Document:

Unassociated Document

    
      

      EXIBIT
10.2

      

      THIS
NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.

      

      KL
ENERGY CORP.

      SECURED
CONVERTIBLE PROMISSORY NOTE

      

      

      
        	
                $_______________

              	
                November
      ___, 2010         
      

              

      

       

      Rapid
City, South Dakota

      

      

      FOR VALUE
RECEIVED, KL Energy Corp., a Nevada corporation (the “Company”),  promises
to pay to [____________________] (“Investor”), or its registered
assigns, in lawful money of the United States of America the principal sum of
[__________] Dollars ($[_________]), or such lesser amount as shall equal the
outstanding principal amount hereof, together with interest from the date of
this Note on the unpaid principal balance at a rate equal to 10.00% per annum,
computed on the basis of the actual number of days elapsed and a year of 365
days.  All unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and payable on the
earlier of (i) the date that is eight (8) months from the issuance date of the
Note (the “Maturity
Date”), or (ii) when, upon or after the occurrence of an Event of Default
(as defined below), such amounts are declared due and payable by Investor or
made automatically due and payable in accordance with the terms
hereof.  This Note is one of the “Notes” issued pursuant to the Note
and Warrant Purchase Agreement of even date herewith (as amended, modified or
supplemented, the “Purchase
Agreement”) between the Company and the Investors (as defined in the
Purchase Agreement).

       

      THE
OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT (THE “SECURITY AGREEMENT”) DATED AS
OF THE DATE HEREOF AND EXECUTED BY COMPANY FOR THE BENEFIT OF
INVESTOR.  ADDITIONAL RIGHTS OF INVESTOR ARE SET FORTH IN THE SECURITY
AGREEMENT.

       

      The
following is a statement of the rights of Investor and the conditions to which
this Note is subject, and to which Investor, by the acceptance of this Note,
agrees:

      

      8.  Definitions.
As used in this Note, the following capitalized terms have the following
meanings:

      

      (a)  the
“Company” includes the
corporation initially executing this Note and any Person which shall succeed to
or assume the obligations of the Company under this Note.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (b)  “Event of Default” has the
meaning given in Section
4 hereof.

      

      (c)  “Investor” shall mean the
Person specified in the introductory paragraph of this Note or any Person who
shall at the time be the registered holder of this Note.  A reference
to a Lien of Investor or a security agreement executed in favor of Investor
shall be deemed to include a Lien granted to a collateral agent on behalf of
Investor and a security agreement executed in favor of a collateral agent on
behalf of Investor, respectively.

      

      (d)  “Lien” shall mean, with respect
to any property, any security interest, mortgage, pledge, lien, claim, charge or
other encumbrance in, of, or on such property or the income therefrom,
including, without limitation, the interest of a vendor or lessor under a
conditional sale agreement, capital lease or other title retention agreement, or
any agreement to provide any of the foregoing, and the filing of any financing
statement or similar instrument under the Uniform Commercial Code or comparable
law of any jurisdiction.

      

      (e)  “Liquidity Event” shall mean
(i) a merger of the Company with or into another entity (if after such merger
the holders of a majority of the Company’s voting securities immediately prior
to the transaction do not hold a majority of the voting securities of the
successor entity); or (ii) a sale by the Company of all or substantially all of
its assets.

      

      (f)  “Majority in Interest” shall
mean more than 50% of the aggregate outstanding principal amount of the Notes
issued pursuant to the Purchase Agreement.

      

      (g)  “Purchase Agreement” has the
meaning given in the introductory paragraph hereof.

