Document:

Exhibit 10.26
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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

This Agreement is entered into between Rockwell Collins, Inc. located at 2001
West Mission Boulevard, Pomona, CA 91766-1020 (hereinafter referred to as
"Rockwell" or "Buyer"), and SNAP2 Corporation, located at 10641 Justin Drive,
Des Moines, Iowa (hereinafter referred to as "Seller").

In consideration of the promises contained herein, the parties agree to the
following terms and conditions:

1.    SCOPE OF SERVICES

      During the term of this Agreement, Seller shall furnish the services set
      forth in Statement of Work, eADB ACC OS Software Engineering Services,
      Project no. 1055A, attached hereto and made a part hereof. Such services
      shall be performed by individuals as employees of Seller, an independent
      contractor, and not as employees of Buyer. If the services are to be
      performed at Buyer's plant, Seller's employees shall abide by rules
      established by Buyer. Signing and returning the acknowledgment copy of
      this agreement shall constitute acceptance of this Agreement. All use or
      reference to the phrase "this Agreement" contained herein, or in any
      document incorporated by reference, shall mean and be construed to include
      this Services Agreement and any Purchase Orders released hereunder.

2.    TERM OF AGREEMENT

      The Agreement shall commence on Feb.14, 2002 and be concluded upon 3 weeks
      after receipt of diagnostic software sufficiently complete to validate the
      hardware.

3.    BILLING AND PAYMENT

      3.1   As compensation for services to be performed by Seller hereunder,
            Buyer shall pay Seller at the rates set forth in the Schedule and to
            the extent, if any, expressly provided for in the Schedule,
            reimbursements for certain costs, such as travel expenses incurred
            in the performance of services hereunder. Buyer shall not have any
            liability for any other expenses or costs incurred by Seller
            hereunder, unless otherwise provided in the Schedule.

      3.2   Seller shall invoice Buyer at monthly intervals, or as otherwise
            specified in the Schedule. Invoices shall be mailed to:

                     Rockwell Collins, Inc.
                     400 Collins Road, N.E.
                     Cedar Rapids, IA   52498
                     Attn:  Accounts Payable

      3.3   Each invoice submitted by Seller shall provide the following:

            a)    Invoices for services and reimbursable expenses shall contain
                  the following statement signed by the Seller, or if this
                  Agreement is with a firm, an officer or authorized
                  representative of the firm:

                  "I hereby certify, to the best of my knowledge and belief,
                  that this invoice is correct, and that all items invoiced are
                  based upon actual costs incurred or services rendered
                  consistent with the terms of the Support Services Agreement
                  and associated Schedule."
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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

            b)    Provide complete supporting detail, including name(s) of
                  person(s) who performed the services, dates of services, hours
                  or days worked and billing rates.

            c)    Identify the task and completion date if this Agreement is
                  based upon a fixed sum payment.

            d)    Be accompanied by (i) an itemized listing of amounts claimed,
                  (ii) pertinent information relative to the expenses, and (iii)
                  receipts, to document the expenses when reasonably available.

      3.4   Seller shall not take any action hereunder which could cause the
            amount for which Buyer would be obligated to pay Seller to exceed
            the sum of $[Confidential Treatment has been requested for this
            portion of this Exhibit]. Notwithstanding any other provisions of
            this Agreement, Buyer shall not be obligated to pay Seller any
            amount in excess of the aforementioned sum, provided however, that
            this sum may be increased from time to time by Buyer in writing.

4.    RELEASE OF NEWS INFORMATION AND ADVERTISING

      Seller shall not, without the prior written consent of Buyer: (a) make any
      news release, public announcement, denial or confirmation of all or any
      part of the subject matter of this Agreement.

5.    ASSIGNMENT AND SUBCONTRACTING

      Performance of this Agreement may not be assigned or subcontracted in
      whole without, in each case, the prior written consent of Buyer. In the
      event Seller designates employees or agents other than as specified
      herein, such individual shall sign a confidentiality agreement prior to
      commencing work on behalf of the Buyer. In the event that during the term
      of this Agreement, any of Buyer's divisions or affiliates or any location
      or other portion of any such division or affiliate is sold or merged with
      another company or entity, such sold or merged entity may continue to
      operate under the terms and conditions of this Agreement for continued
      services hereunder for the twelve (12) month period following the
      effective date of such business change.

6.    CANCELLATION/TERMINATION

      Buyer shall have the right to cancel this Agreement or any part thereof at
      any time by providing written notice to Seller:

      a)    For Convenience - In case of cancellation by Buyer of all or any
            part of this Agreement without cause, any cancellation claim must be
            submitted to Buyer within sixty (60) days after the effective date
            of cancellation and shall be subject to an audit. Seller shall be
            entitled to its direct costs already incurred in the performance of
            the work cancelled, which together may not exceed the contract price
            of the work canceled. Upon receipt of a notice of cancellation from
            Buyer, Seller shall stop work and immediately take the necessary
            action to ensure that all work under the Agreement shall cease and
            to the extent specified in Buyer's notice of cancellation, that all
            subcontracts and orders are forthwith terminated immediately. The
            provisions of this subparagraph shall not limit or affect the right
            of Buyer to cancel this Agreement "For Cause" and shall not apply to
            a breach of contract. In no event shall Buyer be liable for
            punitive, indirect, special, incidental or consequential damages for
            termination pursuant to this provision.

      b)    For Cause - Buyer may by written notice to Seller, without prejudice
            to any other rights or remedies provided under this Agreement by law
            or in equity, terminate this Agreement in whole

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

            or in part in any of the following circumstances: (i) if Seller has
            been declared bankrupt, makes an assignment for the benefit of
            creditors, or is in receivership; or (ii) if Seller fails to perform
            the work or deliver the supplies in accordance with the performance
            requirements or delivery schedules specified herein or any extension
            thereof; or (iii) if Seller (A) fails to perform any of the other
            terms of this Agreement, or (B) so fails to make progress as to
            endanger the performance of this Agreement in accordance with its
            terms, and in either of the two circumstances enumerated in this
            provision 6(b)(iii)(A) or 6(b)(iii)(B), does not cure such failure
            within a period of ten (10) days (or such longer period as Buyer may
            authorize in writing) after receipt of notice from Buyer specifying
            such failure. In the event Buyer terminates this Agreement in whole
            or in part as provided in paragraph (b) of this provision, Buyer may
            procure, upon such terms and in such manner as it may deem
            appropriate, services similar to those so terminated, and Seller
            shall be liable to Buyer for any excess costs, reasonably incurred
            for such similar supplies or services; provided that Seller shall
            continue the performance of this Agreement to the extent not
            terminated under the terms of this provision.

7.    INTELLECTUAL PROPERTY

      a)    All information and data, regardless of form, generated or designed
            in the performance of or delivered under this Agreement, as well as
            any information provided to Seller by Buyer, shall be and remain the
            sole property of Buyer. Seller grants Buyer an unlimited,
            unrestricted and non-exclusive, fully-paid, world-wide license to
            all background intellectual property of Seller necessary to fully
            practice and utilize any design or product (including software)
            resulting from performance hereunder. Seller shall keep all
            information and data generated pursuant to this Agreement in
            confidence and not disclose or use it for any purpose other than in
            performing this Agreement, except with Buyer's prior written
            approval. In the event that the copyright in any data and
            information generated in the performance of this Agreement does not
            vest in Buyer by law, Seller hereby agrees to assign the copyright
            in all such data and information to the Buyer. These obligations
            shall survive the termination of this Agreement. Seller further
            agrees not to knowingly include any material copyrighted by others
            in technical data delivered under this Agreement without first
            obtaining, at no additional cost and for the benefit of Buyer, a
            license therein of the same scope as set forth herein.

      b)    Seller agrees that all Seller owned data, including but not limited
            to tapes, photo prints and other graphic information, furnished with
            items or required to be furnished by this Agreement, together with
            any information furnished orally, shall be free from proprietary
            restriction. Data for which a restrictive use marking is authorized
            herein or by special agreement, may be duplicated and used by Buyer
            in performance of its present and future contracts including
            preparation of logistics and instructional information and delivery
            thereof as required by customer contract, provided that Seller's
            data subject to restrictive use marking as authorized herein, so
            long as the information is not legally available to Buyer from other
            sources, shall not be disclosed outside Buyer or its customers
            without Seller's permission. Seller further agrees to furnish
            additional data required by Buyer to support Buyer's requirements
            for logistics, maintenance, and operational data for Buyer's
            customers within three (3) years of final delivery for a reasonable
            price for preparation and delivery, including generation thereof, if
            required.

8.    PATENT INDEMNITY

      Seller hereby indemnifies Buyer, its successors, assigns, agents,
      customers, and users of the articles against loss, damage, or liability,
      including costs and expenses, including attorneys' fees, which may be
      incurred on account of any suit, claim, judgment, or demand involving
      infringement or alleged infringement of any copyright, trademark, or
      patent rights in the manufacture, use or disposition of any articles
      supplied hereunder in any form or media, provided Buyer shall notify
      Seller of any suit

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

      instituted against it, and to the full extent of its ability to do so
      shall permit Seller to defend the same or make settlement in respect
      thereto. Buyer does not grant indemnity to Seller for infringement of any
      patent, trademark, copyright, or data rights. Seller shall not be liable
      to Buyer in the event any claim or threatened claim is solely or wholly
      based on product specifications designed and, or provided by Buyer. Upon
      Seller's demand, Buyer will defend, indemnify and hold Seller harmless
      from claims directly relating to violations of intellectual property
      rights of a third party where the infringement is directly associated with
      Buyer's designed Product or specifications.

