Ehhibit 10.1

 

PURCHASE AGREEMENT

 

THIS AGREEMENT is made as of the 19th day of November 2004 by and between KFx,
Inc. (the “Company”), a corporation organized under the laws of the State of
Delaware, with its principal offices at 55 Madison Street, Suite 745, Denver,
Colorado 80206, and the purchaser whose name and address is set forth on the
signature page hereof (the “Purchaser”).

 

IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:

 

SECTION 1. Authorization of Sale of the Shares. Subject to the terms and
conditions of this Agreement and the Other Agreements (as defined below), the
Company has authorized the issuance and sale of up to 4,000,000 shares (the
“Shares”) of common stock, par value $0.001 per share (the “Common Stock”), of
the Company. The Company reserves the right to increase or decrease the number
of shares of Common Stock sold in this private placement prior to the Closing
Date.

 

SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing (as defined
in Section 3), the Company will issue and sell to the Purchaser, and the
Purchaser will buy from the Company, upon the terms and conditions hereinafter
set forth, the number of Shares (at the purchase price) shown below:

 

Number to Be
Purchased

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   Price Per
Share In
Dollars

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   Aggregate
Price

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     $ 12.00    $  

 

The Company proposes to enter into the same form of purchase agreement with
certain other investors (the “Other Purchasers”) and expects to complete sales
of the Shares to them. The Purchaser and the Other Purchasers are hereinafter
sometimes collectively referred to as the “Purchasers,” and this Agreement and
the agreements executed by the Other Purchasers are hereinafter sometimes
collectively referred to as the “Agreements.” The term “Placement Agent” shall
mean Jefferies & Company, Inc.

 

SECTION 3. Delivery of the Shares at the Closing. The completion of the purchase
and sale of the Shares (the “Closing”) shall occur at the offices of Morrison &
Foerster LLP, 1290 Avenue of the Americas, New York, New York 10104 as soon as
practicable and as agreed to by the parties hereto, within three business days
following the execution of the Agreements, or on such later date or at such
different location as the parties shall agree in writing, but not prior to the
date that the conditions for Closing set forth below have been satisfied or
waived by the appropriate party (the “Closing Date”).

 

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At the Closing, the Company shall deliver to the Purchaser one or more stock
certificates registered in the name of the Purchaser, or, if so indicated on the
Stock Certificate Questionnaire attached hereto as Appendix I, in such nominee
name(s) as designated by the Purchaser, representing the number of Shares set
forth in Section 2 above and bearing an appropriate legend referring to the fact
that the Shares were sold in reliance upon the exemption from registration under
the Securities Act of 1933, as amended (the “Securities Act”) provided by
Section 4(2) thereof and Rule 506 thereunder. The name(s) in which the stock
certificates are to be registered are set forth in the Stock Certificate
Questionnaire attached hereto as Appendix I. The Company’s obligation to
complete the purchase and sale of the Shares and deliver such stock
certificate(s) to the Purchaser at the Closing shall be subject to the following
conditions, any one or more of which may be waived by the Company: (a) receipt
by the Company of same-day funds in the full amount of the purchase price for
the Shares being purchased hereunder; and (b) completion of the purchases and
sales under the Agreements of at least 2,000,000 Shares. The Purchaser’s
obligation to accept delivery of such stock certificate(s) and to pay for the
Shares evidenced thereby shall be subject to the following conditions, any one
or more of which may be waived by the Purchaser: (a) each of the representations
and warranties of the Company made herein shall be accurate as of the Closing
Date; (b) the delivery to the Purchaser by counsel to the Company of a legal
opinion in a form reasonably satisfactory to counsel to the Placement Agent; and
(c) the fulfillment in all material respects of those undertakings of the
Company to be fulfilled prior to Closing and (d) completion of the purchases and
sales under the Agreements of at least 2,000,000 Shares. The Purchaser’s
obligations hereunder are expressly not conditioned on the purchase by any or
all of the Other Purchasers of the Shares that they have agreed to purchase from
the Company.

 

SECTION 4. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Purchaser as follows:

 

4.1 Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and the Company is qualified to do business as a foreign corporation
in each jurisdiction in which qualification is required, except where failure to
so qualify would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect (as defined herein). The material
subsidiaries of the Company are listed on Exhibit A (each a “Subsidiary” and
collectively, the “Subsidiaries”). Each Subsidiary is a direct or indirect
wholly owned subsidiary of the Company. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and is qualified to do business as a foreign entity in each
jurisdiction in which qualification is required, except where failure to so
qualify would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. For purposes of this Agreement, the term
“Material Adverse Effect” shall mean a material adverse effect upon the
business, financial condition, properties or results of operations of the
Company and its Subsidiaries, taken as a whole.

 

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4.2 Authorized Capital Stock. Except as disclosed in or contemplated by the
Confidential Private Placement Memorandum, dated November 19, 2004 prepared by
the Company, including all exhibits, supplements and amendments thereto (the
“Private Placement Memorandum”), the Company had outstanding the capital stock
set forth under the heading “Capitalization” in the Private Placement Memorandum
as of the date set forth therein; the issued and outstanding shares of the
Company’s Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
conform in all material respects to the description thereof contained in the
Private Placement Memorandum. Other than pursuant to plans or agreements
described in the Private Placement Memorandum, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company’s stock, stock bonus and other stock plans or arrangements and
the options or other rights granted and exercised thereunder, set forth in the
Private Placement Memorandum accurately and fairly presents all material
information with respect to such plans, arrangements, options and rights. With
respect to each Subsidiary, (i) all the issued and outstanding shares of each
Subsidiary’s capital stock or other equity interests have been duly authorized
and validly issued, are fully paid and, in the case of each Subsidiary that is a
corporation, nonassessable, have been issued in compliance with applicable
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and (ii) there are no outstanding options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
any Subsidiary’s capital stock or other equity interests or any such options,
rights, convertible securities or obligations.

 

4.3 Issuance, Sale and Delivery of the Shares. The Shares have been duly
authorized and, when issued, delivered and paid for in the manner set forth in
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all pledges, liens, restrictions and
encumbrances (other than restrictions on transfer under state and/or federal
securities laws), and will conform in all material respects to the description
thereof set forth in the Private Placement Memorandum. No preemptive rights or
other rights to subscribe for or purchase exist with respect to the issuance and
sale of the Shares by the Company pursuant to this Agreement. Except as
otherwise disclosed in the Private Placement Memorandum or the Schedule of
Exceptions, no stockholder of the Company has any right (which has not been
waived or has not expired by reason of lapse of time following notification of
the Company’s intent to file the registration statement to be filed by it
pursuant to Section 7.1 (the “Registration Statement”)) to require the Company
to register the sale of any shares owned by such stockholder under the
Securities Act of 1933, as amended (the “Securities Act”) in the Registration
Statement. No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of the
Shares to be sold by the Company as contemplated herein.

 

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4.4 Due Execution, Delivery and Performance of this Agreement. The Company has
full legal right, corporate power and authority to enter into this Agreement and
perform the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Company. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions herein contemplated will not violate any provision of the
certificate of incorporation or bylaws of the Company or any of its Subsidiaries
and will not result in the creation of any lien, charge, security interest or
encumbrance upon any assets of the Company or any of its Subsidiaries pursuant
to the terms or provisions of, and will not conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the passage
of time or both, a default under (i) any agreement, lease, franchise, license,
permit or other instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective properties may be bound or affected and in each case which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, or (ii) any statute or any judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its Subsidiaries or any of
their respective properties where such conflict, breach, violation or default
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, except for compliance with the
blue sky laws and federal securities laws applicable to the offering of the
Shares. Upon the execution and delivery of this Agreement, and assuming the
valid execution thereof by the Purchaser, this Agreement will constitute a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Company in Section 7.3
hereof may be limited by federal or state securities laws or the public policy
underlying such laws.