      

      (h)  “Obligations” shall mean and
include all loans, advances, debts, liabilities and obligations, howsoever
arising, owed by the Company to Investor of every kind and description (whether
or not evidenced by any note or instrument and whether or not for the payment of
money), now existing or hereafter arising under or pursuant to the terms of this
Note, the Purchase Agreement and the Security Agreement, including, all
interest, fees, charges, expenses, attorneys’ fees and costs and accountants’
fees and costs chargeable to and payable by the Company hereunder and
thereunder, in each case, whether direct or indirect, absolute or contingent,
due or to become due, and whether or not arising after the commencement of a
proceeding under Title 11 of the United States Code (11 U. S. C. Section 101
et seq.), as amended
from time to time (including post-petition interest) and whether or not allowed
or allowable as a claim in any such proceeding.

      

      (i)  “Person” shall mean and include
an individual, a partnership, a corporation (including a business trust), a
joint stock company, a limited liability company, an unincorporated association,
a joint venture or other entity or a governmental authority.

      

      (j)  “Securities Act” shall mean the
Securities Act of 1933, as amended.

      

      (k)  “Security Agreement” has the
meaning given in the introductory paragraphs to this Note.

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

      (l)  “Transaction Documents” shall
mean this Note, each of the other Notes issued under the Purchase Agreement, the
Purchase Agreement, the Warrants issued under the Purchase Agreement and the
Security Agreement.

      

      9.  Interest.  Interest
shall accrue on this Note at the rate of ten percent (10%) per annum and shall
be payable on the last business day of each calendar quarter until the
outstanding principal amount hereof shall be paid in full at
maturity.

      

      10.  Prepayment.  Upon
five days prior
written notice to Investor, the Company may prepay this Note in whole (“Prepayment,” and the date of
such Pepayment, the “Prepayment
Date”); provided that any prepayment of this Note may only be made in
connection with the prepayment of all Notes issued under the Purchase
Agreement.

      

      11.  Events of
Default.  The occurrence of any of the following shall
constitute an “Event of
Default” under this Note and the other Transaction
Documents:

      

      (a)  Failure to
Pay.  The Company shall fail to pay (i) when due any principal
or interest payment on the due date hereunder or (ii) any other payment required
under the terms of this Note on the date due and such payment shall not have
been made within five days of the Company’s receipt of Investor’s written notice
to the Company of such failure to pay; or

      

      (b)  Voluntary Bankruptcy or Insolvency
Proceedings.  The Company shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian of itself or of all
or a substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be dissolved or
liquidated, (v) become insolvent (as such term may be defined or interpreted
under any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or

      

      (c)  Involuntary Bankruptcy or Insolvency
Proceedings.  Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Company or of all or a substantial part
of the property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within 30 days of
commencement.

      

      12.  Rights of
Investor upon Default.  Upon the occurrence or existence of any
Event of Default (other than an Event of Default described in Sections 4(b) or 4(c)) and at any time
thereafter during the continuance of such Event of Default, Investor may, with
the consent of a Majority in Interest of the holders of the Notes issued under
the Purchase Agreement, by written notice to the Company, declare all
outstanding Obligations payable by the Company hereunder to be immediately due
and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived.  Upon the occurrence
or existence of any Event of Default described in Sections 4(b) and 4(c), immediately and without
notice, all outstanding Obligations payable by the Company hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived.  In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default and subject to the consent of a Majority in
Interest of the holders of the Notes issued under the Note Purchase Agreement,
Investor may exercise any other right power or remedy granted to it by the
Transaction Documents or otherwise permitted to it by law, either by suit in
equity or by action at law, or both.

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

      13.  Conversion.

      