9.    INDEMNIFICATION

      Seller hereby agrees to indemnify and hold harmless Buyer, its affiliates
      and their respective successors and assigns, and its and their respective
      directors, officers, agents and employees, from and against any and all
      claims, liabilities, damages, losses, causes of action and judgments
      brought by any person, corporation, governmental entity or other entity
      not a party to this Agreement, whether arising from injury or death to
      persons or loss or damage to property or otherwise (collectively "Third
      Party Claims"), and reasonable attorneys' fees and costs and expenses
      incident thereto to the extent such Third Party Claims arise from (a) any
      defect in the design, workmanship or material of any product or associated
      software delivered by Seller to Buyer hereunder and/or (b) any negligence
      (whether active or passive) or willful misconduct of Seller, its
      contractors of any tier or its or their directors, officers, agents, or
      employees. This indemnity shall survive the termination or expiration of
      this Agreement for a period of five (5) years.

10.   CHANGES

      Buyer within the general scope of this Agreement, may at any time, by a
      written notice to Seller, issue additional instructions, require
      additional services or direct the omission of services covered by this
      Agreement. If any such change causes an increase or decrease in the cost
      of, or the time required for, the performance of any part of the work
      under this Agreement, an equitable adjustment shall be made in the price
      or delivery schedule, or both, and this Agreement modified in writing
      accordingly. Information, advise, approvals or instructions given by
      Buyer's technical personnel or other representatives shall be deemed
      expressions of personal opinion only and shall not affect Buyer and Seller
      rights and obligations hereunder unless set forth in a writing which is
      signed by a member of Buyer's procurement department and which expressly
      states that it constitutes an approval, amendment, or change to this
      Agreement. Any claim by Seller for an adjustment must be made in writing
      within thirty (30) days of the receipt of any such notice. Nothing in this
      clause shall excuse the Seller from proceeding without delay to perform
      this Agreement as changed.

11.   NOTICES

      Any notice shall be considered as having been given (i) to Rockwell if
      mailed by certified mail, postage prepaid to Rockwell Collins, Inc.,
      Passenger Systems, 2001 West Mission Boulevard, Pomona, CA 91766-1020,
      Attn: Randy Gauldin, Subcontracts, Phone: (909) 868-6156, FAX: (909)
      868-1241, E-mail: rrgauldi@collins.rockwell.com, or (ii) to Seller if
      mailed by certified mail, postage prepaid to: SNAP2 Corporation, 10641
      Justin Drive, Des Moines, IA, Attn: Mark Mailinak, Phone: (512) 671-3613,
      FAX: (515) 331-3901, E-mail: mmalinak@earthlink.net

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

12.   CONFIDENTIAL OR PROPRIETARY INFORMATION

      Seller, its directors, officers, employees and agents shall preserve as
      confidential all information pertaining to Buyer's business and all
      technical and proprietary information obtained from Buyer in the
      performance of this Agreement. Seller further agrees that any data and
      information generated or delivered in the performance of this Agreement
      and any information and data furnished by Buyer shall (a) be kept in
      confidence and not be disclosed to third parties without the prior written
      approval of Buyer, and (b) shall not be used in the sale, production,
      manufacture or design of any article, material, process, methodology,
      study or report, except as otherwise provided herein, without Buyer's
      prior written consent. Seller agrees that this obligation shall survive
      the termination or expiration of this Agreement. Seller shall deliver all
      data and information to Buyer upon request and, in any event, upon the
      completion of all work hereunder or cancellation or expiration hereof,
      whichever shall first occur, and shall be fully responsible for the care
      and protection thereof until such delivery. Notwithstanding any other
      provision of this Agreement, the confidentiality obligations specified in
      this section will not apply to any Confidential Information received by
      Seller, which is or becomes publicly available without breach of this
      Agreement.

13.   BUYER'S PROPERTY

      All property used by Seller in connection with this Agreement which is
      owned, furnished, charged to or paid for by Buyer shall be and remain the
      property of Buyer subject to removal and inspection by Buyer at any time
      without cost or expense to Buyer and Buyer shall have free access to
      Seller's premises for the purpose of inspecting or removing such property.
      All such property shall be identified and marked as Buyer's property, used
      only for this Agreement and adequately insured by Seller at its expense
      for Buyer's protection. Seller shall assume all liability for and maintain
      and repair such property and return the same to Buyer in its original
      condition, reasonable wear and tear excepted, and when such property is no
      longer required hereunder. Seller shall furnish Buyer with a list thereof
      and shall comply with any Buyer disposition instructions applicable
      thereto.

14.   CONFLICT OF INTEREST

      Seller hereby represents and covenants that neither it nor any of its
      employees or representatives has or shall have directly or indirectly, any
      agreement with any official, employee or representative of any customer or
      of any government or governmental agency or of any political party under
      which any such receive either directly or indirectly anything of value
      whether monetary or otherwise as the result of or in connection with any
      action or contemplated action taken or requested to be taken by any
      government or governmental agency or any nature relating to Rockwell or
      any of its subsidiaries. Seller further represents and covenants that
      neither it nor any of its employees or representatives has offered or
      shall offer any gratuity to Rockwell's employees, agents or
      representatives with a view toward obtaining this Agreement or securing
      favorable treatment with respect thereto. Seller further represents that
      it will not engage in any activity, which presents a conflict of interest
      in light of its relationship with Rockwell.

      A.    Movement of personnel, equipment, and tools on and off property site
            referred to in the Schedule and while on the site shall be in
            accordance with Rockwell's plant security and safety regulations.
            Rockwell will make copies of such regulations available to Seller
            upon request.

      B.    If Seller is assigned a working area, it shall be Seller's
            responsibility to conform to good housekeeping rules including all
            Rockwell and other applicable rules and regulations by keeping the
            working area, as well as the designated area assigned to Seller for
            storage of material and equipment to be used in the performance of
            its work, in a clean neat and orderly condition.

      C.    Seller will be required to observe all Rockwell and other applicable
            safety regulations for the protection of property and personnel.

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT
15.   DISCLOSURE

      Rockwell shall have the right, in its discretion, to disclose the terms
      and conditions of this Agreement (as it may be amended from time to time),
      including without limitation amounts paid hereto, to agencies of the
      United States Government.

16.   REPORTS

      Seller will furnish all reports required hereunder in such form and detail
      as may be reasonably required by Rockwell.

17.   NOTICE TO BUYER OF LABOR DISPUTES

      (a)   Whenever Seller has knowledge that any actual or potential labor
            dispute is delaying or threatens to delay the timely performance of
            this Agreement, Seller shall immediately give notice thereof,
            including all relevant information, with respect thereto, to Buyer.

      (b)   Seller agrees to insert the substance of this clause, including this
            paragraph (b), in any subcontract hereunder to which a labor dispute
            may delay the timely performance of this Agreement.

18.   RIGHTS, REMEDIES AND WAIVER

      The rights and remedies provided Buyer herein shall be cumulative, and in
      addition to any other rights and remedies provided by law or equity. A
      waiver of a breach of any provision hereof shall not constitute a waiver
      of any other breach.

19.   DISPUTES/APPLICABLE LAW

      This Agreement shall be governed by and construed and enforced in
      accordance with the laws of the State of Iowa, without regard to its
      choice of law rules, but including the provisions of the Uniform
      Commercial Code of said State. This Agreement specifically excludes the
      provisions of the 1980 United Nations Convention on Contracts for the
      International Sale of Goods and the U.N. Convention on the Limitation
      Period in the International Sale of Goods, as amended by Protocol. If a
      U.S.-based Seller, in the event that any claim or controversy arising out
      of this Agreement cannot be settled by the parties themselves, the parties
      agree to attempt in good faith to resolve such claim or controversy by
      mediation, through a mutually agreed upon, non-binding form of Alternate
      Dispute Resolution (ADR), through knowledgeable, non-lawyer
      representatives of each party. The parties shall split evenly all costs of
      ADR. Any dispute that is not settled by agreement of the parties or by
      such mediation may be settled by appropriate legal proceedings. Pending
      any decision, appeal or judgment in such proceedings or other settlement
      of any dispute arising under this Agreement, Seller shall proceed with the
      performance of this Agreement in accordance with the decision of the
      Buyer. If a foreign-based Seller, any disputes arising out of or in
      connection with this Agreement, which are not settled by negotiation,
      including any question regarding its existence, validity or termination,
      shall be referred to and finally resolved by arbitration under the Rules
      of the London Court of International Arbitration, which Rules are deemed
      to be incorporated by reference into this clause. The tribunal shall
      consist of a sole arbitrator, the place for arbitration shall be London,
      England, and the proceedings shall be in English language. Judgment upon
      the award rendered by the arbitrators may be entered in any court having
      jurisdiction thereof. Both parties hereby waive the right to refer the

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

      case to any other jurisdiction. The parties shall continue to perform
      their obligations under this Agreement pending the outcome of such
      arbitration.

