Unassociated Document


    EXECUTION
VERSION

    


    SECURITY
AGREEMENT

     

    SECURITY
AGREEMENT, dated as of July 14, 2010 (this “Agreement”), by Desert Hawk
Gold Corp., a Nevada corporation ("Desert Hawk") and Blue Fin
Capital, Inc., a Utah corporation ("Blue Fin") and wholly-owned
subsidiary of Desert Hawk, in favor of DMRJ Group I, LLC, a Delaware limited
liability company (the “Secured
Party”).  Desert Hawk and Blue Fin are referred to herein as,
collectively, the "Pledgors" and, individually, a
"Pledgor".

     

    WITNESSETH:

    


    WHEREAS,
Desert Hawk has entered into an Investment Agreement, dated as of the date
hereof (as amended, modified or supplemented from time to time in accordance
with the terms thereof, the “Investment Agreement”), with
the Secured Party, pursuant to which the Secured Party has agreed to extend
credit subject to the terms and conditions thereof;

     

    WHEREAS,
the obligation of the Secured Party to extend any credit to Desert Hawk pursuant
to the Investment Agreement is conditioned upon, among other things, the
execution and delivery of this Agreement by each Pledgor; Blue Fin is a wholly
owned subsidiary of Desert Hawk and will derive substantial benefit from the
extension of credit to Desert Hawk under the Investment Agreement;
and

     

    WHEREAS,
each Pledgor desires to enter into this Agreement to induce the Secured Party to
extend credit pursuant to the Investment Agreement;

     

    NOW,
THEREFORE, in consideration of the premises and the mutual agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgors and the Secured Party
agree as follows:

     

    1.            Grant of Security
Interest.

     

    (a)          Grant
Generally.  To secure payment and performance of the
Obligations (as defined below), each Pledgor hereby grants, assigns and pledges
to Secured Party a security interest in all property and interests in all right,
title and interest in or to any and all property of such Pledgor, whether now
owned or hereafter acquired or existing, and wherever located (together with all
other collateral security for the Obligations at any time granted to or held or
acquired by Secured Party, collectively, the “Collateral”), including,
without limitation, the following:

     

    (i)           all
Accounts;

     

    (ii)          all
Equipment;

     

    (iii)         all
General Intangibles;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (iv)         all
Inventory;

     

    (v)          all
Investment Property;

     

    (vi)         all
cash and Deposit Accounts and all lock boxes and lock box accounts;

     

    (vii)        all
As-Extracted Collateral;

     

    (viii)       all
letters of credit and Letter of Credit Rights;

     

    (ix)         all
Commercial Tort Claims;

     

    (x)          all
Instruments;

     

    (xi)         all
Fixtures;

     

    (xii)        all
Chattel Paper;

     

    (xiii)       all
Documents; and

     

    (xiv)       all
substitutions for and replacements, proceeds, insurance proceeds, Supporting
Obligations and products of any and all of the foregoing, together with all
books and records, customer lists, computer files, programs and other computer
materials and records related thereto.

     

    (b)           Limitation.  Notwithstanding
anything to the contrary contained in Section 1(a) above,
the types or items of Collateral described in such Section 1(a) shall
not include any right or interest in any contract, permit or application
covering real or personal property of a Pledgor, as such, if under the terms of
such contract, permit or application or applicable law with respect thereto, the
valid grant of a security interest to Secured Party is prohibited as a matter of
law or under the terms thereof and such prohibition has not been or is not
waived or the consent of the other party to such contract, permit, or
application has not been or is not otherwise obtained; provided, however, that the
foregoing exclusion shall in no way be construed (i) to apply if any such
prohibition is unenforceable under the UCC or other applicable law or (ii) so as
to limit, impair or otherwise affect Secured Party’s continuing security
interest in upon any rights or interests of such Pledgor in or to monies due or
to become due under any such contract, permit or application.

     

    
      
        
        

      

      
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    (c)          Perfection of Security
Interests.

