Document:

Unassociated Document

     

    
      EXHIBIT
10.3

      

      AMENDED
AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT

    

     

      ANNEX C

    

    

    THIS IS
AN AMENDED AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT made this ____
day of ___________, 2007 (this “Agreement”), by and between:

     

    Stanford Financial Group
Company , a company having its principal office at, 6075 Poplar Avenue,
Memphis, Tennessee 38119 (hereinafter referred to as “Lender”), and Superior Galleries, Inc. , a
Delaware corporation with a place of business at 9478 W. Olympic Blvd., Beverly
Hills, California 90212 (hereinafter referred to as “Borrower”), with reference
to the following facts:

     

    RECITALS

     

    A.
Pursuant to a Commercial Loan and Security Agreement originally dated October 1,
2003, as amended (the “Existing Loan Agreement”), Stanford Financial Group
Company (“SFG”) has provided certain credit facilities to Borrower. On November
30, 2004, the Lender was assigned all of SFG’s right, title and interest in the
Existing Loan Agreement and the promissory note issued thereunder.

     

    B.
Pursuant to the Existing Loan Agreement, Lender provides Borrower a revolving
credit facility of up to Nineteen Million Eight Hundred Ninety Two Thousand
Three Hundred and Forty Dollars ($19,892,340).

     

    C.
Borrower and Lender wish to enter into this Agreement, which shall amend and
restate the Existing Loan Agreement in its entirety and which hereinafter shall
govern the terms and conditions under which Lender shall provide credit
facilities to Borrower.

     

    NOW,
THEREFORE, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS (reference being hereby
made to Section 10 below for the definition of certain capitalized terms used
herein):

     

    Section
1. The Loans, Advances,
Interest, Security Interest, Financing Statements, Collateral,
Subordinations.

     

    1.1 Loan
Authorization

     

    (a) The First Revolving
Loan

     

    Subject
to all the terms and conditions of this Agreement, including the preconditions
to loan advances as herein provided and so long as there exists no Event of
Default nor any event which with the passage of time, the giving of notice or
both would constitute an Event of Default, Lender will make advances to Borrower
(the “First Revolving Loan”) in an aggregate principal amount outstanding at any
time not to exceed the lesser of (i) Five Million Five Hundred Thousand Dollars
($5,500,000) or (ii) the Borrowing Base. Advances under the First Revolving Loan
shall be made in minimum amounts of One Hundred Thousand Dollars ($100,000) for
each advance. The First Revolving Loan shall be evidenced by the First Revolving
Loan Note in the form of Schedule “A-1” attached
hereto and made a part hereof (referred to herein as the “First Revolving Loan
Note”). The aforesaid First Revolving Loan Note and advances thereunder may be
continued or extended by mutual agreement of the parties; provided, however, the
parties acknowledge that Lender is under no obligation to extend the term of the
First Revolving Loan and whether or not to continue or extend the term of the
First Revolving Loan is in the Lender’s sole and absolute discretion.
Notwithstanding the above provisions, the security interest granted to Lender in
the Collateral as herein defined shall not in any way be limited to such amount
or be dependent upon the use to which such funds are put but shall at all times
fully secure the Obligations (as hereinafter defined).

     

    (b) The
Second Revolving
Loan

     

    Subject
to all the terms and conditions of this Agreement, including the preconditions
to loan advances as herein provided and so long as there exists no Event of
Default nor any event which with the passage of time, the giving of notice or
both would constitute an Event of Default, Lender will make advances to Borrower
(the “Second Revolving Loan”) in an aggregate principal amount outstanding at
any time not to exceed Six Million Dollars ($6,000,000). Advances under the
Second Revolving Loan shall be made in minimum amounts of One Hundred Thousand
Dollars ($100,000) for each advance. The Second Revolving Loan shall be
evidenced by a Second
Revolving Loan Note in the form of Schedule “A-2” attached
hereto and made a part hereof (referred to herein as the “Second Revolving Loan
Note”). The aforesaid Second Revolving Loan Note and advances thereunder may be
continued or extended by mutual agreement of the parties; provided, however, the
parties acknowledge that Lender is under no obligation to extend the term of the
Second Revolving Loan and whether or not to continue or extend the term of the
Second Revolving Loan is in the Lender’s sole and absolute discretion.
Notwithstanding the above provisions, the security interest granted to Lender in
the Collateral (as hereinafter defined) shall not in any way be limited to such
amount or be dependent upon the use to which such funds are put but shall at all
times fully secure the Obligations (as hereinafter defined). It is the specific
intent of the parties that advances under the Second Revolving Loan shall be
made without regard to the Borrowing Base and that the entire principal amount
of the Second Revolving Loan shall be available to Borrower.

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    1.2 Obligations

     

    It is
specifically agreed by Borrower and Lender that in the event that further
financial accommodations of any type, including, but not limited to, letters of
credit, coverage of overdrafts and the like, are now or hereafter extended by
Lender to Borrower, the parties intend that this Agreement shall govern any and
all such financial accommodations. An extension of the foregoing, all advances
now or hereafter made by Lender to Borrower pursuant to this Agreement and/or
any of the other Documents or any renewal or extensions thereof or otherwise,
whether or not evidenced by notes, and all liability whether now existing or
hereafter arising, absolute or contingent, direct or indirect with respect to or
under letters of credit, banker’s acceptances or guarantees now or hereafter
established by Lender pursuant to this Agreement, together with all other
obligations and indebtedness of every kind and nature, whether now existing or
hereafter arising, absolute or contingent, direct or indirect, under or pursuant
to this Agreement or any of the other Documents or otherwise, of Borrower to
Lender, to the extent the same are outstanding from time to time, are sometimes
collectively referred to herein as the “Obligations”.

