Edgar Filing: KFX INC

KFx Inc. Form 8-K dated October 24, 2005

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): October 24, 2005

40% or more of, respectively, the then combined voting power of the then outstanding voting securities of the company resulting from such Business Combination, except to the extent that such

ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

KFX INC.
(Exact name of Registrant as specified in its charter)


Delaware		0-23634		(D) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(d) Death, Disability, Termination of Employment. (i) In the event Executive terminates employment by reason of death or Disability (as defined in subparagraph 6(c ) below), the then unvested portion of the Restricted Stock Award shall immediately vest on a pro-rata basis determined by multiplying the number of then-unvested shares of the Restricted Stock Award by a fraction, the numerator of which is the number of days that have elapsed from the Effective Date through the date of termination, and the denominator of which is 3650, and only the portion of the Restricted Stock Award that thereafter remains unvested shall be forfeited.

(ii) In the event Executive terminates employment prior to the second anniversary of the Effective Date by reason of a termination by the Company without Cause or a Constructive Discharge, the then unvested portion of the Restricted Stock Award shall immediately vest on a pro-rata basis determined by multiplying the number of then-unvested shares of the Restricted Stock Award by a fraction, the numerator of which is the number of days that have elapsed from the Effective Date through the date of termination, and the denominator of which is 730, and only the portion of the Restricted Stock Award that thereafter remains unvested shall be forfeited.

(iii) In the event Executive terminates employment on or after the second anniversary of the Effective Date by reason of a termination by the Company without Cause or a Constructive Discharge, the Restricted Stock Award shall be vested in full.

(iv) Notwithstanding subparagraphs (ii) and (iii) above, in the event Executive terminates employment by reason of a termination by the Company without Cause or a Constructive Discharge, and the termination is in anticipation of or occurs within one year of (A) the attainment of any performance goal set forth in Section 3(b), or (B) a Change in Control, the Executive shall be treated as if he was employed through the date the performance goal was achieved or through the date of the Change of Control, and shall receive accelerated vesting of the Restricted Stock Award in accordance with the applicable subparagraph(s) of Section 3(b) or 3(c) of this Agreement.

(v) In the event of a termination of Executive's employment for Cause (as defined in subparagraph 6(e ) below) or upon Executive's resignation from the employ of the Company (other than pursuant to a Constructive Discharge or by reason of a Disability) or upon the expiration of this Agreement in accordance with its terms, Executive shall retain any portion of the Restricted Stock Award that is then vested, but the then-unvested portion of the Restricted Stock Award shall be forfeited in its entirety.

(e) Dividends; Shareholder Rights. Shares subject to the Restricted Stock Award shall constitute issued and outstanding shares of Common Stock for all corporate purposes. Executive will have the right to vote the shares subject to the Restricted Stock Award,

to receive and retain ordinary dividends and distributions paid or distributed on the Restricted Stock Award, and to exercise all other rights, powers, and privileges of a stockholder of shares of Common Stock with respect to the Restricted Stock Award; except, that the Company or its designee will retain in escrow on behalf of Executive all extraordinary distributions or dividends made or declared with respect to the Restricted Stock Award ("Retained Distributions"), and such Retained Distributions will be subject to the same restrictions, terms and vesting, and other conditions as are applicable to the Restricted Stock Award generally. Retained Distributions shall not bear interest. Retained Distributions, upon vesting, shall be paid to the Executive in either cash or Common Stock, or a combination thereof, in the sole discretion of the Board.

(f) Adjustment to Restricted Stock Award. The number and kind of shares subject to the Restricted Stock Award shall be adjusted upon a Change in the Company’s Capitalization,(as described in Section 3(b)(i)(A)) in order to preserve the intended economic benefit of the Restricted Stock Award to Executive.

(g) Tax Withholding. Any tax withholding, or any part thereof, required from the receipt or vesting of any shares of the Restricted Stock Award may be satisfied by (a) electing to have the Company withhold from the Restricted Stock Award, shares of Common Stock having an aggregate fair market value equal to the minimum amount required to be withheld or such lesser amount as may be elected by Executive; provided however, that no such withholding shall be permitted if it would result in an accounting charge to the Company, or (b) to transfer to the Company a number of shares of Common Stock that were acquired by Executive more than six months prior to the transfer to the Company (or such longer period a as is necessary to avoid an accounting charge to the Company) and that have an aggregate fair market value equal to the amount required to be withheld or such lesser amount as may be elected by Executive. The fair market value of Common Stock to be withheld shall be based on the closing price of the Common Stock on the principal securities exchange or market on which the Company’s Common Stock is then traded, on the date that the amount of tax to be withheld is to be determined (the “Tax Date”). Any such elections by Executive to have shares of Common Stock withheld or transferred for this purpose will be subject to the following restrictions:

(i) All elections must be made prior to the Tax Date.

