Note:  Executed in substantially  the same form between Carbon Resources, Inc. a
Delaware Corporation (the "Borrower") by Frederick Murrell, President, and Covol
Technologies, Inc. (the "Secured Party")

                                                                  Execution Copy

                               SECURITY AGREEMENT

         This SECURITY AGREEMENT (this "Agreement"), dated as of April 21, 1998,
by and between C.C. Pace Capital,  L.L.C., a Delaware limited  liability company
(the "Borrower") and Covol Technologies, Inc. (the "Secured Party").

                             W I T N E S S E T H :

         WHEREAS,   each  of  Borrower  and  Carbon  Resources,   Inc.  ("Carbon
Resources")  is a member  of Pace  Carbon  Fuels,  L.L.C.,  a  Delaware  limited
liability  company which is the general partner (the "General  Partner") of Pace
Carbon  Synfuels   Investors,   L.P.,  a  Delaware   limited   partnership  (the
"Partnership"); and

         WHEREAS,  the Partnership  operates pursuant to the terms of an Amended
and Restated Agreement of Limited  Partnership dated as of February 5, 1998 (the
"Partnership Agreement"); and

         WHEREAS,  the Secured Party has agreed, by a loan agreement dated April
21, 1998 between the Secured Party and the Borrower (the "Loan  Agreement"),  to
lend funds to the Borrower,  such loan being evidenced by a promissory note made
pursuant to the Loan Agreement (the "Note"); and

         WHEREAS,  to secure amounts due under the Note, the Borrower has agreed
to create and maintain in favor of the Secured Party a first  priority  security
interest in certain  contingent  distributions  from the General  Partner of the
Partnership to the Borrower as set forth herein; and

         WHEREAS,  on terms  identical to those set forth in the Loan Agreement,
the Secured  Party has agreed to lend funds to Carbon  Resources,  which also is
executing  on even date  herewith a security  agreement  in favor of the Secured
Party on terms identical to those set forth herein.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  and  agreements  herein  set forth and for  other  good and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Secured Party,  intending to be legally bound,  do hereby agree
as follows:

     1.       Grant of Security Interest.  The obligation to pay any amounts due
under the Note, including interest as set forth therein, owing from the Borrower
to the Secured Party is hereinafter referred to as the "Obligation."


<PAGE>

     As security  for payment  of the  Obligation,  the Borrower hereby assigns,
grants,  and sets over to the Secured  Party,  and agrees that the Secured Party
shall have a first priority security interest in, the following  collateral (the
"Collateral"): all of the Borrower's right, title and interest to and in any and
all  amounts,  if any,  distributed  to the  Borrower by the General  Partner in
respect of amounts released to the General Partner from the GP's Special Reserve
(as defined in Section 5.12(a) of the Partnership  Agreement) as provided for in
Section 5.12(d) of the Partnership Agreement, and any and all proceeds thereof.

     2.        Execution of Financing and  Other Statements;  Power of Attorney.
The  Borrower,  at the time of  execution  of this  Agreement,  will execute and
deliver to the Secured Party a Form UCC-1 showing the Borrower as debtor and the
Secured Party as the secured party and the security  interest in the  Collateral
described  above  and,  at any time and from time to time,  upon  request of the
Secured Party, the Borrower will give,  execute,  file and/or record any notice,
financing statement,  continuation statement,  instrument, document or agreement
that the Secured Party may reasonably consider necessary or advisable to create,
preserve,  continue, perfect or validate the security interest granted hereunder
or which the Secured  Party may  reasonably  consider  necessary or advisable to
exercise or enforce its rights hereunder with respect to such security interest.
Without  limiting  the  generality  of  the  foregoing,  the  Secured  Party  is
authorized  to  file  with  respect  to the  Collateral  one or  more  financing
statements,  continuation statements or other documents without the signature of
the Borrower and to name therein the Borrower as debtor and the Secured Party as
secured party or to correct or complete,  or cause to be corrected or completed,
any financing  statements,  continuation  statements or other such  documents as
have been signed by the Borrower;  provided,  however, that upon final discharge
of the  Obligation by the Borrower,  the Secured Party shall  promptly file such
termination  statements  and other  documents  as are  necessary to evidence the
termination of the security interest granted hereunder.

     3.        Rights and Remedies.


                  (a) All  payments  received by the  Borrower in respect of the
Collateral  shall be received  in trust for the  benefit of the  Secured  Party,
shall be  segregated  from other funds of the  Borrower,  and shall be forthwith
paid over to the  Secured  Party by  deposit  to the  account  specified  by the
Secured Party for payments due under the Loan Agreement.

