Document:

FORM OF ESCROW AGREEMENT

 

This Escrow Agreement (this “Escrow Agreement”), by and among DGSE Companies, Inc., a Nevada Corporation (“Purchaser”), NTR Metals, LLC, a Texas limited liability company (the “Member Representative”), and Compass Bank, a state-chartered Federal Reserve System member bank organized under the laws of the State of Alabama with its principal offices in Birmingham, Alabama (in its capacity as escrow agent hereunder, “Escrow Agent”), is made and entered into effective as of the date accepted by Escrow Agent, which date is set forth below its signature at the end of this Escrow Agreement (the “Effective Date”).

 

RECITALS

 

(a)           Purchaser and the Member Representative have entered into that certain Agreement and Plan of Merger, dated September 12, 2011, by and among Purchaser, Southern Bullion Trading, LLC, a Texas limited liability company (“Target”), SBT, Inc., a Nevada corporation, and a wholly-owned subsidiary of Purchaser (“MergerSub”), Member Representative and the members of Target (the “Merger Agreement”), pursuant to which Target will merge with and into MergerSub, and the members of Target will receive as consideration an aggregate of six hundred thousand (600,000) shares of the common stock of Purchaser, par value $0.01 per share (the “Exchanged Securities”). Each member of Target has appointed the Member Representative as its agent and attorney-in-fact.

 

(b)           To facilitate the closing of the transaction contemplated by the Merger Agreement, Purchaser has agreed that Purchaser will deposit sixty thousand (60,000) shares of the Exchanged Securities (the “Escrow Shares”) with Escrow Agent by electronic delivery (the “Escrow Account”).

 

(c)           Purchaser and Member Representative desire that Escrow Agent act as escrow agent of the Escrow Shares. Escrow Agent is willing to act in such capacity subject to the terms and conditions hereof.

 

NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows.

 

ARTICLE I - ESCROW ACCOUNT & ESCROW DEPOSIT

 

Section 1.1             Appointment of Escrow Agent.  Purchaser and the Member Representative hereby appoint Escrow Agent as escrow agent, and Escrow Agent hereby accepts such appointment, for the purposes and subject to the terms and conditions set forth in this Escrow Agreement.

 

Section 1.2             Escrow Account.

 

(a)           Escrow Agent shall maintain possession of the Escrow Shares in electronic form, which may be held in the name of a nominee.

 

(b)           Upon or immediately following the Effective Date, Escrow Agent shall establish an account to be held pursuant to this Escrow Agreement for the purpose of holding any income due to the holder of the Escrow Shares by virtue of holding such Escrow Shares (the “Escrow Funds,” and, together with the Escrow Shares, the “Escrow Consideration”).

 

(c)           Escrow Agent shall deposit the Escrow Funds in a money market mutual fund account selected at the discretion of the Escrow Agent.

  

  

  

 

Section 1.3             Escrow Deposits.

 

(a)           Purchaser will transfer to Escrow Agent, on or after the Effective Date, the Escrow Shares for deposit into the Escrow Account. Further, on or after the Effective Date, Purchaser will transfer to Escrow Agent any Escrow Funds for deposit into the Escrow Account as may from time to time be payable to the holders of the Escrow Shares.

 

(b)           The Escrow Shares and Escrow Funds are deemed deposited into the Escrow Account when such securities or funds are from time to time delivered to Escrow Agent.  Notwithstanding any provision herein to the contrary, Escrow Agent only shall be obligated to disburse the Escrow Consideration no earlier than the third Business Day following Escrow Agent's receipt thereof, always subject to Section 2.1 below. “Business Day” for purposes of this Escrow Agreement shall mean any day of the year other than a Saturday, Sunday or any other day on which Escrow Agent is closed for business.

 

(c)           Escrow Agent shall receive and hold the Escrow Consideration in the Escrow Account at all times until such securities and funds are disbursed therefrom in accordance with the terms of this Escrow Agreement.

 

(d)           Written confirmation of receipt, credit, or disbursement of the Escrow Consideration shall be delivered to both the Member Representative and Purchaser by account statement in accordance with Section 3.2 hereof.

 

ARTICLE II - ESCROW ACCOUNT PAYMENT

 

Section 2.1            Escrow Account Payment Procedures.  From and after the Effective Date, the Escrow Consideration, if any, shall be held in and disbursed from the Escrow Account by Escrow Agent as follows:

 

(a)           Escrow Agent shall hold the Escrow Consideration deposited in the Escrow Account in escrow and disburse the same or any part or parcel thereof only in accordance with and upon: (i) the joint written instructions of Purchaser and the Member Representative, in the form attached hereto as Exhibit A, setting forth the amount to be transferred to the Member Representative or Purchaser, or a third party, if applicable, and the basis for the payment (a “Disbursement Direction”); or (ii) in accordance with and upon the final and nonappealable order, decree, determination, award or judgment entered by a court of competent jurisdiction, including the decision of any arbitrator rendered pursuant to Section 7.6 hereof, setting forth the amount of the Escrow Consideration to be paid out of the Escrow Account and the party to whom such securities and funds shall be disbursed (a “Court Direction”).

 

(b)           Upon receipt of a Disbursement Direction or Court Direction directing Escrow Agent to disburse the Escrow Consideration contained in the Escrow Account in accordance with the terms and provisions of such Disbursement Direction or Court Direction, Escrow Agent shall promptly disburse such Escrow Consideration in accordance therewith and in accordance with the terms of this Escrow Agreement.

 

(c)           Any Disbursement Direction or Court Direction may instruct Escrow Agent to release all or any portion of the remainder of the Escrow Consideration contained in the Escrow Account.

 

(d)           Any remaining balance of Escrow Consideration in the Escrow Account as of the second anniversary of the Effective Date shall be distributed to the Member Representative upon receipt of a Disbursement Direction.

  

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ARTICLE III - ESCROW PROCEDURES

 

Section 3.1           Scope of Undertaking.  Escrow Agent's duties and responsibilities in connection with this Escrow Agreement shall be purely ministerial and shall be limited to those expressly set forth in this Escrow Agreement.  Escrow Agent is not a principal, participant, or beneficiary in any transaction underlying this Escrow Agreement and shall have no duty to inquire beyond the terms and provisions of this Escrow Agreement except as specifically provided herein.  Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of the terms and conditions of any other agreement, instrument, or document other than this Escrow Agreement, whether or not an original or a copy of such agreement has been provided to the Escrow Agent; and Escrow Agent shall have no duty to know or inquire as to the performance or nonperformance of any provision of any such agreement, instrument, or document. Escrow Agent is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of this Escrow Agreement and any part hereof, for the transaction or transactions requiring or underlying the execution of this Escrow Agreement or the form or execution hereof, or for the identity or authority of any person executing this Escrow Agreement or any part hereof, or for depositing the Escrow Deposit or any subsequent deposits.  Escrow Agent shall not be required to take any action with respect to any matters that might arise in connection herewith, other than to receive, hold, and deliver the Escrow Consideration as herein provided.  Escrow Agent shall not be required to notify or obtain the consent, approval, authorization, or order of any court or governmental body to perform its obligations under this Escrow Agreement, except as expressly provided herein. Without limiting the generality of the foregoing, it is hereby expressly agreed and stipulated by the parties hereto that Escrow Agent shall not be required to exercise any discretion hereunder, shall have no investment or management responsibility and, accordingly, shall have no duty, or liability for its failure to provide investment recommendations or investment advice to Purchaser, the Member Representative, third parties, or any of them.  Escrow Agent shall not be liable for any error in judgment, any act or omission, any mistake of law or fact, or for anything it may do or refrain from doing in connection herewith, subject, however, to Section 3.6 hereof, providing for liability in the event of willful misconduct, gross negligence or fraud.  It is the intention of the parties hereto that Escrow Agent shall not be required to use, advance, or risk its own funds or otherwise incur financial liability in the performance of any of its duties or the exercise of any of its rights or powers hereunder.

 

Escrow Agent shall have no responsibility at any time to ascertain whether or not any security interest exists in the Escrow Consideration, or to file any financing statement under the Uniform Commercial Code of any jurisdiction with respect to the Escrow Consideration, or any part thereof.

 

Section 3.2           Accounting and Records.  Escrow Agent shall keep complete and accurate records of all securities and funds received and disbursed under this Escrow Agreement, which shall be available for inspection by the Member Representative or Purchaser, or the agent of either of them, at any time during regular business hours upon prior written request.  Upon request from time to time by either Purchaser or the Member Representative, Escrow Agent shall notify both Purchaser and the Member Representative of the amount of the Escrow Consideration then held in the Escrow Account

 

Section 3.3           Reliance.  Escrow Agent may act upon any instruction or direction, regardless of form, furnished to Escrow Agent in writing or any instrument or signature which it believes to be genuine, may assume the validity and accuracy of any statement or assertion contained in such a writing or instrument, and may assume that any person purporting to give any writing, notice, advice, direction or instruction in connection with the provisions hereof has been duly authorized to do so, and Escrow Agent shall be under no duty to make any investigation or inquiry into any of the foregoing.  Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited with it, neither shall it be required to verify the identity, authority or right of any person executing the same.