     

    1.3 Interest

     

    All
amounts outstanding from time to time under either of the Notes shall bear
interest at a per annum rate equal to a daily average of the Prime Rate as
reported in the Wall Street Journal. Upon the occurrence of an Event of Default,
interest shall accrue for the period of time for which any payment was due,
during any applicable grace or cure period, and at all times while such default
shall continue at a rate of five percent (5%) per annum greater than the rate
then in effect. In the event that the total amount of any payment required under
either of the Notes is not received by Lender within fifteen (15) days after its
due date, Borrower shall pay to Lender a late charge equal to five percent (5%)
of any such late payment.

     

    1.4 Repayment

     

    (a) The
First Revolving Loan Note and the Second Revolving Loan Note shall provide that
the payment of interest only for the actual number of days elapsed in each
payment period on the daily outstanding principal balance of the First Revolving
Loan and the Second Revolving Loan, respectively, shall be due and payable in
monthly payments in arrears on the 10th day of each month commencing __________
10, 2007 and continuing on the tenth (10th) day of each month thereafter until
the entire outstanding principal balance and accrued interest has been paid in
full.

     

    (b) For
all advances under the First Revolving Loan, Borrower shall repay said advances
in full upon disposition of the Collateral on the basis of which such advances
were made, with the understanding that “disposition” shall be defined as
follows: (i) for auctions, the settlement date for the auction or whenever the
Collateral is shipped, whichever is later, (ii) for dealer inventory financing,
when Borrower receives good funds from the dealer; (iii) for loans to Borrower
itself, as necessary to repay advances which are outstanding in an aggregate
amount in excess of the limitations set forth in the first sentence of Section
1.1(a).

     

    (c)
Notwithstanding anything herein, the entire outstanding principal balance of all
advances under the First Revolving Loan and the Second Revolving Loan and
accrued and unpaid interest thereon shall be due and payable on ____________,
2011 unless said maturity date shall be extended in writing by Lender in
accordance with this Agreement.

     

    Payment
of principal or interest shall be deemed received by Lender only upon receipt of
good funds as determined by Lender.

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    

     

    1.5 Limitation on Use of
Funds

     

    Borrower
may use advances of proceeds of the Loan only for (a) general corporate purposes
of Borrower and (b) Permitted Inter-Company Transactions. Borrower agrees that
to the extent any funds are made available to it under this Agreement, they
shall be used in strict accordance with the policies set forth in Schedule “B” hereof, and that
a material violation by Borrower of any such policy, which violation is not
cured within ten (10) days after written notice of same is given by Lender to
Borrower, shall be an Event of Default hereunder. Borrower shall certify to
Lender quarterly, on each of the compliance certificates that Borrower delivers
to Lender under clauses (i) and (ii) of Section 3.5, that Borrower has used the
proceeds of each advance made to Borrower hereunder during the relevant fiscal
quarter for purposes permitted under this Section 1.5. In addition, Borrower
hereby agrees that Lender, not more frequently than once each year, following at
least thirty (30) days notice to Borrower, shall have the option to engage an
independent accounting firm, at Borrower’s expense, to conduct an independent
compliance audit with respect to Borrower’s obligations hereunder.

     

    1.6 Security

     

    As
security for the performance of Borrower’s Obligations pursuant to this
Agreement, and the other Documents, Borrower hereby mortgages, pledges and
assigns to Lender, and gives and grants to Lender a security interest in all of
its right, title and interest in and to the items and types of property
described or referred to below, whether now owned or hereafter acquired, and the
proceeds and products thereof (all of which property is herein collectively
called the “Collateral”), which security interest has and shall remain first and
prior to all other security interests therein and which Collateral shall remain
free and clear of all mortgages, pledges, security interests, liens and other
encumbrances and restrictions on the transfer thereof, except as specifically
set forth below and in Schedule “D” attached hereto:

     

    (i) Accounts

     

    All
accounts (as such term is defined in the Uniform Commercial Code) of
Borrower.

     

    (ii)
Third-Party Owned
Inventory

     

    All
inventories of every kind owned by third parties, presently existing or
hereafter acquired, wherever located, including all goods intended for auction
sale or owned by third parties, against which Borrower has loaned funds and
which serve as collateral therefor, and all contract rights with respect to any
of the same and all documents representing any of the same, all whether now or
hereafter in Borrower’s possession or in which Borrower may now have or may
hereafter acquire any interest, all whether now existing or hereafter arising
(the “Third-Party-Owned Inventory”). (For the avoidance of doubt, the
Third-Party Owned Inventory shall not include inventory owned by third parties
and consigned to Borrower, as to which Borrower has not made any loans to the
consignor and with respect to which Borrower has no payment obligation to the
consignor prior to the sale of such consigned inventory.) The security interest
in the Third-Party-Owned Inventory shall continue in all Collateral described in
this paragraph (except goods sold as provided in Section 9-307(1) of the Uniform
Commercial Code), notwithstanding the sale, exchange or other disposition hereof
by Borrower (sale, exchange or other disposition of any of said Collateral is
not authorized by Lender, other than sale in the ordinary course of
business).

