SECURITY AGREEMENT


         THIS SECURITY AGREEMENT (as amended, modified or supplemented from time
to time,  this "Security  Agreement") is made and entered into as of December 8,
1998, by and between MOUNTAINEER  SYNFUEL,  L.L.C., a Delaware limited liability
company ("Secured Party"),  and COVOL TECHNOLOGIES,  INC, a Delaware corporation
("Debtor").

         1.  Indebtedness.  The Security  Interest (as defined  below) is herein
created to secure payment and  performance of that certain  promissory  note (as
amended,  modified or  supplemented  from time to time, the "Note") of even date
herewith  executed  by Debtor and  payable to the order of Secured  Party in the
original  principal sum of NINE MILLION SEVEN HUNDRED FIFTY  THOUSAND and No/100
Dollars ($9,750,000), all renewals and extensions thereof (the "Indebtedness").

         2.  Collateral.  For value  received,  Debtor  hereby grants to Secured
Party a security  interest  ("Security  Interest") in all of Debtor's  rights to
receivables  and payments in respect of the "Maple Creek  Mining,  Inc.,  Ginger
Hill,  P.A." project and the "Ohio Valley Coal Company,  Alledonia,  OH" project
under the Amended and Restated License and Binder Purchaser Agreement,  made and
entered  into  as of  April  15,  1998,  by  and  between  Pelletco  Corporation
("Pelletco")  and Debtor,  as the same may be amended from time to time together
with the related  Assignment of License  Agreement,  made and entered into as of
April 15, 1998 between Pelletco and Ginger Hill Synfuels,  L.L.C. and Assignment
of License Agreement made and entered into as of April 15, 1998 between Pelletco
and Pleasant Ridge Synfuels,  L.L.C.  (collectively,  the "License  Agreement"),
including,  but not limited to, (i) all substitutions and replacements  therefor
and (ii) all proceeds,  products and increases  thereof (other than  receivables
and payments  arising under Section  4.2(i) of such License and Binder  Purchase
Agreement) (the "Collateral").  Notwithstanding such grant, the Secured Party is
not assuming any liability or obligation under the License  Agreement and Debtor
shall remain solely  responsible for performance of its obligations  thereunder.
Debtor  from time to time may  propose  substitute  collateral  to  replace  and
release the security  interest  created hereby in the Collateral.  Secured Party
will in good faith evaluate the proposed substitute collateral.

         3.       Debtor's Warranties, Covenants and Further Agreements.

                  A.  Organization  and Authority.  Debtor is a corporation duly
         organized,  validly existing and in good standing under the laws of the
         State of  Delaware.  Debtor has the  corporate  power and  authority to
         execute,  deliver and perform the Note and this Security Agreement, and
         the execution,  delivery and  performance of the Note and this Security
         Agreement  by  Debtor  have  been  duly  authorized  by  all  necessary
         corporate  action on the part of Debtor and do not and will not violate
         any law, rule or  regulation or the  certificate  of  incorporation  or
         bylaws of Debtor  and do not and will not  conflict  with,  result in a
         breach  of,  or  constitute  a default  under,  the  provisions  of any
         indenture,  loan agreement,  security  agreement or other instrument or
         agreement pursuant to which Debtor or any of its property is bound.

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                  B.  Enforceable   Obligation.   The  Note  and  this  Security
         Agreement have been duly executed and delivered by Debtor and, assuming
         the due execution  and delivery of this  Security  Agreement by Secured
         Party, each constitutes a legal, valid and binding obligation of Debtor
         enforceable  in accordance  with its terms.  The License  Agreement has
         been duly executed and delivered by the parties thereto and constitutes
         a  legal,   valid  and  binding   obligation  of  the  parties  thereto
         enforceable in accordance with its terms.

                  C. Consent,  Approval or Other Action. No consent, approval or
         other  action by,  notice to or filing  with any  governmental  body or
         other  person  or entity  is  required  for the  grant,  perfection  or
         exercise  by  Secured  Party of its  rights  hereunder,  except for the
         filing of the financing statement(s) being made in connection with this
         Security Agreement.

