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 ▇▇▇▇ 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.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
if to Secured Party: Mountaineer Synfuel, L.L.C.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
with copies to: MSDW Synfuels II, Inc.
1221 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
and
▇▇▇▇▇▇ Mae
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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 ▇▇▇▇▇▇
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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:/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇/
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Printed Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: President
SECURED PARTY:
MOUNTAINEER SYNFUEL, L.L.C.,
a Delaware limited liability company
By: /▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇/
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Printed Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: Vice President
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