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                                                                   EXHIBIT 10.42
 
                                   KFx  INC.
            1998 ADVISORY COMMITTEE NONQUALIFIED STOCK OPTION PLAN

I.   Establishment and Purpose

     a.  There is hereby adopted by KFx Inc. (the "Company"), the KFx Inc. 1998
     Advisory Committee Stock Option Plan.  The Plan is intended to provide a
     means whereby eligible Members may be given an opportunity to purchase
     shares of Common Stock pursuant to options which are not intended to
     qualify as incentive stock options under Section 422 of the Code.

     b.  The purpose of the Plan is to enable the Company to attract the best
     available individuals to serve as Members, to compensate such individuals
     for their efforts taken on behalf of the Company while serving as Members,
     and to encourage their continued service on the Advisory Committee.

II.  Definitions

     Unless otherwise required by the context:

     a.  "Administrator" means the Board or any of its Committee(s)
     administering the Plan, in accordance with Section IV of the Plan.

     b.  "Advisory Committee" means that certain committee of the Company
     comprised of Members whose purpose is to advise the Board on the
     feasibility of specific projects, including their economic, technical and
     financial feasibility, as requested by the Board from time to time.

     c.  "Applicable Laws" means the legal requirements relating to the
     administration of stock option and equity incentive plans under applicable
     state of Delaware corporate and securities laws and under the Code.

     d.  "Board" shall mean the Board of Directors of the Company.

     e.  "Committee" means a Committee appointed by the Board in accordance with
     Section D of the Plan.

     f.  "Common Stock" means the $.001 par value common stock of the Company
     that is traded on an approved securities market pursuant to the Exchange
     Act.

     g.  "Company" shall mean KFx Inc., a Delaware corporation.

     h.  "Code" shall mean the Internal Revenue Code of 1986, as amended.

     i.  "Exchange Act" means the Securities Exchange Act of 1934, as amended.


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     j.  "Fair Market Value" means, as of a specified date, the value of Common
     Stock determined by the Administrator as follows:

          (i) If the Common Stock is listed on any established stock exchange or
          quoted on a national market system, including without limitation the
          National Market System of the National Association of Securities
          Dealers, Inc.  Automated Quotation ("NASDAQ") System, the Fair Market
          Value of a Share shall be the closing sales price for the Common Stock
          (or the closing bid, if no sales were reported) as quoted on such
          exchange (or, if listed on more than one exchange, the exchange with
          the greatest volume of trading in Common Stock) or system on the last
          market trading day prior to the day of determination, as reported in
          the Wall Street Journal or such other source as the Administrator
          deems reliable; or

          (ii) If the Common Stock is quoted on the NASDAQ System (but is not
          included on the National Market System thereof) or is regularly quoted
          by a recognized securities dealer but selling prices are not reported,
          the Fair Market Value of a Share shall be the mean between the closing
          bid and closing asked prices for the Common Stock on the last market
          trading day prior to the day of determination, as reported in the Wall
          Street Journal or such other source as the Administrator deems
          reliable.

     k.  "Member" means a non-employee member of the Advisory Committee.

     l.  "Nonqualified Stock Option" means an Option that is not an incentive
     stock option under Section 422 of the Code.

     m.  "Notice of Grant" means a written notice evidencing certain terms and
     conditions of an individual Option.  The Notice of Grant is part of the
     Option Agreement.

     n.  "Option" shall mean an option to purchase Shares granted pursuant to
     the Plan.

     o.  "Optionee" shall mean a Member of the Company who receives an option.

     p.  "Option Agreement" means a written agreement between the Company and an
     Optionee evidencing the terms and conditions of an individual Option grant.
     The Option Agreement is subject to the terms and conditions of the Plan and
     the Notice of Grant.

     q.  "Option Price" shall mean the purchase price for Shares under an
     option, as determined in Section VI of the Plan.

     r.  "Optioned Stock" means the Common Stock subject to an Option.

     s.  "Plan" shall mean the KFx Inc. 1998 Advisory Committee Nonqualified
     Stock Option Plan.

     t.  "Share" means a share of the Common Stock.

