Chile Mining Technologies Inc.: Exhibit 10.4 - Filed by newsfilecorp.com






Exhibit 10.4

SECURITY AGREEMENT 

This SECURITY AGREEMENT, dated as of May 8, 2012 (this
“Agreement”), is made and entered into by and among Chile Mining
Technologies Inc., a Nevada corporation (the “Company”), all of the
Subsidiaries of the Company (such subsidiaries, the “Guarantors” and
together with the Company, the “Debtors”) and the holders of the
Company’s 11% Secured Convertible Notes due May 8, 2017, in the original
aggregate principal amount of $2,120,000 (collectively, the “Notes”)
signatory hereto, their endorsees, transferees and assigns (collectively, the
“Secured Parties”). 

WHEREAS, pursuant to the Securities Purchase Agreement
or “SPA” (as defined in the Notes), the Secured Parties have severally
agreed to extend the loans to the Company evidenced by the Notes;

WHEREAS, pursuant to a certain Subsidiary Guarantee,
dated as of the date hereof (the "Guarantee"), the Guarantors, if any,
have jointly and severally agreed to guarantee and act as surety for payment of
such Notes; and

WHEREAS, in order to induce the Secured Parties to
extend the loans evidenced by the Notes, each Debtor has agreed to execute and
deliver to the Secured Parties this Agreement and to grant the Secured Parties,
pari passu with each other Secured Party and through the Agent, a security
interest in certain property of such Debtor to secure the prompt payment,
performance and discharge in full of all of the Company's obligations under the
Notes and the Guarantors' obligations under the Guarantee.

NOW, THEREFORE, in consideration of the agreements
herein contained and intending to be legally bound, the parties hereto hereby
agree as follows:

1.     Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth in this Section 1. Terms used
but not otherwise defined in this Agreement that are defined in Article 9 of the
UCC (such as "account", "chattel paper", "commercial tort claim", "deposit
account", "document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC.

(a)     "Collateral" means the collateral in which the
Secured Parties are granted a security interest by this Agreement and which
shall include the following personal property of the Debtors, whether presently
owned or existing or hereafter acquired or coming into existence, wherever
situated, and all additions and accessions thereto and all substitutions and
replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith, and all dividends, interest, cash, notes, securities,
equity interest or other property at any time and from time to time acquired,
receivable or otherwise distributed in respect of, or in exchange for, any or
all of the Pledged Securities (as defined below):

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(i)     All goods, including, without limitation, (A) all
machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships,
appliances, furniture, special and general tools, fixtures, test and quality
control devices and other equipment of every kind and nature and wherever
situated, together with all documents of title and documents representing the
same, all additions and accessions thereto, replacements therefor, all parts
therefor, and all substitutes for any of the foregoing and all other items used
and useful in connection with any Debtor's businesses and all improvements
thereto; and (B) all inventory;

(ii)     All contract rights and other general intangibles,
including, without limitation, all partnership interests, membership interests,
stock or other securities, rights under any of the Organizational Documents,
agreements related to the Pledged Securities, licenses, distribution and other
agreements, computer software (whether "off-the-shelf", licensed from any third
party or developed by any Debtor), computer software development rights, leases,
franchises, customer lists, quality control procedures, grants and rights,
goodwill, trademarks, service marks, trade styles, trade names, patents, patent
applications, copyrights, and income tax refunds;

(iii)     All accounts, together with all instruments, all
documents of title representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks which any of the same
may represent, and all right, title, security and guaranties with respect to
each account, including any right of stoppage in transit;

(iv)     All documents, letter-of-credit rights, instruments and
chattel paper;

(v)     All commercial tort claims;

(vi)     All deposit accounts and all cash (whether or not
deposited in such deposit accounts);

(vii)     All investment property;

(viii)     All supporting obligations; and

(ix)     All files, records, books of account, business papers, and
computer programs; and

(x)     the products and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(ix) above.

Without limiting the generality of the foregoing, the
"Collateral" shall include all investment property and general intangibles
respecting ownership and/or other equity interests in each Guarantor, including,
without limitation, the shares of capital stock and the other equity interests
listed on Schedule H hereto (as the same may be modified from time to
time pursuant to the terms hereof), and any other shares of capital stock and/or
other equity interests of any other direct or indirect subsidiary of any Debtor
obtained in the future, and, in each case, all certificates representing such
shares and/or equity interests and, in each case, all rights, options, warrants,
stock, other securities and/or equity interests that may hereafter be received,
receivable or distributed in respect of, or exchanged for, any of the foregoing
and all rights arising under or in connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.

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Notwithstanding the foregoing, nothing herein shall be deemed
to constitute an assignment of any asset which, in the event of an assignment,
becomes void by operation of applicable law or the assignment of which is
otherwise prohibited by applicable law; provided, however, that to the extent
permitted by applicable law, this Agreement shall create a valid security
interest in such asset and, to the extent permitted by applicable law, this
Agreement shall create a valid security interest in the proceeds of such
asset.

(b)     "Intellectual Property" means the collective
reference to all rights, priorities and privileges relating to intellectual
property, whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, (i) all copyrights, whether registered
or unregistered and whether published or unpublished, all registrations and
recordings thereof, and all applications in connection therewith, (ii) all
patents, all reissues and extensions thereof, and all applications for patents
and all divisions, continuations and continuations-in-part thereof, (iii) all
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade dress, service marks, logos, domain names and
other source or business identifiers, and all goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, and all common law rights
related thereto, (iv) all trade secrets, (v) all rights to obtain any reissues,
renewals or extensions of the foregoing, (vi) all licenses for any of the
foregoing, and (vii) all causes of action for infringement of the foregoing.