 

4.5 Accountants. The firm of Deloitte & Touche LLP, which has expressed its
opinion with respect to the consolidated financial statements to be included or
incorporated by reference in the Registration Statement and the prospectus which
forms a part thereof, as may be supplemented or amended (the “Prospectus”), is
an independent accountant as required by the Securities Act and the rules and
regulations promulgated thereunder (the “Rules and Regulations”).

 

4.6 No Defaults. Except as disclosed in the Private Placement Memorandum,
neither the Company nor any of its Subsidiaries is in violation or default of
any provision of its certificate of incorporation, bylaws or equivalent
organizational documents, or in breach of or default with respect to any
provision of any agreement, judgment, decree, order, lease, franchise, license,
permit or other instrument to which it is a party or by which it or any of its
properties are bound which would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect and there does not exist any state
of facts which, with notice or lapse of time or both, would constitute an event
of default on the part of the

 

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Company or any of its Subsidiaries as defined in such documents and which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

4.7 Contracts. Except as disclosed in the Private Placement Memorandum, the
Company and its Subsidiaries have no material contracts that are required to be
filed with the Securities and Exchange Commission (the “Commission”). All
contracts described in the Private Placement Memorandum that are material to the
Company and its Subsidiaries, taken as a whole, are in full force and effect on
the date hereof; and neither the Company nor any of its Subsidiaries is, nor, to
the Company’s knowledge, is any other party in breach of or default under any of
such contracts which breach or default would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

4.8 No Actions. Except as disclosed in the Private Placement Memorandum, (a)
there are no legal or governmental actions, suits or proceedings pending against
the Company or any Subsidiary and (b) to the Company’s knowledge, there are no
legal or governmental inquiries, investigations, actions, suits, or proceedings
threatened against the Company or any of its Subsidiaries or of which property
owned or leased by the Company or any of its Subsidiaries is subject, or related
to environmental or discrimination matters, which actions, suits or proceedings,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect; and no labor disturbance by the employees of the
Company exists or, to the Company’s knowledge, is imminent which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is party to or
subject to the provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body which
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

4.9 Properties. The Company and the Subsidiaries have good and marketable title
to all properties and assets reflected as owned in the financial statements
included in the Private Placement Memorandum, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except (i) those, if any, reflected in
the financial statements included in the Private Placement Memorandum or
otherwise in the Private Placement Memorandum, or (ii) those which are not
material in amount and do not adversely affect the use of such property by the
Company and its Subsidiaries. Each of the Company and its Subsidiaries holds its
leased properties under valid and binding leases, with such exceptions as are
not materially significant in relation to its business taken as a whole. Except
as disclosed in the Private Placement Memorandum, the Company leases all such
properties as are necessary to its operations as now conducted.

 

4.10 No Material Change. Since September 30, 2004, and except as disclosed in
the Private Placement Memorandum (i) the Company and its Subsidiaries have not
incurred any material liabilities or obligations, indirect, or contingent which
is not in the ordinary course of business or which would reasonably be expected
to result in a material reduction in the future earnings of the Company and its
Subsidiaries; (ii) neither the Company nor any Subsidiary has entered into any
transaction which is not in the ordinary course of business (iii) the Company
and its Subsidiaries have not sustained any material loss or interference with
their businesses or properties from fire, flood, windstorm, accident or other

 

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calamity not covered by insurance; (iv) the Company and its Subsidiaries have
not paid or declared any dividends or other distributions with respect to their
capital stock and neither the Company nor any of its Subsidiaries is in default
in the payment of principal or interest on any outstanding debt obligations; (v)
(x) there has not been any change in the capital stock of the Company or any of
its Subsidiaries other than the sale of the Shares hereunder, shares or options
issued pursuant to employee equity incentive plans or purchase plans approved by
the Company’s Board of Directors and repurchases of shares or options pursuant
to repurchase plans already approved by the Company’s Board of Directors, in
each case, which plans have been disclosed in the Private Placement Memorandum,
or (y) there has not been any incurrence of indebtedness not incurred in the
ordinary course of business or that is material to the Company and its
Subsidiaries, taken as a whole; and (vi) there has not been any other event
which has caused a Material Adverse Effect.

 

4.11 Intellectual Property. Except as disclosed in the Private Placement
Memorandum: (i) the Company owns, or has obtained valid and enforceable licenses
or options for, the inventions, patent applications, patents, trademarks (both
registered and unregistered), trade names, copyrights and trade secrets
necessary for the conduct of the Company’s business as currently conducted
(collectively, the “Intellectual Property”); and (ii) (a) there are no third
parties who have any ownership rights to any Intellectual Property that is owned
by, or has been licensed to, the Company for the products described in the
Private Placement Memorandum that would preclude the Company from conducting its
business as currently conducted and which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, except for the
ownership rights of the owners of the Intellectual Property licensed to or
optioned by the Company; (b) to the Company’s knowledge, there are currently no
sales of any products that would constitute an infringement by third parties of
any Intellectual Property owned, licensed or optioned by the Company, which
infringement would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; (c) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding or claim by others
challenging the rights of the Company in or to any Intellectual Property owned,
licensed or optioned by the Company, other than claims which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect; (d) there is no pending or, to the Company’s knowledge, threatened
action, suit, proceeding or claim by others challenging the validity or scope of
any Intellectual Property owned, licensed or optioned by the Company, other than
non-material actions, suits, proceedings and claims; and (e) there is no pending
or, to the Company’s knowledge, threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary right of others, other than
non-material actions, suits, proceedings and claims.

 

4.12 Compliance. Each of the Company and its Subsidiaries is conducting its
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting its business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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4.13 Taxes. Each of the Company and its Subsidiaries has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and neither the Company nor any of its
Subsidiaries has any tax deficiency which has been, or to its knowledge might
be, asserted or threatened against it which would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.

 

4.14 Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection with the
sale and transfer of the Shares to be sold to the Purchaser hereunder will be,
or will have been, fully paid or provided for by the Company and all laws
imposing such taxes will be or will have been complied with.

 

4.15 Investment Company. The Company is not an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

 

4.16 Offering Materials. The Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the offering
and sale of the Shares other than the Private Placement Memorandum or any
amendment or supplement thereto. Neither the Company nor any person acting on
its behalf has in the past or will hereafter take any action independent of the
Placement Agent to sell, offer for sale or solicit offers to buy any securities
of the Company which would subject the offer, issuance or sale of the Shares, as
contemplated by this Agreement, to the registration requirements of Section 5 of
the Securities Act.

 

4.17 Insurance. The Company and its Subsidiaries maintain insurance of the types
and in the amounts that the Company reasonably believes is adequate for their
businesses, including, but not limited to, insurance covering all real and
personal property leased by the Company and its Subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against by similarly situated companies, all of which insurance is in full force
and effect.

 

4.18 Additional Information. The information contained in the following
documents, which the Placement Agent has furnished to the Purchaser, or will
furnish prior to the Closing, does not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, as of their respective final dates:

 

(a) the Company’s Annual Report on Form 10-K for the year ended December 31,
2003;

 

(b) the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2004;

 

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(c) the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2004;

 

(d) the Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2004;

 

(e) the Company’s Definitive Proxy Statement on Schedule 14A filed on April 20,
2004;

 

(f) the Private Placement Memorandum, including all addenda and exhibits thereto
(other than the Purchase Agreement and the Appendices); and

 

(g) the current reports on Form 8-K filed by the Company with the Commission
since December 31, 2003 but prior to the date hereof.

 

4.19 Price of Common Stock. The Company has not taken, and will not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the Common Stock to
facilitate the sale or resale of the Shares.

