KFX INC.


               166,667 Warrants Each to Purchase One Share of
                          Common Stock of KFx Inc.

                                                       Warrants to Purchase
                                                             166,667 Shares


                  THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
         BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "ACT"), OR ANY OF THE LAWS OF ANY STATE AND HAVE BEEN ISSUED
         PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT. THE
         SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
         SOLD OR TRANSFERRED EXCEPT IF (A) COVERED BY AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE ACT AND REGISTERED OR QUALIFIED
         UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) THE CORPORATION HAS
         BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
         THE CORPORATION TO THE EFFECT THAT NO REGISTRATION OR
         QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER.

         FOR VALUE RECEIVED, KFx Inc., a Delaware corporation (the
"Company"), hereby certifies that William H. Walker or his registered
assigns as permitted herein (the "Holder") is entitled, subject to the
provisions of this Warrant Certificate, to purchase from the Company, at
the times specified herein, 166,667 fully paid and non-assessable shares of
Common Stock of the Company, par value $.001 per share (the "Common
Stock"), at a purchase price per share equal to the Exercise Price (as
hereinafter defined) (the "Warrants"). The number of shares of Common Stock
to be received upon the exercise of the Warrants are subject to adjustment
from time to time as hereinafter set forth.

                                 ARTICLE I

                                DEFINITIONS

         The following terms, as used herein, have the following meanings:

         "Act" means the Securities Act of 1933.

         "Board" means the board of directors of the Company.

         "Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized by law
to close.

         "Commission" means the Securities and Exchange Commission.

         "Common Stock" means the Company's common stock, $.001 par value
per share.

         "Exercise Price" means $3.65 per Warrant Share, such Exercise
Price to be adjusted from time to time as provided herein.

         "Expiration Date" means the earlier of (i) 5:00 p.m. Denver,
Colorado time on March __, 2006, and (ii) the date of its exercise in full.

         "Person" means an individual, a partnership, a corporation, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a government or any department or agency thereof.

         "Warrant Shares" means the shares of Common Stock deliverable upon
exercise of the Warrants, as the number of such shares shall be adjusted
from time to time as provided herein, provided that if there is a change
such that the securities issuable upon exercise of the Warrants are issued
by an entity other than the Company or there is a change in the class of
securities so issuable, then the term "Warrant Shares" will mean the shares
of the security issuable upon exercise of the Warrants if such security is
issuable in shares, or will mean the smallest units in which such security
is issuable if such security is not issuable in shares.

                                 ARTICLE II

         Section 2.01. Exercise of Warrants.

         (1) The Holder is entitled to exercise the Warrants in whole or in
part at any time, or from time to time, until the Expiration Date or, if
such day is not a Business Day, then on the next succeeding day that shall
be a Business Day. To exercise the Warrants, the Holder shall execute and
deliver to the Company a Warrant Exercise Notice substantially in the form
annexed hereto, together with this Warrant Certificate and the payment of
the applicable Exercise Price. Upon such delivery and payment, the Holder
shall be deemed to be the holder of record of the Warrant Shares subject to
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Warrant Shares
shall not then be actually delivered to the Holder.

         (2) The Exercise Price may be paid in cash or by certified or
official bank check or bank cashier's check payable to the order of the
Company or by any combination of such checks. In addition, the Holder of
this Warrant may exercise this Warrant by surrendering it to the Company to
purchase a number of shares of Common Stock equal to the number of such
shares then purchasable upon exercise hereof less the number of such shares
equal to the quotient of the aggregate Exercise Price of all such shares
underlying this Warrant divided by the Fair Market Price per Share. Fair
Market Price per Share shall mean the average of the closing sales prices,
if available, or the average of the bid and asked prices for the Common
Stock (or its successor), on the principal market therefor for the five
trading days preceding the day which is one business day prior to the day
of exercise, or if no such price is available, as determined by the Board.
The Company shall pay any and all documentary, stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of the Warrant
Shares.