 

Section 3.4           Use of Counsel and Agents.  Escrow Agent may exercise any of the powers hereof and perform the duties required of it hereunder by or through attorneys, agents, or receivers.  Escrow Agent shall be entitled to advice of counsel concerning all matters and its duties hereunder and shall be paid or reimbursed the reasonable fees and expenses of such counsel, as provided in Section 5.1.  Escrow Agent shall not be answerable for the default or misconduct of any such attorney, agent, or receiver selected by it with reasonable care.  Escrow Agent shall in no event incur any liability with respect to any action taken or omitted to be taken in good faith upon advice of legal counsel, which may be counsel to any party hereto, given with respect to any question relating to the duties and responsibilities of Escrow Agent hereunder.

  

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Section 3.5           Disputes.  It is understood and agreed to by the parties hereto that, in the event of any disagreement involving the parties to this Escrow Agreement or any other persons resulting in adverse claims to or demands being made in connection with or for the Escrow Consideration, Escrow Agent shall be entitled, at its option, to refuse to comply with such adverse or conflicting claims or demands, so long as such disagreement shall continue.  In such event, Escrow Agent shall make no delivery or other disposition of the Escrow Consideration, or any part of the Escrow Consideration.  Notwithstanding anything herein to the contrary, Escrow Agent shall not be or become liable for its failure to comply with such conflicting or adverse demands.

 

Escrow Agent shall be entitled to continue to refrain and refuse to deliver or otherwise dispose of the Escrow Consideration, or any part thereof or to otherwise act hereunder, as stated above, unless and until:

 

1.           the rights of such parties have been finally settled by binding arbitration or duly adjudicated in a court having jurisdiction over the parties and the Escrow Consideration; or

 

2.           the parties have reached an agreement resolving their differences and have notified Escrow Agent of such agreement in a writing signed by any authorized representative of the Member Representative and any authorized representative of Purchaser and have provided Escrow Agent with indemnity satisfactory to Escrow Agent against any liability, claims or damages resulting from compliance by Escrow Agent with such agreement.

 

In the event of a disagreement between such parties as described above, Escrow Agent shall have the right, in addition to the rights described above, and at its sole option, to institute a petition for interpleader in any court of competent jurisdiction to determine the rights of such parties.

 

In the event Escrow Agent is a party to any dispute with one or both of the other parties hereto or with respect to the Escrow Agreement or the Escrow Consideration, Escrow Agent shall have the additional right to refer such controversy to binding arbitration as described in Section 7.6 hereof.

 

The parties hereto jointly and severally agree, in the event any controversy arises under or in connection with this Escrow Agreement, the Escrow Consideration, or in the event that Escrow Agent is made a party to or intervenes in any litigation pertaining to this Escrow Agreement, or the Escrow Consideration, to pay to Escrow Agent reasonable additional compensation for its extraordinary services and to reimburse Escrow Agent for all costs and expenses associated with such controversy or litigation, including reasonable attorney's fees.

 

Section 3.6           Limited Liability of Escrow Agent.  Escrow Agent shall not be liable in connection with the performance or observation of its duties or obligations hereunder except for in the case of its proven fraud, gross negligence or willful misconduct.  Escrow Agent shall have no obligation or liability to any of the other parties under this Escrow Agreement for the failure or refusal of any other party to perform any covenant or agreement made by such party hereunder or under any other agreement, but shall be responsible solely for the performance of the duties and obligations expressly imposed upon it as escrow agent hereunder.  Notwithstanding anything in this Escrow Agreement to the contrary, in no event shall Escrow Agent be liable for any special, incidental, punitive, exemplary, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

 

Section 3.7           Indemnification.  Escrow Agent shall have no obligation to take any legal action in connection with this Escrow Agreement or towards its enforcement, or to appear in, prosecute or defend any action or legal proceeding that would or might involve it in any cost, expense, loss or liability unless security and indemnity, as provided in this Section 3.7, shall be furnished.

  

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To the extent permitted by applicable law, Purchaser and the Member Representative agree to indemnify Escrow Agent and it officers, directors, employees and agents (the “Indemnified Parties” and each an "Indemnified Party") and save and hold the Indemnified Parties harmless from and against any and all Claims (as hereinafter defined) and Losses (as hereinafter defined) which may be incurred by an Indemnified Party as a result of Claims asserted against such Indemnified Party as a result of or in connection with such Indemnified Party’s capacity as such under or in connection with this Escrow Agreement by any person or entity, unless such Claim or Loss is finally adjudicated to have been directly caused by the willful misconduct, gross negligence or fraud of the Indemnified Party.  For the purposes hereof, the term "Claims" shall mean all claims, lawsuits, arbitrations, mediations, causes of action or other legal actions and proceedings of whatever nature brought against (whether by way of direct action, counterclaim, cross action or impleader) an Indemnified Party, even if groundless, false or fraudulent, so long as the claim, lawsuit, cause of action or other legal action or proceeding is alleged or determined, directly or indirectly, to arise out of, result from, relate to or be based upon, in whole or in part: (a) the acts or omissions of the Member Representative or Purchaser, (b) the appointment of Escrow Agent as escrow agent under this Escrow Agreement, or (c) the exercise by Escrow Agent of its powers and discharge of its duties under this Escrow Agreement, including any alleged failure to exercise or discharge same; and the term "Losses" shall mean losses, costs, damages, expenses, judgments and liabilities of whatever nature (including, but not limited to, attorneys', accountants' and other professionals' fees, litigation, arbitration, mediation and court costs and expenses and amounts paid in settlement), directly or indirectly resulting from, arising out of or relating to one or more Claims.  Upon the written request of an Indemnified Party, and to the extent permitted by law, Purchaser and the Member Representative agree to assume the investigation and defense of any Claim, including the employment of counsel acceptable to such Indemnified Party and the payment of all expenses related thereto and, notwithstanding any such assumption, such Indemnified Party shall have the right, and Purchaser and the Member Representative agree to pay the cost and expense, to employ separate counsel with respect to any such Claim and participate in the investigation and defense thereof in the event that such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or in addition to those available to either the Member Representative or Purchaser.  Purchaser and the Member Representative hereby agree that the indemnification and protections afforded the Indemnified Parties in this Section 3.7 shall survive the termination of this Escrow Agreement. IT IS THE EXPRESS INTENT OF EACH OF PURCHASER AND SELLERS TO INDEMNIFY EACH OF THE INDEMNIFIED PARTIES FOR, AND HOLD THEM HARMLESS AGAINST, THE NEGLIGENT ACTS OR OMISSIONS OF THE INDEMNIFIED PARTIES EXCEPT TO THE EXTENT SUCH ACTS OR OMISSIONS CONSTITUTE WILLFUL MISCONDUCT, GROSS NEGLIGENCE OR FRAUD.

 

Section 3.8            Account and Customer Identification Deposit Information.  To help in the fight against the funding of terrorism and money laundering activities financial institutions are required to obtain, verify, and record information that identifies each person who opens an account. When an account is opened, Escrow Agent will ask for information that will allow Escrow Agent to identify relevant parties.

 

Prior to execution and delivery of this Escrow Agreement, Purchaser and the Member Representative each shall have delivered to Escrow Agent such identification as required by law and such identification and authorization documents and such information concerning the source of the securities and funds constituting the Escrow Consideration, all as Escrow Agent may reasonably require. Without limiting the generality of the foregoing, if either of Purchaser or the Member Representative is not a natural person, then upon Escrow Agent's request each such party shall deliver to Escrow Agent (a) a copy of its organizational documents (e.g., articles of incorporation, operating agreement, etc.), (b) corporate/partnership resolutions, signed by its an appropriate signatory, authorizing it to enter into this Escrow Agreement, and (c) a completed Certificate of Authority in the form attached hereto as Exhibit B.

 

ARTICLE IV - TAX MATTERS

 

Section 4.1           Tax Allocation and Reporting. Purchaser and the Member Representative agree that, for tax reporting purposes, all income from the Escrow Shares, as of the end of each calendar year and to the extent required by the Internal Revenue Service, shall be reported as having been earned__% by Landmark Metals, LLC, __% by Wesley A. Mull and __% by James J. Vierling whether or not income was disbursed during a particular year.

  

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Section 4.2           Tax Information.  Prior to Closing, Purchaser and the Member Representative shall provide Escrow Agent with appropriate tax reporting documentation and such other forms and documents as Escrow Agent may request. Purchaser and the Member Representative understand that if such tax reporting documentation is not provided and certified to Escrow Agent, then Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, and the Regulations promulgated thereunder, to withhold a portion of the Escrow Funds held by Escrow Agent pursuant to this Escrow Agreement.