 

4.20 Corporate Legal Opinion. As a condition to the Purchaser’s obligation to
purchase the Shares, legal counsel to the Company will deliver one or more legal
opinions to the Placement Agent and Purchaser in a form reasonably satisfactory
to the Placement Agent and its counsel. Such opinions shall also state that each
of the Purchasers may rely thereon as though it were addressed directly to such
Purchaser

 

4.21 Certificate. At the Closing, the Company will deliver to Purchaser a
certificate executed by the chief executive officer and the chief financial or
accounting officer of the Company, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Purchaser, to the effect that the
representations and warranties of the Company set forth in this Section 4 are
true and correct as of the date of this Agreement and as of the Closing Date and
that the Company has complied with all the agreements and satisfied all the
conditions herein on its part to be performed or satisfied on or prior to such
Closing Date.

 

4.22 Reporting Company; Form S-3. The Company is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) and has filed all reports required thereby. The Company is eligible to
register the Shares for resale by the Purchaser on a registration statement on
Form S-3 under the Securities Act. There exist no facts or circumstances
(including without limitation any required approvals or waivers or any
circumstances that may delay or prevent the obtaining of accountant’s consents)
that reasonably could be expected to prohibit or delay the preparation and
filing of a registration statement on Form S-3 that will be available for the
resale of the Shares by the Purchaser.

 

4.23 Use of Proceeds. The Company shall use the proceeds from the sale of Shares
as described under “Use of Proceeds” in the Private Placement Memorandum.

 

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4.24 Non-Public Information. Except for the offer and possible sale of the
Shares as described in the Private Placement Memorandum, the Company has not
disclosed to the Purchaser, whether in the Private Placement Memorandum or
otherwise, information that would constitute material non-public information as
of the Closing Date.

 

4.25 Use of Purchaser Name. Except in the Registration Statement, the Prospectus
and as may be required by applicable law or regulation, the Company shall not
use the Purchaser’s name or the name of any of its affiliates in any
advertisement, announcement, press release or other similar public communication
unless it has received the prior written consent of the Purchaser for the
specific use contemplated or as otherwise required by applicable law or
regulation.

 

4.26 Related Party Transactions. No transaction has occurred between or among
the Company, any of the Subsidiaries and their affiliates, officers or directors
or any affiliate or affiliates of any such officer or director that is required
to have been described under applicable securities laws in its Exchange Act
filings and is not so described in such filings.

 

4.27 Off-Balance Sheet Arrangements. There is no transaction, arrangement or
other relationship between the Company or any Subsidiary and an unconsolidated
or other off-balance sheet entity that is required to be disclosed by the
Company in its Exchange Act filings and is not so disclosed or that otherwise
would be reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect (and no such transaction, arrangement or relationship has
occurred since the time periods covered by such filings that is required to be
reported in an upcoming Exchange Act filing). There are no such transactions,
arrangements or other relationships with the Company or any Subsidiary that may
create contingencies or liabilities that are not otherwise disclosed by the
Company in its Exchange Act filings (and no such transaction, arrangement or
relationship has occurred since the time periods covered by such filings that is
required to be reported in an upcoming Exchange Act filing).

 

4.28 Governmental Permits, Etc. Each of the Company and its Subsidiaries has all
franchises, licenses, certificates and other authorizations from such federal,
state or local government or governmental agency, department or body that are
currently required for the operation of the business of the Company and its
Subsidiaries as currently conducted, except where the failure to posses
currently such franchises, licenses, certificates and other authorizations would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The Company and its Subsidiaries have not received any notice of
proceedings relating to the revocation or modification of any such permit which,
if the subject of an unfavorable decision, ruling or finding, would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.

 

4.29 Financial Statements. The consolidated financial statements of the Company
and the related notes contained in its Exchange Act filings present fairly, in
accordance with generally accepted accounting principles, the consolidated
financial position of the Company and its Subsidiaries as of the dates
indicated, and the results of their operations, cash flows and the changes in
stockholders’ equity for the periods therein

 

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specified, subject, in the case of unaudited financial statements for interim
periods, to normal year-end audit adjustments. Such consolidated financial
statements (including the related notes) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods therein specified, except that unaudited financial
statements may not contain all footnotes required by generally accepted
accounting principles.

 

4.30 Listing. The Company shall comply with all requirements of the American
Stock Exchange with respect to the issuance of Shares and shall use its best
efforts to have the Shares listed on the American Stock Exchange on or before
the first date that the Registration Statement is declared effective by the
Commission. The Common Stock is presently listed on the American Stock Exchange.

 

4.31 Sarbanes-Oxley Act. The Chief Executive Officer and the Chief Financial
Officer of the Company have signed, and the Company has furnished to the
Commission, all certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002, and neither the Company nor any of its officers have
received notice from any governmental entity questioning or challenging the
accuracy, completeness form or manner of filing or submission of such
certifications.

 

4.32 ERISA Compliance. Each material employee benefit plan, within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), that is maintained, administered or contributed to by the
Company or any of its affiliates for employees or former employees of the
Company and its Subsidiaries has been maintained in material compliance with its
terms and the requirements of any applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Internal Revenue Code of
1986, as amended (the “Code”); no prohibited transaction, within the meaning of
Section 406 of ERISA or Section 4975 of the Code, has occurred which would
result in a material liability to the Company with respect to any such plan
excluding transactions effected pursuant to a statutory or administrative
exemption; and for each such plan that is subject to the funding rules of
Section 412 of the Code or Section 302 of ERISA, no “accumulated funding
deficiency” as defined in Section 412 of the Code has been incurred, whether or
not waived, and the fair market value of the assets of each such plan (excluding
for these purposes accrued but unpaid contributions) exceeds the present value
of all benefits accrued under such plan determined using reasonable actuarial
assumptions.

 

SECTION 5. Representations, Warranties and Covenants of the Purchaser. (a) The
Purchaser represents and warrants to, and covenants with, the Company that: (i)
the Purchaser is knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in shares representing
an investment decision like that involved in the purchase of the Shares,
including investments in securities issued by the Company and comparable
entities, has had the opportunity to request, receive, review and consider all
information it deems relevant in making an informed decision to purchase the
Shares and acknowledges that the documents filed with the Commission and
referenced in Section 4.18 hereof (Additional Information) are specifically
incorporated by reference in the Private Placement Memorandum; (ii) the
Purchaser is acquiring the number of Shares set forth in Section 2 above in the
ordinary course of its business and for its own account for investment

 

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only and with no present intention of distributing any of such Shares or any
arrangement or understanding with any other persons regarding the distribution
of such Shares (this representation and warranty not limiting the Purchaser’s
right to sell pursuant to the Registration Statement or in compliance with the
Securities Act and the Rules and Regulations, or, other than with respect to any
claims arising out of a breach of this representation and warranty, the
Purchaser’s right to indemnification under Section 7.3); (iii) the Purchaser
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchase or otherwise acquire or take
a pledge of) any of the Shares, nor will the Purchaser engage in any short sale
that results in a disposition of any of the Shares by the Purchaser, except in
compliance with the Securities Act and the Rules and Regulations and any
applicable state securities laws; (iv) the Purchaser has completed or caused to
be completed the Registration Statement Questionnaire attached hereto as part of
Appendix I, for use in preparation of the Registration Statement, and the
answers thereto are true and correct as of the date hereof and will be true and
correct as of the effective date of the Registration Statement, or as
applicable, any amendment thereto, and the Purchaser will notify the Company
immediately of any material change in any such information provided in the
Registration Statement Questionnaire until such time as the Purchaser has sold
all of its Shares or until the Company is no longer required to keep the
Registration Statement effective; (v) the Purchaser has, in connection with its
decision to purchase the number of Shares set forth in Section 2 above, relied
solely upon the Private Placement Memorandum and the documents included therein
or incorporated by reference and the representations and warranties of the
Company contained herein and is not purchasing the Shares as a result of any
advertisement, article, notice or other communication regarding the Shares
published in any newspaper, magazine or similar media or broadcast over
television or radio or any other general solicitation or general advertisement;
(vi) the Purchaser has had an opportunity to discuss this investment with
representatives of the Company and ask questions of them; (vii) the Purchaser is
an “accredited investor” within the meaning of Rule 501(a) of Regulation D
promulgated under the Securities Act; (viii) the Purchaser has not incurred any
obligation for any finder’s or broker’s or agent’s fees or commissions in
connection with the Offering; (ix) the Purchaser acknowledges that no oral or
written representations have been made to the Purchaser in connection with the
offering of the Shares which were in any way inconsistent with the information
reviewed by the Purchaser; (x) the Purchaser acknowledges that the Purchaser is
not relying on the Company, any Other Purchaser or potential purchaser, or on
any legal or other opinion in the materials reviewed by the Purchaser with
respect to the financial or tax considerations of the Purchaser relating to its
investment in the Shares; and (xi) the Purchaser agrees to notify the Company
immediately of any change in any of the foregoing information until such time as
the Purchaser has sold all of its Shares or the Company is no longer required to
keep the Registration Statement effective.