                  (b) If any Event of Default (as defined in the Loan Agreement)
shall have occurred and be continuing,  then the Borrower shall remain liable to
the Secured Party and any permitted transferee or pledgee of this Agreement, but
only to the extent that the  Obligation  may be satisfied or  discharged  by the
Collateral,  and the Secured  Party may avail  itself of all rights and remedies
granted  hereunder or available to a secured party under the Uniform  Commercial
Code as in force in the  Commonwealth  of Virginia  and in any event  including,
without limiting the generality of the foregoing,  the right to sell, assign and
deliver the  Collateral  or any part thereof at public or private sale  wherever

<PAGE>

the Secured  Party may determine in good faith and at such prices as the Secured
Party may deem best. At any such sale, the Secured Party shall have the right to
purchase the Collateral,  or any part thereof.  The Borrower consents to private
sales so made even  though such sales may be at prices and upon other terms less
favorable than if the Collateral  were sold at public sale. The Borrower  agrees
that the Secured Party shall have no obligation to delay sale of the  Collateral
for the  period  of time  necessary  to  permit  the  offering  and  sale of the
Collateral to be registered for public sale under the Securities Act of 1933, as
amended, and applicable state or local securities or blue sky laws. The Borrower
agrees that private sales made under the foregoing  circumstances will be deemed
to have been made in a commercially  reasonable  manner.  The parties agree that
written  notice  mailed to the Borrower ten (10) business days prior to the date
upon which a private sale or any other  disposition  of the  Collateral  will be
made  shall  constitute  reasonable  notice  (all  other  notices,  demands,  or
advertisement of any kind being hereby expressly waived),  but that notice given
in any  other  reasonable  manner  or at any  other  reasonable  time  shall  be
sufficient.  The Borrower  shall be liable for  reasonable  attorneys'  fees and
legal and other  expenses  incurred by the Secured Party in enforcing any of its
rights or remedies  hereunder,  and without  limiting  the rights of the Secured
Party,  the proceeds of such a disposition  of the  Collateral may be applied in
the Secured Party's discretion to payment of such reasonable attorneys' fees and
legal and other expenses.  The Borrower waives the right to trial by jury in any
action  or  proceeding  instituted  against  the  Borrower  in  respect  of  the
Obligations  or the  enforcement  of any  rights  granted to the  Secured  Party
hereunder.  In addition,  the  Borrower  hereby  acknowledges  that the remedies
provided herein in favor of the Secured Party shall not be deemed exclusive, but
shall be cumulative  and shall be in addition to all other  remedies in favor of
the Secured Party now or hereafter existing by statute, at law or in equity.


<PAGE>



     4.        Consent to  Jurisdiction.  The Borrower and  Secured  Party agree
that all actions or  proceedings  arising  directly,  indirectly or otherwise in
connection  with, out of,  related to or from this Agreement  shall be litigated
only in courts  located in the  Commonwealth  of Virginia,  and the Borrower (i)
consents and submits to the personal  jurisdiction of any state or federal court
located  within  said  state  solely  for the  purpose  of any  such  action  or
proceeding  relating  to this  Agreement,  (ii)  waives any right to transfer or
change the venue of litigation  brought  against the Borrower in any such action
or  proceeding  and (iii)  agrees to service  of process by mail,  to the extent
permitted by law.

     5.        Assignability.  The Secured Party acknowledges  that the security
interest  granted  hereby may not be  pledged,  transferred,  or assigned by the
Secured Party without first obtaining the written consent of the Borrower, other
than to a permitted assignee of the Secured Party's rights and obligations under
the Loan Agreement.  Any attempted pledge,  transfer, or assignment in violation
of the preceding sentence shall be void and without effect.

     6.        Notices. Any  notice, demand  or other  communication  which  any
party  hereto may elect or be  required to give to anyone  interested  hereunder
shall be  sufficiently  given if (i)  deposited,  postage  prepaid,  in a United
States mail box, stamped registered or certified mail, return receipt requested,
addressed  to the  address  for  that  person  then in  effect  under  the  Loan
Agreement, or (ii) delivered personally at such address.

     7.        Severability.  Each provision of this Agreement is intended to be
severable  from each other  provision,  and the  validity or  illegality  of any
portion  hereof  shall not affect the  validity  or  legality  of the  remainder
hereof.

<PAGE>

     8.        Applicable Law. This Security  Agreement shall be governed by and
construed in accordance with the laws of the  Commonwealth  of Virginia  without
giving effect to any conflicts of law principles or cases.

     9.        Limited Recourse. Recourse  for the  repayment of  the Obligation
and  Borrower's  obligations  under  this  Agreement  shall  be  limited  to the
Collateral, and the Borrower shall have no personal liability therefor.

     IN WITNESS WHEREOF,  the undersigned have executed this Agreement as of the
date first set forth above.

                                                  C.C. PACE CAPITAL, L.L.C.
                                                  as Borrower



<PAGE>



                                                  /s/ James R. Teptow
                                                  ------------------------
                                                  Name: James R. Teptow
                                                  Title:   President



                                                  COVOL TECHNOLOGIES, INC.
                                                  as Secured Party


                                                  /s/ Alan D. Ayers
                                                  ---------------------------
                                                  Name:    Alan D. Ayers
                                                  Title:   V.P. Administration