(c)     "Majority in Interest" means, at any time of
determination, the majority in interest (based on then-outstanding principal
amounts of Notes at the time of such determination) of the Secured Parties.

(d)     "Necessary Endorsement" means undated stock powers
endorsed in blank or other proper instruments of assignment duly executed and
such other instruments or documents as the Agent (as that term is defined below)
may reasonably request.

(e)     "Obligations" means all of the liabilities and
obligations (primary, secondary, direct, contingent, sole, joint or several) due
or to become due, or that are now or may be hereafter contracted or acquired, or
owing to, of any Debtor to the Secured Parties, including, without limitation,
all obligations under this Agreement, the Notes, the Guarantee and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Secured Parties as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time. Without
limiting the generality of the foregoing, the term "Obligations" shall include,
without limitation: (i) principal of, and interest on the Notes and the loans
extended pursuant thereto; (ii) any and all other fees, indemnities, costs,
obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Notes, the Guarantee
and any other instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith; and (iii) all amounts (including
but not limited to post-petition interest) in respect of the foregoing that
would be payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.

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(f)     "Organizational Documents" means with respect to any
Debtor, the documents by which such Debtor was organized (such as a certificate
of incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of designation
for preferred stock or other forms of preferred equity) and which relate to the
internal governance of such Debtor (such as bylaws, a partnership agreement or
an operating, limited liability or members agreement).

(g)     "Pledged Securities" shall have the meaning ascribed
to such term in Section 4(i).

(h)     "UCC" means the Uniform Commercial Code of the State
of New York and or any other applicable law of any state or states which has
jurisdiction with respect to all, or any portion of, the Collateral or this
Agreement, from time to time. It is the intent of the parties that defined terms
in the UCC should be construed in their broadest sense so that the term
"Collateral" will be construed in its broadest sense. Accordingly if there are,
from time to time, changes to defined terms in the UCC that broaden the
definitions, they are incorporated herein and if existing definitions in the UCC
are broader than the amended definitions, the existing ones shall be
controlling.

2.     Grant of Security Interest in Collateral. As an
inducement for the Secured Parties to extend the loans as evidenced by the Notes
and to secure the complete and timely payment, performance and discharge in
full, as the case may be, of all of the Obligations, each Debtor hereby
unconditionally and irrevocably pledges, grants and hypothecates to the Secured
Parties a security interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (a "Security Interest" and,
collectively, the "Security Interests").

3.     Delivery of Certain Collateral. Within 10 days of the
date hereof, each Debtor shall deliver or cause to be delivered to the Agent (a)
any and all certificates and other instruments representing or evidencing the
Pledged Securities, and (b) any and all certificates and other instruments or
documents representing any of the other Collateral, in each case, together with
all Necessary Endorsements. Upon the written request of the Agent, the Debtors
shall provide to Agent, a true and correct copy of each Organizational Document
governing any of the Pledged Securities.

4.     Representations, Warranties, Covenants and Agreements of
the Debtors. Except as set forth under the disclosure schedules to the SPA
or the corresponding section of the disclosure schedules delivered to the
Secured Parties concurrently with the execution of this Agreement (the
"Disclosure Schedule"), each Debtor represents and warrants to, and
covenants and agrees with, the Secured Parties as follows:

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(a)     Each Debtor has the requisite corporate, partnership,
limited liability company or other power and authority to enter into this
Agreement and otherwise to carry out its obligations hereunder. The execution,
delivery and performance by each Debtor of this Agreement and the filings
contemplated therein have been duly authorized by all necessary action on the
part of such Debtor and no further action is required by such Debtor. This
Agreement has been duly executed by each Debtor. This Agreement constitutes the
legal, valid and binding obligation of each Debtor, enforceable against each
Debtor in accordance with its terms except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.

(b)     The Debtors have no place of business or offices where
their respective books of account and records are kept (other than temporarily
at the offices of its attorneys or accountants) or places where Collateral is
stored or located, except as set forth on Schedule A attached hereto.
Except as specifically set forth on Schedule A, each Debtor is the record
owner of the real property where such Collateral is located, and there exist no
mortgages or other liens on any such real property except for Permitted Liens
(as defined in the SPA). Except as disclosed on Schedule A, none of such
Collateral is in the possession of any consignee, bailee, warehouseman, agent or
processor.

(c)     Except for Permitted Liens and except as set forth on
Schedule B attached hereto, the Debtors are the sole owner of the
Collateral (except for non-exclusive licenses granted by any Debtor in the
ordinary course of business), free and clear of any liens, security interests,
encumbrances, rights or claims, and are fully authorized to grant the Security
Interests. Except as set forth on Schedule B attached hereto, there is
not on file in any governmental or regulatory authority, agency or recording
office an effective financing statement, security agreement, license or transfer
or any notice of any of the foregoing (other than those that will be filed in
favor of the Secured Parties pursuant to this Agreement) covering or affecting
any of the Collateral. Except as set forth on Schedule B attached hereto
and except pursuant to this Agreement, as long as this Agreement shall be in
effect, the Debtors shall not execute and shall not knowingly permit to be on
file in any such office or agency any other financing statement or other
document or instrument (except to the extent filed or recorded in favor of the
Secured Parties pursuant to the terms of this Agreement).

(d)     No written claim has been received that any Collateral or
Debtor's use of any Collateral violates the rights of any third party. There has
been no adverse decision to any Debtor's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to any Debtor's
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or, to the knowledge of any
Debtor, threatened before any court, judicial body, administrative or regulatory
agency, arbitrator or other governmental authority.