     

    (iii)
Borrower-Owned
Inventory

     

    All items
of Borrower’s wholesale and retail inventory, presently existing or hereafter
acquired, wherever located, and all contract rights with respect to any of the
same and all documents representing any of the same, all whether now owned or
hereafter acquired by Borrower or in which Borrower may now have or may
hereafter acquire any ownership interest, all whether now existing or hereafter
arising (the “Borrower-Owned Inventory”). The security interest in the
Borrower-Owned Inventory shall continue in all Collateral described in this
paragraph (except goods sold as provided in Section 9-307(1) of the Uniform
Commercial Code), notwithstanding the sale, exchange or other disposition hereof
by Borrower (sale, exchange or other disposition of any of said Collateral is
not authorized by Lender, other than sale in the ordinary course of
business).

     

    
      
        
        

      

      
        C-3

        
          

        

      

      
        
        

      

    

     

    (iv)
Notes and
Liens

    

    All
promissory notes and related loan and security documents relating to or
evidencing any loans made by Borrower, whether presently existing or hereafter
acquired by Borrower, or in which Borrower may now have or may hereafter acquire
any interest, including without limitation, any ownership interest or security
or collateral interest, all whether now existing or hereafter
arising.

     

    (v) Documents

     

    All
documents and instruments relating to any and all loans made by Borrower,
whether presently existing or hereafter acquired by Borrower, or in which
Borrower may now have or may hereafter acquire any interest, including without
limitation, any ownership interest or security or collateral interest, all
whether now existing or hereafter arising.

     

    (vi)
Records

     

    All
books, records and other documents of every nature relating to the above
described types of property, including, without limitation, all tapes, cards,
discs, cassettes, papers, documents and computer software in the possession or
control of Borrower, or any Affiliate of Borrower, all whether now owned or
hereafter acquired by Borrower or in which Borrower now has or may hereafter
acquire any interest, including without limitation, any ownership interest or
security or collateral interest, all whether now existing or hereafter
arising.

     

    (vii)
Insurance
Policies

     

    All
rights in, to and under policies of insurance on said Inventory, including
claims or rights to payment and proceeds heretofore or hereafter arising
therefrom, with respect to the herein described types of property, all whether
now owned or hereafter acquired by Borrower or in which Borrower may now have or
may hereafter acquire any interest, including without limitation, any ownership
interest or security or collateral interest, all whether now existing or
hereafter arising.

     

    (viii)
Proceeds and
Products

     

    All
proceeds and all products of all Collateral described above.

     

    1.7 Financing
Statements

     

    Borrower
hereby authorizes Lender to file financing statements pursuant to the provisions
of the Uniform Commercial Code with respect to the Collateral in which Lender
has been granted a security interest by Borrower pursuant to the provisions of
this Agreement and the other Documents. Borrower hereby agrees to execute any
and all further documents deemed necessary by Lender, in its sole discretion, to
perfect its security interest in the Collateral and authorizes the Lender to
file any and all further documents deemed necessary by Lender, in its sole
discretion, to perfect its interest in the Collateral, including without
limitation, any UCC financing statements.

     

    1.8 [Intentionally
Omitted.]

     

    1.9 Insurance on the
Collateral

     

    Borrower
is contemporaneously with the execution hereof delivering to Lender a
Certificate or Certificates of Insurance (and shall deliver the originals of the
policies referred to herein upon request of Lender), respecting hazard
(including, but not limited to, fire and extended coverage including “all
risk”), liability, loss of rental and flood (if any of the Borrower’s tangible
assets are located on premises in a special flood hazard area), with coverage
for the fair market value at the time of a loss of the Collateral and in an
amount of at least Two Million ($2,000,000) Dollars with no co-insurance.
Borrower shall further be required to provide evidence to Lender of adequate
property insurance for all Collateral, which shall list the Lender as loss payee
as its interests may appear.

     

    
      
        
        

      

      
        C-4

        
          

        

      

      
        
        

      

    

     

    Section
2. Representations and
Warranties

     

    Borrower
hereby represents and warrants to Lender that:

     

    2.1 Incorporation and
Qualification

     

    Borrower
is a corporation duly organized and validly existing and in good standing under
the laws of Delaware, has the corporate power to own its assets and conduct its
business as it is now being conducted and is qualified to do business in
each jurisdiction wherein the nature of the business conducted by it or the
property owned or held under lease by it make such qualification
necessary.

     

    2.2 Capitalization, Business and
Subsidiaries

     

    Except as
disclosed on Schedule
“F” attached hereto and made a part hereof, as of the date of this
Agreement, Borrower does not own stock of any other corporation, active or
inactive. The information set forth on Schedule “G” attached
hereto with respect to Borrower and as to Borrower’s authorized, issued and
outstanding capital stock, all of which stock has been duly authorized and
validly issued and is fully paid and non-assessable, the holders of such stock,
the officers, the directors, the principal and other places of business, the
place where its Inventory, Equipment and Records of its Accounts are kept, and
Borrower’s present business activities and status, is complete and accurate as
of the date of this Agreement. As of the date of this Agreement, Borrower
neither has a place of business nor maintains or stores any of the Collateral at
any location other than those set forth in Schedule “G” attached
hereto.

