Exhibit 10.79
 
MARKETING, DISTRIBUTION AND TRANSPORTATION
 
LOGISTICS SERVICES AGREEMENT
 
By and Between
 
KFx, Inc.
 
And
 
DTE Coal Services, Inc.
 
Dated as of
 
June 6, 2006
 

 

 

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THIS MARKETING, DISTRIBUTION AND TRANSPORTATION LOGISTICS SERVICES AGREEMENT
(the “Agreement”) is entered into and made as of June 6, 2006 (the “Effective
Date”), by and between KFx Inc., a Delaware corporation (“KFx”), and DTE Coal
Services, Inc., a Michigan corporation (“DTECS”). KFx and DTECS are also
referred to herein individually as a “Party” and collectively as the “Parties”.
 
RECITALS
 
A. KFx produces a beneficiated coal product known as K-Fuel™ and wishes to
engage DTECS to provide marketing, transportation, logistical and other services
related thereto.
 
B. DTECS desires to provide such marketing, distribution and transportation,
logistical, and other services to KFx pursuant to the terms of this Agreement.
 
AGREEMENT
 
NOW THEREFORE, for and in consideration of the premises, the mutual covenants
and promises set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are acknowledged by the Parties, and in
reliance upon the recitals, representations, warranties, covenants, terms and
conditions set forth herein, the Parties, intending to be legally bound, agree
as follows:
 
ARTICLE 1 - DEFINITIONS OF TERMS
 
1.1   Definitions. As used in this Agreement, the following terms shall have the
respective meanings set forth below.
 
“Affiliate” shall mean:
 

 
(i)
any other Person directly or indirectly owning, controlling or holding with
power to vote 50% or more of the outstanding voting securities of the specified
Person;

 

 
(ii)
any other Person 50% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with power to vote by the specified
Person;

 

 
(iii)
any other Person directly or indirectly controlling, controlled by or under
common control with the specified Person; or

 

 
(iv)
any officer, director, partner or member of the specified Person or of any other
Person described in clause (iii) above.

 
“Agreement” shall mean this Agreement, including all Schedules attached hereto,
as it may be amended, modified or restated from time to time.
 
“Applicable Laws” shall mean all laws, rules, regulations, ordinances,
judgments, decrees, injunctions, writs, orders or interpretations of any court,
arbitrator or governmental agency or authority or of any federal, state, county,
municipal, regional, local or other Governmental Authority having jurisdiction
over the matter in question including, without limitation, those laws, rules,
regulations, orders or interpretations relating to the protection of human
health, safety and the environment.
 

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“Base Price” shall initially be set at thirty three dollars ($33.00) per ton
which the Parties intend to represent the lowest price at which KFx would sell
K-Fuel™ in the open market as of the date of this Agreement and such price may
be annually renegotiated upward or downward to be effective as of the start of a
Contract Year based on, inter alia, market conditions and prices of competing
fuels. It is the further intention of the Parties that any adjustments to the
“Base Price” shall approximate the market price for K-Fuel™ at the time of the
annual adjustment. Failure of the Parties to agree upon a Base Price for any
Contract Year shall be subject to arbitration pursuant to Section 10.2.
 
“Business Day” shall mean a day commercial banks in Detroit, Michigan are open
for business; and a Business Day shall begin at 8:00 a.m. and end at 5:00 p.m.
prevailing Eastern Time.
 
“Claims” shall mean all claims or actions, threatened or filed and whether
groundless, false or fraudulent, that directly or indirectly relate to the
subject matter of an indemnity, and the resulting losses, damages, expenses,
fees of attorneys, experts and consultants, and court costs, whether incurred by
settlement or otherwise, and whether such claims or actions are threatened or
filed prior to or after the termination of this Agreement.
 
“Contract Year” shall mean January 1 through December 31 of each year during the
Term of this Agreement; except contract Year 2006 shall begin on June 6, 2006.
 
“DTECS” shall have the meaning assigned in the introductory paragraph, and its
successors and permitted assigns.
 
“DTECS Confidential Information” shall have the meaning assigned in Section
17.1(b).
 
“DTECS Events of Default” shall have the meaning assigned in Section 8.2.
 
“DTECS Indemnitees” shall have the meaning assigned in Section 8.3(b).
 
“Default Rate” shall mean 15% per annum.
 
“Dollars” and “$” shall mean lawful money of the United States of America.
 
“Effective Date” shall have the meaning assigned in the introductory paragraph.
 
“Expiration Date” shall have the meaning assigned to it in Section 2.1.
 
“Fee” shall have the meaning assigned to it in Section 5.1.
 
“Fee Ton” as used in Section 5.1 shall mean each Ton of K-Fuel™ produced at any
K-Fuel™ Facility, but excluding K-Fuel™ Direct Tons (as defined hereinbelow)
that in any month, is marketed by KFx or its Marketing Representatives, DTECS or
the K-Fuel™ Facility owner, or (ii) sold by the K-Fuel™ facility owner; and such
tons are transported pursuant to any transportation contract arranged by, or in
railcars leased by or from, DTECS in fulfillment of its obligations hereunder.
 
“Force Majeure” shall have the meaning assigned in Section 6.1.
 

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“Governmental Authority” shall mean any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
 
“Incentive Fee” shall have the meaning assigned to it in Section 5.2.
 
“Indemnified Party” shall have the meaning assigned in Section 8.3(c).
 
“Indemnitor” shall have the meaning assigned in Section 8.3(c).
 
“Intellectual Property” shall have the meaning assigned in Section 7.1(g).
 
“Invoice” shall have the meaning assigned in Section 5.1.
 