 

Section 4.3             Tax Liability of Escrow Agent. To the extent that Escrow Agent becomes liable for the payment of any taxes with respect to income derived from the investment of the Escrow Consideration, Purchaser and the Member Representative agree, jointly and severally, to indemnify, defend and hold Escrow Agent harmless from and against any tax, late payment, interest, penalty or other cost or expense that may be assessed against Escrow Agent on or with respect to the Escrow Consideration and the investment thereof unless any such tax, late payment, interest, penalty or other expense was caused by the gross negligence or willful misconduct of Escrow Agent. The indemnification provided by this Section 4.3 is in addition to the indemnification provided in Section 3.7 and shall survive the resignation or removal of Escrow Agent and the termination of this Escrow Agreement.

 

ARTICLE V – COMPENSATION

 

Section 5.1           Escrow Agent Fee.  Escrow Agent shall charge for its services twenty-five thousand dollars ($25,000) (the “Escrow Agent Fee”) and Escrow Agent shall be reimbursed for all expenses incurred by Escrow Agent in connection with the performance of its duties and enforcement of its rights hereunder and otherwise in connection with the preparation, operation, administration and enforcement of this Escrow Agreement, including, without limitation, attorneys' fees, brokerage costs, and related expenses incurred by Escrow Agent (“Escrow Expenses”).  The Escrow Agent Fee is due in advance and is nonrefundable and not subject to proration.  Purchaser shall be liable to Escrow Agent for the payment of the Escrow Agent Fee and Escrow Expenses.  If the term of this Escrow Agreement continues beyond December 31, 2013, Escrow Agent shall charge an additional fee for its services in the amount of $12,500 per year, which will be due in advance and subject to proration upon termination of this Escrow Agreement.

 

Section 5.2           Security for Fees and Expenses.  As security for the Escrow Agent Fee and Escrow Expenses, and any and all losses, claims, damages, liabilities and expenses incurred by Escrow Agent in connection with its acceptance of appointment hereunder or with the performance of its obligations under this Escrow Agreement, including expenses incurred pursuant to Section 3.4, and to secure the obligations of Purchaser and the Member Representative to indemnify Escrow Agent as set forth in Sections 3.7 and 4.3, Escrow Agent is hereby granted a security interest in and a lien upon the Escrow Consideration, which security interest and lien shall be prior to all other security interests, liens or claims against the Escrow Consideration or any part thereof, and which may be enforced by Escrow Agent without notice by charging and setting-off and paying from the Escrow Consideration any and all amounts then owing to Escrow Agent pursuant to this Escrow Agreement or by appropriate foreclosure proceedings.

 

ARTICLE VI – CHANGE OF ESCROW AGENT

 

Section 6.1           Removal of Escrow Agent.  The Member Representative and Purchaser, by mutual written agreement, may remove Escrow Agent and any successor thereto, at any time and for any reason, and shall thereupon appoint a successor or successors thereto, but any such successor shall have capital (exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000), and be subject to supervision or examination by federal or state banking authorities.  If such successor entity publishes a report of condition at least annually, pursuant to statute or the requirements of any federal or state supervising or examining authority, then for the purposes of this Section 6.1, the combined capital and surplus of such entity may be conclusively established in its most recent report of condition so published.

  

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Section 6.2           Resignation of Escrow Agent.  Escrow Agent may resign at any time from its obligations under this Escrow Agreement by providing written notice to the parties hereto.  Such resignation shall be effective on the date set forth in such written notice which shall be no earlier than thirty (30) days after such written notice has been given, unless an earlier resignation date and the appointment of a successor escrow agent shall have been approved by the Member Representative and Purchaser.  In the event no successor escrow agent has been appointed on or prior to the date such resignation is to become effective, Escrow Agent shall be entitled to tender into the custody of a court of competent jurisdiction all assets then held by it hereunder and shall thereupon be relieved of all further duties and obligations under this Escrow Agreement.  Regardless of whether it resigns or is removed, Escrow Agent shall have no responsibility for the appointment of a successor escrow agent under this Agreement.

 

Section 6.3          Merger or Consolidation.  Any entity into which Escrow Agent may be merged or converted, or with which it may be consolidated, or any entity resulting from any merger, conversion or consolidation to which it shall be a party, or any company to which Escrow Agent may sell or transfer all or substantially all of its corporate trust business (provided that such company shall be eligible under Section 6.1) shall be the successor to Escrow Agent without any execution or filing or further act.

 

ARTICLE VII - GENERAL PROVISIONS

 

Section 7.1            Notice. Any notice, request, demand or other communication provided for hereunder to be given shall be in writing, in English, and delivered personally, by email, or by recognized courier service, as follows:

 

	
To Escrow Agent:

	
With a copy to:

	  	  
	
Compass Bank

	
Compass Bank

	
5201 W. Park Boulevard, Suite 200

	
2001 Kirby Drive, Suite 311

	
Plano, Texas  75093

	
Houston, Texas  77019

	
Attention:  Connie Rogers

	
Attention:  Brian Herrick

	
Tel. No.:  (972) 705-4220

	
Tel. No.:  (713) 831-5673

	
Fax No.:  (972) 705-4310

	
Fax No.:  (713) 831-5735

	
Email:  connie.rogers@bbvacompass.com

	
Email:  brian.herrick@bbvacompass.com

	  	  
	
To Purchaser:

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

	  	  
	
DGSE Companies, Inc.

	
K&L Gates LLP

	
11311 Reeder Road

	
1717 Main St., Suite 2800

	
Dallas, Texas 75229-3408

	
Dallas, Texas 75201

	
Attention:  Dr. L. S. Smith

	
Attention:  I. Bobby Majumder, Esq.

	
Tel. No.:  (972) 484-3662

	
Tel. No.: (214) 939-5500

	
Email:

	
Email: bobby.majumder@klgates.com

	  	  
	
To Member Representative:

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

	  	  
	
NTR Metals, LLC

	
Jones Day

	
10720 Composite Drive

	
2727 N. Harwood Street

	
Dallas, Texas 75220

	
Dallas, Texas  75201

	
Attention: Carl D. “Trey” Gum, III

	
Attention: Emil Bova, Esq.

	
Tel. No.:  (469) 522-1111

	
Tel. No.:  (214) 220-3939

	
Email:  tgum@ntrmetals.com

	
Email: evbova@jonesday.com

  

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Any party may change its address for notice by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given at the time of receipt by the party to whom such notice is addressed.

 

Section 7.2           Termination.  This Escrow Agreement shall terminate upon the disbursement, in accordance with Article II or Sections 6.1 or 6.2 hereof, of the Escrow Consideration in full; provided, however, that in the event all fees, expenses, costs, and other amounts required to be paid to Escrow Agent hereunder are not fully and finally paid prior to termination, the provisions of Article V hereof, “Compensation,” shall survive the termination hereof, and provided further, that Section 7.6 hereof, “Arbitration,” and Section 3.7 hereof, “Indemnification,” shall, in any event, survive the termination hereof.

 

Section 7.3           Not FDIC Insured. The parties acknowledge that investments in mutual funds and any other nondeposit investment products are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by Escrow Agent; and are subject to investment risks, including possible loss of the principal amount invested.

 

Section 7.4            Counterparts. This Escrow Agreement and any affidavit, certificate, instrument, agreement or other document required to be provided hereunder may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute but one and the same instrument.

 

Section 7.5            Governing Law.  This Escrow Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Texas without regard to principles of conflicts of laws that would direct the application of the laws of another jurisdiction.

 

Section 7.6           Arbitration.  The parties agree that all controversies that may arise among the parties concerning the construction, performance, or breach of this Escrow Agreement shall be determined by arbitration.

 

(a) The arbitration will be held before a single arbitrator chosen by the American Arbitration Association from a panel of persons knowledgeable in the banking industry.

 

(b)  Any arbitration shall be held in Dallas, Texas.  The arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association.  The arbitration shall be held and a final decision reached within 30 days after the appointment of the arbitrator.  The arbitrator shall file a certificate of ruling with the parties immediately after a decision is reached.  The decision of the arbitrator shall be final and conclusive on the parties, and there shall be no appeal therefrom.  A decision of the arbitrator may be enforced by the prevailing party in a court of competent jurisdiction.  All other issues in connection with such arbitration shall be determined in accordance with the rules of the American Arbitration Association.

 

(c) The parties hereby agree that an action to compel arbitration pursuant to this Escrow Agreement may be brought in any court of competent jurisdiction selected by Escrow Agent.  Application may also be made to such court for confirmation of any decision or award of the arbitrator, which may be necessary to effectuate such decisions or awards.  The parties hereto hereby consent to the jurisdiction of the arbitrator and of such court and waive any objection to the jurisdiction and venue of such arbitrator or court.

 

(d) The prevailing party in any arbitration shall be entitled to reimbursement of reasonable attorneys' fees and disbursements and costs of arbitration from the non-prevailing party as determined by the arbitrator.

 

Section 7.7            Captions. The section headings contained in this Escrow Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Escrow Agreement.