20.   INSURANCE, INDEMNITY AND LIABILITY

      Seller hereby indemnifies, defends and holds Rockwell, its directors,
      officers, agents and employees, harmless against any and all claims,
      actions or demands against Rockwell, its directors, officers, agents and
      employees and against any and all damages, liabilities or expenses,
      including counsel fees, for personal injury to or death of any person and
      for loss or damage to any and all property, arising out of the acts or
      omissions of Seller under this Agreement. Seller shall carry and maintain
      Workers' Compensation and Commercial General Liability Insurance
      (including Contractual Liability), Professional Liability and Automobile
      Liability in such form as to protect Seller and Rockwell from any claims
      or damages for bodily injury, including death, and any damage of or to
      property which may arise from acts or omissions of Seller under this
      Agreement. Seller shall furnish Rockwell with original certificates of
      insurance, prior to the effective date of this Agreement and annually
      thereafter, evidencing minimum limits of liability of $1 million per
      occurrence combined single limit occurrence for bodily injury (including
      death) and property damage for Commercial General Liability and Automobile
      Liability; Statutory Workers' Compensation, and Employer's Liability with
      a limit of $1 million; and Professional Liability with a per claim limit
      of $1 million. Such insurance shall be primary and non-contributing to any
      insurance maintained by Rockwell and the insurers will give thirty (30)
      days prior written notice to Rockwell in the event of cancellation or
      material change in coverage. The Commercial General Liability, Automobile
      Liability, and Workers' Compensation coverages will each include a waiver
      of subrogation in favor of Rockwell. Seller shall include Rockwell as an
      additional insured on Commercial General Liability insurance. Insurers
      must be reasonably acceptable to Rockwell and possess minimum Best's
      rating of 'A-' and be licensed to conduct business in all states in which
      Seller shall operate as part of this Agreement. Failure to obtain and
      maintain the required insurance shall be considered a material breach of
      contract.

21.   PROFESSIONAL LIABILITY

      Seller agrees that all services performed hereunder by Seller, its
      employees and agents shall be performed by persons who are experienced and
      highly skilled in their professions and in accordance with high standards
      of workmanship in their field. Seller further agrees that all work
      hereunder will be fit and sufficient for the purpose intended. Seller
      shall be liable for all loss or damages to Rockwell, its directors,
      officers, agents, employees, and customers arising from its failure to
      comply with any provision hereof, and from any negligent act, error or
      omission of Seller, its agents and employees. Rockwell may, at its option,
      by contract or otherwise, replace or correct any defective materials or
      conditions resulting from said failures, acts, errors and omissions and
      recover the cost thereof from Seller.

22.   REPRESENTATIVES AND TECHNICAL ASSISTANCE

      The below listed representatives shall be available at all reasonable
      times and shall have the authority to act on behalf of their employer
      except the Rockwell representatives shall not have the authority to act in
      any manner which would result in an increase or decrease of the scope of
      work or of the price of this Agreement or which would otherwise change the
      provisions of this Agreement. Rockwell shall furnish such information and
      technical assistance to Seller as shall be reasonably required in
      connection with the Seller's work hereunder. However, no such information
      or assistance shall relieve Seller of its responsibility for the
      furnishing of a design in accordance with all the provisions of this
      Agreement, constitute an acceptance of Seller's work, nor relieve Seller
      of any of its obligations under this Agreement.

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

      A.    Rockwell's representative for administration of this Agreement is:
            Randy Gauldin, Subcontracts.

      B.    Rockwell's representative for Engineering design is: Tom Kerner
            (Technical Lead).

      C.    Seller's Project Engineer responsible for contract performance is:
            Doug Hoffman (Project Engineer).

      D.    Seller's representative for administration of this Agreement is Mark
            Malinak, Sales.

23.   SEVERABILITY

      If any provision or portion thereof of this Agreement is held to be
      unenforceable or invalid, the remaining provisions and portions thereof
      shall nevertheless be given full force and effect, and the Parties agree
      to negotiate, in good faith, a substitute valid provision which most
      nearly effects the parties' intent on entering this Agreement.

24.   HEADINGS

      The headings of the Sections have been inserted for convenience of
      reference only and shall not affect the interpretation of any of the
      provisions of this Agreement.

25.   COUNTERPARTS

      This Agreement may be executed in two or more counterparts, each of which
      shall be deemed an original, but all such counterparts together shall
      constitute but one and the same Agreement.

26.   AUTHORITY

      Each of the parties hereto represents that such party has the power and
      authority to enter into, execute, deliver and perform its respective
      obligations hereunder. The execution and delivery of this Agreement by
      each of the parties hereto, respectively, has been duly authorized. No
      other action on the part of any is required and execution by each party
      hereto constitutes a valid and binding obligation of such party,
      respectively, enforceable in accordance with its terms.

27.   RECORDS

      Buyer shall, until the expiration of three (3) years after final payment
      under this Agreement, have access to and the right to examine any directly
      pertinent books, documents, papers and records of Seller involving
      transactions related to this Agreement.

28.   BUYER APPROVALS AND REVIEWS

      The review or approval by Buyer of any work hereunder or of any designs,
      drawings, specifications or other documents prepared hereunder shall not
      relieve Seller of any of its obligations under this Agreement, nor excuse
      or constitute a waiver of any defects or nonconformity in any services
      furnished under this Agreement, nor change, modify or otherwise affect any
      of the provisions of this Agreement, including, but not limited to, the
      prices and delivery schedules contained herein.

29.   TAXES

      Seller is liable for and shall pay all taxes, impositions, charges and
      exaction imposed on or measured by this Agreement except those Buyer
      specifically agrees or is required by law to pay and which are separately
      stated on Seller's invoice. Prices shall not include any taxes,
      impositions, charges and exaction for which Buyer has furnished an
      exemption certificate.

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SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

                           SUPPORT SERVICES AGREEMENT

30.   U.S. EXPORT CONTROL LAWS AND REGULATIONS

      Seller, for itself and any of its employees and agents who may be given
      access by Seller to technical information of Buyer, or who may be provided
      access to Buyer's premises in carrying out the services to be provided by
      Seller under this Agreement, acknowledges its obligations to control
      access to such technical information and to ensure that such access does
      not result in a violation of the U.S. Export Control Laws and Regulations.

31.   EVIDENCE OF CITIZENSHIP OR IMMIGRANT STATUS

      Buyer may be required to obtain information concerning citizenship or
      immigrant status of subcontractor personnel entering the premises of
      Buyer. Seller agrees to furnish this information before commencement of
      work and at any time thereafter before substituting or adding new
      personnel to work on Buyer's premises. Information submitted by Seller
      shall be certified by an authorized representative of Seller as being true
      and correct.

32.   U.S. GOVERNMENT COMMERCIAL ORDERS

      If this Agreement indicates that it is placed under a U.S. Government
      contract for the purchase of commercial items as defined in the Federal
      Acquisition Regulation, the following provision is incorporated herein:
      Federal Acquisition Regulation Provision 52.244-6, Commercial Items and
      Commercial Components, except that the term "Contractor" means Seller,
      "Subcontractor" means Seller's Subcontractor, and "Contract" means this
      Agreement. The actions required under the referenced clauses made
      applicable under this Clause shall constitute the entirety of Seller's
      Federal Acquisition Regulation obligations hereunder for such sales.

33.   SPECIAL U.S. GOVERNMENT PROVISIONS

      If this Agreement indicates that it is placed under a U.S. Government
      prime contract for firm fixed price orders for non-commercial materials
      and/or services, applicable special U.S. Government provisions are found
      in Attachment "A" and incorporated herein by reference to this Agreement.
      If this Agreement is placed pursuant to a U.S. Government prime contract
      with the National Aeronautics Space Administration (NASA) for firm fixed
      price orders for non-commercial materials and/or services, applicable
      special provisions are found in Attachment "A-1" and incorporated herein
      by reference to this Agreement.

34.   ENTIRE AGREEMENT

      This Agreement is intended by the Buyer and Seller as a final expression
      of their agreement and is intended also as a complete and exclusive
      statement of the terms of their agreement. No course of prior dealings,
      written or oral, between the parties, no usage of the trade nor acceptance
      or acquiescence in a course of performance rendered under this Agreement
      shall be relevant to supplement, explain or be relevant to determine the
      meaning of the terms of this Agreement even though the accepting or
      acquiescing party has knowledge of the nature of the performance and
      opportunity for objection. No amendment or change of any kind shall be
      binding upon Buyer unless in writing and signed by an authorized
      representative of Buyer.

                                  Page 9 of 10
<PAGE>

                                                                          [LOGO]

SNAP2 Corporation                                       Agreement No. 4500667599
                                                             Date: Feb. 14, 2002

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement which
is effective as of the date of the last signature below.

SELLER                                                 ROCKWELL COLLINS, INC.
                                                       Passenger Systems

By: /S/ M. Marcus Malinak                              By: /S/ Randy Gauldin
    ---------------------                                  --------------------

Name: Mark Malinak                                     Name: Randy Gauldin

Title: V.P. Sales                                      Title: Subcontracts

Date:   FEB. 25, 2002                                  Date:   FEB. 14, 2002

       ------------------------------
       Employer Identification No. *

     * This is the identifying number required to be used in Federal income tax
and employment tax returns.