 

(b) The Purchaser understands that the Shares are being offered and sold to it
in reliance upon specific exemptions from the registration requirements of the
Securities Act, the Rules and Regulations and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Shares.

 

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(c) The Purchaser understands that the information contained in the Private
Placement Memorandum is strictly confidential and proprietary to the Company and
has been prepared from the Company’s publicly available documents and other
information and is being submitted to the Purchaser solely for such Purchaser’s
confidential use. The Purchaser agrees to use the information contained in the
Private Placement Memorandum for the sole purpose of evaluating a possible
investment in the Shares and the Purchaser hereby acknowledges that it is
prohibited from reproducing or distributing the Private Placement Memorandum,
this Agreement, or any other offering materials or other information provided by
the Company in connection with the Purchaser’s consideration of its investment
in the Company, in whole or in part, or divulging or discussing any of their
contents, except to its financial, investment or legal advisors in connection
with its proposed investment in the Shares. Further, the Purchaser understands
that the existence and nature of all conversations and presentations, if any,
regarding the Company and this offering must be kept strictly confidential. The
Purchaser understands that the federal securities laws impose restrictions on
trading based on information regarding this offering. In addition, the Purchaser
hereby acknowledges that unauthorized disclosure of information regarding this
offering may result in a violation of Regulation FD. The obligations set forth
above in this Section 5(c) will terminate upon the filing by the Company of a
press release or press releases describing this offering, which shall be filed
by the Company no later than November 22, 2004 pursuant to Section 7.1(h). In
addition to the above, the Purchaser shall maintain in confidence the receipt
and content of any notice of a Suspension (as defined in Section 5(h) below).
The foregoing agreements shall not apply to any information that is or becomes
publicly available through no fault of the Purchaser, or that the Purchaser is
legally required to disclose; provided, however, that if the Purchaser is
requested or ordered to disclose any such information pursuant to any court or
other government order or any other applicable legal procedure, it shall provide
the Company with prompt notice of any such request or order in time sufficient
to enable the Company to seek an appropriate protective order.

 

(d) The Purchaser understands that its investment in the Shares involves a
significant degree of risk, including a risk of total loss of the Purchaser’s
investment, and the Purchaser has full cognizance of and understands all of the
risk factors related to the Purchaser’s purchase of the Shares, including, but
not limited to, those set forth under the caption “Risk Factors” in the Private
Placement Memorandum. The Purchaser understands that the market price of the
Common Stock has been volatile and that no representation is being made as to
the future value of the Common Stock. The Purchaser has the knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Shares and has the ability to bear the
economic risks of an investment in the Shares.

 

(e) The Purchaser understands that no United States federal or state agency or
any other government or governmental agency has passed upon or made any
recommendation or endorsement of the Shares.

 

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(f) The Purchaser understands that, until such time as the Registration
Statement has been declared effective or the Shares may be sold pursuant to Rule
144(k) under the Securities Act without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the Shares
will bear a restrictive legend in substantially the following form:

 

“The Shares evidenced by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), or the securities
laws of any state or other jurisdiction. The Shares may not be offered, sold,
pledged or otherwise transferred except (i) pursuant to an exemption from
registration under the Securities Act or (ii) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
all applicable securities laws of the states and other jurisdictions, and in the
case of a transaction exempt from registration, unless the Company has received
an opinion of counsel reasonably satisfactory to it that such transaction does
not require registration under the Securities Act and such other applicable
laws.”

 

(g) The Purchaser’s principal executive offices are in the jurisdiction set
forth immediately below the Purchaser’s name on the signature pages hereto.

 

(h) The Purchaser hereby covenants with the Company not to make any sale of the
Shares under the Registration Statement without complying with the provisions of
this Agreement and without effectively causing the prospectus delivery
requirement under the Securities Act to be satisfied, and the Purchaser
acknowledges and agrees that such Shares are not transferable on the books of
the Company unless the certificate submitted to the transfer agent evidencing
the Shares is accompanied by a separate Purchaser’s Certificate of Subsequent
Sale: (i) in the form of Appendix II hereto, (ii) executed by an officer of, or
other authorized person designated by, the Purchaser, and (iii) to the effect
that (A) the Shares have been sold in accordance with the Registration
Statement, the Securities Act and any applicable state securities or blue sky
laws and (B) the requirement of delivering a current prospectus has been
satisfied. The Purchaser will notify the Company promptly after the sale of all
of its Shares. The Purchaser acknowledges that there may occasionally be times
when the Company may need to suspend the use of the Prospectus forming a part of
the Registration Statement (a “Suspension”) until such time as an amendment to
the Registration Statement has been filed by the Company and declared effective
by the Commission, or until such time as the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act. The Purchaser hereby
covenants that it will not sell any Shares pursuant to said Prospectus during
the period commencing at the time at which the Company gives the Purchaser
written notice of the Suspension of the use of said Prospectus and ending at the
time the Company gives the Purchaser written notice that the Purchaser may
thereafter effect sales pursuant to said Prospectus. Notwithstanding the
foregoing, the Company agrees that no Suspension shall be for a period of longer
than 60 consecutive days, there shall be no more than two Suspensions during any
twelve month period and the Company shall use best efforts to lift any such
Suspension as soon as practicable following such Suspension. Nothing in this
paragraph shall be interpreted to restrict or prohibit the Purchaser from
selling any of the Shares in a private transaction in compliance with applicable
laws and otherwise in accordance with the other provisions of this Agreement.

 

(i) The Purchaser further represents and warrants to, and covenants with, the
Company that (i) the Purchaser has full right, power, authority and capacity to
enter into this Agreement and to consummate the transactions contemplated hereby
and has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, (ii) the

 

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making and performance of this Agreement by the Purchaser and the consummation
of the transactions herein contemplated will not violate any provision of the
organizational documents of the Purchaser or conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the passage
of time or both, a default under any material agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Purchaser is a party, or any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Purchaser, (iii) no consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required on the part of the
Purchaser for the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement, (iv) upon the execution and
delivery of this Agreement, this Agreement shall constitute a legal, valid and
binding obligation of the Purchaser, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except to the extent enforcement of the
indemnification provisions, set forth in Section 7.3 of this Agreement, may be
limited by federal or state securities laws or the public policy underlying such
laws, and (v) there is not in effect any order enjoining or restraining the
Purchaser from entering into or engaging in any of the transactions contemplated
by this Agreement.

 

(j) The Purchaser further represents and warrants that at no time during the 30
days prior to the Closing has the Purchaser engaged in or effected, in any
manner whatsoever, directly or indirectly, in any “short sale” (as such term is
defined in Rule 3b-3 of the Exchange Act) of the Common Stock (a “Short Sale”).