         (3) If the Holder exercises the Warrants in part, this Warrant
Certificate shall be surrendered by the Holder to the Company and a new
Warrant Certificate of the same tenor and for the unexercised number of
Warrant Shares shall be executed by the Company. The Company shall register
the new Warrant Certificate in the name of the Holder or in such name or
names of its transferees as may be directed in writing by the Holder and
deliver the new Warrant Certificate to the Person or Persons entitled to
receive the same.

         (4) Upon surrender of this Warrant Certificate in conformity with
the foregoing provisions, the Company shall transfer to the Holder of this
Warrant Certificate appropriate evidence of ownership of the shares of
Common Stock or other securities or property (including any money) to which
the Holder is entitled, registered or otherwise placed in, or payable to
the order of, the name or names of the Holder or such transferee as may be
directed in writing by the Holder, and shall deliver such evidence of
ownership and any other securities or property (including any money) to the
Person or Persons entitled to receive the same, together with the amount in
cash in lieu of any fraction of a share as provided in Section 2.03 below.

         Section 2.02. Restrictive Legend. Certificates representing shares
of Common Stock issued pursuant to the Warrants shall bear a legend
substantially in the form of the legend set forth on the first page of this
Warrant Certificate.

         Section 2.03. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of the
Warrants and in lieu of delivery of any such fractional share upon any
exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the then current market price per
share of Common Stock.

         Section 2.04. Loss or Destruction of Warrant. Upon receipt by the
Company of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the loss, theft, destruction or mutilation of this Warrant
Certificate, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant Certificate, if mutilated, the Company shall execute and deliver a
new Warrant Certificate of like tenor and date.

         Section 2.05. Forfeiture. Except as otherwise provided in this
Warrant, the Warrants may be exercised at any time through the close of
business on March __, 2006.

         Section 2.06. Effect of Reorganization, Reclassification,
Consolidation, Merger or Sale. If at any time while this Warrant is
outstanding there shall be any reorganization or reclassification of the
capital stock of the Company (other than a stock split, stock dividend or
other subdivision or combination of shares) or any consolidation or merger
of the Company with another corporation (other than a consolidation or
merger in which the Company is the surviving entity and which does not
result in any change in the Common Stock), or any sale or other disposition
by the Company of all or substantially all of its assets to any other
corporation, the Holder shall thereafter upon exercise of this Warrant be
entitled to receive the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from
such consolidation or merger, as the case may be, to which the Warrant
Shares deliverable upon the exercise of this Warrant would have been
entitled upon such reorganization, reclassification of capital stock,
consolidation, merger, sale or other disposition if this Warrant had been
exercised immediately prior to such reorganization, reclassification of
capital stock, consolidation, merger, sale or other disposition. In any
such case, appropriate adjustment (as determined by the Board) shall be
made in the application of the provisions set forth in this Warrant with
respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth in this Warrant (including those relating to
adjustments of the Exercise Price and the number of shares issuable upon
the exercise of this Warrant) shall thereafter be applicable, as near as
reasonably may be, in relation to any shares or other property thereafter
deliverable upon the exercise hereof as if this Warrant had been exercised
immediately prior to such reorganization, reclassification of capital
stock, consolidation, merger, sale or other disposition and the Holder
hereof had carried out the terms of the exchange as provided for by such
reorganization, reclassification of capital stock, consolidation or merger.

         Section 2.07. Adjustments for Stock Events. If at any time there
shall occur any stock split, stock dividend, reverse stock split or other
subdivision or combination of the Company's Common Stock (a "Stock Event"),
then the number of shares of Common Stock to be received by the holder of
this Warrant shall be appropriately adjusted such that the proportion of
the number of shares issuable hereunder to the total number of shares of
the Company (on a fully diluted basis) prior to such Stock Event is equal
to the proportion of the number of shares issuable hereunder after such
Stock Event to the total number of shares of the Company (on a
fully-diluted basis) after such Stock Event. No adjustment to the Exercise
Price shall be made in connection with any adjustment of the number of
shares of Common Stock receivable upon exercise of this Warrant, except
that the Exercise Price shall be proportionately decreased or increased
upon the occurrence of any Stock Event; however, in no event shall the
Exercise Price be less than the par value of the Common Stock.

