Leashold Credit Line Deed of Trust

Prepared by, and after recording return to: Michael S. Kosmas, Esquire Jones, Day, Reavis & Pogue 1450 G Street, N.W., Suite 600 Washington, D.C. 20005


LEASEHOLD CREDIT LINE
DEED OF TRUST
AND SECURITY AGREEMENT


THIS LEASEHOLD CREDIT LINE DEED OF TRUST AND SECURITY AGREEMENT (this "Deed of Trust"), dated as of the 8th day of December, 1998, from COVOL TECHNOLOGIES, INC., a Delaware corporation, having an address at 3280 North Frontage Road, Lehi, Utah 84043 (the "Borrower"), to ________________ and ________________, each a resident of West Virginia, having an address at _____________________________________________________________ (collectively, together with their successors in such capacity, the "Trustee"), for the benefit of MOUNTAINEER SYNFUEL, L.L.C., a Delaware limited liability company, having an address at 3280 North Frontage Road, Lehi, Utah 84043 (the "Beneficiary").


WITNESSETH:


WHEREAS, pursuant to a Deed of Ground Lease dated as of May 5, 1998 between Upshur Property, Inc. and the Borrower (the "Ground Lease"), the Borrower has acquired a leasehold estate in certain real property located in Upshur County, West Virginia, described on Exhibit A attached hereto (the "Real Property"). A Memorandum of Lease setting forth certain information with respect to the Ground Lease is recorded immediately prior hereto.


WHEREAS, pursuant to a Promissory Note dated of even date herewith in an original maximum aggregate principal amount of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($9,750,000.00) (the "Note"), the Borrower is indebted to the Beneficiary as more fully set forth therein. The amounts due from the Borrower to the Beneficiary pursuant to the Note are sometimes referred to hereinafter as the "Obligations".


THIS IS A CREDIT LINE DEED OF TRUST SECURING THE
PAYMENT OF THE MAXIMUM PRINCIPAL AMOUNT OF $9,750,000.00


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NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and FOR THE PURPOSE OF SECURING the Obligations (the original maximum aggregate amount of principal to be secured at any one time by this Deed of Trust being $9,750,000.00), and the full and punctual performance and observance by the Borrower of all the covenants, agreements, terms and conditions set forth herein, the Borrower does hereby irrevocably grant, sell, release, convey, warrant, assign, transfer, mortgage, pledge, set over and confirm unto the Trustee, its successors and assigns, IN TRUST, WITH POWER OF SALE, for the benefit and security of the Beneficiary, under and subject to the terms and conditions hereinafter set forth, the following described property, to wit:


All of the right, title and interest of the Borrower under the Ground Lease and in and to the Real Property (collectively, the "Property");


TOGETHER WITH all interests, estates or other claims, both in law and in equity, which the Borrower now has or may hereafter acquire in (i) the Property, (ii) all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, and (iii) all tenements, hereditaments and appurtenances in any way belonging, relating or appertaining thereto;


TOGETHER WITH all estate, right, title and interest of the Borrower now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, adjoining to the Property, and any and all sidewalks, alleys, strips of land and gores adjacent to or used in connection therewith;


TOGETHER WITH all estate, right, title and interest of the Borrower, now owned or hereafter acquired, in and to any and all buildings and other improvements now or hereafter erected on the Property (collectively, the "Improvements");


TOGETHER WITH all estate, right, title and interest of the Borrower now owned or hereafter acquired, in and to all inventory, machinery, apparatus, equipment, materials, supplies, goods, fittings, fixtures and articles of personal property now or hereafter located on or at the Property or used in connection therewith (including in connection with the construction, renovation, or improvement thereof) and all additions, and accessions thereto, replacements therefor and proceeds and profits thereof (collectively, the "Personal Property");


TOGETHER WITH all estate, claim, demand, right (including all rights to possession and use, all options and other rights to give consents, modify, amend, extend, renew, terminate or purchase or sell), title and interest of the Borrower under all contracts, agreements, understandings or arrangements, whether written or oral, now or hereafter in effect relating to the development, construction, reconstruction, repair, alteration, addition to, improvement, replacement, use, operation or management of the Property and as lessee or lessor under any leases or occupancy arrangements relating to the Property, whether oral or written, now or hereafter in effect (all of the foregoing, collectively, the "Agreements"), provided that any of the