(ii) All elections shall be irrevocable.

Should the Executive not elect to satisfy withholding tax obligations by withholding shares as contemplated in this Section 3(g), or should the amount the Executive elects to withhold be insufficient to meet the withholding and payroll tax obligations (other than the Company’s share of payroll taxes) imposed upon the Company, Executive shall be obligated to pay to the Company, in cash, all amounts required to be paid by the Company (not subject to an election to withhold shares) in order to meet its withholding and payroll tax obligations (other than the Company’s share of payroll taxes).

(h) Registration of Shares. The Company shall take all steps necessary to register the shares subject to the Restricted Stock Award under an appropriate registration statement filed with the Securities and Exchange Commission and shall list those shares on AMEX.

4. Compensation. During the Term, while Executive is employed by the Company on a full-time basis as contemplated by Section 2 above, the Company shall compensate him for his services as follows:

(a) Base Salary. Executive shall receive a Base Salary equal to the minimum amount which will allow the Executive (i) to make an elective deferral and, as applicable, a catch-up contribution to the Company’s 401(k) plan, up to the limits provided by Sections 402(g) and 414(v) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) allow participation in all health and welfare plans sponsored by the Company for the Executive and his family as provided for in the relevant health or other welfare plans, and (iii) provide for payment of all applicable federal, state and local withholding taxes related to the Base Salary. This amount shall be reviewed annually by the Compensation Committee of the Board (“Compensation Committee”) pursuant to its normal performance review policies for senior executives, with the first such review occurring in 2006.

(b) Annual Bonus. For each calendar year, Executive shall be eligible to receive an annual cash bonus payment determined by the Compensation Committee in its discretion. Such bonus shall be payable on or before March 15^th of the calendar year following the calendar year to which the Annual Bonus relates.

(c) Employee Benefits, Fringe Benefits and Perquisites. Executive shall be provided with health and other employee benefits, fringe benefits and perquisites on the same basis as such benefits and perquisites are provided by the Company from time to time to the Company's other senior executives. To the extent that it may legally do so without violating the terms of any applicable plan or policy, or without creating adverse tax consequences for the Company or other participants in such plans, the Company agrees to waive any waiting periods for Executive and Executive's spouse with respect to group coverage under its health and welfare benefit plans.

(d) Expense Reimbursement. The Company will promptly reimburse Executive for all reasonable expenses incurred by him (i) in connection with the negotiation and preparation of this Agreement such that he shall have no after-tax cost for the negotiation and preparation of this Agreement, and (ii) in the performance of his duties in accordance with the Company's policies applicable to senior executives. All reimbursements shall be made in a manner that complies with Section 409A of the Code.

(e) Vacation. Executive shall be entitled to vacation at a rate of 30 days per calendar year during the Term in accordance with the plans, policies and programs as in effect generally with respect to other senior executives of the Company, including limitations, if any, on the carry-over of accrued but unused vacation.

5. Indemnification. (a) The Company agrees that if, during or after his employment, Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is Executive's alleged action in an official capacity while serving as a director, officer, member, employee or agent, Executive shall

be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company's certificate of incorporation or bylaws or resolutions of the Company's Board of Directors or, if more expansive, by the laws of the State of Delaware, against all cost, expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or other liabilities or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection therewith, and such indemnification shall continue as to Executive even if he has ceased to be a director, member, employee or agent of the Company or other entity, with respect to acts or omissions which occurred prior to his cessation of employment with the Company, and shall inure to the benefit of Executive's heirs, executors and administrators. The Company shall advance to Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within 20 calendar days after receipt by the Company of a written request for such advance. Such request shall include an undertaking by Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses.