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III. Stock Subject to Options

     a.   Subject to the provisions of Section VII of the Plan, the total number
     of Shares reserved and available for distribution pursuant to awards made
     under the Plan shall be one hundred thousand shares (100,000 shares). The
     Shares may be authorized but unissued or reacquired shares of Common Stock.

     b.   If an Option should expire or become unexercisable for any reason
     without having been exercised in full, then unpurchased Shares which were
     subject thereto shall, unless the Plan shall have been terminated, become
     available for other Options granted under the Plan.

     c.   Notwithstanding any other provision of the Plan, Shares issued upon
     exercise of Options under the Plan and later repurchased by the Company
     shall not become available for future grant or sale under the Plan.

IV.  Administration

     a.   The Plan shall be administered by (i) the Board; (ii) a Committee
     designated by the Board, which Committee shall be constituted in such a
     manner as to satisfy the Applicable Laws; or (iii) as permitted by Rule
     16b-3 promulgated under the Exchange Act.

     b.   Once a Committee has been appointed pursuant to this Section IV, such
     Committee shall continue to serve in its designated capacity or until
     otherwise directed by the Board.  From time to time, the Board may increase
     the size of any Committee and appoint additional members thereof, remove
     members (with or without cause) and appoint new members in substitution
     therefor, fill vacancies (however caused) or remove all member of the
     Committee and thereafter directly administer the Plan, all to the extent
     permitted by the Applicable Laws and, in the case of a Committee appointed
     under this Section, to the extent permitted by Rule 16b-3 as it applies to
     a plan intended to qualify thereunder as a discretionary grant or award
     plan.

     c.   Subject to the provisions of the Plan and, in the case of a Committee,
     the specific duties delegated by the Board to such Committee, the
     Administrator shall have the authority, in its discretion:

         (i)   to grant Nonqualified Stock Options;

         (ii)  to determine the Fair Market Value of the Common Stock, in
    accordance with Section II(j) of the Plan;

         (iii) to determine the number of Shares to be covered by each such
    award granted hereunder;

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         (iv)   to approve forms of agreements for use under the Plan;

         (v)    to determine the terms and conditions, not inconsistent with the
    terms of the Plan, of any award granted hereunder and of the Options so
    awarded (including, but not limited to, the exercise or purchase price and
    any restriction or limitation regarding any Option and/or the Shares
    relating thereto, based in each case on such factors as the Administrator
    shall determine, in its sole discretion);

         (vi)   to authorize any person to execute on behalf of the Company any
    instrument required to effect the grant of an Option previously granted by
    the Administrator;

         (vii)  to interpret the Plan and to prescribe, amend, and rescind rules
    and regulations relating to the Plan; and

         (viii) to make all other determinations deemed necessary or advisable
    for administering the Plan.

    d.   Notwithstanding the foregoing provisions, each year on the third
    business day following the Company's Annual Meeting of Shareholders (the
    "Grant Date"), each Member shall automatically be granted an Option to
    purchase 5,000 Shares.  If on the Grant Date the Company is in possession of
    material, undisclosed information that would prevent it from issuing
    securities, then the grant of the Options will be suspended until the third
    day after the public dissemination of the information (or the first trading
    day thereafter).

         (i) The Options granted under this Subsection (d) shall vest
    immediately and be immediately exercisable on the Grant Date; provided,
    however, that the Shares are subject to repurchase by the Company at the
    exercise price if the Member ceases to serve as a Member prior to the first
    anniversary date of the Grant Date for any reason other than death.

         (ii) The exercise price shall not be less than 100% of the Fair Market
    Value of the Common Stock on the Grant Date and in no event shall be less
    than $3.75 per Share.

         (iii) The term of Options granted under this Subsection (d) shall be
    limited to seven (7) years from Grant Date.


    e.   All decisions, determinations, and interpretations of the Administrator
    shall be final and binding.

    f.   If the Chief Executive Officer or his or her designees reasonably
    believes that an Optionee has committed an act of misconduct, the Chief
    Executive Officer may suspend the Optionee's right to exercise any Option or
    to receive any benefits relating thereto pending a determination by the
    Administrator. If the Administrator determines that an

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     Optionee has committed an act of embezzlement, fraud, dishonesty,
     nonpayment of an obligation owed to the Company, breach of fiduciary duty,
     or deliberate disregard of the Company's rules resulting in loss, damage or
     injury to the Company, or if an Optionee makes an unauthorized disclosure
     of any Company trade secret or confidential information, engages in any
     conduct constituting unfair competition, induces any Company customer to
     breach a contract with the Company, or induces any principal for whom the
     Company acts as agent to terminate such agency relationship, neither the
     Optionee nor his or her estate shall be entitled to exercise any Option or
     to receive any benefits relating to Options whatsoever. In making such
     determination, the Administrator shall act fairly and shall give the
     Optionee an opportunity to appear and present evidence on Optionee's behalf
     at a hearing before the Administrator.