         Section 2.08. Reservation of Common Stock. The Company will at all
times reserve and keep available for issuance upon the exercise of the
Warrant such number of its authorized but unissued shares of Common Stock
as will be sufficient to permit the exercise in full of the Warrant, and
when issued upon such exercise shall be validly issued, fully paid and
nonassessable.

                                ARTICLE III

                              NO VOTING RIGHTS

         Prior to the exercise of any Warrant, the Holder shall not, by
virtue hereof, be entitled to any rights as a stockholder of the Company,
including, without limitation, the right to vote, to receive dividends or
other distributions, to exercise any preemptive rights or to receive any
notice of meeting of stockholders or any notice of any proceedings of the
Company except as may be specifically provided for herein.

                                 ARTICLE IV

                              REPRESENTATIONS

         (a) The Holder of this Warrant acknowledges and represents:

                           (i) that neither this Warrant nor the Warrant
                  Shares have been registered under the Act, or any state
                  securities law and agrees not to sell, pledge,
                  distribute, offer for sale, transfer or otherwise dispose
                  of this Warrant or any Warrant Shares issued upon its
                  exercise in the absence of (A) an effective registration
                  statement as to this Warrant or such Warrant Shares under
                  the Act (or any similar statute then in effect) or any
                  state securities law, or (B) an opinion of counsel for
                  the Company to the effect that such registration is not,
                  under the circumstances, required.

                           (ii) THE OFFER AND SALE OF THE SECURITIES
                  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
                  UNDER THE ACT, AND SUCH SECURITIES MAY NOT BE SOLD OR
                  TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER SUCH ACT COVERING SUCH SALE OR TRANSFER
                  OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
                  BE COUNSEL FOR THE COMPANY) STATING THAT SUCH SALE OR
                  TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
                  DELIVERY REQUIREMENTS OF SUCH ACT.

                           (iii) The Holder is acquiring this Warrant and
                  the Warrant Shares for its own account for investment and
                  not with a view to, or for sale in connection with, any
                  distribution thereof; nor with any present intention of
                  distributing or selling the same.

                           (iv) The Holder has made detailed inquiry
                  concerning the Company, its business and its personnel;
                  the officers of the Company have made available to the
                  Holder any and all written information which it has
                  requested and have answered to the Holder's satisfaction
                  all inquiries made by the Holder, and the Holder has
                  sufficient knowledge and experience in investing in
                  companies similar to the Company so as to be able to
                  evaluate the risks and merits of its investment in the
                  Company and is able financially to bear the risks
                  thereof.

         (b) The Holder understands that the Company proposes to issue and
         deliver this Warrant and the Warrant Shares to the Holder pursuant
         to this Agreement without compliance with the registration
         requirements of the Act; that for such purpose the Company will
         rely upon the representations, warranties, covenants and
         agreements contained herein; and that such non-compliance with
         registration is not permissible unless such representations and
         warranties are correct and such covenants and agreements
         performed. The Holder is an "accredited investor" as such term is
         defined in Rule 501 under the Act.

         (c) The Holder understands that, under existing rules of the
         Commission, the Holder may be unable to sell this Warrant and the
         Warrant Shares except to the extent that this Warrant and the
         Warrant Shares may be sold (i) pursuant to an effective
         registration statement covering such securities pursuant to the
         Act or (ii) in a bona fide private placement to a purchaser who
         shall be subject to the same restrictions on any resale or (iii)
         subject to the restrictions contained in Rule 144 under the Act.

         (d) The Holder (either alone or together with its advisors) has
         sufficient knowledge and experience in financial and business
         matters so as to be capable of evaluating the merits and risks of
         its investment in this Warrant and the Warrant Shares and the
         Holder is capable of bearing the economic risks of such
         investment.