                                  Page 10 of 10

<PAGE>

SNAP2 Consultants                                       Agreement No. 4500667599
                                                        Date:  February 14, 2002

                                Statement of Work
                                       for
                              eADB ACC OS Software
                                Project No. 1055A

This Statement of Work (SOW) is governed by the Rockwell Collins Support
Services Agreement (SSA) No. 4500667599 executed between the parties dated Feb.
14, 2002. Exhibits A, "Certificate of Compliance with U.S. Government
Regulations"; Exhibit B, "Inventions and Patents Agreement and Protection of
Proprietary Information Agreement"; and "End Use Certification", are attached
hereto and made a part hereof.

1.    Scope

The scope of this statement of work is to describe the effort requested by
Rockwell Collins Passenger Systems ("RCPS" or "Buyer"), to SNAP2 Consultants
("SNAP2" or "Seller") for the eADB ACC OS Software project.

2.    Definitions

The following is a list of definitions and acronyms that will be used throughout
this document.

eTES        Enhanced Total Entertainment System
ENB         Engineering Notebook
DOORS       Dynamic Object Oriented Requirement System
ICD         Interface Control Document
IFE         In-Flight Entertainment
IPT         Integrated Product Team
MPCU        Micro Passenger Control Unit
PTR         Problem Trouble Report
SDF         Software Development Folder
SRS         Software Requirements Specification
SW          Software
SOW         Statement of Work
SWAD        Software Architecture Document
TES         Total Entertainment System
VSS         Visual Source Safe

3.    Referenced Documents

The following is a list of reference documents to be used for the eADB ACC OS
Software project.

Document Number            Title
---------------            -----
ENB 7-6-2           TES Build Environment
PS-ENG-P-002        Integrated Product Teams (IPT) Procedure
PS-ENG-P-302        Software Process Deviation Procedure
PS-ENG-P-303        Software Development Folders Procedure
PS-ENG-B-304.01     TES Software Engineering Credit Taking Rules
PS-ENG-P-305        IFE PTR Package Review Procedure
PS-ENG-P-306        Software Build Procedure
PS-ENG-P-307        Software Integration Test Process Procedure
PS-ENG-T-307.01     Software Integration Test Plan Template
PS-ENG-P-308        Software Change Review Board Procedure

                                  Page 1 of 8
<PAGE>

SNAP2 Consultants                                       Agreement No. 4500667599
                                                        Date:  February 14, 2002

PS-ENG-G-308.01     IFE PTR User's Guide
PS-ENG-T-309.01     Software Functional Design Description Template
PS-ENG-P-312        Software Coding Procedure
PS-ENG-P-315        Unit Test Procedure
PS-ENG-S-316        TES Software Development Process Standard
832-8716-003        Engineering Technical Consistent Process
1300234-S520        Software Quality Engineering Plan for Passenger Systems

4.    Description of Work

[Confidential Treatment has been requested for this portion of this Exhibit].

5.    Standards and Procedures

The Seller shall perform all design, development, and test consistent with a set
of software engineering best practices that have been approved by the Buyer. All
software deliverable reviews between the Buyer and Seller shall occur as
determined by the Buyer.

6.    Deliverables

The following list of software deliverables shall be provided to the Buyer. The
Seller shall provide an electronic copy of all the deliverable documents in
Microsoft Word Format compatible with Word version 97, or in the case of
system/software requirements, a format compatible with the RCPS DOORS document
control system.

a)    eADB ACC OS source code.
b)    Build script files and tools to build the executables.
c)    Description of the build process.
d)    Software detailed design documentation.
e)    Interface specification documentation.
f)    Software acceptance test plan and documented test results

7.    Milestone Schedule

Seller anticipates beginning work on the design and coding tasks of this project
before the completion of Phase 2 of the eADB ACC diagnostics. Once diagnostic
Phase 2 is near completion, Seller expects to have working hardware and an OS-9
console prompt as the basis for beginning work. Assuming this hardware will be
available in quantity 2, Seller expects to complete this project as follows:

<TABLE>
<CAPTION>
                  Milestone Definitions                            Start Date             Completion Date
---------------------------------------------------------- --------------------------- ----------------------
<S>                                                        <C>                         <C>
1. Develop and configure all OS software as specified in   Within 5 days of contract   3 weeks from
this SOW. Create test plan and design documents.           award                       milestone start date
---------------------------------------------------------- --------------------------- ----------------------
2. Load and debug the OS-9 software specified in this      When diagnostic software    3 weeks from
SOW on the final hardware from Rockwell. Conduct all       is sufficiently complete    milestone start date
validation and testing and report results.                 to validate the hardware.
---------------------------------------------------------- --------------------------- ----------------------
</TABLE>

Seller and Buyer may modify the delivery schedule and contents during the course
of the project. Modifications may be required to reflect changes necessitated
due to hardware dependencies.

                                  Page 2 of 8
<PAGE>

SNAP2 Consultants                                       Agreement No. 4500667599
                                                        Date:  February 14, 2002

8.       Status Reports and Meetings

Seller will submit reports on a weekly basis to the eADB Technical Lead
throughout the duration of the project. This report will describe the week's
accomplishments as well as the developments planned for the following week. It
will also discuss any issues related to the execution of the project, including
risks.

Seller shall use Microsoft Project as its project scheduling tool. Seller shall
create a detailed project plan that will specify task dependencies within the
project as well as dependencies on events outside of Seller's control, such as
hardware availability. Using this plan as the primary tool, Seller will be able
to modify task orders and priorities as necessary should changes occur with
regard to hardware availability or functionality. Seller will be able to
determine whether or not the allocation of additional human resources to the
project would benefit the schedule and will be able to provide Buyer with weekly
updates to the schedule status.

In addition, the Buyer and Seller shall hold periodic conference call to discuss
any technical or project issues that exist. This regularly scheduled call will
promote good coordination between the Buyer and Seller, and will help maximize
productivity and avoid wasting time on activities that will require later
rework.

9.    Proprietary Headers

All Seller software deliverables shall use the Buyer's proprietary headers and
cover sheets. It shall be understood that the Buyer has full publication rights
of all documentation and software purchased from the Seller. All software files
shall use the Buyer proprietary headers consistent with the current Buyer file
header structure.

10.   Development & Configuration Control Tools

The Seller shall use the following development and Configuration Control tools
to produce the eADB ACC OS Software project deliverables:

      a)    UltraC Compiler
      b)    Microsoft Office 97' Compatible word processor
      c)    Microsoft Visual Source Safe (Provided by RCPS)

11.   Third Party Information

All third party information shared with the Seller shall require a NDA between
the Seller and the third party supplier.

12.   Resource Dependencies

The successful completion and delivery of the product is dependent on the
hardware and software that Buyer shall supply to the Seller for the ACC Phase 1
& Phase 2 projects.

13.   RCPS Loaned Resources

The following RCPS property shall be loaned to the Seller for the duration of
this contract development, to facilitate the development and test of the
product. Note that some of this equipment is or will have been provided to SNAP2
already for the execution of previous eADB development:

      |_|   Vision ICE hardware probe
      |_|   2 eADB units for testing

                                  Page 3 of 8
<PAGE>

SNAP2 Consultants                                       Agreement No. 4500667599
                                                        Date:  February 14, 2002

14.   Field and Sustaining Support

This subcontract makes no provisions for the Seller to provide extended or field
support of this product after Seller meets all the enclosed closure criteria
requirements.

15.   Scope Management

During the period of this contract the Seller shall notify the Buyer's
Subcontract PE of any request that is not covered in the stated requirements for
this work scope. If the Technical Lead, IPT Manager, Subcontract PE, and Seller
determine that the work request is outside the scope of this contract, then
further discussions will be held with inclusion of the RCPS Subcontract Manager,
to clearly define the new requirements and its impact to schedule and cost. If
appropriate, this statement of work will be amended to address the work scope
change.

16.   Key Personnel

      Personnel            Role
      ---------            ----
      Sam Yang             Buyer Distribution IPT Manager
      Tom Kerner           Buyer eADB Technical Lead
      Randy Gauldin        Buyer Subcontracts Manager
      Bob Mimiaga          Buyer Technical Subcontract Mgr.
      Mark Malinak         Seller Vice President, Sales
      Doug Hoffman         Seller Project Manager
      Tony Hoffman         Seller Chief Technology Officer

17.   Payment

Seller shall invoice Buyer upon acceptance of deliverables at the specified
Milestones. The Program Manager and Software Subcontract Project Engineer shall
approve all invoices prior to payment. Seller agrees to permit Buyer and/or its
representative to verify any and all expensed fees and charges payable
hereunder. Seller agrees to keep books and records in satisfactory form and
content and to permit Buyer or its representatives to conduct verifications for
audit purposes. Firm Fixed-price contacts can be adjusted, at the approval of
both parties, to account for significant amendments to the original requirements
of a product.

The Firm Fixed-Price for this subcontract shall be $[Confidential Treatment has
been requested for this portion of this Exhibit]. SNAP2 accepts Rockwell
Collins' payment terms of 2% 10, net 60 days with the establishment of
Electronic Funds Transfer.

                              Milestone                           Payment
                              ---------                           -------
      1. Develop and configure all OS software as                $[Confidential
      specified in this SOW. Create test plan and design          Treatment has
      documents.                                                           been
      --------------------------------------------------------------------------
      2. Load and debug the OS-9 software specified in this       requested for
      SOW on final hardware from Rockwell. Conduct all
      validation and testing and report results.                this portion of
      --------------------------------------------------------------------------
      Total                                                      this Exhibit].