“K-Fuel™ Direct Tons” shall mean K-Fuel™ manufactured on a customer's site for
the exclusive use of such customer using feedstock which is transported to the
customer's site without the use of DTECS' transportation services provided under
this Agreement.
 
“K-Fuel™” shall mean K-Fuel™ beneficiated coal product processed by temperature
and pressure by KFx or one of KFx's Affiliates.
 
“KFx” shall have the meaning assigned in the introductory paragraph, and its
successors and permitted assigns.
 
“KFx Confidential Information” shall have the meaning assigned in Section
17.1(a).
 
“KFx Events of Default” shall have the meaning assigned in Section 8.1.
 
“KFx Facility No.1” shall mean the first K-Fuel™ production facility at the Fort
Union Mine near Gillette, Wyoming, which is designed to produce approximately
750,000 Tons of K-Fuel™ per year.
 
“KFx Indemnitees” shall have the meaning assigned in Section 8.3(a).
 
“KFx Marketing Representatives” mean those Persons designated by KFx who shall
assist and participate in the overall marketing efforts of K-Fuel™ pursuant to
this Agreement. The KFx Marketing Representatives shall not be considered
employees of DTECS for any purposes whatsoever.
 
“Month” shall mean a period of time beginning at midnight (12:00 a.m.)
prevailing Eastern Time on the first (1st) day of any calendar month and ending
at 11:59 p.m. prevailing Eastern Time on the last day of such calendar month.
 
“Party” and “Parties” shall have the respective meanings assigned in the
introductory paragraph.
 
“Person” shall mean any individual, a partnership, a corporation, a limited
liability company, a trust, an unincorporated organization, any other type of
legal entity or a government or any department or agency thereof.
 

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“Services” shall mean the provision of marketing, distribution, logistical,
transportation and other services by performed by DTECS and the KFx Marketing
Representatives pursuant to this Agreement.
 
“Specifications” shall have the meaning assigned in Section 4.1.
 
“Tax Credits” shall have the meaning assigned in Section 3.7.
 
“Term” shall have the meaning assigned in Section 2.1.
 
“Ton” shall mean a short ton of two thousand (2,000) pounds (avoirdupois).
 
ARTICLE 2 - TERM
 
2.1   Term. The term of this Agreement (“Term”) shall commence on the Effective
Date, and unless extended in accordance with Section 2.2 or terminated pursuant
to Section 2.3 or 2.4, shall terminate on December 31, 2010 (the “Expiration
Date”) unless otherwise earlier terminated as provided elsewhere herein.
 
2.2   Term Extension. The Term of this Agreement may be extended beyond the
Expiration Date by mutual agreement of the Parties. Failure of the Parties to
agree is not subject to arbitration as set forth in Article 10.2.
 
2.3   Termination by KFx. KFx may terminate this Agreement at any time upon
sixty (60) days written notice if DTECS has failed to obtain rail transportation
services for the shipment of K-Fuel™ including commercially reasonable rates for
such transportation services. Notwithstanding the foregoing, during Contract
Year 2006 the Parties recognize that it may not be possible to obtain
commercially reasonable rates, railcars and a suitable transportation agreement
because of the uncertainties concerning the volume of K-Fuel™ to be produced,
the locations of customers and the availability of railroad capacity and cars.
Accordingly, if DTECS' efforts to obtain same do not result in suitable
transportation arrangements in Contract Year 2006, such failure may not be the
basis of termination hereunder during such Contract Year. The Parties further
agree and acknowledge that “commercially reasonable rates” may not be the lowest
rates available but rates that reasonably allow K-Fuel™ to be competitively
delivered to the desired markets. Factors which may affect the rail rates which
can be obtained for the shipment of K-Fuel™ include but are not limited to the
then current market for such rail rates and transportation services the volumes
of K-Fuel™ to be shipped, location of potential customers and K-Fuel™ production
facilities and the train loading capacity and conditions at such facilities.
Notwithstanding any other provision of this Agreement to the contrary, the
termination of this Agreement by KFx is the sole and exclusive remedy for DTECS
failure to obtain transportation services as provided in this Agreement.
 
2.4   Termination by DTECS. DTECS may terminate this Agreement upon sixty (60)
days written notice to KFx in the event KFx fails to produce, or be capable of
producing upon reasonable notice, marketable quantities of K-Fuel™ including but
not limited to, the failure to produce the volume of K-Fuel™ to fully load unit
trains in any Contract Year after Contract Year 2006; fails to reach sustained
reliable production of K-Fuel™; or fails to cooperate with DTECS in the overall
marketing, distribution, transportation, and logistical services efforts
relating to the sale of K-Fuel™ under this Agreement. Quantities of K-Fuel™ that
might otherwise be considered not to be “marketable quantities” for purposes of
this Section 2.4 that are sold as test burns shall not be a basis for
termination under this Section 2.4.
 
2.5   Obligations Not Affected. The termination of this Agreement pursuant to
this Article shall not in any way affect the obligations of either KFx or DTECS
with respect to contractual agreements
 
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entered into by KFx or DTECS with other Persons prior to the date of
termination, including but not limited to customers and end users, rail and
other carriers and rail car lessors or sublessors; and DTECS shall be entitled
to a Fee (as hereinafter defined) due on contracts and commitments to Persons
that continue in effect beyond the termination or Expiration Date of this
Agreement.
 
2.6   No Liability. If a Party terminates pursuant to Section 2.3 or 2.4, as the
case may be, neither Party shall have any further obligations under this
Agreement, except as provided in Section 2.5. Notwithstanding the foregoing,
this Section 2.6 shall not be construed so as to relieve either Party from any
liability for any breach or default of their duties under this Agreement.
 