V.   Eligibility

     Only Members are entitled to receive Options under the Plan. Options
granted at different times need not contain similar provisions.

VI.  Option Price

     Except as set forth in Section IV(d)., the purchase price for Shares under
each Option shall be designated by the Committee in its discretion; provided,
however, in no event shall the purchase price per Share be less than $3.75.

VII. Terms and Conditions of Options

     The Notice of Grant shall specify the per Share exercise price for the
Shares issuable pursuant to an Option. The Notice of Grant shall also specify
the number of Shares which are subject to the Option.

VIII. Termination of Relationship

     Except as provided in Section IX below and except to the extent the
Committee shall otherwise designate, in the event of any termination of a
Member's relationship with the Company all Options which had not been exercised
as of the date of such termination shall immediately expire.



IX.  Rights in Event of Death

     If a Member dies while retained by the Company and without having fully
exercised his Options, the executors or administrators, or legatees or heirs, of
his or her estate shall have the right to exercise such Options to the extent
that such deceased Member was entitled to exercise the Options on the date of
his or her death; provided, however, that in no event shall the Options be
exercisable more than two years from the date of the Member's death.

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X.   No Obligations to Exercise Option

     The granting of an Option shall impose no obligation upon the Member to
exercise such Option.

XI.  Nonassignability

     Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Member's lifetime shall be exercisable
only by such Member.

XII. Effect of Change in Common Stock Subject to the Plan

     The aggregate number of Shares available for Options under the Plan, the
Optioned Stock and the price per Share shall all be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
subsequent to the effective date of the Plan resulting from (a) a subdivision or
consolidation of Shares or any other capital adjustment, (b) the payment of a
stock dividend, or (c) other increase or decrease in such Shares effected
without receipt of consideration by the Company.  If the Company shall be the
surviving corporation in any merger or consolidation, any Option shall pertain,
apply, and relate to the securities to which a holder of the number of Shares
subject to the Option would have been entitled after the merger or
consolidation.  Upon dissolution or liquidation of the Company, or upon a merger
or consolidation in which the Company is not the surviving corporation, all
Options outstanding under the Plan shall terminate; provided, however, that each
Member (and each other person entitled under Section I to exercise an Option)
shall have the right, immediately prior to such dissolution or liquidation, or
such merger or consolidation, to exercise such Options in whole or in part, but
only to the extent that such Options are otherwise exercisable under the terms
of the Plan.

XIII. Amendment and Termination

     a.  The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any Shares as to which Options have not been granted.  Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein.  Unless sooner terminated, the Plan shall remain in effect
for a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.

     b.  Any such amendment, alteration, suspension, or termination of the Plan
shall not adversely affect Options already granted and such Options shall remain
in full force and effect as if this Plan had not been amended, altered,
suspended, or terminated, unless otherwise mutually agreed by the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.

XIV. Legal Compliance

     a.  Shares shall not be issued pursuant to the award, vesting, or exercise
of an Option 

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unless the award, vesting, or exercise of such Option, as the case may be, and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, applicable state securities laws, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

     b.  As a condition to the receipt of Shares upon the award, vesting, or
exercise of an Option, the Company may require the person receiving such Shares
to represent and warrant at the time of any such award, vesting, or exercise
that the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

     c.  The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

     d.  If the Optioned Stock exceeds, as of the date of grant, the number of
Shares which may be issued under the Plan without additional Board approval,
such Option shall be void with respect to such excess Optioned Stock, unless
Board approval of an amendment sufficiently increasing the number of Shares
subject to the Plan is timely obtained in accordance with Section XIII of the
Plan.

XV.  Agreements

     Options shall be evidenced by written agreements in such form as the
Administrator shall approve from time to time.

XVI. Reservation of Shares of Stock

     The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of Shares sufficient to satisfy the requirements of this Plan. The inability of
the Company to obtain from any regulatory body having jurisdiction the authority
deemed necessary by counsel for the Company for the lawful issuance and sale of
its Common Stock hereunder shall relieve the Company of any liability in respect
of the failure to issue or sell Common Stock as to which the requisite authority
has not been obtained.

XVII. Effective Date of Plan

     The Plan shall be effective from the date that the Plan is approved by the
Board.

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