Document:

<PAGE>

EXHIBIT 10.1

                                    KFx, Inc.

                                    Addendum
                                     to the
                   Common Stock and Warrant Purchase Agreement

     This Addendum to the Common Stock and Warrant Purchase Agreement (this
"Addendum"), is entered into as of April 30, 2002, by and among KFx, Inc., a
 --------
Delaware corporation (the "Company"), the parties listed on Schedule A attached
                           -------                          ----------
hereto (each, an "Additional Investor" and collectively, the "Additional
                  -------------------                         ----------
Investors"), and the parties listed on Schedule B attached hereto (the "Existing
---------                              ----------                       --------
Investors"), with reference to the following facts:
---------

     WHEREAS, the Company and the Existing Investors are parties to that certain
Common Stock and Warrant Purchase Agreement, dated as of March 28, 2002 (the
"Purchase Agreement"; each capitalized term not otherwise defined herein has the
 ------------------
meaning ascribed to that term in the Purchase Agreement), which provides that
the Existing Investors or their designees may purchase from the Company shares
of Common Stock and Warrants on the same terms and conditions as set forth in
the Purchase Agreement and that such investors will become parties to the
Purchase Agreement, the Investors' Rights Agreement, as amended and restated,
and the Put and Call Option Agreement, as amended and restated;

     WHEREAS, the Company, the Existing Investors and the Additional Investors
have agreed to amend and restate the Investors' Rights Agreement and the Put and
Call Option Agreement in connection with the Closing (as defined in section
2.1);

     WHEREAS the Company has authorized the sale and issuance of two million
four hundred thousand (2,400,000) shares of its Common Stock (the "Shares")
pursuant to the terms of this Addendum;

     WHEREAS the Company has authorized the issuance of warrants, in
substantially the form attached to the Purchase Agreement as its Exhibit A, to
purchase two million seven hundred thousand (2,700,000) shares of Common Stock
(the "Warrants", and together with the Shares, the "Securities") pursuant to the
      --------                                      ----------
terms of this Addendum; and

     WHEREAS the Company wishes to sell to the Additional Investors, and the
Additional Investors wish to purchase, the Shares and Warrants on the terms and
conditions set forth herein.

     NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions set forth in this Agreement, the parties agree as
follows:

     1.   Authorization and Sale of the Shares.
          ------------------------------------

          1.1 Authorization. The Company has authorized the issuance and sale
              -------------
pursuant to the terms and conditions hereof of two million four hundred thousand
(2,400,000) shares of its Common Stock and Warrants to purchase two million
seven hundred thousand (2,700,000) shares of Common Stock on exercise of such
Warrants.

                                       1
<PAGE>

EXHIBIT 10.1

          1.2 Issuance and Sale of the Shares and Warrants. On the terms and
              --------------------------------------------
subject to the conditions hereof, each Additional Investor agrees, severally but
not jointly, to purchase, and the Company agrees to issue and sell to each such
Additional Investor, at the Closing: (a) the number of shares of Common Stock
set forth opposite the name of such Additional Investor on Schedule A at a
                                                           -----------
purchase price of $2.50 per share, and (b) Warrants to purchase the number of
shares of Common Stock set forth opposite the name of such Additional Investor
on Schedule A at a price of $2.75 per share of Common Stock, as that amount may
   ----------
be adjusted pursuant to the Warrants.

          1.3 Parties to the Purchase Agreement. The Company and the Existing
              ---------------------------------
Investors hereby agree that pursuant to this Addendum each Additional Investor
shall hereby become a party to the Purchase Agreement. In connection therewith,
each Additional Investor shall be deemed to (i) be a party to the Purchase
Agreement, (ii) be an "Investor" for all purposes under the Purchase Agreement
and (iii) have all rights and obligations of an Investor thereunder. The Shares
and Warrants acquired by the Additional Investors hereunder shall be considered
"Shares" and "Warrants", respectively, and shall be considered "Securities"
collectively, for all purposes under the Purchase Agreement.

          1.4 Defined Terms. For purposes of this Addendum and the
              -------------
representations and warranties of the Company in the Purchase Agreement that are
incorporated herein by reference in section 4.2, the term "Related Documents"
                                                           -----------------
means the Purchase Agreement, the Investors' Rights Agreement (as amended and
restated), the Put and Call Option Agreement (as amended and restated), the
Warrants issued pursuant to the Purchase Agreement, this Addendum and the
Warrants issued pursuant to this Addendum.

     2. Closing; Delivery.
        -----------------

          2.1 Closing. Upon satisfaction of the conditions set forth in sections
              -------
6 and 7, the closing of the purchase, sale and issuance of the Shares and
Warrants listed on Schedule A attached hereto shall take place at the offices of
                   ----------
Shartsis, Friese & Ginsburg LLP, 18th Floor, One Maritime Plaza, San Francisco
94111, on April 30,2002 (the "Closing Date"), at 10:00 a.m., or at such other
                              ------------
time and place as the parties may agree (the "Closing").
                                              -------

          2.2 Delivery at the Closing. Subject to the terms of this Addendum, at
              -----------------------
the Closing the Company will deliver to each Additional Investor listed on
Schedule A attached hereto: (i) a stock certificate representing the number of
----------
shares of Common Stock set forth opposite the name of such Additional Investor
on Schedule A; and (ii) a Warrant to purchase the number of shares of Common
   ----------
Stock set forth opposite the name of such Additional Investor on the Schedule A
                                                                     ----------
against delivery to the Company by each such Additional Investor at the Closing
of a wire transfer of funds or promissory note for the aggregate purchase price
of the Shares acquired by such Additional Investor.

                                       2
<PAGE>

EXHIBIT 10.1

     3. Amendment and Waiver of Section 1.3(c) of the Purchase Agreement -
        ------------------------------------------------------------------
Option to Make Additional Investment
------------------------------------

          3.1 Amendment. Section 1.3(c) of the Purchase Agreement is hereby
              ---------
amended by deleting the references to "June 30, 2002", and "$10,000,000"
contained therein and substituting "July 31, 2002", and "$15,000,000",
respectively, therefor.

          3.2 Waiver. The Company, the Additional Investors and the Existing
              ------
Investors hereby agree to waive the last sentence of section 1.3(c) of the
Purchase Agreement in connection with this Addendum (and this Addendum only). In
connection with such waiver, the Company, the Additional Investors and the
Existing Investors hereby agree that the proceeds from the sale of the Shares
pursuant to this Addendum shall be used as follows: (a) three million eight
hundred fifty thousand dollars ($3,850,000) shall be used to repurchase from the
parties listed on Disclosure Schedule 3 all of the outstanding shares of Series
                  ---------------------
C Preferred Stock of Pegasus Technologies Inc., a South Dakota corporation
("Pegasus"), pursuant to the terms and conditions of repurchase agreements
  -------
therefor, (b) four hundred fifty thousand dollars ($450,000) shall be used for
initial expenses related to the construction of a K-Fuel demonstration plant and
(c) the remaining proceeds shall be used for general corporate purposes of the
Company.

     4. Representations and Warranties of the Company; Disclosure;
        ----------------------------------------------------------
Covenant. Each Additional Investor hereby acknowledges receipt of the Purchase
--------
Agreement and the exhibits and schedules thereto.

          4.1 The Company represents and warrants to each Additional Investor
that:

               (a) The representatives and warranties of the Company set forth
in section 2 of the Purchase Agreement and section 8 of the Put and Call Option
Agreement were true and correct when made.

               (b) The representations and warranties referred to above, which
are incorporated by reference herein and made a part hereof, are true and
correct as of the date hereof as if made on the date hereof, except (a) for
changes resulting from the transactions contemplated in the Purchase Agreement,
the Investors' Rights Agreement, the Put and Call Option Agreement and the
Warrants issued pursuant to the Purchase Agreement, and (b) as set forth in
Disclosure Schedule 4.1(b) attached hereto.
--------------------------

               (c) The Company has complied with and is not in violation of any
covenant set forth in section 4 of the Purchase Agreement, section 3 of the
Investors' Rights Agreement or section 7 of the Put and Call Option Agreement.

          4.2 On or before May 16, 2002, the Company shall cause Pegasus to
issue to the Company securities of Pegasus in accordance with section 7(f) of
the Put and Call Option Agreement as consideration for the Company's equity
investment in Pegasus that was required by section 2.9 of the Purchase
Agreement. For purposes of such issuance, the Pegasus securities shall be valued
at fair market value as of the time of the Company's equity investment.

     5. Representations and Warranties of Additional Investors. Each Additional
        ------------------------------------------------------
Investor has reviewed the representations and warranties set forth in section 3
of the Purchase

                                       3
<PAGE>

EXHIBIT 10.1

Agreement. Each Additional Investor, severally but not jointly, represents and
warrants to the Company that such representations and warranties, which are
incorporated herein by reference and made a part hereof, are true and correct as
of the date hereof with respect to such Additional Investor.

     6. Additional Investors' Obligations at Closing. Each Additional Investor's
        --------------------------------------------
obligation to purchase and pay for the Securities is subject to the fulfillment
to such Additional Investor's satisfaction at the Closing of the following
conditions:

          6.1 Representations and Warranties Correct; Performance Obligations.
              ---------------------------------------------------------------
The representations and warranties of the Company contained in section 4 hereof
shall be true and correct on and as of the date of the Closing with the same
force and effect as if they had been made on and as of such date, subject to
changes contemplated by this Addendum.

          6.2 Performance. The Company shall have performed and complied with
              -----------
all agreements, obligations and conditions contained in this Addendum that are
required to be performed by it or with which it is required to have complied on
or before the Closing.

          6.3 Securities Compliance. The Company shall have taken all action
              ---------------------
necessary to comply with any federal or state securities laws applicable to the
transactions contemplated hereunder.

          6.4 Consents, Permits, and Waivers. The Company shall have obtained
              ------------------------------
any and all consents, licenses, permits, orders, authorizations, waivers and the
like necessary or appropriate for consummation of the transactions contemplated
by this Addendum and the other Related Documents (except for such as may be
properly obtained subsequent to the Closing).

          6.5 Stockholder Approval. The Company shall have satisfied all
              --------------------
stockholder approval requirements of applicable law, rule or regulation,
including provisions of the American Stock Exchange, or any other exchange or
market on which the Common Stock is then listed or traded.

          6.6 Absence of Litigation. No proceeding challenging this Addendum,
              ---------------------
the other Related Documents, the Warrants issued in connection with this
Addendum or the transactions contemplated hereby or thereby, or seeking to
prohibit, alter, prevent or delay the Closing, shall have been instituted before
any court, arbitrator or governmental body, agency or official and shall be
pending.

          6.7 Compliance Certificate. The Company shall deliver to each
              ----------------------
Additional Investor at the Closing, relating to such Additional Investor's
purchase of the Common Stock and the issuance of the Warrants, a certificate
signed by the President of the Company stating that the Company has complied
with or satisfied each of the conditions to the Additional Investor's obligation
to consummate the Closing set forth in sections 6.1 through 6.6, unless waived
in writing by the Additional Investor.

          6.8 Opinion of Counsel. The Company shall deliver to each Additional
              ------------------
Investor at the Closing an opinion of counsel for the Company, dated as of the
Closing, in the form attached hereto as Exhibit A.

                                       4
<PAGE>

EXHIBIT 10.1

          6.9 Amended and Restated Investors' Rights Agreement. The Amended and
              ------------------------------------------------
Restated Investors' Rights Agreement, in substantially the form attached hereto
as Exhibit B, shall have been executed by all the parties thereto on or prior to
such Closing.

          6.10 Amended and Restated Put Agreement. The Amended and Restated Put
               ----------------------------------
Agreement, in substantially the form attached hereto as Exhibit C, shall have
been executed by all the parties thereto on or prior to such Closing.

          6.11 Expenses. At the Closing, the Company shall pay the legal fees
               --------
and expenses of SF&G (legal counsel only for Westcliff) and all due diligence
fees and expenses incurred by Westcliff, incurred in connection with this
Addendum, the other Related Documents and the transactions contemplated hereby
and thereby. For the avoidance of doubt, no fees paid to SF&G pursuant to this
section 6.11 shall be deemed to be payment to counsel for the Investors or the
Additional Investors as required to be made by the Company pursuant to section
2.7 of the Investors' Rights Agreement, as amended and restated.

          6.12 Legal Matters. All matters of a legal nature which pertain to
               -------------
this Addendum and the transactions contemplated hereby shall have been approved
by each Additional Investor's counsel.

          6.13 Proceedings and Documents. All corporate and other proceedings in
               -------------------------
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Additional Investor, and the Additional Investor shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.

     7. The Company's Conditions to the Closing. The Company's obligation to
        ---------------------------------------
deliver the Securities at the Closing is subject to the fulfillment to the
Company's satisfaction at such Closing of the following conditions:

          7.1 Representations and Warranties. The representations and warranties
              ------------------------------
of each Additional Investor contained in section 5 hereof shall be true and
correct on and as of the Closing.

          7.2 Performance. The Additional Investors shall have performed and
              -----------
complied in all material respects with all agreements, obligations, and
conditions contained in the Addendum that are required to be performed by it or
them or with which it or they are required to have complied on or before the
Closing.

     8. Notices. Any notice, consent, authorization or other communication to be
        -------
given hereunder shall be in writing and shall be deemed duly given and received
when delivered personally or transmitted by facsimile transmission with receipt
acknowledged by the addressee, three days after being mailed by first class
mail, or the next business day after being deposited for next-day delivery with
a nationally recognized, receipted, overnight delivery service, charges and
postage prepaid, properly addressed to the party to receive such notice at the
address(es) specified on the signature page of this Addendum for the Company and
on Schedule A attached hereto for each Investor (or at such other address as
   ----------
shall be specified by like notice).

                                       5
<PAGE>

EXHIBIT 10.1

     9. Counterparts. This Addendum may be executed in any number of
        ------------
counterparts, each of which shall constitute an original, and all of which
together shall be considered one and the same agreement.

     10. Governing Law. This Addendum shall be governed by and construed and
         -------------
interpreted in accordance with the law of the State of New York, without regard
to that state's conflict of laws principles.

     11. Attorneys' Fees. If any action at law or in equity is necessary to
         ---------------
enforce or interpret the terms of this Addendum, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

     12. Representation. Each party hereto acknowledges that (a) Westcliff
         --------------
Capital Management, LLC retained SF&G to represent Westcliff in connection with
this Addendum, the other Related Documents and the transactions related hereto
and thereto, (b) the interests of Westcliff may not necessarily coincide with
the interests of other Additional Investors, (c) SF&G does not represent any
Investor or Additional Investor other than Westcliff in connection with the
transaction contemplated hereby and thereby, and (d) each Additional Investor
has consulted with, or has had an opportunity to consult with, its own legal
counsel and has not relied on SF&G for legal counsel in connection with this
Addendum, the other Related Documents and the transactions related hereto and
thereto.

     IN WITNESS WHEREOF, this Addendum has been duly executed by or on behalf of
the parties hereto as of the date first above written.

                                        KFx, INC.