ARTICLE 3 - SERVICES BY DTECS
 
3.1   Joint Marketing Efforts. Within fifteen (15) days after the Effective
Date, the Parties shall meet to commence development of a marketing plan for
K-Fuel™. DTECS and KFx Marketing Representatives shall review current marketing
conditions, KFx long and short term sales strategies and identify customers.
Such plan shall also set forth the specific services to be performed by DTECS
and the KFx Marketing Representatives in order to avoid duplication of efforts
and to maximize the Parties' resources. The Parties may perform the marketing
services singly or jointly, but at all times coordinating their efforts to
achieve the marketing objectives agreed to by the Parties. All costs associated
with the efforts of the KFx Marketing Representatives shall be born by KFx.
 
3.2   Market Studies and Services. DTECS agrees to use commercially reasonable
efforts to market on behalf of KFx the K-Fuel™ production, in amounts consistent
with the marketing plan, which meets the Specifications and at a price
determined as set forth in this Agreement. Within thirty (30) days following the
Effective Date, DTECS shall provide KFx with a market study of potential utility
markets for K-Fuel™. Sixty (60) days after the delivery of the utility study,
DTECS shall deliver to KFx a study of industrial coal markets for K-Fuel™.
 
3.3   Contracts and Commitments. The Parties shall discuss the terms and
conditions, including price, of any potential sale of K-Fuel™ to any Person
prior to entering into any binding commitments. Notwithstanding any other
provision of this Agreement to the contrary, KFx shall have the right to approve
or reject any contract for the sale of K-Fuel™. In the event DTECS or KFx
marketing efforts result in a potential sale of K-Fuel™ to a customer, the
Parties shall review such offer(s) and discuss the terms and conditions of such
offer(s), including the price per ton, volumes and the cost and conditions of
transportation. The final decision to enter into binding contracts for the
transportation of the K-Fuel™ shall be by mutual agreement.
 
3.4   Product Volume Commitments. DTECS and KFx will agree to specific maximum
product volumes, delivery schedules, timing and other material terms and
conditions that are normal and standard considerations in sales contracts prior
to DTECS consummating any proposed transaction for the sale of K-Fuel™ on behalf
of KFx. Once KFx consents to such sale on its behalf, DTECS shall have the right
to enter into any such transactions on behalf of KFx. KFx shall abide by and
fully perform all of the terms and conditions of any contracts or commitments
presented by DTECS to KFx for execution or executed by DTECS on behalf of KFx.
 
3.5   Rail Transportation. DTECS represents that it has the requisite personnel,
skills and expertise in the negotiation of rail transportation contracts,
including rates, and in railroad and other transportation logistics. DTECS shall
use good faith and commercially reasonable efforts to obtain rail transportation
services to support the volume commitments resulting from the marketing efforts
of the Parties. KFx acknowledges that the current contract rates DTECS has in
place with various rail carriers may not be used for the transportation of
K-Fuel™ sold under this Agreement. DTECS, if so requested by KFx, shall
 
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use commercially reasonable and good faith efforts to obtain rail cars and sets
for the transportation of K-Fuel™ sold under this Agreement on a cost pass
through basis, provided however, DTECS does not warrant or guaranty that such
rail transportation services, rail cars or car sets can be obtained at any
particular cost, or any cost, for transporting K-Fuel™.
 
3.6   DTECS Not a Party. Unless expressly agreed to by DTECS and KFx in writing,
DTECS shall not be or deemed to be a party to any of the contracts and other
binding commitments for the sale of K-Fuel™ made pursuant this Agreement.
Accordingly, DTECS shall have no liability with respect to the performance, or
lack thereof under any such contract or commitment entered into pursuant to this
Agreement.
 
3.7      Section 45 Tax Credits. If at any time during the term of this
Agreement the production and/or sale of K-Fuel™ becomes eligible for certain tax
credits under Section 45 of the United States Tax Code (the “Tax Credits”) the
Parties shall determine an appropriate means to insure eligibility (if possible)
for such credits, as well as to maximize the application of such credits to
production and sales of K-Fuel™ under this Agreement. KFx agrees that, in those
instances, where (i) it sells K-Fuel™, at a price below the market price for
K-Fuel™ at the time of the proposed sale; (ii) DTECS would otherwise be entitled
to a Fee (as defined in Section 5.1); and (iii) the reason KFx proposes to sell
such K-Fuel™ below market is that KFx expects Tax Credits to make up the
difference, the Fee calculated in accordance with Section 5.1(b) shall be based
upon the market price and not the sale price. If the Parties fail to agree as
provided above, either Party may demand arbitration pursuant to Section 10.2.
DTECS shall fully cooperate with KFx with respect to obtaining Tax Credits for
the transactions contemplated herein. Further, DTECS shall not intentionally
market or transport the K-Fuel™ in such a manner so as to jeopardize KFx's
ability to obtain Tax Credits, provided KFx fully informs DTECS as to the
requirements of obtaining Tax Credits as well as actions that may jeopardize the
application of Tax Credits. The Parties also agree that DTECS shall have no
claim to, or interest in any Tax Credits obtained by KFx.
 
ARTICLE 4 - K-FUEL™ SPECIFICATIONS
 
4.1   Specifications. KFx shall cause all K-Fuel™ to be marketed pursuant to
this Agreement to comply with the specifications set forth on the attached
Schedule 4.1.
 
4.2   Sampling and Analysis. KFx shall cause K-Fuel™ to be periodically sampled
and analyzed at its own cost and shall promptly provide DTECS with copies of
such analysis for use in its marketing and transportation efforts.
 