 

(k) From and after the Closing, for so long as the Purchaser continues to hold
any Shares acquired hereunder, the Purchaser will not, nor will it knowingly
through its affiliates engage in any Short Sales, except on those days (each a
“Permitted Day”) on which the aggregate short position with respect to the
Common Stock of the Purchaser prior to giving effect to any Short Sales by the
Purchaser on such Permitted Day does not exceed such Purchaser’s Permitted Share
Position (as defined below) on such Permitted Day; provided, however, that the
Purchaser will only be entitled to engage in transactions that constitute Short
Sales on a Permitted Day to the extent that following such transaction, the
aggregate short position with respect to the Common Stock of the Purchaser does
not exceed such Purchaser’s Permitted Share Position. For purposes of Section
5(k), the Purchaser’s “Permitted Share Position” means, with respect to any date
of determination, the number of shares of Common Stock owned by the Purchaser
(including Shares).

 

(l) For a period of one year from the Closing Date, the Purchaser will not,
without the prior written consent of the Company (i) propose to enter into any
acquisition of all or substantially all of the assets or stock of the Company or
a merger or other business combination involving the Company; (ii) seek to
control the management, Board of Directors or policies of the Company; or (iii)
form, join or in any way participate in a “group” (within the meaning of Section
13(d) (3) of the Securities Act of 1934) with respect to any securities of the
Company in connection with any of the foregoing. Notwithstanding the foregoing,
this section

 

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shall not restrict the Purchaser’s acquisition or disposition of shares of the
Company’s Common Stock through open market purchases or sales.

 

SECTION 6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares
delivered pursuant hereto shall survive the execution of this Agreement, the
delivery to the Purchaser of the Shares being purchased and the payment
therefore.

 

SECTION 7. Registration of the Shares; Compliance with the Securities Act.

 

7.1 Registration Procedures and Expenses. The Company shall:

 

(a) as soon as reasonably practicable, but in no event later than thirty (30)
days following the Closing Date, prepare and file with the Commission the
Registration Statement on Form S-3 relating to the sale of the Shares by the
Purchaser and the Other Purchasers from time to time on the American Stock
Exchange or the facilities of any national securities exchange on which the
Common Stock is then traded or in privately-negotiated transactions;

 

(b) use its best efforts, subject to receipt of necessary information from the
Purchasers and notwithstanding the liquidated damages provision of this
paragraph, to cause the Commission to declare the Registration Statement
effective by the date which is 120 days after the Closing Date (the
“Effectiveness Target Date”). If the Commission does not declare the
Registration Statement effective by the Effectiveness Target Date, the Company
shall become obligated to pay to each “Holder” (defined in Section 7.2(b)) an
amount in cash, as liquidated damages and not as a penalty, equivalent to 1% of
the aggregate purchase price paid by such Holder for any Shares then held by
such Holder for each full month that effectiveness is delayed beyond the
Effectiveness Target Date (pro-rated on a daily basis for partial months). The
Company shall pay in full any liquidated damages pursuant to this Section 7.1(b)
within 30 days after the date on which the Company becomes obligated to pay such
damages.

 

(c) use its best efforts to promptly prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the Registration Statement
effective until the earliest of (i) two years after the effective date of the
Registration Statement, or (ii) such time as the Shares become eligible for
resale by non-affiliates pursuant to Rule 144(k) under the Securities Act of
1933, as amended;

 

(d) furnish to the Purchaser with respect to the Shares registered under the
Registration Statement (and to each underwriter, if any, of such Shares) such
number of copies of prospectuses and such other documents as the Purchaser may
reasonably request, in order to facilitate the public sale or other disposition
of all or any of the Shares by the Purchaser;

 

(e) file documents required of the Company for normal Blue Sky clearance in
states specified in writing by the Purchaser; provided, however, that the
Company

 

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shall not be required to qualify to do business or consent to service of process
in any jurisdiction in which it is not now so qualified or has not so consented;

 

(f) bear all expenses in connection with the procedures in paragraphs (a)
through (e) of this Section 7.1 and the registration of the Shares pursuant to
the Registration Statement, other than fees and expenses, if any, of counsel or
other advisers to the Purchaser or the Other Purchasers or underwriting
discounts, brokerage fees and commissions incurred by the Purchaser or the Other
Purchasers, if any;

 

(g) file a Form D with respect to the Shares as required under Regulation D and
to provide a copy thereof to the Purchaser promptly after filing;

 

(h) issue a press release describing the transactions contemplated by this
Agreement on the Closing Date; and

 

(i) make available, while the Registration Statement is effective and available
for resale, its Chief Executive Officer, Chief Financial Officer, and Chief
Operating Officer for questions regarding information which the Purchaser may
reasonably request in order to fulfill any due diligence obligation on its part.

 

The Company understands that the Purchaser disclaims being an underwriter, but
the Purchaser being deemed an underwriter shall not relieve the Company of any
obligations it has hereunder. A draft of the proposed form of the Registration
Statement is included in the Private Placement Memorandum and a questionnaire
related thereto to be completed by the Purchaser is attached hereto as Appendix
I.

 

7.2 Transfer of Shares and Registration Rights.

 

(a) The Purchaser agrees that it will not effect any disposition of the Shares
or its right to purchase the Shares that would constitute a sale within the
meaning of the Securities Act or any applicable state securities laws, except as
contemplated in the Registration Statement referred to in Section 7.1 or as
otherwise permitted by law, and that it will promptly notify the Company of any
changes in the information set forth in the Registration Statement regarding the
Purchaser or its plan of distribution.

 

(b) Subject to the provisions of this Agreement, the Purchaser may assign the
registration rights with respect to the Shares to any party or parties to which
it may from time to time transfer the Shares, provided that the transferee
agrees in writing with the Company to be bound by the applicable provisions of
this Agreement regarding such registration rights and indemnification relating
thereto. Upon assignment of any registration rights pursuant to this Section
7.2(b), the Purchaser shall deliver to the Company a notice of such assignment
which includes the identity and address of any assignee and such other
information reasonably requested by the Company in connection with effecting any
such registration (collectively, the Purchaser and each such subsequent holder
is referred to as a “Holder”). Notwithstanding anything to the contrary herein,
the rights of a Holder pursuant to Section 7.1 and Section 7.2 may be assigned
only to a transferee or assignee of any Shares if such transferee or assignee
acquires at least 250,000 shares of such Holder’s Shares (equitably adjusted for
any stock splits,

 

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subdivisions, stock dividends, changes, combinations or the like) or less if the
shares being transferred constitute all of such transferring Holder’s Shares.

 

7.3 Indemnification. For the purpose of this Section 7.3:

 

(i) the term “Purchaser/Affiliate” shall mean any affiliate of the Purchaser,
including a transferee who is an affiliate of the Purchaser, and any person who
controls the Purchaser or any affiliate of the Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act; and

 

(ii) the term “Registration Statement” shall include any preliminary prospectus,
final prospectus, exhibit, supplement or amendment included in or relating to,
and any document incorporated by reference in, the Registration Statement
referred to in Section 7.1.

 

(a) The Company agrees to indemnify and hold harmless each Purchaser and each
Purchaser/Affiliate against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Purchaser or Purchaser/Affiliate may
become subject, under the Securities Act, the Exchange Act, or any other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the prior
written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, including the
Prospectus, financial statements and schedules, and all other documents filed as
a part thereof, as amended at the time of effectiveness of the Registration
Statement, including any information deemed to be a part thereof as of the time
of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule
434, of the Rules and Regulations, or the Prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, or
filed as part of the Registration Statement at the time of effectiveness if no
Rule 424(b) filing is required, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state in any of
them a material fact required to be stated therein or necessary to make the
statements in any of them, in light of the circumstances under which they were
made, not misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations or warranties of the Company contained in this
Agreement, or any failure of the Company to perform its obligations hereunder or
under law, and will promptly reimburse each such Purchaser and each such
Purchaser/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by such Purchaser or such Purchaser/Affiliate in connection
with investigating, defending or preparing to defend, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to the extent, but
only to the extent, that any such loss, claim, damage, liability or expense
arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Purchaser expressly for use therein, or (ii) the failure of the Purchaser to

 

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comply with the covenants and agreements contained in Sections 5 or 7.2 of this
Agreement or other Agreements, as applicable, or (iii) the inaccuracy of any
representation or warranty made by the Purchaser herein or (iv) any statement or
omission in any Prospectus that is corrected in any subsequent Prospectus that
was delivered to the Purchaser prior to the pertinent sale or sales by the
Purchaser.