  

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Section 7.8            References.  In this Escrow Agreement references to any gender include a reference to all other genders; references to the singular include the plural, and vice versa; reference to any Article or Section means an Article or Section of this Escrow Agreement; and reference to any Exhibit or Schedule means an Exhibit or Schedule to this Escrow Agreement, all of which are incorporated into and made a part of this Escrow Agreement. Unless expressly provided to the contrary, “hereunder,” “hereof,” “herein,” and words of similar reference refer to this Escrow Agreement as a whole and not any particular Section or other provisions of this Escrow Agreement, and “include” and “including” shall mean include or including by way of example, but without limiting the generality of the description proceeding such term.

 

Section 7.9            Waivers. Any failure by any party to comply with any of its obligations, agreements, or conditions herein contained may be waived by the party to whom such compliance is owed by an instrument signed by the party to whom compliance is owed and expressly identified as a waiver, but not in any other manner. No waiver of, or consent to a change in, any of the provisions of this Escrow Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

 

Section 7.10         Assignment.  No party hereto shall assign or otherwise transfer all or any part of this Escrow Agreement, nor shall any party delegate any of its rights or duties hereunder, without the prior written consent of the other parties; any transfer or delegation made without such consent shall be void. Subject to the foregoing, this Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

Section 7.11        Entire Agreement; Amendments.  This Escrow Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous oral, and all prior written understandings, agreements, solicitation documents and representations, express or implied, between or among two or more of the parties hereto.  By execution of this Escrow Agreement, Escrow Agent shall not be deemed or considered to be a party to any other contract or agreement, including any agreement between the Member Representative and Purchaser.

 

Section 7.12         Binding Effect.  This Escrow Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.  This Escrow Agreement is for the sole and exclusive benefit of the parties hereto and nothing in this Escrow Agreement, express or implied, is intended to confer or shall be construed as conferring upon any other person any rights, remedies, or any other type or types of benefits.

 

Section 7.13         No Third Person Beneficiaries.  Nothing in this Escrow Agreement shall entitle any person other than the parties hereto to any claim, cause of action, remedy, or right of any kind, except the rights expressly provided to the persons described in Section 3.7.

 

Section 7.14        Construction.  Each of the parties hereto has had the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby. This Escrow Agreement is the result of arm's-length negotiations from equal bargaining positions.

 

[Signature page follows]

  

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IN WITNESS WHEREOF, the Parties have caused this Escrow Agreement to be duly executed as of the Effective Date.

 

	  	
DGSE COMPANIES, INC.,

	  	
a Nevada corporation

	  	  
	  	
By:

	  
	  	  	
Name:     William H. Oyster

	  	  	
Title:       President

	  	  
	  	
MEMBER REPRESENTATIVE

	  	  
	  	
NTR METALS, LLC,

	  	
a Texas limited liability company

	  	  
	  	
By:

	  
	  	  	
Name:

	  	  	
Title:

	  	  	  
	  	
ESCROW AGENT

	  	  	  
	  	
COMPASS BANK

	  	  	  
	  	
By:

	  
	  	  	
Connie A. Rogers

	  	  	
Senior Vice President

  

10

  

EXHIBIT A

TO

ESCROW AGREEMENT

 

FORM OF DISBURSEMENT DIRECTION

 

TO: COMPASS BANK, ESCROW AGENT (“ESCROW AGENT”)

 

FROM:

 

DATE: [DATE]

 

DGSE Companies, Inc., a Nevada Corporation (“Purchaser”), and NTR Metals, LLC, a Texas limited liability company (“Member Representative”), each hereby certifies to Escrow Agent, in accordance with Section 2.1 of that certain Escrow Agreement dated September 12, 2011, by and among Purchaser, Member Representative and Escrow Agent that:

 

(i) [Member Representative/Purchaser] is entitled to a distribution from the Escrow Account pursuant to Section _ of the Merger Agreement; and

 

(ii) the distribution to be made as a consequence thereof from the Escrow Account is as follows:

 

	
Amount of Distribution:

	  
	  	  
	  	  
	  	  
	
Distribute made to:

	  
	  	  
	  	  
	  	  
	
Other Instructions:

	  
	  	  
	
 

	  

 

	  	
DGSE COMPANIES, INC.,

	  	
a Nevada corporation

	  	  
	  	
By:

	  
	  	  	
Name:

	  	  	
Title:

	  	  	  
	  	
NTR METALS, LLC,

	  	
a Texas limited liability company

	  	  	  
	  	
By:

	  
	  	  	
Name:

	  	  	
Title:

  

11

  

 

EXHIBIT B

TO

ESCROW AGREEMENT

 

CERTIFICATE OF AUTHORITY

 

The undersigned hereby certifies that anyone of the following persons acting alone has the authority to execute and deliver documents on behalf of [_____________] pursuant to the Escrow Agreement, dated as of September 12, 2011, by and among DGSE Companies, Inc., a Nevada Corporation, NTR Metals, LLC, a Texas limited liability company, and Compass Bank.

 

	
Name

	  	
Position

	  	
Manual Signature

	  	  	  	  	  
	  	  	
[Example]

	  	  
	  	  	  	  	  
	  	  	
President

	  	
_____________________________

	  	  	  	  	  
	  	  	
Vice President

	  	
_____________________________

	  	  	  	  	  
	  	  	
Chief Financial Officer

	  	
_____________________________

	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	
[____________________________]

	  	  	  	  	  
	  	  	  	  	
By:__________________________

	  	  	  	  	
Name: _______________________

	  	
  

	  	
  

	
Title: ________________________

  

12DGSE COMPANIES, INC.

FORM OF OPTION GRANT AGREEMENT

 

This Option Grant Agreement (this “Option Agreement”) is entered into as of September ____, 2011 (the “Date of Grant”), by and between ________________________ (the “Optionee”) and DGSE Companies, Inc., a Nevada corporation (the “Company”), in connection with that certain Agreement and Plan of Merger, dated September 12, 2011, by and among the Company, SBT, Inc. (“MergerSub”), Southern Bullion Trading, LLC (“SBT”), NTR Metals LLC and the members of Southern Bullion Trading LLC (the “Merger Agreement”), whereby SBT will merge with and into MergerSub, with the MergerSub as the surviving entity (the “Surviving Entity”).  Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Merger Agreement.

 

1.           Grant of Option.  The Company hereby grants to Optionee an option (the “Option”) to purchase the number of shares of the Company’s Common Stock set forth below (the “Option Shares”), at the exercise price set forth below, subject to the terms and conditions of this Option Agreement, and upon the occurrence of certain specified events, as follows:

 

	
Exercise Price Per Share

	_________ (Closing price as of the Date of Grant)
	
Total Number of Option Shares Granted

	

_________

	
Total Exercise Price

	

_________

	
Type of Option:

	
Nonqualified Stock Option

	
Term/Expiration Date:

	
5 years from Date of Grant

 

2.           Vesting.

 

(a)           Vesting Schedule. Optionee’s Option to purchase up to ________ (____) Option Shares shall vest upon the first anniversary of the Date of Grant (the “Vesting Date”), provided, however, that (i) the Option Shares shall not vest if the net operating income of the Surviving Entity (as calculated in accordance with GAAP) does not exceed two million five hundred thousand dollars ($2,500,000) in the period beginning on October 1, 2011 and ending on September 30, 2012 (the “Vesting Period”), and (ii) the Option Shares shall not vest if the Optionee does not remain in Service for the entire Vesting Period for any reason.

 

(b)           Covenants of the Company.  During the Vesting Period, the Company shall cause the Surviving Entity to operate its business after the date hereof in good faith and in a commercially reasonable manner so as to provide a commercially reasonable opportunity to attain the net operating income target set forth in Section 2(a).

 

(c)           Determination of Net Operating Income.  Determinations relating to net operating income of the Surviving Entity shall be made by the Board in good faith as promptly as practicable following the expiration of the Vesting Period based on unaudited financial statements of the Surviving Entity for such period.  The Optionee and its representatives shall be afforded a reasonable opportunity, upon reasonable advance notice and during business hours, to review the Board’s determination, ask the Board questions regarding its determination and review the books, records, work papers and written procedures, and have access to the applicable personnel, used to calculate the net operating income of the Surviving Entity.  The Optionee and the Company will work together in good faith to resolve any disputed items.

 

3.           Exercise of Option.

 

(a)           Right to Exercise; Term of Option.  This Option shall be exercisable by Optionee with respect to all vested Option Shares from the time such Option Shares vest (in accordance with the terms of Section 2) until the fifth anniversary of the Date of Grant (the “Term”), subject to the terms and conditions set forth in this Option Agreement.  This Option may only be exercised in whole and may not be exercised in part.

  

  

  

 

(b)           Method of Exercise.  This Option shall be exercisable by written notice (in substantially the form attached hereto as Exhibit A) which shall state the election to exercise the Option, the number of Option Shares in respect of which the Option is being exercised, and such other representations and agreements as to the Optionee’s investment intent with respect to the Option Shares.  Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company.  The written notice shall be accompanied by payment of the aggregate exercise price for the Option Shares in respect of which the Option is being exercised, payable in the manner set forth in Section 4.