ARTICLE 5 - FEES, BILLING AND PAYMENT
 
5.1   Fees for DTECS Services. KFx shall pay DTECS a fee (“Fee”) for each Fee
Ton of K-Fuel™ which shall be the greater of:
 

(a)  
$20,000 per Month plus $2.00 per Ton for each Fee Ton of K-Fuel™ sold during
each month; or

 

(b)  
$1.00 per Ton for each Fee Ton of K-Fuel™ sold during each month plus the
Incentive Fee.

 
5.2   Incentive Fee. As used in Section 5.1, the Incentive Fee shall be the
amounts determined pursuant to Schedule 5.2, attached hereto and incorporated
herein by reference. All prices shall be FOB rail car at KFx's production
facility net of DTECS's Fees.
 
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5.3   Tons Included. The Fee shall be due and payable to DTECS on all Fee Tons
of K-Fuel™ whether such tons are sold through the individual or joint efforts of
DTECS, KFx or the KFx Marketing Representatives but shall exclude K-Fuel™ Direct
Tons.
 
5.4   Invoices; Payments. On or before the 15th day following the end of each
Month during the Term, DTECS shall invoice KFx for all Fees payable for the
preceding Month (each an “Invoice”). The Invoice shall contain the information
set forth in Section 5.4 and be provided in accordance with the notice
provisions of Article 10. In the event of a dispute regarding any amounts shown
on any Invoice that the Parties have been unable to resolve by the date payment
is due, KFx shall pay all undisputed amounts when due. Assuming that DTECS has
timely delivered an Invoice and such related information to KFx, the payment by
KFx of all undisputed amounts reflected in such Invoice shall be made on or
before the 25th day of the Month following the most current Month to which such
Invoice relates and shall be accompanied by a statement setting forth in
reasonable detail all amounts disputed by KFx, the reason for the dispute, and a
request for any additional documentation believed to be necessary to support the
disputed amounts or to resolve the dispute. Payment shall be made to DTECS, by
wire, pursuant to the wire instructions in Schedule 5.4, attached hereto and
incorporated herein by reference.
 
5.5   Invoices; Contents. Each Invoice required by this Article 5 shall include,
without limitation:
 
5.5.1   The aggregate Fees owed to DTECS for the applicable Month;
 
5.5.2   Any interest at the Default Rate on any late payments, together with a
statement showing the net amount payable from the prior Invoice, the amount and
date of any payments received, any amounts outstanding from prior Invoices, and
any amounts in dispute;
 
5.5.3   Any other payments, charges, or amounts claimed by DTECS under any other
provision of this Agreement; and
 
5.5.4   The net amount payable by KFx.
 
5.6   Interest on Late Payments. In the event either Party shall not make any
payment when due under the provisions of this Agreement, except for those
payments which are disputed in good faith and unless the payment is made within
a grace period of two (2) days after the due date, the Party not making the
payment when due shall pay interest to the other Party on all such late amounts
from the date originally due until paid at the Default Rate.
 
ARTICLE 6 - FORCE MAJEURE
 
6.1   Force Majeure. The term “Force Majeure” as used herein shall be events
beyond the reasonable control and without the fault or negligence of the Party
claiming a Force Majeure event and which by the exercise of due diligence of
such Party claiming the Force Majeure event such Party is unable to overcome and
shall include, but is not limited to, strikes, lockouts, labor disturbances,
acts of the public enemy, wars, blockades, insurrections, riots, acts of God,
epidemics, landslides, lightning, earthquakes, fires, violent storms, floods,
washouts, environmental catastrophes, civil disturbances, explosions, acts or
failures to act on the part of any governmental entity, failure of utility
services, sabotage, failure or inability to obtain transportation or any other
similar causes which are not reasonably within the control, and without the
fault or negligence, of the Party claiming the same. Financial inability shall
not be considered an event of Force Majeure for purposes of this Agreement.
 
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6.2   Procedure. If either Party is unable, wholly or in part, by reason of a
Force Majeure to carry out its obligations hereunder, other than obligations to
make payments of amounts due hereunder, then on such Party's giving prompt
notice of full particulars of such Force Majeure situation in writing to the
other Party, the obligations of the Party giving such notice, so far as they are
affected by such Force Majeure, shall be suspended during the Force Majeure
period. Such cause shall be remedied with due diligence and all reasonable
dispatch.
 
6.3   Mitigation. The Parties shall use commercially reasonable efforts to
mitigate any adverse effects of a Force Majeure situation. However, the exercise
of due diligence shall not require the settlement of labor disputes against the
better judgment of the Party having the dispute.
 
6.4   No Change in Obligations. In no event shall this Article 6 be construed to
relieve either Party of any obligation hereunder solely because of increased
costs or other adverse economic consequences that may be incurred through the
performance of such obligation of the Parties hereto.
 
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS
 
7.1   Representations and Warranties of KFx. KFx hereby represents, warrants and
covenants to DTECS as follows:
 
(a)   KFx is a business corporation duly organized and existing and in good
standing under the laws of the State of Delaware and is qualified to do business
in all jurisdictions where such qualification is necessary to perform all of its
obligations under this Agreement.
 
(b)   KFx possesses all requisite corporate power and authority to enter into
and perform this Agreement and to carry out the transactions contemplated
herein.
 
(c)   KFx's execution, delivery, and performance of this Agreement have been
duly authorized, and this Agreement has been duly executed and delivered and
constitutes KFx's legal, valid, and binding obligation, enforceable against KFx
in accordance with its terms, except as may be limited by bankruptcy, insolvency
and other legal and equitable principles pertaining to creditor's rights.
 