 

(b) Each Purchaser will severally indemnify and hold harmless the Company, each
of its directors, each of its executive officers, including such officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any losses, claims, damages, liabilities or expenses
to which the Company, each of its directors, each of its officers who signed the
Registration Statement or controlling person may become subject, under the
Securities Act, the Exchange Act, or any other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Purchaser) insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based upon
(i) any failure by such Purchaser to comply with the covenants and agreements
contained in Sections 5 or 7.2 hereof, or (ii) the inaccuracy of any
representation or warranty made by such Purchaser herein, or (iii) any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Purchaser expressly
for use therein, and will reimburse the Company, each of its directors, each of
its officers who signed the Registration Statement or controlling person for any
legal and other expense reasonably incurred by the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action.

 

(c) Promptly after receipt by an indemnified party under this Section 7.3 of
notice of the threat or commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party under
this Section 7.3, promptly notify the indemnifying party in writing thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section 7.3 to the
extent it is not prejudiced as a result of such failure. In case any such action
is brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded, based on an opinion of counsel reasonably
satisfactory to the indemnifying party, that there may be a conflict

 

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of interest between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 7.3 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel (not including counsel
located in the venue of the claim or action), reasonably satisfactory to such
indemnifying party, representing all of the indemnified parties who are parties
to such action) or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of action, in each
of which cases the reasonable fees and expenses of counsel shall be at the
expense of the indemnifying party. In no event shall any indemnifying party be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved in writing the terms of such settlement;
provided that such consent shall not be unreasonably withheld. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party from all liability on claims
that are the subject matter of such proceeding.

 

(d) If the indemnification provided for in this Section 7.3 is required by its
terms but is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this
Section 7.3 in respect to any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Purchaser from the private placement of Common Stock hereunder
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but the relative fault of the
Company and the Purchaser in connection with the statements or omissions or
inaccuracies in the representations and warranties in this Agreement and/or the
Registration Statement which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The respective relative benefits received by the Company on the one hand and
each Purchaser on the other shall be deemed to be in the same proportion as the
amount paid by such Purchaser to the Company pursuant to this Agreement for the
Shares purchased by such Purchaser that were sold pursuant to the Registration
Statement bears to the difference (the “Difference”) between the amount such
Purchaser paid for the Shares that were sold pursuant to the Registration
Statement and the amount received by such Purchaser from such sale. The relative
fault of the Company, on the one hand, and each Purchaser on the

 

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other shall be determined by reference to, among other things, whether the
untrue or alleged statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company or
by such Purchaser and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (c) of this Section 7.3, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
paragraph (c) of this Section 7.3 with respect to the notice of the threat or
commencement of any threat or action shall apply if a claim for contribution is
to be made under this paragraph (d); provided, however, that no additional
notice shall be required with respect to any threat or action for which notice
has been given under paragraph (c) for purposes of indemnification. The Company
and each Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 7.3 were determined solely by pro rata allocation (even
if the Purchaser were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
7.3, no Purchaser shall be required to contribute any amount in excess of the
amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Purchasers’ obligations to contribute pursuant
to this Section 7.3 are several and not joint.

 

7.4 Termination of Conditions and Obligations. The restrictions imposed by
Section 5 or this Section 7 upon the transferability of the Shares shall cease
and terminate as to any particular number of the Shares upon the passage of two
years from the effective date of the Registration Statement or at such time as
an opinion of counsel satisfactory in form and substance to the Company shall
have been rendered to the effect that such conditions are not necessary in order
to comply with the Securities Act.

 

7.5 Information Available. So long as the Registration Statement is effective
covering the resale of Shares owned by the Purchaser, the Company will furnish
to the Purchaser:

 

(a) as soon as practicable after available (but in the case of the Annual Report
to the Stockholders, within 150 days after the end of each fiscal year of the
Company), one copy of (i) its Annual Report to Stockholders (which Annual Report
shall contain financial statements audited in accordance with generally accepted
accounting principles by a national firm of certified public accountants), (ii)
if not included in substance in the Annual Report to Stockholders, upon the
request of Purchaser, its Annual Report on Form 10-K, (iii) upon request of
Purchaser, its quarterly reports on Form 10-Q, and (iv) a full copy of the
Registration Statement (the foregoing, in each case, excluding exhibits);

 

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(b) upon the reasonable request of the Purchaser, a reasonable number of copies
of the Prospectuses, and any supplements thereto, to supply to any other party
requiring such Prospectuses;

 

and the Company, upon the reasonable request of the Purchaser and with prior
notice, will be available to the Purchaser or a representative thereof at the
Company’s headquarters to discuss information relevant for disclosure in the
Registration Statement and will otherwise cooperate with any Purchaser
conducting an investigation for the purpose of reducing or eliminating such
Purchaser’s exposure to liability under the Securities Act, including the
reasonable production of information at the Company’s headquarters, subject to
appropriate confidentiality limitations.

 

7.6 Lost, Stolen, etc. Certificates Evidencing Shares. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate evidencing any Shares owned by
Purchaser, and (in the case of loss, theft or destruction) of an unsecured
indemnity satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such certificate, if mutilated, the Company will make and deliver in lieu of
such certificate a new certificate of like tenor and for the number of Shares
evidenced by such certificate which remain outstanding. Purchaser’s agreement of
indemnity for losses described in this paragraph shall constitute indemnity
satisfactory to the Company for purposes of this Section 7.6.

 

SECTION 8. Broker’s Fee. The Purchaser acknowledges that the Company intends to
pay to the Placement Agent a fee in respect of the sale of the Shares to the
Purchaser. The Purchaser and the Company hereby agree that the Purchaser shall
not be responsible for such fee and that the Company will indemnify and hold
harmless the Purchaser and each Purchaser/Affiliate against any losses, claims,
damages, liabilities or expenses, joint or several, to which such Purchaser or
Purchaser/Affiliate may become subject with respect to such fee. Each of the
parties hereto hereby represents that, on the basis of any actions and
agreements by it, there are no other brokers or finders entitled to compensation
in connection with the sale of the Shares to the Purchaser.

 

SECTION 9. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon delivery to the party to
be notified; (ii) when received by confirmed facsimile or (iii) one (1) business
day after deposit with a nationally recognized overnight carrier, specifying
next business day delivery, with written verification of receipt. All
communications shall be sent to the Company and the Purchaser as follows or at
such other addresses as the Company or the Purchaser may designate upon ten (10)
days’ advance written notice to the other party:

 

(a) if to the Company, to:

 

KFx, Inc.

55 Madison Street, Suite 745

Denver, Colorado 80206

Attn: Theodore Venners, Chief Executive Officer

 

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Facsimile:

 

with copies to:

 

John J. Hentrich, Esq.

Sheppard, Mullin, Richter & Hampton LLP

12544 High Bluff Drive, Suite 300

San Diego, California 92130

Facsimile: 858-509-3691

 

and

 

Jeffrey J. Peterson, Esq.

BERENBAUM, WEINSHIENK & EASON, P.C.

370 Seventeenth Street, 48th Floor

Denver, Colorado 80202

Fax: 303.629.7610

 

(b) if to the Purchaser, at its address as set forth at the end of this
Agreement. If the Purchaser’s address changes, the Purchaser shall notify the
Company in writing within thirty (30) days of such change.

 

SECTION 10. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Purchaser. No
provision hereunder may be waived other than in a written instrument executed by
the waiving party.

 

SECTION 11. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.

 

SECTION 12. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.

 

SECTION 13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the federal law of the
United States of America.

 

SECTION 14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered (including by facsimile) to the other parties.