 

(c)           Date of Exercise, Transfer.  This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the aggregate exercise price of the Option Shares in respect of which the Option is being exercised.  Assuming compliance with all other provisions of this Option Agreement, for income tax purposes the Option Shares shall be considered transferred to the Optionee on the date on which the Option is exercised.

 

4.           Payment of Aggregate Exercise Price.

 

(a)           Method of Payment.  Payment of the aggregate exercise price for the Option Shares in respect of which the Option is being exercised shall become immediately due upon exercise of this Option and shall be payable in cash or check made payable to the Company.

 

(b)           Taxes.  The Optionee shall, upon notification of the amount due (if any) as a result of the exercise of the Option and prior to or concurrent with delivery of the certificate representing the Option Shares, pay to the Company the amounts necessary to satisfy applicable federal, state and local tax withholding requirements.

 

5.           Restrictions on Exercise.  This Option may not be exercised if the issuance of such Option Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other laws or regulations, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board.  In addition, the Board shall have the sole discretion to impose such conditions, restrictions and limitations (including suspending exercise of the Option and the tolling of any applicable exercise period during such suspension) on the issuance of Common Stock with respect to the Option unless and until the Board determines that such issuance complies with (a) any applicable registration requirements under the Securities Act (or the Board has determined that an exemption therefrom is available), (b) any applicable listing requirement of any Stock Exchange on which the Common Stock is listed, (c) any written, generally applicable Company policy or administrative rules, and (d) any other applicable provision of state or federal law.

 

6.           Limited Transferability of Option.  This Option shall be exercisable only by the Optionee during his lifetime and shall not be assignable or transferable, other than by will or by the applicable laws of inheritance and as permitted under the Code following the Optionee’s death.  The terms and conditions of this Option Agreement, including (without limitation) the limited time period during which this Option may be exercised following the Optionee’s death, shall be binding upon the executors, administrators, heirs, successors and permitted assigns of the Optionee.  In consideration for and as a condition of the grant of the Options, Optionee further agrees to deliver to the Company a Lockup Agreement relating to the Options Shares, in form attached hereto as Exhibit B, and a Registration Rights Agreement relating to the Option Shares, in form attached hereto as Exhibit C.

 

7.           Effect of Termination, Disability or Death.  The following provisions shall govern the exercise of this Option at or after the time of cessation of Service of the Optionee:

 

(a)           Should the Optionee cease to remain in Service for any reason other than Misconduct, including for reasons of death or Disability, then the Optionee or the representative of the estate of Optionee shall have a period of three (3) months following the date of such cessation of Service during which to exercise this Option as to shares that vested on or prior to the date of cessation.  Upon such cessation of Service, this Option shall immediately terminate and cease to be outstanding with respect to any and all Option Shares which are not, at the time, vested.

  

2

  

 

(b)           Under no circumstances, however, shall this Option be exercisable after the expiration of the Term.

 

(c)           Upon the earlier of expiration of the applicable exercise period or upon the expiration of the Term, this Option shall terminate and cease to be outstanding for any vested Option Shares for which this Option has not been exercised.

 

(d)           Should Optionee’s Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding this Option Agreement, then the Option and this Option Agreement (whether any or all Option Shares are vested or not) shall terminate immediately and cease to remain outstanding.

 

(e)           The Board, at its discretion, may allow the continuation of the Option and the Option Agreement upon the cessation of Service by the Optionee on any terms the Board deems advisable and in the best interests of the Company.

 

8.           Changes in Capital Structure.  The Optionee agrees and acknowledges that the Company shall have the right at any time and from time to time after the date of this Option Agreement to authorize additional classes or series of capital stock, some of which may entitle the holders thereof to greater rights than the holders of the Common Stock for which this Option is exercisable, and to issue such shares, subject only to the limits imposed by applicable laws.  In the event of any corporate event or transaction (including, but not limited to, a change in the Common Stock or the capitalization of the Company) such as a reorganization, recapitalization, separation, stock dividend, stock split, reverse stock split, split up, spin-off, or other distribution of stock or property of the Company, a combination or exchange of Common Stock, dividend in kind, or other like change in capital structure, number of outstanding shares of Common Stock, distribution (other than normal cash dividends) to stockholders of the Company, or any similar corporate event or transaction, the Board, in order to prevent dilution or enlargement of the Optionee’s rights under this Option Agreement, shall make equitable and appropriate adjustments and substitutions, as applicable, to or of the number and kind of shares subject to the Option, the exercise price for such shares, and other determinations applicable to the Option.  In addition, in the event of a merger, reorganization, consolidation, exchange, transfer of assets or other transaction having similar effect involving the Company in which the Company is not the surviving corporation, the Option shall be subject to the agreement governing the transaction, which may provide, without limitation, for the assumption of the Option by the surviving corporation or its parent or subsidiary, for the substitution by the surviving corporation or its parent or subsidiary of its own awards for such Option, for accelerated vesting and accelerated expiration, or for settlement in cash or cash equivalents.

 

9.           Tax Consequences.  The grant and/or exercise of the Option will have federal and state income tax consequences.  THE OPTIONEE SHOULD CONSULT A TAX ADVISOR UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES ACQUIRED UPON EXERCISE.

 

10.           Entire Agreement; Governing Law.  This Option Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and this Option Agreement may not be amended except by means of a writing signed by the Company and Optionee.  This Option Agreement is governed by Nevada law except for that body of law pertaining to conflict of laws.

  

3

  

 

11.           Warranties, Representations and Covenants.  The undersigned Optionee warrants and represents that he: (a) has received, read and understood this Option Agreement and agrees to abide by and be bound by its terms and conditions, (b) is acquiring such shares of Common Stock for his own account for investment and not for resale or with a view to distribution thereof in violation of the Securities Act; and (c) is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act.  The undersigned’s financial condition is such that he is able to bear the risk of holding such securities for an indefinite period of time and the risk of loss of its entire investment.  The undersigned has sufficient knowledge and experience in investing in companies similar to the Company so as to be able to evaluate the risks and merits of its investment in the Company.  Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to this Option Agreement.  Optionee further agrees to notify the Company upon any change in the residence address indicated below.  OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS OPTION AGREEMENT SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.

 

12.           Relation to Other Benefits; Termination of Employment.  Any economic or other benefit to the Optionee under this Option Agreement will not be taken into account in determining any benefits to which the Optionee may be entitled under any profit-sharing, retirement or similar benefit or compensation plan maintained by the Company and will not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company.  No provision of this Option Agreement will limit in any way whatsoever any right that the Company may otherwise have to terminate the employment or adjust the compensation of the Optionee at any time.

 

13.           Certain Definitions.  For purposes of this Option Agreement, the following terms shall have the following meanings:

 

(a)           “Board” shall mean the Company’s Board of Directors.

 

(b)           “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(c)           “Common Stock” shall mean the Company’s common stock, par value $0.01 per share.

 

(d)           “Disability” shall mean the inability of the Optionee, in the opinion of a qualified physician mutually acceptable to the Company and the Optionee, to perform the major duties of the Optionee’s position with the Company because of the sickness or injury of the Optionee.

 

(e)           “Fair Market Value” per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

 

(i)           If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing sales price per share of Common Stock on the date in question on the Stock Exchange determined by the Board to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange.  If there is no closing sales price for the Common Stock on the date in question, then the Fair Market Value shall be the closing sales price on the last preceding date for which such quotation exists.

 

(ii)           If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the NASDAQ Global Market or the NASDAQ Capital Market, then the Fair Market Value shall be determined by the Board of Directors of the Company after taking into account such factors as the Board shall deem appropriate.

 

(f)           “Misconduct” shall mean (i) “Cause” as defined in the Optionee’s employment agreement with the Company (or any Parent or Subsidiary) or (ii) if the Optionee has not entered into an  employment agreement with the Company (or any Parent or Subsidiary), the commission of any act of fraud, embezzlement or intentional dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by Optionee which in each case has a material adverse effect on the business or affairs of the Company (or any Parent or Subsidiary).  The foregoing clause (ii) of this definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee in the Service of the Company (or any Parent or Subsidiary).

 

  

4

  

 

(g)           “Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

(h)           “Securities Act” shall mean the Securities Act of 1933, as amended.

 

(i)           “Service” shall mean the employment by the Company (or any Parent or Subsidiary) of the Optionee.

 

(j)           “Stock Exchange” shall mean the New York Stock Exchange or the NYSE Amex.

 

(k)           “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of such corporations other than the last corporation in the such chain owns, at the time of the determination, stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

14.           Further Assurances.  As a condition to receipt of the Option and any exercise hereunder, the Optionee agrees, upon demand of the Company, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company, to implement the provisions and purposes of this Option Agreement.