(d)   No suit, action or arbitration, or legal, administrative or other
proceeding is pending or, to KFx's knowledge, threatened against KFx that would
affect the validity or enforceability of this Agreement or the ability of KFx to
fulfill its obligations and commitments hereunder.
 
(e)   No consents or approvals are required in connection with the execution,
delivery and performance by KFx of this Agreement.
 
(f)   The execution, delivery and performance by KFx of this Agreement will not
(i) violate any law, rule or regulation applicable to KFx, (ii) result in any
breach of, or constitute any default under, any contractual obligation of KFx,
or (iii) result in, or require, the creation or imposition of any lien or other
encumbrance on any of the properties or revenues of DTECS.
 
(g)   KFx represents and warrants to DTECS that a) KFx has all necessary and
required United States and foreign patents, licenses, rights and other
intellectual property (“Intellectual Property”) to produce, market, sell and
advertise K-Fuel™; b)
 
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KFx production, sale, marketing and advertising of K-Fuel™ does not infringe or
otherwise impair any Intellectual Property of any Person; and c) KFx has not
received any notice of any infringement or misappropriation of any Person's
Intellectual Property.
 
7.2   Covenants and Agreements of KFx. KFx hereby covenants to DTECS as follows:
 
KFx shall not take any action or cause any other Person to take any action not
authorized or permitted by this Agreement that shall materially interfere or
materially adversely affect DTECS's ability to comply with the terms and
conditions of this Agreement.
 
7.3   Representations and Warranties of DTECS. DTECS hereby represents and
warrants to KFx as follows:
 
(a)   DTECS is a corporation duly organized and existing and in good standing
under the laws of the State of Michigan and is qualified to do business in all
jurisdictions where such qualification is necessary to perform all of its
obligations under this Agreement.
 
(b)   DTECS possesses all requisite power and authority to enter into and
perform this Agreement and to carry out the transactions contemplated herein.
 
(c)   DTECS' execution, delivery, and performance of this Agreement have been
duly authorized, and this Agreement has been duly executed and delivered and
constitutes DTECS' legal, valid, and binding obligation, enforceable against
DTECS in accordance with its terms, except as may be limited by bankruptcy,
insolvency and other legal and equitable principles pertaining to creditors'
rights.
 
(d)   No suit, action or arbitration, or legal, administrative or other
proceeding is pending or, to DTECS's knowledge, threatened against DTECS that
would affect the validity or enforceability of this Agreement or the ability of
DTECS to fulfill its obligations and commitments hereunder.
 
(e)   No consents or approvals are required in connection with the execution,
delivery and performance by DTECS of this Agreement.
 
(f)   The execution, delivery and performance by DTECS of this Agreement will
not (i) violate any law, rule or regulation applicable to DTECS, (ii) result in
any breach of, or constitute any default under, any contractual obligation of
DTECS, or (iii) result in, or require, the creation or imposition of any lien or
other encumbrance on any of the properties or revenues of KFx.
 
7.4   Covenants and Agreements of DTECS. DTECS hereby covenants to KFx as
follows:
 
DTECS shall not take any action or cause any other Person to take any action not
authorized or permitted by this Agreement that shall materially interfere or
materially adversely affect KFx's ability to comply with the terms and
conditions of this Agreement.
 
ARTICLE 8 - DEFAULT; REMEDIES
 
8.1   Default by KFx. In the event of the occurrence of any of the following
acts or events (“KFx Events of Default”):
 
(a)   KFx fails to pay any sum due and owing by it hereunder;
 
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(b)   KFx breaches any material representations, warranties, covenants or
agreements contained in this Agreement in any material respect;
 
(c)   KFx shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in any involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any action to
authorize any of the foregoing; or
 
(d)   An involuntary case or other proceeding shall be commenced against KFx
seeking liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) consecutive days; or an order for relief shall be
entered against KFx under the federal bankruptcy laws as now or hereafter in
effect;
 
then, (i) upon the occurrence of any KFx Event of Default under this Section
8.1(a) and the continuation of such KFx Event of Default for more than three (3)
Business Days after receipt by KFx of written notice thereof from DTECS', (ii)
upon the occurrence of any KFx Event of Default under Section 8.1(b), 8.1(c) or
8.1(d) and the continuation of such KFx Event of Default for more than twenty
(20) days after receipt by KFx of written notice thereof from DTECS, provided,
if such KFx Event of Default cannot be reasonably cured within such twenty (20)
day period, such longer period of time which is reasonable under the
circumstances (not to exceed a total of sixty (60) days so long as cure is
initiated within such twenty (20) day period and is diligently and continuously
prosecuted to completion thereafter), then DTECS may terminate this Agreement at
any time thereafter during the continuation of such KFx Event of Default by
written notice to KFx.
 