 

SECTION 15. Entire Agreement. This Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters

 

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covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters.

 

SECTION 16. Assignment. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
parties hereto and their respective permitted successors, assigns, heirs,
executors and administrators. This Agreement and the rights of the Purchaser
hereunder may be assigned by the Purchaser only with the prior written consent
of the Company, except such consent shall not be required (i) in cases of
assignments by an investment adviser to a fund for which it is the adviser or by
or among funds that are under common control, provided that such assignee agrees
to be bound by the terms of this Agreement and gives notice to the Company of
any such assignment; and (ii) in cases of assignments in connection with the
permissible transfer of Shares hereunder, subject to the terms and conditions of
the other provisions of this Agreement.

 

SECTION 17. Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurance as may be reasonably requested by any
other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.

 

[Remainder of Page Left Intentionally Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.

 

KFx, INC.

By

       

Name:

   

Title:

 

Print or Type:

 

Name of Purchaser
(Individual or Institution):   Name of Individual representing
Purchaser (if an Institution):   Title of Individual representing
Purchaser (if an Institution):  

 

Signature by:

 

Individual Purchaser or Individual
representing Purchaser:  

Address:

   

Telephone:

   

Telecopier:

   

 

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Appendix I

 

KFx, INC.

STOCK CERTIFICATE QUESTIONNAIRE

 

Pursuant to Section 3 of the Agreement, please provide us with the following
information:

 

1.    The exact name that your Shares are to be registered in (this is the name
that will appear on your stock certificate(s)). You may use a nominee name if
appropriate:    _____________________________ 2.    The relationship between the
Purchaser of the Shares and the Registered Holder listed in response to item 1
above:    _____________________________ 3.    The mailing address of the
Registered Holder listed in response to item 1 above:   
_____________________________           _____________________________          
_____________________________           _____________________________ 4.    The
Social Security Number or Tax Identification Number of the Registered Holder
listed in response to item 1 above:    _____________________________

 

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Appendix I

 

KFx, Inc.

REGISTRATION STATEMENT QUESTIONNAIRE

 

In connection with the preparation of the Registration Statement, please provide
us with the following information:

 

SECTION 1. Pursuant to the “Selling Stockholder” section of the Registration
Statement, please state your or your organization’s name exactly as it should
appear in the Registration Statement:

 

________________________________________________________________________________________________________

 

SECTION 2. Please provide the number of shares of the Company’s Common Stock
that you or your organization will “beneficially” own (see definition below)
immediately after Closing, including those Shares purchased by you or your
organization pursuant to this Purchase Agreement and those shares purchased by
you or your organization through other transactions:

 

________________________________________________________________________________________________________

 

SECTION 3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?

 

¨ Yes    ¨ No

 

If yes, please indicate the nature of any such relationships below:

 

________________________________________________________________________________________________________

 

________________________________________________________________________________________________________

 

________________________________________________________________________________________________________

 

SECTION 4. As to the shares of Common Stock indicated as being beneficially
owned in Section 2 above, does any person other than the person identified in
Section 1 have

 

4.1 the sole or shared power to vote or to direct the vote of any such
securities?

 

Yes ¨    No ¨

 

Or

 

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4.2 the sole or shared power to dispose or to direct the disposition of any such
securities (referred to as “dispositive power”)?

 

Yes ¨    No ¨

 

If the answer is “Yes” to either of the foregoing questions, please set forth
below the name and address of each person who has either such power or with whom
the indicated beneficial owner shares such power, together with such number of
shares to which such rights relates.

 

________________________________________________________________________________________________________

 

________________________________________________________________________________________________________

 

________________________________________________________________________________________________________

 

Please read the following carefully if you are an entity or a trust:

 

If you are an entity or a trust, you must list the name of each natural person
associated with your entity or trust who has or shares voting or dispositive
power with respect to the shares indicated as being beneficially owned in the
answer to Section 2. For an investment or holding company, the investment
manager(s) would normally be the person(s) who hold(s) or share(s) voting and
dispositive power. For a trust, the natural person(s) holding or sharing voting
or dispositive power would normally be the trustee(s). For other types of
entities, the natural person(s) holding or sharing voting or dispositive power
would normally be the officer(s) empowered by the board of directors to make
such decisions, or if there is no such officer, each of the directors.
Disclosure is required for each natural person who in practice has voting or
dispositive power, regardless of that person’s formal title or position within
the organization.

 

Name of Natural Person

--------------------------------------------------------------------------------

 

Type of Power:
Voting/Dispositive/Both

--------------------------------------------------------------------------------

 

Address

--------------------------------------------------------------------------------

   Position or Title

--------------------------------------------------------------------------------

                                                                                
        

 

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SECTION 5. In any pending legal proceeding, are you or your organization, or any
“affiliates” (see definition below) of you or your organization, a party, or do
you or your organization, or any such “associate” (see definition below) of you
or your organization, have an interest, adverse to the Company or any affiliate
of the Company?

 

Yes ¨    No¨

 

If the answer is “Yes,” please describe, and state the nature and amount of,
such interest.

 

________________________________________________________________________________________________________

 

________________________________________________________________________________________________________

 

________________________________________________________________________________________________________

 

SECTION 6. Are you directly or indirectly a “broker-dealer” (see definition
below) or an affiliate or an associate of a broker-dealer?

 

Yes ¨    No ¨

 

If the answer is yes, please respond to each of the questions below:

 

Please describe your affiliation or association with a broker-dealer, or if you
are a broker-dealer, please so state.

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

Did you purchase the Shares under the Purchase Agreement to be registered in the
ordinary course of business?

 

Yes ¨    No ¨

 

At the time of the purchase of the shares of Common Stock to be registered, did
you have any agreements or understandings, directly or indirectly, with any
person to distribute such shares?

 

Yes ¨    No ¨

 

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If the answer is yes, please describe such arrangements or understandings below.

 

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

If you are a broker-dealer, it is frequently the position of the Staff of the
Division of Corporation Finance of the Securities and Exchange Commission that
you must be named as an underwriter in the Registration Statement. Do you
consent to be named as an underwriter?

 

Yes ¨    No ¨

 

SECTION 7. Are you (i) an NASD Member (see definition), (ii) a Controlling (see
definition) shareholder of an NASD Member, (iii) a Person Associated with a
Member of the NASD (see definition), or (iv) an Underwriter or a Related Person
(see definition) with respect to the proposed offering; or (b) do you own any
shares or other securities of any NASD Member not purchased in the open market;
or (c) have you made any outstanding subordinated loans to any NASD Member?

 

Answer: [ ] Yes [ ] No If “yes,” please describe below

                                                                               
                                        
                                        
                                        
                                                   

 

                                                                               
                                        
                                        
                                        
                                                   

 

SECTION 8. Is the plan of distribution of your Shares correctly described in the
following excerpt proposed to be included in the Registration Statement?

 

Yes ¨    No ¨

 

“PLAN OF DISTRIBUTION

 

The selling security holders may sell the shares being offered from time to time
in one or more transactions:

 

  • on the American Stock Exchange or otherwise;

 

  • in the over-the-counter market;

 

  • in negotiated transactions;

 

  • through broker-dealers, who may act as agents or principals;

 

  • through one or more underwriters on a firm commitment or best efforts basis;

 

  • through the writing of options on shares, whether the options are listed on
an options exchange or otherwise; or

 

  • a combination of such methods of sale.

 

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The selling security holders may sell the shares at market prices prevailing at
the time of sale, at prices related to those market prices or at negotiated
prices. The selling security holders also may sell the shares pursuant to Rule
144 adopted under the Securities Act, as permitted by that rule. The selling
security holders may effect transactions by selling shares directly to
purchasers or to or through broker-dealers. The broker-dealers may act as agents
or principals. The broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling security holders or the
purchasers of the shares. The compensation of any particular broker-dealer may
be in excess of customary commissions. Because the selling security holders and
broker-dealers that participate with the selling security holders in the
distribution of shares may be deemed to be “underwriters” within the meaning of
Section 2(11) of the Securities Act, the selling security holders will be
subject to the prospectus delivery requirements of the Securities Act. Any
commissions received by them and any profit on the resale of shares may be
deemed to be underwriting compensation.

