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Unassociated Document

    SECURITIES
      PURCHASE AGREEMENT

    

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of September 30, 2008, by and among KL Energy Corporation, a Nevada
      corporation (the “Company”),
      and
      the investors identified on the signature pages hereto (each, an “Investor”
      and
      collectively, the “Investors”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”),
      Rule 506 promulgated thereunder, and Regulations S under the
      Securities Act, the Company desires to issue and sell to the Investors, and
      the
      Investors, severally and not jointly, desire to purchase from the Company
      certain securities of the Company, as more fully described in this
      Agreement.

     

    AGREEMENT

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration the receipt and adequacy of which
      are hereby acknowledged, the Company and the Investors agree as
      follows:

     

    ARTICLE
      1.

    DEFINITIONS

     

    1.1. Definitions. 
       In addition to the terms defined elsewhere in this Agreement, for all
      purposes of this Agreement, the following terms shall have the meanings
      indicated in this Section 1.1:

     

    “Affiliate”
      means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144.

     

    “Business
      Day”
      means
      any day except Saturday, Sunday and any day which is a U.S. federal legal
      holiday

     

    “Common
      Stock”
      means
      the common stock of the Company, par value $0.001 per share, and any securities
      into which such common stock may hereafter be reclassified or for which it
      may
      be exchanged as a class.

     

    “Investment
      Amount”
      means,
      with respect to each Investor, the investment amount indicated on such
      Investor’s signature page to this Agreement.

     

    “Material
      Adverse Effect”
      means
      any of (i) a material and adverse effect on the legality, validity or
      enforceability of this Agreement or the Warrants, (ii) a material and
      adverse effect on the results of operations, assets, prospects, business or
      condition (financial or otherwise) of the Company and the subsidiaries, taken
      as
      a whole, or (iii) an adverse impairment to the Company’s ability to perform
      on a timely basis any of its obligations under this Agreement or the
      Warrants.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Person”
      means an
      individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “Trading
      Day”
      means a
      day on which the Common Stock is traded in the over-the-counter market, as
      reported by the OTC Bulletin Board (or any similar organization or agency
      succeeding to its functions of reporting prices); provided, that in the event
      that the Common Stock is not listed or quoted as set forth in the foregoing,
      then Trading Day shall mean a Business Day.

     

    “Trading
      Market”
      means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market
      or OTC Bulletin Board on which the Common Stock is listed or quoted for trading
      on the date in question.

     

    “Units”
      means
      collectively the units purchased by the Investors pursuant to this Agreement,
      with each Unit consisting of two (2) shares of Common Stock and Warrant for
      the
      purchase of one (1) share of Common Stock. The Warrant will be immediately
      detachable and separately transferable. 

     

    “Warrants”
means
      collectively the Common Stock purchase warrants, in the form of Exhibit A,
      delivered to the Investors pursuant to this Agreement. 

     

    ARTICLE
      2.

    PURCHASE
      AND SALE

     

    2.1. Closing. 
       Subject to the terms and conditions set forth in this Agreement, at the
      closing of the purchase and sale of the Units (the “Closing”)
      the
      Company shall issue and sell to each Investor, and each Investor shall,
      severally and not jointly, purchase from the Company, the number of Units set
      forth on each respective Investor’s signature page attached hereto, at a per
      Unit purchase price of $8.00, in consideration of the Investor’s payment of the
      Investment Amount set forth thereon. (All references herein are to United States
      Dollars). The Closing shall take place at the offices of The Bank of New York
      Mellon Corporation (the “Escrow
      Agent”)
      on the
      Business Day on which all of the conditions set forth in Sections 5.1
      and 5.2
      hereof
      are satisfied, or such other date as the parties may agree (the “Closing
      Date”),
      or at
      such other location and/or time as the parties may agree. The purchase and
      sale
      of the Units may take place at one or more Closings, and if there are multiple
      Closings, then all deliveries and conditions required to be completed on or
      before the Closing Date shall refer to the Closing Date for the initial Closing.
      

     

    
      
        
        

      

      
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    2.2. Closing
      Deliveries.

     

    (a)
       On
      or
      prior to the Closing, the Company shall deliver or cause to be delivered to
      each
      Investor this Agreement duly executed by the Company (the “Company
      Deliverables”).

     

    (b) On
      or
      prior to the Closing Date, each Investor shall deliver or cause to be delivered
      the following (the “Investor
      Deliverables”):

     

    (i) to
      the
      Company, this Agreement duly executed by the Investor; and

     

    (ii) to
      the
      Escrow Agent for deposit and disbursement, such Investor’s Investment Amount, in
      United States dollars and in immediately available funds, by wire transfer
      to an
      account designated in writing by the Company for such purpose. 

     

    (c) Within
      five (5) Business Days following the Closing Date, the Company shall deliver
      or
      cause to be delivered the following:

     

    (i) one
      or
      more stock certificates evidencing the shares of Common Stock (excluding the
      Warrant Shares (as defined below)) issued to the Investors as part of the Units
      by the Company pursuant to the terms of this Agreement (the “Shares”)
      purchased by each Investor, as indicated on each such Investor’s signature page
      attached hereto; and

     

    (ii) a
      Warrant
      registered in the name of each Investor, pursuant to which each such Investor
      shall have the right to acquire the number of shares of Common Stock (the
“Warrant
      Shares”)
      set
      forth on such Investor’s signature page attached hereto.

     

    ARTICLE
      3.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1. Representations
      and Warranties of the Company.  
      Except as set forth under the corresponding section of the disclosure schedules
      of the Company delivered by the Company to Investors contemporaneously with
      this
      Agreement (the “Disclosure
      Schedules”),
      which
      Disclosure Schedules shall be deemed a part hereof and shall be deemed to
      qualify any representation or warranty otherwise made herein to the extent
      of
      such disclosure, the Company hereby makes the following representations and
      warranties to each Investor:

     

    (a) Organization
      and Qualification.
      The
      Company is duly incorporated or otherwise organized, validly existing and in
      good standing under the laws of the State of Nevada, with the requisite power
      and authority to own and use its properties and assets and to carry on its
      business as currently conducted. The Company is duly qualified to conduct its
      business as presently conducted and is in good standing as a foreign corporation
      in each jurisdiction in which the nature of the business conducted or property
      owned by it makes such qualification necessary, except where the failure to
      be
      so qualified or in good standing, as the case may be, could not, individually
      or
      in the aggregate, have or reasonably be expected to result in a Material Adverse
      Effect.

     

    
      
        
        

      

      
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    (b) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by this Agreement and otherwise to
      carry out its obligations hereunder. The execution and delivery of this
      Agreement and the Warrants by the Company and the consummation by it of the
      transactions contemplated hereby have been duly authorized by all necessary
      action on the part of the Company and no further action is required by the
      Company, its board of directors or its stockholders in connection therewith.
      This Agreement and the Warrants have been (or upon delivery will have been)
      duly
      executed by the Company and, when delivered in accordance with the terms hereof,
      will constitute the valid and binding obligation of the Company enforceable
      against the Company in accordance with its terms, except as such enforceability
      may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
      liquidation or similar laws relating to, or affecting generally the enforcement
      of, creditors’ rights and remedies or by other equitable principles of general
      application.

     

    (c) No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the Warrants by the
      Company and the consummation by the Company of the transactions contemplated
      hereby do not and will not (i) conflict with or violate any provision of
      the Company’s articles of incorporation or bylaws, or (ii) conflict with,
      or constitute a default under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, credit facility,
      debt
      or other instrument or other understanding to which the Company is a party
      or by
      which any property or asset of the Company is bound or affected, or
      (iii) result in a violation of any law, rule, regulation, order, judgment,
      injunction, decree or other restriction of any court or governmental authority
      to which the Company is subject, or by which any property or asset of the
      Company is bound or affected; except in the case of each of clauses (ii) and
      (iii), such as could not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect.