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

                                        Address:
                                        3300 East First Avenue, Suite 290
                                        Denver, CO  80206
                                        Fax:  (303) 293-8430

                                        with a copy to:

                                        Leslie J. Goldman, Esq.
                                        Skadden, Arps, Slate, Meagher & Flom LLP
                                        1440 New York Avenue, N.W.
                                        Washington, DC  20005
                                        Facsimile: (202) 393-5719

                                       6
<PAGE>

                            THE ADDITIONAL INVESTORS:

<TABLE>
<S>                                          <C>
WESTCLIFF AGGRESSIVE GROWTH, L.P.            WESTCLIFF FOUNDATION
WESTCLIFF LONG/SHORT, L.P.                   WESTCLIFF MASTER FUND, L.P.
WESTCLIFF PARTNERS, L.P.                     WESTCLIFF PROFIT SHARING AND MONEY
WESTCLIFF PUBLIC VENTURES FUND, L.P.            PURCHASE PENSION PLAN
WESTCLIFF SMALL CAP FUND, L.P.               CANCER CENTER OF SANTA BARBARA
                                             PALM TRUST
By: Westcliff Capital Management, LLC        PARKER FOUNDATION
Its: General Partner                         UNIVERSITY OF SAN FRANCISCO

                                             By: Westcliff Capital Management, LLC
By:                                          Its: Investment Adviser and Attorney-In-Fact
   ----------------------------------
   Richard S. Spencer III, Manager

                                             By:
                                                -------------------------------------
                                                Richard S. Spencer III, Manager

RAM TRADING, LTD.                            NORANDA FINANCE,  INC. RETIREMENT
                                                PLAN FOR AFFILIATED  COMPANIES
By:  Ritchie Capital Management, LLC            TRUST
Its:  Investment Adviser

                                             By: Mellon Bank, N.A., solely in its capacity as
By:                                              Trustee for the Noranda Finance, Inc. Retirement
   ---------------------------------------       Plan for Affiliated Companies Trust (as directed
   David Popovich, Chief Financial Officer       by Westcliff Capital Management, LLC), and not
                                                 in its individual capacity

                                             By:
                                                -------------------------------------
                                                Bernadette T. Rist
                                                Authorized Signatory
</TABLE>
<PAGE>

                             THE EXISTING INVESTORS

<TABLE>
<S>                                          <C>
WESTCLIFF AGGRESSIVE GROWTH, L.P.            WESTCLIFF FOUNDATION
WESTCLIFF ENERGY PARTNERS, L.P.              WESTCLIFF MASTER FUND, L.P.
WESTCLIFF LONG/SHORT, L.P.                   WESTCLIFF PROFIT SHARING AND MONEY
WESTCLIFF PARTNERS, L.P.                        PURCHASE PENSION PLAN
WESTCLIFF PUBLIC VENTURES FUND, L.P.         CANCER CENTER OF SANTA BARBARA
WESTCLIFF SMALL CAP FUND, L.P.               PALM TRUST
                                             PARKER FOUNDATION
By: Westcliff Capital Management, LLC        UNIVERSITY OF SAN FRANCISCO
Its: General Partner

                                             By:  Westcliff Capital Management, LLC
                                             Its:  Investment Adviser and Attorney-In-Fact

By:
    --------------------------------------
     Richard S. Spencer III, Manager
                                             By:
                                                --------------------------------
                                                Richard S. Spencer III, Manager

RAM TRADING, LTD.                            NORANDA FINANCE, INC. RETIREMENT
                                               PLAN FOR AFFILIATED COMPANIES
                                               TRUST

By:  Ritchie Capital Management, LLC
Its:  Investment Adviser
                                             By: Mellon Bank, N.A., solely in its capacity as
                                                 Trustee for the Noranda Finance, Inc. Retirement
                                                 Plan for Affiliated Companies Trust (as directed
                                                 by Westcliff Capital Management, LLC), and not
                                                 in its individual capacity

By:
   ---------------------------------------
   David Popovich, Chief Financial Officer
                                             By:
                                                --------------------------------
                                                Bernadette T. Rist
                                                Authorized Signatory

PENINSULA FUND, L.P.                         COMMON SENSE PARTNERS, L.P.

By:  Peninsula Capital Management, Inc.      By:  Peninsula Capital Management, Inc.
Its:  General Partner                        Its:  Investment Adviser

By:                                          By:
   ---------------------------------------      --------------------------------
   Scott Bedford, President                     Scott Bedford, President

                                             By: Common Sense Investment Management, LLC
                                             Its: General Partner

                                             By:
                                                --------------------------------
                                                Scott A. Thompson
                                                Director and Senior Vice President Finance
</TABLE>
<PAGE>

                                    EXHIBIT A
                                    ---------

                                  LEGAL OPINION
<PAGE>

                                    EXHIBIT B
                                    ---------

                AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

                                    KFx, INC.

                Amended and Restated Investors' Rights Agreement

                           Dated as of April 30, 2002
<PAGE>

                Amended And Restated Investors' Rights Agreement

THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made
                                                             ---------
as of April 30, 2002, by and among KFx, Inc., a Delaware corporation (the
"Company"), and the Investors listed on Schedule A hereto (each of whom is
 -------
herein called individually, an "Investor" and all of whom are herein called,
                                --------
collectively, the "Investors"), with reference to the following facts:
                   ---------

WHEREAS, certain of the Investors are parties to the Common Stock and Warrant
Purchase Agreement, dated as of March 28, 2002 (the "Original Purchase
                                                     -----------------
Agreement" and as amended by the Addendum described below, the "Purchase
---------                                                       --------
Agreement");
---------

WHEREAS, in connection with the closing of the transactions described in the
Original Purchase Agreement, the Company and certain of the Investors entered
into an Investors' Rights Agreement, dated as of March 28, 2002 (the "Original
                                                                      --------
Investors' Rights Agreement");
---------------------------

WHEREAS, the Company and the Investors amended the Original Investors' Rights
Agreement pursuant to that certain First Amendment to Investors' Rights
Agreement, dated as of April 18, 2002;

WHEREAS, certain of the Investors are parties to that certain Addendum to the
Common Stock and Warrant Purchase Agreement, dated as of April 30, 2002 (the
"Addendum"), which provides that as a condition to the closing of the
 --------
transactions contemplated by the Addendum the Original Investors' Rights
Agreement must be amended and restated in its entirety;

WHEREAS, the Company and the Investors desire to amend and restate in its
entirety the Original Investors' Rights Agreement (as amended by the First
Amendment to Investors' Rights Agreement) pursuant to this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein and for other consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto further agree as follows:

     1. Certain Definitions. Capitalized terms not defined herein are defined in
        -------------------
the Purchase Agreement. The following definitions shall apply for purposes of
this Agreement:

          1.1 "Form S-3" means such form under the Securities Act as in effect
               --------
on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.

          1.2 "Holder" means any person owning or having the right to acquire
               ------
Registrable Securities or any assignee thereof in accordance with section 2.10
hereof.

          1.3 "Purchase Price" means $2.50 per share of Common Stock or
               --------------
Preferred Stock, as the case may be, as that price shall be appropriately
adjusted to reflect any stock dividend, stock split, reverse stock split,
combination of shares, reclassification, recapitalization or other similar event
affecting the number of outstanding shares of Common Stock (or such other stock
or securities).
<PAGE>

          1.4 "Purchase Price Per Common Share Equivalent" means (a) if Common
               ------------------------------------------
Stock is issued in the Subsequent Dilutive Offering, the price per share of
Common Stock, or (b) if Preferred Stock is issued in the Subsequent Dilutive
Offering, the price at which a share of such Preferred Stock is issued in the
Subsequent Dilutive Offering divided by the number of shares of Common Stock
into which such share of Preferred Stock may be converted.

          1.5 "Register", "registered", and "registration" refer to a
               --------    ----------        ------------
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.

          1.6 "Registrable Securities" means (a) the shares of the Company's
               ----------------------
Common Stock issued pursuant to the Purchase Agreement and, if applicable, this
Agreement, (b) shares of the Company's Common Stock previously acquired by the
Investors and listed on Schedule B hereto, (c) shares of the Company's Common
Stock issuable on exercise of the Warrants (as defined in the Purchase
Agreement) issued pursuant to the Purchase Agreement and, if applicable, this
Agreement, and (d) any Common Stock of the Company issued as (or issuable on the
conversion or exercise of any warrant, right or other security that is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, the shares referenced in clauses (a), (b) and (c) above;
provided that there shall be excluded any Registrable Securities sold by a
person in a transaction in which that person's rights under section 2 are not
assigned.

          1.7 The number of shares of "Registrable Securities" outstanding shall
                                       ----------------------
be determined by the number of shares of Common Stock outstanding that are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities that are, Registrable Securities.

     2. Registration Rights. The Company covenants and agrees as follows:
        -------------------

          2.1 Mandatory Registration.
              ----------------------

               (a) The Company shall prepare and file with the SEC on or before
May 7, 2002 (the "Filing Deadline") a registration statement on Form S-3 (or, if
                  ---------------
Form S-3 is not then available, on such form of registration statement that is
then available to effect a registration of all Registrable Securities, subject
to consent of the Investors holding at least a majority of the Registrable
Securities) for the purpose of registering under the Securities Act all of the
Registrable Securities for resale by, and for the account of, the Holders as
selling stockholders thereunder (the "Registration Statement"). The Company
                                      ----------------------
shall use best efforts to cause the Registration Statement to become effective
as soon as possible after filing. The Company shall keep such registration
statement effective at all times until the earlier of the date on which all the
Registrable Securities (i) are sold and (ii) can be sold by all the Holders (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) in any three-month period without volume limitation and without
registration in compliance with Rule 144 under the Securities Act. The date on
which the Registration Statement is withdrawn pursuant to the preceding sentence
is the "Registration Withdrawal Date".
        ----------------------------

               (b) If the Company has not filed the Registration Statement with
the SEC on or before May 7, 2002, the Company shall issue to each Holder an
additional warrant (on the same terms and conditions as the Warrants, including
the Exercise Price then in effect (a

                                       2
<PAGE>

"Registration Warrant")), to acquire that number of shares of Common Stock equal
 --------------------
to ten percent (10%) of the number of shares of Common Stock issuable on
exercise of the Warrants issued to that Holder.

               (c) At the end of each thirty (30) day period (or a portion
thereof) after May 7, 2002, that the Registration Statement has not been filed
with the SEC, the Company shall issue to each Holder a Registration Warrant to
acquire that number of shares of Common Stock equal to (i) ten percent (10%) of
the number of shares of Common Stock issuable on exercise of the Warrants issued
to that Holder, multiplied by (ii) a fraction, the numerator of which is the
number of days during such thirty-day period before the date on which the
Registration Statement was filed with the SEC and the denominator of which is
thirty.

               (d) If the Registration Statement has not been declared effective
by the SEC on or before June 21, 2002, the Company shall issue to each Holder a
Registration Warrant to acquire that number of shares of Common Stock equal to
ten percent (10%) of the number of shares of Common Stock issuable on exercise
of the Warrants issued to that Holder.

               (e) At the end of each thirty (30) day period (or a portion
thereof), after June 21, 2002, that the Registration Statement has not been
declared effective by the SEC, the Company shall issue to each Holder a
Registration Warrant to acquire that number of shares of Common Stock equal to
(i) ten percent (10%) of the number of shares of Common Stock issuable on
exercise of the Warrants issued to that Holder, multiplied by (ii) a fraction,
the numerator of which is the number of days during such thirty-day period
before the date on which the Registration Statement is declared effective by the
SEC and the denominator of which is thirty.

          2.2 Company Registration.
              --------------------

               (a) If (but without any obligation to do so) the Company proposes
to register any of its stock (including a registration effected by the Company
for stockholders other than the Holders) or other securities under the
Securities Act in connection with the public offering of such securities, the
Company shall, at such time, promptly give each Holder notice of such
registration. On the request of each Holder given within thirty days after such
notice by the Company, the Company shall, subject to the provisions of section
2.2(c), cause to be registered under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered.

               (b) The Company shall have the right to terminate or withdraw any
registration initiated by it under this section 2.2 prior to the effectiveness
of such registration, whether or not any Holder shall have elected to include
securities in such registration. The expenses of such withdrawn registration
shall be borne by the Company in accordance with section 2.7 hereof.

               (c) In connection with any offering involving an underwriting of
shares of the Company's capital stock, the Company shall not be required under
this section 2.2 to include any requesting Holder's securities in such
underwriting, unless such Holder accepts the terms of the underwriting as agreed
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters) and enters into an underwriting agreement
in customary form with the underwriter or underwriters selected by the Company,
and

                                       3
<PAGE>

then only in such quantity as the underwriters advise the Company in writing in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by the Holders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters advise the
Company in writing in their sole discretion is compatible with the success of
the offering, then the Company shall be required to include in the offering only
that number of such Registrable Securities that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
Registrable Securities so included to be apportioned pro rata among the selling
Holders according to the total amount of Registrable Securities entitled to be
included therein owned by each selling Holder or in such other proportions as
shall mutually be agreed to by such selling Holders); provided, that in no event
                                                      --------
shall the amount of Registrable Securities of the selling Holders included in
the offering be reduced below one-third of the total amount of securities
included in such offering. For purposes of such apportionment among Holders, for
any selling stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder", and any pro rata reduction with respect
to such "selling Holder" shall be based on the aggregate amount of Registrable
Securities owned by all such related entities and individuals.

          2.3 Form S-3 Registration. If, at any time after the Registration
              ---------------------
Withdrawal Date, the Company shall receive from one or more Holders a request or
requests that the Company effect a registration on Form S-3 and any related blue
sky or similar qualification or compliance with respect to the Registrable
Securities owned by such Holder or Holders, the Company shall:

               (a) Within five days of the receipt thereof, give notice of the
proposed registration, and any related blue sky or similar qualification or
compliance, to all other Holders; and

               (b) Cause, as soon as reasonably practicable, such Registrable
Securities to be registered for offering and sale on Form S-3 and cause such
Registrable Securities to be qualified in such jurisdictions as such Holders may
reasonable request, together with all or such portion of the Registrable
Securities of any other Holders joining in such request as are specified in a
request given within twenty days after receipt of such notice from the Company;
provided that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 2.3:

                    (i) If the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $1,000,000;

                    (ii) If the Company has, within the twelve month period
preceding the date of such request, already effected two registrations for the
Holders pursuant to this section 2.3 or section 2.4;

                    (iii) If the Company furnishes to the Holders a certificate
signed by the Chief Executive Officer of the Company stating that in the good
faith judgment of the

                                       4
<PAGE>

Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than ninety days
after receipt of the request of the Holder or Holders under this section 2.3;
provided that the Company shall not utilize this right, together with its right
under section 2.4(c), more than once in any twelve month period; provided,
further, that the Company shall not register shares for its own account during
such ninety day period unless the Holder can exercise its right to request the
registration of Registrable Securities under section 2.2; or

                    (iv) In any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.

               (c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as reasonably practicable after receipt of
the request or requests of the Holders.

          2.4 Request for Registration.
              ------------------------

               (a) If, at any time after the Registration Withdrawal Date, the
Company is not eligible to effect a registration on Form S-3 and the Company
shall, during such period that it is not so eligible, receive a written request
from the Holders that the Company file a registration statement under the
Securities Act covering the registration of all or a portion of the Registrable
Securities then outstanding, then the Company shall:

                    (i) within five days of the receipt thereof, give notice of
the proposed registration, and any related blue sky or similar qualification or
compliance, to all other Holders; and

                    (ii) cause, as soon as reasonably practicable, such
Registrable Securities to be registered for offering and sale and cause such
Registrable Securities to be qualified in such jurisdictions as such Holders may
reasonable request, together with all or such portion of the Registrable
Securities of any other Holders joining in such request as are specified in a
request given within twenty days after receipt of such notice from the Company;
provided that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 2.4:

                         (A) if the Holders propose to sell Registrable
Securities at an aggregate price to the public of less than $1,000,000;

                         (B) if the Company has, within the twelve month period
preceding the date of such request, already effected two registrations for the
Holders pursuant to section 2.3 or this section 2.4; and

                         (C) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.

                                       5
<PAGE>

               (b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
  ------------------
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to section 2.4(a) and the Company shall
include such information in the written notice referred to in section 2.4(a).
The underwriter will be selected by a majority in interest (as determined by the
number of Registrable Securities held) of the Initiating Holders and shall be
reasonably acceptable to the Company. In such event, the right of any Holder to
include his, her or its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in section 2.5(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this section 2.4, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities that
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
owned by each Holder; provided, however, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.

               (c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this section 2.4, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety days after
receipt of the request of the Initiating Holders; provided that the Company may
not utilize this right, together with its right under section 2.3(b)(iii) more
than once in any twelve month period; provided further, that the Company shall
not register shares for its own account during such ninety day period unless the
Holder can exercise its right to request the registration of Registrable
Securities under section 2.2.

          2.5 Obligations of the Company. Whenever required under this section 2
              --------------------------
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

               (a) Except as otherwise provided in section 2.1, prepare and file
with the SEC a registration statement with respect to such Registrable
Securities and use best efforts to cause such registration statement to become
effective, and, on the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
a period of up to 180 days or, if earlier, until the distribution contemplated
in the Registration Statement has been completed; provided that (i) such 180-day
period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other

                                       6
<PAGE>

securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 (or any other Form, to the extent permitted
by law) that are intended to be offered on a continuous or delayed basis, such
180-day period shall be extended, if necessary, to keep the Registration
Statement effective until all such Registrable Securities are sold, except to
the extent that the Holders (and any affiliate of the Holder with whom such
Holder must aggregate its sales under Rule 144) of such Registrable Securities
may sell those Registrable Securities in any three-month period without regard
to the volume limitation and without registration in compliance with Rule 144
under the Securities Act;

               (b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the Securities Act
with respect to the disposition of all securities covered by such registration
statement during the period of time such registration statement remains
effective;

               (c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request to facilitate the disposition of Registrable Securities owned
by them;

               (d) Use best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;

               (e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;

               (f) During the period of time such registration statement remains
effective, notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and, thereafter, the Company will promptly prepare (and, when
completed, deliver to each selling Holder) a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing;

               (g) Cause all such Registrable Securities registered hereunder to
be listed on each securities exchange on which securities of the same class
issued by the Company are then listed;

                                       7
<PAGE>

               (h) Provide a transfer agent and registrar for all Registrable
Securities registered hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration;
and

               (i) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this section 2 if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities, and (ii) a "comfort" letter signed by
the independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and with respect to events subsequent to the date of the
financial statements, as are customarily covered in accountants' letters
delivered to the underwriters in underwritten public offerings of securities
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.