(e)     Each Debtor shall at all times maintain its books of
account and records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth on Schedule A
attached hereto and may not relocate such books of account and records or
tangible Collateral unless it delivers to the Secured Parties at least 30 days
prior to such relocation (i) written notice of such relocation and the new
location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements
under the UCC and other necessary documents have been filed and recorded and
other steps have been taken to perfect the Security Interests to create in favor
of the Secured Parties a valid, perfected and continuing perfected lien in the
Collateral.

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(f)     This Agreement creates in favor of the Secured Parties a
valid security interest in the Collateral, subject only to Permitted Liens
securing the payment and performance of the Obligations.

(g)     Each Debtor hereby authorizes the Agent to file one or more
financing statements under the UCC, with respect to the Security Interests, with
the proper filing and recording agencies in any jurisdiction deemed proper by
it, including the filing of a Reconocimiento de Dueda in the Republic of Chile.


(h)     The execution, delivery and performance of this Agreement
by the Debtors does not (i) violate any of the provisions of any Organizational
Documents of any Debtor or any judgment, decree, order or award of any court,
governmental body or arbitrator or any applicable law, rule or regulation
applicable to any Debtor or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing any Debtor's debt or
otherwise) or other understanding to which any Debtor is a party or by which any
property or asset of any Debtor is bound or affected. If any, all required
consents (including, without limitation, from stockholders or creditors of any
Debtor) necessary for any Debtor to enter into and perform its obligations
hereunder have been obtained.

(i)     The capital stock and other equity interests listed on
Schedule H hereto (the "Pledged Securities") represent all of the
capital stock and other equity interests of the Guarantors, and represent all
capital stock and other equity interests owned, directly or indirectly, by the
Company. All of the Pledged Securities are validly issued, fully paid and
nonassessable, and the Company is the legal and beneficial owner of the Pledged
Securities, free and clear of any lien, security interest or other encumbrance
except for the security interests created by this Agreement and other Permitted
Liens. 

(j)     The ownership and other equity interests in partnerships
and limited liability companies (if any) included in the Collateral (the
"Pledged Interests") by their express terms do not provide that they are
securities governed by Article 8 of the UCC and are not held in a securities
account or by any financial intermediary.

(k)     Except for Permitted Liens, each Debtor shall at all times
maintain the liens and Security Interests provided for hereunder as valid and
perfected liens and security interests in the Collateral in favor of the Secured
Parties until this Agreement and the Security Interest hereunder shall be
terminated pursuant to Section 13 hereof. Each Debtor hereby agrees to defend
the same against the claims of any and all persons and entities. Each Debtor
shall safeguard and protect all Collateral for the account of the Secured
Parties. At the request of the Agent, each Debtor will sign and deliver to the
Agent on behalf of the Secured Parties at any time or from time to time one or
more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by the
Agent to be, necessary or desirable to effect the rights and obligations
provided for herein. Without limiting the generality of the foregoing, each
Debtor shall pay all fees, taxes and other amounts necessary to maintain the
Collateral and the Security Interests hereunder, and each Debtor shall obtain
and furnish to the Agent from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain the
priority of the Security Interests hereunder.

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(l)     No Debtor will transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Collateral (except for
non-exclusive licenses granted by a Debtor in its ordinary course of business
and sales of inventory by a Debtor in its ordinary course of business) without
the prior written consent of a Majority in Interest.

(m)     Each Debtor shall keep and preserve its equipment,
inventory and other tangible Collateral in good condition, repair and order and
shall not operate or locate any such Collateral (or cause to be operated or
located) in any area excluded from insurance coverage.

(n)     Each Debtor shall maintain with financially sound and
reputable insurers, insurance with respect to the Collateral, including
Collateral hereafter acquired, against loss or damage of the kinds and in the
amounts customarily insured against by entities of established reputation having
similar properties similarly situated and in such amounts as are customarily
carried under similar circumstances by other such entities and otherwise as is
prudent for entities engaged in similar businesses but in any event sufficient
to cover the full replacement cost thereof.

(o)     Each Debtor shall promptly execute and deliver to the Agent
such further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances and take
such further action as the Agent may from time to time request and may in its
sole discretion deem necessary to perfect, protect or enforce the Secured
Parties' security interest in the Collateral including, without limitation, if
applicable, the execution and delivery of a separate security agreement with
respect to each Debtor's Intellectual Property ("Intellectual Property
Security Agreement") in which the Secured Parties have been granted a
security interest hereunder, substantially in a form reasonably acceptable to
the Agent, which Intellectual Property Security Agreement, other than as stated
therein, shall be subject to all of the terms and conditions hereof.

(p)     Each Debtor shall permit the Agent and its representatives
and agents to inspect the Collateral during normal business hours and upon
reasonable prior notice, and to make copies of records pertaining to the
Collateral as may be reasonably requested by the Agent from time to time.

(q)     Each Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the Collateral.

(r)     Each Debtor shall promptly notify the Secured Parties in
sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Collateral and of any other information received by such
Debtor that may materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Parties hereunder.

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(s)     Except in the ordinary course of business, no Debtor may
consign any of its inventory or sell any of its inventory on bill and hold, sale
or return, sale on approval, or other conditional terms of sale without the
consent of the Agent which shall not be unreasonably withheld.

(t)     All information heretofore, herein or hereafter supplied to
the Secured Parties by or on behalf of any Debtor with respect to the Collateral
is accurate and complete in all material respects as of the date furnished.