                  D.  Title.  Debtor has title to the  Collateral  free from any
         lien,  security interest,  encumbrance or claim and Debtor will, during
         the  term of this  Security  Agreement,  at  Debtor's  cost,  keep  the
         Collateral free from other liens,  security interests,  encumbrances or
         claims, and defend any action which may affect the Security Interest or
         Debtor's  title to the  Collateral.  This  Security  Agreement  and any
         account,  instrument or document which is, or shall be, included in the
         Collateral is and shall be,  genuine and legally  enforceable  and free
         from any set off, counterclaim or defense.

                  E. Perfection.  No financing statement covering the Collateral
         or any part or proceeds thereof is on file in any public office and, at
         Secured  Party's  request,  Debtor will join in executing all financing
         statements and other  instruments  deemed necessary by Secured Party to
         perfect the Security  Interest  under the laws of the United  States or
         any  State  thereunder.  This  Security  Agreement  and  the  financing
         statements  filed in connection  herewith  create a valid and perfected
         first  priority  security  interest  in  the  Collateral  securing  the
         Indebtedness.

                  F.  Disposition  of  Collateral.   Notwithstanding  any  other
         provision  hereof,   Debtor  will  not  amend,  modify,  sell,  assign,
         transfer, pledge or otherwise dispose of all or part of the Collateral,
         whether  voluntarily  or by  operation  of law,  except  with the prior
         written consent of the Secured Party.

                  G.  Principal  Place  of  Business.  The  principal  place  of
         business  and chief  executive  office of Debtor,  and the office where
         Debtor keeps its books and records,  including  records relating to the
         Collateral,  is located at the  address of Debtor  listed in Section 10
         below.

                  H. Further Assurances. At any time and from time to time, upon
         the request of Secured Party, and at the sole expense of Debtor, Debtor
         shall  promptly  execute and deliver all such further  instruments  and
         documents  and take  such  further  action  as  Secured  Party may deem
         necessary or desirable to preserve and perfect its Security Interest in
         the  Collateral  and  carry out the  provisions  and  purposes  of this
         Security Agreement,  including,  without limitation,  the execution and
         filing of such  financing  statements as Secured  Party may require.  A
         carbon, photographic, or other

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         reproduction of this Security  Agreement or of any financing  statement
         covering the  Collateral  or any part thereof  shall be sufficient as a
         financing statement and may be filed as a financing statement.

                  I. Obligations.  Debtor  shall  duly  and  punctually  pay and
         perform the obligations of Debtor under the Note, the License Agreement
         and this Security Agreement.

                  J. Notification. Debtor shall promptly notify Secured Party of
         (i)  any  lien,  security  interest,  encumbrance,  or  claim  made  or
         threatened  against the  Collateral,  (ii) any  material  change in the
         Collateral, including, without limitation, any breaches by any party to
         the License  Agreement,  and (iii) the  occurrence  or existence of any
         Event of Default (as defined  below) or the  occurrence or existence of
         any condition or event that, with the giving of notice or lapse of time
         or both, would constitute an Event of Default.

                  K.  Corporate  Changes.  Debtor  shall  not  change  its name,
         identity, or corporate structure in any manner unless Debtor shall have
         given Secured Party thirty (30) days prior written  notice  thereof and
         shall have taken all action  deemed  necessary  or desirable by Secured
         Party to make each financing  statement  filed in connection  with this
         Security  Agreement not seriously  misleading.  Debtor shall not change
         its  principal  place  of  business,  chief  executive  office  or  the
         location(s)  of the  Collateral  and/or the records  pertaining  to the
         Collateral  (as  described  above)  unless it shall have given  Secured
         Party  thirty  (30) days prior  written  notice  thereof and shall have
         taken all action  deemed  necessary or  desirable  by Secured  Party to
         cause its security  interest in the Collateral to be perfected with the
         priority required by this Security Agreement.