          2.6 Information from Holder. It shall be a condition precedent to the
              -----------------------
obligations of the Company to take any action pursuant to this section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding such Holder, the
Registrable Securities held by such Holder, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Registrable Securities.

          2.7 Expenses of Registration. All expenses incurred in connection with
              ------------------------
registrations, filings or qualifications pursuant to sections 2.1, 2.2, 2.3 and
2.4, including (without limitation) all registration, filing and qualification
fees, printing fees and expenses, accounting fees and expenses, fees and
disbursements of counsel for the Company and the fees and disbursements of
counsel for the selling Holders selected by the Holders, shall be borne by the
Company. Notwithstanding the foregoing, the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to section 2.1 or
2.3 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses pro rata based on the
number of Registrable Securities that were requested to be included in the
withdrawn registration); provided that, if at the time of such withdrawal, the
Holders shall have learned of a material adverse change in the condition
(financial or otherwise), business, or prospects of the Company from that known
to the Holders at the time of their request and shall have withdrawn the request
with reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to section 2.1 or 2.3. Anything
herein to the contrary notwithstanding, all underwriting discounts, commissions
and transfer taxes incurred in connection with a sale of Registrable Securities
shall be borne and paid by the Holder thereof, and the Company shall have no
responsibility therefor.

                                       8
<PAGE>

          2.8 Indemnification. If any Registrable Securities are included in a
              ---------------
registration statement under this section 2:

               (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors, stockholders,
members and managers of such Holder, legal counsel and accountants for such
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages
or liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or any other federal or state securities law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based on any of the following statements, omissions
or violations (collectively a "Violation"): (i) any untrue statement or alleged
                               ---------
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and the Company will reimburse
such Holder, underwriter or controlling person for any legal or other expenses
incurred, as incurred, in connection with investigating or defending any such
loss, claim, damage, liability or action; provided that the indemnity agreement
in this section 2.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld or
delayed), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based on a Violation that occurs in reliance on and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, underwriter or controlling person.

               (b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who shall have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, legal counsel
and accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
to which any of the foregoing persons may become subject, under the Securities
Act, the Exchange Act or any other federal or state securities law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based on any Violation, in each case to the extent (and only
to the extent) that such Violation occurs in reliance on and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any person intended
to be indemnified pursuant to this section 2.8(b), for any legal or other
expenses reasonably incurred, as incurred, by such person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided that the indemnity agreement in this section 2.8(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder (which consent
shall not be unreasonably withheld or delayed); and provided further that in no
event shall any indemnity by such Holder under this section 2.8(b), when
aggregated

                                       9
<PAGE>

with amounts contributed, if any, pursuant to section 2.8(d), exceed the net
proceeds from the sale of Registrable Securities hereunder received by such
Holder.

               (c) Promptly after receipt by an indemnified party under this
section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this section 2.8, deliver to
the indemnifying party notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent that the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided that an indemnified party (together with
all other indemnified parties that may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to notify the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this section 2.8, but the omission so to notify the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this section 2.8.

               (d) If the indemnification provided in this section 2.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that shall have resulted in such
loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations; provided that in no event shall any contribution by a
Holder under this section 2.8(d), when aggregate with amounts paid, if any,
pursuant to section 2.8(b), exceed the net proceeds from the sale of Registrable
Securities hereunder received by such Holder. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.

               (e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.

               (f) The obligations of the Company and Holders under this section
2.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this section 2, and otherwise.

                                       10
<PAGE>

          2.9 Reports under Exchange Act. With a view to making available to the
              --------------------------
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:

               (a) Make and keep public information available, as those terms
are used in SEC Rule 144, at all times;

               (b) Take such action as is necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities;

               (c) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;

               (d) Furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith on request, (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144,
the Securities Act and the Exchange Act, or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
that permits the selling of any such securities without registration or pursuant
to such form; and

               (e) Undertake any additional actions reasonably necessary to
maintain the availability of the Registration Statement or the use of Rule 144.

          2.10 Assignment of Registration Rights. The rights to cause the
               ---------------------------------
Company to register Registrable Securities pursuant to this section 2 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such Registrable Securities that (a) is a subsidiary, parent,
current or former partner, current or former limited partner, current or former
member, current or former manager or stockholder of a Holder, (b) is an entity
controlling, controlled by or under common control, or under common investment
management, with a Holder, including without limitation a corporation,
partnership or limited liability company that is a direct or indirect parent or
subsidiary of the Holder, or (c) is a transferee or assignee of at least 10,000
(as adjusted for stock split, combinations, dividends and the like) shares of
such Registrable Securities; provided that: (i) the Company is, within a
reasonable time after such transfer, notified of the name and address of such
transferee or assignee and the Registrable Securities with respect to which such
registration rights are being assigned; (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement; and (iii) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act.

          2.11 Limitations on Subsequent Registration Rights. From and after the
               ---------------------------------------------
date of this Agreement, the Company shall not, without the prior consent of the
Holders of at least two-thirds of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder to include
such securities in any registration filed under sections 2.1 and 2.3 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include

                                       11
<PAGE>

such securities in any such registration only to the extent that the inclusion
of such securities will not reduce the amount of the Registrable Securities of
the Holders that are included; provided, however, that this section shall not
apply to the transaction described on Schedule 2.14 of the Purchase Agreement.

     3. Covenants.
        ---------

          3.1 Reserve for Exercise Shares. The Company shall at all times
              ---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock such number of shares of Common Stock (the "Exercise Shares") as shall be
                                                  ---------------
sufficient to enable it to comply with its exercise obligations under the
Warrants and Registration Warrants. If at any time the number of Exercise Shares
shall not be sufficient to effect the exercise of the Warrants and Registration
Warrants, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number as will be sufficient for such purposes. The Company will obtain
authorization, consent, approval or other action by, or make any filing with,
any administrative body that may be required under applicable state securities
laws in connection with the issuance of Exercise Shares.

          3.2 [INTENTIONALLY OMITTED]
               ---------------------

          3.3 Preferred Stock. Except for the transaction described in item 2 of
              ---------------
Schedule 2.14 of the Purchase Agreement, the Company shall not issue any
preferred stock of the Company (or other securities of any nature convertible
into preferred stock of the Company) without the consent of Holders holding at
least two-thirds of the then outstanding Registrable Securities.

          3.4 Termination of Covenants. The covenants set forth in sections 3.1
              ------------------------
and 3.3 shall terminate as to each Holder and be of no further force and effect
at the time the Holders no longer hold any Registrable Securities.

     4. Subsequent Dilutive Offerings. If during the period beginning on March
        -----------------------------
28, 2002 and ending on April 30, 2003, the Company issues shares of Common Stock
or Preferred Stock at a Purchase Price Per Common Share Equivalent less than the
Purchase Price (a "Subsequent Dilutive Offering"), then the Company shall,
                   ----------------------------
within ten (10) days of the closing of the Subsequent Dilutive Offering, issue
to each Holder:

               (a) A number of shares of Common Stock equal to (i)(A) the number
of shares of Common Stock purchased by such Holder pursuant to Purchase
Agreement multiplied by (B) the remainder of the Purchase Price minus the
Purchase Price Per Common Share Equivalent (as of the date of sale) issued in
the Subsequent Dilutive Offering, divided by (ii) the Purchase Price per Common
Share Equivalent (as of the date of sale) issued in the Subsequent Dilutive
Offering; and

               (b) a Warrant (which has the same terms and conditions as the
Warrants, including the Warrant Price (as defined in the Warrants) then in
effect) to purchase a number of shares of Common Stock equal to 112.5% of the
number of shares of Common Stock issued to that Investor pursuant to section
4(a) above.

     5. Right of First Offer.
        --------------------

                                       12
<PAGE>

          5.1 Holders' Rights. So long as a person is a Holder, the Company
              ---------------
hereby grants to each such Holder the first right to purchase the Equity
Securities (as defined in Section 5.5) that the Company may from time to time
desire to issue during the period beginning on the Closing Date and ending on
and including the second anniversary of the Closing Date. A Holder that chooses
to exercise the right of first offer may designate as purchasers under such
right himself, herself or itself, a current or former constituent partner,
affiliate or current or former member of itself or an entity controlling,
controlled by or under common control with itself, including without limitation
a corporation or limited liability company that is a parent or subsidiary, in
such proportions as it deems appropriate.

          5.2 Notice.
              ------

               (a) Prior to any sale or issuance by the Company of any Equity
Securities, the Company shall notify each Holder in writing (the "Notice") of
its bona fide intention to sell and issue such securities, setting forth the
number of shares of Equity Securities it proposes to sell and the price and
other terms upon which it proposes to make such sale. Within 30 days after
receipt of the Notice, each Holder shall notify the Company whether it elects to
exercise its right to purchase all (or any part thereof) of the Equity
Securities so offered and specify the number of shares of Equity Securities the
Holder elects to acquire. If the participating Holders elect, in aggregate, to
acquire less than all of the Equity Securities the Company proposes to sell,
then each Holder shall be entitled to purchase the number of Equity Securities
each such Holder specified in its election to participate. If the participating
Holders elect, in aggregate, to acquire more than all of the Equity Securities
the Company proposes to sell, then (i) each Holder shall be entitled to purchase
its pro rata share (or any portion thereof if such Holder elects to purchase
less than its pro rata share) of all of the Equity Securities the Company
proposes to sell, and (ii) if, after the allocation in clause (i) (and, if
necessary, in this clause (ii)), any shares of Equity Securities have not been
allocated, each Holder that shall have subscribed for more shares of Equity
Securities than shall have been allocated under clause (i) (and, if necessary,
under this clause (ii)) shall be entitled to purchase a fraction of such
remaining Equity Securities, the numerator of which is the number of shares of
Registrable Securities purchased pursuant to the Purchase Agreement by such
Holder and the denominator of which is the number of shares of Registrable
Securities purchased pursuant to the Purchase Agreement by all Holders
exercising the right of purchase of such remaining Equity Securities. If, after
the allocation in clauses (i) and (ii), any shares of Equity Securities shall
not have been allocated, the procedure set forth in clause (ii) shall be
repeated until all of the Equity Securities shall have been allocated or until
each Holder shall have been allocated the maximum number of shares specified in
its notice. A Holder's pro rata share of the Equity Securities shall be equal to
a fraction of such Equity Securities, the numerator of which is the number of
shares of Registrable Securities purchased pursuant to the Purchase Agreement by
such Holder (or its assignor) and the denominator of which is the number of
shares of Registrable Securities purchased pursuant to the Purchase Agreement by
all Holders (or their assignors) who are exercising the right of purchase of
such Equity Securities pursuant to this section 5.2(a). If a Holder has been
assigned only a portion of the Registrable Securities purchased pursuant to the
Purchase Agreement by an assignor thereof, that Holder's pro rata share of the
Equity Securities shall be equal to a fraction of such Equity Securities, the
numerator of which is the portion of the shares purchased pursuant to the
Purchase Agreement by the assigning Holder and assigned to the Holder and the
denominator of which is the number of shares of Registrable Securities purchased
pursuant to the

                                       13
<PAGE>

Purchase Agreement by all Holders (or their assignors) who are exercising the
right of purchase of such Equity Securities pursuant to this section 5.2(a).

               (b) Subject to section 5.2(c), the Holders hereby waive their
rights under section 5.2(a) with respect to the transaction described on
Schedule 5.14 of the Purchase Agreement.

               (c) Notwithstanding anything contained in section 5.2(a), prior
to any sale or issuance by the Company or by its subsidiaries of any
Investment-Related Securities in connection with a commercial investment in the
Company or any of its subsidiaries (a "Commercial Investment") by any person or
                                       ---------------------
entity (including pursuant to the transaction described on Schedule 2.14 of the
Purchase Agreement), the Company shall notify each Holder in writing (the
"Commercial Investment Notice") of its bona fide intention to enter into an
 ----------------------------
agreement regarding the proposed Commercial Investment. Within 30 days after
receipt of such Commercial Investment Notice, each Holder shall have the right
to offer to the Company or its subsidiaries within 30 days of the Notice a
substantially similar Commercial Investment. The Company or its subsidiaries
shall be required to accept any such offer by the Holders, unless after the
allocations of such Commercial Investment pursuant to this section 5.2(c), the
Holders electing to participate in such Commercial Investment have not elected
to participate in the entire amount of such Commercial Investment. If the
participating Holders elect, in aggregate, to make Commercial Investment that is
more than the Company requires, then (i) each Holder shall be entitled to
participate in the Commercial Investment based on its pro rata share, as
described in section 5.2(a) above (or any portion thereof if such Holder elects
to purchase less than its pro rata share) of the Commercial Investment, and (ii)
if, after the allocation in clause (i) (and, if necessary, in this clause (ii)),
any participation in the Commercial Investment has not been allocated, each
Holder that shall have subscribed for a greater participation in the Commercial
Investment than shall have been allocated under clause (i) (and, if necessary,
under this clause (ii)) shall be entitled to participate in a fraction of such
remaining Commercial Investment, the numerator of which is the number of shares
of Registrable Securities purchased pursuant to the Purchase Agreement by such
Holder and the denominator of which is the number of shares of Registrable
Securities purchased pursuant to the Purchase Agreement by all Holders who are
exercising their right to participate in the Commercial Investment. If, after
the allocation in clauses (i) and (ii), any participation in the Commercial
Investment shall not have been allocated, the procedure set forth in clause (ii)
shall be repeated until all of the participation in the Commercial Investment
has been allocated. For purposes of this section 5.2(c), the term
"Investment-Related Securities" shall mean (a) common stock of the Company or
any subsidiary; (b) rights, options or warrants to purchase common stock of the
Company or any subsidiary; (c) any security of the Company or any subsidiary
other than common stock having voting rights in the election of the Board of
Directors, not contingent upon a failure to pay dividends; (d) any equity- or
debt-related security of the Company or any subsidiary convertible into or
exchangeable for any of the foregoing; and (e) any agreement or commitment to
issue any of the foregoing.

          5.3 Failure to Notify. After expiration of all notice periods
              -----------------
specified in Section 5.2 above, the Company may, during a period of 90 days
following the expiration of such notice periods, sell and issue to other persons
such Equity Securities as to which the Holders do not indicate a desire to
purchase or enter into the Commercial Investment transaction as to which the
Holders do not elect to participate or if the Holders do not participate for the

                                       14
<PAGE>

entire amount of the Commercial Investment, at a price not less and upon terms
and conditions not more favorable to the offeree than those set forth in the
Notice or Commercial Notice, as the case may be. In the event the Company does
not sell such Equity Securities within said 90 day period, the Holders shall no
longer be obligated to purchase the Equity Securities pursuant to their
elections to purchase such Equity Securities under Section 5.2(a), and the
Company shall not thereafter issue or sell any Equity Securities without first
offering such securities to the Holders in the manner provided herein. In the
event the Company does not enter into the proposed Commercial Investment
transaction within said 90 day period, the Company shall not thereafter enter
into a Commercial Investment transaction without first offering such Commercial
Investment to the Holders in the manner provided herein.

          5.4 Payment. If a Holder gives the Company notice that such Holder
              -------
desires to purchase any of the Equity Securities offered by the Company or
participate in any Commercial Investment in the Company, payment for the Equity
Securities or Commercial Investment shall be by check or wire transfer against
delivery of the Equity Securities at the executive offices of the Company within
10 days after giving the Company such notice, or, if later, the closing date for
the sale of such Equity Securities or Commercial Investment proposed by the
Company in the Notice. The Company and any affected Holder shall take all such
action as may be required by any regulatory authority in connection with the
exercise by a Holder of the right to purchase Equity Securities or make such a
Commercial Investment as set forth in this Section 5.

          5.5 Equity Securities. The term "Equity Securities" shall mean (a)
              -----------------            -----------------
Common Stock; (b) rights, options or warrants to purchase Common Stock; (c) any
security other than Common Stock having voting rights in the election of the
Board of Directors, not contingent upon a failure to pay dividends; (d) any
equity- or debt-related security convertible into or exchangeable for any of the
foregoing; and (e) any agreement or commitment to issue any of the foregoing.