8.2   Default by DTECS. In the event of the occurrence of any of the following
acts or events (“DTECS Events of Default”):
 
(a)   DTECS fail to pay any sum due and owing by it hereunder;
 
(b)   DTECS breaches any material representations, warranties, covenants or
agreements contained in this Agreement in any material respect;
 
(c)   DTECS shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its
 
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debts as they become due, or shall take any action to authorize any of the
foregoing; or
 
(d)   An involuntary case or other proceeding shall be commenced against DTECS
seeking liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) consecutive days; or an order for relief shall be
entered against DTECS under the federal bankruptcy laws as now or hereafter in
effect;
 
then, (i) upon the occurrence of any DTECS Event of Default under Section 8.2(a)
and the continuation of such DTECS Event of Default for more than three (3)
Business Days after receipt by DTECS of written notice thereof from KFx; (ii)
upon the occurrence of any DTECS Event of Default under Section 8.2(b), 8.2(c),
or 8.2(d) and the continuation of such DTECS Event of Default for more than
twenty (20) days after receipt by DTECS of written notice thereof from KFx, if
such DTECS Event of Default cannot be reasonably cured within such twenty (20)
day period, such longer period of time which is reasonable under the
circumstances (not to exceed a total of sixty (60) days so long as cure is
initiated within such twenty (20) day period and is diligently and continuously
prosecuted to completion thereafter), KFx may terminate this Agreement at any
time thereafter during the continuation of such DTECS Event of Default by
written notice to DTECS.
 
8.3   Indemnities.
 
(a)   DTECS Indemnity. DTECS shall indemnify, defend and hold harmless KFx and
its partners, joint venturers, officers, agents, employees, successors and
assigns (collectively, the “KFx Indemnitees”) from and against any and all
suits, actions, legal or administrative proceedings, claims, demands, penalties,
losses, liabilities, costs and expenses (including attorneys' fees, court costs
and all costs or expenses related of any nature whatsoever arising out of or
resulting from any misrepresentation, breach of warranty, or nonfulfillment of
any covenant or agreement on the part of DTECS under this Agreement.
Notwithstanding the foregoing, DTECS's liability to the KFx Indemnitees pursuant
to this Section 8.3(a) shall be net of any insurance proceeds actually received
by the KFx Indemnitees or any of their respective affiliates from any third
Person with respect to or on account of the damage or injury which is the
subject of the indemnification claim. KFx agrees that it shall (and it shall
cause each of the other KFx Indemnitees to) (i) use commercially reasonable
efforts to pursue the collection of all insurance proceeds to which any of the
KFx Indemnitees are entitled with respect to or on account of any such damage or
injury, (ii) notify DTECS of all potential claims against any Person for any
such insurance proceeds, and (iii) keep the DTECS fully informed of the efforts
of the KFx Indemnitees in pursuing collection of such insurance proceeds.
 
(b)   KFx Indemnity. KFx shall indemnify, defend and hold harmless DTECS and its
directors, officers, agents, employees, successors and permitted assigns
(collectively, the “DTECS Indemnitees “) from and against any and all suits,
actions, legal or administrative proceedings, claims, demands, penalties,
losses, liabilities, cost, and expenses (including attorneys' fees, court costs
and all costs or expenses related to environmental clean-up, containment,
remediation or removal of hazardous waste or pollution to property of DTECS or
other Persons) of any nature whatsoever arising out of
 
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or resulting from any misrepresentation (including but not limited to any breach
of a warranty or representation with respect to Intellectual Property), breach
of warranty or nonfulfillment of any covenant or agreement on the part of KFx
under this Agreement. Notwithstanding the foregoing, KFx's liability to the
DTECS Indemnitees pursuant to this Section 8.3(b) shall be net of any insurance
proceeds actually received by the DTECS Indemnitees or any of their respective
affiliates from any third Person with respect to or on account of the damage or
injury which is the subject of the indemnification claim. DTECS agrees that it
shall (and it shall cause each of the other DTECS Indemnitees to) (i) use
commercially reasonable efforts to pursue the collection of all insurance
proceeds to which any of the DTECS Indemnitees are entitled with respect to or
on account of any such damage or injury, (ii) notify KFx of all potential claims
against any other Person for any such insurance proceeds, and (iii) keep the KFx
fully informed of the efforts of the DTECS Indemnitees in pursuing collection of
such insurance proceeds.
 
(c)   Claims. If a claim by a Person is made against one of the KFx Indemnitees
or one of the DTECS Indemnitees (an “Indemnified Party”), and if such Party
intends to seek indemnity with respect thereto under this Article 8, such
Indemnified Party shall promptly notify DTECS or KFx, as the case may be (the
“Indemnitor”), of such claims. The Indemnitor shall have thirty (30) days after
receipt of such notice to undertake, conduct and control, through counsel of its
own choosing and at its own expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with it in connection therewith; provided that
the Indemnitor shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party, however,
the fees and expenses of such counsel shall be borne by such Indemnified Party.
So long as the Indemnitor, at Indemnitor's cost and expense, (1) has undertaken
the defense of, and assumed full indemnification responsibility with respect to,
such claim, (2) is reasonably contesting such claim in good faith, by
appropriate proceedings, and (3) has taken such action (including the posting of
a bond, deposit or other security) as may be necessary to prevent any action to
foreclose a lien against or attachment of the property of the Indemnified Party
for payment of such claim, the Indemnified Party shall not pay or settle any
such claim. Notwithstanding compliance by the Indemnitor with the preceding
sentence, the Indemnified Party shall have the right to pay or settle any such
claim, provided that in such event it shall waive any right to indemnity
therefor by the Indemnitor for such claim. If, within thirty (30) days after the
receipt of the Indemnified Party's notice of a claim of indemnity hereunder, the
Indemnitor does not notify the Indemnified Party that it elects, at Indemnitor's
cost and expense, to undertake the defense thereof and assume full
responsibility for all liabilities with respect thereto imposed on it by this
Article 8, or gives such notice and thereafter fails to contest such claim in
good faith or to prevent action to foreclose a lien against or attachment of the
Indemnified Party's property as contemplated above, the Indemnified Party shall
have the right to contest, settle or compromise the claim but shall not thereby
waive any right to indemnity therefor pursuant to this Agreement.
 