     

    (d) Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of this
      Agreement and the Warrants, other than (i) the filing with the Securities
      and Exchange Commission (the “SEC”)
      of one
      or more Registration Statements (as defined herein) in accordance with the
      requirements of Section 4.3,
      (ii) filings required by state securities laws, (iii) the filing of a
      Notice of Sale of Securities on Form D with the SEC under Regulation D
      of the Securities Act, (iv) information statement that complies with
      Section 14(f) of the Securities Exchange Act of 1934, as amended (the
“Exchange
      Act”),
      and
      Rule 14f-1 thereunder; and (v) a current report on Form 8-K relating
      to the transactions contemplated by this Agreement (collectively, the
“Required
      Approvals”).
      

     

    (e) Issuance
      of the Securities.
      The
      Shares have been duly authorized and, when issued and paid for in accordance
      with this Agreement, will be duly and validly issued, fully paid and
      nonassessable, free and clear of all liens, charges, encumbrances, security
      interests, rights of first refusal, rights of participation or other
      restrictions of any kind (individually, a “Lien”
and
      collectively, the “Liens”)
      other
      than restrictions on transfer provided for in this Agreement. The Warrant
      Shares, when issued in accordance with the terms of this Agreement, will be
      validly issued, fully paid and nonassessable, free and clear of all Liens other
      than restrictions on transfer provided for in this Agreement and the Warrants.
      

     

    
      
        
        

      

      
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    (f) Capitalization.
      No
      Person has any right of first refusal, preemptive right, right of participation,
      or any similar right to participate in the transactions contemplated by this
      Agreement. There are no outstanding options, warrants, scrip rights to subscribe
      to, calls or commitments of any character whatsoever relating to, or securities,
      rights or obligations convertible into or exchangeable for, or giving any Person
      any right to subscribe for or acquire, any securities of the Company, or
      contracts, commitments, understandings or arrangements by which the Company
      is
      or may become bound to issue additional securities of the Company. The issue
      and
      sale of the Shares, Warrants and Warrant Shares (collectively, the “Securities”)
      will
      not, immediately or with the passage of time, obligate the Company to issue
      shares of Common Stock or other securities to any Person (other than the
      Investors) and will not result in a right of any holder of Company securities
      to
      adjust the exercise, conversion, exchange or reset price under such securities.
      All of the outstanding shares of capital stock of the Company are validly
      issued, fully paid and nonassessable, have been issued in compliance with all
      federal and state securities laws, and none of such outstanding shares was
      issued in violation of any preemptive rights or similar rights to subscribe
      for
      or purchase securities. 

     

    (g) Title
      to Assets.
      The
      Company has good and marketable title to property owned by it that is material
      to its business, free and clear of all Liens, except for Liens as do not
      materially affect the value of such property and do not materially interfere
      with the use made and proposed to be made of such property by the Company.
      Any
      real property and facilities held under lease by the Company are held by them
      under valid, subsisting and enforceable leases of which the Company is in
      compliance, except as could not, individually or in the aggregate, have or
      reasonably be expected to result in a Material Adverse Effect.

     

    (h) No
      Integrated Offering.
      Assuming
      the accuracy of the Investors’ representations and warranties set forth in
Sections 3.2,
      3.3 and 3.4,
      neither
      the Company, nor any of its Affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any security
      or
      solicited any offers to buy any security, under circumstances that would cause
      this offering of the Securities to be integrated with prior offerings by the
      Company for purposes of the Securities Act or any applicable shareholder
      approval provisions of any Trading Market on which any of the securities of
      the
      Company are listed or designated. 

     

    (i) No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation or general
      advertising. The Company has offered the Securities for sale only to the
      Investors and certain other “accredited investors” within the meaning of
      Rule 501 under the Securities Act.

     

    3.2. Representations
      and Warranties of the Investors.  
      Each Investor hereby, for itself and for no other Investor, represents and
      warrants to the Company as follows:

     

    (a) Organization;
      Authority.
      If an
      entity, such Investor is duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with the requisite
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by this Agreement and otherwise to carry out its
      obligations hereunder. The execution and delivery of this Agreement and the
      performance by such Investor of the transactions contemplated herein have been
      duly authorized by all necessary corporate or, if such Investor is not a
      corporation, such partnership, limited liability company or other applicable
      like action, on the part of such Investor. This Agreement has been duly executed
      by such Investor, and when delivered by such Investor in accordance with the
      terms hereof, will constitute the valid and legally binding obligation of such
      Investor, enforceable against it in accordance with its terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally the enforcement of, creditors’ rights and remedies or by
      other equitable principles of general application.

     

    
      
        
        

      

      
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    (b) Investment
      Intent.
      Such
      Investor is acquiring the Securities as principal for its own account for
      investment purposes only and not with a view to or for distributing or reselling
      such Securities or any part thereof, without prejudice, however, to such
      Investor’s right at all times to sell or otherwise dispose of all or any part of
      such Securities in compliance with applicable federal and state securities
      laws.
      Subject to the immediately preceding sentence, nothing contained herein shall
      be
      deemed a representation or warranty by such Investor to hold the Securities
      for
      any period of time. Such Investor is acquiring the Securities hereunder in
      the
      ordinary course of its business. Such Investor does not have any agreement
      or
      understanding, directly or indirectly, with any Person to distribute any of
      the
      Securities.

     

    (c) Investor
      Status.
      At the
      time such Investor was offered the Securities, it was, and at the date hereof
      it
      is, an “accredited investor” as defined in Rule 501(a) under the Securities
      Act. Such Investor is not a registered broker-dealer under Section 15 of
      the Exchange Act.

     

    (d) General
      Solicitation.
      Such
      Investor is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    (e) Access
      to Information.
      Such
      Investor acknowledges that it has been afforded (i) the opportunity to ask
      such questions as it has deemed necessary of, and to receive answers from,
      representatives of the Company concerning the terms and conditions of the
      offering of the Securities and the merits and risks of investing in the
      Securities; (ii) access to information about the Company and the
      subsidiaries and their respective financial condition, results of operations,
      business, properties, management and prospects sufficient to enable it to
      evaluate its investment; and (iii) the opportunity to obtain such
      additional information that the Company possesses or can acquire without
      unreasonable effort or expense that is necessary to make an informed investment
      decision with respect to the investment. 

     

    (f) No
      Conflicts.
      The
      execution, delivery and performance by such Investor of this Agreement and
      the
      consummation by such Investor of the transactions contemplated hereunder will
      not (i) result in a violation of the organizational documents, if any, of
      such Investor, (ii) conflict with, or constitute a default under, or give
      to others any rights of termination, amendment, acceleration or cancellation
      of,
      any agreement, indenture or instrument to which such Investor is a party, or
      (iii) result in a violation of any law, rule, regulation, order, judgment
      or decree applicable to such Investor, except in the case of clauses (ii) and
      (iii) above, that do not otherwise affect the ability of such Investor to
      consummate the transactions contemplated hereby.

     

    
      
        
        

      

      
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    (g) Restricted
      Securities.
      The
      Investors understand that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the Securities Act only in certain limited
      circumstances. 

     

    (h) No
      Legal, Tax or Investment Advice.
      Such
      Investor understands that nothing in this Agreement or any other materials
      presented by or on behalf of the Company to such Investor in connection with
      the
      purchase of the Securities constitutes legal, tax or investment advice.