                  L. Books and Records; Information.  Debtor shall keep accurate
         and complete books and records of the Collateral including all payments
         and  payables in respect  thereof and Debtor's  business and  financial
         condition in accordance with generally accepted  accounting  principles
         consistently applied.  Debtor shall from time to time at the request of
         Secured Party deliver to Secured Party such  information  regarding the
         Collateral and Debtor as Secured Party may request, including,  without
         limitation,  payments  and  payables  in  respect  thereof,  lists  and
         descriptions  of  the  Collateral  and  evidence  of the  identity  and
         existence of the Collateral. Debtor shall mark its books and records to
         reflect  the  security  interest of Secured  Party under this  Security
         Agreement.

                  M.  Compliance  with  Agreements.  Debtor  shall comply in all
         material respects with all mortgages, deeds of trust, instruments,  and
         other agreements binding on it or affecting its properties or business.

                  N.  Compliance  with  Laws.   Debtor  shall  comply  with  all
         applicable  laws,  rules,  regulations,  and  orders  of any  court  or
         governmental authority.

         4. Rights of Secured  Party.  Debtor hereby  appoints  Secured Party as
Debtor's  attorney-in-fact  to do any act  which  Debtor  is  obligated  by this
Security Agreement to do, to exercise

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all rights of Debtor in the Collateral and to do all things deemed  necessary by
Secured Party to perfect the Security  Interest and preserve,  collect,  enforce
and protect the  Collateral,  all at Debtor's cost and without any obligation on
Secured  Party so to act.  Secured  Party  shall  not be  liable  for any act or
omission on the part of Secured Party, its officers, agents or employees, except
willful  misconduct nor shall Secured Party be responsible  for  depreciation in
value of the Collateral or for preservation of rights against prior parties. The
foregoing  rights and powers of Secured  Party may be exercised  before or after
default and shall be in addition to, and not a limitation  upon,  any rights and
powers of Secured Party given herein or by law,  custom or otherwise,  except as
otherwise expressly provided herein.

         5. Events of Default.  Debtor shall be in default  under this  Security
Agreement upon the occurrence and continuation of any of the following events or
conditions (each, an "Event of Default"):

                  (a)  Default  in the  timely  payment  or  performance  of any
         obligation,  covenant or agreement contained herein,  secured hereby or
         otherwise made or owed to Secured Party;

                  (b)  A  material  breach  of  or  default  under  the  License
         Agreement by any party thereto;

                  (c) Any party to the License  Agreement  commences  or becomes
         the subject of any proceedings  under any  bankruptcy,  reorganization,
         comprise,    arrangement,    insolvency,    readjustment    of   debts,
         conservatorship,   moratorium,  dissolution,  liquidation,  or  similar
         debtor  relief laws of any  jurisdiction,  whether now or  hereafter in
         effect, and, in the case of involuntary  proceedings,  such proceedings
         are not dismissed,  discharged,  stayed or restrained within 60 days of
         the commencement  thereof,  shall make an assignment for the benefit of
         its creditors,  or shall fail to pay its debts generally as they become
         due;

                  (d) Any warranty,  representation or statement made to Secured
         Party by or in  behalf  of  Debtor  proves  to have  been  false in any
         material respect when made;

                  (e) Any material  default in the payment or performance of any
         obligation of Debtor to others under any loan, indenture,  agreement or
         undertaking in respect of borrowed money;

                  (f)   Sale,   loss,   theft,   destruction,   encumbrance   or
         unauthorized transfer of any of the Collateral;

                  (g) Levy or seizure, or attachment of any of the Collateral;

                  (h) Judgment  against Debtor in an amount greater than $50,000
         which  remains  unpaid for thirty  (30) days unless  execution  on such
         judgment is subject to a stay pending appeal; and

                  (i) Any Event of Default as specified and defined in the Note.