 

15.           Recovery of Compensation in Connection with Financial Restatement.  Notwithstanding any other provision of this Option Agreement to the contrary, if the Board in good faith determines that the Company is required to restate its financial statements due to material noncompliance with any financial reporting requirement under the law, and such restatement is not the result of misconduct by the Board or the management of the Company, the Optionee shall be required to reimburse the Company for any amounts earned or payable with respect to the Option to the extent required by and otherwise in accordance with applicable law.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

  

5

  

IN WITNESS WHEREOF, the Company and Optionee have each caused this Option Agreement to be executed as of the date first set forth above.

 

	  	
THE COMPANY:

	  	  
	  	
DGSE Companies, Inc.

	  	  
	  	
By:

	
    

	  	  	
Name:

	
Dr. L. S. Smith

	  	  	
Title:

	
Chief Executive Officer

	  	  
	  	
OPTIONEE:

	 	 
	  	
    

	  	
Signature

	 	 
	  	
     

	  	
Print Name

	 	 
	  	
    

	  	
     

	 	 
	  	
    

	 	 
	  	
Residence Address

	 	 
	  	
    

	  	
Area Code/Telephone Number

 

  

6

  

Exhibit A to Option Grant Agreement

DGSE COMPANIES, INC.

 

EXERCISE NOTICE

 

DGSE Companies, Inc.

11311 Reeder Road

Dallas, TX 75229-3408

 

Attention: Secretary

 

1.      Exercise of Option.  Effective as of today, ________________, 20___, the undersigned (“Purchaser”) hereby elects to purchase __________ shares (the “Option Shares”) of the Common Stock, par value $0.01 per share (the “Common Stock”), of DGSE Companies, Inc. (the “Company”) under and pursuant to the Option Grant Agreement dated September_____, 2011(the “Option Agreement”).  The exercise price for the Option Shares shall be $________ per share, as specified in the Option Agreement.

 

2.      Delivery of Payment.  The undersigned Purchaser herewith encloses the cash or a certified or cashier’s check (drawn in favor of the Company) in the amount of $__________ in payment of the aggregate exercise price.

 

3.      Representations of Purchaser.  Purchaser hereby represents and warrants as follows:

 

(a)           Purchaser acknowledges that he has received, read and understood the Option Agreement and agrees to abide by and be bound by its terms and conditions.

 

(b)           Purchaser is acquiring such shares of Common Stock for its own account for investment and not for resale or with a view to distribution thereof in violation of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the “Securities Act”); and

(c)           Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act.  The undersigned’s financial condition is such that he is able to bear the risk of holding such securities for an indefinite period of time and the risk of loss of its entire investment.  The undersigned has sufficient knowledge and experience in investing in companies similar to the Company so as to be able to evaluate the risks and merits of its investment in the Company.

 

4.      Rights as Shareholder.  The Purchaser shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Option Shares for which such Option is exercised, including, but not limited to, rights to vote or to receive dividends, unless and until the Purchaser has satisfied all requirements for exercise of the Option pursuant to its terms and the certificates evidencing such Option Shares have been issued or the Purchaser has been determined to be a record holder of such Option Shares by the transfer agent of the Company.  A share certificate for the number of Option Shares so acquired shall be issued to the Purchaser as soon as practicable after exercise of the Option.  No adjustment will be made for a dividend or other right for which the record date is prior to the date on which all the conditions set forth above are satisfied, except adjustments in accordance with Section 8 of the Option Agreement.

 

5.      Tax Provisions.  The Board shall determine the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any income recognized by the Purchaser with respect to the exercise of the Option, and the Optionee shall be required to meet any applicable tax withholding obligation in accordance with Section 4(b) of the Option Agreement.  Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Option Shares.  Purchaser represents that Purchaser has consulted with any tax consultant or consultants Purchaser deems advisable in connection with the purchase or disposition of the Option Shares and that Purchaser is not relying on the Company for any tax advice.

  

7

  

 

6.      Entire Agreement; Governing Law.  The Option Agreement is incorporated herein by reference.  This Exercise Notice and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and this Exercise Notice may not be amended except by means of a writing signed by the Company and Purchaser.  This Exercise Notice is governed by Nevada law except for that body of law pertaining to conflict of laws.

 

	
Submitted by:

	 	  	
Accepted by:

	  	 	  	  
	
PURCHASER:

	 	  	
THE COMPANY:

	  	 	  	  
	  	 	  	
DGSE COMPANIES, INC.

	  	 	  	  
	
     

	 	  	
By:

	
   

	
Signature

	 	  	  
	  	 	  	  
	
    

	 	  	
Its:

	
     

	
Print Name

	 	  	  
	  	 	  	  
	
Address:

	 	
Address:

	  
	  	 	  	  
	
    

	 	  	
    

	 	 	 	 
	
    

	 	  	
     

	 	 	 	 
	
    

	 	  	
    

 

  

8

  

Exhibit B to Option Grant Agreement

LOCK-UP AGREEMENT

THIS LOCK-UP AGREEMENT (this “Agreement”) is made and entered into as of September____, 2011, by and between DGSE Companies, Inc., a Nevada corporation (the “Company”), and the undersigned option holder of the Company (the “Optionholder”) who is acquiring an aggregate of ___________________ (________) options (the “Options”) to purchase shares (the “Option Shares”)of the common stock of the Company, par value $0.01 per share (the “Common Stock”), pursuant to that certain Option Grant Agreement, dated September _______, 2011, by and among the Company and the Optionholder (the “Option Agreement”).

WHEREAS, upon exercise of the Options granted to the Optionholder in accordance with the terms of the Option Agreement, the Optionholder will be entitled to receive the number of Option Shares set forth in the Option Agreement; and

WHEREAS, in order to facilitate the consummation of the transactions contemplated by the Option Agreement and to provide for an orderly market for the Common Stock, the Optionholder has agreed to enter into this Agreement and to thereby restrict the sale, offer for sale, pledge, assignment, transfer, conveyance, hypothecation, alienation or any other disposition of the Option Shares received by the Optionholder, all on the terms set forth below.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

	
1.

	
The Optionholder expressly agrees that the Optionholder will not make or cause to be made any sale, offer for sale, transfer, pledge, assignment, conveyance, hypothecation, alienation or any other disposition, of the Options prior to the exercise of the Options pursuant to the terms of the Option Agreement.  Further, the Optionholder expressly agrees that the Optionholder will not make or cause to be made any sale, offer for sale, transfer, pledge, assignment, conveyance, hypothecation, alienation or any other disposition, of the Option Shares received by the Optionholder, without Company’s prior written consent, earlier than the two-year anniversary of the date on which the Options are exercised by each of the Optionholder.  The foregoing sentence shall not apply:

 

(a)           to transfers of Option Shares as a bona fide gift;

 

(b)           to transfers of Option Shares by will or intestacy or to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned;

 

(c)           to distributions of Option Shares by a trust to its beneficiaries or a trustor;

 

(d)           if the Optionholder is a corporation, partnership, limited liability company, trust or other business entity and it (i) transfers Option Shares to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended (the “1933 Act”)) of the undersigned or to any business entity that is managed and governed by the same management company as the Shareholder; or

 

(e)           transfers to the Company.

 

In the case of any transfer or distribution pursuant to clause (a), (b), (c) or (d), each donee, trustee, distributee or transferee shall sign and deliver a lock-up letter substantially in the form of this Agreement.

 

  

9

  

	
2.

	
(a)            In the event of a firmly-underwritten public offering of the Company’s Common Stock or other equity interest of the Company for the account of the Company registered under the 1933 Act, by a nationally recognized investment bank resulting in at least US $35,000,000 in gross proceeds (before underwriters’ discounts and selling commissions) to the Company (the “Public Offering”), the Optionholder agrees that for a period of six (6) months commencing on the effective date of the registration statement filed under the 1933 Act relating to the Public Offering (the “Lock-up Period”), the Optionholder will not offer, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any of the Option Shares.  In order to enable the Company to enforce the aforesaid restrictions on transfer, the Optionholder hereby agrees that the Company may impose stop-transfer instructions with respect to the Option Shares, owned beneficially or of record by the Optionholder until the end of such six (6) months period.

 

(b)           In the event that the Financial Industry Regulatory Authority (“FINRA”), or any other state or federal regulatory authority requires that the Lock-Up Period be extended in connection with the Public Offering, the Optionholder agrees that the Optionholder will execute any agreements and other documents to extend the Lock-Up Period to the extent required by FINRA or such other regulatory authority.

 

(c)           Any one or more of the restrictions set forth in this Section 2: (i) may be waived by the board of directors of the Company if it determines in good faith and in the exercise of its fiduciary duties that such waiver would be in the best interests of the Company and its shareholders for any valid business purpose, including, without limitation, to increase the liquidity of the Common Stock; and (ii) will be null and void upon the consummation of any tender offer to purchase all or substantially all of the Company’s issued and outstanding securities or any merger, consolidation or other reorganization of the Company with or into an unaffiliated person or entity if such transaction is approved by the affirmative vote of the requisite number of record and beneficial owners of the Company’s Common Stock then outstanding and entitled to vote on such transaction.