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Agreements that by their terms or by operation of law would become void, voidable or revocable if mortgaged, pledged or assigned hereunder or if a security interest therein were granted hereunder are expressly excepted and excluded from the lien of this Deed of Trust;


TOGETHER WITH all right, claim, demand, title and interest of the Borrower in, to and under all permits, approvals, certificates, variances, orders, exemptions and other authorizations, including any condominium permits, approvals, certificates, variances, orders, assumptions and other authorizations now or hereafter issued, made or granted with respect to the development, construction, reconstruction, repair, alteration, addition, improvement, replacement, use, operation or management of the Property (collectively, the "Permits"), provided that any of the Permits that by their terms or by operation of law would become void, voidable or revocable if mortgaged, pledged or assigned hereunder or if a security interest therein were granted hereunder are expressly excepted and excluded from the lien of this Deed of Trust;


TOGETHER WITH all reversion or reversions, remainder or remainders, rents, revenues, proceeds, issues, profits, royalties, income and other benefits of the Property, the Improvements, the Personal Property and the Agreements, and the Beneficiary is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same to the payment of the Obligations, notwithstanding the fact that the same may not then be due and payable;


TOGETHER WITH all right, title and interest of the Borrower in and to (i) all proceeds of the insurance required to be maintained under section 1.04 of this Deed of Trust and (ii) all awards heretofore or hereafter made to the Borrower with respect to any part of the Property, the Improvements, the Agreements, or the Personal Property as the result of the exercise of the power of eminent domain, including any awards for changes of the grades of streets, or as the result of any other damage to any part of the Property, the Improvements, the Agreements or the Personal Property for which compensation shall be given by any governmental authority (a "Condemnation"), and the Trustee is hereby authorized to collect and receive the proceeds thereof to the extent of the right, title and interest of the Borrower, to give proper receipts and acquittances therefor, and, at the direction of the Beneficiary, to apply the same to the payment of the Obligations, notwithstanding the fact that the same may not then be due and payable;


TOGETHER WITH any and all air rights, development rights, zoning rights or other similar rights or interests which benefit or are appurtenant to the Property or the Improvements or both and any proceeds arising therefrom;


Permitting the said Borrower to use and occupy the Property and the Improvements, until an Event of Default shall have occurred and be continuing;


All of the foregoing property is sometimes herein referred to as the "Trust Estate".


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TO HAVE AND TO HOLD the Trust Estate, with all privileges and appurtenances thereunto belonging, to the Trustee and its successors in trust and, for the benefit of the Beneficiary and its successors and assigns forever.


PROVIDED ALWAYS, if the Obligations shall be paid in full according to the terms and provisions hereof and of the Note, then this Deed of Trust and the lien and estate hereby granted shall cease, determine and be void.


TO PROTECT THE SECURITY OF THIS DEED OF TRUST, THE BORROWER HEREBY COVENANTS AND AGREES AS FOLLOWS:


ARTICLE I


Particular Covenants and
Agreements of the Borrower


Section 1.01. Payment of the Obligations; Title, etc. The Borrower shall pay the Obligations according to the terms of the Note. The Borrower warrants and represents that the Borrower (i) is lawfully possessed of a leasehold estate in the Property and is lawfully possessed of a fee title estate in and to the Improvements and the Personal Property, subject to no liens or encumbrances, and (ii) has full power and lawful authority to grant, bargain, sell, release, convey, warrant, assign, transfer, mortgage, pledge, set over and confirm unto the Trustee and Beneficiary all right, title and interest of the Borrower in and to the Trust Estate. The Borrower also warrants and represents that this Deed of Trust is given to secure indebtedness incurred in connection with the carrying on of a commercial enterprise. Subject to the rights of the Borrower under this Deed of Trust, the Borrower shall forever defend the title to the Trustee in and to the Trust Estate and the validity of the lien and estate hereof against the claims and demands of all persons whomsoever.


Section 1.02. Further Assurances.