(u)     The Debtors shall at all times preserve and keep in full
force and effect their respective valid existence and good standing and any
rights and franchises material to its business.

(v)     No Debtor may relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to the
Secured Parties and so long as, at the time of such written notification, such
Debtor provides any financing statements or fixture filings necessary to perfect
and continue the perfection of the Security Interests granted and evidenced by
this Agreement.

(w)     Each Debtor was organized and remains organized solely
under the laws of the state set forth next to such Debtor's name in Schedule
D attached hereto, which Schedule D sets forth each Debtor's
organizational identification number or, if any Debtor does not have one, states
that one does not exist.

(x)     (i) The actual name of each Debtor is the name set forth in
Schedule D attached hereto; (ii) no Debtor has any trade names except as
set forth on Schedule E attached hereto; (iii) no Debtor has used any
name other than that stated in the preamble hereto or as set forth on
Schedule E for the preceding five years; and (iv) no entity has merged
into any Debtor or been acquired by any Debtor within the past five years except
as set forth on Schedule E.

(y)     No Debtor will change its name, type of organization,
jurisdiction of organization, organizational identification number (if it has
one), legal or corporate structure, or identity, or add any new fictitious name
unless it provides at least 30 days prior written notice to the Secured Parties
of such change and, at the time of such written notification, such Debtor
provides any financing statements or fixture filings necessary to perfect and
continue the perfection of the Security Interests granted and evidenced by this
Agreement.

(z)     At any time and from time to time that any Collateral
consists of instruments, certificated securities or other items that require or
permit possession by the secured party to perfect the security interest created
hereby, the applicable Debtor shall deliver such Collateral to the Agent.

(aa)     Each Debtor shall cause each subsidiary of such Debtor to
immediately become a party hereto (an "Additional Debtor"), by executing
and delivering an Additional Debtor Joinder in substantially the form of Annex A attached
hereto and comply with the provisions hereof applicable to the Debtors.
Concurrent therewith, the Additional Debtor shall deliver replacement schedules
for, or supplements to all other schedules to (or referred to in) this
Agreement, as applicable, which replacement schedules shall supersede, or
supplements shall modify, the schedules then in effect. The Additional Debtor
shall also deliver such opinions of counsel, authorizing resolutions, good
standing certificates, incumbency certificates, organizational documents,
financing statements and other information and documentation as the Agent may
reasonably request. Upon delivery of the foregoing to the Agent, the Additional
Debtor shall be and become a party to this Agreement with the same rights and
obligations as the Debtors, for all purposes hereof as fully and to the same
extent as if it were an original signatory hereto and shall be deemed to have
made the representations, warranties and covenants set forth herein as of the
date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the "Debtors" shall be deemed to include each Additional
Debtor.

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(bb)     Each Debtor shall vote the Pledged Securities to comply
with the covenants and agreements set forth herein and in the Notes.

(cc)     Each Debtor shall register the pledge of the applicable
Pledged Securities on the books of such Debtor. Each Debtor shall notify each
issuer of Pledged Securities to register the pledge of the applicable Pledged
Securities in the name of the Secured Parties on the books of such issuer.

(dd)     In the event that, upon an occurrence of an Event of
Default, Agent shall sell all or any of the Pledged Securities to another party
or parties (herein called the "Transferee") or shall purchase or retain
all or any of the Pledged Securities, each Debtor shall, to the extent
applicable: (i) deliver to Agent or the Transferee, as the case may be, the
articles of incorporation, bylaws, minute books, stock certificate books,
corporate seals, deeds, leases, indentures, agreements, evidences of
indebtedness, books of account, financial records and all other Organizational
Documents and records of the Debtors and their direct and indirect subsidiaries;
(ii) use its best efforts to obtain resignations of the persons then serving as
officers and directors of the Debtors and their direct and indirect
subsidiaries, if so requested; and (iii) use its best efforts to obtain any
approvals that are required by any governmental or regulatory body in order to
permit the sale of the Pledged Securities to the Transferee or the purchase or
retention of the Pledged Securities by Agent and allow the Transferee or Agent
to continue the business of the Debtors and their direct and indirect
subsidiaries.

5.     Effect of Pledge on Certain Rights. If any of the
Collateral subject to this Agreement consists of nonvoting equity or ownership
interests (regardless of class, designation, preference or rights) that may be
converted into voting equity or ownership interests upon the occurrence of
certain events (including, without limitation, upon the transfer of all or any
of the other stock or assets of the issuer), it is agreed that the pledge of
such equity or ownership interests pursuant to this Agreement or the enforcement
of any of Agent's rights hereunder shall not be deemed to be the type of event
which would trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.

6.     Defaults. The following events shall be "Events of
Default":

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(a)     The occurrence of an Event of Default as defined under the
Notes;

(b)     Any representation or warranty of any Debtor in this
Agreement shall prove to have been incorrect in any material respect when
made;

(c)     The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor of notice
of such failure by or on behalf of a Secured Party; or

(d)     If any provision of this Agreement shall at any time for
any reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any Debtor, or a proceeding shall be commenced by
any Debtor, or by any governmental authority having jurisdiction over any
Debtor, seeking to establish the invalidity or unenforceability thereof, or any
Debtor shall deny that any Debtor has any liability or obligation purported to
be created under this Agreement.

7.     Duty To Hold In Trust.

(a)     Upon the occurrence of any Event of Default and at any time
thereafter, each Debtor shall, upon receipt of any revenue, income, dividend,
interest or other sums subject to the Security Interests, whether payable
pursuant to the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Parties and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Parties, pro-rata
in proportion to their respective then-currently outstanding principal amount of
Notes for application to the satisfaction of the Obligations (and if any
Debenture is not outstanding, pro-rata in proportion to the initial purchases of
the remaining Notes).