     

    2.3 Corporate
Authorization

     

    Borrower
has the corporate power to execute, deliver, and carry out the terms and
provisions of this Agreement and the other Documents to which it is a party and
has taken all necessary corporate and legal action with respect thereto
(including, without limitation, obtaining any consent of stockholders required
by law or its Certificate of Incorporation or By-Laws), and this Agreement and
such other Documents to which it is a party have been duly authorized, executed
and delivered by it and constitute its valid, legal and binding agreement and
obligation in accordance with the terms thereof and Lender is entitled to the
benefits thereof in accordance with such terms.

     

    2.4 Financial
Statements

     

    There
have been furnished to Lender financial statements of Borrower described or
referred to in Schedule
“H” attached hereto and made a part hereof. Each such financial
statement, including the comments and notes contained therein, fairly presents
the financial position of the entity or business to which such statement applies
at the date thereof and the results of its operations for the period purported
to be covered thereby. Each such financial statement has been prepared in
conformity with Generally Accepted Accounting Principles applied on a consistent
basis throughout all periods involved, subject, in the case of unaudited
statements, to normal year-end audit adjustments.

     

    2.5 Indebtedness

     

    As of the
date of this Agreement, Borrower has no material outstanding indebtedness except
for liabilities reflected in said financial statements and liabilities incurred
since the date thereof to trade creditors in the ordinary course of business
and/or except as described or set forth in Schedule “I” attached and
made apart hereof and has performed and complied with all of the terms of such
Indebtedness and all instruments and agreements relating thereto and no default
exists as of the date hereof nor does there exist any state of facts which would
after notice or lapse of time, or both, constitute a default under or with
respect to any such Indebtedness, instruments or agreements.

     

    2.6 Title to Properties and Assets;
Liens, etc.

     

    Borrower
has good and marketable title to its properties and assets, including, but not
limited to the Collateral, free and clear of any mortgage, pledge, lien, lease,
encumbrance or charge other than those set forth on Schedule “J” attached
hereto and made a part hereof, with respect to assets (if any) other than the
Collateral. No financing statement under the Uniform Commercial Code which names
Borrower as debtor has been filed in any state or other jurisdiction which
covers the Collateral and has not been terminated except as set forth on Schedule “J”. As of the date
of this Agreement, Borrower has not signed any such financing statement or any
security agreement authorizing any mortgagee or secured party thereunder to file
any such financing statement on the Collateral or its assets except in
connection herewith or as set forth on Schedule “J” attached hereto.
As of the date of this Agreement, Borrower is not a consignor or lessee under
any consignment agreement or lease agreement, except as described in Schedule “J” attached
hereto.

     

    
      
        
        

      

      
        C-5

        
          

        

      

      
        
        

      

    

     

    2.7 Patents, Trademarks,
etc.

     

    Borrower
owns or holds licenses for the use of or has the right to use all patents,
trademarks, service marks, trade names, copyrights and rights necessary for the
conduct of its business as now conducted and as contemplated, including those
identified in Schedule
“K” attached hereto and made a part hereof.

     

    2.8 Litigation, etc.

     

    Except as
set forth in Schedule
“L” attached hereto and made a part hereof, as of the date of this
Agreement, there are no actions, proceedings or investigations pending or to the
knowledge of Borrower threatened (or any basis therefor known to it) which,
either in any case or in the aggregate, might result in any material adverse
change in Borrower’s business, prospects, profits, properties, liabilities,
operations, or conditions (financial or otherwise), or which might affect its
ability to perform this Agreement or any other Documents executed by
it.

     

    2.9 Changes in
Condition

     

    Since the
date of the financial statements referred to in Schedule “H” there has been
no material adverse change, by reason of any matter or cause whatsoever, in
Borrower’s business, prospects, profits, properties, liabilities, operations or
condition (financial or otherwise).

     

    2.10
Tax Returns and
Payments

     

    All tax
returns and reports required by law to be filed by Borrower have been duly filed
or the time for filing has been extended and all taxes, assessments, fees and
other governmental charges (U.S., foreign, state or local or other) upon
Borrower or upon any of its properties, assets, income or franchises, which are
due and payable have been paid. To the best of Borrower’s knowledge the
provisions on Borrower’s books respectively, regarding income taxes for all
fiscal periods to date are adequate according to Generally Accepted Accounting
Principles.