(a) The Borrower shall execute, acknowledge and deliver, from time to time, such further instruments as the Trustee or the Beneficiary may reasonably require to accomplish the purposes of this Deed of Trust.


(b) The Borrower, immediately upon the execution and delivery of this Deed of Trust, and thereafter from time to time, shall cause this Deed of Trust, each supplement and amendment hereof (collectively, the "Recordable Document"), to be filed, registered or recorded and refiled, re-registered or re-recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and perfect the lien and estate of this Deed of Trust upon the Trust Estate. The Borrower shall, from time to time, perform or cause to be performed any other act as required by law and shall execute or cause to be executed any and all


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further instruments (including financing statements, continuation statements and similar statements with respect to any Recordable Document) (collectively, "UCC Documents") reasonably requested by the Trustee or the Beneficiary for such purposes. Without limiting the foregoing, not more than six months nor less than three months prior to the date on which any continuation statements are required to be filed with respect to any Recordable Document, the Borrower shall file all such continuation statements and send copies evidencing such filing to the Trustee and the Beneficiary. If the Borrower shall fail to execute any UCC Document by the date three (3) months prior to the date on which any continuation statement is required to be filed, the Beneficiary shall be and is hereby irrevocably appointed the agent and attorney-in-fact of the Borrower to execute such UCC Document.


(c) The Borrower shall pay all filing, registration and recording fees, all refiling, re-registration and re-recording fees, and all expenses incident to the execution, acknowledgment and delivery of the Recordable Documents, and all Federal, State, county and municipal stamp taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, acknowledgment and delivery of the Recordable Documents.


(d) The Borrower has not caused, accepted or permitted, and shall not cause, accept or knowingly permit, the disposal, release or threatened release on the Property of any hazardous substance, as that term is defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601, et seq., and to Borrower's knowledge no other owner, user or operator of the Property, past or present, has caused, accepted or permitted the disposal, release or threatened release of any hazardous substance on the Property.


Section 1.03. Compliance with Legal Requirements. The Borrower shall comply with all laws, ordinances, regulations, covenants, conditions and restrictions now or hereafter affecting the Trust Estate or any part thereof (collectively, "Legal Requirements"); provided, however, that if the Borrower contests in good faith and by appropriate proceedings the validity or applicability of any Legal Requirement so that the enforcement thereof is stayed or provides the Beneficiary with security in such amount and in such form as the Beneficiary may require, in its reasonable discretion, then, in either such case, compliance with the Legal Requirement in question shall be suspended during the pendency of such contest.


Section 1.04. Required Insurance. The Borrower shall at all times (i) keep the Trust Property insured for the benefit of Beneficiary, as its interests may appear, in an amount not less than one hundred percent (100%) of the full replacement cost of such Trust Property, (ii) carry and maintain or cause others to carry and maintain such liability and indemnity insurance as may be required from time to time by the Beneficiary, and (iii) carry and maintain or cause others to carry and maintain workers' compensation and disability insurance to the fullest extent required by law. Upon request of the Beneficiary, the originals of all such policies and renewals thereof, together with receipts satisfactory to the Beneficiary evidencing payment thereof, shall be delivered to and held by the Beneficiary.


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Section 1.05. Insurance Proceeds. (a) After the happening of any casualty to the Property, the Improvements or the Personal Property or any part thereof, the Borrower shall give prompt notice thereof to the Beneficiary and the Trustee.


(b) Any insurance proceeds shall be paid over promptly to the Beneficiary, and the Beneficiary, at its sole discretion, may apply such sums, in whole or in part, to the repair, restoration and replacement of the Property, the Improvements or the Personal Property, or to the payment of the indebtedness secured by this Deed of Trust in such order of priority as the Beneficiary shall determine.


Section 1.06. Assignments of Policies Upon Foreclosure. In the event of foreclosure of this Deed of Trust or other transfer of title or assignment of the Trust Estate in extinguishment, in whole or in part, of the Obligations, to the extent permitted by the Borrower's policies of insurance, all right, title and interest of the Borrower in and to all policies of insurance shall inure to the benefit of and pass to the successors in interest to the Borrower or the purchaser or grantee of the Trust Estate or any part thereof.