 

  

10

  

 

	
3.

	
To the extent not inconsistent with applicable law, if any or all of the Option Shares are included in an effective registration statement filed with the Securities Exchange Commission, the Optionholder agrees not to effect any public sale or distribution of the issue being registered or a similar security of the Company, or any securities exercisable for such securities, including a sale pursuant to Rule 144 under the 1933 Act, during the fourteen (14) days prior to, and during the one hundred eighty (180) day period beginning on, the effective date of such registration statement (except as part of the registration), if and to the extent requested by the managing underwriter or underwriters in the case of an underwritten public offering.

 

	
4.

	
In the event of a tender offer to purchase all or substantially all of the Company’s issued and outstanding securities, or a merger, consolidation or other reorganization, and if the Company or the entity makes a public announcement that the minimum tender condition for any such tender offer has been satisfied or if the requisite number of the record and beneficial owners of Company securities then outstanding are voted in favor of such merger, consolidation or reorganization, and such tender offer, merger, consolidation or reorganization is completed, this Agreement shall terminate as of the closing of such event, and the Option Shares restricted pursuant hereto shall be immediately released from the restrictions contained herein.

 

	
5.

	
The restrictions covered by this Agreement shall be appropriately adjusted should the Company make a dividend or distribution, undergo a forward split or a reverse split or otherwise reclassify its shares of Common Stock.

 

	
6.

	
This Agreement may be executed in any number of counterparts with the same force and effect as if all parties had executed the same document.

 

	
7.

	
All notices, instructions or other communications required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by email (receipt confirmed), certified mail, return receipt requested, overnight delivery or hand-delivered to all parties to this Agreement, to the Company at 11311 Reeder Road, Dallas, Texas 75229, Attn: Dr. L.S. Smith, and to the Optionholder at the address set forth on the signature page.  All notices shall be deemed to be given on the same day if delivered by hand or on the following business day if sent by overnight delivery or the second business day following the date of mailing.

 

	
8.

	
The sale and transfer restrictions on the Options and the Option Shares set forth in this Agreement shall be in addition to all other restrictions on transfer imposed by applicable United States and state securities laws, rules and regulations.

 

	
9.

	
This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and may not be amended except by a written instrument executed by the parties hereto.  Each party to this Agreement hereby acknowledges that it has not received or relied upon any statements or representations by any other party or its agents which are not expressly set forth herein.

 

	
10.

	
This Agreement shall be governed by and construed in accordance with the laws of the State of Texas applicable to contracts entered into and to be performed wholly within said State; and Company and the Optionholder agree that any action based upon this Agreement may be brought exclusively in the United States and state courts located in Texas, and each submits itself to the jurisdiction of such courts for all purposes hereunder.

 

	
11.

	
In the event of default hereunder, the non-defaulting parties shall be entitled to recover reasonable attorney’s fees incurred in the enforcement of this Agreement.

 

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11

  

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written hereinabove.

 

	  	
DGSE COMPANIES, INC.,

	  	
a Nevada corporation

	  	  
	  	
By:

	
     

	  	  	
Name:  

	
Dr. L.S. Smith

	  	  	
Title:

	
Chairman & Chief Executive Officer

	  	  	  
	  	
OPTIONHOLDER

	 	 
	  	
     

	 	 	 
	  	  	
     

	  	  	
      

	  	  	
Address:

	  	  	
Fax:

	  	  	
Email:

 

  

12

  

Exhibit C to Option Grant Agreement

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of September ___, 2011, by and between DGSE Companies, Inc., a Nevada corporation (the “Company”) and the undersigned option holder (the “Optionholder”).

 

RECITALS:

 

WHEREAS, the Optionholder is acquiring an aggregate of ______________ (_______) options to purchase shares of the common stock of the Company, par value $0.01 per share (the “Common Stock”), pursuant to that certain Option Grant Agreement, dated September ___, 2011, by and among the Company and the Optionholder (the “Option Agreement”); and

 

WHEREAS, the Company desires to grant to the Optionholder certain registration rights relating to the shares of Common Stock issuable to the Optionholder upon exercise of the Options pursuant to the terms of the Option Agreement (the “Option Shares”); and the Optionholder desires to obtain such registration rights, subject to the terms and conditions set forth herein;

 

NOW, THEREFORE, in consideration of the mutual premises, representations, warranties and conditions set forth in this Agreement, the parties hereto, intending to be legally bound, hereby agree as follows:

 

	
1.

	
Definitions and References. For purposes of this Agreement, in addition to the definitions set forth above and elsewhere herein, the following terms shall have the following meanings:

 

(a)           The term “Commission” shall mean the Securities and Exchange Commission and any successor agency.

 

(b)           The terms “register”, “registered” and “registration” shall refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the 1933 Act (as herein defined) and the declaration or ordering of effectiveness of such registration statement or document.

 

(c)           For purposes of this Agreement, the term “Registrable Stock” shall mean (i) the Option Shares, (ii) any shares of Common Stock issued or issuable to Optionholder as a result of its ownership of the Option Shares by way of a stock split, reorganization, merger or consolidation, and (iii) any Common Stock issued or issuable to Optionholder as a dividend on the Option Shares.  For purposes of this Agreement, any Registrable Stock shall cease to be Registrable Stock when (v) a registration statement covering such Registrable Stock has been declared effective and such Registrable Stock has been disposed of pursuant to such effective registration statement, (w) such Registrable Stock is sold pursuant to Rule 144 (or any similar provision then in force) under the 1933 Act, (x) such Registrable Stock is eligible to be sold pursuant to Rule 144 under the 1933 Act without being subject to any volume limitations except for volume limitations imposed upon the Holder of such Registrable Stock as a result of the Holder’s status as an affiliate (within the meaning of Rule 144 under the 1933 Act) of the Company, (y) such Registrable Stock has been otherwise transferred, no stop transfer order affecting such stock is in effect and the Company has delivered new certificates or other evidences of ownership for such Registrable Stock not bearing any legend indicating that such shares have not been registered under the 1933 Act, or (z) such Registrable Stock is sold by a person in a transaction in which the rights under the provisions of this Agreement are not assigned.

 

(d)           The term “Holder” shall mean the Optionholder or any transferee or assignee thereof to whom the rights under this Agreement are assigned in accordance with Section 8 hereof, provided that the Optionholder or such transferee or assignee shall then own the Registrable Stock.

 

  

13

  

 

(e)           The term “1933 Act” shall mean the Securities Act of 1933, as amended.

 

(f)           An “affiliate of such Holder” shall mean a person who controls, is controlled by or is under common control with a Holder, or the spouse or children (or a trust exclusively for the benefit of the spouse and/or children) of a Holder, or, in the case of a Holder that is a partnership, its partners.

 

(g)           The term “Person” shall mean an individual, corporation, partnership, trust, limited liability company, unincorporated organization or association or other entity, including any governmental entity.

 

(h)           The term “Requesting Holder” shall mean a Holder or Holders of in the aggregate at least a majority of the Registrable Stock.

 

(i)           References in this Agreement to any rules, regulations or forms promulgated by the Commission shall include rules, regulations and forms succeeding to the functions thereof, whether or not bearing the same designation.

 

	
2.

	
Incidental Registration.  Commencing immediately after the date of Closing (as defined in the Merger Agreement), if the Company determines that it shall file a registration statement under the 1933 Act (other than a registration statement on a Form S-4 or S-8 or filed in connection with an exchange offer or an offering of securities solely to the Company’s existing stockholders) on any form that would also permit the registration of the Registrable Stock and such filing is to be on its behalf and/or on behalf of selling holders of its securities for the general registration of its Common Stock to be sold for cash, at each such time the Company shall promptly give each Holder written notice of such determination setting forth the date on which the Company proposes to file such registration statement, which date shall be no earlier than thirty (30) days from the date of such notice, and advising each Holder of its right to have Registrable Stock included in such registration. Upon the written request of any Holder received by the Company no later than twenty (20) days after the date of the Company’s notice, the Company shall use commercially reasonable efforts to cause to be registered under the 1933 Act all of the Registrable Stock that each such Holder has so requested to be registered. If, in the written opinion of the managing underwriter or underwriters (or, in the case of a non-underwritten offering, in the written opinion of the placement agent, or if there is none, the Company), the total amount of such securities to be so registered, including such Registrable Stock, will exceed the maximum amount of the Company’s securities which can be marketed (i) at a price reasonably related to the then current market value of such securities, or (ii) without otherwise materially and adversely affecting the entire offering, then the amount of Registrable Stock to be offered for the accounts of Holders shall be reduced pro rata to the extent necessary to reduce the total amount of securities to be included in such offering to the recommended amount; provided, that if securities are being offered for the account of other Persons as well as the Company, such reduction shall not represent a greater fraction of the number of securities intended to be offered by Holders than the fraction of similar reductions imposed on such other Persons other than the Company over the amount of securities they intended to offer.