     6. Miscellaneous.
        -------------

          6.1 Amendments and Waivers. Any term of this Agreement may be amended
              ----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investors holding more than
two-thirds of the Registrable Securities then outstanding. Any amendment or
waiver effective in accordance with this Section 6.1 shall be binding upon each
Investor, his, her or its heirs, representatives or permitted assigns, and the
Company and its heirs, representatives and permitted assigns.

          6.2 Notices. Any notice, consent, authorization or other communication
              -------
to be given hereunder shall be in writing and shall be deemed duly given and
received when delivered personally or transmitted by facsimile transmission with
receipt acknowledged by the addressee, three days after being mailed by first
class mail, or the next business day after being deposited for next-day delivery
with a nationally recognized, receipted, overnight delivery service, charges and
postage prepaid, properly addressed to the party to receive such notice at the
address(es) specified on the signature page of this Agreement for the Company
and on Schedule A for each Investor (or at such other address as shall be
specified by like notice).

                                       15
<PAGE>

          6.3 Entire Agreement. This Agreement (including the Schedules hereto),
              ----------------
the Purchase Agreement and the Warrants contain the entire agreement of the
parties and supersede all prior negotiations, correspondence, term sheets,
agreements and understandings, written and oral, between or among the parties
regarding the subject matter hereof.

          6.4 Successors and Assigns. This Agreement shall inure to the benefit
              ----------------------
of and be binding upon the respective heirs, representatives, successors and
permitted assigns of the parties (including transferees of any shares of
Registrable Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective heirs, representatives, successors and permitted assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

          6.5 Severability. If any provision of this Agreement is held by a
              ------------
court of competent jurisdiction to be unenforceable under applicable law, such
provision shall be replaced with a provision that accomplishes, to the extent
possible, the original business purpose of such provision in a valid and
enforceable manner, and the balance of the Agreement shall be interpreted as if
such provision were so modified and shall be enforceable in accordance with its
terms.

          6.6 Governing Law. This Agreement shall be governed by and construed
              -------------
and interpreted in accordance with the law of the State of New York, without
regard to that state's conflict of laws principles.

          6.7 Further Assurances. Each party shall execute such other and
              ------------------
further certificates, instruments and other documents as may be reasonably
necessary and proper to implement, complete and perfect the transactions
contemplated by this Agreement..

          6.8 Aggregation of Stock. All shares of Registrable Securities held or
              --------------------
acquired by affiliated entities or persons, or entities or persons under common
investment management, shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.

      [remainder of page intentionally left blank; signature page follows]

                                       16
<PAGE>

IN WITNESS WHEREOF, this Investors' Rights Agreement has been duly executed by
or on behalf of the parties hereto as of the date first above written.

                                        KFx, INC.

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

                                        Address:
                                        3300 East First Avenue, Suite 290
                                        Denver, CO  80206
                                        Fax:  (303) 293-8430

                                        with a copy to:

                                        Leslie J. Goldman, Esq.
                                        Skadden, Arps, Slate, Meagher & Flom LLP
                                        1440 New York Avenue, N.W.
                                        Washington, DC  20005
                                        Facsimile: (202) 393-5719

<TABLE>
<S>                                      <C>
THE INVESTORS:

WESTCLIFF AGGRESSIVE GROWTH, L.P.        WESTCLIFF FOUNDATION
WESTCLIFF ENERGY PARTNERS, L.P.          WESTCLIFF MASTER FUND, L.P.
WESTCLIFF LONG/SHORT, L.P.               WESTCLIFF PROFIT SHARING AND MONEY
WESTCLIFF PARTNERS, L.P.                    PURCHASE PENSION PLAN
WESTCLIFF PUBLIC VENTURES FUND, L.P.     CANCER CENTER OF SANTA BARBARA
WESTCLIFF SMALL CAP FUND, L.P.           PALM TRUST
                                         PARKER FOUNDATION
By:  Westcliff Capital Management, LLC   UNIVERSITY OF SAN FRANCISCO
Its: General Partner
                                         By: Westcliff Capital Management, LLC
                                         Its: Investment Adviser and Attorney-In-Fact

By:
   -------------------------------
   Richard S. Spencer III, Manager

                                         By:
                                            -----------------------------------------
                                            Richard S. Spencer III, Manager
</TABLE>

                                       17
<PAGE>

<TABLE>
<S>                                      <C>
RAM TRADING, LTD.                        NORANDA FINANCE, INC. RETIREMENT
                                             PLAN FOR AFFILIATED COMPANIES
                                             TRUST

                                         By: Mellon Bank, N.A., solely in its capacity as
                                             Trustee for  the Noranda Finance, Inc. Retirement
                                             Plan for Affiliated Companies Trust (as directed
                                             by Westcliff Capital Management, LLC), and not
                                             in its individual capacity

                                         By:
                                             -------------------------------------------------
                                             Bernadette T. Rist
                                             Authorized Signatory

PENINSULA FUND, L.P.                     COMMON SENSE PARTNERS, L.P.

By:  Peninsula Capital Management, Inc.  By:  Peninsula Capital Management, Inc.
Its: General  Partner                    Its: Investment Adviser

By:                                      By:
   -----------------------------------       -------------------------------------------------
   Scott Bedford, President                  Scott Bedford, President

                                         By: Common Sense Investment Management, LLC
                                         Its:General Partner

                                         By:
                                             -------------------------------------------------
                                             Scott A. Thompson
                                             Director and Senior Vice President Finance
</TABLE>

                                       18
<PAGE>

                                   SCHEDULE A
                                   ----------

                              SCHEDULE OF INVESTORS

Name of Investor, Address and Facsimile Number
----------------------------------------------

----------------------------------------------
Westcliff Aggressive Growth, L.P.
Westcliff Energy Partners, L.P.
Westcliff Foundation
Westcliff Long/Short, L.P.
Westcliff Master Fund, L.P.
Westcliff Partners, L.P.
Westcliff Profit Sharing and Money
         Purchase Pension Plan
Westcliff Public Ventures Fund, L.P.
Westcliff Small Cap Fund, L.P.
Cancer Center of Santa Barbara
Palm Trust
Parker Foundation
University of San Francisco

c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------

----------------------------------------------
Noranda Finance, Inc. Retirement Plan for
Affiliated Companies Trust
c/o Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA  15258-0001

Attention:  Bernadette T. Rist
----------------------------------------------
<PAGE>

----------------------------------------------
Peninsula Fund, L.P.
c/o Scott Bedford
Peninsula Capital Management, Inc.
One Sansome Street, Suite 3134
San Francisco, CA  94104

----------------------------------------------
Common Sense Partners, L.P.
c/o Scott Bedford
Peninsula Capital Management, Inc.
One Sansome Street, Suite 3134
San Francisco, CA  94104

----------------------------------------------
Ram Trading, Ltd.
c/o David Popovich
Ritchie Capital Management, LLC
210 East State Street
Batavia, IL  60510
----------------------------------------------

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

For any notice to a Westcliff-related entity, send a copy to:

John F. Milani, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA  94111
Fax:  (415) 421-2922
<PAGE>

                                   SCHEDULE B
                                   ----------

                             INVESTORS' COMMON STOCK

Investor Name                                   Number of Shares of Common Stock
-------------                                   --------------------------------

Westcliff Energy Partners, L.P.                              67,500

Westcliff Public Ventures Fund, L.P.                         41,200
<PAGE>

                                    EXHIBIT C
                                    ---------

                              AMENDED AND RESTATED
                              --------------------
                                  PUT AGREEMENT
                                  -------------
                 (formerly titled Put and Call Option Agreement)

          This Amended and Restated Put Agreement, is made as of April 30, 2002,
by and among KFx, Inc., a Delaware corporation (the "Company"), and the parties
                                                     -------
listed on the Schedule of Grantees attached hereto as Exhibit A (each, a
"Grantee" and collectively, the "Grantees"), with reference to the following
 -------                         --------
facts:

WHEREAS, the Grantees are parties to the Common Stock and Warrant Purchase
Agreement, dated as of March 28, 2002 (the "Original Purchase Agreement" and as
                                            ---------------------------
amended by the Addendum described below, the "Purchase Agreement");
                                              ------------------

WHEREAS, in connection with the closing of the transactions described in the
Original Purchase Agreement, the Company and Grantees entered into a Put and
Call Option Agreement, dated as of March 28, 2002 (the "Original Put
                                                        ------------
Agreement");
---------

WHEREAS, the Grantees are parties to that certain Addendum to the Common Stock
and Warrant Purchase Agreement, dated as of April 30, 2002 (the "Addendum"),
                                                                 --------
which provides that as a condition to the closing of the transactions
contemplated by the Addendum the Original Put Agreement must be amended and
restated in its entirety;

WHEREAS, the Company has agreed to grant the Grantees the right to cause the
shares of Common Stock (the "Shares") acquired pursuant to the Purchase
                             ------
Agreement and the Addendum to be purchased by the Company under the terms and
conditions provided in this Agreement. For purposes of this Agreement, "Shares"
includes all shares of Common Stock issued in connection with any and all
Subsequent Dilutive Offerings (as defined in the Amended and Restated Investors'
Rights Agreement);

WHEREAS, in connection with the closing of the transactions described in the
Addendum, the Company's Call Option shall expire and terminate pursuant to
section 6(b)(ii) of the Original Put Agreement; and

WHEREAS, the Company and the Grantees desire to amend and restate in its
entirety the Original Put Agreement pursuant to this Agreement.

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein, the parties agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined in this
        -----------
Agreement have the meanings respectively ascribed to them in the Purchase
Agreement. In addition, the following terms when capitalized have the following
meanings in this Agreement:

          (a) "Put Exercise Notice" means a written notice, in substantially the
               -------------------
form of Exhibit B attached hereto, from a Grantee to the Company exercising such
Grantee's Put Option and specifying the number of Shares with respect to which
such Put Option is being exercised.

          (b) "Put Option" means each Grantee's right and option to require the
               ----------
Company, on the terms and conditions set forth herein, to purchase all or any
portion of the
<PAGE>

Shares acquired by such Grantee pursuant to the Purchase Agreement. Anything
herein to the contrary notwithstanding, the Put Options granted hereunder shall
become effective on the earlier of (i) July 31, 2002 or (ii) the redemption or
conversion of all outstanding bonds issued under that certain Indenture, dated
as of July 25, 1997, between the Company and First Bank National Association,
doing business as Colorado National Bank, as trustee.

     2. Grant of Put Option. Subject to the terms and conditions set forth
        -------------------
herein, the Company irrevocably grants and issues to each Grantee a Put Option
to require the Company to purchase the Shares at a purchase price (the "Put
                                                                        ---
Payment Price") per Share of (i) $2.50 or, if the Company has effected one or
-------------
more Subsequent Dilutive Offerings prior to the exercise of the Put Option, at
the lowest Purchase Price Per Common Share Equivalent (as defined in the Amended
and Restated Investors' Rights Agreement) prior to the exercise of the Put
Option, as equitably adjusted from time to time for combinations of shares,
stock splits, stock dividends, recapitalizations and the like (the "Share
                                                                    -----
Purchase Price"), plus (ii) interest on the Share Purchase Price at the rate of
--------------
nine percent (9%) simple interest per annum from the Closing Date to the date on
which the Put Payment Price is paid in full.

     3. Expiration Date of the Put Option. Each Put Option shall expire and be
        ---------------------------------
of no further force or effect at the earlier of the time when it shall have been
exercised with respect to all Shares that the Grantee holds or 11:59 p.m.,
California time, on December 23, 2002 (the "Expiration Date").
                                            ---------------

     4. Exercise of the Put Option.
        ---------------------------

          (a) If at any time prior to the Expiration Date, a Grantee wishes to
exercise its Put Option, such Grantee shall deliver a Put Exercise Notice to the
Company. Such Put Exercise Notice shall be effective if and only if it is
received by the Company on or prior to the Expiration Date.

          (b) Within ten (10) days of delivery of the Put Exercise Notice, the
Company shall notify the Grantees in writing (the "Company Notice") of how the
                                                   --------------
Company intends to pay the Put Payment Price. The Company shall pay to each such
Grantee the full amount of the Put Payment Price for each of the Shares that the
Grantee has elected to have purchased by the Company as soon as possible after
the delivery of the Put Exercise Notice; provided that, subject to section 4(c),
such payment must be made not later than one hundred (100) days after delivery
of the Put Exercise Notice (the "Payment Period"). If the Company indicates in
                                 --------------
the Company Notice that it will pay the Put Payment Price with cash that the
Company has on hand, then the Company must indicate how those funds were raised
and when it will pay the Put Payment Price. If the Company indicates in the
Company Notice that intends to raise the assets to pay the Put Payment Price by
selling the Pegasus Securities (as defined below) or the assets of Pegasus, then
the Company must (i) commence marketing Pegasus (as defined below) as soon as
possible, (ii) use commercially reasonable efforts to sell the Pegasus
Securities or the assets of Pegasus in a reasonable and orderly manner and (iii)
provide periodic updates to, and respond to inquiries from, the Grantees
regarding the progress of such sale.

          (c) If the Company does not pay the full amount of the Put Payment
Price for all of the Shares to be purchased by the Company during the Payment
Period, then the Company
<PAGE>

shall effect such purchase of the Shares by transferring to the Grantees all of
the Company's right, title and interest in and to all the shares (the "Pegasus
                                                                       -------
Securities") of common stock and preferred stock of Pegasus Technologies, Inc.,
----------
a South Dakota corporation ("Pegasus"), that the Company owns, with the
Company's endorsement when necessary or appropriate or with stock powers duly
executed in blank with the Company's signature; provided that the Company is
required to effect the purchase described in this section 4(c) only if the
Grantees holding at least two-thirds of the Shares then outstanding exercise the
Put Option, in which case all Shares then outstanding shall become subject to
and bound by such put transaction. If the Company is required to effect the
purchase described in this section 4(c), then each Grantee shall be entitled to
receive as consideration for its Shares a fraction of the Pegasus Securities,
the numerator of which is the number of shares of Shares then held by each such
Grantee and the denominator of which is the number of Shares then held by all of
the Grantees participating in such put. For purposes of this Agreement, "Pegasus
Securities" includes (i) any sums paid as liquidating dividends or as a return
of capital with respect to the Pegasus Securities, (ii) any stock certificates
(including, without limitation, any certificates representing a stock dividend,
stock split or a distribution in connection with any reclassification, increase
or reduction of capital), options or rights, whether in respect of, as an
addition to, in substitution for or in exchange for all or any portion of the
Pegasus Securities, or otherwise, or (iii) any property distributed on or with
respect to Pegasus Securities pursuant to a recapitalization or reclassification
of capital or pursuant to a reorganization of Pegasus.

          (d) Each Share that is not purchased as described herein shall remain
outstanding and the Grantee holding such Share shall be entitled to all the
rights of a stockholder of the Company until such Share is purchased as
described herein.

          (e) At the closing of the put transaction at which the Company
purchases the Shares, each participating Grantee shall deliver to the Company a
certificate or certificates representing all the Shares being put, which shall
be free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever.

     5. Call Option. Pursuant to the terms of this Agreement, the Company's Call
        -----------
Option, as described in the Original Put Agreement is hereby terminated and
cancelled, and, accordingly, the Company no longer has any rights to exercise
all or any portion of the Call Option.

     6. [INTENTIONALLY OMITTED]
        ----------------------

     7. Covenants of the Company. The Company covenants that:
        ------------------------

          (a) The Company will not, by amendment of its charter documents or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the performance of any of the terms of this
Agreement, but will at all times in good faith take all necessary action to
carry out all such terms.

          (b) As long as any Put Option remains effective and unexercised, as a
whole or in part, the Company will not (i) sell, assign (by operation of law or
otherwise), transfer,
<PAGE>

convey, or otherwise dispose of, or grant any option with respect to, any of the
Pegasus Securities or the assets of Pegasus or (ii) create, incur or permit to
exist any pledge, mortgage, lien, charge, encumbrance or security interest with
respect to any of the Pegasus Securities or the assets of Pegasus or the
proceeds thereof other than that created hereby.