                                  Page 4 of 8
<PAGE>

SNAP2 Consultants                                       Agreement No. 4500667599
                                                        Date:  February 14, 2002

18.   Acceptance Criteria

The deliverables for this effort shall be considered acceptable when they have
been received, reviewed and approved by RCPS. The milestones for this effort
shall be considered acceptable when they have been approved by RCPS. Upon
receipt of deliverables, RCPS shall have 5 business days to review and approve
them or notify SNAP2 of deficiencies requiring correction.

19.   Subcontract Closing Criteria Requirements

All the terms of this subcontract will be considered successfully accomplished
when the following closing criteria have been met:

      1.    The Buyer receives all software deliverables identified in this
            contract.

      2.    All applicable SOT/SVT test steps employed to verify Seller
            developed software shall pass the Sustaining System Engineering
            formal testing.

                                  Page 5 of 8<PAGE>

EXHIBIT 4.1

================================================================================

                                     WARRANT

                               PURCHASE AGREEMENT

                                     between

                                    KFX INC.

                                       and

                                 FRANK CILLUFFO

                          dated as of January 10, 2002

================================================================================
<PAGE>

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----

1.   DEFINITIONS.............................................................1
         1.1.     Certain Definitions........................................1
         1.2.     Other Terms................................................1

2.   AUTHORIZATION AND SALE OF SECURITIES....................................2
         2.1.     Authorization..............................................2
         2.2.     Sale of the Warrant........................................2

3.   CLOSING.................................................................2

4.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................2
         4.1.     Organization and Standing..................................3
         4.2.     Corporate Power............................................3
         4.3.     Authorization..............................................3

5.   INVESTMENT REPRESENTATIONS..............................................3
         5.1.     Accredited Investor; Experience; Risk......................3
         5.2.     Investment.................................................3
         5.3.     Restricted Securities; Rule 144............................3
         5.4.     Authorization..............................................4
         5.5.     Further Limitations on Disposition.........................4
         5.6.     Company Information........................................4

6.   CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR...........................4
         6.1.     Representations and Warranties Correct.....................4
         6.3.     Covenants..................................................5

7.   CONDITIONS TO COMPANY'S OBLIGATIONS.....................................5
         7.1.     Representations Correct....................................5

8.   MISCELLANEOUS...........................................................5
         8.1.     Governing Law..............................................5
         8.2.     Survival...................................................5
         8.3.     Successors and Assigns.....................................5
         8.4.     Entire Agreement; Amendment................................5
         8.5.     Notices, etc...............................................6
         8.6.     Delays or Omissions........................................6
         8.7.     Counterparts...............................................6
         8.8.     Severability...............................................7

                                       i
<PAGE>

          WARRANT PURCHASE AGREEMENT, dated as of January 10, 2002 (the
     "Agreement"), between KFx INC., a Delaware corporation (the "Company" or
     "KFx"), and FRANK CILLUFFO (the "Investor").

          In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:

1.   DEFINITIONS

          1.1. Certain Definitions. As used in this Agreement, the following
               -------------------
terms shall have the meanings set forth in this Section 1.1:

          1.1.1. "Closing" shall have the meaning specified in Section 3 of this
     Agreement.

          1.1.2. "Closing Date" shall have the meaning specified in Section 3 of
     this Agreement.

          1.1.3. "Commission" shall mean the Securities and Exchange Commission
     or any other federal agency at the time administering the Securities Act.

          1.1.4. "Common Stock" shall mean the common stock of the Company,
     $.001 par value per share.

          1.1.5. "Loan Note" shall mean the Loan Note by KFx to the Investor,
     dated as of January 10, 2002.

          1.1.6. "Pegasus" shall mean Pegasus Technologies, Inc., a South Dakota
     corporation, which is a majority owned subsidiary of KFx.

          1.1.7. "Securities" has the meaning specified in Section 4.3.

          1.1.8. "Securities Act" shall mean the Securities Act of 1933, as
     amended, and the rules and regulations of the Commission promulgated
     thereunder, all as the same shall be in effect at the time.

          1.1.9. "Warrant" shall mean the Common Stock Purchase Warrant of KFx
     Inc. dated January 10, 2002 issued to the Investor exercisable for 250,000
     shares of Common Stock at an exercise price of $3.00 per share, subject to
     adjustment as set forth therein, a copy of which is attached hereto as
     Exhibit A.
     ---------

          1.2. Other Terms. Other terms used in this Agreement are defined in
               -----------
the context in which they are used and shall have the meanings therein
indicated.

                                       1
<PAGE>

2.   AUTHORIZATION AND SALE OF SECURITIES

          2.1. Authorization. Prior to the Closing, the Company shall have
               -------------
authorized the sale and issuance of the Warrant and shall have reserved the
250,000 shares of Common Stock issuable upon exercise of the Warrant.

          2.2. Sale of the Warrant. On the basis of the representations,
               -------------------
warranties and agreements contained herein, and subject to the terms and
conditions hereof, at the Closing, the Company shall issue and sell to the
Investor, and the Investor shall purchase from the Company, the Warrant, in
consideration of the provision of an advance of $500,000 to Pegasus, pursuant to
the Loan Note (the "Purchase Price").

          1.2. Legends. It is understood that each certificate representing the
               -------
Securities shall, unless registered under the Securities Act, bear a legend in
the following form or substantially similar form (in addition to any legend
required under applicable state securities laws):

          "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY
          APPLICABLE STATE SECURITIES LAW AND HAVE BEEN ACQUIRED FOR
          INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
          THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
          DISPOSITION MAY BE EFFECTED WITHOUT (A) AN EFFECTIVE
          REGISTRATION STATEMENT RELATED THERETO OR (B) AN EXEMPTION
          FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
          ANY APPLICABLE STATE SECURITIES LAWS."

3.   CLOSING

          The closing of the purchase and sale of the Warrant being purchased by
the Investor hereunder (the "Closing") shall be held at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, at Four Times Square, New York, New York, at
12:00 nooon on January 10, 2002 or at such other time and place as the Company
and the Investor mutually agree (the "Closing Date"). At the Closing, the
Company shall deliver to the Investor the Warrant being purchased by the
Investor against payment of the Purchase Price.

4.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          The Company hereby represents and warrants to the Investor as follows:

                                       2
<PAGE>

          4.1. Organization and Standing. The Company is a corporation duly
               -------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware.

          4.2. Corporate Power. The Company has all requisite legal and
               ---------------
corporate power and authority to execute and deliver this Agreement, to sell and
issue the Warrant and to carry out and perform its obligations under the terms
of this Agreement, and the Warrant.

          4.3. Authorization. All corporate action on the part of the Company,
               -------------
its directors and stockholders necessary for the sale and issuance of the
Warrant and the shares of Common Stock issuable upon exercise thereof (together,
the "Securities") and the execution, delivery and performance of the Company's
obligations under this Agreement and the Warrant and the reservation of the
shares of Common Stock issuable upon exercise of the Warrant have been duly
taken.

5.   INVESTMENT REPRESENTATIONS

          The Investor hereby represents and warrants to the Company, as of the
Closing Date, as follows:

          5.1. Accredited Investor; Experience; Risk. The Investor is an
               -------------------------------------
"accredited investor" as such term is defined in Regulation D promulgated under
the Securities Act and has not been organized for the specific purpose of
acquiring the Securities. The Investor and his representatives have been solely
responsible for the Investor's own "due diligence" investigations of the Company
and its management and business, for his own analysis of the merits and risks of
the investment, and for his own analysis of the fairness and desirability of the
terms of the investment. The Investor has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks associated with the purchase of the Securities and of protecting his
interests in connection therewith. The Investor is able to fend for himself in
the transactions contemplated by this Agreement and has the ability to bear the
economic risk of the investment, including complete loss of the investment.

          5.2. Investment. The Investor is acquiring the Securities for
               ----------
investment for his own account and not with a view to, or for resale in
connection with, any distribution thereof, and he has no present intention of
selling or distributing the Securities. The Investor understands that the
Securities have not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
as expressed herein.

          5.3. Restricted Securities; Rule 144. The Investor understands that
               -------------------------------
the Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations the Securities may be resold without registration under
the Securities Act only in certain limited circumstances. The Investor
acknowledges that the Securities

                                       3
<PAGE>

must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available.

          5.4. Authorization. The Investor represents that he has the full
               -------------
right, power and authority to enter into and perform its obligations under this
Agreement and that this Agreement when executed and delivered by the Investor
will constitute a valid and binding obligation of the Investor, enforceable in
accordance with its terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors, rules of law governing
specific performance, injunctive relief or other equitable remedies.

          5.5. Further Limitations on Disposition. Without in any way limiting
               ----------------------------------
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until either:

               (a) There is then in effect a registration statement under the
          Securities Act covering such proposed disposition and such disposition
          is made in accordance with such registration statement or the
          provisions of Section 5.3 hereof; or

               (b) The Investor shall have notified the Company of the proposed
          disposition and shall have furnished the Company with a detailed
          statement of the circumstances surrounding the proposed disposition.
          If, in the good faith determination of the counsel of the Company,
          there is a reasonable basis for the belief that such disposition would
          require registration under the Securities Act, the Company may require
          that Investor furnish the Company with an opinion of counsel,
          reasonably satisfactory to the Company, that such disposition will not
          require registration under the Securities Act.