     

    2.11
Compliance With Instruments,
Charter and Law

     

    Borrower
is in full compliance with and is not in-violation or default of any term or
provision of (a) its charter, Certificate of Incorporation or by-laws, if a
corporation, (b) any loan agreement, debt instrument, mortgage or indenture, (c)
any other material contract, agreement or instrument, (d) any judgment, decree
or order, nor has it, he or she been notified of any violation of any statute,
rule or regulation including but not limited to the Occupational Safety and
Health Act and the Employee Retirement Income Security Act (“ERISA”), and the
regulations issued by the Department of Environmental Protection and (e) any
licensing or governmental requirement. The execution, delivery, performance of,
and compliance with this Agreement or any of the other Documents will not result
in any such violation or default or be in conflict with any such term or
provision or result in the creation of any mortgage, lien, encumbrance or charge
upon any of Borrower’s properties or assets except in favor of Lender and there
is no such term or provision which materially adversely affects or in the future
may materially adversely affect its business, prospects, profits, properties,
liabilities, operations or condition (financial or otherwise) or its ability to
perform this Agreement or any of the other Documents executed by Borrower. As of
the date of this Agreement, all material contracts, agreements, mortgages,
indentures, instruments, judgments, decrees and orders to which Borrower is a
party or which are effective against it are listed in Schedule “M” attached except
entered into in the normal course of business.

     

    2.12
Governmental Consents,
etc.

     

    No
consent, approval or authorization for designation, declaration or filing with
any governmental authority, federal, foreign or other is required in connection
with the execution and delivery of this Agreement or the Documents or the
consummation of any transaction contemplated hereby or thereby by Borrower.
While no consent is required by the Securities and Exchange Commission, Borrower
will be required to file a form 8-K, and will comply with such
requirements.

     

    2.13
Solvency

     

    Borrower
is solvent, having assets of a value which exceeds the amount of its liabilities
and is able to and will be able to meet its debts as they mature and has
adequate capital to conduct the business in which it is engaged and is about to
engage.

     

    
      
        
        

      

      
        C-6

        
          

        

      

      
        
        

      

    

     

    2.14
Change of name,
etc.

     

    As of the
date of this Agreement, except as set forth on Schedule “N” attached hereto
and made a part hereof, Borrower has not within five (5) years changed its name,
been a party to any consolidation or merger other than the Merger, acquired all
or a substantial portion of the assets of any Person or purchased any of its or
his assets included in the Collateral from a Person not in the business of
selling such assets.

     

    2.15
Full
Disclosure

     

    The
financial statements referred to in Section 2.4 hereof do not, nor does this
Agreement or any Schedule hereto or any other Document, certificate or statement
furnished to Lender by Borrower in connection with this Agreement, contain any
untrue statement of a material fact or omit to state a fact necessary in order
to make the statements contained therein and herein not misleading. Borrower is
not aware of any fact which materially adversely affects or in the future may
materially and adversely affect its business, prospects, profits, properties,
liabilities, operations or condition (financial or otherwise), or its ability to
perform this Agreement or any other Document executed by it, which has not been
set forth or referred to herein, in any report or statement filed by Borrower or
Parent with the Securities and Exchange Commission or in a certificate or
statement furnished by Borrower to Lender.

     

    2.16
No Event of
Default

     

    No Event
of Default or event or condition that with the passage of time or giving of
notice or both might become an Event of Default has occurred or
exists.

     

    Section
3. Affirmative
Covenants

     

    Except
with the prior written consent of Lender, Borrower covenants and agrees that so
long as there is outstanding any portion of the First Revolving Loan or the
Second Revolving Loan, or any agreement of Lender to make advances to Borrower,
it will comply or cause compliance with the following provisions:

     

    3.1
Punctual
Payment

     

    Borrower
will duly and punctually pay all principal, interest, charges and other items
included in the First Revolving Loan or the Second Revolving Loan which is owing
by it in accordance with the provisions hereof and of the other
Documents.

     

    3.2 Prompt Payment of Taxes, Mortgages,
Leases and Indebtedness

     

    Borrower
will promptly pay and discharge, or cause to be paid and discharged, on the date
due so as to prevent the accruing of interest thereon, all lawful taxes,
assessments, and governmental charges or levies imposed upon items of the
Collateral owned by it, or in which it has an interest or upon its income,
profits, property or business or of any of its Subsidiaries. Borrower will
promptly pay or cause to be paid when due (or in conformity with customary trade
terms) all of its other Indebtedness incident to its operations and will
promptly pay and perform all of its obligations under leases of real and
personal property and under material contracts and will promptly notify Lender
of any default or notice of alleged default received with respect to any such
Indebtedness, lease or contract.

     

    3.3 Conduct of
Business

     

    Borrower
will do all things necessary to preserve, renew and keep in full force and
effect and in good standing, its current corporate existence, qualification and
any franchises, licenses, patents, trademarks and items necessary to continue
its business. It will maintain its properties and assets in good order and
repair, all in compliance with applicable federal, state, and local judgments,
decrees, orders, statutes, rules and regulations, including but not limited to
state and federal environmental regulations and those of the Occupational Safety
and Health Administration.