          (c) Without the written consent of Grantees holding at least
two-thirds of Shares then outstanding, the Company will not, prior to the
Expiration Date, permit, authorize or cause (i) the sale, transfer or other
disposition of the Pegasus Securities owned by the Company, (ii) the sale,
transfer or other disposition of any material asset of, or the sale, transfer or
other disposition of all or substantially all of the assets of, Pegasus to any
other person(s) or entity(ies) (including, but not limited to, any license of
Pegasus' intellectual property rights), (iii) the consolidation with or merger
into any other person or entity or permit any such person or entity to
consolidate with or merge into Pegasus, (iv) Pegasus to incur indebtedness of
any nature, or (v) except as set forth in section 7(f) below, Pegasus to issue
any additional shares of capital stock or sell or otherwise dispose of any
shares of capital stock held in treasury to any person or entity.
Notwithstanding the foregoing, however, Pegasus may sub-license its intellectual
property rights in the ordinary course of business and consistent with the
five-year business plan that has been provided to the Grantees.

          (d) The Company shall promptly (i) notify the Grantees of any event of
which the Company becomes aware causing material loss or depreciation in the
value of the Pegasus Securities or assets of Pegasus, (ii) deliver to the
Grantees all written notices received by the Company with respect to the Pegasus
Securities and (iii) pay promptly when due all taxes, assessments, and
governmental charges or levies on the Pegasus Securities and assets of Pegasus.

          (e) At all times prior to the Expiration Date, the Company shall cause
Pegasus to continue to operate under its five-year business plan and such
business plan shall not be materially modified without the prior written consent
of Grantees holding at least two-thirds of Shares then outstanding.

          (f) If Pegasus (i) has any capital requirements at any time prior to
the Expiration Date, (ii) intends to repurchase or otherwise acquire the shares
or other beneficial ownership interest of its minority stockholders or (iii)
repay any of its outstanding indebtedness, the Company shall fund such capital
requirements, stock repurchase program or debt repayment program by making
equity investments or contributions to Pegasus in exchange for securities of
Pegasus and all such securities issued by Pegasus shall be deemed to be "Pegasus
Securities", and the Company shall not permit or cause Pegasus to satisfy such
capital requirements by any other means without the prior written consent of
Grantees holding at least two-thirds of Shares then outstanding. Anything herein
to the contrary notwithstanding, none of such investments or contributions by
the Company shall be in the form of a loan or other form of indebtedness.

     8. Representations and Warranties of the Company. The Company hereby
        ---------------------------------------------
represents, warrants and agrees as follows:

          (a) Subject only to this Agreement, the Company owns all right, title
and interest, of record and beneficial, in and to all of the Pegasus Securities
as of the date hereof. The shares of Pegasus Securities set forth on Exhibit C
hereto constitute all of the issued and
<PAGE>

outstanding shares of capital stock of Pegasus of any class held by the Company.
The Pegasus Securities that are now outstanding have been duly and validly
issued, fully paid and nonassessable. Except for issuances of up to $500,000 of
securities of Pegasus to Kennecott Energy Company, a Delaware corporation, there
are no outstanding options, warrants or rights to acquire any capital stock of
any class of Pegasus, and there has not been approved by Pegasus and there is
not now pending any issuance or sale by Pegasus of capital stock of any class.

          (b) The Pegasus Shares are owned by the Company free and clear of any
pledge, mortgage, hypothecation, lien, charge or encumbrance, or any security
interest therein or in the proceeds thereof, except as provided by this
Agreement for the benefit of the Grantees.

          (c) The Company warrants and will defend the Grantees' right, title
and interest in and to the Pegasus Securities and the proceeds thereof against
the claims of any persons or entities.

     9. Remedies Cumulative. The Company agrees that the rights, powers and
        -------------------
remedies given to Grantees by this Agreement, the Purchase Agreement and its
Addendum, and the Amended and Restated Investors' Rights Agreement are
cumulative and concurrent and not exclusive of any thereof or of any other
powers, rights or remedies available to the Grantees, whether existing at law or
in equity or by statute or otherwise and shall be in addition to every other
right, power or remedy provided in this Agreement or such other agreements or
now or hereafter existing or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Grantees of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or later
exercise by the Grantees of any or all such other rights, powers and remedies.
No failure on the part of the Grantees to exercise any right, power or remedy
shall operate as a waiver thereof.

     10. Miscellaneous.
         -------------

          (a) Indemnification. The Company agrees to indemnify and hold harmless
              ---------------
each Grantee and its respective members, managers, partners, officers,
directors, employees and agents from and against all losses, claims, expenses,
judgments, damages and liabilities, including attorney fees and expert fees,
which arise in connection with or arise out of the breach of any
representations, warranties, agreements and/or covenants of the Company
contained in this Agreement.

          (b) Amendments and Waivers. Any term of this Agreement may be amended
              ----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Grantees holding more than
two-thirds of the then outstanding Shares. Any amendment or waiver effective in
accordance with this section 10(b) shall be binding upon each Grantee, his, her
or its heirs, representatives or permitted assigns, and the Company and its
heirs, representatives and permitted assigns.

          (c) Notices. Any notice, consent, authorization or other communication
              -------
to be given hereunder shall be in writing and shall be deemed duly given and
received when delivered personally or transmitted by facsimile transmission with
receipt acknowledged by the addressee,
<PAGE>

three days after being mailed by first class mail, or the next business day
after being deposited for next-day delivery with a nationally recognized,
receipted, overnight delivery service, charges and postage prepaid, properly
addressed to the party to receive such notice at the address(es) specified on
the signature page of this Agreement for the Company and on Exhibit A for each
Grantee (or at such other address as shall be specified by like notice).

          (d) Entire Agreement. This Agreement and the other Related Documents
              ----------------
contain the entire agreement of the parties and supersede all prior
negotiations, correspondence, term sheets, agreements and understandings,
written and oral, between or among the parties regarding the subject matter
hereof.

          (e) Successors and Assigns. This Agreement shall inure to the benefit
              ----------------------
of and be binding upon the respective heirs, representatives, successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective heirs, representatives, successors and permitted assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

          (f) Severability. If any provision of this Agreement is held by a
              ------------
court of competent jurisdiction to be unenforceable under applicable law, such
provision shall be replaced with a provision that accomplishes, to the extent
possible, the original business purpose of such provision in a valid and
enforceable manner, and the balance of the Agreement shall be interpreted as if
such provision were so modified and shall be enforceable in accordance with its
terms.

          (g) Governing Law. This Agreement shall be governed by and construed
              -------------
and interpreted in accordance with the law of the State of New York, without
regard to that state's conflict of laws principles.

          (h) Attorneys' Fees. If any action at law or in equity is necessary to
              ---------------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

          (i) Interpretation. This Agreement shall be construed according to its
              --------------
fair language. The rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.

          (j) Further Assurances. The Company agrees that at any time and from
              ------------------
time to time, on written request of a Grantee, the Company will execute and
deliver such further documents and do such further acts and things as the
Grantees reasonably requests to effect the purposes of this Agreement.

          (k) Counterparts. This Agreement may be executed in any number of
              ------------
counterparts, each of which shall constitute an original, and all of which
together shall be considered one and the same agreement.
<PAGE>

          (l) Assignment. The Company shall not assign this Agreement or any
              ----------
rights hereunder or delegate any duties hereunder. Any attempted or purported
assignment or delegation in violation of the preceding sentence shall be void.

          (m) Titles and Subtitles. The titles and subtitles used in this
              --------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

                   [Signatures appear on the following page.]
<PAGE>

     IN WITNESS WHEREOF, this Amended and Restated Put Agreement has been duly
executed by or on behalf of the parties as of the date first above written.

                                THE COMPANY

                                Kfx, Inc.

                                By:
                                    --------------------------------------------
                                Print Name:
                                            ------------------------------------
                                Title:
                                       -----------------------------------------
                                Address:       3300 East First Avenue, Suite 290
                                               Denver, CO  80206
                                Facsimile:     (303) 293-8430

                                with a copy to:

                                Leslie J. Goldman, Esq.
                                Skadden, Arps, Slate, Meagher & Flom LLP
                                1440 New York Avenue, N.W.
                                Washington, DC  20005
                                Facsimile:  (202) 393-5719

THE GRANTEES:

WESTCLIFF AGGRESSIVE GROWTH, L.P.           WESTCLIFF FOUNDATION
WESTCLIFF ENERGY PARTNERS, L.P.             WESTCLIFF MASTER FUND, L.P.
WESTCLIFF LONG/SHORT, L.P.                  WESTCLIFF PROFIT SHARING AND MONEY
WESTCLIFF PARTNERS, L.P.                       PURCHASE PENSION PLAN
WESTCLIFF PUBLIC VENTURES FUND, L.P.        CANCER CENTER OF SANTA BARBARA
WESTCLIFF SMALL CAP FUND, L.P.              PALM TRUST
                                            PARKER FOUNDATION
                                            UNIVERSITY OF SAN FRANCISCO

By: Westcliff Capital Management, LLC
Its:General Partner                         By: Westcliff Capital Management,LLC
                                            Its:Investment Adviser and
                                                Attorney-In-Fact

By:
   --------------------------------
    Richard S. Spencer III, Manager
                                            By:
                                               ---------------------------------
                                               Richard S. Spencer III, Manager
                                               Richard S. Spencer III, Manager

                                       11
<PAGE>

<TABLE>
<S>                                                   <C>
RAM TRADING, LTD.                                     NORANDA FINANCE,  INC. RETIREMENT
                                                         PLAN FOR AFFILIATED  COMPANIES
By:  Ritchie Capital Management, LLC                     TRUST
Its: Investment Adviser                               By:Mellon Bank, N.A., solely in its capacity as
                                                         Trustee for the Noranda Finance, Inc.
                                                         Retirement Plan for Affiliated Companies Trust
By:                                                      (as directed by Westcliff Capital Management, LLC),
   -----------------------------------------             and not in its individual capacity
   David Popovich, Chief Financial Officer

                                                      By:
                                                         ---------------------------------------------
                                                         Bernadette T. Rist
                                                         Authorized Signatory

PENINSULA FUND, L.P.                                  COMMON SENSE PARTNERS, L.P.

By:  Peninsula Capital Management, Inc.               By:  Peninsula Capital Management, Inc.
Its: General Partner                                  Its: Investment Adviser

By:                                                   By:
   ----------------------------------------              ---------------------------------------------
   Scott Bedford, President                              Scott Bedford, President

                                                      By:  Common Sense Investment Management, LLC
                                                      Its: General Partner

                                                      By:
                                                         ---------------------------------------------
                                                         Scott A. Thompson
                                                         Director and Senior Vice President Finance
</TABLE>
<PAGE>

                                    EXHIBIT A
                                    ---------
                              SCHEDULE OF GRANTEES

Name of Grantee, Address and Facsimile Number
---------------------------------------------

---------------------------------------------
Westcliff Aggressive Growth, L.P.
Westcliff Energy Partners, L.P.
Westcliff Long/Short, L.P.
Westcliff Partners, L.P.
Westcliff Public Ventures Fund, L.P.
Westcliff Small Cap Fund, L.P.
Westcliff Foundation
Westcliff Master Fund, L.P.
Westcliff Profit Sharing And Money Purchase
   Pension Plan
Cancer Center Of Santa Barbara
Palm Trust
Parker Foundation
University Of San Francisco
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642

---------------------------------------------
Noranda Finance, Inc. Retirement Plan for
  Affiliated Companies Trust
c/o Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA  15258-0001

Attention:  Bernadette T. Rist

---------------------------------------------
Peninsula Fund, L.P.
c/o Scott Bedford
Peninsula Capital Management, Inc.
One Sansome Street, Suite 3134
San Francisco, CA  94104

---------------------------------------------
Common Sense Partners, L.P.
c/o Scott Bedford
Peninsula Capital Management, Inc.
One Sansome Street, Suite 3134
San Francisco, CA  94104

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

                                       13
<PAGE>

---------------------------------------------
Ram Trading, Ltd.
c/o David Popovich
Ritchie Capital Management, LLC
210 East State Street
Batavia, IL  60510

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

For any notice to a Westcliff-related entity, send a copy to:

John F. Milani, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA  94111
Fax: (415) 421-2922
<PAGE>

                                    EXHIBIT B
                                    ---------

                               PUT EXERCISE NOTICE
                                  BY GRANTEE OF
                              PUT OPTION GRANTED BY
                                    KFx, INC.

KFx, Inc.
3300 East First Avenue, Suite 290
Denver, CO  80206
Ladies and Gentlemen:

Pursuant to the Amended and Restated Put Agreement, dated as of April 30, 2002,
among KFx Inc., a Delaware corporation (the "Company"), the undersigned and
other purchasers of Common Stock of the Company (the "Stock"), granting to me a
put option (the "Put Option") to require the Company to purchase up to an
aggregate of            shares of my Stock on the terms and conditions and at
             ----------
the times set forth therein and at the Put Payment Price (as defined in the Put
Agreement), I hereby exercise the Put Option with respect to           shares of
                                                             ---------
my Stock.

                                               Very truly yours,

                                               ---------------------------------
                                               Signature

Dated:                     , 200               ---------------------------------
       --------------------     -              Typed or Printed Name

                                               ---------------------------------
                                               Social Security Number
<PAGE>

                                    EXHIBIT C
                                    ----------

                               PEGASUS SECURITIES

Exhibit C - Shares of Pegasus Technologies, Inc. owned by KFx Inc.

     1.   Common Stock: 11,173,537 shares

     2.   Preferred Shares, Class C, convertible into Common Stock: 2,798,161
          shares of preferred, convertible into 3,295,715 shares of common (Sold
          to third parties, being repurchased from proceeds today)

     3.   Warrants to Purchase Common Stock: 1,805,000 shares

The above does not include notes and advances payable to KFx Inc. by Pegasus
Technologies, Inc. that may, in the future, be converted to Common Stock of
Pegasus and Warrants.
<PAGE>

                                   SCHEDULE A
                                   ----------

                              ADDITIONAL INVESTORS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                               Shares of
                                                             Common Stock
                                                              Issuable On      Aggregate
          Additional Investor                   Shares of     Exercise of     Investment
           Name and Address                   Common Stock    the Warrant       Amount
----------------------------------------------------------------------------------------
<S>                                              <C>            <C>          <C>
Westcliff Aggressive Growth, L.P.                 26,698         30,035      $ 66,745.00
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
Westcliff Partners, L.P.                          63,596         71,545      $158,990.00
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
Westcliff Long/Short, L.P.                        18,174         20,446      $ 45,435.00
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
Westcliff Public Ventures Fund, L.P.             117,783        132,506      $294,457.50
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
Westcliff Small Cap Fund, L.P.                    22,221         24,999      $ 55,552.50
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
Cancer Center of Santa Barbara                    16,215         18,242      $ 40,537.50
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
Westcliff Master Fund, L.P.                      146,592        164,916      $366,480.00
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
----------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
------------------------------------------------------------------------------------------
<S>                                            <C>             <C>           <C>
Parker Foundation                                 31,820          35,797     $   79,550.00
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
------------------------------------------------------------------------------------------
Palm Trust                                        28,086          31,597     $   70,215.00
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
------------------------------------------------------------------------------------------
University of San Francisco                       32,093          36,105     $   80,232.50
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
------------------------------------------------------------------------------------------
Westcliff Foundation                              23,558          26,502     $   58,895.00
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
------------------------------------------------------------------------------------------
Westcliff Profit Sharing and Money Purchase        4,382           4,930     $   10,955.00
Pension Plan
c/o Westcliff Capital Management, LLC
200 Seventh Avenue, Suite 105
Santa Cruz, CA  95062
Fax:  (831) 479-3642
------------------------------------------------------------------------------------------
Noranda Finance, Inc. Retirement Plan for        268,782         302,380     $  671,955.00
Affiliated Companies Trust
c/o Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA  15258-0001

Attention:  Bernadette T. Rist
------------------------------------------------------------------------------------------
Ram Trading, Ltd.                              1,600,000       1,800,000     $4,000,000.00
c/o David Popovich
Ritchie Capital Management, LLC
210 East State Street
Batavia, IL  60510
==========================================================================================
TOTAL                                          2,400,000       2,700,000     $6,000,000.00
------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                   SCHEDULE B
                                   ----------

                               EXISTING INVESTORS

Westcliff Aggressive Growth, L.P.
Westcliff Energy Partners, L.P.
Westcliff Long/Short, L.P.
Westcliff Partners, L.P.
Westcliff Public Ventures Fund, L.P.
Westcliff Small Cap Fund, L.P.
Westcliff Foundation
Westcliff Master Fund, L.P.
Westcliff Profit Sharing and Money Purchase Pension Plan
Cancer Center of Santa Barbara
Palm Trust
Parker Foundation
University of San Francisco
Ram Trading, Ltd.
Peninsula Fund, L.P.
Common Sense Partners, L.P.
<PAGE>

Disclosure Schedule 3
KFx Inc. - Addendum to the Common Stock & Warrant Purchase Agreement
April 30, 2002

List of Parties from whom KFx Inc. will repurchase Pegasus Series C Preferred
-----------------------------------------------------------------------------
Stock
-----

Evergreen Resources, Inc.                          $2,148,333.33

Dr. James Schlesinger                                 273,422.56

Mark S. Sexton                                        141,389.60

Lori Venners                                          136,710.77

Theodore Venners                                      143,221.86

Stanley Tate                                          137,664.59

U. S. Global, LLC                                     372,306.74

William H. Walker                                     494,765.97

                  TOTAL                            $3,847,815.42
<PAGE>

KFx Inc.
Addendum to Common Stock and Warrant Purchase Agreement
Dated as of April 30, 2002

Disclosure Schedule 4.1(b) - Intellectual Property

Licenses Granted
----------------

     1.   License to Heartland Fuels Development Corporation dated May 10, 1991
          covering the Series A and B Technology. Heartland Fuels granted an
          exclusive worldwide license with right to sublicense to K-Fuel, LLC on
          April 22, 1996 (the "Series A and B License Agreement"). The Series A
          and B License Agreement was amended and restated on June 29, 1999.

