SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement” ) is dated as of February 17, 2009, 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.

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:

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, (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) a material adverse impairment to the Company’s ability to perform on a timely basis any of its obligations under this Agreement.

“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.

“Shares” means the shares of Common Stock issued or issuable to the Investors pursuant to this Agreement.

“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.

2.1.            Closing

.  Subject to the terms and conditions set forth in this Agreement, at the closing of the purchase and sale of the Shares (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 Shares set forth on each respective Investor’s signature page attached hereto, at a per Share purchase price of $0.22, 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 Greenberg Traurig, LLP 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.

2.2.            Closing Deliveries .

i)           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 to the Company the following (the “Investor Deliverables” ):

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

(ii)           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.

Within 5 Business Days of the Closing Date, the Company shall deliver or cause to be delivered one or more stock certificates evidencing the Shares issued to the Investors by the Company pursuant to the terms of this Agreement purchased by each Investor, as indicated on each such Investor’s signature page attached hereto;

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.

(b)            Subsidiaries .  KL Energy Services, LLC, KL Energy, LLC, KL Management, LLC and Western Biomass Energy, LLC (“WBE”) constitute all of the direct and indirect subsidiaries of the Company  (the “ Subsidiaries ”).  Other than WBE, of which the Company owns approximately 61% of the outstanding membership interests, KL Energy, LLC and KL Management, LLC, of which the Company owns approximately 53% of the outstanding membership interests, the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(c)            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 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 has 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.

(d)            No Conflicts .  The execution, delivery and performance of this Agreement 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.

(e)            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, other than (i) filings required by state securities laws, (ii) the filing of a Notice of Sale of Securities on Form D with the Securities and Exchange Commission (the “SEC”) under Regulation D of the Securities Act; and (iii) a current report on Form 8-K relating to the transactions contemplated by this Agreement (collectively, the “ Required Approvals ”).

(f)            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.

(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 Shares 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 Shares by any form of general solicitation or general advertising.  The Company has offered the Shares for sale only to the Investors and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(j)            SEC Reports; Financial Statements .  Except for the Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the period commencing on October 1, 2008 through the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the " SEC Reports ") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (" GAAP "), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(k)            Material Changes; Undisclosed Events, Liabilities or Developments .  Except for matters relating to the Company’s guarantee with respect to the Security National Bank loan to WBE and the Company’s loan from Wells Fargo Bank which have been disclosed to the Investors, since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report, (i) there has been no event, occurrence or development that has had or that could reasonably be expected by the Company to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.  The Company does not have pending before the Commission any request for confidential treatment of information.

(l)            Litigation .  Except for the ongoing arbitration relating to Willmark Energy, LLC, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an " Action ") which materially  adversely affects or challenges the legality, validity or enforceability of this Agreement or the Shares.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(m)            Labor Relations .  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.  None of the Company's or its Subsidiaries' employees is a member of a union that relates to such employee's relationship with the Company, and neither the Company or any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good.  No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(n)            Compliance .  Except for matters relating to the Company’s guarantee with respect to the Security National Bank loan to WBE and the Company’s loan from Wells Fargo Bank which have been disclosed to the Investors, neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(o)            Transactions With Affiliates and Employees .  Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company