(b) Neither the failure of the Company (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of any proceeding concerning payment of amounts claimed by Executive under subparagraph 5(a) above, that indemnification of Executive is proper because he has met the applicable standard of conduct, nor a determination by the Company (including its Board of Directors, independent legal counsel or stockholders) that Executive has not met such applicable standard of conduct, shall create a presumption that Executive has not met the applicable standard of conduct.

(c) During his employment with the Company and thereafter so long as Executive may have liability arising out of his service as an officer or director of the Company, the Company agrees to continue and maintain a director's and officer's liability insurance policy covering Executive in an amount that is reasonable and customary based on the size of the Company and its business activities, and the authorities, power, responsibilities, and duties of Executive.

6. Termination of Employment.

(a) General . Upon termination of Executive's employment for any reason, Executive or, in the event of his death, Executive's estate, shall be entitled to Executive's accrued but unpaid Base Salary through the date of termination, which shall be paid in accordance with the Company’s customary payroll practices for senior executives. Any Annual Bonus awarded to Executive for a prior award period, but not yet paid to Executive, shall be paid to Executive promptly following termination of employment, and in all events prior to March 15^th of the year following the year to which the Annual Bonus relates. Any employee benefits to which Executive is entitled by reason of his employment shall be paid to Executive or his estate at such time as is provided by the terms of the applicable Company plan or policy, or the foregoing terms of this Agreement, as the case may be. Executive shall be entitled to the vested portion of his Restricted Stock Award as of the date of termination, including such portion thereof that becomes vested as a result of Executive’s termination, all as determined under Section 3, Initial Restricted Stock Award, of this Agreement. Executive's right to additional payments and benefits under this Agreement upon his termination shall be determined in accordance with the

following provisions of this Section 6, Termination of Employment, which set forth the exclusive circumstances upon which this Agreement may be terminated during the Term.

(b ) &ntom">

84-1079971

(State or other jurisdiction of
incorporation or organization)

Commission File Number

IRS Employer
Identification Number

55 Madison Street, Suite 500
Denver, Colorado

80206

(Address of principal executive offices)

(Zip Code)

(303) 293-2992
(Registrant’s telephone number, including area code)

not applicable
(Former name or former address, if changed since last report)

Section 1. Registrant’s Business and Operations.

Item 1.01 Entry into a Material Definitive Agreement

See Item 5.02 of this Report.

bsp; Death. This Agreement shall terminate automatically upon the death of Executive. No additional payments or benefits will be made to Executive following his death, other than those described in Section 6(a), Termination of Employment, General, above.

(c ) Disability. Executive or the Company may terminate Executive's employment because of Executive's Disability during the Term. "Disability" means (i) that Executive has been substantially unable, for a period of 180 consecutive days, to perform Executive's duties under this Agreement as a result of physical or mental illness or injury, and (ii) a physician selected by the Company or its insurers, and reasonably acceptable to Executive or Executive's legal representative, has determined that Executive is disabled. A termination of Executive's employment by the Company for Disability shall be communicated to Executive by written notice, and shall be effective on the 30^th day after receipt of such notice by Executive (the "Disability Effective Time"), unless Executive returns to full-time performance of Executive's duties before the Disability Effective Time. A termination of Executive’s employment by Executive for Disability shall be effective immediately upon delivery of written notice of termination to the Company. No additional payments or benefits will be made to Executive following termination of his employment by reason of Disability, other than those described in Section 6(a), Termination of Employment, General, above.

(d ) Voluntary Resignation. Executive may resign from his employment with the Company, other than pursuant to a Constructive Discharge, after first giving the Company 90 days written notice of his intent to resign. No additional payments or benefits will be made to Executive following his voluntary resignation, other than those described in Section 6(a), Termination of Employment, General, above.

(e ) Termination for Cause. The Company may terminate Executive’s employment with the Company for “Cause,” which shall mean a reasonable determination by directors comprising two-thirds of the non-executive Board members, after giving Executive notice and an opportunity to be heard, that Executive:

	(A) has been convicted of a felony that is materially injurious to the Company’s business or reputation; or

	(B) has willfully and continuously failed to perform substantially his duties as contemplated by Section 2 above (other than such failure resulting from incapacity due to physical or mental illness), after a written demand for corrected performance is delivered to Executive by the Board which specifically identifies the manners in which the Board believes Executive has not substantially performed his duties, and after Executive has failed to cure such items identified in the Board’s letter within 90 days.