     2.   License to K-Fuel, LLC covering the Series C Technology dated April
          22, 1996 (the "Series C License Agreement"). The Series C License
          Agreement was amended and restated on June 29, 1999. K-Fuel, LLC holds
          exclusive world wide rights with rights to sublicense to the Series C
          Technology.

     3.   Amended and Restated Patent and Technology License from KFx Inc. to
          Landrica Development Company for the Series C Technology granting a
          non-exclusive right to the technology for a single fuel plant having a
          design capacity of five hundred sixty thousand (560,000) tons of
          upgraded coal.

License Fee and Royalty Payment Obligations
-------------------------------------------

     1.   Gross Royalty Share Agreement between KFx Inc. and Fort Union, Ltd.,
          dated August 17, 1995.

     2.   Royalty Agreement Dated December 29, 1992 and Amendment to Royalty
          Agreement dated August 6, 1997, between KFx Inc. and Edward Koppelman,
          et al.

     3.   Royalty Agreement dated August 17, 1995 between Ohio Valley Electric
          Corporation and KFx Inc.EXHIBIT 4.1
                                                                     -----------

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

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                                  TECSTAR, LLC

                                       AND

                                  COMERICA BANK

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

<PAGE>

                                 LOAN AGREEMENT

     THIS LOAN AGREEMENT,  made this _____ day of February,  2002 by and between
Tecstar,  LLC, an Indiana limited liability company, of Goshen,  Indiana (herein
called  "Company"),  and  COMERICA  BANK,  a Michigan  banking  corporation,  of
Detroit, Michigan (herein called "Bank");

     WITNESSETH:

     1. THE INDEBTEDNESS: Line of Credit

     1.1 Subject to the terms of this Agreement,  Bank agrees to lend to Company
at any time and from time to time from the effective  date hereof until April 1,
2004  sums  not  to  exceed  under  the  line  of  credit  Ten  Million  Dollars
($10,000,000) in aggregate principal amount at any one time outstanding. Company
shall  execute and deliver to Bank a Line of Credit Note  (herein  called  "Line
Note") in form  similar  to that  annexed  hereto  as  Exhibit  "A" to  evidence
advances, repayments and readvances made from time to time, subject to the terms
and conditions of this Agreement.

     1.2 The Line Note shall mature on April 1, 2004,  and the balance from time
to time outstanding  shall bear interest at a per annum rate equal to the Bank's
Prime  Rate  plus or minus,  as  applicable,  the  Applicable  Margin.  Upon the
occurrence  of any event of  default  hereunder,  interest  shall  accrue on the
unpaid  principal  balance at the per annum rate of three percent (3%) above the
rate otherwise in effect.  Interest shall be payable monthly commencing on March
1, 2002 and on the first business day of each month  thereafter.  Interest shall
be computed on a daily basis using a year of 360 days,  assessed  for the actual
number of days  elapsed,  and in such  computation  effect shall be given to any
change in the  interest  rate  resulting  from a change in the Prime Rate on the
date of such  change in the Prime  Rate.  "Prime  Rate"  shall  mean the rate of
interest  established  by Bank and publicly  announced as its prime rate for its
borrowers  as the  same  may be  changed  from  time  to  time,  which  may  not
necessarily be Bank's lowest rate for loans.

     A late  installment  charge  equal  to  five  percent  (5%)  of  each  late
installment  may be charged on any  installment  payment  not  received  by Bank
within ten (10) calendar days after the  installment  due date but acceptance of
this  charge  shall  not  waive  any  default  or event of  default  under  this
Agreement.

     "Applicable  Margin"  shall  mean  as of any  date  of  determination,  the
applicable  interest rate margin determined in accordance with the provisions of
Section  1.A by  reference  to the  appropriate  columns in the  pricing  matrix
attached to this Agreement as Schedule 1.

<PAGE>

     1.3 Bank shall not make any  advances  under the Line Note  unless  Company
shall  have  first  filed  with  Bank a  Request  for  Draw and  Certificate  of
Compliance  (as of the date of the  borrowing)  in form  similar to that annexed
hereto as Exhibit "B", executed by an authorized  officer of Company.  Bank may,
at its  option,  lend  under  the Line  Note upon the  telephone  request  of an
authorized  officer  or agent of Company  and,  in the event Bank makes any such
advance upon a telephone request,  the requesting officer shall mail to Bank, on
the same day as such telephone  request,  a Request for Draw and  Certificate of
Compliance in the form attached as Exhibit "B".  Company hereby  authorizes Bank
to disburse advances under the Line Note pursuant to the telephone  instructions
of any person  purporting  to be an  authorized  officer of Company  and Company
shall bear all risk of loss resulting from disbursements made upon any telephone
request.  Each time Company requests an advance under the Line Note by telephone
it shall be deemed to have  represented  that no  condition  exists or event has
occurred which  constitutes or, with the giving of notice or the passage of time
would constitute, a default under this Agreement.

     1.4 The aggregate  principal amount at any one time  outstanding  under the
Line Note and the  outstanding  amount of all Letters of Credit  (together  with
unreimbursed  drawings  thereunder)  shall never exceed the formula set forth in
the  Advance  Formula  Agreement  dated as of the date  hereof or in any Advance
Formula Agreement delivered by Company to Bank in substitution therefor. Company
shall immediately make all payments necessary to comply with this provision.

     1.5  Company  shall pay to Bank an unused  fee equal to one  quarter of one
percent  (1/4%) per annum  multiplied  by the average  daily amount by which Ten
Million  Dollars  ($10,000,000)  exceeds  the  aggregate  amount of  outstanding
advances  under the Line Note.  The unused  fee shall be  payable  quarterly  in
arrears on the first day of each calendar quarter  (commencing on April 1, 2002)
and on the maturity  date of the Line Note.  Such fee shall be calculated in the
same manner as interest is calculated hereunder.

     1.6 In addition  to advances  under the Line Note to be provided to Company
by Bank under and pursuant to Section 1.1 of this Agreement,  Bank may issue, or
commit to issue, from time to time, standby letters of credit for the account of
Company  (herein  individually  called a "Letter  of  Credit"  and  collectively
"Letters of Credit") in  aggregate  undrawn  amounts not to exceed Five  Hundred
Thousand Dollars ($500,000) at any one time outstanding;  provided, however that
the sum of the aggregate amount of advances outstanding under the Line Note plus
the  undrawn  amounts  of all  Letters of Credit  shall not  exceed Ten  Million
Dollars ($10,000,000.00) at any one time; and provided further that no Letter of
Credit shall,  by its terms,  have an expiration  date which extends  beyond the
maturity date of the Line Note. In addition to the terms and  conditions of this
Agreement,  the  issuance of any Letters of Credit  shall also be subject to the
terms  and  conditions  of any  letter  of credit  applications  and  agreements
executed and delivered by Company unto Bank with respect thereto. The commission
rate  and  payment  of the  commission  for  each  Letter  of  Credit  shall  be
established by Bank at the time of issuance of each Letter of Credit.

     1.7 Company may prepay the Line Note in whole or in part without premium or
penalty.

     1.8  Advances  under the Line Note shall be used for  working  capital  and
other general corporate purposes.

<PAGE>

     1.A. Margin

     Adjustments  in the  Applicable  Margin shall be implemented on a quarterly
basis as provided in this  Section 1.A based on  Company's  Tangible  Net Worth.
Such adjustments shall be given prospective effect only,  effective on the first
day of the first month  following the required date of delivery of the financial
statements under Section 4.1 hereunder, in each case establishing  applicability
of the appropriate  adjustment.  From the effective date until the required date
of delivery  under Section 4.1 of the  Company's  financial  statements  for the
fiscal  quarter  ending March 31, 2002, the margin shall be that set forth under
the Level I column of the pricing matrix  attached to this Agreement as Schedule
1.

     2. CONDITIONS AND SECURITY.

     2.1 Company agrees to furnish Bank,  prior to the borrowing  hereunder,  in
form to be satisfactory to Bank, with (i) an opinion of Company's legal counsel;
(ii)  certified  copies of  resolutions  of the  members of  Company  evidencing
approval  of the  borrowings  hereunder,  (iii)  certified  copies of  Company's
Articles of Organization and Operating Agreement,  and (iv) certificates of good
standing from the State of Company's  organization and from each jurisdiction in
which it is required to be qualified to do business.

     2.2 As security for all indebtedness of Company to Bank hereunder and under
the Line Note as herein provided, Company agrees to furnish, execute and deliver
to Bank or cause to be  furnished,  executed  and  delivered to Bank prior to or
simultaneously with the borrowing hereunder,  in form to be satisfactory to Bank
and supported by appropriate  resolution in certified form authorizing same, the
following (all of which is herein collectively called the "Collateral"):

     (a)  Security   Agreement  granting  to  Bank  a  first  priority  security
          interests in and covering  all of  Company's  tangible and  intangible
          personal property, whether now owned or hereafter acquired (subject to
          Permitted Liens);

     (b)  Financing  Statements  required  or  requested  by Bank to perfect all
          security  interests to be conferred upon Bank under this Agreement and
          to accord Bank a perfected first priority  security position under the
          Uniform Commercial Code;

     (c)  Such documents or  certificates as may be requested by Bank and/or are
          required under the terms of any and every Security Agreement; and

     (d)  Such  other  documents  or  agreements  of  security  and  appropriate
          assurances  of  validity  and  perfected  first  priority  of  lien or
          security  interest  as  Bank  may  request  at any  time  (subject  to
          Permitted Liens).

<PAGE>

     2.3 On the date of execution of this Agreement, Company shall pay to Bank a
$50,000  non-refundable closing fee, which fee shall be deemed fully earned upon
execution of this Agreement.

     3. REPRESENTATIONS AND WARRANTIES

     Company  represents  and warrants and such  representations  and warranties
shall be deemed to be  continuing  representations  and  warranties  during  the
entire life of this Agreement:

     3.1 Company is a limited  liability  company duly organized and existing in
good  standing  under  the laws of the  State  of  Indiana;  Company  is in good
standing in each  jurisdiction  in which it is required  to be  qualified  to do
business  in which  failure  to so qualify  would  materially  impair  Company's
financial  condition  or the  ability  of  Company  to  carry  on its  business;
execution,  delivery and  performance of this Agreement and other  documents and
instruments required under this Agreement,  and the issuance of the Line Note by
Company  are  within  its  limited  liability  company  powers,  have  been duly
authorized,  are not in contravention of law or the terms of Company's  Articles
of  Organization  or  Operating  Agreement,  and do not  require  the consent or
approval of any governmental  body, agency or authority;  and this Agreement and
other  documents and  instruments  required  under this Agreement and Line Note,
when issued and  delivered and  appropriate  financing  statements  are properly
filed,  will be valid and binding in  accordance  with their  terms  (subject to
limitation or enforcement,  if any, by equitable  principles,  or by bankruptcy,
insolvency, reorganization,  moratorium or similar laws relating to or affecting
creditors rights generally).

     3.2 The execution, delivery and performance of this Agreement and any other
documents and instruments required under this Agreement, and the issuance of the
Line Note by  Company  are not in  contravention  of the  unwaived  terms of any
indenture,  agreement or  undertaking to which Company is a party or by which it
is bound.

     3.3 Except as set forth in attached  Schedule  3.3, no  litigation or other
proceeding  before  any court or  administrative  agency is  pending,  or to the
knowledge of the officers of Company is threatened against Company,  the outcome
of which  could  materially  impair the  Company's  financial  condition  or the
ability of Company to carry on its business.

     3.4  There  are no  security  interests  in,  liens,  mortgages,  or  other
encumbrances  on any  of  Company's  assets,  except  to  Bank  or as  otherwise
permitted by this Agreement as Permitted Liens set forth in Schedule 3.4.

<PAGE>

     3.5 Company does not maintain or contribute to any employee pension benefit
plan  subject to title IV of the  "Employee  Retirement  Income  Security Act of
1974" (herein called "ERISA"),  except those set forth in attached Schedule 3.5.
There was no unfunded past service  liability of any pension plan  maintained by
the  Company  as of  December  31,  2001,  and there is no  accumulated  funding
deficiency within the meaning of ERISA, or any existing material  liability with
respect to any pension  plan owed to the Pension  Benefit  Guaranty  Corporation
("PBGC") or any successor thereto.

     3.6  The  financial   statements  of  Company  dated  September  30,  2001,
previously  furnished  Bank,  are  complete  and correct and fairly  present the
financial  condition of Company; to the best of the Company's  knowledge,  since
said date there has been no material  adverse change in the financial  condition
of Company; to the best of the knowledge of Company's officers, Company does not
have any material contingent obligations (including any liability for taxes) not
disclosed by or reserved against in said financial statements and at the present
time there are no material  unrealized  or  anticipated  losses from any present
commitment of Company.

     3.7 All tax returns and tax reports of Company  required by law to be filed
have been duly filed or  extensions  obtained,  and all taxes,  assessments  and
other governmental charges or levies (other than those presently payable without
penalty and those  currently  being  contested in good faith for which  adequate
reserves have been  established)  upon Company (or any of its properties)  which
are due and payable have been paid.  The  charges,  accruals and reserves on the
books of  Company  in respect of the  Federal  income  tax for all  periods  are
adequate in the opinion of Company.

     3.8 There are no subsidiaries of Company.

     3.9  Except as set  forth in  attached  Schedule  3.9,  Company  is, in the
conduct  of its  business,  in  compliance  in all  material  respects  with all
federal, state or local laws, statutes, ordinances and regulations applicable to
it,  the  enforcement  of  which,  if  Company  were  not in  compliance,  would
materially adversely affect its business or the value of its property or assets.
Company has all approvals, authorizations,  consents, licenses, orders and other
permits of all governmental agencies and authorities,  whether federal, state or
local,  required to permit the operation of its business as presently conducted,
except such  approvals,  authorizations,  consents,  licenses,  orders and other
permits with respect to which the failure to have can be cured without  having a
material adverse effect on the operation of such business.

     3.10 No  representation  or warranty by Company in this Agreement,  nor any
statement or certificate  (including  financial  statements)  furnished or to be
furnished to Bank pursuant hereto contains or will contain any materially untrue
statement  of any material  fact or omits or will omit to state a material  fact
necessary to make such  representation,  warranty,  statement or certificate not
misleading;  provided,  however, as to any financial  statements of the Sellers,
this  representation  and warranty is made based solely on the best knowledge of
Company.

<PAGE>

     3.11 Except as disclosed in attached Schedule 3.11,  Company is not a party
to any  litigation  or  administrative  proceeding,  nor so far as is  known  by
Company  is any  litigation  or  administrative  proceeding  threatened  against
Company,  which in either  case (A)  asserts or alleges  that  Company  violated
Environmental  Laws (as defined in Section  6.1),  (B)  asserts or alleges  that
Company is  required to clean up,  remove,  or take  remedial or other  response
action due to the disposal,  depositing,  discharge, leaking or other release of
any hazardous  substances  or materials,  (C) asserts or alleges that Company is
required  to pay all or a portion  of the cost of any past,  present,  or future
cleanup,  removal or remedial or other response action which arises out of or is
related to the disposal, depositing,  discharge, leaking or other release of any
hazardous substances or materials by Company.