                                 ARTICLE V

                               NO IMPAIRMENT

         The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect
the rights of the Holder of this Warrant against impairment.

                                 ARTICLE VI

                           LIQUIDATING DIVIDENDS

         If the Company pays a dividend or makes a distribution on the
Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting
principles), except for a stock dividend payable in shares of Common Stock
(a "Liquidating Dividend"), then the Company will pay or distribute to the
holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such holder if he had been the owner of record of
such shares of Common Stock immediately prior to the date on which a record
is taken for such Liquidating Dividend or, if no record is taken, the date
as of which the record holders of Common Stock entitled to such dividend or
distribution are to be determined.

                                ARTICLE VII

                        NOTICES OF RECORD DATE, ETC.

         In case:

                  (a) the Company shall take a record of the holders of its
         Common Stock (or other stock or securities at the time deliverable
         upon the exercise of this Warrant) for the purpose of entitling or
         enabling them to receive any dividend or other distribution, or to
         receive any other right, or

                  (b) of any capital reorganization of the Company, any
         reclassification of the capital stock of the Company, any
         consolidation or merger of the Company with or into another
         corporation (other than a consolidation or merger in which the
         Company is the surviving entity), or any transfer of all or
         substantially all of the assets of the Company, or

                  (c) of the voluntary or involuntary dissolution,
         liquidation or winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to
the Holder of this Warrant a notice specifying as the case may be, (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such
dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if
any is to be fixed, as of which the holders of record of Common Stock (or
such other stock or securities at the time deliverable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock
(or such other stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall
be given at least ten (10) days prior to the record date or effective date
for the event specified in such notice.

                                ARTICLE VIII

                               MISCELLANEOUS

         Section 8.01. Amendment and Waiver. The provisions of the Warrant
may be amended and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it upon the
written consent of the holders of a majority of the outstanding Warrants
exercisable for a majority of the Warrant Shares.

         Section 8.02. Notices. Any notices required to be sent to the
Holder will be delivered to the address of the Holder shown on the books of
the Company. All notices referred to herein will be delivered in person,
sent by first-class mail, postage prepaid, or by recognized express courier
(such as Federal Express). Notice will be deemed to have been given upon
personal delivery, one business day after deposit with an express courier
or two business days after deposit in the mail.

         Section 8.03. Descriptive Headings; Governing Law. The descriptive
headings of the paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. The construction,
validity and interpretation of this Warrant will be governed by the laws of
the State of Delaware.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer this 8th day of March, 2001.

                                  KFx Inc.


                                  By  /s/ Seth L. Patterson
                                     -------------------------------------
                                  Name:  Seth L. Patterson
                                  Title: Executive Vice President and
                                         Chief Financial Officer



                                 EXHIBIT A

                          WARRANT EXERCISE NOTICE

            (To be executed only upon exercise of the Warrants)



To:      KFx Inc.

         The undersigned irrevocably exercises the Warrants for the
purchase of __________ shares (the "Shares") of Common Stock, par value
$.001 per share, of KFx Inc. (the "Company") and agrees to make payment
therefor [in the amount of $______________] [in accordance with the
cashless exercise provisions of Section 2.01(2) of the within Warrant
Certificate], all on the terms and conditions specified in the within
Warrant Certificate, surrenders this Warrant Certificate and all right,
title and interest therein to the Company and directs that the Shares
deliverable upon the exercise of the Warrants be registered or placed in
the name and at the address specified below and delivered thereto.

Dated: ___________________, 20__.


                                   _________________________________________
                                   (Signature of Owner)

                                   _________________________________________
                                   (Street Address)

                                   _________________________________________
                                   (City)       (State)          (Zip Code)




Securities and/or check to be issued to:


Please insert social security or identifying number:


Name:


Street Address:


City, State and Zip Code:


Any unexercised portion of the Warrants evidenced by the within Warrant
Certificate to be issued to:


Please insert social security or identifying number:


Name:


Street Address:


City, State and Zip Code