     

    (i)           Each
Pledgor hereby authorizes Secured Party (or its agent) to file, and if requested
will deliver to Secured Party (as appropriate), all financing statements and
other documents and recordings and take such other actions as may from time to
time be reasonably requested by Secured Party in order to maintain a first
perfected security interest in and, if applicable, Control of, the Collateral
owned by such Pledgor.  From time to time upon the request of a
Pledgor, the Secured Party shall deliver to Desert Hawk all financing statements
and other documents and recordings filed by Secured Party with respect to the
Collateral of such Pledgor.  Any financing statement or other
recording filed by Secured Party may be filed in any filing office in
any  jurisdiction deemed appropriate by Secured Party and may (A)
indicate such Pledgor's Collateral (1) as "all assets" or "all property" of such
Pledgor or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the UCC or
such jurisdiction, or (2) by any other description which reasonably approximates
the description contained in this Agreement, and (B) contain any other
information required by part 5 of Article 9 of the UCC for the sufficiency or
filing office acceptance of any financing statement or amendment, including (1)
the type of organization and any organization identification number issued to
such Pledgor, and (2) in the case of a financing statement filed as a fixture
filing or indicating such Pledgor’s Collateral as as-extracted collateral, a
sufficient description of real property to which the Collateral
relates.  Each Pledgor also agrees to furnish any such information to
Secured Party promptly upon request.  Each Pledgor also ratifies its
authorization for Secured Party to have filed in any jurisdiction deemed
appropriate by Secured Party any initial financing statements or amendments
thereto if filed prior to the date hereof.  In no event shall a
Pledgor at any time file, or permit or cause to be filed, any correction
statement or termination statement with respect to any such financing statement,
fixture filing or other filing or recording (or amendment or continuation with
respect to any thereof) naming Secured Party or its designee as secured party
and Pledgor as debtor prior to the termination of this Agreement in accordance
with Section 7 hereof; provided, however, that each
Pledgor may file or cause to be filed any termination statement on or after the
termination of this Agreement.

     

    (ii)           Each
Pledgor shall take any other actions reasonably requested by Secured Party from
time to time (which action shall be taken promptly following such request) to
cause the attachment and perfection of, and the ability of Secured Party to
enforce, the security interest of Secured Party in the Collateral.

     

    (d)         
 Maximum
Liability of Blue Fin.  Notwithstanding anything to the
contrary contained herein, the maximum liability of Blue Fin hereunder shall in
no event exceed such amount as would render Blue Fin insolvent under applicable
federal and state laws relating to the insolvency of debtors.

     

    2.            Certain Covenants Relating
to Collateral. Each Pledgor covenants that, from the date of this
Agreement until such time as this Agreement has been terminated:

     

    (a)           Liens.  Such
Pledgor shall at all times (i) be the sole owner or lessee of those items of
Collateral in which such Pledgor purports to be the sole owner or lessee, or
otherwise possess the rights in all other items of Collateral in which such
Pledgor purports to possess a right, in each case subject to such Liens as are
permitted to exist in accordance with the Investment Agreement, and (ii) defend
the Collateral against the claims and demands of all persons except for Liens as
defined in, and permitted pursuant to Section 6.02 of, the Investment
Agreement.

     

    (b)           Compliance.  Such
Pledgor shall comply in all material respects with the requirements of all
agreements by which it is legally bound relating to premises where any
Collateral is located.

     

    (c)           No Change of
Name.  Such Pledgor shall give Secured Party twenty (20) days’
prior written notice of any change to its name.

     

    
      
        
        

      

      
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    (d)           No Change of Chief Executive
Office.  Such Pledgor shall give Secured Party twenty (20)
days’ prior written notice of any change to its chief executive office or its
mailing address.

     

    (e)           No Change of
Organization.  Such Pledgor shall give Secured Party twenty
(20) days’ prior written notice of any change to its type of organization,
jurisdiction of organization or other legal structure.

     

    (f)           Records,
etc.  Such Pledgor will maintain books and records that are
complete and accurate in all material respects with respect to the Collateral
owned or leased by it or to which it has use rights, and furnish to Secured
Party such reports relating to such Collateral as Secured Party shall from time
to time reasonably request.

     

    (g)           Certain  Matters
Regarding Receivables.  Such Pledgor shall collect and enforce,
at such Pledgor’s sole expense, all amounts due or hereafter due to such Pledgor
under the Receivables owned by it.  Such Pledgor will not make or
agree to make any discount, credit or other reduction in the original amount
owing on a Receivable or accept in satisfaction of a Receivable less than the
original amount thereof, except that, prior to the occurrence of an Event of
Default, such Pledgor may reduce the amount of Accounts arising from the sale of
Inventory in accordance with such policies as are approved from time to time by
Secured Party in its reasonable discretion.  Such Pledgor shall
deliver to Secured Party promptly upon its request after the occurrence and
during the continuation of an Event of Default duplicate invoices with respect
to each Account owned by it bearing such language of assignment as Secured Party
reasonably shall specify.