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         6.  Remedies of Secured  Party upon  Default.  When an Event of Default
occurs,  and at any time thereafter,  Secured Party may declare all or a part of
the Indebtedness  immediately due and payable and may proceed to enforce payment
of same and to exercise any and all of the rights and  remedies  provided by the
Uniform  Commercial  Code ("Code") and any other  applicable law, as well as all
other  rights and  remedies  possessed  by  Secured  Party  under this  Security
Agreement  or  otherwise  at law or in equity,  including,  but not  limited to,
notifying the account  debtor on the  Collateral to make any and all payments in
respect  thereof to the Secured Party.  Secured Party may also require Debtor to
assemble the  Collateral  and make it available to Secured Party at any place to
be designated  by Secured Party which is reasonably  convenient to both parties.
For purposes of the notice  requirements  of the Code,  Secured Party and Debtor
agree that  notice  given at least five (5)  calendar  days prior to the related
action  hereunder is  reasonable.  Secured  Party shall be entitled to immediate
possession of the Collateral and all books and records evidencing same and shall
have  authority  to enter  upon any  premises,  upon  which  said  items  may be
situated, and remove same therefrom.  Expenses of retaking,  holding,  preparing
for sale,  selling,  or the like,  shall include,  without  limitation,  Secured
Party's  reasonable  attorneys' fees and all such expenses shall be recovered by
Secured  Party  before  applying  the  proceeds  from  the  disposition  of  the
Collateral toward the Indebtedness.  To the extent allowed by the Code,  Secured
Party may use its discretion in applying the proceeds of any  disposition of the
Collateral  and Debtor shall remain liable for any  deficiency  remaining  after
such  disposition.  All  rights and  remedies  of Secured  Party  hereunder  are
cumulative  and may be  exercised  singly or  concurrently.  The exercise of any
right or remedy shall not be a waiver of any other.

         7.  Waiver by Secured  Party.  No waiver by Secured  Party of any right
hereunder  or of any Event of Default by Debtor  shall be binding  upon  Secured
Party unless provided in a written consent executed by Secured Party. Failure or
delay by Secured Party to exercise any right hereunder or waiver of any Event of
Default of Debtor  shall not  operate as a waiver of any other  right of further
exercise of such right, or of any further default.

         8. Parties Bound. Subject to Section 17 hereof, this Security Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective heirs, executors, administrators, legal representatives,  successors,
receivers, trustees and assigns.

         9.  Governing  Law.  This Security  Agreement  shall be governed by and
construed and enforced in  accordance  with the Code (the  definitions  of which
apply herein) and other  applicable laws of the State of New York without giving
effect to the principles of conflict of law of New York.

         10.  Notices.  All  notices,  requests  or  communications  required or
permitted to be given  hereunder shall be in writing and shall be deemed to have
been properly  given if (a) mailed by  first-class  United States mail,  postage
prepaid, registered or certified with return receipt requested, (b) delivered by
a nationally  recognized overnight delivery service with written confirmation of
delivery,  (c)  delivered  in person to the intended  addressee,  or (d) sent by
facsimile transmission with confirmation of delivery. Any notice mailed as above
provided  will be effective  upon its deposit in the custody of the U.S.  Postal
Service; all other notices will be effective upon receipt. All notices hereunder
shall be given at the following addresses:

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         if to Debtor:              Covol Technologies, Inc.
                                    3280 North Frontage Road
                                    Lehi, Utah  84043
                                    Facsimile: (801) 768-4483
                                    Attention:  Stanley M. Kimball

         if to Secured Party:       Mountaineer Synfuel, L.L.C.
                                    3280 North Frontage Road
                                    Lehi, Utah  84043
                                    Facsimile:  (801) 766-1979
                                    Attention:  Harlen M. Hatfield

         with copies to:            MSDW Synfuels II, Inc.
                                    1221 Avenue of the Americas
                                    23rd Floor
                                    New York, New York  10020
                                    Facsimile:  (212) 762-6912
                                    Attention:  Debra M. Aaron

                                    and

                                    Fannie Mae
                                    3900 Wisconsin Avenue, N.W.
                                    Washington, D.C.  20016-2892
                                    Facsimile:  (201) 752-6088
                                    Attention:  William E. Einstein

Any such  entity may  change  its  address  for  notice  hereunder  to any other
location  within the  continental  United  States by giving 30 days prior notice
thereof to each other such entity in accordance with this Section 10.