     

    (i) Independent
      Investment Decision.
      Such
      Investor has independently evaluated the merits of its decision to purchase
      the
      Securities pursuant to this Agreement, and such Investor confirms that it has
      not relied on the advice of any other Investor’s business and/or legal counsel
      in making such decision. Such Investor has not relied on the business or legal
      advice of the Company or any of its agents, counsel or Affiliates in making
      its
      investment decision hereunder, and confirms that none of such Persons has made
      any representations or warranties to such Investor in connection with the
      transactions contemplated by this Agreement.

     

    3.3. Representations
      and Warranties of Non-U.S. Investors   Each
      Investor who is a Non-U.S. person (as defined herein) hereby represents and
      warrants to the Company as follows:

     

    (a) This
      Agreement is made by the Company with such Investor who is a Non-U.S. person
      in
      reliance upon such Non-U.S. person’s representations, warranties and covenants
      made in this Section 3.3.

     

    (b) Such
      Non-U.S. person has been advised and acknowledges that:

     

    (i) the
      Securities have not been, and when issued, will not be registered under the
      Securities Act, the securities laws of any state of the United States or the
      securities laws of any other country;

     

    (ii) in
      issuing and selling the Securities to such Non-U.S. person pursuant hereto,
      the
      Company is relying upon the “safe harbor” provided by Regulation S and/or on
      Section 4(2) under the Securities Act;

     

    (iii) it
      is a
      condition to the availability of the Regulation S “safe harbor” that the
      Securities not be offered or sold in the United States or to a U.S. person
      (as
      defined herein) until the expiration of a period of one year following the
      Closing Date; and

     

    (iv) notwithstanding
      the foregoing, prior to the expiration of one year after the Closing (the
“Restricted
      Period”),
      the
      Securities may be offered and sold by the holder thereof only if such offer
      and
      sale is made in compliance with the terms of this Agreement and either:
      (A) if the offer or sale is within the United States or to or for the
      account of a U.S. person (as such terms are defined in Regulation S), the
      securities are offered and sold pursuant to an effective registration statement
      or pursuant to Rule 144 promulgated by the SEC pursuant to the Securities Act,
      as such Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the SEC having substantially the same effect as such Rule
      (“Rule 144”)
      or
      pursuant to an exemption from the registration requirements of the Securities
      Act; or (B) the offer and sale is outside the United States and to other
      than a U.S. person.

     

    
      
        
        

      

      
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    (c) As
      used
      herein, the term “United States” means and includes the United States of
      America, its territories and possessions, any State of the United States, and
      the District of Columbia, and the term “U.S.
      person”
      (as
      defined in Regulation S) means:

     

    (i) a
      natural
      person resident in the United States;

     

    (ii) any
      partnership or corporation organized or incorporated under the laws of the
      United States;

     

    (iii) any
      estate of which any executor or administrator is a U.S. person; 

     

    (iv) any
      trust
      of which any trustee is a U.S. person;

     

    (v) any
      agency or branch of a foreign entity located in the United States; 

     

    (vi) any
      nondiscretionary account or similar account (other than an estate or trust)
      held
      by a dealer or other fiduciary for the benefit or account of a U.S.
      person;

     

    (vii) any
      discretionary account or similar account (other than an estate or trust) held
      by
      a dealer or other fiduciary organized, incorporated and (if an individual)
      resident in the United States; and

     

    (viii) a
      corporation or partnership organized under the laws of any foreign jurisdiction
      and formed by a U.S. person principally for the purpose of investing in
      securities not registered under the Securities Act, unless it is organized
      or
      incorporated, and owned, by accredited investors (as defined in Rule 501(a)
      under the Securities Act) who are not natural persons, estates or
      trusts.

     

    As
      used
      herein, the term “Non-U.S.
      person”
      means
      any person who is not a U.S. person or is deemed not to be a U.S. person under
      Rule 902(k)(2) of the Securities Act.

     

    (d) Such
      Non-U.S. person agrees that with respect to the Securities until the expiration
      of the Restricted Period:

     

    (i) such
      Non-U.S. person, its agents or its representatives have not and will not solicit
      offers to buy, offer for sale or sell any of the Securities, or any beneficial
      interest therein, in the United States or to or for the account of a U.S. person
      during the Restricted Period; and

     

    (ii) notwithstanding
      the foregoing, prior to the expiration of the Restricted Period, the Securities
      may be offered and sold by the holder thereof only if such offer and sale is
      made in compliance with the terms of this Agreement and either: (A) if the
      offer or sale is within the United States or to or for the account of a U.S.
      person (as such terms are defined in Regulation S), the securities are offered
      and sold pursuant to an effective registration statement or pursuant to
      Rule 144 under the Securities Act or pursuant to an exemption from the
      registration requirements of the Securities Act; or (B) the offer and sale
      is outside the United States and to other than a U.S. person; and 

     

    
      
        
        

      

      
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    (iii) such
      Non-U.S. person shall not engage in hedging transactions with regard to the
      Securities unless in compliance with the Securities Act.

     

    The
      foregoing restrictions are binding upon subsequent transferees of the
      Securities, except for transferees pursuant to an effective registration
      statement. Such Non-U.S. person agrees that after the Restricted Period, the
      Securities may be offered or sold within the United States or to or for the
      account of a U.S. person only pursuant to applicable securities
      laws.

     

    (e) Such
      Non-U.S. person has not engaged, nor is it aware that any party has engaged,
      and
      such Non-U.S. person will not engage or cause any third party to engage, in
      any
      directed selling efforts (as such term is defined in Regulation S) in the
      United States with respect to the Securities.

     

    (f) Such
      Non-U.S. person: (i) is domiciled and has its principal place of business
      outside the United States; (ii) certifies it is not a U.S. person and is
      not acquiring the Securities for the account or benefit of any U.S. person;
      and
      (iii) at the time of the Closing Date, the Non-U.S. person or persons
      acting on Non-U.S. person’s behalf in connection therewith will be located
      outside the United States.

     

    (g) At
      the
      time of offering to such Non-U.S. person and communication of such Non-U.S.
      person’s order to purchase the Securities and at the time of such Non-U.S.
      Person’s execution of this Agreement, the Non-U.S. person or persons acting on
      Non-U.S. person’s behalf in connection therewith were located outside the United
      States.

     

    (h) Such
      Non-U.S. person is not a “distributor” (as defined in Regulation S) or a
“dealer” (as defined in the Securities Act).

     

    (i) Such
      Non-U.S. person acknowledges that the Company shall make a notation in its
      stock
      books regarding the restrictions on transfer set forth in this Section 3.3
      and
      shall transfer such shares on the books of the Company only to the extent
      consistent therewith.

     

    In
      particular, such Non-U.S. person acknowledges that the Company shall refuse
      to
      register any transfer of the Securities not made in accordance with the
      provisions of Regulation S, pursuant to registration under the Securities Act
      or
      pursuant to an available exemption from registration.

     

    3.4. Representations
      by Non-U.S. Persons. If an Investor is a Non-U.S. person, such Investor
      hereby represents that such Investor is satisfied as to the full observance
      of
      the laws of such Investor’s jurisdiction in connection with any invitation to
      subscribe for the Securities or any use of the Agreements, including
      (i) the legal requirements within such Investor’s jurisdiction for the
      purchase of Securities, (ii) any foreign exchange restrictions applicable
      to such purchase, (iii) any governmental or other consents that may need to
      be obtained and (iv) the income tax and other tax consequences, if any,
      that may be relevant to the purchase, holding, redemption, sale or transfer
      of
      such securities. Such Investor’s subscription and payment for, and such
      Investor’s continued beneficial ownership of, the Securities will not violate
      any applicable securities or other laws of such Investor’s
      jurisdiction.