      (a)  Qualified Equity
Financing.  In the event the Company consummates, prior to the
Maturity Date an equity financing pursuant to which it sells shares of its
preferred stock (the “Preferred
Stock”) or shares of its Common Stock for an amount of not less than
$15,000,000, excluding any and all notes which are converted into Preferred
Stock or Common Stock, as applicable (including this Note and the other Notes
issued under the Purchase Agreement), and with the principal purpose of raising
capital (a “Qualified Equity
Financing”), then the Investor may elect to convert all or part of the
outstanding principal amount and the accrued but unpaid interest under this Note
into shares of the Preferred Stock or Common Stock, as applicable, at the same
price and on the same terms as the other investors that purchase the Preferred
Stock or Common Stock, as applicable, in the Qualified Equity
Financing.  Before the Investor shall be entitled to convert this Note
under this Section 6(a),
the Investor shall execute and deliver to the Company all transaction documents
related to the Qualified Equity Financing, including a purchase agreement and
other ancillary agreements, and having the same terms as those agreements
entered into by the other purchasers in the Qualified Equity
Financing.  In addition, before Investor shall be entitled to convert
this Note under this Section
6(a), it shall surrender this Note, duly endorsed, at the office of the
Company and shall give written notice to the Company at its principal corporate
office, of the election to convert the same pursuant to this Section, and shall
state therein the amount of the unpaid principal amount of this Note to be
converted and the name or names in which the certificate or certificates for
shares subject to conversion are to be issued.  The Company shall, as
soon as practicable thereafter, issue and deliver at such office to Investor a
certificate or certificates for the number of shares to which Investor shall be
entitled upon conversion (bearing such legends as are required by the purchase
agreement and applicable state and federal securities laws in the opinion of
counsel to the Company), together with a replacement Note (if any principal
amount is not converted) and any other securities and property to which Investor
is entitled upon such conversion under the terms of this Note, including a check
payable to Investor for any cash amounts payable as described in Section 6(d).  The
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of this Note, and the Person or Persons
entitled to receive the shares of Common Stock upon such conversion shall be
treated for all purposes as the record Investor or Investors of such shares of
Common Stock as of such date.

      

      (b)  Optional
Conversion.  If no Qualified Financing takes place prior to the
Prepayment Date or the Maturity Date, whichever occurs first, then all or a
portion of the outstanding principal amount and all accrued but unpaid interest
under this Note shall be convertible at the option of the Investor, upon the
earlier to occur of the Prepayment Date or the Maturity Date, into that number
of shares of the Company’s Common Stock as is determined by dividing such
principal amount and accrued interest by $1.10 per share (adjusted to reflect
subsequent stock dividends, stock splits, combinations or
recapitalizations).  Notwithstanding the immediately foregoing
sentence, in the event that the Company consummates a Qualified Equity Financing
at any time during the 24-month period following the conversion of this Note,
and the purchase price per share of the securities in such Qualified Equity
Financing is less than $1.10, then the Company agrees to issue additional shares
to Investor of the same securities that Investor received upon the prior
conversion of the Note to cover the difference in the number of shares that
Investor would have received if the conversion price was adjusted to the lower
purchase price in the Qualified Equity Financing.  Before Investor
shall be entitled to convert this Note into shares of Common Stock under this
Section 6(b), the
Investor shall execute and deliver to the Company a common stock purchase
agreement reasonably acceptable to the Company containing customary
representations and warranties and transfer restrictions.  In
addition, before Investor shall be entitled to convert this Note into shares of
Common Stock under this Section
6(b), it shall surrender this Note, duly endorsed, at the office of the
Company and shall give written notice to the Company at its principal corporate
office, of the election to convert the same pursuant to this Section, and shall
state therein the amount of the unpaid principal amount of this Note to be
converted and the name or names in which the certificate or certificates for
shares of Common Stock are to be issued.  The Company shall, as soon
as practicable thereafter, issue and deliver at such office to Investor a
certificate or certificates for the number of shares of Common Stock to which
Investor shall be entitled upon conversion (bearing such legends as are required
by the common stock purchase agreement, the Purchase Agreement and applicable
state and federal securities laws in the opinion of counsel to the Company),
together with a replacement Note (if any principal amount is not converted) and
any other securities and property to which Investor is entitled upon such
conversion under the terms of this Note, including a check payable to Investor
for any cash amounts payable as described in Section 6(d).  The
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of this Note, and the Person or Persons
entitled to receive the shares of Common Stock upon such conversion shall be
treated for all purposes as the record Investor or Investors of such shares of
Common Stock as of such date.