     

     

    
      
        
        

      

      
        C-7

        
          

        

      

      
        
        

      

    

     

    3.4 Insurance

     

    Borrower
will maintain insurance in amounts, coverage and with insurers satisfactory to
Lender with respect to the Collateral owned by it, or in which they have an
interest and their other properties and business against loss or damage to the
extent that property of similar character is usually so insured by other
companies engaged in a similar business. Without limiting the foregoing, such
insurance shall include (a) liability insurance in such amounts and covering
such risks as Lender may reasonably require, (b) all worker’s compensation and
other employees’ liability insurance as may be required by law, and (c) property
insurance with respect to the items of the Collateral constituting tangible
personal property and fixtures, and with respect to the other properties both
real and personal, including, if necessary, flood insurance, to the full extent
of the insurable value thereof, and covering such risks as Lender may reasonably
require. All of Borrower’s property insurance policies with respect to the
Collateral shall contain loss payable and/or mortgagee clauses in form and
substance reasonably satisfactory to Lender, naming Lender as loss payee as
appropriate and providing (i) that all proceeds thereunder shall be payable to
Lender as its interests may appear, and (ii) that such insurance shall not be
affected by any act or neglect of the insured or owner of the property described
in said policy, and (iii) that such policy and loss payable clause may not be
canceled, amended or terminated unless Lender has received written notice
thereof at least thirty (30) days’ prior to the effective date of such
cancellation, amendment or termination. Borrower will furnish a certificate with
respect to the insurance at the time which is in force pursuant to this Section
3.4, specifying the amount and character of coverage, identifying the insurers
and certifying as to no default in the payment of current premiums thereon and
will furnish Lender with original or duplicate original copies of all policies.
All insurance proceeds for any occurrence or any series of related occurrences
which exceed Ten Thousand Dollars ($10,000) and which are subject to a security
interest under this Agreement may, upon Lender’s request, in Lender’s sole and
absolute discretion, be paid to Lender and shall be applied by Lender to the
payment of any of the principal, whether or not due, or interest or such other
obligation or Indebtedness which constitutes a part of the Loan as Lender may
determine in its sole discretion. Proceeds of Ten Thousand Dollars ($10,000) or
less shall be payable to Borrower for general corporate purposes. Borrower does
hereby grant Lender an Irrevocable Power of Attorney and appoint Lender as its
attorney-in-fact (said power of Attorney being coupled with an interest) for the
sole purpose of executing, negotiating and signing any drafts, checks,
instruments or documents to carry out the terms hereof.

     

    3.5 Accounting Financial Statements and
Other Information

     

    Borrower
will maintain a system of accounts established and administered in accordance
with Generally Accepted Accounting Principles consistently applied. Borrower
will deliver or cause to be delivered to Lender:

     

    Financial
Reports

     

    (i) as
soon as available and in any event within forty-five (45) days after the end of
each of the first three (3) fiscal quarters of each fiscal year of Parent,
consolidated and consolidating financial statements of Parent and its
Subsidiaries (including, after the Merger, Borrower), including a balance sheet
as of the end of period, and statements of income for the period(s) that have
been included as part of the consolidated financial statement disclosure of
Parent’s SEC Form 10-Q filing, which in the case only of the consolidated
financial statements of Parent, have been reviewed by Parent’s appointed
independent accounting firm, along with statements of cash flows for that
period. In connection with the delivery of such quarterly financial statements,
an officer, on behalf of Borrower, will provide written representation that
there is no knowledge of an Event of Default or an event that with notice or
lapse of time or both could constitute and Even of Default, has occurred and is
continuing or if in the opinion of said individual an Event of Default or such
an event has occurred and is continuing a statement as to the nature thereof and
the action which Borrower proposes to take with respect thereto (the provision
for such a statement herein shall in no way be construed as a consent to the
existence of such an Event of Default and of the granting of time to
cure);

     

    (ii) as
soon as available and in any event within one hundred twenty (120) days after
the end of each fiscal year of Parent, consolidated and consolidating financial
statements of Parent (including, after the Merger, Borrower), including a
balance sheet as of the end of such fiscal year and statements of income for the
year(s) that have been included as part of the consolidated financial statement
disclosure of Parent’s SEC Form 10-K filing, which in the case only of the
consolidated financial statements of Parent, have been audited by Parent’s
appointed independent accounting firm, and statements of cash flow for that
period. In connection with the delivery of such annual financial statements, an
officer, on behalf of Borrower, will provide written representation that there
is no knowledge of an Event of Default or an event that with notice or lapse of
time or both could constitute an Event of Default, has occurred and is
continuing or if in the opinion of such accounting firm such an Event of Default
has occurred and is continuing, a statement as to the nature thereof (the
provisions for such a statement herein shall in no way be construed as a consent
to the existence of such an Event of Default or the granting of time to
cure).

     

    
      
        
        

      

      
        C-8

        
          

        

      

      
        
        

      

    

     

    (iii)
within ten (10) days after filing thereof copies of all federal and state income
tax returns for Parent.

     

    (iv) such
financial information from Borrower as shall reasonably be requested by
Lender.

     

    (v) as
soon as reasonably practicable, upon reasonable request of Lender such other
data and information (financial and otherwise) bearing upon or related to
Borrower’s financial condition, results of operations, assets and/or Borrower’s
projections of cash flow and profit and loss, all as Lender from time to time
may reasonably request.

     

    (vi)
within fifteen (15) days after the end of each calendar month, a list of the
Borrower’s aged accounts receivable and a complete list of Borrower’s inventory
duly certified by the chief financial officer of Borrower and such other
information relating to Borrower’s accounts receivable as Lender shall request
at such times as Lender shall request upon such forms and using such procedures
as Lender shall reasonably require.