     

    (h)           Equipment.  Such
Pledgor shall not permit any Equipment to become a fixture with respect to real
property other than Mortgaged Real Property, or to become an accession with
respect to other personal property with respect to which real property or
personal property the Secured Party does not have a Lien.  Such
Pledgor shall not, without Secured Party's prior written consent, alter or
remove any identifying symbol or number on any of such Pledgor’s Equipment
constituting Collateral.  Nothing contained in this clause (h) shall
be construed to limit the generality of the provisions of Section 1(c)(ii)
hereof.

     

    (i)           Title
Vehicles.  Without limiting the generality of the provisions of
Section
1(c)(ii) hereof, such Pledgor shall give Secured Party notice of its
acquisition of any vehicle covered by a certificate of title and, promptly
following the request of Secured Party, deliver to Secured Party the original of
any vehicle title certificate and provide and/or file all other documents or
instruments necessary to have the Lien of Secured Party noted or recorded on any
such certificate or with the appropriate state office.

     

    
      
        
        

      

      
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    (j)           Delivery of Instruments,
Securities, Chattel Paper and Documents. If (and as from time to time)
requested by Secured Party, such Pledgor shall (i) deliver to Secured Party
contemporaneously with the execution and delivery of this Agreement the
originals of all Chattel Paper, Investment Property and Instruments constituting
Collateral owned by it (if any then exist) or, if applicable, deliver Control
thereof pursuant to an agreement in form and substance acceptable to Secured
Party, (ii) hold on behalf of the Secured Party upon receipt and immediately
thereafter deliver to Secured Party any such additional Chattel Paper,
Investment Property and Instruments hereinafter constituting Collateral, (iii)
upon Secured Party’s reasonable request, deliver to Secured Party any Document
evidencing or constituting Collateral and (iv) upon Secured Party’s request,
deliver to Secured Party a duly executed amendment or supplement to this
Agreement, in form and substance reasonably acceptable to Secured Party,
pursuant to which such Pledgor will pledge (or perfect Secured Party's security
interest in) such additional Collateral.  Such Pledgor hereby agrees
that all additional Collateral owned by it set forth in such amendment or
supplement shall be considered to be part of the Collateral.  Nothing
contained in this clause (j) shall be construed to limit the generality of the
provisions of Section
1(c)(ii) hereof.

     

    (k)           Commercial Tort
Claims.  If such Pledgor shall at any time possess or acquire a
Commercial Tort Claim, such Pledgor shall give prompt written notice thereof
(including a summary description of such claim) to Secured Party and shall,
promptly following the reasonable request of Secured Party, execute and deliver
to Secured Party an amendment or supplement to this Agreement, in form and
substance reasonably acceptable to Secured Party, pursuant to which such Pledgor
shall have granted to Secured Party a first priority security interest in and to
such Commercial Tort Claim.  Nothing contained in this clause (k)
shall be construed to limit the generality of the provisions of Section 1(c)(ii)
hereof.

     

    (l)     
      Letter of Credit
Rights.  If such Plegor is or becomes the beneficiary of a
letter of credit, it shall promptly, and in any event within five Business Days
after becoming a beneficiary, notify Secured Party thereof and, at the
reasonable request of Secured Party, use commercially reasonable efforts to
cause the issuer and/or confirmation bank to (i) consent to the assignment of
any Letter-of-Credit Rights to Secured Party and (ii) agree to direct all
payments thereunder to a Deposit Account that is subject to a deposit account
control agreement in favor of Secured Party, all in form and substance
reasonably satisfactory to Secured Party.  Nothing contained in this
clause (k) shall be construed to limit the generality of the provisions of Section 1(c)(ii)
hereof.

     

    (m)          No
Interference.  Such Pledgor shall not interfere with any right,
power and remedy of Secured Party provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by Secured Party of any one or more of
such rights, powers or remedies.