(b)     If any Debtor shall become entitled to receive or shall
receive any securities or other property (including, without limitation, shares
of Pledged Securities or instruments representing Pledged Securities acquired
after the date hereof, or any options, warrants, rights or other similar
property or certificates representing a dividend, or any distribution in
connection with any recapitalization, reclassification or increase or reduction
of capital, or issued in connection with any reorganization of such Debtor or
any of its direct or indirect subsidiaries) in respect of the Pledged Securities
(whether as an addition to, in substitution of, or in exchange for, such Pledged
Securities or otherwise), such Debtor agrees to (i) accept the same as the agent
of the Secured Parties; (ii) hold the same in trust on behalf of and for the
benefit of the Secured Parties; and (iii) to deliver any and all certificates or
instruments evidencing the same to Agent on or before the close of business on
the fifth business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be held by
Agent subject to the terms of this Agreement as Collateral.

8.     Rights and Remedies Upon Default.

(a)     Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Parties, acting through the Agent, shall have the right
to exercise all of the remedies conferred hereunder and under the Notes, and the
Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation,
the Agent, for the benefit of the Secured Parties, shall have the following
rights and powers:

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(i)     The Agent shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and each Debtor shall assemble the Collateral and
make it available to the Agent at places which the Agent shall reasonably
select, whether at such Debtor's premises or elsewhere, and make available to
the Agent, without rent, all of such Debtor's respective premises and facilities
for the purpose of the Agent taking possession of, removing or putting the
Collateral in saleable or disposable form.

(ii)     Upon notice to the Debtors by Agent, all rights of each
Debtor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise and all rights of each Debtor to receive the
dividends and interest which it would otherwise be authorized to receive and
retain, shall cease. Upon such notice, Agent shall have the right to receive,
for the benefit of the Secured Parties, any interest, cash dividends or other
payments on the Collateral and, at the option of Agent, to exercise in such
Agent's discretion all voting rights pertaining thereto. Without limiting the
generality of the foregoing, Agent shall have the right (but not the obligation)
to exercise all rights with respect to the Collateral as it were the sole and
absolute owner thereof, including, without limitation, to vote and/or to
exchange, at its sole discretion, any or all of the Collateral in connection
with a merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or any Debtor or any of its
direct or indirect subsidiaries.

(iii)     The Agent shall have the right to operate the business of
each Debtor using the Collateral and shall have the right to assign, sell, lease
or otherwise dispose of and deliver all or any part of the Collateral, at public
or private sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Agent may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to any Debtor or right of redemption of a
Debtor, which are hereby expressly waived. Upon each such sale, lease,
assignment or other transfer of Collateral, the Agent, for the benefit of the
Secured Parties, may, unless prohibited by applicable law which cannot be
waived, purchase all or any part of the Collateral being sold, free from and
discharged of all trusts, claims, right of redemption and equities of any
Debtor, which are hereby waived and released.

(iv)     The Agent shall have the right (but not the obligation) to
notify any account debtors and any obligors under instruments or accounts to
make payments directly to the Agent, on behalf of the Secured Parties, and to
enforce the Debtors' rights against such account debtors and obligors.

(v)     The Agent, for the benefit of the Secured Parties, may (but
is not obligated to) direct any financial intermediary or any other person or
entity holding any investment property to transfer the same to the Agent, on
behalf of the Secured Parties, or its designee.

-11- 




(vi)     The Agent may (but is not obligated to) transfer any or
all Intellectual Property registered in the name of any Debtor at the United
States Patent and Trademark Office and/or Copyright Office into the name of the
Secured Parties or any designee or any purchaser of any Collateral.

(b)     The Agent shall comply with any applicable law in
connection with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral. The Agent may sell the Collateral without giving any warranties and
may specifically disclaim such warranties. If the Agent sells any of the
Collateral on credit, the Debtors will only be credited with payments actually
made by the purchaser. In addition, each Debtor waives any and all rights that
it may have to a judicial hearing in advance of the enforcement of any of the
Agent's rights and remedies hereunder, including, without limitation, its right
following an Event of Default to take immediate possession of the Collateral and
to exercise its rights and remedies with respect thereto.

(c)     For the purpose of enabling the Agent to further exercise
rights and remedies under this Section 8 or elsewhere provided by agreement or
applicable law, each Debtor hereby grants to the Agent, for the benefit of the
Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable
without payment of royalty or other compensation to such Debtor) to use, license
or sublicense following an Event of Default, any Intellectual Property now owned
or hereafter acquired by such Debtor, and wherever the same may be located, and
including in such license access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof.

9.     Applications of Proceeds. The proceeds of any such
sale, lease or other disposition of the Collateral hereunder or from payments
made on account of any insurance policy insuring any portion of the Collateral
shall be applied first, to the expenses of retaking, holding, storing,
processing and preparing for sale, selling, and the like (including, without
limitation, any taxes, fees and other costs incurred in connection therewith) of
the Collateral, to the reasonable attorneys' fees and expenses incurred by the
Agent in enforcing the Secured Parties' rights hereunder and in connection with
collecting, storing and disposing of the Collateral, and then to satisfaction of
the Obligations pro rata among the Secured Parties (based on then-outstanding
principal amounts of Notes at the time of any such determination), and to the
payment of any other amounts required by applicable law, after which the Secured
Parties shall pay to the applicable Debtor any surplus proceeds. To the extent
permitted by applicable law, each Debtor waives all claims, damages and demands
against the Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due solely to the gross negligence or willful
misconduct of the Secured Parties as determined by a final judgment (not subject
to further appeal) of a court of competent jurisdiction.