         11. Cumulative  Rights. All rights of Secured Party under this Security
Agreement and all related  documents  are  cumulative of each other and of every
other right which Secured Party may otherwise  have at law or in equity or under
any other contract or other writing for the enforcement of the security interest
herein or the collection of the Indebtedness. The exercise of one or more rights
shall not prejudice or impair the  concurrent  or  subsequent  exercise of other
rights.

         12. Continuing Security Interest;  Obligations Absolute.  This Security
Agreement  constitutes a continuing  security  interest in the  Collateral,  and
shall remain in full force and effect until performance and indefeasible payment
in full of the  Indebtedness.  The  obligations  of Debtor  under this  Security
Agreement  shall be  absolute  and  unconditional  and  shall  not be  released,
discharged,  reduced  or in any way  impaired  by any  circumstance  whatsoever,
including without limitation any amendment,  modification,  extension or renewal
of this  Security  Agreement,  the  Indebtedness  or any document or  instrument
evidencing,  securing or otherwise relating to the Indebtedness,  or any release
or subordination of collateral, or any waiver, consent,  extension,  indulgence,
compromise,  settlement  or other action or inaction in respect of this Security
Agreement,  the Indebtedness or any document or instrument evidencing,  securing
or otherwise relating to the

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Indebtedness or any exercise or failure to exercise any right,  remedy, power or
privilege in respect of the Indebtedness.

         13.  Amendment/Modification/Consent.  This Security Agreement shall not
be amended,  supplemented,  or  otherwise  modified,  except by written  consent
signed by Secured Party and Debtor.  No consent of Secured Party hereunder shall
be  effective  unless  approved in writing by MSDW  Synfuels II, Inc. and Fannie
Mae.

         14.  Severability.  If any provision of this Security  Agreement or any
related documents is held to be illegal,  invalid or unenforceable under present
or future laws or  regulations,  that  provision  will be fully  severable.  The
affected instrument, document or agreement shall be construed and enforced as if
any the  severed  provision  had never been a part  thereof,  and the  remaining
provisions  shall  remain in full force and effect and shall not be  affected by
the severed  provision  or by its  severance  therefrom.  In lieu of the severed
provision,  there  shall  be  added  automatically  as a part  of  the  affected
instrument,  document  or  agreement  a  provision  that  is  legal,  valid  and
enforceable,  and as  similar  in  terms  to  the  severed  provision  as may be
possible.

         15.  Construction.  If there is any  conflict  between  the  provisions
hereof and the provisions of the  Indebtedness,  the latter shall  control.  The
captions  herein are for convenience of reference only and not for definition or
interpretation.

         16. Waiver of Debtor. Debtor hereby waives presentment,  demand, notice
of dishonor,  protest, and notice of protest, and all other notices with respect
to collection, or acceleration of maturity, of the Collateral and Indebtedness.

         17.  Assignment.  This  Security  Agreement,  the  rights,  powers  and
interests  held by Secured Party  hereunder may be  transferred  and assigned by
Secured Party,  in whole or in part, at such time and upon such terms as Secured
Party may deem advisable,  without the consent of Debtor. Debtor will not assign
any of its rights,  powers or  interests  hereunder  without  the prior  written
consent of Secured Party.

         18. ENTIRE  AGREEMENT.  THIS WRITTEN  AGREEMENT AND THE OTHER DOCUMENTS
REFERENCED  HEREIN OR CONTEMPLATED  HEREBY REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL  AGREEMENTS OF THE PARTIES  HERETO.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.


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         IN WITNESS WHEREOF,  the parties hereby execute this Security Agreement
effective as of the date first above written.


DEBTOR:

COVOL TECHNOLOGIES, INC.,
a Delaware corporation



By:/Stanley M. Kimball/
   ----------------------------------
Printed Name: Stanley M. Kimball
Its: President



SECURED PARTY:

MOUNTAINEER SYNFUEL, L.L.C.,
a Delaware limited liability company



By: /Harlan M. Hatfield/
   ----------------------------------
Printed Name: Harlan M. Hatfield
Its: Vice President


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