     

    (n)           Deposit
Accounts.  Such Pledgor shall not establish, maintain or
operate a Deposit Account other than that certain Deposit Account maintained at
Washington Trust Bank that is subject to the deposit account control agreement
in favor of Secured Party and in effect on the date hereof, unless prior to
establishing any such additional Deposit Account the Pledgors (as applicable)
and the financial institution at which such additional Deposit Account is
intended to be established shall have executed and delivered in favor of Secured
Party a deposit account control agreement in form and substance acceptable to
Secured Party.  Nothing contained in this clause (k) shall be
construed to limit the generality of the provisions of Section 1(c)(ii)
hereof.

     

    
      
        
        

      

      
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    (o)           Lock
Boxes.  If requested by Secured Party, such Pledgor shall
establish lock box service (the "Lock Boxes") with
Washington Trust Bank (or one or more other financial institution as shall be
reasonably requested by Secured Party), which Lock Boxes shall be subject to
lockbox agreements reasonably acceptable to Secured Party and shall be
accompanied by an acknowledgment by the bank where the Lock Box is located of
the Lien of the Secured Party granted hereunder and of irrevocable instructions
to deposit and otherwise transfer or credit all checks and other amounts
delivered thereto (or collected therein or therefrom) to the Deposit Account of
such Pledgor as shall be designated by Secured Party (a “Lock Box
Agreement”).  With respect to each Lock Box that is established
pursuant to this clause (o), each Pledgor shall direct all of its Account
Debtors to forward payments directly to Lock Boxes subject to Lock Box
Agreements; provided, however, that each
Pledgor shall be permitted to direct its Account Debtors to make payments by
wire transfer to a Deposit Account over which Secured Party maintains Control
pursuant to a deposit account control agreement.  Secured Party shall
have access to the Lock Boxes at all times to the exclusion of the Pledgors and
each Pledgor shall take all actions reasonably necessary to grant Secured Party
such access to and Control over such Lock Boxes.  At no time shall any
Pledgor remove any item from a Lock Box without Secured Party’s prior written
consent.  If any Pledgor should refuse or neglect to notify any
Account Debtor to forward payments directly to a Lock Box subject to a Lock Box
Agreement after notice from Secured Party, the Secured Party shall be entitled
to make such notification directly to Account Debtor.  If
notwithstanding the foregoing instructions, any Pledgor receives any proceeds of
any Receivables, such Pledgor shall receive such payments for the benefit of
Secured Party', and shall immediately deposit all cash, checks or other similar
payments related to or constituting payments made in respect of Receivables
received by it to a Deposit Account over which Secured Party maintains Control
pursuant to a deposit account control agreement.

     

    3.            Remedies.

     

    (a)           Remedies
Generally.  Upon the occurrence and during the continuance of
an Event of Default (as defined in the Investment Agreement), (i) Secured Party
shall have the right to exercise any right and remedy provided for herein, under
the UCC and at law or equity generally, including, without limitation, the right
to foreclose the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process; and (ii)
with or without having the Collateral at the time or place of sale, Secured
Party may sell the Collateral, or any part thereof, at public or private sale,
at any time or place, in one or more sales, at such price or prices, and upon
such terms, either for cash, credit or future delivery, as Secured Party may
elect.

     

    4.            Representations
and  Warranties. Each Pledgor hereby
represents and warrants to Secured Party that:

     

    (a)           (i)           Such
Pledgor is a corporation duly organized and validly existing under the laws of
the State of Nevada, in the case of Desert Hawk, and the State of Utah, in the
case of Blue Fin.

     

    (ii)           The
exact legal name of such Pledgor is as set forth on the signature page of this
Agreement.  Except as set forth on Schedule 1(b), Schedule 1(c) and
Schedule 3 to
the Perfection Certificate, such Pledgor has not, during the past five years,
been known by or used any other composite or fictitious name or been a party to
any merger or consolidation, or acquired all or substantially all of the assets
of any Person, or acquired any of its properties or assets out of the ordinary
course of business.

     

    
      
        
        

      

      
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    (iii)           The
chief executive office and mailing address of such Pledgor are located only at
the address identified as such on Schedule 4(a)(iii)
hereof and its only other places of business and the only other locations of
Collateral, if any, are at the addresses set forth on Schedule 4(a)(iii)
hereof.