10.     Costs and Expenses. Each Debtor agrees to pay all
reasonable out-of-pocket fees, costs and expenses incurred in connection with
any filing required hereunder, including without limitation, any financing
statements pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Agent. The Debtors shall also pay all other claims
and charges which in the reasonable opinion of the Agent is reasonably likely to
prejudice, imperil or otherwise affect the Collateral or the Security Interests
therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
the Agent, for the benefit of the Secured Parties, may incur in connection with
(i) the enforcement of this Agreement, (ii) the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the Collateral,
or (iii) the exercise or enforcement of any of the rights of the Secured Parties
under the Notes. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Notes and shall bear interest at the Default Rate.

-12- 




11.     Responsibility for Collateral. The Debtors assume
all liabilities and responsibility in connection with all Collateral, and the
Obligations shall in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Collateral or its unavailability for
any reason. Without limiting the generality of the foregoing, (a) neither the
Agent nor any Secured Party (i) has any duty (either before or after an Event of
Default) to collect any amounts in respect of the Collateral or to preserve any
rights relating to the Collateral, or (ii) has any obligation to clean-up or
otherwise prepare the Collateral for sale, and (b) each Debtor shall remain
obligated and liable under each contract or agreement included in the Collateral
to be observed or performed by such Debtor thereunder. Neither the Agent nor any
Secured Party shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt by the
Agent or any Secured Party of any payment relating to any of the Collateral, nor
shall the Agent or any Secured Party be obligated in any manner to perform any
of the obligations of any Debtor under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Agent or any Secured Party in respect of the Collateral or as to
the sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Agent or to which the Agent or any Secured Party may be entitled
at any time or times.

12.     Security Interests Absolute. All rights of the
Secured Parties and all obligations of the Debtors hereunder, shall be absolute
and unconditional, irrespective of: (a) any lack of validity or enforceability
of this Agreement, the Notes or any agreement entered into in connection with
the foregoing, or any portion hereof or thereof; (b) any change in the time,
manner or place of payment or performance of, or in any other term of, all or
any of the Obligations, or any other amendment or waiver of or any consent to
any departure from the Notes or any other agreement entered into in connection
with the foregoing; (c) any exchange, release or nonperfection of any of the
Collateral, or any release or amendment or waiver of or consent to departure
from any other collateral for, or any guarantee, or any other security, for all
or any of the Obligations; (d) any action by the Secured Parties to obtain,
adjust, settle and cancel in its sole discretion any insurance claims or matters
made or arising in connection with the Collateral; or (e) any other circumstance
which might otherwise constitute any legal or equitable defense available to a
Debtor, or a discharge of all or any part of the Security Interests granted
hereby. Until the Obligations shall have been paid and performed in full, the
rights of the Secured Parties shall continue even if the Obligations are barred
for any reason, including, without limitation, the running of the statute of
limitations or bankruptcy. Each Debtor expressly waives presentment, protest,
notice of protest, demand, notice of nonpayment and demand for performance. In
the event that at any time any transfer of any Collateral or any payment
received by the Secured Parties hereunder shall be deemed by final order of a
court of competent jurisdiction to have been avoidable preference or fraudulent conveyance under the
bankruptcy or insolvency laws of the United States or any similar statute, or
shall be deemed to be otherwise due to any party other than the Secured Parties,
then, in any such event, each Debtor's obligations hereunder shall survive
cancellation of this Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Agreement, but shall remain a
valid and binding obligation enforceable in accordance with the terms and
provisions hereof. Each Debtor waives all right to require the Secured Parties
to proceed against any other person or entity or to apply any Collateral which
the Secured Parties may hold at any time, or to marshal assets, or to pursue any
other remedy. Each Debtor waives any defense arising by reason of the
application of the statute of limitations to any obligation secured hereby.

-13- 




13.     Term of Agreement. This Agreement and the Security
Interests shall terminate on the date on which all payments under the Notes have
been indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Debtors contained in
this Agreement (including, without limitation, Annex B hereto) shall
survive and remain operative and in full force and effect regardless of the
termination of this Agreement.

14.     Power of Attorney; Further Assurances.

(a)     Each Debtor authorizes the Agent, and does hereby make,
constitute and appoint the Agent and its officers, agents, successors or assigns
with full power of substitution, as such Debtor's true and lawful
attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after
the occurrence and during the continuance of an Event of Default, (i) endorse
any note, checks, drafts, money orders or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Agent; (ii) to
sign and endorse any financing statement pursuant to the UCC or any invoice,
freight or express bill, bill of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
accounts, and other documents relating to the Collateral; (iii) to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (iv) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; (v) to transfer any Intellectual Property or provide licenses
respecting any Intellectual Property; and (vi) generally, at the option of the
Agent, and at the expense of the Debtors, at any time, or from time to time, to
execute and deliver any and all documents and instruments and to do all acts and
things which the Agent deems necessary to protect, preserve and realize upon the
Collateral and the Security Interests granted therein in order to effect the
intent of this Agreement and the Notes all as fully and effectually as the
Debtors might or could do; and each Debtor hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. This power of
attorney is coupled with an interest and shall be irrevocable for the term of
this Agreement and thereafter as long as any of the Obligations shall be
outstanding.