 

The selling security holders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities. There is no underwriter
or coordinating broker acting in connection with the proposed sale of shares by
the selling security holders.

 

The shares will be sold through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain states
the shares may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition, each
selling shareholder will be subject to applicable provisions of the Exchange Act
and the associated rules and regulations under the Exchange Act, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of our common stock by the selling security holders. We will make copies
of this prospectus available to the selling security holders and have informed
them of the need to deliver copies of this prospectus to purchasers at or prior
to the time of any sale of the shares.

 

We will bear all costs, expenses and fees in connection with the registration of
the shares. The selling security holders will bear all commissions and
discounts, if any, attributable to the sales of the shares. The selling security
holders may agree to indemnify any broker-dealer or agent that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. The selling security
holders have agreed to indemnify certain persons, including broker-dealers and
agents, against certain liabilities in connection with the offering of the
shares, including liabilities arising under the Securities Act.

 

Upon notification to us by a selling shareholder that any material arrangement
has been entered into with broker-dealers for the sale or purchase of shares, we
will file a supplement to this prospectus, if required, disclosing:

 

  • the name of the participating broker-dealers;

 

  • the number of shares involved;

 

  • the price at which such shares were sold;

 

  • the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;

 

  • that such broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and

 

  • other facts material to the transaction.

 

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In addition, upon being notified by a selling shareholder that a donee or
pledgee intends to sell more than 500 shares, we will file a supplement to this
prospectus.”

 

SECTION 9. By initialing below, you agree that you will comply with Regulation M
under the Securities Exchange Act of 1934, as amended, in connection with any
resales of your stock pursuant to the Registration Statement. The provisions of
Regulation M are referenced above in the “Plan of Distribution” contained in
Section 8.

 

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Appendix I

 

(Page 3 of 3)

 

Definitions:

 

Affiliate: An “affiliate” of a specified person is a person that directly, or
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified.

 

Associate: The term “associate” means (1) any corporation or organization
(except the Company and its subsidiaries) of which you are an officer or
partner, or of which you are, directly or indirectly, the owner beneficially of
10% or more of any class of equity securities, (2) any trust or other estate in
which you have a beneficial interest or as to which you serve as trustee or in a
similar fiduciary capacity, or (3) your spouse, or any relative of yours or of
your spouse who shares your home or who is a director or officer of the Company.

 

Beneficially: The term “beneficially” as applied to an interest in securities
describes any interest in the securities in question which entitles you to any
of the rights or benefits of ownership, even though you are not the holder or
owner of record. Interests in securities held in an estate, trust, or
partnership, or by a nominee, are examples of beneficial interests.

 

If you have any contract, understanding, relationship, agreement, or other
arrangement with any other person with respect to securities, pursuant to which
you obtain benefits substantially equivalent to the ownership of securities, you
should consider such securities as “beneficially owned” by you. For purposes of
this questionnaire, you will be regarded as having benefits substantially
equivalent to ownership of securities if:

 

(a) directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise you have or share:

 

  (i) voting power, which includes the power to vote, or to direct the voting
of, the security; or

 

  (ii) investment power, which includes the power to dispose of, or to direct
the disposition of, the security;

 

(b) you have the right to acquire beneficial ownership of the security,
including but not limited to any right to acquire:

 

  (i) through the exercise of any option, warrant, or right;

 

  (ii) through the conversion of a security;

 

  (iii) pursuant to a power to revoke a trust, discretionary account, or similar
arrangement; or

 

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  (iv) pursuant to the automatic termination of a trust, discretionary account,
or similar arrangement.

 

You are also considered to be the beneficial owner of a security if you,
directly or indirectly, create or use a trust, proxy, power of attorney, pooling
arrangement, or any other contract, arrangement, or device with the purpose or
effect of divesting yourself of beneficial ownership of such security or
preventing the vesting of such beneficial ownership as part of a plan or scheme
to evade the reporting requirements of Section 13(d) or 13(g) of the Securities
Exchange Act.

 

If you have any reason to believe that any interest you have in securities,
however remote, might be described as a beneficial interest, please describe
such interest.

 

The Securities and Exchange Commission has taken the view, with which some
courts have agreed, that a person may be regarded as the beneficial owner of
securities held in the name of the person’s spouse, minor children, or other
relatives of the person or the person’s spouse who share the person’s home, if
such relationship results in such person obtaining benefits substantially
equivalent to ownership of such securities. We will assume, however, that you do
not consider that you beneficially own any securities you list in answer to
Section 2 as being owned by such persons. If you do consider that you are the
beneficial owner of such securities, please list them as being owned by both you
and such other person, and indicate that such securities are listed more than
once.

 

Broker-Dealer. The term “broker-dealer” includes “brokers,” as that term is
defined in Section 3(a)(4) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and “dealers” as that term is defined in Section 3(a)(5)
of the Exchange Act.

 

Control. The term “control” (including the terms “controlling,” “controlled by”
and “under common control with”) means the possession, direct or indirect, of
the power, either individually or with others, to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise. (Rule 405 under the Securities Act
of 1933, as amended)

 

NASD Member. The term “NASD member” means any broker-dealer admitted to
membership in the National Association of Securities Dealers, Inc. (“NASD”).
(NASD Manual, By-laws Article I, Definitions)

 

Person Associated with a member of the NASD. The term “person associated with a
member of the NASD” means every sole proprietor, partner, officer, director,
branch manager or executive representative of any NASD Member, or any natural
person occupying a similar status or performing similar functions, or any
natural person engaged in the investment banking or securities business who is
directly or indirectly controlling or controlled by a NASD Member, whether or
not such person is registered or exempt from registration with the NASD pursuant
to its bylaws. (NASD Manual, By-laws Article I, Definitions)

 

Underwriter or a Related Person. The term “underwriter or a related person”
means, with respect to a proposed offering, underwriters, underwriters’ counsel,
financial consultants and advisors, finders, members of the selling or
distribution group, and any and all other persons associated with or related to
any of such persons. (NASD Interpretation)

 

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APPENDIX II

 

[Transfer Agent]

[Address]

 

Attention:

 

PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE

 

The undersigned, [an officer of, or other person duly authorized by]

                                                                               
                                                                    hereby
certifies

                              [fill in official name of individual or
institution]

 

that he/she [said institution] is the Purchaser of the shares evidenced by the
attached certificate, and as such, sold such shares on

                     in accordance with the terms of the Purchase Agreement and
in accordance with Registration Statement number

    [date]

                                                                               
                                                or otherwise in accordance with

[fill in the number of or otherwise identify Registration Statement]

 

the Securities Act of 1933, as amended, and, in the case of a transfer pursuant
to the Registration Statement, the requirement of delivering a current
prospectus by the Company has been complied with in connection with such sale.

 

Print or Type:

 

Name of Purchaser (Individual or Institution):     
Name of Individual representing Purchaser (if an Institution)     
Title of Individual representing Purchaser (if an Institution):      Signature
by: Individual Purchaser or Individual representing Purchaser:     

 

--------------------------------------------------------------------------------

EXHIBIT A

 

Name of Subsidiary

--------------------------------------------------------------------------------

   Jurisdiction of Formation

--------------------------------------------------------------------------------

KFx Technology, Inc.

   Wyoming

Advanced Coal Processing, Inc. (f/k/a KFx Wyoming, Inc.)

   Wyoming

K-Fuel, L.L.C.

   Delaware

Landrica Development Company

   South Dakota

COGAS, LLC

   Wyoming

KFx Plant, LLC

   Wyoming

KFx Operating, LLC

   Wyoming