     

    (b)           With
respect to the Collateral of a Pledgor in which it has purported to grant a
security interest hereunder, such Pledgor has good and valid title to or
leasehold interest in those portions of the Collateral in which Pledgor purports
to have an ownership or leasehold interest, or a valid right in those other
portions of the Collateral in which such Pledgor purports to have an interest or
right other than an ownership or leasehold interest, and has full power and
authority to grant to the Secured Party the security interest in such Collateral
pursuant hereto and to execute, deliver and perform its obligations in
accordance with the terms of this Agreement, without the consent or approval of
any other person other than any consent or approval that has been obtained and
is in full force and effect.

     

    (c)           The
Perfection Certificate has been duly prepared, completed and executed and the
information set forth therein, including the exact legal name of such Pledgor,
is correct and complete, in all material respects, as of the Effective
Date.

     

    5.            Expenses of Pledgor’s
Duties; Secured Party’s Right to Perform on Pledgor's Behalf.

     

    (a)           Each
Pledgor shall pay the costs and expenses incident to this Agreement and the
transactions contemplated hereby.

     

    (b)           If
a Pledgor shall fail to do any act which it has covenanted to do hereunder,
Secured Party may (but shall not be obligated to) do the same or cause it to be
done, either in its name or in the name and on behalf of such Pledgor, and
Pledgor hereby irrevocably authorizes Secured Party so to act.

     

    6.            No Waivers of Rights
hereunder; Rights Cumulative.

     

    (a)           No
delay by Secured Party in exercising any right hereunder, or in enforcing any of
the Obligations, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right preclude other or further exercises thereof or the
exercise of any other right.  No waiver of any of the Obligations
shall be enforceable against Secured Party unless in writing and signed by an
officer of Secured Party, and unless it expressly refers to the provision
affected; any such waiver shall be limited solely to the specific event
waived.

     

    (b)           All
rights granted to Secured Party hereunder shall be cumulative and shall be
supplementary of and in addition to those granted or available to Secured Party
under any other agreement with respect to the Obligations or under applicable
law and nothing herein shall be construed as limiting any such other
right.

     

    7.            Termination. This Agreement shall
continue in full force and effect until all Obligations shall have been paid and
satisfied in full and the Secured Party shall have no further commitment to
advance or extend any loan or other credit pursuant to the Investment
Agreement.

     

    
      
        
        

      

      
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    8.             Secured Party Appointed as
Attorney in Fact.  Each Pledgor hereby appoints Secured Party
the attorney-in-fact of such Pledgor for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instrument
that Secured Party may deem reasonably necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable during the term of this
Agreement and coupled with an interest.  Without limiting the
generality of the foregoing, Secured Party shall have the right, upon the
occurrence and during the continuance of an Event of Default, with full power of
substitution either in Secured Party's name or in the name of such Pledgor, (i)
to receive, endorse, assign or deliver any and all notes, acceptances, checks,
drafts, money orders or other evidences of payment relating to the Collateral or
any part thereof, (ii) to demand, collect, receive payment of, give receipt for
and give discharges and releases of all or any of the Collateral, (iii) to ask
for, demand, sue for, collect, receive and give acquittance for any and all
moneys due or to become due under and by virtue of any Collateral, (iv) to sign
the name of such Pledgor on any invoice or bill of lading relating to any of the
Collateral, (v) to send verifications of Accounts to any Account Debtor, (vi) to
commence and prosecute any and all suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect or otherwise realize on
all or any of the Collateral or to enforce any rights in respect of any
Collateral, (vii) to settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to all or any of the Collateral, (viii) to notify,
or to require such Pledgor to notify, Account Debtors to make payment directly
to Secured Party; and (i) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral,
and to do all other acts and things necessary to carry out the purposes of this
Agreement, as fully and completely as though Secured Party were the absolute
owner of the Collateral for all purposes; provided, however, that nothing herein
contained shall be construed as requiring or obligating Secured Party to make
any commitment or to make any inquiry as to the nature or sufficiency of any
payment received by Secured Party, or to present or file any claim or notice, or
to take any action with respect to the Collateral or any part thereof or the
moneys due or to become due in respect thereof or any property covered
thereby.  The Secured Party shall be accountable only for amounts
actually received as a result of the exercise of the powers granted to it
herein, and neither Secured Party nor its managers, officers, directors,
employees, members or agents shall be responsible to any Pledgor for any act or
failure to act hereunder, except for Secured Party's  own gross
negligence or willful misconduct.