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

       

      (c)  Liquidity
Event.  If the event a Liquidity Event occurs before the
Maturity Date or the conversion of this Note, then all or a portion of the
outstanding principal amount and all accrued but unpaid interest under this Note
shall be convertible at the option of the Investor into that number of shares of
the Company’s Common Stock as is determined by dividing such principal amount
and accrued interest by 80% of the price per share of the Company’s Common Stock
determined as of the date of the Liquidity Event.  In lieu of the
conversion of this Note provided in the immediately foregoing sentence, the
Investor may demand for payment of the principal and accrued but unpaid interest
outstanding as of the date of the Liquidity Event.

      

      (d)  Fractional Shares; Interest; Effect
of Conversion.  No fractional shares shall be issued upon
conversion of this Note.  In lieu of the Company issuing any
fractional shares to Investor upon the conversion of this Note, the Company
shall pay to Investor an amount equal to the product obtained by multiplying the
conversion price by the fraction of a share not issued pursuant to the previous
sentence.  Upon conversion of this Note in full and the payment of any
amounts specified in this Section 6(d), the Company
shall be forever released from all its obligations and liabilities under this
Note.

      

      14.  Successors and
Assigns.  Subject to the
restrictions on transfer described in Sections 9 and 10 below, the rights and
obligations of the Company and Investor shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the
parties.

      

      15.  Waiver and
Amendment.  Any provision of
this Note may be amended, waived or modified upon the written consent of the
Company and the holders of a Majority in Interest.

      

      16.  Transfer of this
Note or Securities Issuable on Conversion Hereof.  With respect to
any offer, sale or other disposition of this Note or securities into which such
Note may be converted, Investor will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of Investor’s counsel, or other evidence if reasonably satisfactory to the
Company, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect).  Upon receiving such written notice and reasonably
satisfactory opinion, if so requested, or other evidence, the Company, as
promptly as practicable, shall notify Investor that Investor may sell or
otherwise dispose of this Note or such securities, all in accordance with the
terms of the notice delivered to the Company.  If a determination has
been made pursuant to this Section 9 that the opinion of
counsel for Investor, or other evidence, is not reasonably satisfactory to the
Company, the Company shall so notify Investor promptly after such determination
has been made.  Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities
Act.  the Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.  Subject to the foregoing,
transfers of this Note shall be registered upon registration books maintained
for such purpose by or on behalf of the Company.  Prior to
presentation of this Note for registration of transfer, the Company shall treat
the registered holder hereof as the owner and  holder of this Note for
the purpose of receiving all payments of principal and interest hereon and for
all other purposes whatsoever, whether or not this Note shall be overdue and the
Company shall not be affected by notice to the contrary.

      

      17.  Assignment by the
Company.  Neither this Note
nor any of the rights, interests or obligations hereunder may be assigned, by
operation of law or otherwise, in whole or in part, by the Company without the
prior written consent of the holders of a Majority in Interest.

      

      18.  Notices.  All notices,
requests, demands, consents, instructions or other communications required or
permitted hereunder shall in writing and faxed, mailed or delivered to each
party at the respective addresses of the parties as set forth in the Note
Purchase Agreement, or at such other address or facsimile number as the Company
shall have furnished to Investor in writing.  All such notices and
communications will be deemed effectively given the earlier of (i) when
received, (ii) when delivered personally, (iii) one business day after being
delivered by facsimile (with receipt of appropriate confirmation), (iv) one
business day after being deposited with an overnight courier service of
recognized standing or (v) four days after being deposited in the U.S. mail,
first class with postage prepaid.

      

      19.  Usury. In the event any interest is
paid on this Note which is deemed to be in excess of the then legal maximum
rate, then that portion of the interest payment representing an amount in excess
of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note.

       

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      

       

      20.  Waivers. The Company hereby waives
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor and all other notices or demands relative to this
instrument.