No additional payments or benefits will be made to Executive following a termination for Cause, other than those described in Section 6(a), Termination of Employment, General, above.

(f ) Termination Without Cause. The Company may terminate Executive’s employment at any time without Cause, after first giving Executive 90 days written notice.

(i) If the Company terminates Executive without Cause, then Executive, upon his election, shall receive medical, dental, and vision coverage identical to the coverage in effect immediately prior to the Executive’s termination, for the period provided for by, and consistent with, COBRA following the date of termination. The cost of COBRA coverage shall be borne exclusively by the Company. However, the Executive shall receive no additional payments or benefits other than those described in Section 6(a), Termination of Employment, General, above.

(ii) If the Company terminates Executive without Cause on or after a Change of Control, or within the one year period prior to the Change of Control if the termination is in anticipation of the Change of Control, then, in addition to the payments or benefits described in Sections 6(a), Termination of Employment, General, and 6(f)(i), above, Executive shall be entitled to a lump sum cash payment equal to three times the Executive’s Base Amount (but not including the amounts, if any, attributable to the vesting of Restricted Shares and/or Retained Distributions) as otherwise defined in Section 280G(b)(3) of the Code (the “Change of Control Severance”). The Change of Control Seve

Section 5. Corporate Governance and Management

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

Mark S. Sexton

KFx and Mark S. Sexton entered into an employment agreement dated October 24, 2005. A copy of the Agreement is filed with this report as Exhibit 10.65.

The material terms and conditions of Mr. Sexton’s Agreement with KFx, including without limitation his duties as Chief Executive Officer are as follows: Substantially all compensation for Mr. Sexton is performance based. He will receive a minimum base salary which will allow him to make an elective deferral contribution to the Company’s 401(k) plan and allow for participation in all health and welfare plans. Also, he will be eligible to receive annual bonuses. In addition he has been granted 1,000,000 shares of restricted stock which shall vest upon the attainment of certain performance bench marks. Full vesting of the restricted stock will occur upon attainment of any of the following: (a) an increase in the share price such that the average closing price of KFx common stock for the trading days within any 90 consecutive calendar day period equals or exceeds $45.05 per share; (b) annual gross revenues increase to $1 billion; and (c) annual net cash flow increases to $250 million. Partial vesting will occur if the stock price increases such that the average closing price of KFx common stock for the trading days within any 90 consecutive calendar day period equals or exceeds $30.05 per share, or the annualized value of quarterly gross revenues or quarterly net cash flow attain the incentive targets. Unless sooner vested pursuant to the incentive targets described above, the restricted stock shares will fully vest on the seventh anniversary of the date of the agreement so long as Mr. Sexton is continually employed as the Chief Executive Officer through such anniversary of the agreement. The agreement contains change of control and non-compete provisions.

Mr. Sexton has also been appointed to the Board of KFx. While he is employed by KFx, the Board will use its best efforts to cause him to continue to serve on the Board by including him in the Board’s slate of nominees for election as a director at annual meetings of the Company’s stockholders, and shall recommend to the stockholders that he be elected or reelected to the Board, to the extent such is consistent with the fiduciary obligations of the Board to the stockholders.

The announcement of our hiring Mr. Sexton and his biographical and other information relating to him was previously filed as part of our current report on Form 8-K dated September 28, 2005.

-2-

Kevin R. Collins

KFx and Kevin R. Collins entered into an employment agreement dated October 24, 2005. A copy of the Agreement is filed with this report as Exhibit 10.66.

The material terms and conditions of Mr. Collins’ Agreement with KFx, including without limitation his duties as Executive Vice President of Finance & Strategy are as follows: a majority of the compensation for Mr. Collins is performance based. He will receive an annual base salary of $175,000 and he will also be eligible to receive annual bonuses. In addition he has been granted 400,000 shares of restricted stock which shall vest upon the attainment of certain performance bench marks. Full vesting of the restricted stock will occur upon attainment of any of the following: (a) an increase in the share price such that the average closing price of KFx common stock for the trading days within any 90 consecutive calendar day period equals or exceeds $45.05 per share; (b) annual gross revenues increase to $1 billion; and (c) annual net cash flow increases to $250 million. Partial vesting will occur if the stock price increases such that the average closing price of KFx common stock for the trading days within any 90 consecutive calendar day period equals or exceeds $30.05 per share, or the annualized value of quarterly gross revenues or quarterly net cash flow attain the incentive targets. Unless sooner vested pursuant to the incentive targets described above, the restricted stock shares will fully vest on the seventh anniversary of the date of the agreement so long as Mr. Collins is continually employed as the Executive Vice President of Finance & Strategy through such anniversary of the agreement. The agreement contains change of control and non-compete provisions.