     

    
      
        
        

      

      
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    ARTICLE
      4.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1. (a)  
      The
      Securities may only be disposed of in compliance with state and federal
      securities laws. In connection with any transfer of the Securities other than
      pursuant to an effective registration statement, to the Company, to an Affiliate
      of an Investor or in connection with a pledge as contemplated in Section 4.1(b),
      the
      Company may require the transferor thereof to provide to the Company an opinion
      of counsel selected by the transferor, the form and substance of which opinion
      shall be reasonably satisfactory to the Company, to the effect that such
      transfer does not require registration of such transferred Securities under
      the
      Securities Act.

     

    (b) Certificates
      evidencing the Securities will contain the following legend or one similar
      thereto, until such time as they are not required pursuant to the Securities
      Act
      and applicable state securities laws as evidenced by a legal opinion of counsel
      to the transferor to such effect, the substance of which shall be reasonably
      acceptable to the Company:

     

    NEITHER
      THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
      HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY.

     

    (c) Each
      Investor, severally and not jointly with the other Investors, agrees that such
      Investor will sell any Securities only pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein, and acknowledges that the removal of
      the
      restrictive legend from certificates representing Securities as set forth in
      this Section 4.1
      is
      predicated upon the Company’s reliance upon this understanding.

     

    
      
        
        

      

      
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    4.2. Non-Public
      Information.  
      The Company covenants and agrees that neither it nor any other Person acting
      on
      its behalf will provide any Investor or its agents or counsel with any
      information that the Company believes constitutes material non-public
      information, unless prior thereto such Investor shall have executed a written
      agreement regarding the confidentiality and use of such information. The Company
      understands and confirms that each Investor shall be relying on the foregoing
      representations in effecting transactions in securities of the
      Company.

     

    4.3. Registration
      Rights. 

     

    (a) The
      Company shall file with the SEC not later than 60 days after the Closing Date
      (the “Filing
      Date”),
      and
      thereafter use its best efforts to cause to be declared effective by the SEC,
      a
      registration statement (the “Registration
      Statement”)
      on
      Form S-1 (or such other form appropriate for such purpose), within 90 days
      of the filing of the Registration Statement, in order to register the Shares
      and
      the Warrant Shares (the “Registrable
      Securities”)
      for
      resale and distribution under the Securities Act. The Company agrees to respond
      to all SEC comments within 14 business days of receipt thereof by the Company.
      The Company agrees to pay penalties equal to 1.5% of the investment amount
      for
      the first 30 days and 1.0% of the investment amount price for every 30 days
      thereafter if the registration is not filed by the Filing Date. The same
      penalties shall apply if the registration is filed in a timely manner but it
      is
      not declared effective by the SEC within 90 days of the filing of the
      Registration Statement. The penalty may be paid in cash or stock at the option
      of Company; provided that the shares are registered. If the Company elects
      to
      pay the penalty in shares, the shares will be priced at the volume weighted
      average price for the 10 Trading Days prior to the payment date.

     

    (b) If
      and
      whenever the Company is required by the provisions hereof to effect the
      registration of any Registrable Securities under the Securities Act, the Company
      will, as expeditiously as possible:

     

    (i) prepare
      and file with the SEC such amendments and supplements to such Registration
      Statement and the prospectus used in connection therewith as may be necessary
      to
      keep such Registration Statement effective until such Registration Statement
      has
      been effective for a period of one (1) year, and comply with the provisions
      of the Securities Act with respect to the disposition of all of the Registrable
      Securities covered by such Registration Statement in accordance with the
      Investor’s intended method of disposition set forth in such Registration
      Statement for such period;

     

    (ii) furnish
      to the Investor, at the Company’s expense, such number of copies of the
      Registration Statement and the prospectus included therein (including each
      preliminary prospectus) as such persons reasonably may request in order to
      facilitate the public sale or their disposition of the securities covered by
      such Registration Statement; and

     

    (iii) immediately
      notify the Investor when a prospectus relating thereto is required to be
      delivered under the Securities Act, of the happening of any event of which
      the
      Company has knowledge as a result of which the prospectus contained in such
      Registration Statement, as then in effect, includes an untrue statement of
      a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading in light of the
      circumstances then existing.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (c) In
      connection with each Registration Statement described in this Section 4.3,
      the
      Investor will furnish to the Company in writing such information and
      representation letters with respect to itself and the proposed distribution
      by
      it as reasonably shall be necessary in order to assure compliance with federal
      and applicable state securities laws.

     

    ARTICLE
      5.

    CONDITIONS
      PRECEDENT TO CLOSING

     

    5.1. Conditions
      Precedent to the Obligations of the Investors to Purchase
      Securities.  
      The obligation of each Investor to acquire the Units at the Closing is subject
      to the satisfaction or waiver by such Investor, at or before the Closing, of
      each of the following conditions:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date, which shall remain true and correct as of such specific
      date).

     

    (b) Performance.
      The
      Company shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by this Agreement to
      be
      performed, satisfied or complied with by it at or prior to the
      Closing.

     

    (c) No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of the
      transactions contemplated by this Agreement.

     

    (d) Adverse
      Changes.
      Since
      the date of execution of this Agreement, no event or series of events shall
      have
      occurred that reasonably could have or result in a Material Adverse Effect
      or a
      material adverse change with respect to the Company or KL Process Design Group,
      LLC.

     

    (e) Company
      Deliverables.
      The
      Company shall have delivered the Company Deliverables in accordance with
Section 2.2(a).

     

    (f) Lock-Up
      Agreements.
      Each of
      Randy Kramer, David Litzen, Dennis Harstad, and Steve Corcoran shall have
      entered into a lock-up agreement with respect to all of their shares of the
      Company for a period of two (2) years from the effective time of this
      Agreement.

     

    (g) Voting
      Agreement.
      Each of
      Randy Kramer, David Litzen, Dennis Harstad, and Steve Corcoran shall have
      entered into a voting agreement pursuant to which they agree to vote their
      shares as directed by Pelly Management in designating two (2) members of the
      Board of Directors of the Company and a third one jointly designated with Pelly
      Management so long as the Investors and the investors in the convertible bridge
      financing (on a post-conversion basis) own an aggregate of 25% of the Company’s
      outstanding common stock held by non-affiliates.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (h) Performance
      Escrow Agreement.
      Randy
      Kramer, David Litzen, Dennis Harstad and Steve Corcoran shall have entered
      into
      an agreement with the Company and a mutually acceptable escrow agent, pursuant
      to which their shares of the Company will be deposited into escrow for a period
      of two (2) years from the effective time of this Agreement, with certain
      portions of shares subject to cancellation based on the financial performance
      of
      the Company as measured for each of the two ( 2 ) years.

     

    (i) Termination.
      This
      Agreement shall not have been terminated as to such Investor in accordance
      with
Section 6.5.

     

    5.2. Conditions
      Precedent to the Obligations of the Company to Sell Securities.  
      The obligation of the Company to sell the Units at the Closing is subject to
      the
      satisfaction or waiver by the Company, at or before the Closing, of each of
      the
      following conditions:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Investors shall be true and correct in
      all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date, which shall remain true and correct as of such specific
      date).

     

    (b) Performance.
      Each
      Investor shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by this Agreement to
      be
      performed, satisfied or complied with by such Investor at or prior to the
      Closing.

     

    (c) No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of the
      transactions contemplated by this Agreement.

     

    (d) Investors
      Deliverables.
      Each
      Investor shall have delivered its Investors Deliverables in accordance with
      Section 2.2(b).

     

    (e) Termination.
      This
      Agreement shall not have been terminated as to such Investor in accordance
      with
Section 6.5.

     

    ARTICLE
      6.

    MISCELLANEOUS

     

    6.1. Fees
      and Expenses.  
      Each party shall pay the fees and expenses of its advisers, counsel, accountants
      and other experts, if any, and all other expenses incurred by such party
      incident to the negotiation, preparation, execution, delivery and performance
      of
      this Agreement.