 

	
3.

	
Holdback Agreement - Restrictions on Public Sale by Holder.

 

(a)           To the extent not inconsistent with applicable law, each Holder whose Registrable Stock is included in a registration statement agrees not to effect any public sale or distribution of the issue being registered or a similar security of the Company, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the 1933 Act, during the fourteen (14) days prior to, and during the ninety (90) day period beginning on, the effective date of such registration statement (except as part of the registration), if and to the extent requested by the Company in the case of a nonunderwritten public offering or if and to the extent requested by the managing underwriter or underwriters in the case of an underwritten public offering.

 

  

14

  

(b)           Restrictions on Public Sale by the Company and Others.  The Company agrees (i) not to effect any public sale or distribution of any securities similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities, during the fourteen (14) days prior to, and during the ninety (90) day period beginning on, the effective date of any registration statement in which Holders are participating (except as part of such registration), if and to the extent requested by the Holders in the case of a non-underwritten public offering or if and to the extent requested by the managing underwriter or underwriters in the case of an underwritten public offering; and (ii) that any agreement entered into after the date of this Agreement pursuant to which the Company issues or agrees to issue any securities convertible into or exchangeable or exercisable for such securities (other than pursuant to an effective registration statement) shall contain a provision under which holders of such securities agree not to effect any public sale or distribution of any such securities during the periods described in (i) above, in each case including a sale pursuant to Rule 144 under the 1933 Act.

 

	
4.

	
Expenses of Registration.  The Company shall bear all expenses incurred in connection with each registration pursuant to Section 2 of this Agreement, excluding underwriters’ discounts and commissions, but including, without limitation, all registration, filing and qualification fees, word processing, duplicating, printers’ and accounting fees (including the expenses of any special audits or “cold comfort” letters required by or incident to such performance and compliance), exchange listing fees or National Association of Securities Dealers fees, messenger and delivery expenses, all fees and expenses of complying with securities or blue sky laws, fees and disbursements of counsel for the Company.  The selling Holders shall bear and pay the underwriting commissions and discounts applicable to the Registrable Stock offered for their account in connection with any registrations, filings and qualifications made pursuant to this Agreement and the selling Holders shall pay the legal fees of their counsel in connection with such registrations.

 

	
5.

	
Indemnification and Contribution.

 

(a)           Indemnification by the Company.  The Company agrees to indemnify, to the full extent permitted by law, each Holder, its officers, directors and agents and each Person who controls such Holder (within the meaning of the 1933 Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein (in case of a prospectus or preliminary prospectus, in the light of the circumstances under which they were made) not misleading. The Company will also indemnify any underwriters of the Registrable Stock, their officers and directors and each Person who controls such underwriters (within the meaning of the 1933 Act) to the same extent as provided above with respect to the indemnification of the selling Holders.

 

(b)           Indemnification by Holders. In connection with any registration statement in which a Holder is participating, each such Holder will furnish to the Company in writing such information with respect to such Holder as the Company reasonably requests for use in connection with any such registration statement or prospectus and agrees to indemnify, to the extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact or any omission or alleged omission of a material fact required to be stated in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein (in the case of a prospectus or preliminary prospectus, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information with respect to such Holder so furnished in writing by such Holder. Notwithstanding the foregoing, the liability of each such Holder under this Section 5(b) shall be limited to an amount equal to the initial public offering price of the Registrable Stock sold by such Holder, unless such liability arises out of or is based on willful misconduct of such Holder.

 

  

15

  

(c)           Conduct of Indemnification Proceedings.  Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such Person of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such Person will claim indemnification or contribution pursuant to this Agreement and, unless in the reasonable judgment of such indemnified party, a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claim, permit the indemnifying party to assume the defense of such claims with counsel reasonably satisfactory to such indemnified party.  Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). Failure by such Person to provide said notice to the indemnifying party shall itself not create liability except to the extent of any injury caused thereby. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one (1) counsel with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels.

 

(d)           Contribution.  If for any reason the indemnity provided for in this Section 5 is unavailable to, or is insufficient to hold harmless, an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations.  The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties; and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in this Section 5, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 5(a) and 5(b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 5.

 

	
6.

	
Participation in Underwritten Registrations.  No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder’s securities on the basis provided in any underwriting arrangements approved by the Holders entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.

 

	
7.

	
Rule 144.  The Company covenants that it will file the reports required to be filed by it under the 1933 Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations adopted by the Commission thereunder; and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Stock without registration under the 1933 Act within the limitation of the exemptions provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.

 

  

16

  

 

	
8.

	
Transfer of Registration Rights.  The registration rights of any Holder under this Agreement with respect to any Registrable Stock may be transferred to any transferee of such Registrable Stock; provided that there shall be no more than twenty (20) transferees; provided further  that such transfer may otherwise be effected in accordance with applicable securities laws; provided further, that the transferring Holder shall give the Company written notice at or prior to the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which the rights under this Agreement are being transferred; provided further, that such transferee shall agree in writing, in form and substance satisfactory to the Company, to be bound as a Holder by the provisions of this Agreement; and provided further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by such transferee is restricted under the 1933 Act. Except as set forth in this Section 8, no transfer of Registrable Stock shall cause such Registrable Stock to lose such status.

 

	
9.

	
Exchange Listing.  Upon the expiration of the period in which the Optionholder has agreed not to trade the Option Shares pursuant to that certain Lockup Agreement, dated as of the date hereof, by and between the Company and the Optionholder, the Company will use its commercially reasonable efforts to list the Option Shares on the NYSE Amex Equities stock exchange (the “NYSE Amex Exchange”) such that, upon (i) the expiration of the holding period set forth in Rule 144 of the 1933 Act applicable to the Option Shares or (ii) an effective resale registration statement in compliance with the requirements of the 1933 Act, the Option Shares may be traded on the NYSE Amex Exchange.

 

	
10.

	
Mergers, Etc.  The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to “Registrable Stock” shall be deemed to be references to the securities which the Holders would be entitled to receive in exchange for Registrable Stock under any such merger, consolidation or reorganization; provided, however, that the provisions of this Section 10 shall not apply in the event of any merger, consolidation or reorganization in which the Company is not the surviving corporation if each Holder is entitled to receive in exchange for its Registrable Stock consideration consisting solely of (i) cash, (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the 1933 Act, or (iii) securities of the acquiring corporation which the acquiring corporation has agreed to register within ninety (90) days of completion of the transaction for resale to the public pursuant to the 1933 Act.

 

	
11.

	
Miscellaneous.

 

(a)           No Inconsistent Agreements.  The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement.

 

(b)           Remedies.  Each Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive (to the extent permitted by law) the defense in any action for specific performance that a remedy of law would be adequate.

 

(c)           Amendments and Waivers.  The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Holders of at least a majority of the Registrable Stock affected by such amendment, modification, supplement, waiver or departure.

 

  

17

  

(d)           Successors and Assigns.  Except as otherwise expressly provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

(e)           Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas applicable to contracts made and to be performed wholly within that state, without regard to the conflict of law rules thereof.

 

(f)            Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

(g)           Headings.  The headings in this Agreement are used for convenience of reference only and are not to be considered in construing or interpreting this Agreement.

 

(h)           Notices.  Any notice required or permitted under this Agreement shall be given in writing and shall be delivered in person or by fax, email or by overnight courier guaranteeing no later than second business day delivery, directed to (i) the Company at the address set forth below its signature hereof or (ii) a Holder at the address of the Administrator set forth below its signature hereof. Any party may change its address for notice by giving ten (10) days advance written notice to the other parties. Every notice or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, or on the date actually received, if sent by telecopy or overnight courier service, with receipt acknowledged.

 

(i)            Severability.  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holders shall be enforceable to the fullest extent permitted by law.

 

(j)            Entire Agreement.  This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

 

(k)           Enforceability.  This Agreement shall remain in full force and effect notwithstanding any breach or purported breach of, or relating to, the Merger Agreement.

 

(l)            Recitals.  The recitals are hereby incorporated in the Agreement as if fully set forth herein.

 

(m)          Attorneys Fees.  If any action is necessary to enforce or interpret the terms of this agreement, the prevailing party shall be entitled to reasonable attorneys’ fees and costs, in addition to any other relief to which he is or may be entitled. This provision shall be construed as applicable to the entire agreement.

 

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18

  

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written hereinabove.

 

	  	
DGSE COMPANIES, INC.,

a Nevada corporation

	  	  
	  	
By:

	
     

	  	  	
Name:

	
Dr. L.S. Smith

	  	  	
Title:

	
Chairman & Chief Executive Officer

	  	  	
Address:

	  	  	
Fax:

	  	  	
Email:

	  	  	  
	  	
OPTIONHOLDER

	 	 
	  	
    

	  	
    

	  	
Address:

	  	
Fax:

	  	
Email:

  

19

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