Section 1.07. Indemnification; Waiver of Offset. (a) If the Trustee or the Beneficiary is made a party defendant to any litigation concerning this Deed of Trust or the Trust Estate or any part thereof or interest therein, or concerning the occupancy thereof by the Borrower, and such litigation did not arise as a result of the gross negligence or willful misconduct of the Trustee or the Beneficiary, as the case may be, then the Borrower shall indemnify, defend and hold the Trustee or the Beneficiary, as the case may be, harmless from and against all liability by reason of said litigation, including reasonable attorneys' fees and expenses in any such litigation, whether or not any such litigation is prosecuted to judgment. If the Trustee or the Beneficiary in good faith commences an action against the Borrower to enforce any of the terms hereof or because of the breach by the Borrower of any of the terms hereof, or for the recovery of any of the Obligations, then the Borrower shall, to the extent permitted by law, pay to the Trustee or the Beneficiary, as the case may be, its reasonable attorneys' fees and expenses, and the right to such attorneys' fees and expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment, provided that the Borrower shall not be liable for any amounts to be paid in settlement unless Borrower has consented in writing to such settlement, which consent shall not be unreasonably withheld. If a Default shall occur and be continuing, the Trustee or the Beneficiary may employ an attorney or attorneys to protect its rights hereunder, and in the event of such employment following any Default by the Borrower, the Borrower shall, to the extent permitted by law, pay the reasonable attorneys' fees and expenses incurred by the Trustee or the Beneficiary, as the case may be, whether or not an action is actually commenced against the Borrower by reason of such Default. The Borrower will assume the defense of any action against the Trustee or the Beneficiary covered by the indemnification set forth in this Section, including the retaining of counsel selected by Borrower and the payment by the Borrower of reasonable counsel's fees and expenses relating to such defense and of the aggregate amount to be paid at settlement of any litigation if such settlement is effected with the written consent of the


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Borrower. The Trustee and the Beneficiary shall have the right to retain separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Trustee and/or the Beneficiary unless the retaining of such counsel has been specifically authorized in writing by the Borrower or the use of counsel chosen by the Borrower to represent the Trustee and/or the Beneficiary would present such counsel with a conflict of interest.


(b) The Borrower hereby waives any and all right to claim or recover against the Trustee or the Beneficiary, or their respective officers, employees, agents and representatives, for loss of or damage to the Borrower, the Trust Estate, the property of the Borrower or the property of others under the control of the Borrower from any cause insured against or required to be insured against under this Deed of Trust unless arising from the gross negligence or willful misconduct of the Trustee or the Beneficiary.


Section 1.08. Impositions. The Borrower shall pay, or, where a third party is responsible for payment, cause the payment by third parties, before any fine, penalty, interest or cost attaches thereto, all taxes, assessments, water and sewer rates, utility charges and all other governmental or nongovernmental charges or levies now or hereafter assessed or levied against the Property, the Improvements, the Personal Property or any other part of the Trust Estate or upon the lien or estate of the Trustee or the Beneficiary therein (collectively, "Impositions"), as well as all claims for labor, materials or supplies which, if unpaid, might by law become a prior lien thereon, and as soon as possible after request by the Trustee or the Beneficiary shall cause receipts showing payment of any of the foregoing to be exhibited; provided, however, that if by law any Imposition may be paid in installments (whether- or not interest shall accrue on the unpaid balance thereof), such Imposition may be paid in installments (together with accrued interest on the unpaid balance thereof) as the same respectively become due, before any fine, penalty or cost attaches thereto; provided further, however, that if the Borrower or other party responsible for payment contests in good faith and by appropriate proceedings the validity or applicability of any Imposition or claims for labor, materials or supplies and provides to the Beneficiary security in such amount and in such form as the Beneficiary may reasonably require, then, in either such case, compliance with the Imposition in question may be suspended during the pendency of such contest.


Section 1.09. Limitations of Use. Without the consent of the Beneficiary, the Borrower shall not initiate, join in or consent to any change in any private restrictive covenant, zoning ordinance or other public or private restrictions li ...