     

    6.2. Entire
      Agreement.  
      This Agreement and the Warrants contain the entire understanding of the parties
      with respect to the subject matter hereof and supersede all prior agreements,
      understandings, discussions and representations, oral or written, with respect
      to such matters, which the parties acknowledge have been merged into such
      documents, exhibits and schedules.

     

    
      
        
        

      

      
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    6.3. Notices.  
      All notices or other communications under this Agreement shall be in writing
      and
      shall be deemed given (i) when delivered personally by hand (with written
      confirmation of receipt), (ii) when sent by facsimile (with written
      confirmation of transmission) or (iii) one Business Day following the day
      sent by overnight courier (with written confirmation of receipt), in each case
      at the following addresses and facsimile numbers (or to such other address
      or
      facsimile number as a party may have specified by notice given to the other
      party pursuant to this provision):

     

    
      	
              If to the Company:

            	
              KL Energy Corporation

            
	 	
              Suite 150

            
	 	
              10161 Park Run Drive

            
	 	
              Las Vegas, Nevada 89145

            
	 	 
	
              With a copy to:

            	
              Clayborne, Loos, Strommen & Sabers, L.L.P.

            
	 	
              2834 Jackson Boulevard, Suite 201

            
	 	
              Rapid City, South Dakota 57709-9129

            
	 	
              Facsimile: 605-721-1518

            
	 	
              Attention: Courtney R. Clayborne

            
	 	 
	
              If to an Investor:

            	
              To the address set forth under such Investor’s name on the signature pages hereof;

            
	 	 
	
              With a copy to:

            	
              Greenberg Traurig, LLP

            
	 	
              3161 Michelson Drive, Suite 1000

            
	 	
              Irvine, California 92612

            
	 	
              Facsimile: 949-732-6501

            
	 	
              Attention: Raymond A. Lee, Esq.

            

    

    

    or such other address as
      may be designated in writing hereafter, in the same manner, by such
      Person.

     

    6.4. Amendments;
      Waivers; No Additional Consideration.  
      No provision of this Agreement may be waived or amended at or prior to the
      Closing except in a written instrument signed by the Company and each Investor.
      No provision of this Agreement may be waived or amended after the Closing except
      in a written instrument signed by the Company and the Investors holding a
      majority of the Shares. No waiver of any default with respect to any provision,
      condition or requirement of this Agreement shall be deemed to be a continuing
      waiver in the future or a waiver of any subsequent default or a waiver of any
      other provision, condition or requirement hereof, nor shall any delay or
      omission of either party to exercise any right hereunder in any manner impair
      the exercise of any such right. 

     

    6.5. Termination.  
      This Agreement may be terminated prior to Closing:

     

    (a) by
      mutual
      written agreement of the Investors and the Company; and

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (b) by
      the
      Company or an Investor (as to itself but no other Investor) upon written notice
      to the other, if the Closing shall not have taken place by 6:30 p.m. Eastern
      time on the date which is December 31, 2008 (the “Outside
      Date”);
      provided,
      that
      the right to terminate this Agreement under this Section 6.5(b)
      shall
      not be available to any Person whose failure to comply with its obligations
      under this Agreement has been the cause of or resulted in the failure of the
      Closing to occur on or before such time.

     

    Upon
      a
      termination in accordance with this Section 6.5,
      the
      Company and the terminating Investor(s) shall not have any further obligation
      or
      liability to the other and no Investor will have any liability to any other
      Investor under this Agreement as a result therefrom.

     

    6.6. Construction.  
      The headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party. This Agreement shall be
      construed as if drafted jointly by the parties, and no presumption or burden
      of
      proof shall arise favoring or disfavoring any party by virtue of the authorship
      of any provisions of this Agreement.

     

    6.7. Successors
      and Assigns.  
      This Agreement shall be binding upon and inure to the benefit of the parties
      and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Investors. Investor may assign any or all of its rights under
      this Agreement to any Person to whom such Investor assigns or transfers any
      Shares, provided such transferee agrees in writing to be bound, with respect
      to
      the transferred Shares, by the provisions hereof that apply to the
“Investors.”

     

    6.8. Governing
      Law.  
      This Agreement shall be governed by and construed exclusively in accordance
      with
      the laws of the State of California, without giving effect to any principle
      or
      doctrine regarding conflict of laws.

     

    6.9. Survival.  
      The representations, warranties, agreements and covenants contained herein
      shall
      survive the Closing and the delivery of the Units.

     

    6.10. Execution.  
      This Agreement may be executed in two or more counterparts, all of which when
      taken together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission, such signature shall create a valid and binding obligation of
      the
      party executing (or on whose behalf such signature is executed) with the same
      force and effect as if such facsimile signature page were an original
      thereof.

     

    6.11. Severability.  
      If any provision of this Agreement is held to be invalid or unenforceable in
      any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    
      
        
        

      

      
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    Exhibit A

     

    Form
      of WarrantNEITHER
      THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
      SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

    

    COMMON
      STOCK PURCHASE WARRANT

    

    To
      Purchase __________ Shares of Common Stock of

     

    KL
      ENERGY CORPORATION

     

    THIS
      COMMON STOCK PURCHASE WARRANT (this “Warrant”)
      certifies that, for value received, _____________ (the “Holder”)
      is
      entitled upon the other terms and limitations on exercise hereinafter set forth,
      at any time on or after [DATE
      OF ISSUANCE],
      2008
      (the “Initial
      Exercise Date”)
      and on
      or prior to the close of business on the third anniversary of the Initial
      Exercise Date (the “Termination
      Date”)
      but
      not thereafter, to subscribe for and purchase from KL
      Energy
      Corporation, a Nevada corporation, (the “Company”),
      up to
      ______ shares (the “Warrant
      Shares”)
      of
      Common Stock, par value $0.001 per share, of the Company (the “Common
      Stock”).
      

     

    Section
      1. Definitions.
      Capitalized terms used and not otherwise defined herein shall have the meanings
      set forth in that certain Securities Purchase Agreement (the “Purchase
      Agreement”),
      dated
________,
      2008,
      among the Company and the purchasers signatory thereto. 

     

    Section
      2. Exercise.

     

    a) Exercise
      of Warrant.
      The
      exercise of the purchase rights represented by this Warrant may be made, in
      whole or in part, at any time or times on or after the Initial Exercise Date
      and
      on or before the Termination Date by delivery to the Company of a duly executed
      facsimile copy of the Notice of Exercise Form annexed hereto (or such other
      office or agency of the Company as it may designate by notice in writing to
      the
      registered Holder at the address of such Holder appearing on the books of the
      Company); and, within three Trading Days of the date said Notice of Exercise
      is
      delivered to the Company, the Company shall have received payment of the
      aggregate Exercise Price (defined herein) of the shares thereby purchased by
      wire transfer or cashier’s check drawn on a United States bank. Notwithstanding
      anything herein to the contrary, the Holder shall not be required to physically
      surrender this Warrant to the Company until the Holder has purchased all of
      the
      Warrant Shares available hereunder and the Warrant has been exercised in full,
      in which case, the Holder shall surrender this Warrant to the

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Company
      for cancellation within three Trading Days of the date the final Notice of
      Exercise is delivered to the Company. Partial exercises of this Warrant
      resulting in purchases of a portion of the total number of Warrant Shares
      available hereunder shall have the effect of lowering the outstanding number
      of
      Warrant Shares purchasable hereunder in an amount equal to the applicable number
      of Warrant Shares purchased. The Holder and the Company shall maintain records
      showing the number of Warrant Shares purchased and the date of such purchases.
      The Company shall deliver any objection to any Notice of Exercise Form within
      one Business Day of receipt of such notice. The Holder and any assignee, by
      acceptance of this Warrant, acknowledge and agree that, by reason of the
      provisions of this paragraph, following the purchase of a portion of the Warrant
      Shares hereunder, the number of Warrant Shares available for purchase hereunder
      at any given time may be less than the amount stated on the face hereof.