     3.12 Except as disclosed in attached  Schedule  3.11, to the best knowledge
of Company,  there are no  conditions  existing  currently  which would  subject
Company to  damages,  penalties,  injunction  relief or cleanup  costs under any
applicable Environmental Laws or which require or are likely to require cleanup,
removal,  remedial action or other response pursuant to applicable Environmental
Laws by Company.

     3.13 Except as disclosed in attached Schedule 3.11,  Company is not subject
to any  judgment,  decree,  order  or  citation  related  to or  arising  out of
applicable  Environmental Laws and to the best knowledge of the Company, Company
has  not  been  named  or  listed  as a  potentially  responsible  party  by any
governmental   body  or  agency  in  a  matter   arising  under  any  applicable
Environmental Laws.

     3.14 Company has all material  permits,  licenses  and  approvals  required
under applicable Environmental Laws.

     4. AFFIRMATIVE COVENANTS

     Company  covenants  and agrees  that it will,  so long as any  indebtedness
remains outstanding under this Agreement:

     4.1 Furnish Bank:

     (a)  within ninety (90) days after and as of the end of each fiscal year of
          Company,  a balance sheet and statement of profit and loss and changes
          in cash flow of Company  prepared on an audited  basis by  independent
          certified public accountants reasonably satisfactory to Bank;

     (b)  within thirty (30) days after and as of the end of each month, balance
          sheet and  statement  of profit and loss of Company  each  prepared in
          accordance with generally accepted accounting principles  consistently
          applied and certified  (subject to year end audit  adjustments)  by an
          officer of Company;

     (c)  within twenty (20) days after and as of the end of each month,  agings
          of accounts  receivable and accounts  payable in form  satisfactory to
          Bank;

     (d)  within  seven  (7)  days  after  and as of the  end of  each  week,  a
          borrowing base report in form and detail acceptable to Bank;

<PAGE>

     (e)  such  information  as  required  by the  terms and  conditions  of any
          security agreements referred to in this Agreement;

     (f)  promptly,  and  in  form  to  be  satisfactory  to  Bank,  such  other
          information as Bank may reasonably request from time to time.

     4.2 Pay and discharge  all taxes and other  governmental  charges,  and all
material  contractual  obligations  calling for the payment of money, before the
same shall  become  overdue,  unless and to the extent only that such payment is
being contested in good faith.

     4.3 Maintain  insurance  coverage on its physical  assets and against other
business risks in such amounts and of such types as are  customarily  carried by
companies  similar  in size  and  nature,  and in the  event of  acquisition  of
additional property,  real or personal,  or of incurrence of additional risks of
any nature,  increase such insurance  coverage in such manner and to such extent
as prudent business judgment and present practice would dictate; and in the case
of all policies  covering  property  mortgaged or pledged to Bank or property in
which Bank shall have a security  interest  of any kind  whatsoever,  other than
those policies  protecting against casualty  liabilities to strangers,  all such
insurance  policies  shall  provide  that the loss payable  thereunder  shall be
payable to Company and Bank as their respective  interests may appear,  all said
policies  or  copies  thereof,  including  all  endorsements  thereon  and those
required hereunder, to be deposited with Bank.

     4.4  Permit  Bank,  through  its  authorized  attorneys,   accountants  and
representatives,  to examine  Company's books,  accounts,  records,  ledgers and
assets  of every  kind and  description  at all  reasonable  times  upon oral or
written  request  of Bank,  which  shall  include  but shall not be  limited  to
collateral  audits of  Company  conducted  by Bank,  at  Company's  own cost and
expense.

     4.5 Promptly notify Bank of any condition or event of which Company becomes
aware which  constitutes or with the running of time and/or the giving of notice
would likely  constitute an event of default under this Agreement,  and promptly
inform Bank of the existence or occurrence of any condition or event which could
have a material adverse effect upon Company's financial condition.

     4.6 Maintain in good standing all licenses required by the State of Indiana
or any agency thereof, or other governmental  authority that may be necessary or
required  for Company to carry on its  general  business  objects  and  purposes
unless  the  failure  to so  maintain  such  licenses  would not have a material
adverse effect on the financial condition or operations of Company.

     4.7 Furnish Bank,  upon Bank's request,  in form  satisfactory to Bank with
pledges,  assignments,  lien instruments or other security  instruments covering
any or all of  Company's  real  and  personal  property,  of  every  nature  and
description,  whether now owned or hereafter  acquired,  to the extent that Bank
may in its sole discretion require.

<PAGE>

     4.8 Comply with all material  requirements imposed by ERISA as presently in
effect or  hereafter  promulgated,  including  but not  limited  to, the minimum
funding requirements of any Pension Plan.

     4.9 Promptly notify Bank after the occurrence  thereof in writing of any of
the following events:

     (a)  the  termination  of a pension  plan  subject  to Title IV of ERISA (a
          "Pension Plan");

     (b)  the  appointment  of a trustee by a United  States  District  Court to
          administer a Pension Plan;

     (c)  the commencement by the Pension Benefit Guaranty  Corporation,  or any
          successor thereto of any proceeding to terminate a Pension Plan;

     (d)  the  failure  of  a  Pension  Plan  to  satisfy  the  minimum  funding
          requirements  for any plan year as  established  in Section 412 of the
          Internal  Revenue  Code of 1954,  as amended or any similar  provision
          under the Internal Revenue Code of 1986, as amended;

     (e)  the withdrawal of Company from a Pension Plan; or

     (f)  a reportable event, within the meaning of Title IV of ERISA.

     4.10  Furnish to the Bank  concurrently  with the  delivery  of each of the
financial  statements  required by Section 4.1(a) and (b) hereof, a statement in
the form of attached  Exhibit "C" prepared and certified by the chief  financial
officer of Company (or in such officer's  absence,  a responsible senior officer
of Company) (a) setting forth all  computations  necessary to show compliance by
Company with the financial  covenants set forth in Sections 4.12,  4.13 and 4.14
as of the date of such  financial  statements,  (b) stating  that as of the date
thereof,  no condition or event which  constitutes an event of default hereunder
or which with the running of time and/or the giving of notice  would  constitute
an event of default  hereunder  has occurred and is  continuing,  or if any such
event or condition  has  occurred and is  continuing  or exists,  specifying  in
detail  the nature and period of  existence  thereof  and any action  taken with
respect  thereto  taken or  contemplated  to be taken by Company and (c) stating
that the signer has personally reviewed this Agreement and that such certificate
is based on an  examination  sufficient  to  assure  that  such  certificate  is
accurate.

     4.11 Maintain its principal bank accounts with Bank.

     4.12 Beginning  September 30, 2002,  maintain at all times, a ratio of Debt
to Tangible Net Worth of not more than the following  amounts during the periods
specified below:

     September 30, 2002 through September 29, 2003...................10.0 to 1.0

<PAGE>

     September 30, 2003 through March 30, 2004........................6.0 to 1.0
     March 31, 2004 and thereafter....................................5.0 to 1.0

          "Tangible  Net Worth"  shall mean the excess of (i) the net book value
     of the assets of Company  (excluding from assets  however,  amounts due, if
     any, from affiliated corporations,  and patents, patent rights, trademarks,
     trade  names,  franchises,  copyrights,  licenses,  good  will and  similar
     intangible   assets)  after  all  appropriate   deductions   determined  in
     accordance  with generally  accepted  accounting  principles,  consistently
     applied (including, without limitation,  reserves for doubtful receivables,
     obsolescence, etc.), over (ii) all Debt of Company.

          "Debt" shall mean, as of any  applicable  date of  determination,  all
     items of indebtedness,  obligation or liability of Company, whether matured
     or unmatured,  liquidated or unliquidated,  direct or indirect, absolute or
     contingent,  joint or several,  that should be classified as liabilities in
     accordance  with generally  accepting  accounting  principles  consistently
     applied, excluding,  however, any mortgage indebtedness of Company incurred
     to acquire real estate.

     4.13  Maintain  at all  times,  a  Tangible  Net Worth of not less than the
following amounts during the periods specified below:

     December 31, 2001 through March 30, 2002                ($1,000,000)
     March 31, 2002 through June 29, 2002                             ($500,000)
     June 30, 2002 through September 29, 2002                         $0
     September 30, 2002 through December 30, 2002                     $500,000
     December 31, 2002 through March 30, 2003                $1,000,000
     March 31, 2003 through June 29, 2003                             $1,500,000
     June 30, 2003 through September 29, 2003                         $2,000,000
     September 30, 2003 through December 30, 2003                     $2,500,000
     December 31, 2003 through March 30, 2004                $2,750,000
     March 31, 2004 and thereafter                                    $3,000,000

     4.14 Maintain at all times,  Working Capital of not less than the following
amounts during the periods specified below:

     December 31, 2001 through March 30, 2002                ($3,500,000)
     March 31, 2002 through June 29, 2002                           ($3,250,000)
     June 30, 2002 through September 29, 2002                       ($3,000,000)
     September 30, 2002 through December 30, 2002                   ($2,750,000)
     December 31, 2002 through March 30, 2003                ($2,500,000)
     March 31, 2003 through June 29, 2003                           ($2,250,000)
     June 30, 2003 through September 29, 2003                       ($2,000,000)
     September 30, 2003 through December 30, 2003                   ($1,750,000)

<PAGE>

     December 31, 2003 through March 30, 2004                ($1,500,000)
     March 31, 2004 and thereafter                                  ($1,250,000)

     "Current  Assets" shall mean, as of any applicable  date of  determination,
     all cash,  non-affiliated  customer  receivables and unbilled  receivables,
     United  States  government  securities,  income tax  refunds,  tooling  and
     inventories.

          "Adjusted  Liabilities"  shall  mean,  as of any  applicable  date  of
          determination,  all items of indebtedness,  obligation or liability of
          Company,  whether  matured or unmatured,  liquidated or  unliquidated,
          direct or indirect,  absolute or  contingent,  joint or several,  that
          should be  classified as  liabilities  in  accordance  with  generally
          accepting  accounting  principles  consistently  applied,   excluding,
          however, the long term portion of any mortgage indebtedness of Company
          incurred to acquire real estate.

          "Working   Capital"  shall  mean,  as  of  any   applicable   date  of
          determination, Current Assets less Adjusted Liabilities.

     5. NEGATIVE COVENANTS

     Company  covenants  and agrees that,  so long as any  indebtedness  to Bank
remains outstanding under this Agreement, it will not, without the prior written
consent of Bank:

     5.1 Purchase, acquire or redeem any of its membership interests or make any
material change in its capital structure or general business objects or purpose.

     5.2 Enter into any merger or consolidation  or sell,  lease,  transfer,  or
dispose of all,  substantially  all, or any part of its assets,  except sales of
inventory in the ordinary course of its business and sales or other dispositions
of machinery and equipment to the extent not exceeding a market value of $50,000
during any single fiscal year.

     5.3 Guarantee,  endorse, or otherwise become secondarily liable for or upon
the  obligations of others,  except by  endorsement  for deposit in the ordinary
course of business.

     5.4 Become or remain  obligated for any indebtedness for borrowed money, or
for  any  indebtedness  incurred  in  connection  with  the  acquisition  of any
property, real or personal, tangible or intangible, except:

     (a)  indebtedness to Bank;

     (b)  current unsecured trade, utility or non-extraordinary accounts payable
          arising in the ordinary course of Company's business;

<PAGE>

     (c)  purchase  money  indebtedness  and capital lease  obligations  for the
          acquisition of fixed assets in an amount not to exceed $250,000 in the
          aggregate; and

     (d)  existing indebtedness described in Schedule 5.4.

     5.5 Purchase or otherwise  acquire or become  obligated for the purchase of
all or substantially all of the assets or business interests of any person, firm
or  corporation  or any  shares  of stock  of any  corporation,  trusteeship  or
association  or in any other  manner  effectuate  or  attempt to  effectuate  an
expansion of present business by acquisition.

     5.6 Except for existing  investments  disclosed in attached  Schedule  5.6,
make or allow to remain  outstanding  any  investment  (whether such  investment
shall be of the  character  of  investment  in  shares of  stock,  evidences  of
indebtedness or other  securities or otherwise) in, or any loans or advances to,
any person, firm, corporation or other entity or association.

<PAGE>

     5.7 Affirmatively  pledge or mortgage any of its assets,  whether now owned
or hereafter acquired,  or create,  suffer or permit to exist any lien, security
interest in, or encumbrance thereon, except:

     (a)  to Bank;

     (b)  purchase  money  security  interests  in fixed  assets to  secure  the
          indebtedness  permitted in Section  5.4(c) above to the extent created
          substantially  contemporaneously  with the  acquisition  of such fixed
          assets and the extent encumbering only the fixed assets so acquired;

     (c)  existing security interests  described in Schedule 3.4 attached hereto
          and renewals,  extensions and substitutions thereof (together with the
          liens permitted under (b) above, the "Permitted Liens").

     5.8 Sell,  assign,  transfer or confer a security  interest in any account,
contract,  note,  trade  acceptance  or other  receivable,  except to Bank or as
otherwise permitted pursuant to the provisions of Section 5.7.

     5.9 Make loans,  advances of credit or extensions of credit to any officer,
director or shareholder of Company or any member of their immediate  families or
entity  controlled by any of the  foregoing or to any other  person,  except for
sales on open account or in the ordinary course of business.

     5.10 Materially  alter the character of its business from that conducted as
of the date of this Agreement.

     5.11 With respect to the fiscal year ending September 30, 2002,  declare or
pay or make any  distribution  with respect to its membership  interests  except
distributions  during any single  fiscal year in an amount not  exceeding  fifty
percent (50%) of pre-tax income of Company for such fiscal year plus $1,500,000;
provided that  distributions  to Starcraft shall first be made by credit against
the $750,000 indebtedness of Starcraft to Company and provided,  further that no
restriction on payment of  distributions  or dividends shall apply to the extent
that after giving effect to any distribution or dividend  Company's Tangible Net
Worth is greater than $2,000,000.

     5.12  Enter  into  any  transaction  or  series  of  transactions  with any
affiliate other than on terms and conditions as favorable to Company as would be
obtainable in a comparable  arms-length  transaction with a person other than an
affiliate.

     5.13  Enter  into or  become  subject  to any  agreement  (other  than this
Agreement) (i) prohibiting the creation or assumption of any lien or encumbrance
upon the  properties  or assets of Company or (ii)  requiring an  obligation  to
become secured (or further secured) if another  obligation is secured or further
secured.

<PAGE>

     6. ENVIRONMENTAL PROVISIONS

     6.1 For the purposes of this Agreement the term "Environmental  Laws" shall
mean  all  federal,  state  and  local  laws  including  statutes,  regulations,
ordinances,  codes, rules, and other governmental restrictions and requirements,
relating to  environmental  pollution,  contamination or other impairment of any
nature,  any hazardous or other toxic substances of any nature,  whether liquid,
solid and/or gaseous,  including smoke,  vapor,  fumes,  soot,  acids,  alkalis,
chemicals, wastes, by-products, and recycled materials. These Environmental Laws
shall  include but not be limited to the Federal  Solid Waste  Disposal Act, the
Federal  Clean Air Act,  the  Federal  Clean  Water Act,  the  Federal  Resource
Conservation and Recovery Act of 1976, the Federal  Comprehensive  Environmental
Response,  Compensation  and  Liability  Act  of  1980,  the  Federal  Superfund
Amendments and  Reauthorization  Act of 1986,  regulations of the  Environmental
Protection Agency,  regulations of the Nuclear Regulatory Agency, regulations of
any state  department  of natural  resources or state  environmental  protection
agency  now or at any time  hereafter  in  effect  and local  health  department
ordinances.

     6.2 Company  shall  comply in all  material  respects  with all  applicable
Environmental Laws.

     6.3 Company shall provide to Bank, immediately upon receipt,  copies of any
correspondence,   notice,  pleading,  citation,  indictment,  complaint,  order,
decree,  or other document from any source  asserting or alleging a circumstance
or condition  which requires or may require a financial  contribution by Company
or a cleanup,  removal,  remedial action, or other response by or on the part of
Company  under  applicable  Environmental  Laws or which seeks damages or civil,
criminal  or  punitive  penalties  from  Company  for an  alleged  violation  of
Environmental Laws.

     6.4  Company  shall  promptly  notify  Bank in  writing  as soon as Company
becomes aware of any  condition or  circumstance  which makes the  environmental
warranties  contained in this Agreement incomplete or inaccurate in any material
respect as of any date.