      

      21.  Governing
Law.  This Note and all
actions arising out of or in connection with this Note shall be governed by and
construed in accordance with the laws of the State of Nevada, without regard to
the conflicts of law provisions of the State of Nevada, or of any other
state.

       

      [Signature
Page Follows]

       

      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      

       

      The
Company has caused this Note to be issued as of the date first written
above.

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  	 
      	
                                                          KL
      ENERGY CORP.

                                                        	 
	 
      	
                                                          a
      Nevada corporation

                                                        	 
	 
      	 
      	 
      	 
      	 
      	 
	 
      	
                                                          By:

                                                        	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
      	 
      	 
	 
      	
                                                          Name:

                                                        	 
      	 
	 
      	 
      	 
      	 
      	 
      	 
	 
      	
                                                          Title:Unassociated Document

    

    EXHIBIT
10.3

     

    
      THIS
WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED.

    

     

    __________________________________

    COMMON STOCK PURCHASE
WARRANT

    

    This
Warrant is issued to ____________________________ by KL Energy Corp., a Nevada
corporation (the “Company”), pursuant
to the terms of that certain Note and Warrant Purchase Agreement (the “Purchase Agreement”)
of even date herewith, in connection with the Company’s issuance to the holder
of this Warrant of a Secured Convertible Promissory Note (the “Note”).  Capitalized
terms not otherwise defined in this Warrant shall have the meanings ascribed to
them in the Purchase Agreement and the Note.

    

    1.  Purchase of
Shares.  Subject to the terms and conditions hereinafter set
forth and set forth in the Purchase Agreement, the holder of this Warrant is
entitled, upon surrender of this Warrant at the principal office of the Company
(or at such other place as the Company shall notify the holder hereof in
writing), to purchase from the Company up to the number of fully paid and
nonassessable Shares (as defined below), that equals the quotient obtained by
dividing (a) the Warrant Coverage Amount (as defined below) by (b) the Exercise
Price (as defined below).

    

    2.  Definitions.

    

    (a)  Exercise
Price.  The exercise price for the Shares shall be the price
per share of equity securities sold to investors in a Qualified Equity
Financing; provided, however, in the event
that Prepayment, maturity of the Note or the Conversion of the Note occurs prior
to a Qualified Equity Financing, then the exercise shall be $1.10 per share
(such price, as adjusted from time to time, is herein referred to as the “Exercise
Price”).  Notwithstanding the immediately foregoing sentence,
in the event that the Company consummates a Qualified Equity Financing at any
time during the 24-month period following the Prepayment Date, the Maturity Date
or the conversion date of the Note, and the purchase price per share of the
securities in such Qualified Equity Financing is less than $1.10, then the
Exercise Price shall be adjusted to equal to the purchase price per share in
such Qualified Equity Financing.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  Exercise
Period.  This Warrant shall be exercisable, in whole or in
part, during the term commencing on the earlier of the Prepayment Date or the
Maturity Date (the “Commencement Date”)
and ending on the four-year anniversary of the Commencement Date.

    

    (c)  Warrant Coverage
Amount.  The term “Warrant Coverage
Amount” shall mean that amount which equals 140% of the number of shares
convertible under the Note upon the earlier to occur of the Prepayment Date or
the Maturity Date; provided, however, if the Note is converted, either in whole
or in part, at any time during the term of the Note or upon the Maturity Date,
then the 140% used in the calculation of the Warrant Coverage Amount shall be
increased to 170%.

    

    (d)  The
Shares.  The term “Shares” shall mean
shares of the Company’s Common Stock.

    

    3.  Method of
Exercise.  While this Warrant remains outstanding and
exercisable in accordance with Section 2 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby.  Such exercise
shall be effected by:

    

    (a)  the
surrender of the Warrant, together with a notice of exercise to the Secretary of
the Company at its principal offices; and

    

    (b)  the
payment to the Company of an amount equal to the aggregate Exercise Price for
the number of Shares being purchased.

