owned subsidiary of the
Company (the “Transactions”).  In connection with the Merger
Agreement, KY USA stockholders shall receive common stock, par value $0.0001 per
share, of the Company (the “Common Stock”) in consideration for shares of KY USA
held by them at the effective time of the merger.  In consideration of
the Company and KY USA entering into the Merger Agreement, the undersigned
hereby agrees as follows:

    

    1.           The
undersigned hereby covenants and agrees, except as provided herein, not to (a)
offer, sell, contract to sell, grant any option to
purchase, hypothecate, pledge, or otherwise dispose of or (b) transfer title to (a “Prohibited Sale”)
any of the shares (the “Acquired Shares”) of Common Stock acquired by the
undersigned pursuant to or in connection with the Merger Agreement, during the
period commencing on the “Closing Date” (as that term will be defined in the
Merger Agreement) and ending on the 24-month anniversary of the Closing Date
(the “Lockup Period”), without the prior written consent of the
Company.  Notwithstanding the foregoing, the undersigned shall be
permitted from time to time during the Lockup Period, without the prior written
consent of the Company, as applicable, (i) to engage in transactions in
connection with the undersigned’s participation in the Company’s stock option
plans, (ii) to transfer all or any part of the Acquired Shares to any family
member, for estate planning purposes, or to
an affiliate thereof (as such term is defined in Rule 405 under the Securities
Exchange Act of 1934, as amended), provided that such transferee agrees in writing with the Company to be bound hereby,
or (iii) to
participate in any transaction in which holders of the Common Stock of
the Company participate or have the opportunity to participate pro rata,
including, without limitation, a merger, consolidation or binding share exchange
involving the Company, a disposition of the Common Stock in connection with the
exercise of any rights, warrants or other securities distributed to the
Company’s stockholders, or a tender or exchange offer for the Common Stock, and
no transaction contemplated by the foregoing clauses (i), (ii) or (iii) shall be
deemed a Prohibited Sale for purposes of this Letter Agreement.

    

    2.           This
Letter Agreement shall be governed by and construed in accordance with the laws
of the State of Delaware.

     

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    
 

    3.           This
Letter Agreement will become a binding agreement among the undersigned as of the
Closing Date.  In the event that no closing occurs under the Merger
Agreement, this Letter Agreement shall be null and void.  This Letter
Agreement (and the agreements reflected herein) may be terminated by the mutual
agreement of the Company and the undersigned, and if not sooner terminated, will
terminate upon the expiration date of the Lockup Period.  This Letter
Agreement may be duly executed by facsimile and in any number of counterparts,
each of which shall be deemed an original, and all of which together shall be
deemed to constitute one and the same instrument.  Signature pages
from separate identical counterparts may be combined with the same effect as if
the parties signing such signature page had signed the same
counterpart.  This Letter Agreement may be modified or waived only by
a separate writing signed by each of the parties hereto expressly so modifying
or waiving such agreement.

    

    
      
        	 	Very
      truly yours,	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Print
      Name:	 
	 	 	 	 
	 	 	 	 

      

     

    

    

     

    
      	Address: 	 	 	 
	 	 	 	 
	Number of shares of
      Common Stock owned: 	 	 	 
	 	 	 	 
	Certificate
      Numbers:   	 	 	 
	 	 	 	 
	Accepted and Agreed
      to:	 	 	 
	 	 	 	 

    

     

                                                                    

                                                                    

    

    

                                                                                        

    

                                                                                                              

                                                                                      

    

    

    [Company
signature on the following page]

    

     

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

     

     

    Kentucky
USA Energy, Inc.

    

    

    By:   ___________________________                                                             

    Christopher
Greenwood, President

     

     

     

     

     

     

     

    3

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