     

    b) Exercise
      Price.
      The
      exercise price per Warrant Share under this Warrant shall be $6.00, subject
      to
      adjustment as set forth herein (the “Exercise
      Price”).

     

    

    c) Mechanics
      of Exercise.
      

     

    i. Authorization
      of Warrant Shares.
      The
      Company covenants that all Warrant Shares which may be issued upon the exercise
      of the purchase rights represented by this Warrant will be duly authorized,
      validly issued, fully paid and nonassessable and free from all taxes, liens
      and
      charges created by the Company in respect of the issue thereof (other than
      taxes
      in respect of any transfer occurring contemporaneously with such issue).

     

    ii. Delivery
      of Certificates Upon Exercise.
      Subject
      to and in reliance on Holder’s representations and covenants in the Purchase
      Agreement, in the event of the exercise of this Warrant at a time when a
      Registration Statement covering the resale of the Warrant Shares is effective
      under the Securities Act, certificates
      for shares purchased hereunder shall be transmitted by the transfer agent of
      the
      Company to the Holder by crediting the account of the Holder’s prime broker with
      the Depository Trust Company through its Deposit Withdrawal Agent Commission
      (“DWAC”)
      system
      if the Company is a participant in such system, and otherwise by physical
      delivery to the address specified by the Holder in the Notice of Exercise,
      within three Trading Days from the delivery to the Company of the Notice of
      Exercise Form, surrender of this Warrant (if required) and payment of the
      aggregate Exercise Price as set forth above (“Warrant
      Share Delivery Date”).
      This
      Warrant shall be deemed to have been exercised on the date the Exercise Price
      is
      received by the Company. The Warrant Shares shall be deemed to have been issued,
      and Holder or any other person so designated to be named therein shall be deemed
      to have become a holder of record of such shares for all purposes, as of the
      date the Warrant has been exercised by payment to the

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Company
      of the Exercise Price (or by cashless exercise, if permitted) and all taxes
      required to be paid by the Holder, if any, pursuant to Section 2(d)(vii) prior
      to the issuance of such shares, have been paid. 

     

    iii. Delivery
      of New Warrants Upon Exercise.
      If this
      Warrant shall have been exercised in part, the Company shall, at the request
      of
      a Holder and upon surrender of this Warrant certificate, at the time of delivery
      of the certificate or certificates representing Warrant Shares, deliver to
      Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased
      Warrant Shares called for by this Warrant, which new Warrant shall in all other
      respects be identical with this Warrant.

     

    iv. Rescission
      Rights.
      If the
      Company fails to cause its transfer agent to transmit to the Holder a
      certificate or certificates representing the Warrant Shares by the Warrant
      Share
      Delivery Date, then the Holder will have the right to rescind such
      exercise.

     

    v. No
      Fractional Shares or Scrip.
      No
      fractional shares or scrip representing fractional shares shall be issued upon
      the exercise of this Warrant. As to any fraction of a share which Holder would
      otherwise be entitled to purchase upon such exercise, the Company shall pay
      a
      cash adjustment in respect of such final fraction in an amount equal to such
      fraction multiplied by the Exercise Price.

     

    vi. Charges,
      Taxes and Expenses.
      Issuance of certificates for Warrant Shares shall be made without charge to
      the
      Holder for any issue or transfer tax or other incidental expense in respect
      to
      the issuance of such certificate, all of which taxes and expenses shall be
      paid
      for by the Company. Such certificates shall be issued in the name of the Holder
      or in such name or names as may be directed by the Holder; provided,
      however,
      that in
      the event certificates for Warrant Shares are to be issued in a name other
      than
      the name of the Holder, this Warrant when surrendered for exercise shall be
      accompanied by the Assignment Form attached hereto duly executed by the Holder;
      and the Company may require, as a condition thereto, the payment of a sum
      sufficient to reimburse it for any transfer tax incidental thereto.

     

    vii. Closing
      of Books.
      The
      Company will not close its stockholder books or records in any manner which
      prevents the timely exercise of this Warrant, pursuant to the terms
      hereof.

     

    Section
      3. Certain Adjustments.

     

    a) Stock
      Dividends and Splits.
      If the
      Company, at any time while this Warrant is outstanding: (A) pays a stock
      dividend or otherwise make a distribution or distributions on shares of its
      Common Stock or any other equity or equity equivalent

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    securities
      payable in shares of Common Stock (which, for avoidance of doubt, shall not
      include any shares of Common Stock issued by the Company upon exercise of this
      Warrant), (B) subdivides outstanding shares of Common Stock into a larger number
      of shares, (C) combines (including by way of a reverse split) outstanding shares
      of Common Stock into a smaller number of shares, or (D) issues by
      reclassification of shares of the Common Stock any shares of capital stock
      of
      the Company, then in each case the Exercise Price shall be multiplied by a
      fraction of which the numerator shall be the number of shares of Common Stock
      (excluding treasury shares, if any) outstanding immediately before such event
      and of which the denominator shall be the number of shares of Common Stock
      outstanding immediately after such event and the number of shares issuable
      upon
      exercise of this Warrant shall be proportionately adjusted. Any adjustment
      made
      pursuant to this Section 3(a) shall become effective immediately after the
      record date for the determination of stockholders entitled to receive such
      dividend or distribution and shall become effective immediately after the
      effective date in the case of a subdivision, combination or
      re-classification.

     

    b) Pro
      Rata Distributions.
      If the
      Company, at any time while the Warrant is outstanding, shall distribute to
      all
      holders of Common Stock (and not to Holders of the Warrants) (i) evidences
      of
      its indebtedness or assets (including cash and cash dividends), (ii) any
      security (other than a distribution of Common Stock covered by subpart (a)
      above), or (iii) rights or warrants to subscribe for or purchase any security,
      (each, a “Distributed Property”) then in each such case the Holder shall, upon
      exercise of this Warrant, be entitled to receive such Distributed Property
      as
      the Holder would have received had the Holder exercised the Warrant prior to
      the
      record date for the distribution of the Distributed Property. 

     

    c) Fundamental
      Transaction.
      If, at
      any time while this Warrant is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (C) any tender offer or exchange offer (whether by the
      Company or another Person) is completed pursuant to which holders of Common
      Stock are permitted to tender or exchange their shares for other securities,
      cash or property, or (D) the Company effects any reclassification of the Common
      Stock or any compulsory share exchange pursuant to which the Common Stock is
      effectively converted into or exchanged for other securities, cash or property
      (in any such case, a “Fundamental
      Transaction”),
      then,
      upon any subsequent exercise of this Warrant, the Holder shall have the right
      to
      receive, for each Warrant Share that would have been issuable upon such exercise
      immediately prior to the occurrence of such Fundamental Transaction, at the
      option of the Holder, (a) upon exercise of this Warrant, the number of shares
      of
      Common Stock of the successor or acquiring corporation or of the Company, if
      it
      is the surviving corporation, and any additional consideration (the
“Alternate
      Consideration”)
      receivable upon or as a result of such reorganization, reclassification, merger,
      consolidation or disposition of assets by a Holder of the number of shares
      of
      Common Stock for which this Warrant is exercisable immediately prior to such
      event or (b) if the Company is acquired in an all cash transaction, cash equal
      to the value of this Warrant as determined in accordance with the Black-Scholes
      option pricing formula. For purposes of any such exercise, the determination
      of
      the Exercise Price shall be

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    appropriately
      adjusted to apply to such Alternate Consideration based on the amount of
      Alternate Consideration issuable in respect of one share of Common Stock in
      such
      Fundamental Transaction, and the Company shall apportion the Exercise Price
      among the Alternate Consideration in a reasonable manner reflecting the relative
      value of any different components of the Alternate Consideration. If holders
      of
      Common Stock are given any choice as to the securities, cash or property to
      be
      received in a Fundamental Transaction, then the Holder shall be given the same
      choice as to the Alternate Consideration it receives upon any exercise of this
      Warrant following such Fundamental Transaction. To the extent necessary to
      effectuate the foregoing provisions, any successor to the Company or surviving
      entity in such Fundamental Transaction shall issue to the Holder a new warrant
      consistent with the foregoing provisions and evidencing the Holder’s right to
      exercise such warrant into Alternate Consideration. The terms of any agreement
      pursuant to which a Fundamental Transaction is effected shall include terms
      requiring any such successor or surviving entity to comply with the provisions
      of this Section 3(c) and insuring that this Warrant (or any such replacement
      security) will be similarly adjusted upon any subsequent transaction analogous
      to a Fundamental Transaction.