(b)     On a continuing basis, each Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the proper
filing and recording agencies in any jurisdiction, including, without
limitation, the jurisdictions indicated on Schedule C attached hereto,
all such instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the Agent, to perfect the
Security Interests granted hereunder and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security
interest in all the Collateral under the UCC.

-14- 




(c)     Each Debtor hereby irrevocably appoints the Agent as such
Debtor's attorney-in-fact, with full authority in the place and instead of such
Debtor and in the name of such Debtor, from time to time in the Agent's
discretion, to take any action and to execute any instrument which the Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
including the filing, in its sole discretion, of one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of such Debtor where permitted by law, which
financing statements may (but need not) describe the Collateral as "all assets"
or "all personal property" or words of like import, and ratifies all such
actions taken by the Agent. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Agreement and thereafter as long
as any of the Obligations shall be outstanding.

15.     Notices. All notices, requests, demands and other
communications hereunder shall be subject to the notice provision of the
SPA.

16.     Other Security. To the extent that the Obligations
are now or hereafter secured by property other than the Collateral or by the
guarantee, endorsement or property of any other person, firm, corporation or
other entity, then the Agent shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.

17.     Appointment of Agent. The Secured Parties hereby
appoint Euro Pacific Capital Inc. to act as their agent ("Agent") for
purposes of exercising any and all rights and remedies of the Secured Parties
hereunder. The Agent shall have the rights, responsibilities and immunities set
forth in Annex B hereto.

18.     Miscellaneous.

(a)     This Agreement, together with the exhibits and schedules
hereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into this Agreement and the exhibits and schedules hereto. No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed, in the case of an amendment, by the
Debtors and the Secured Parties or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought.

(b)     No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.

(c)     This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company
and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of each Secured Party (other than by merger). Any Secured
Party may assign any or all of its rights under this Agreement to any Person to
whom such Secured Party assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of this Agreement that apply to the "Secured
Parties."

-15- 




(d)     Each party, including the Guarantors, shall take such
further action and execute and deliver such further documents as may be
necessary or appropriate in order to carry out the provisions and purposes of
this Agreement.

(e)     This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in the Borough of Manhatten, State of New York, and
expressly consent to the jurisdiction and venue of the Superior Court of
California, sitting in San Diego County and the United States District Court for
the District of New Jersey sitting in San Diego, California for the adjudication
of any civil action asserted pursuant to the Transaction Documents. In any legal
proceeding arising out of the this Agreement, the prevailing party shall be
entitled to recover from the other party their costs incurred in connection with
the proceeding, including without limitation attorneys fees and costs 

(f)     All Debtors shall jointly and severally be liable for the
obligations of each Debtor to the Secured Parties hereunder.

(g)     To the extent that the grant of the security interest in
the Collateral and the enforcement of the terms hereof require the consent,
approval or action of any partner or member, as applicable, of any Debtor or any
direct or indirect subsidiary of any Debtor or compliance with any provisions of
any of the Organizational Documents, the Debtors hereby grant such consent and
approval and waive any such noncompliance with the terms of said documents.

(h)     This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

[SIGNATURE PAGES FOLLOW]

-16- 




IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the day and year first above written.

COMPANY: 

CHILE MINING TECHNOLOGIES INC.

By:
____________________________
       Name:

       Title: Chief Executive Officer 

SECURED PARTIES: 

_____________________________________


By:
____________________________
      
Name: 
       Its: 

-17- 




ANNEX A 
to 
SECURITY 
AGREEMENT


FORM OF ADDITIONAL DEBTOR JOINDER 

Security Agreement dated as of [________, 200__ made by
[_____________ and its subsidiaries party thereto from time to time, as Debtors
to and in favor of the Secured Parties identified therein (the "Security
Agreement") 

Reference is made to the Security Agreement as defined above;
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in, or by reference in, the Security Agreement.


The undersigned hereby agrees that upon delivery of this
Additional Debtor Joinder to the Secured Parties referred to above, the
undersigned shall (a) be an Additional Debtor under the Security Agreement, (b)
have all the rights and obligations of the Debtors under the Security Agreement
as fully and to the same extent as if the undersigned was an original signatory
thereto and (c) be deemed to have made the representations and warranties set
forth therein as of the date of execution and delivery of this Additional Debtor
Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED
SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL
AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT. 

Attached hereto are supplemental and/or replacement Schedules
to the Security Agreement, as applicable. 

An executed copy of this Joinder shall be delivered to the
Secured Parties, and the Secured Parties may rely on the matters set forth
herein on or after the date hereof. This Joinder shall not be modified, amended
or terminated without the prior written consent of the Secured Parties. 

-18- 




IN WITNESS WHEREOF, the undersigned has caused this Joinder to
be executed in the name and on behalf of the undersigned. 

[Name of Additional Debtor] 

By: 
Name: 
Title: 

Address: 

Dated: 

-19- 




ANNEX B 
to 
SECURITY 
AGREEMENT


THE AGENT 

1.     Appointment. The Secured Parties (all
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Security Agreement to which this Annex B is
attached (the "Agreement")), by their acceptance of the benefits of the
Agreement, hereby designate EURO PACIFIC CAPTIAL, INC. ("Agent") as the
Agent to act as specified herein and in the Agreement. Each Secured Party shall
be deemed irrevocably to authorize the Agent to take such action on its behalf
under the provisions of the Agreement and any other Transaction Document (as
such term is defined in the SPA) and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto. The Agent may perform any of its duties hereunder
by or through its agents or employees. 