    

    4.  Net
Exercise.  In lieu of cash exercising this Warrant, the holder
of this Warrant may elect to receive shares equal to the value of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with notice of such election, in which
event the Company shall issue to the holder hereof a number of Shares computed
using the following formula:

    

    
      
        	 
      	
                Y (A - B)

              
	
                X
      =   

              	
                      A

              

      

    

    Where

    
      
        
          	
                  X

                	
                  --

                	
                  The
      number of Shares to be issued to the holder of this
    Warrant.

                
	
                  Y

                	
                  --

                	
                  The
      number of Shares purchasable under this Warrant.

                
	
                  A 
      

                	
                  -- 
      

                	
                  The
      fair market value of one Share.

                
	
                  B

                	
                  --

                	
                  The
      Exercise Price (as adjusted to the date of such
    calculations).

                

        

      

    

    
       

    

    For
purposes of this Section 4, the fair market value of a Share shall mean the
average of the closing bid and asked prices of Shares quoted in the
over-the-counter market in which the Shares are traded or the closing price
quoted on any exchange on which the Shares are listed, whichever is applicable,
as published in the Western Edition of The Wall Street
Journal for the ten (10) trading days prior to the date of determination
of fair market value (or such shorter period of time during which such stock was
traded over-the-counter or on such exchange).  If the Shares are not
traded on the over-the-counter market or on an exchange, the fair market value
shall be the price per Share that the Company could obtain from a willing buyer
for Shares sold by the Company from authorized but unissued Shares, as such
prices shall be determined in good faith by the Company’s Board of
Directors.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    5.  Certificates for
Shares.  Upon the exercise of the purchase rights evidenced by
this Warrant, one or more certificates for the number of Shares so purchased
shall be issued as soon as practicable thereafter, and in any event within
thirty (30) days of the delivery of the subscription notice.

    

    6.  Issuance of
Shares.  The Company covenants that the Shares, when issued
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.

    

    7.  Adjustment of Exercise Price
and Number of Shares.  The number of and kind of securities
purchasable upon exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time as follows:

    

    (a)  Subdivisions, Combinations
and Other Issuances.  If the Company shall at any time prior to
the expiration of this Warrant subdivide the Shares, by split-up or otherwise,
or combine its Shares, or issue additional shares of its Shares as a dividend,
the number of Shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination.  Appropriate
adjustments shall also be made to the purchase price payable per share, but the
aggregate purchase price payable for the total number of Shares purchasable
under this Warrant (as adjusted) shall remain the same.  Any
adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.

    

    (b)  Reclassification,
Reorganization and Consolidation.  In case of any
reclassification, capital reorganization, or change in the capital stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 7(a) above), then the Company shall make appropriate
provision so that the holder of this Warrant shall have the right at any time
prior to the expiration of this Warrant to purchase, at a total price equal to
that payable upon the exercise of this Warrant, the kind and amount of shares of
stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
Shares as were purchasable by the holder of this Warrant immediately prior to
such reclassification, reorganization, or change.  In any such case
appropriate provisions shall be made with respect to the rights and interest of
the holder of this Warrant so that the provisions hereof shall thereafter be
applicable with respect to any shares of stock or other securities and property
deliverable upon exercise hereof, and appropriate adjustments shall be made to
the purchase price per share payable hereunder, provided the aggregate purchase
price shall remain the same.

    

    (c)  Notice of
Adjustment.  When any adjustment is required to be made in the
number or kind of shares purchasable upon exercise of the Warrant, or in the
Exercise Price, the Company shall promptly notify the holder of such event and
of the number of Shares or other securities or property thereafter purchasable
upon exercise of this Warrant.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    8.  No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but in lieu of such
fractional shares the Company shall make a cash payment therefor on the basis of
the Exercise Price then in effect.

    

    9.  Representations of the
Company.  The Company represents that all corporate actions on
the part of the Company, its officers, directors and stockholders necessary for
the sale and issuance of this Warrant have been taken.