The announcement of our hiring Mr. Collins and his biographical and other information relating to him was previously filed as part of our current report on Form 8-K dated September 28, 2005. Also, in our current report on Form 8-K dated October 12, 2005, we prerance payment shall be made six months and one (1) day after the date of termination, or as soon thereafter as reasonably practicable.

(g ) Resignation for Constructive Discharge. Executive's voluntary resignation for Constructive Discharge shall be treated for all purposes of this Agreement as a termination by the Company without Cause, entitling Executive to the benefits described in subparagraph (f)(i) above, if such Constructive Discharge occurs prior to a Change of Control, and to the benefits described in (f)(i) and (ii) above, if such Constructive Discharge occurs on or after a Change of Control, or within 1 year prior to the Change of Control if the termination is in anticipation of the Change of Control. For purposes of this Agreement, "Constructive Discharge" shall mean Executive’s voluntary resignation following the occurrence of any of the following:

	(i) a reduction by the Company in Executive's Base Salary to an amount that is less than that required under Section 4 above or the Company's failure to provide the other elements of compensation or their equivalent as set forth in Section 4;

	(ii) the removal of Executive from the position of Chief Executive Officer, the failure of Executive to remain on the Company's Board of Directors in his then current capacity on the Board to the extent that the decision to remove Executive from the Board is in the control of the Board, or the removal of Executive from any other position then held with the Company without Executive’s written consent;

	(iii) any action by the Company which results in significant diminution in Executive's authority, power, responsibilities or duties from those contemplated by Sections 1 and 2 above or as may thereafter be in effect if in excess of that contemplated by Sections 1 and 2 above, or the assignment to Executive without his written consent of any duties inconsistent with Executive's position and status as contemplated by Sections 1 and 2 above or his position and status as may thereafter be in effect if in excess of that contemplated by Sections 1 and 2 above, which action or assignment continues after written notice thereof and a reasonable opportunity to cure of not less than fifteen (15) days has been given by Executive to the Company;

	(iv) the failure of the Company to obtain an agreement from any successor, assignee, or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder in accordance with the requirements of Section 11 below, unless such liabilities, obligations and duties of the Company are automatically assumed by any such successor, assignee or transferee by operation of law;

	(v) any other breach by the Company of any of its material obligations to Executive under this Agreement, which breach continues after written notice thereof and a reasonable opportunity to cure of not less than ninety (90) days has been given by Executive to the Company, or

	(vi) a Change of Control.

7. Special Tax Provision. (a) Anything in this Agreement or in any other agreement between the Company and Executive or in any equity incentive or other benefit plan to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross‑Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (including the tax provided for under Section 409A of the Code and including any interest and penalties imposed with respect to income taxes of any nature) and Excise Tax imposed upon the Gross‑Up Payment, Executive retains an amount of the Gross‑Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 7 (c), all determinations required to be made under this Section 7, including whether and when a Gross‑Up Payment is required and the amount of such Gross‑Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm or benefits consulting firm mutually agreed upon by the Company and Executive (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and Executive within fifteen business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or aviously announced that Mr. Collins would be assuming the duties of Chief Financial Officer upon the departure of our current Chief Financial Officer expected to occur on or about November 9, 2005.

Section 9. Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross‑Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty‑day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

	(i) give the Company any information reasonably requested by the Company relating to such claim,

	(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

	(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

	(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after‑tax basis, for any Excise Tax, payroll tax, or income tax (including the tax provided for under Section 409A of the Code and including any interest and penalties imposed with respect to taxes of any nature) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest‑free basis and shall indemnify and hold Executive harmless, on an after‑tax basis, from any Excise Tax, payroll tax, or income tax (including the tax provided for under Section 409A of the Code and including any interest and penalties with respect to taxes of any nature) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the

statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross‑Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority at Executive’s sole cost including the cost of Executive’s counsel or other tax representative.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 7(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 7(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross‑Up Payment required to be paid.