2.     Nature of Duties. The Agent shall have no
duties or responsibilities except those expressly set forth in the Agreement.
Neither the Agent nor any of its partners, members, shareholders, officers,
directors, employees or agents shall be liable for any action taken or omitted
by it as such under the Agreement or hereunder or in connection herewith or
therewith, be responsible for the consequence of any oversight or error of
judgment or answerable for any loss, unless caused solely by its or their gross
negligence or willful misconduct as determined by a final judgment (not subject
to further appeal) of a court of competent jurisdiction. The duties of the Agent
shall be mechanical and administrative in nature; the Agent shall not have by
reason of the Agreement or any other Transaction Document a fiduciary
relationship in respect of any Debtor or any Secured Party; and nothing in the
Agreement or any other Transaction Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Agent any obligations in
respect of the Agreement or any other Transaction Document except as expressly
set forth herein and therein. 

3.     Lack of Reliance on the Agent. Independently and
without reliance upon the Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such Secured Party's investment in the Debtors,
the creation and continuance of the Obligations, the transactions contemplated
by the Transaction Documents, and the taking or not taking of any action in
connection therewith, and (ii) its own appraisal of the creditworthiness of the
Company and its subsidiaries, and of the value of the Collateral from time to
time, and the Agent shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Secured Party with any credit, market or
other information with respect thereto, whether coming into its possession
before any Obligations are incurred or at any time or times thereafter. The
Agent shall not be responsible to the Debtors or any Secured Party for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith, or
for the execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Agreement or any other
Transaction Document, or for the financial condition of the Debtors or the value
of any of the Collateral, or be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
the Agreement or any other Transaction Document, or the financial condition of
the Debtors, or the value of any of the Collateral, or the existence or possible
existence of any default or Event of Default under the Agreement, the Notes or
any of the other Transaction Documents. 

-20- 




4.     Certain Rights of the Agent. The Agent shall have the
right to take any action with respect to the Collateral, on behalf of all of the
Secured Parties. To the extent practical, the Agent shall request instructions
from the Secured Parties with respect to any material act or action (including
failure to act) in connection with the Agreement or any other Transaction
Document, and shall be entitled to act or refrain from acting in accordance with
the instructions of Secured Parties holding a majority in principal amount of
Notes (based on then-outstanding principal amounts of Notes at the time of any
such determination); if such instructions are not provided despite the Agent's
request therefor, the Agent shall be entitled to refrain from such act or taking
such action, and if such action is taken, shall be entitled to appropriate
indemnification from the Secured Parties in respect of actions to be taken by
the Agent; and the Agent shall not incur liability to any person or entity by
reason of so refraining. Without limiting the foregoing, (a) no Secured Party
shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting hereunder in accordance with the terms of
the Agreement or any other Transaction Document, and the Debtors shall have no
right to question or challenge the authority of, or the instructions given to,
the Agent pursuant to the foregoing and (b) the Agent shall not be required to
take any action which the Agent believes (i) could reasonably be expected to
expose it to personal liability or (ii) is contrary to this Agreement, the
Transaction Documents or applicable law. 

5.     Reliance. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
the proper person or entity, and, with respect to all legal matters pertaining
to the Agreement and the other Transaction Documents and its duties thereunder,
upon advice of counsel selected by it and upon all other matters pertaining to
this Agreement and the other Transaction Documents and its duties thereunder,
upon advice of other experts selected by it. Anything to the contrary
notwithstanding, the Agent shall have no obligation whatsoever to any Secured
Party to assure that the Collateral exists or is owned by the Debtors or is
cared for, protected or insured or that the liens granted pursuant to the
Agreement have been properly or sufficiently or lawfully created, perfected, or
enforced or are entitled to any particular priority. 

6.     Indemnification. To the extent that the Agent
is not reimbursed and indemnified by the Debtors, the Secured Parties will
jointly and severally reimburse and indemnify the Agent, in proportion to their
initially purchased respective principal amounts of Notes, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder or under the Agreement or any other Transaction
Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a
final judgment (not subject to further appeal) of a court of competent
jurisdiction to have resulted solely from the Agent's own gross negligence or
willful misconduct. Prior to taking any action hereunder as Agent, the Agent may
require each Secured Party to deposit with it sufficient sums as it determines
in good faith is necessary to protect the Agent for costs and expenses
associated with taking such action. 

-21- 




7.     Resignation by the Agent.

(a)     The Agent may resign from the performance of all its
functions and duties under the Agreement and the other Transaction Documents at
any time by giving 30 days' prior written notice (as provided in the Agreement)
to the Debtors and the Secured Parties. Such resignation shall take effect upon
the appointment of a successor Agent pursuant to clauses (b) and (c) below. 

(b)     Upon any such notice of resignation, the Secured Parties,
acting by a Majority in Interest, shall appoint a successor Agent hereunder.


(c)     If a successor Agent shall not have been so appointed
within said 30-day period, the Agent shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Secured Parties appoint a
successor Agent as provided above. If a successor Agent has not been appointed
within such 30-day period, the Agent may petition any court of competent
jurisdiction or may interplead the Debtors and the Secured Parties in a
proceeding for the appointment of a successor Agent, and all fees, including,
but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors
on demand. 

8.     Rights with respect to Collateral. Each
Secured Party agrees with all other Secured Parties and the Agent (i) that it
shall not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other agreement or
otherwise (other than pursuant to this Agreement), or take or institute any
action against the Agent or any of the other Secured Parties in respect of the
Collateral or its rights hereunder (other than any such action arising from the
breach of this Agreement) and (ii) that such Secured Party has no other rights
with respect to the Collateral other than as set forth in this Agreement and the
other Transaction Documents. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties and
obligations under the Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of the Agreement including this Annex
B shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent. 

-22-