          5.6. Company Information. The Investor has had an opportunity to
               -------------------
discuss the Company's business, management and financial affairs with directors,
officers and management of the Company. The Investor has also had the
opportunity to ask questions of, and receive answers from, the Company and its
management regarding the terms and conditions of this investment.

6.   CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR

          The obligations of the Investor to purchase the Warrant at the Closing
are subject to the fulfillment on or prior to the Closing Date of all of the
conditions set forth below in this Section 6.

          6.1. Representations and Warranties Correct. The representations and
               --------------------------------------
warranties made in Section 4 hereof shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as if they had been
made on and as of the Closing Date.

                                       4
<PAGE>

          1.3. Warrant. The Company shall execute and deliver the Warrant.
               -------

          1.4. Covenants. All covenants, agreements and conditions contained in
               ---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.

7.   CONDITIONS TO COMPANY'S OBLIGATIONS

          The Company's obligation to sell the Warrant to the Investor at the
Closing is subject to the fulfillment of the following conditions:

          7.1. Representations Correct. The representations made by such
               -----------------------
Investor in Section 5 hereof shall be true and correct in all material respects
when made, and shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on the Closing
Date.

          1.5. Investor Advance. The Investor shall provide the Company with
               ----------------
written evidence, in a form reasonably satisfactory to the Company, that the
Investor has paid to KFx an advance of $500,000 pursuant to the Loan Note.

8.   MISCELLANEOUS

          8.1. Governing Law. This Agreement shall be governed in all respects
               -------------
by the laws of the State of New York, without regard to the conflict of laws
rules of such jurisdiction.

          8.2. Survival. The representations, warranties, covenants and
               --------
agreements made in Sections 4 and 5 hereof shall survive the Closing.

          8.3. Successors and Assigns. Except as otherwise provided herein, the
               ----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

          8.4. Entire Agreement; Amendment. This Agreement and the other
               ---------------------------
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and thereof
and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way, including, without limitation, any
summary of terms or similar agreement. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the Company and the Investor.

          8.5. Notices, etc. Any notice required or permitted pursuant to this
               ------------
Agreement shall be in writing and shall be deemed sufficient (i) immediately
when delivered personally or by

                                       5
<PAGE>

facsimile, (ii) twenty (20) hours after being deposited with an overnight
courier service (e.g. Federal Express) for next day delivery, or (iii)
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed as follows:

          If to the Investor:

          Frank Cilluffo
          181 Pleasant Street
          Portsmouth, NH 03801
          Phone: 603-433-0929
          Fax: 603-433-1979

          If to the Company:

          KFx Inc.
          3300 East First Avenue, Suite 290
          Denver, CO 80206
          Attention: Chief Executive Officer
          Phone: 303-293-2992
          Facsimile: 303-293-8430

          8.6. Delays or Omissions. No delay or omission to exercise any right,
               -------------------
power or remedy accruing to the Investor or the Company, upon any breach or
default of the Company or the Investor, respectively, under this Agreement,
shall impair any such right, power or remedy of the Investor or the Company, as
the case may be, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of the Investor or the Company, of any breach or default under this
Agreement by the Company or the Investor, respectively, or any waiver on the
part of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to the Investor and to the Company, respectively, shall be cumulative
and not alternative.

          8.7. Counterparts. This Agreement may be executed in any number of
               ------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.

          8.8. Severability. In the event that any provision of this Agreement
               ------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, however, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.

                                       6
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant
Purchase Agreement, or have caused this Warrant Purchase Agreement to be fully
executed on their behalf as of the date first set forth above.

                                               KFx INC.

                                               By:
                                                   -----------------------------
                                                    Name:
                                                    Title:

                                               INVESTOR

                                               By:
                                                   -----------------------------
                                                    Frank Cilluffo

                                       7
<PAGE>

                                    EXHIBIT A
                                    ---------

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (A) AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR (B) AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.

                                                                  250,000 SHARES

                          COMMON STOCK PURCHASE WARRANT

                                   OF KFx INC.

                                January 10, 2002

        * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

     THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth, Frank Cilluffo (the "Warrant Holder"), is entitled to
purchase from KFx Inc., a Delaware corporation ("Company") two hundred fifty
thousand (250,000) shares (the "Warrant Shares") of the Company's common stock,
$.001 par value, (the "Common Stock" or "Shares"), for an aggregate purchase
price equal to $3.00 multiplied by two hundred fifty thousand (250,000) shares
("Aggregate Original Warrant Price"), all on and subject to the terms,
provisions and conditions hereinafter set forth. This Warrant may be exercised
as to all or part (comprising a whole number) of the Shares represented hereby
at any time or times before January 10, 2005 ("Expiration Date"). This Warrant
shall be void and of no effect, and all rights, restrictions, and obligations
hereunder shall cease to the extent not exercised prior to the Expiration Date.

                                   ARTICLE I.

                               EXERCISE OF WARRANT

     Section 1.1 Duration. Subject to the provisions of Sections 1.2 and 1.4
hereof, this Warrant may be exercised at any time on or after 9:00 a.m., Denver,
Colorado time, on January 10, 2002 and at or before 5:00 p.m., Denver, Colorado
time, on January 10, 2005 (or, if such day is not a business day, at or before
5:00 p.m., Denver, Colorado time, on the next following business day). If this
Warrant is not exercised on or before the Expiration Date, it shall become void,
and all rights hereunder shall thereupon cease.

     Section 1.2 Exercise of Warrant. Subject to the conditions contained
herein, this Warrant may be exercised in whole or in part at any time or times
before the Expiration Date by the surrender of this Warrant or any duly
authorized replacements hereto (with a duly executed subscription agreement in
the form attached hereto) at the principal office of the Company in Denver,
Colorado, and upon payment to the Company of the Aggregate Original Warrant
Price (or, if exercised in part, upon payment to the Company of the applicable
proportionate part of the Aggregate Original Warrant Price) for each Share so
purchased in lawful money of the United States, or by check, or postal or
express money order payable in United States dollars to the order of the Company
or by funds wired to an account as specified by the Company, and upon compliance
with and subject to the conditions set forth herein.

     Upon receipt of this Warrant with the form of exercise duly executed and
accompanied by payment of the Aggregate Original Warrant Price for the shares of
Common Stock for which this Warrant is then being exercised, the Company will
cause to be issued certificates for the total number of whole Warrant Shares (as
provided in Article III hereof) for which this Warrant is being exercised in
such denominations as are required for delivery to the

                                       1

<PAGE>

Warrant Holder, and the Company shall thereupon deliver such certificates to the
Warrant Holder or the Warrant Holder's assignee.

     In case the Warrant Holder shall exercise this Warrant with respect to less
than all of the shares of Common Stock that may be purchased under this Warrant,
the Company will execute a new Warrant substantially in the form of this Warrant
for the balance of the shares of Common Stock that may be purchased upon
exercise of this Warrant and deliver such new Warrant to the Warrant Holder.

     The Company shall pay any and all transfer taxes payable in connection with
the issue of this Warrant or the issue of any Warrant Shares upon exercise of
this Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or delivery
of this Warrant or the Warrant Shares in a name other than that of the Warrant
Holder at the time of surrender and, until the payment of such tax the Company,
shall not be required to issue such Warrant Shares.

     Section 1.3 Warrant Holder Representation. Unless the issuance of the
Warrant Shares shall have been registered under the Securities Act of 1933, as
amended (the "1933 Act"), as a condition of its delivery of certificates for the
Warrant Shares or upon the split-up, combination, exchange, transfer or loan of
the Warrant, the Company may require the Warrant Holder (including the
transferee of the Warrant in whose name the Warrant Shares are to be registered)
to deliver to the Company, in writing, representations regarding the Warrant
Holder's sophistication, investment intent, acquisition for the Warrant Holder's
own account and such other matters as are reasonable and customary for
purchasers of securities in an unregistered private offering.

     Section 1.4 Vesting. This Warrant shall vest and be exercisable effective
January 10, 2002.

     Section 1.5 Exercise Price. The initial exercise price shall be $3.00 per
share (the "Exercise Price").

                                  ARTICLE II.

                                 ANTIDILUTION

     Section 2.1 Subdivisions or Combinations. In case the Company shall at any
time after the date of this Warrant (i) subdivide the outstanding Shares or (ii)
combine the outstanding Shares into a smaller number of Shares, the Exercise
Price and the number and kind of Shares receivable upon exercise, in effect at
the time of the effective date of such subdivision or combination, shall be
proportionately adjusted so that the holder of the Warrant exercised after such
time shall be entitled to receive the same percentage and kind of shares which,
if the Warrant had been exercised immediately prior to such date, the holder
would have owned upon such exercise and been entitled to receive by virtue of
such subdivision or combination. Such adjustment shall be made successively
whenever any event listed above shall occur and shall be retroactive to the
record date, if any, for such event. Any adjustment made pursuant to this
Section 2.1 shall become effective immediately upon the effective date of such
event retroactive to the record date, if any, for such event. All calculations
made under this Section 2.1 shall be made to the nearest cent or to the nearest
Share, as the case may be.