     

    d) Calculations.
      All
      calculations under this Section 3 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      3,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      treasury shares, if any) issued and outstanding.

     

    e) Voluntary
      Adjustment By Company.
      The
      Company may at any time during the term of this Warrant reduce the then current
      Exercise Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Company.

     

    f) Notice
      to Holders.
      

     

    i. Adjustment
      to Warrant Shares; Notice of Adjustment.
      Whenever the Exercise Price is adjusted pursuant to any provision of this
      Section 3, the number of Warrant Shares issuable hereunder shall be increased
      such that the aggregate Exercise Price payable hereunder, after taking into
      account the decrease in the Exercise Price, shall be equal to the aggregate
      Exercise Price prior to such adjustment. The Company shall promptly mail to
      each
      Holder a notice setting forth the Exercise Price and Warrant Share amount after
      each adjustment and setting forth a brief statement of the facts requiring
      such
      adjustment. 

     

    ii. Notice
      to Allow Exercise by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution in whatever
      form) on the Common Stock, (B) the Company shall declare a special nonrecurring
      cash dividend on or a redemption of the Common Stock, (C) the Company shall
      authorize the granting to all holders of the Common Stock rights or warrants
      to
      subscribe for or purchase any shares of capital stock of any class or of any
      rights, (D) the approval of any stockholders of the

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Company
      shall be required in connection with any reclassification of the Common Stock,
      any consolidation or merger to which the Company is a party, any sale or
      transfer of all or substantially all of the assets of the Company, of any
      compulsory share exchange whereby the Common Stock is converted into other
      securities, cash or property, or (E) the Company shall authorize the voluntary
      or involuntary dissolution, liquidation or winding up of the affairs of the
      Company; then, in each case, the Company shall cause to be mailed to the Holder
      at its last address as it shall appear upon the Warrant Register of the Company,
      at least 20 calendar days prior to the applicable record or effective date
      hereinafter specified, a notice stating (x) the date on which a record is to
      be
      taken for the purpose of such dividend, distribution, redemption, rights or
      warrants, or if a record is not to be taken, the date as of which the holders
      of
      the Common Stock of record to be entitled to such dividend, distributions,
      redemption, rights or warrants are to be determined or (y) the date on which
      such reclassification, consolidation, merger, sale, transfer or share exchange
      is expected to become effective or close, and the date as of which it is
      expected that holders of the Common Stock of record shall be entitled to
      exchange their shares of the Common Stock for securities, cash or other property
      deliverable upon such reclassification, consolidation, merger, sale, transfer
      or
      share exchange. The failure to mail such notice or any defect therein or in
      the
      mailing thereof shall not affect the validity of the corporate action required
      to be specified in such notice. The Holder is entitled to exercise this Warrant
      during the 20-day period commencing on the date of such notice to the effective
      date of the event triggering such notice.

     

    Section
      4. Transfer
      of Warrant.

     

    a) Transferability.
      Subject
      to compliance with any applicable securities laws and the conditions set forth
      in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
      Agreement, this Warrant and all rights hereunder (including, without limitation,
      any registration rights) are transferable, in whole or in part, upon surrender
      of this Warrant at the principal office of the Company or its designated agent,
      together with a written assignment of this Warrant substantially in the form
      attached hereto duly executed by the Holder or its agent or attorney and funds
      sufficient to pay any transfer taxes payable upon the making of such transfer.
      Upon such surrender and, if required, such payment, the Company shall execute
      and deliver a new Warrant or Warrants in the name of the assignee or assignees
      and in the denomination or denominations specified in such instrument of
      assignment, and shall issue to the assignor a new Warrant evidencing the portion
      of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
      A
      Warrant, if properly assigned, may be exercised by a new holder for the purchase
      of Warrant Shares without having a new Warrant issued. 

     

    b) New
      Warrants.
      This
      Warrant may be divided or combined with other Warrants upon presentation hereof
      at the aforesaid office of the Company, together with a written notice
      specifying the names and denominations in which new Warrants are to
      be

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    issued,
      signed by the Holder or its agent or attorney. Subject to compliance with
      Section 4(a), as to any transfer which may be involved in such division or
      combination, the Company shall execute and deliver a new Warrant or Warrants
      in
      exchange for the Warrant or Warrants to be divided or combined in accordance
      with such notice.

     

    c) Warrant
      Register.
      The
      Company shall register this Warrant, upon records to be maintained by the
      Company for that purpose (the “Warrant
      Register”),
      in
      the name of the record Holder hereof from time to time. The Company may deem
      and
      treat the registered Holder of this Warrant as the absolute owner hereof for
      the
      purpose of any exercise hereof or any distribution to the Holder, and for all
      other purposes, absent actual notice to the contrary.

     

    d) Transfer
      Restrictions.
      In
      connection with any transfer of this Warrant, the
      Company may require, as a condition of allowing such transfer (i) that the
      Holder or transferee of this Warrant, as the case may be, furnish to the Company
      a written opinion of counsel (which opinion shall be in form, substance and
      scope customary for opinions of counsel in comparable transactions) to the
      effect that such transfer may be made without
      registration under
      the
      Securities Act and under applicable state securities or blue sky laws, (ii)
      that
      the holder or transferee execute and deliver to the Company an investment letter
      in form and substance acceptable to the Company and (iii) that the transferee
      be
      an “accredited
      investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
      promulgated under the Securities Act or a “qualified institutional buyer” as
      defined in Rule 144A(a) under the Securities Act.

     

    Section
      5. Miscellaneous.

     

    a) No
      Rights as Shareholder Until Exercise.
      This
      Warrant does not entitle the Holder to any voting rights or other rights as
      a
      shareholder of the Company prior to the exercise hereof as set forth in Section
      2(d)(ii). 

     

    b) Loss,
      Theft, Destruction or Mutilation of Warrant.
      The
      Company covenants that upon receipt by the Company of evidence reasonably
      satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
      or any stock certificate relating to the Warrant Shares, and in case of loss,
      theft or destruction, of indemnity or security reasonably satisfactory to it
      (which, in the case of the Warrant, shall not include the posting of any bond),
      and upon surrender and cancellation of such Warrant or stock certificate, if
      mutilated, the Company will make and deliver a new Warrant or stock certificate
      of like tenor and dated as of such cancellation, in lieu of such Warrant or
      stock certificate.

     

    c) Saturdays,
      Sundays, Holidays, etc.
      If the
      last or appointed day for the taking of any action or the expiration of any
      right required or granted herein shall not be a Business Day, then such action
      may be taken or such right may be exercised on the next succeeding Business
      Day.