     

    3.6 Inspection

     

    Borrower
will permit Lender and any authorized representatives of Lender, at Lender’s
sole cost and expense and upon reasonable notice to Borrower, to visit and
inspect any of its offices or any of its or his Affiliates, including all items
of Collateral and its and their books and records, including books and records
relating to accounts receivable (and to make extracts therefrom), and to discuss
its and their affairs, finances and accounts, with its and their employees with
Borrower’s consent, all at such times during normal business hours and as often
and continuously as may be reasonably requested by Lender.

     

    3.7 Notice of Certain Events and
Changes

     

    As soon
as reasonably practicable after becoming aware of any condition, event or state
of facts which constitutes an Event of Default under this Agreement or which,
after notice or lapse of time, or both, would constitute an Event of Default,
Borrower will give written notice to Lender specifying the nature and period of
existence thereof. Borrower will promptly give Lender written notice of any
condition, event or state of facts which causes or may cause material loss or
depreciation in the value of the Collateral and of the commencement or threat of
any action, proceeding or investigation, or the occurrence or existence of any
other event, matter or cause whatsoever, which either in any case or in the
aggregate results or might result in any material adverse change in its
business, prospects, profits, properties, operations or condition (financial or
otherwise). Borrower will give Lender written notice of any change in its place
or places of business, any change of location of any item of the Collateral
having a book value in excess of Fifty Thousand Dollars ($50,000), except as
items of Collateral may be moved in the ordinary course of
business.

     

    3.8 Application of
Proceeds

     

    Borrower
agrees that it will apply the funds provided to it pursuant to this Agreement in
accordance with the terms of this Agreement. Without limiting the generality of
the foregoing, Borrower agrees that it will not, directly or indirectly, apply
any part of such proceeds to the purchasing or carrying of any “margin stock”
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or for any use which will cause a violation of any other
regulation of the Board of Governors of the Federal Reserve System or of any
regulations, interpretations or rulings thereunder.

     

    3.9 Governmental
Notices

     

    As soon
as reasonably practicable upon the issuance thereof, Borrower will send to
Lender a copy of all orders issued by any federal, state or municipal regulatory
authority under any laws or regulations adopted thereby, which, if enforced,
would have a material adverse effect upon its condition whether financial,
operating, or otherwise, and further, Borrower will as soon as reasonably
practicable send to Lender copies of all reports or other materials filed by it
with or issued to it by the U.S. Securities and Exchange Commission, and all
reports, notices or statements sent by Borrower to its
stockholders.

     

    
      
        
        

      

      
        C-9

        
          

        

      

      
        
        

      

    

     

    3.10
Maintenance of Property and
Collateral

     

    Borrower
shall maintain its properties and the Collateral in good repair, working order
and condition and make all needed and proper repairs, renewals, replacements,
additions or improvements thereto and immediately notify Lender of
any event causing loss or depreciation in the value of the Collateral and the
amount of such loss or depreciation. Borrower shall defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein, and in the event Lender’s security interest in the
Collateral or a part thereof would be impaired by an adverse decision, allow
Lender to contest or defend any such claim or demand in Borrower’s name, at
Borrower’s reasonable cost, charge and expenses, and pay to Lender upon demand
all costs and expenses, including without limitation, attorney’s fees incurred
by Lender in connection therewith.

     

    3.11
Payment of Lender
Expenses

     

    Borrower
shall pay to Lender on demand any and all reasonable expenses including
attorneys fees incurred or expended by Lender in the collection or attempted
collection of the Obligations, in protecting and/or enforcing the rights of
Lender against Borrower, and in sustaining and/or enforcing the security
interest and other liens, if any, granted to Lender hereunder and under all
related agreements, instruments and documents.

     

    Section
4. Negative
Covenants

     

    Except
with the prior express written consent of Lender, Borrower covenants and agrees
that so long as there is outstanding any portion of either of the Loans, or so
long as this Agreement has not been terminated if there is no amount outstanding
under either of the Loans, it will not:

     

    4.1 Liens

     

    Directly
or indirectly, create, incur, assume or permit to exist any mortgage, lien,
charge or encumbrance on or pledge or deposit of or conditional sale, lease or
other title retention agreement with respect to any Collateral, whether now
owned or hereafter acquired, or be bound by or subject to any agreement or
option to do so, provided that the foregoing restrictions shall not apply
to:

     

    (a) liens
for taxes, assessments or governmental charges or levies the payment of which is
not at the time required by Section 3.2;

     

    (b) liens
incurred or deposits made in the ordinary course of business in connection with
worker’s compensation or unemployment insurance or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);

     

    (c)
liens, charges and encumbrances related to the conduct of its business or the
ownership of its or his properties or assets which are not incurred in
connection with the borrowing of money and which in the aggregate are not
material;

     

    (d)
statutory or common law possessory liens for charges incurred in the ordinary
course of business the payment of which is not yet due;

     

    (e) the
mortgages, liens and encumbrances referred to or described in Schedules “D” and “J” attached
hereto;

     

    (f) liens
created hereunder;

     

    4.2 Restrictions on Indebtedness

     

    Directly
or indirectly, create, incur, assume, guarantee, agree to purchase or
repurchase, pay or provide funds in respect of, or otherwise become or be or
remain liable, contingently, directly or indirectly, with respect to any
Indebtedness other than:

     

    (a)
Indebtedness hereunder;

     

    (b)
Current liabilities for trade and other obligations incurred in the ordinary
course of its business not as a result of borrowing;

     

    (c)
presently existing indebtedness specifically described in Schedule “I” attached hereto,
none of which shall be prepaid without Lender’s prior written
consent.