     Section 2.2 Reorganization, Reclassification, Consolidation, Merger or
Sales. In case of any capital reorganization of the Company, or of any
reclassification of Shares (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of
subdivision or combination), or in case of the consolidation of the Company with
or the merger of the Company into any other person (other than a consolidation
or merger in which the Company is the continuing corporation) or of the sale of
the properties and assets of the Company as, or substantially as, an entirety to
any other corporation, the Warrant shall after such reorganization,
reclassification, consolidation, merger or sale be exercisable, upon the terms
and conditions specified in this Warrant, for the number of shares of stock or
other securities, cash or other property to which a holder of the number of
Shares purchasable (at the time of such reorganization, reclassification,
consolidation, merger or sale) upon exercise of the Warrant would have been
entitled upon such reorganization, reclassification, consolidation, merger or
sale; and in any such case, if necessary, the provisions set forth in this
Section 2.2 with respect to the

                                       2
<PAGE>

rights and interests thereafter of the holders of the Warrant shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities, cash or other property thereafter
deliverable on the exercise of the Warrant. The subdivision or combination of
Shares at any time outstanding into a greater or lesser number of Shares shall
not be deemed to be a reclassification of the Common Stock for the purposes of
this Section 2.2. The Company shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the person purchasing such assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Company's and successor person's transfer agent, if any,
the obligation to deliver to the holders of the Warrant such shares of stock,
other securities, cash or other property as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and the other obligations
of the Company under this Warrant.

     Section 2.3 Notices to the Warrant Holder. Upon any adjustment of the
Exercise Price or of the number or kind of Shares for which the outstanding
Warrant may be exercised pursuant to Article II, the Company, within 20 calendar
days thereafter, shall cause to be given to all of the holders of the Warrant,
at such holders' addresses appearing on the register or other records maintained
for such purpose, an officer's certificate showing the adjusted Exercise Price
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Shares
purchasable upon exercise of the Warrant after such adjustment. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Article II.

     In case:

          (a) of any consolidation or merger to which the Company is a party and
     for which approval of any stockholders of the Company is required, or of
     the conveyance or transfer of the properties and assets of the Company as,
     or substantially as, an entirety, or of any capital reorganization or any
     reclassification of the Common Stock (other than a change in par value, or
     from par value to no par value, or from no par value to par value, or as a
     result of a subdivision or combination); or

          (b) of the voluntary or involuntary dissolution, liquidation or
     winding up of the Company;

then the Company shall cause to be mailed to the Warrant Holder at the Warrant
Holder's address appearing on the register or other records maintained by the
Company for such purpose, at least 20 calendar days (or 10 calendar days in any
case specified in clauses (a) or (b) above) prior to the applicable record or
effective date hereinafter specified a written notice stating the date on which
any such consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up is expected and that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities, cash or other property, if any, deliverable upon such
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation or winding up. The failure to give the notice required
by this Section 2.3 or any defect therein shall not affect the legality or
validity of any consolidation, merger, conveyance, transfer, reorganization,
dissolution, liquidation or winding up or the vote upon any action.

                                 ARTICLE III.

                               FRACTIONAL SHARES

     Anything contained herein to the contrary notwithstanding, the Company
shall not be required to issue any fraction of a share in connection with the
exercise of this Warrant, and in any case where the Warrant Holder would, except
for the provisions of this Article III, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall upon the exercise of this Warrant and receipt of the Exercise
Price, issue the largest number of whole shares purchasable upon exercise of
this Warrant. The Company shall not be required to make any cash or other
adjustment in respect of such fraction of a share to which the Warrant Holder

                                       3
<PAGE>

would otherwise be entitled. The Warrant Holder, by the acceptance of this
Warrant, expressly waives the Warrant Holder's right to receive a certificate
for any fraction of a share upon exercise hereof.

                                  ARTICLE IV.

                            FULLY PAID STOCK; TAXES

     The Company covenants and agrees that the shares of stock represented by
each and every certificate representing Common Stock to be delivered on the
exercise of the purchase rights herein provided for shall, at the time of such
delivery, be validly issued and outstanding and be fully paid and nonassessable.
The Company further covenants and agrees that it will pay when due and payable
any and all federal, state and local taxes which may be payable in connection
with the issuance of this Warrant or any Common Stock or certificates therefor
or the exercise of the rights provided for pursuant to the provisions hereof,
including without limitation any such taxes relating to the exercise of any
purchase, conversion, or other rights contained herein, but specifically
excluding any federal, state or local income taxes owing by the holders of the
Warrant.

                                  ARTICLE V.

                           CLOSING OF TRANSFER BOOKS

     The right to exercise this Warrant shall not be suspended during any period
that the stock transfer books of the Company may be closed. The Company shall
not be required, however, to deliver certificates representing shares of its
Common Stock upon such exercise while such books are duly closed for any
purpose, but the Company may postpone the delivery of the certificates for such
Common Stock until the opening of such books, and they shall, in such case, be
delivered forthwith upon the opening thereof, or as soon as practicable
thereafter.

                                  ARTICLE VI.

                            REPLACEMENT OF WARRANT

     Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of
such loss, theft or destruction, upon delivery to the Company of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, or, in the case of any such mutilation,
upon surrender and cancellation of this Warrant, the Company will make and
deliver a new Warrant of like tenor, in lieu of this Warrant.

                                 ARTICLE VII.

                             RESERVATION OF SHARES

     The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise of this Warrant. The Company covenants and agrees
that, upon exercise of this Warrant and payment of the Purchase Price therefor,
all shares of Common Stock issuable upon such exercise shall be duly and validly
issued, fully paid and non-assessable.

                                 ARTICLE VIII.

 RESTRICTIONS ON TRANSFERABILITY OF WARRANTS AND SHARES; COMPLIANCE WITH LAWS

     Section 8.1 In General. This Warrant and the Warrant Shares issued upon the
exercise hereof shall not be transferable except upon the conditions hereinafter
specified, which conditions are intended to insure

                                       4
<PAGE>

compliance with the provisions of the 1933 Act (or any similar federal statute
at the time in effect) and any applicable state securities laws in respect of
the transfer of this Warrant or any such Warrant Shares.

     Section 8.2 Restrictive Legends. Each Warrant shall bear on the face
thereof a legend substantially in the form of the notice endorsed on the first
page of this Warrant. Each certificate for shares of Common Stock initially
issued upon the exercise of any Warrant and each certificate for shares of
Common Stock issued to a subsequent transferee of such certificate shall, unless
otherwise permitted by the provisions of this Section 8.2, bear on the face
thereof a legend reading substantially as follows:

     THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
     (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND HAVE
     BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
     THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
     EFFECTED WITHOUT (A) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
     (B) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
     AND ANY APPLICABLE STATE SECURITIES LAWS.

     The Company need not register a transfer of this Warrant or the Warrant
Shares unless the conditions specified in such legend are satisfied. In the
event that a registration statement covering the Warrant Shares shall become
effective under the 1933 Act and under any applicable state securities laws or
in the event that the Company shall receive an opinion of counsel satisfactory
to it that, in the opinion of such counsel, such legend is not, or is no longer,
necessary or required (including, without limitation, because of the
availability of the exemption afforded by Rule 144 of the General Rules and
Regulations of the Securities and Exchange Commission), the Company shall, or
shall instruct its transfer agents and registrars to, remove such legend from
the certificates evidencing the Warrant Shares or issue new certificates without
such legend in lieu thereof. All fees and expenses of counsel in connection with
the rendition of the opinion provided for in this Section 8.2 shall be paid by
the holder.

     Section 8.3 Notice of Proposed Transfer; Registration Not Required. The
holder of this Warrant or of any Warrant Shares, by acceptance thereof, agrees
to give prior written notice to the Company of such holder's intention to
transfer such Warrant or the Warrant Shares relating thereto (or any portion
thereof) describing briefly the manner and circumstances of the proposed
transfer. Promptly after receiving such written notice, the Company shall
present copies thereof to Company counsel and to counsel designated by such
holder, who may be an employee of such holder. If in the opinion of each such
counsel the proposed transfer may be effected without registration or
qualification of such Warrant or the Warrant Shares under any federal or state
law, the Company, as promptly as practicable, shall notify such holder of such
opinion and of the terms and conditions, if any, to be observed, whereupon such
holder shall be entitled to transfer such Warrant or Warrant Shares, all in
accordance with the terms of the notice delivered to such holder by the Company.
If either of such counsel is unable to render such an opinion (in which case
said counsel shall set forth in writing the basis for the legal conclusions in
this regard), the Company shall promptly notify such holder that the proposed
transfer described in the written notice given pursuant to this subsection may
not be effected without such registration or qualification or without compliance
with the conditions of an exemptive regulation of the Commission and any
applicable state securities regulatory authority. Such holder shall not be
entitled to effect such transfer until such registration, qualification,
exemption or other compliance has become effective. All fees and expenses of
counsel in connection with the rendition of the opinions provided for in this
subsection shall be paid by the holder requesting the transfer.

                                  ARTICLE IX.

                                 MISCELLANEOUS

     Section 9.1 Warrant Holder As Owner. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Warrant Holder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for the purpose of any exercise
hereof and for all other purposes, and the Company shall not be affected by any
notice to the contrary.

                                       5
<PAGE>

     Section 9.2 Warrant Holder Not Shareholder. This Warrant does not confer
upon the holder hereof any right to vote or to consent or to receive notice as a
shareholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a shareholder, prior to the exercise hereof
as hereinbefore provided.