    

    10.  Representations and
Warranties by the Holder.  The Holder represents and warrants
to the Company as follows:

    

    (a)  This
Warrant and the Shares issuable upon exercise thereof are being acquired for its
own account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Act").  Upon
exercise of this Warrant, the Holder shall, if so requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the securities
issuable upon exercise of this Warrant are being acquired for investment and not
with a view toward distribution or resale.

    

    (b)  The
Holder understands that the Warrant and the Shares have not been registered
under the Act, or any applicable state securities laws, by reason of their
issuance in a transaction exempt from the registration and prospectus delivery
requirements of the Act pursuant to Section 4(2) thereof, or any applicable
state securities laws, and that they must be held by the Holder indefinitely,
and that the Holder must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Act or is exempted from such registration.

    

    (c)  The
Holder has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the purchase of this Warrant
and the Shares purchasable pursuant to the terms of this Warrant and of
protecting its interests in connection therewith.

    

    (d)  The
Holder is able to bear the economic risk of the purchase of the Shares pursuant
to the terms of this Warrant.

    

    (e)  The
Holder is an “accredited investor” as such term is defined in Rule 501 of
Regulation D promulgated under the Act.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    11.  Restrictive
Legend.

    

    The
Shares (unless registered under the Act) shall be stamped or imprinted with a
legend in substantially the following form:

    

    THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.  COPIES OF THE AGREEMENT COVERING THE PURCHASE
OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.

    

    12.  Warrants
Transferable.  Subject to compliance with the terms and
conditions of this Section 12, this Warrant and all rights hereunder are
transferable, in whole, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed or accompanied by
written instructions of transfer.  With respect to any offer, sale or
other disposition of this Warrant or any Shares acquired pursuant to the
exercise of this Warrant prior to registration of such Warrant or Shares, the
holder hereof agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, or other evidence, if requested by the Company, to the effect
that such offer, sale or other disposition may be effected without registration
or qualification (under the Act as then in effect or any federal or state
securities law then in effect) of this Warrant or the Shares and indicating
whether or not under the Act certificates for this Warrant or the Shares to be
sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such
law.  Upon receiving such written notice and reasonably satisfactory
opinion or other evidence, if so requested, the Company, as promptly as
practicable, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such Shares, all in accordance with the terms of the
notice delivered to the Company.  If a determination has been made
pursuant to this Section 12 that the opinion of counsel for the holder or other
evidence is not reasonably satisfactory to the Company, the Company shall so
notify the holder promptly with details thereof after such determination has
been made.  Each certificate representing this Warrant or the Shares
transferred in accordance with this Section 12 shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such
laws.  The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.

    

    13.  Rights of
Stockholders.  No holder of this Warrant shall be entitled, as
a Warrant holder, to vote or receive dividends or be deemed the holder of the
Shares or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    14.  Liquidation
Event.

    

    (a)  Upon
the occurrence of a Liquidation Event, the Company shall have the right, in its
sole discretion, to require the holder to exercise this Warrant.  If
the Company calls the exercise of this Warrant pursuant to this Section 14(a),
then the Exercise Price shall be adjusted to equal 80% of the Exercise Price
immediately prior to such call.

    

    (b)  The
Company shall provide at least 30 days prior written notice of the event set
forth in Section 14(a).  Notwithstanding anything contained in this
Warrant to the contrary, in the event this Warrant is not exercised within this
30-day period, then this Warrant shall automatically expire immediately upon the
end of such 30-day period and shall be of no force and effect.

    

    15.  Notices.  All
notices and other communications required or permitted hereunder shall be in
writing, shall be effective when given, and shall in any event be deemed to be
given upon receipt or, if earlier, (a) five (5) days after deposit with the
U.S.  Postal Service or other applicable postal service, if delivered
by first class mail, postage prepaid, (b) upon delivery, if delivered by hand,
(c) one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid or (d) one business day after the
business day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed (i) if to
the Holder, at the Holder's address as set forth on the Schedule of Investors to
the Note Purchase Agreement, and (ii) if to the Company, at the address of its
principal corporate offices (attention: President) or at such other address as a
party may designate by ten days advance written notice to the other party
pursuant to the provisions above.