8. No Mitigation; No Offset. In the event of any termination of employment, Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.

9. Confidential Information Non-competition.. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Except in good faith performance of his duties for the Company, during employment and after termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

(b) Executive agrees that during the period that he is an employee of the Company or any of its affiliated companies pursuant to this Agreement and for one year thereafter, he will not without the consent of the Company (i) Participate In (as defined below) any business or organization in the coal fuels business (a “Competitor”) in a capacity that directly assists such Competitor in competing with the Company, any of its subsidiaries, or any company in which the Company owns at least 10% of the equity interests (an “Affiliate”), in a material respect in the coal fuels business in North America, (ii) own a controlling interest in a business or organization that competes in a material respect in the coal fuels business in North America, or (iii) solicit or interfere with, or endeavor to entice away from the Company or any of its subsidiaries or Affiliates any of their respective suppliers, customers or employees. The

employment by Executive or a business that Executive Participates In of a person employed or formerly employed by the Company shall not be prohibited by the foregoing provision if such person sought out employment on his own initiative without initial encouragement by Executive. For purposes of this Section 9(b), the term “Participate In” shall mean: “directly or indirectly, for his own benefit or for, with or through any other person, firm or corporation, own, manage, operate, lend money to or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor or otherwise with, or acquiesce in the use of his name in.” Notwithstanding the foregoing, Executive shall not be deemed to Participate In a business merely because he owns not more than 5% of the outstanding common stock of a corporation, if, at the time of its acquisition by Executive, such stock is listed on a national securities exchange, is reported on Nasdaq or is regularly traded in the over-the-counter market by a member of a national securities exchange.

(c) Executive agrees that the provisions of this Section 9 are necessary and reasonable to protect the Company in the conduct of its business. If any restriction contained in this Section 9 shall be deemed to be invalid, illegal or unenforceable by reason of the extent, duration or geographical scope hereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby.

10. Remedies. Executive agrees that the restrictions set forth in Section 9 hereof are reasonable and necessary to protect the legal interests of the Company. Executive further agrees that the Company shall be entitled, in addition to damages, to injunctive relief in the event of any actual or threatened breach of such restrictions.

11. Assignability, Binding Nature. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representative’s. No rights or obligations of the Company under this Agreement may be assigned or transferred except pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a merger or consolidation in which the Company is not the continuing entity or a sale of assets or liquidation as described in the preceding sentence, it shall take whatever action it legally can in order to cause the successor, assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder.

12. Amendment. This Agreement may be amended only by mutual agreement of the parties in writing. So long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereto except that in the event of Executive's Disability so as to render him incapable of such action, his legal representative may be substituted for purposes of such amendment.

13. Applicable Law. The provisions of this Agreement shall be construed in accordance with the internal laws of the State of Colorado, without regard to the conflict of law provisions of any state.

14. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, and this Agreement will be construed as if such invalid or unenforceable provision were omitted (but only to the extent such provision cannot be appropriately reformed or modified).

15. Waiver of Breach. No waiver by any party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party of any similar or dissimilar provisions and conditions at the same or any prior or subsequent time. The failure of any party hereto to take any action by reason of such breach will not deprive such party of the right to take action at any time while such breach continues.

16. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, or sent by facsimile, or prepaid overnight courier to the parties at the facsimile phone numbers or addresses set forth below (or such other addresses or facsimile numbers as shall be specified by the parties by like notice):

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to the Company:

	KFx Inc.
	55 Madison Street, Suite 500
	Denver, Colorado 80206-5810

	Attn: Chairman of the Compensation Committee of the Board of Directors; and

	General Counsel
	Facsimile: (303) 293-8430

or to Executive:

	Mark S. Sexton



Exhibit Number		Exhibit Title or Description
10.65		Employment Agreement between KFx Inc. and Mark S. Sexton
10.66		Employment Agreement between KFx Inc. and Kevin R. Collins

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		KFx Inc.


Date: October 24, 2005		By: /s/ William G. Laughlin
		William G. Laughlin
		Senior Vice President and General Counsel

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KFx INC.
EXHIBIT INDEX

Exhibit Number		Exhibit Title or Description

10.65		Employment Agreement between KFx Inc. and Mark S. Sexton
10.66		Employment Agreement between KFx Inc. and Kevin R. Collins

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