     

    9.            Governing Law; Jurisdiction;
Certain Waivers.

     

    (a)           This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be performed in such
State, without giving effect to the conflict of law principles thereof except
for Sections 5-1401 and 5-1402 of the New York General Obligations
Law.  Any judicial proceeding brought by or against any Pledgor with
respect to any of the Obligations or this Agreement may be brought in any court
of competent jurisdiction in such State, and, by  execution and
delivery of this Agreement, such Pledgor accepts for itself and in connection
with its properties, generally and unconditionally, the non-exclusive
jurisdiction of such court and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement.  Each Pledgor
hereby waives personal service of any and all process upon it and consents that
all such service of process may be made by certified or registered mail (return
receipt requested) directed to such Pledgor at its address set forth in Section 11 hereof,
and service so made shall be deemed completed five (5) days after the same shall
have been so deposited in the mails of the United States of
America.  Nothing herein shall affect the right to serve process in
any manner permitted by law or shall limit the right of Secured Party to bring
proceedings against a Pledgor in the courts of any other jurisdiction. Each
Pledgor waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non
conveniens.  Any judicial proceeding by a Plegor against
Secured Party involving, directly or indirectly, any matter or claim in any way
arising out of, related to or connected with this Agreement or any related
agreement, shall be brought only in a federal or state court located in The City
of New York, State of New York.

     

    
      
        
        

      

      
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    (b)           EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER AGREEMENT
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE, AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH
CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

     

    10.          Additional
Definitions.  As used herein:

     

    (a)           All
terms used herein which are defined in Article 1 or Article 9 of the UCC shall
have the meanings given therein unless otherwise defined in this
Agreement.  All references to the plural herein shall also mean the
singular and to the singular shall also mean the plural unless the context
otherwise requires.  All references to a Pledgor and Secured Party
pursuant to the definitions set forth in the recitals hereto, or to any other
person herein, shall include their respective successors and assigns (or, in the
case of a Pledgor, permitted assigns).  The words “hereof”, “herein”,
“hereunder”, “this Agreement” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.  References herein to the Investment Agreement or any other
Transaction Document shall be deemed to include such agreement as it now exists
or hereafter may be amended, modified, supplemented, extended, renewed, restated
or replaced.  The word “including” when used in this Agreement shall
mean “including, without limitation”.

     

    “Obligations”
means:

    


    (1)           the
full and prompt payment by Desert Hawk when due (whether at maturity, by
acceleration, upon the occurrence of any date set for prepayment or otherwise)
of all obligations and liabilities to Secured Party, whether now existing or
hereafter arising, under the Investment Agreement and the other Transaction
Documents (including all principal of and interest on the Term Loan Advances,
including all interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, and all costs, expenses
and indemnity payment obligations and liabilities) and the due performance and
compliance by Desert Hawk with the terms of each Transaction
Document;

    


    
      
        
        

      

      
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    (2)           the
full and prompt payment by Blue Fin when due of all obligations and liabilities
to Secured Party, whether now existing or hereafter arising, under this
Agreement and the other Transaction Documents to which it is a party and
performance of all the obligations of Blue Fin under or pursuant to this
Agreement or any other Transaction Document to which it is a party;

    


    (3)           any
and all sums advanced in accordance with the terms of the
Transaction  Documents or applicable law by Secured Party in order to
preserve the Collateral or to preserve the Secured Party’s security interest in
the Collateral; and

    


    (4)           in
the event of any proceeding for the collection or enforcement of any obligations
or liabilities of a Pledgor referred to in the immediately preceding clauses
(1),  (2) and (3), the reasonable costs and expenses of re-taking,
holding, preparing for sale, selling or otherwise disposing of or realizing on
the Collateral, or of any other exercise by Secured Party of its rights
hereunder, together with reasonable attorneys’ fees and expenses and court
costs.

    


    "Perfection Certificate" means
that certain Perfection Certificate, dated as of the date hereof, executed by
each Pledgor in favor of the Secured Party.

     

    “Person” or “person” shall mean any
individual, sole proprietorship, partnership, corporation limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.