(d)   Limitation. NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY
OTHER PROVISION OF THIS AGREEMENT, KFX AND DTECS AGREE THAT THE RECOVERY BY
EITHER PARTY OF ANY DAMAGES SUFFERED OR INCURRED BY IT AS A RESULT OF ANY BREACH
BY THE OTHER PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR
AGREEMENTS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED
OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY THE
 
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BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS
HEREUNDER AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO THE
NON-BREACHING PARTY FOR ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE
BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES,
COVENANTS OR AGREEMENTS HEREUNDER. WITHOUT IN ANYWAY LIMITING THE FOREGOING,
DTECS SHALL NOT BE LIABLE TO KFX OR ANY OTHER PERSON WITH RESPECT TO THE LOSS
OF, OR INABILITY TO OBTAIN ANY TAX CREDITS, WHETHER UNDER SECTION 45, OR
OTHERWISE. THIS PROVISION SHALL SURVIVE THE TERMINATION OR EXPIRATION OF THIS
AGREEMENT.
 
(e)   Duty to Mitigate. Each Party agrees that it has a duty to mitigate damages
and covenants that it will use commercially reasonable efforts to minimize any
damages it may suffer or incur as a result of the breach by the other Party of
any of its representations, warranties, covenants or agreements under this
Agreement.
 
ARTICLE 9 - NOTICES
 
Every notice, approval, request, demand, statement or bill required or permitted
to be given under this Agreement shall be in writing and shall be deemed
sufficiently given when deposited in the mail, registered or certified, postage
prepaid, and addressed to the Party to whom given as follows:
 
If to DTECS:
 
DTE Coal Services, Inc.
Suite 201, 425 South Main Street
Ann Arbor, MI 48104
Attn: President
 
If to KFx:
 
KFx Inc.
55 Madison Street, Suite 500
Denver, CO 80206
Attn: President
 
or to such other address as such Parties shall from time to time designate by
notice in writing. Written notice given by any other method shall be deemed
effective when actually received by the Party.
 
ARTICLE 10 - GOVERNING LAW AND DISPUTE RESOLUTION
 
10.1   Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado without giving effect to the
conflict of laws principles thereof.
 
10.2   Dispute; Arbitration. If the Parties (i) fail to agree upon a Base Price
for a Contract Year; or (ii) fail to agree as provided in Section 3.7 with
respect to the impact of Tax Credits on the price of K-Fuel™ and such dispute
cannot be resolved by means of good faith negotiation the dispute shall be
resolved by arbitration pursuant to the Commercial Arbitration Rules of the
American Arbitration Association (“AAA Rules”) but not under the administration
of the American Arbitration Association;
 
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 provided, however, in the event the arbitrator or arbitration panel cannot
obtain jurisdiction over a Person deemed by the arbitrator or arbitration panel
to be an “indispensable party” within the meaning of Rule 19 of the Federal
Rules of Civil Procedure, any Party to this Agreement prejudiced thereby may
avoid the effect of this Section 9.1 and have resort to any State or Federal
court having jurisdiction of the controversy or claim, by giving written notice
to the other Party thereto. Unless the Parties agree otherwise, there will be
three competent and disinterested arbitrators, one selected by each Party within
thirty (30) days after one Party requests resolution by arbitration and the
third selected by the other two within sixty (60) days after first two
arbitrators are selected. The arbitration hearings will take place in Chicago,
Illinois. If either Party fails to select its arbitrator or the Parties'
arbitrators are unable to agree on the selection of the third arbitrator within
the above time limits, the open arbitrator positions will be filled in
accordance with the AAA Rules. In addition to the AAA Rules, the Federal Rules
of Evidence shall apply to the conduct of the arbitration proceedings, and the
Federal Rules of Civil Procedure shall apply to the conduct of any discovery in
connection therewith. The decision and award of the arbitrator will be binding
on the Parties. Judgment on the award may be entered in any court having
jurisdiction and shall be enforceable in any court of competent jurisdiction. To
the extent a dispute between the Parties is not specifically arbitrable pursuant
to Section 10.2, the Parties may resolve such dispute in any court of competent
jurisdiction WHEREIN THE PARTIES SPECIFICALLY AND IRREVOCABLY WAIVE ANY RIGHT TO
TRIAL BY JURY THAT THEY MAY HAVE.
 
ARTICLE 11 - ENTIRE AGREEMENT
 
This Agreement constitutes the entire agreement between the Parties relating to
the subject matter hereof and supersedes and replaces all prior and
contemporaneous agreements and understandings not incorporated herein by
reference thereto, whether written or oral and sets forth all the
representations, covenants, agreements and warranties upon which the Parties
rely in entering into this Agreement.
 
ARTICLE 12 - ASSIGNMENT AND BINDING EFFECT
 
This Agreement shall be binding upon, and shall inure to the benefit of, KFx and
its successors and assigns. Either Party shall have the right, without the prior
written consent of the other Party, to assign this Agreement to an Affiliate
which, as a result of a corporate reorganization or restructuring, performs
substantially the same function as DTECS performs hereunder. Other than with
respect to assignments to Affiliates as set forth in the immediately preceding
sentence, no Party shall have the right to assign this Agreement without the
written consent of the other Party which shall not unreasonable withheld,
delayed or conditioned. This Agreement shall be binding upon, and shall inure to
the benefit of, DTECS and its successors and assigns.
 
ARTICLE 13 - NO PARTNERSHIP, THIRD PARTY BENEFICIARY
 
Nothing contained in this Agreement shall be construed or constitute any Party
as the employee, agent, partner, joint venturer or contractor of any other
Party. This Agreement is made and entered into for the sole protection and legal
benefit of the Parties, and their successors and permitted assigns, and, except
for the DTECS Indemnitees and the KFx Indemnitees, no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement.
 