     6.5  In  the  event  of  any  condition  or  circumstance  that  makes  any
environmental   warranty,   representation  and/or  agreement  contained  herein
incomplete or inaccurate in any material respect as of any date,  Company shall,
at the reasonable request of Bank, at its sole expense,  retain an environmental
professional  consultant,  reasonably  acceptable to Bank, to conduct a thorough
and  complete   environmental  audit  regarding  the  changed  condition  and/or
circumstance and any environmental  concerns arising from that changed condition
and/or  circumstance.  A copy of the environmental  consultant's  report will be
promptly delivered to both Bank and Company upon completion.

<PAGE>

     6.6 At any time Company,  directly or indirectly  through any  professional
consultant or other  representative,  determines  to undertake an  environmental
audit,  assessment or  investigation,  Company shall promptly  provide Bank with
written notice of the initiation of the  environmental  audit,  fully describing
the purpose and intended scope of the environmental audit. Upon receipt, Company
will promptly  provide to Bank copies of all final  findings and  conclusions of
any such environmental investigation. Preliminary findings and conclusions shall
be provided if final  reports  have not been  completed  and  delivered  to Bank
within 60 days following completion of the preliminary findings and conclusions.

     6.7 Company  shall  maintain all material  permits,  licenses and approvals
required under applicable Environmental Laws.

     7. EVENTS OF DEFAULT

     7.1 Upon non-payment of any installment of the principal or interest on the
Line Note when due in accordance with the terms thereof,  or upon non-payment of
any other  outstanding  indebtedness  of Company to Bank  hereunder or under any
other  instrument or evidence of  indebtedness  when due in accordance  with the
terms thereof,  the Line Note shall  automatically  become  immediately  due and
payable.

     7.2 Upon occurrence of any of the following events of default:

     (a)  default in the  observance or  performance  of any of the  conditions,
          covenants or agreements of Company set forth in Sections 4.1(c),  (d),
          4.3, 4.4, 4.5, 4.11, 4.12, 4.13, 4.14 or Section 5;

     (b)  default in the  observance or  performance  of any of the  conditions,
          covenants or agreements of Company set forth in Section  4.1(a) or (b)
          or 4.10 and continuance for ten (10) days;

     (c)  default in observance or performance  of any of the other  conditions,
          covenants or agreements of Company herein set forth,  and  continuance
          thereof for thirty (30) days after notice to Company by Bank;

     (d)  any  representation  or  warranty  made by  Company  herein  or in any
          instrument  submitted  pursuant  hereto  proves untrue in any material
          respect when made;

     (e)  default in the  observance or  performance  of any of the  conditions,
          covenants  or  agreements  of Company or any other person set forth in
          any  collateral  document of security which may be given to secure the
          indebtedness  hereunder or in any other collateral document related to
          or connected with this Agreement or the  indebtedness  hereunder,  and
          continuation  of such default beyond any period of grace  specified in
          any such document;

     (f)  default  (i) in the  payment of any other  obligation  of Company  for
          borrowed  money (other than to Bank) in an aggregate  amount in excess
          of Twenty Five Thousand Dollars  ($25,000),  or (ii) in the observance
          or performance of any conditions,  covenants or agreements  related or
          given  with  respect  thereto,   and,  in  the  case  of  clause  (ii)
          continuance  thereof  for a period of time  sufficient  to permit  the
          holder of the applicable indebtedness to accelerate such indebtedness;

<PAGE>

     (f)  judgments for the payment of money in excess of the sum of Twenty Five
          Thousand Dollars  ($25,000) in the aggregate shall be rendered against
          Company and such judgments shall remain unpaid, unvacated, unbonded or
          unstayed  by  appeal  or  otherwise   for  a  period  of  thirty  (30)
          consecutive days from the date of its entry;

     (g)  the occurrence of any "reportable  event",  as defined in the Employee
          Retirement  Income  Security Act of 1974 and any  amendments  thereto,
          which is  determined  to  constitute  grounds for  termination  by the
          Pension Benefit  Guaranty  Corporation of any employee pension benefit
          plan  maintained  by or on behalf of Company for the benefit of any of
          its employees or for the appointment by the appropriate  United States
          District  Court  of  a  trustee  to  administer  such  plan  and  such
          reportable  event  is not  corrected  and  such  determination  is not
          revoked within thirty (30) days after notice thereof has been given to
          the plan  administrator or Company;  or the institution of proceedings
          by the Pension  Benefit  Guaranty  Corporation  to terminate  any such
          employee  benefit  pension plan or to appoint a trustee to  administer
          such plan; or the appointment of a trustee by the  appropriate  United
          States District Court to administer any such employee  benefit pension
          plan;

     (h)  if there  shall  occur any  change  in the  management,  ownership  or
          control of Company  which in the sole  judgment of Bank is  reasonably
          likely to have a material adverse effect on the Company;

     (i)  if Bank shall for any reason deem itself insecure;

then, or at any time thereafter,  unless such default is remedied, Bank may give
notice to Company declaring all outstanding indebtedness hereunder and under the
Line Note to be due and payable,  whereupon all  indebtedness  then  outstanding
hereunder  and under the Line Note  shall  immediately  become  due and  payable
without further notice and demand.

     7.3 If a creditors' committee shall have been appointed for the business of
Company;  or if Company shall have made a general  assignment for the benefit of
creditors  or shall  have  been  adjudicated  bankrupt,  or shall  have  filed a
voluntary  petition in bankruptcy or for  reorganization  or to effect a plan or
arrangement with creditors;  or shall file an answer to a creditor's petition or
other petition filed against it, admitting the material  allegations thereof for
an adjudication in bankruptcy or for  reorganization;  or shall have applied for
or permitted the  appointment of a receiver,  or trustee or custodian for any of
its property or assets;  or such receiver,  trustee or custodian shall have been
appointed for any of its property or assets  (otherwise than upon application or
consent of Company) and such receiver,  trustee or custodian so appointed  shall
not  have  been  discharged  within  sixty  (60)  days  after  the  date  of his
appointment or if an order shall be entered and shall not be dismissed or stayed
within sixty (60) days from its entry, approving any petition for reorganization
of Company,  then the Line Note and all indebtedness then outstanding  hereunder
shall automatically become immediately due and payable.

<PAGE>

     7.4 Upon the occurrence and during the continuance of any event of default,
Company shall  immediately upon demand by Bank deposit with Bank cash collateral
in the amount  equal to the  maximum  amount  available  to be drawn at any time
under any Letter of Credit then outstanding.

     8. MISCELLANEOUS

     8.1 This Agreement  shall be binding upon and shall inure to the benefit of
Company and Bank and their respective successors and assigns.

     8.2 No delay or failure of Bank in exercising any right, power or privilege
hereunder shall affect such right,  power or privilege,  nor shall any single or
partial exercise thereof preclude any further exercise thereof,  or the exercise
of any other power, right or privilege.  The rights of Bank under this Agreement
are  cumulative  and not  exclusive  of any right or  remedies  which Bank would
otherwise have.

     8.3 Where the  character  or  amount of any asset or  liability  or item of
income or expense is  required to be  determined  or any  consolidated  or other
accounting  computation  is  required  to be  made  for  the  purposes  of  this
Agreement,  it shall be done in accordance  with generally  accepted  accounting
principles consistently applied.

     8.4 Except as expressly provided  otherwise in this Agreement,  all notices
and other communications provided to any party hereto under this Agreement shall
be in writing and shall be given by personal  delivery,  by mail,  by  reputable
overnight  courier or by  facsimile  and  addressed  or  delivered  to it at its
address set forth below or at such other  address as may be  designated  by such
party in a notice to the other  parties  that  complies as to delivery  with the
terms of this Section 8.4. Any notice, if personally  delivered or if mailed and
properly  addressed  with postage  prepaid and sent by  registered  or certified
mail, shall be deemed given when received;  any notice,  if given to a reputable
overnight courier and properly addressed, shall be deemed given one (1) Business
Day after the date on which it was sent,  unless it is actually  received sooner
by the named  addressee;  and any notice,  if transmitted by telex or facsimile,
shall  be  deemed  given  when  received  (receipt  confirmed  in  the  case  of
telecopies).  Bank may,  but shall not be  required  to,  take any action on the
basis of any notice given to it by telephone, but Company shall promptly confirm
such  notice in writing or by  facsimile,  and such notice will not be deemed to
have been received until such confirmation is deemed received in accordance with
the  provisions  of this  Section set forth  above.  If such  telephonic  notice
conflicts with any such confirmation,  the terms of such telephonic notice shall
control.

     To Company:
     2703 College Avenue
     Goshen, Indiana 46526
     Attention: Rich Mullin
     Fax No.______________

<PAGE>

     To Bank:
     35405 Grand River
     Farmington, Michigan 48335
     Attention: Middle Market Corporate Banking-Michael H. Cliff
     Fax No.______________

     8.5 Company shall pay all closing costs and expenses,  including, by way of
description and not limitation, reasonable outside attorney fees and lien search
fees  incurred  by Bank in  connection  with the  commitment,  consummation  and
closing of this  Agreement.  All of said amounts  required to be paid by Company
may, at Bank's option,  be charged by Bank as an advance against the proceeds of
the Line Note.  All costs,  including  reasonable  attorney fees and  reasonable
auditor fees, incurred by Bank in reviewing,  revising,  protecting or enforcing
any of its  rights  against  Company  or  defending  Bank  from  any  claims  or
liabilities  by any party or otherwise  incurred by Bank in  connection  with an
event of default or the  enforcement of this Agreement or the related  documents
shall also be paid by Company.

     8.6 On any default as defined in this  Agreement  or any default in payment
of any liability above mentioned, Bank may, except as otherwise provided herein,
without  notice to anyone,  declare  the Note due  forthwith,  take all  action,
remedial and otherwise, as provided herein or in any Security Agreement or other
document,  instrument,  or agreement of security or of collateral,  and collect,
deal with and dispose of all or any part of any security  without  notice in any
manner permitted or authorized by the Michigan Uniform  Commercial Code or other
applicable law (including  public or private sale) and after deducting  expenses
(including  reasonable attorneys' fees and expenses) Bank may apply the proceeds
and any deposits or credits in part or full payment of any of said  liabilities,
whether due or not, in any manner or order Bank elects.

     8.7 This Agreement shall become effective upon the execution hereof by Bank
and Company.

     8.8 No amendments or waiver of any provision of this  Agreement nor consent
to any departure by Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the Bank, and then such amendment, waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which  given.  No  amendment,  waiver or consent with respect to any
provision of this Agreement shall affect any other provision of this Agreement.

     8.9 THIS AGREEMENT AND THE NOTE HAVE BEEN  DELIVERED AT DETROIT,  MICHIGAN,
AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE  WITH THE LAWS
OF THE STATE OF MICHIGAN.  Whenever  possible each  provision of this  Agreement
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provision or the remaining provisions of this Agreement.

<PAGE>

     8.10  COMPANY  AND BANK  ACKNOWLEDGE  THAT THE  RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL  ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND
VOLUNTARILY,  AND FOR THEIR MUTUAL  BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN
THE EVENT OF LITIGATION  REGARDING THE  PERFORMANCE OR ENFORCEMENT OF, OR IN ANY
WAY RELATED TO, THIS AGREEMENT,  THE  INDEBTEDNESS  EVIDENCED BY THE NOTE OR THE
NOTE.

                     [Rest of Page Intentionally Left Blank]

<PAGE>

     WITNESS  the  due  execution  hereof  as of the day and  year  first  above
written.

COMERICA BANK                              TECSTAR, LLC

By: /s/ Michael H. Cliff                   By:/s/ Jeffrey P. Bietzel
   ----------------------------------         ----------------------------------
   Michael H. Cliff                           Jeffrey P. Bietzel
   Vice President                             President

                                           By:/s/ Richard J. Mullin
                                              ----------------------------------
                                              Richard J. Mullin
                                              Chief Financial Officer

<PAGE>

                                   EXHIBIT "A"

                                    LINE NOTE

$10,000,000                                                    Detroit, Michigan
                                                            ______________, 2002

     On or before April 1, 2004, FOR VALUE RECEIVED,  the undersigned,  Tecstar,
LLC, an Indiana limited liability company (herein called "Company")  promises to
pay to the order of COMERICA BANK, a Michigan banking corporation (herein called
"Bank")  at its Main  Office at 500  Woodward  Avenue,  Detroit,  Michigan,  the
indebtedness or so much of the sum of Ten Million Dollars  ($10,000,000)  as may
from time to time have been advanced and then be outstanding hereunder and under
a certain Loan Agreement by and between Company and Bank dated  _______________,
2002 (herein called "Loan Agreement").

     The indebtedness  outstanding  under this Note from time to time shall bear
interest  at a per annum rate equal to the Bank's  Prime Rate plus or minus,  as
applicable,  the Applicable Margin (as defined in the Loan Agreement).  Upon the
occurrence  of any  event of  default  hereunder  or under  the Loan  Agreement,
interest shall accrue on the unpaid balance  hereunder at a per annum rate equal
to three  percent  (3%) above the rate  otherwise in effect.  Interest  shall be
payable monthly on the unpaid  principal  balance from time to time  outstanding
commencing on  ___________  1, 2002 and on the first  business day of each month
thereafter  until April 1, 2004 when the entire unpaid  balance of principal and
interest  shall be due and payable.  Interest shall be computed on a daily basis
using a year of 360 days for the actual  number of days  elapsed,  and,  in such
computation,  effect shall be given to any change in the interest rate resulting
from a change in the Prime  Rate on the date of such  change in the Prime  Rate.
"Prime  Rate" shall mean the rate of interest  established  by Bank and publicly
announced as its prime rate as the same may be changed from time to time,  which
may not necessarily be Bank's lowest rate for loans. This Note may be prepaid at
any time without premium or penalty.

     This Note evidences borrowing under, is subject to, is secured pursuant to,
shall be prepaid in accordance  with,  and may be matured under the terms of the
Loan Agreement,  to which reference is hereby made. As additional security, Bank
is granted a lien on all personal  property and assets  (including  deposits and
other  credits) of Company at any time in possession or control of (or owing by)
Bank for any purpose.

<PAGE>

     All  agreements  between  Company and Bank  pertaining to the  indebtedness
described herein are expressly  limited so that in no event whatsoever shall the
amount of interest  paid or agreed to be paid to Bank exceed the highest rate of
interest   permissible   under  applicable  law.  If,  from  any   circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or any
other  instrument  securing  this  Note or all or any  part of the  indebtedness
secured  thereby,  at the time performance of such provision shall be due, shall
involve  exceeding  the interest  limitation  validly  prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the obligation
to be  fulfilled  shall be reduced to an amount  computed at the highest rate of
interest  permissible  under  such  applicable  law,  and  if,  for  any  reason
whatsoever,  Bank shall ever receive as interest an amount which would be deemed
unlawful under such applicable law, such interest shall be automatically applied
to the payment of the principal  amount  described  herein or otherwise  owed by
Company to Bank, (whether or not then due and payable) and not to the payment of
interest.

     Company hereby waives presentment for payment,  demand,  protest and notice
of dishonor and nonpayment of this Note and agrees that no obligation  hereunder
shall  be  discharged  by  reason  of any  extension,  indulgence,  release,  or
forbearance  granted  by any  holder of this Note to any party now or  hereafter
liable  hereon or any  present  or  subsequent  owner of any  property,  real or
personal,  which is now or hereafter security for this Note. Any transferees of,
or endorser,  guarantor or surety  paying this Note in full shall succeed to all
rights  of Bank,  and Bank  shall be  under no  further  responsibility  for the
exercise  thereof or the loan evidenced  hereby.  Nothing herein shall limit any
right granted Bank by other instrument or by law.

     If the interest and principal  hereof are not fully paid at maturity hereof
(whether by acceleration or otherwise),  Company shall pay the holder hereof all
its reasonable costs of collection of said principal and interest including, but
not limited to, reasonable attorney fees.

     THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS
A CONSTITUTIONAL  ONE, BUT THAT IT MAY BE WAIVED.  EACH PARTY,  AFTER CONSULTING
(OR  HAVING HAD THE  OPPORTUNITY  TO  CONSULT)  WITH  COUNSEL  OF THEIR  CHOICE,
KNOWINGLY  AND  VOLUNTARILY  AND FOR THEIR MUTUAL  BENEFIT,  WAIVES ANY RIGHT TO
TRIAL  BY  JURY  IN  THE  EVENT  OF  LITIGATION  REGARDING  THE  PERFORMANCE  OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO THIS NOTE.

     Notwithstanding  anything  herein to the contrary,  nothing shall limit any
rights granted Bank by other instruments or by law.

                                     TECSTAR, LLC

                                     By:
                                        ----------------------------------------

                                     Its:
                                         ---------------------------------------

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