     

    "Receivables" means the
Accounts, Chattel Paper, Documents, Investment Property, Instruments and any
other rights or claims to receive money which are General Intangibles or which
are otherwise included in the Collateral.

     

    “UCC” shall mean the Uniform
Commercial Code as in effect in the State of New York and any successor statute,
as in effect from time to time (except that terms used herein which are defined
in the Uniform Commercial Code as in effect in the State of New York on the date
hereof shall continue to have the same meaning notwithstanding any replacement
or amendment of such statute except as Secured Party may otherwise
determine).

     

    The words
“it” or “its” as used herein shall be deemed to refer to individuals and to
business entities.

     

    11.           Notices. Any
communication required or permitted pursuant to this Agreement shall be deemed
given (a) when personally delivered to any officer of the party to whom it is
addressed, (b) on the earlier of actual receipt thereof or five (5) days
following posting thereof by certified or registered mail, postage prepaid,
return receipt requested, or (c) upon actual receipt thereof when sent by a
recognized overnight delivery service, or (d) upon actual receipt thereof when
sent by telecopier to the number set forth below with telephone communication
confirming receipt and subsequently confirmed by registered or certified mail,
return receipt requested, or by recognized overnight delivery service to the
address set forth below, in each case addressed to the applicable party at its
address set forth below or at such other address as has been furnished in
writing by such party to the other by like notice:

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    (A)         If
to Secured Party:

     

    Carnegie
Hall Tower

    152 West
57th
Street

    New York,
NY 10019

    Attn:  David
Levy

    Telecopier:  (212)
582-2424

    


    With a
copy to (which shall not constitute notice):

     

    Katten
Muchin Rosenman LLP

    575
Madison Avenue

    New York,
NY 10022

    Attn:  Elliot
Press, Esq.

    Telecopier:  (212)
940-6621

    


    (B)         If
to any of the Pledgors, to:

     

    Desert
Hawk Gold Corp.

    8921
North Indian Trail Road

    Number
288

    Spokane,
WA 99208

    Attn:  Bob
Jorgensen

    Telecopier:  (509)
468-1937

    


    With a
copy to (which shall not constitute notice):

     

    Holland
& Hart, LLP

    555
Seventeenth Street

    Denver,
CO 80202

    Attn:  Kevin
Johnson, Esq.

    Telecopier:  (303)
713-6203

     

    Any
requirement under applicable law of reasonable notice by Secured Party to a
Pledgor  of any event shall be met if notice is given to such Pledgor
in the manner prescribed above at least five (5) days before (a) the date of
such event or (b) the date after which such event will occur.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    12.          General.

     

    (a)           Assignment; Successors and
Assigns.  No Pledgor shall assign or delegate any of its
rights, duties or obligations hereunder without the prior written consent of
Secured Party, and any such assignment or delegation without such consent shall
be void.  This Agreement shall be binding upon the successors and
permitted assigns of each Pledgor  and shall inure to the benefit of
and be enforceable by Secured Party and its successors, transferees and
assigns.

     

    (b)           Severability.  Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.

     

    (c)           Counterparts.  This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate 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. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of an original executed
counterpart of this Agreement.

     

    [REMAINDER
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        12

        
          

        

      

      
         


      

    

     

    Dated in
New York, New York as of the date first above written.

     

    
      
        
          	
                  PLEDGOR:

                	 
      	
                  SECURED PARTY:

                
	 
      	 
      	 
      
	
                  DESERT
      HAWK GOLD CORP, INC.

                	 
      	
                  DMRJ
      GROUP I, LLC

                
	 
      	 
      	 
      
	
                  By:

                	
                  /s/
      Robert E. Jorgensen

                	 
      	
                  By:

                	
                  /s/
      Daniel Small

                
	 
      	
                  Name:    Robert
      E. Jorgensen

                  Title       Chief
      Executive Officer

                	 
      	 
      	
                  Name:    Daniel
      Small

                  Title:      Portfolio
      Manager

                


        

      

    

    


    
      
        
          	
                  PLEDGOR:

                
	 
      
	
                  BLUE
      FIN CAPITAL, INC.

                
	 
      
	
                  By:

                	
                  /s/
      Robert E. Jorgensen

                
	 
      	
                  Name     Robert
      E. Jorgensen

                  Title       President

                


        

      

    

     

    [Signature
Page to Security Agreement]