     

    d) Authorized
      Shares.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      Company covenants to, during the period the Warrant is outstanding, reserve
      from
      its authorized and unissued Common Stock a sufficient number of shares to
      provide for the issuance of the Warrant Shares upon the exercise of any purchase
      rights under this Warrant. The Company further covenants that its issuance
      of
      this Warrant shall constitute full authority to its officers who are charged
      with the duty of executing stock certificates to execute and issue the necessary
      certificates for the Warrant Shares upon the exercise of the purchase rights
      under this Warrant. The Company will take all such reasonable action as may
      be
      necessary to assure that such Warrant Shares may be issued as provided herein
      without violation of any applicable law or regulation, or of any requirements
      of
      the Trading Market upon which the Common Stock may be listed. The Company
      further covenants to list the Warrant Shares on each Trading Market on which
      its
      Common Stock is or becomes listed. 

     

    Except
      and to the extent as waived or consented to by the Holder, the Company shall
      not
      by any action, including, without limitation, amending its certificate of
      incorporation or through any reorganization, transfer of assets, consolidation,
      merger, dissolution, issue or sale of securities or any other voluntary action,
      avoid or seek to avoid the observance or performance of any of the terms of
      this
      Warrant, but will at all times in good faith assist in the carrying out of
      all
      such terms and in the taking of all such actions as may be necessary or
      appropriate to protect the rights of Holder as set forth in this Warrant against
      impairment. Without limiting the generality of the foregoing, the Company will
      (a) not increase the par value of any Warrant Shares above the amount payable
      therefor upon such exercise immediately prior to such increase in par value,
      (b)
      take all such action as may be necessary or appropriate in order that the
      Company may validly and legally issue fully paid and nonassessable Warrant
      Shares upon the exercise of this Warrant, and (c) use commercially reasonable
      efforts to obtain all such authorizations, exemptions or consents from any
      public regulatory body having jurisdiction thereof as may be necessary to enable
      the Company to perform its obligations under this Warrant.

     

    Before
      taking any action which would result in an adjustment in the number of Warrant
      Shares for which this Warrant is exercisable or in the Exercise Price, the
      Company shall obtain all such authorizations or exemptions thereof, or consents
      thereto, as may be necessary from any public regulatory body or bodies having
      jurisdiction thereof.

     

    e) Jurisdiction.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Warrant shall be determined in accordance with the provisions of the
      Purchase Agreement.

     

    f) Nonwaiver
      and Expenses.
      No
      course of dealing or any delay or failure to exercise any right hereunder on
      the
      part of Holder shall operate as a waiver of such right or otherwise prejudice
      Holder’s rights, powers or remedies, notwithstanding the fact that all rights
      hereunder terminate on the Termination Date. If the Company willfully and
      knowingly fails to comply with any provision of this Warrant, which results
      in
      any material damages to the Holder, the Company shall pay to Holder such amounts
      as shall

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    be
      sufficient to cover any costs and expenses including, but not limited to,
      reasonable attorneys’ fees, including those of appellate proceedings, incurred
      by Holder in collecting any amounts due pursuant hereto or in otherwise
      enforcing any of its rights, powers or remedies hereunder.

     

    g) Notices.
      Any
      notice, request or other document required or permitted to be given or delivered
      to the Holder by the Company shall be delivered in accordance with the notice
      provisions of the Purchase Agreement.

     

    h) Limitation
      of Liability.
      No
      provision hereof, in the absence of any affirmative action by Holder to exercise
      this Warrant to purchase Warrant Shares, and no enumeration herein of the rights
      or privileges of Holder, shall give rise to any liability of Holder for the
      purchase price of any Common Stock or as a stockholder of the Company, whether
      such liability is asserted by the Company or by creditors of the
      Company.

     

    i) Remedies.
      Holder,
      in addition to being entitled to exercise all rights granted by law, including
      recovery of damages, will be entitled to specific performance of its rights
      under this Warrant. The Company agrees that monetary damages would not be
      adequate compensation for any loss incurred by reason of a breach by it of
      the
      provisions of this Warrant and hereby agrees to waive and not to assert the
      defense in any action for specific performance that a remedy at law would be
      adequate.

     

    j) Successors
      and Assigns.
      Subject
      to applicable securities laws, this Warrant and the rights and obligations
      evidenced hereby shall inure to the benefit of and be binding upon the
      successors of the Company and the successors and permitted assigns of Holder.
      The provisions of this Warrant are intended to be for the benefit of all Holders
      from time to time of this Warrant and shall be enforceable by any such Holder
      or
      Holders of the Warrant Shares.

     

    k) Amendment.
      This
      Warrant may be modified or amended or the provisions hereof waived with the
      written consent of the Company and the Holder.

     

    l) Severability.
      Wherever possible, each provision of this Warrant shall be interpreted in such
      manner as to be effective and valid under applicable law, but if any provision
      of this Warrant shall be prohibited by or invalid under applicable law, such
      provision shall be ineffective to the extent of such prohibition or invalidity,
      without invalidating the remainder of such provisions or the remaining
      provisions of this Warrant.

     

    m) Headings.
      The
      headings used in this Warrant are for the convenience of reference only and
      shall not, for any purpose, be deemed a part of this Warrant.

     

     

    ********************

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
      officer thereunto duly authorized.

     

    

    Dated:
      ____________, 2008

     

    
      	
              KL
                ENERGY CORPORATION, a Nevada corporation

            
	 
	
              By: 
                __________________________________________

              Name:

              Title:

            
	 

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    NOTICE
      OF EXERCISE

    

    TO: KL
      ENERGY
      CORPORATION

    

    1.  (1)The
      undersigned hereby elects to purchase ________ Warrant Shares of the Company
      pursuant to the terms of the attached Warrant (only if exercised in full),
      and
      tenders herewith payment of the exercise price in full, together with all
      applicable transfer taxes, if any.

     

    2.  (2)Payment
      shall take the form of (check applicable box):

     

    [
      ] in
      lawful money of the United States; or

     

    [
      ] the
      cancellation of such number of Warrant Shares as is necessary, in accordance
      with the formula set forth in subsection 2(c), to exercise this Warrant with
      respect to the maximum number of Warrant Shares purchasable pursuant to the
      cashless exercise procedure set forth in subsection 2(c).

     

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

     

    _______________________________

     

    

    The
      Warrant Shares shall be delivered to the following DWAC Account Number or by
      physical delivery of a certificate to:

    

    _______________________________

     

    _______________________________

     

    _______________________________

    

    (4)
      Accredited
      Investor.
      The
      undersigned is an “accredited investor” as defined in Regulation D promulgated
      under the Securities Act of 1933, as amended.

    

    [SIGNATURE
      OF HOLDER]

     

    Name
      of
      Investing Entity:
      ________________________________________________________________________

    Signature
      of Authorized Signatory of Investing Entity:
      _________________________________________________

    Name
      of
      Authorized Signatory:
      ___________________________________________________________________

    Title
      of
      Authorized Signatory:
      ____________________________________________________________________

    Date:
      ________________________________________________________________________________________

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ASSIGNMENT
      FORM

    

    (To
      assign the foregoing warrant, execute

    this
      form
      and supply required information. 

    Do
      not
      use this form to exercise the warrant.)

    

    

    

    FOR
      VALUE
      RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
      rights evidenced thereby are hereby assigned to

     

    

    _______________________________________________
      whose address is

    

    _______________________________________________________________.

    

    

    

    _______________________________________________________________

    

    Dated:
      ______________, _______

    

    

    Holder’s
      Signature: _____________________________

    

    Holder’s
      Address:   _____________________________

     

    _____________________________

    

    

    

    Signature
      Guaranteed: ___________________________________________

    

    

    NOTE:
      The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatsoever, and must be guaranteed by a bank or trust company. Officers of
      corporations and those acting in a fiduciary or other representative capacity
      should file proper evidence of authority to assign the foregoing
      Warrant.

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