     Section 9.3 Warrant Holder Representation. Notwithstanding anything to the
contrary herein, the Warrant Holder represents and warrants that:

          (a) it acknowledges that the Warrant and the Warrant Shares have not
     been registered under the 1933 Act or any state securities laws,

          (b) the Warrants and the Warrant Shares (unless such Warrants and/or
     Warrant Shares, as the case may be, are registered under the 1933 Act and
     applicable state securities laws) are being and will be issued pursuant to
     an exemption from registration for non-public offerings or offerings to one
     or more accredited investors,

          (c) that the Warrant Holder is acquiring the Warrant and will acquire
     the Warrant Shares (unless such Warrants and/or Warrant Shares are
     registered under the 1933 Act and applicable state securities laws) for the
     Warrant Holder's own account and not with a view toward their distribution,

          (d) the Warrant Holder is an "accredited investor" as such term is
     defined in Regulation D promulgated under the Securities Act and has not
     been organized for the specific purpose of acquiring the Warrant Shares or
     the Warrant,

          (e) the Warrant Holder and its representatives have been solely
     responsible for the Warrant Holder's own "due diligence" investigations of
     the Company and its management and business, for its own analysis of the
     merits and risks of the investment, and for its own analysis of the
     fairness and desirability of the terms of the investment,

          (f) the Warrant Holder has such knowledge and experience in financial
     and business matters that it is capable of evaluating the merits and risks
     associated with the Warrant and of protecting its interests in connection
     therewith,

          (g) the Warrant Holder is able to fend for itself in the transactions
     contemplated by this Warrant and has the ability to bear the economic risk
     of the investment, including complete loss of the investment,

          (h) the Warrant Holder is experienced in evaluating and investing in
     relatively early-stage, energy technology companies such as the Company,
     and

          (i) the Warrant Holder will not sell, offer for sale, pledge or
     otherwise hypothecate the Warrant or the Warrant Shares (unless such shares
     are registered under the 1933 Act and applicable state securities laws) in
     the absence of an opinion of counsel reasonably acceptable to the Company,
     that the sale, offer for sale, pledge or hypothecation of the Warrant and
     Warrant Shares is exempt from the registration and prospectus delivery
     requirements of the 1933 Act and applicable state securities laws.

     Section 9.4 Partial Exercise and Partial Assignment.

     (a) If this Warrant is exercised in part only, the holder shall upon
surrender hereof be entitled to receive a new Warrant, registered in the name of
the holder or its nominee. This Warrant may be assigned either in whole or in
part by surrender of this Warrant at the principal office of the Company in
Denver, Colorado (with the assignment or, as the case may be, partial assignment
form at the end hereof duly executed). If this Warrant is assigned, a new
Warrant shall be issued to the holder hereof, registered in the name of such
holder or its nominee. The assignee shall also be entitled to receive a new
Warrant, registered in the name of such assignee or its nominee.

                                       6
<PAGE>

     (b) Subject to the provisions of paragraph (a) of this Section 9.4 this
Warrant and the Warrant Shares may not be sold or otherwise disposed of except
as follows:

          (i) to a person who, in the opinion of counsel reasonably satisfactory
     to the Company, is a person to whom this Warrant or the Warrant Shares may
     legally be transferred without registration and without the delivery of a
     current prospectus under the 1933 Act with respect thereto and then only
     against receipt of an agreement of such person to comply with the
     provisions of this Warrant with respect to any resale or other disposition
     of such securities; or

          (ii) to any person upon delivery of a prospectus then meeting the
     requirements of the 1933 Act relating to such securities (as to which a
     registration statement under the 1933 Act shall then be in effect) and the
     offering thereof for such sale or disposition.

     Section 9.5 Successors. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind, and inure to the benefit of,
the parties hereto and their respective heirs, executors, administrators,
distributees, successors and assigns.

     Section 9.6 Severability. Should any part of this Warrant for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Warrant had been executed with the invalid portion thereof eliminated, and it is
hereby declared the intention of the parties hereto that they would have
executed and accepted the remaining portion of this Warrant without including
therein any such part, parts or portion which may, for any reason, be hereafter
declared invalid.

     Section 9.7 Notices. Any notices required to be given pursuant to the terms
hereof shall be given (unless otherwise herein expressly provided) in writing
and either (i) personally delivered, (ii) sent by certified, return receipt
requested, (iii) sent by prepaid overnight courier, or (iv) transmitted by
telecopier or similar device, with confirmation of receipt. Notices shall be
addressed, if to holder of Warrants or Warrant Shares, to:

          Frank Cilluffo
          181 Pleasant Street
          Portsmouth, NH 03801

or to such other address of such holder appearing in the register maintained by
the Company, and if to the Company, to:

          KFx Inc.
          3300 East First Avenue, Suite 290
          Denver, CO  80206
          Attention:  Chief Executive Officer

     For purposes of this Warrant, any notice sent by mail shall be demand given
on the date deposited in the mail.

     Section 9.8 Headings. The Article headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.

     Section 9.9 Law Governing. This Warrant is delivered in the State of New
York and shall be construed and enforced in accordance with, and governed by,
the laws of the State of New York, without regard to the conflict of laws rules
of such jurisdiction.

     Section 9.10 Amendments and Modifications. This Warrant may be amended or
modified only with the prior written consent of the holder hereof.

                                       7
<PAGE>

     WITNESS the seal of the Company and the signatures of its duly authorized
officers.

                                        KFx INC.

                                        ---------------------------------
                                        Name: Theodore Venners
                                        Title: Chairman & CEO

(SEAL)

                                        ---------------------------------
                                        Name:    R. G. Swenson
                                        Title:   Vice President & Secretary

                                       8
<PAGE>

                                   KFx Inc.
                               SUBSCRIPTION FORM
  (To be executed by the Registered Holder in order to Exercise the Warrant)

     The undersigned hereby irrevocably elects to exercise the right to purchase
__________ shares (the "Shares") of common stock, $.001 par value, (the "Common
Stock") of KFx Inc. (the "Company") covered by the Common Stock Purchase
Warrant, dated January 10, 2002 (the "Warrant") and herewith makes payment of
the purchase price of such Shares in accordance with the terms of the Warrant.
The undersigned requests a certificate for such Shares to be registered in the
name of , whose address is . If said number of Shares is less than all of the
Shares issuable under the Warrant, the undersigned further requests that a new
warrant representing the right to acquire the remaining balance of the Shares to
be registered in the name _____________, whose address is ____________________.

     The undersigned hereby represents and warrants that:

          (a) the Shares have not been registered under the Securities Act of
     1933, as amended (the "Act") or any state securities laws,

          (b) the Shares (unless such Shares are registered under the Act and
     applicable state securities laws) are being and will be issued pursuant to
     an exemption from registration for non-public offerings or offerings to one
     or more accredited investors,

          (c) it is acquiring the Shares (unless such Shares are registered
     under the Act and applicable state securities laws) for its own account and
     not with a view toward their sale or distribution,

          (d) the Warrant Holder is an "accredited investor" as such term is
     defined in Regulation D promulgated under the Securities Act and has not
     been organized for the specific purpose of acquiring the Warrant Shares or
     the Warrant,

          (e) the Warrant Holder and its representatives have been solely
     responsible for the Warrant Holder's own "due diligence" investigations of
     the Company and its management and business, for its own analysis of the
     merits and risks of the investment, and for its own analysis of the
     fairness and desirability of the terms of the investment,

          (f) the Warrant Holder has such knowledge and experience in financial
     and business matters that it is capable of evaluating the merits and risks
     associated with the Warrant and of protecting its interests in connection
     therewith,

          (g) the Warrant Holder is able to fend for itself in the transactions
     contemplated by this Warrant and has the ability to bear the economic risk
     of the investment, including complete loss of the investment,

          (h) the Warrant Holder is experienced in evaluating and investing in
     relatively early-stage, energy technology companies such as the Company,
     and

          (i) it will not sell, offer for sale, pledge or otherwise hypothecate
     the Shares (unless such Shares are registered under the Act and applicable
     state securities laws) in the absence of an opinion of counsel reasonably
     acceptable to the Company, that the sale, offer for sale, pledge or
     hypothecation of the Shares is exempt from the registration and prospectus
     delivery requirements of the Act and applicable state securities laws.

          (j) the Shares are being acquired in accordance with and subject to
     the terms, provisions and conditions of the Warrant, to all of which it
     hereby expressly assent.

                                       1
<PAGE>

                                            Very truly yours,

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

                           Print Name:
                                            ----------------------------

                           Address:
                                            ----------------------------

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

Receipt of the above is hereby acknowledged:

KFx Inc.

By:
     ------------------------------------
      Name:
      Title:
      Date:

                                       2
<PAGE>

                                   ASSIGNMENT

     FOR VALUE RECEIVED ______________________________________ hereby sells,
assigns and transfers unto _______________________________________ the within
Warrant and all rights evidenced thereby and does irrevocably constitute and
appoint, __________________ _____________________ as attorney-in-fact, to
transfer the said Warrant on the books of the within named Company.

-------------------------------
Name:
Title:
Date:

                               PARTIAL ASSIGNMENT

     FOR VALUE RECEIVED ________________________________________ hereby sells,
assigns and transfers unto ________________________________________ that portion
of the within Warrant and the rights evidenced thereby which will on the date
hereof entitle the holder to purchase ____________ shares of Common Stock of
___________________________, irrevocably constitute and appoint
_____________________________, attorney-in-fact, to transfer that part of the
said Warrant on the books of the within named Company.

---------------------------------
Name:
Title:
Date:

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