    

    16.  Governing
Law.  This Warrant and all actions arising out of or in
connection with this Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada, without regard to the conflicts of law
provisions of the State of Nevada or of any other state.

    

    17.  Rights and Obligations
Survive Exercise of Warrant.  Unless otherwise provided herein,
the rights and obligations of the Company, of the holder of this Warrant and of
the holder of the Shares issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.

     

    [Signature
Page Follows]

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    This
Warrant is issued this ___th day of November, 2010.

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	 
      	
                                        KL
      ENERGY CORP.

                                      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                                        By:

                                      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	
                                        Title:

                                      	 
      

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    

    [Signature
Page to Common Stock Purchase Warrant]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

    

    NOTICE OF
EXERCISE

    

    
      	
              TO:

            	
              KL
      Energy Corp.

            

    

    
      	 	
              306
      East St. Joseph Street, Suite 200

            

    

    
      	 	
              Rapid
      City, South Dakota 57701

            

    

    Attention:
President

     

    1.  The
undersigned hereby elects to purchase __________ Shares of _____________
pursuant to the terms of the attached Warrant.

     

    2.  Method
of Exercise (Please initial the applicable blank):

     

    
      	
               
      

            	
              ___

            	
              The
      undersigned elects to exercise the attached Warrant by means of a cash
      payment, and tenders herewith payment in full for the purchase price of
      the shares being purchased, together with all applicable transfer taxes,
      if any.

            

    

     

    
      	
               
      

            	
              ___

            	
              The
      undersigned elects to exercise the attached Warrant by means of the net
      exercise provisions of Section 4 of the
Warrant.

            

    

     

    
      3.  Please
issue a certificate or certificates representing said Shares in the name of the
undersigned or in such other name as is specified below:

    

    

    
      
        
          
            
              
                
                  
                    	
                             

                          	 
      
	
                            (Name)

                          	 
      
	
                             

                          	 
      
	 
      	 
      
	 	 
	 	 
	
                            (Address)

                          	 
      

                  

                

              

            

          

        

      

    

    

    4.  The
undersigned hereby represents and warrants that the aforesaid Shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale, in connection with the distribution thereof, and that the
undersigned has no present intention of distributing or reselling such shares
and all representations and warranties of the undersigned set forth in Section
10 of the attached Warrant (including Section 10 (e) thereof) are true and
correct as of the date hereof.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                       

                                    	 
      	
                                       

                                    	 
	 
      	 
      	
                                      (Signature)

                                    	 
	 	 	 	 
	 
      	 
      	 
      	 
	 
      	 
      	
                                      (Name)

                                    	 
	 	 	 	 
	
                                       

                                    	 
      	
                                       

                                    	 
	
                                      (Date)

                                    	 
      	
                                      (Title)

                                    	 

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
B

    

    FORM
OF TRANSFER

    (To be
signed only upon transfer of Warrant)

    

    

    FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________ the right represented by the
attached Warrant to purchase ____________ shares
of  ________________________ of KL Energy Corp. to which the attached
Warrant relates, and appoints ______________ Attorney to transfer such right on
the books of __________, with full power of substitution in the
premises.

    

    

    
      
        
          
            
              
                	
                        Dated:

                      	
                         

                      

              

            

          

        

      

    

     

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	 	 
	 
      	
                                  (Signature
      must conform in all respects to name of Holder as specified on the face of
      the Warrant)

                                
	 	 	 
	 
      	
                                  Address:

                                	 
      
	 	 	 
	 
      	 
      	 
      
	 	 	 
	 
      	 
      	 
      

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    

    Signed in
the presence of:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00182-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00182-of-00352.parquet"}]]