ARTICLE 14 - SURVIVAL
 
All indemnities shall survive the termination of this Agreement. All rights and
obligations provided in this Agreement shall remain in effect for the purpose of
complying herewith. To the extent that any payments made by a Party hereunder
are subsequently invalidated, declared to be fraudulent or
 

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preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, such Party shall remain liable for such
amounts as if such payment or proceeds had not been received.
 
ARTICLE 15 - SEVERABILITY
 
Every provision of this Agreement is intended to be severable such that if any
term or provision hereof is illegal or invalid for any reason, such provision
shall be severed from this Agreement and shall not affect the validity of the
remainder of this Agreement.
 
ARTICLE 16 - CAPTIONS; SCHEDULES
 
The captions contained in this Agreement are for convenience and reference only
and in no way define, describe, extend or limit the scope or intent of this
Agreement or the intent of any provision contained herein. Any and all Schedules
referred to in this Agreement are, by such reference, incorporated herein.
 
ARTICLE 17 - CONFIDENTIALITY
 
17.1   Confidential Information.
 
(a)   DTECS agrees to keep confidential and not to disclose to any Person the
terms of this Agreement or any written or other information concerning or
relating to this Agreement (collectively, “KFx Confidential Information”);
provided, however, that any information which is in the public domain other than
through the actions of DTECS in violation of this Agreement shall not be
considered KFx Confidential Information. Notwithstanding the foregoing, DTECS
shall be entitled to disclose KFx Confidential Information:
 
(i)  To its directors, officers, employees, Subcontract Operator, agents or
professional advisors to the extent necessary for the performance of its
obligations under this Agreement, provided that it first obtains from any such
Person to whom the disclosure is to be made an agreement of confidentiality with
respect to the KFx Confidential Information in question substantially on the
terms of this Section 17.1(a); provided, however, in the case of employees,
DTECS need not obtain a confidentiality agreement from such employees, but shall
make such employees aware of, and require that such employees comply with, the
confidentiality obligations contained herein;
 
(ii)  When required to do so by Applicable Law or Governmental Authority,
provided that DTECS shall immediately inform KFx of the demand for the
disclosure of such KFx Confidential Information so that KFx can seek a
protective order or other equitable relief to prevent or limit disclosure of
such KFx Confidential Information or ensure confidential treatment thereof; and
 
(iii)  To any Person with the prior written consent of KFx.
 
(b)   KFx agrees to keep confidential and not to disclose to any Person the
terms of this Agreement or any written or other information concerning or
relating to this Agreement (collectively, “DTECS Confidential Information”);
provided, however, that any information which is in the public domain other than
through the actions of KFx in violation of this Agreement shall not be
considered DTECS Confidential Information.
 
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Notwithstanding the foregoing, KFx shall be entitled to disclose DTECS
Confidential Information:
 
(i)  To its partners, directors, officers, employees, agents or professional
advisors or to other Persons in connection with any potential sale or financing
involving KFx or the Facility, provided that it first obtains from any such
Person to whom the disclosure is to be made an agreement of confidentiality with
respect to the DTECS Confidential Information in question substantially on the
terms of this Section 17.1(b); provided, however, in the case of partners,
directors, officers, employees, agents or professional advisors, KFx need not
obtain a confidentiality agreement from such Persons, but shall make such
Persons aware of, and require that such Persons comply with, the confidentiality
obligations contained herein;
 
(ii)  When required to do so by Applicable Law or Governmental Authority,
provided that KFx shall immediately inform DTECS of the demand for the
disclosure of such DTECS Confidential Information so that DTECS can seek a
protective order or other equitable relief to prevent or limit disclosure of
such DTECS Confidential Information or ensure confidential treatment thereof;
and
 
(iii)  To any Person with the prior written consent of DTECS.
 
17.2   Return of Confidential Information. Upon the termination of this
Agreement, DTECS shall return to KFx the KFx Confidential Information (including
all copies within its possession or control).
 
17.3   Continuation of Confidentiality Obligations. The obligations under this
Article 17 shall survive the termination of this Agreement.
 
17.4   Ownership of Confidential Information. All KFx Confidential Information
shall be the property of KFx. All DTECS Confidential Information shall be the
property of DTECS.
 
ARTICLE 18 - COUNTERPARTS
 
This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original for all purposes, but all of which shall constitute one and
the same instrument.
 
ARTICLE 19 - MISCELLANEOUS
 
19.1   Amendments. No amendment or modification hereof shall be valid or binding
upon the Parties unless evidenced in writing and signed by a duly authorized
representative of KFx and DTECS.
 
19.2   Waiver. No failure by either Party to insist upon the strict performance
of any term, covenant, condition or agreement of this Agreement, or to exercise
any right or remedy upon breach of any provision, and no acceptance of payment
or performance during the continuation of any such breach, shall constitute a
waiver of any term, covenant or condition herein or a waiver of any subsequent
breach or default in the performance of any term, covenant, condition or
agreement herein.
 
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IN WITNESS WHEREOF, KFx and DTECS have entered into this Agreement as of the
Effective Date.
 
                         DTE COAL SERVICES, INC.

                         By:   /s/ MATTHEW PAUL
                                    Matthew Paul
 
                         Title: Chief Operating Officer

                         KFx Inc.

                         By:    /s/ MARK S. SEXTON
                                      Mark S. Sexton

 
                         Title: Chief Executive Officer

 

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