     

    
      
        
        

      

      
        C-10

        
          

        

      

      
        
        

      

    

     

    (d)
Indebtedness in respect of endorsements made in connection with the deposit of
items for credit or collection in the normal and ordinary course of
business.

     

    4.3 Restrictions on Investments, Loan,
etc.

     

    Purchase
or otherwise acquire or own any stock or other securities or Indebtedness of any
other Person, or make or permit to be outstanding any loan or advance or capital
contribution to any other Person, other than:

     

    (a)
presently outstanding loans, advances and investments described in Schedules “H” and “I” attached
hereto;

     

    (b)
Indebtedness of customers for merchandise sold or services rendered in the
ordinary course of business;

     

    (c)
Indebtedness pursuant to Third Party Loans made in accordance with the policies
listed in Schedule B;

     

    (d)
investments in bills or bonds issued by the government of the United States of
America and/or Certificates of Deposit issued by a bank having a net worth of at
least Fifty Million Dollars ($50,000,000) and/or securities issued by and
purchased from Lender; and

     

    (e)
Permitted Inter-Company Transactions.

     

    4.4 Stock Issuance, Dividends,
Distributions, Redemptions and Directors’ Fees

     

    Issue any
additional shares of stock, directly or indirectly, declare, order, pay, make or
set apart any sum or property for the redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of its stock of any class now or
hereafter outstanding or for the payment of any dividends on any of such stock,
except for Permitted Inter-Company Transactions and quarterly dividends payable
concurrently with payments to Lender under Section 9 hereof, or pay any
directors’ fees.

     

    4.5 Sale of Assets and Collateral,
Consolidation, Merger or Acquisition of Assets

     

    Directly
or indirectly, sell, abandon or otherwise dispose of the Collateral or any part
thereof, except for sales and consignments of Inventory in the ordinary course
of Borrower’s business, or replacement with Collateral of like value and
quality, or directly or indirectly sell, abandon or otherwise dispose of all or
any portion of its properties or assets or, except pursuant to the Merger,
consolidate with or merge into any other corporation, or permit any other
corporation to consolidate with or merge into it or acquire all or a substantial
portion of the assets of another Person or form or acquire any
Subsidiary.

     

    4.6 Transactions With
Affiliates

     

    Enter
into any transaction with any Affiliate other than in the ordinary course of
business and on terms not less favorable to it than are at the time available to
it from any Non-Affiliate, except for Permitted Inter-Company Transactions and
as otherwise authorized by this Agreement.

     

    4.7 Partnerships, Joint Ventures, Other
Businesses

     

    Create or
participate in the creation of any partnership, joint venture, corporation, or
other entity (including but not limited to any subsidiaries) or engage in any
business other than the business presently conducted by it, except in the
ordinary course of business.

     

    4.8 Subordinate Debt
Payments

     

    Pay
principal or interest on Subordinate Debt (present or future) except as
authorized in this Agreement.

     

    4.9 Expenditures for Capital
Assets

     

    Make any
expenditure for capital assets (other than for routine repairs and maintenance
which are not required to be capitalized as hereinafter set forth) unless,
immediately after giving effect thereto the aggregate amount expended or to be
expended on account of all such expenditures by the Borrower in any fiscal year
commencing with the current fiscal year of Borrower would not exceed the amount
of One Hundred Thousand Dollars ($100,000). The following shall be deemed to be
expenditures for capital assets as subject to the limitations of this Section
4.10:

     

    
      
        
        

      

      
        C-11

        
          

        

      

      
        
        

      

    

     

    (a)
Expenditures for acquisition, major repairs and maintenance which, in accordance
with generally accepted accounting principles, are or should be capitalized,
and

     

    (b) All
lease rentals and other amounts payable under leases entered into after the date
hereof whether “true leases” or finance leases other than renewals and
extensions of leasing existing on the date hereof and all amounts payable under
contracts or arrangements for the purchase of property for payment of the
purchase price for such property as deferred in whole or in part.

     

    4.10
Changes in Locations, Name,
etc.

     

    Borrower
shall give written notice as soon as practicable, and shall take such steps as
Lender may deem necessary or advisable to continue the perfection and priority
of the security interest granted pursuant hereto, prior to taking any of the
following actions: (i) changing the location of its chief executive office; (ii)
permitting any Inventory to be kept at a location other than that specified in
Schedule G ; (iii)
changing its name, existence as a corporation, jurisdiction of incorporation or
formation, or corporate structure to such an extent that any financing statement
filed by Lender in connection with this Agreement would become seriously
misleading.

     

    Section
5. Events of
Default

     

    If any
one or more of the following events (“Events of Default”) shall
occur:

     

    (a) If
Borrower shall fail to make payment of any part or installment of principal or
interest on any advance made under either of the Loans or on any other
Obligations when any such payment shall be due and payable, whether at any
stated maturity or by demand, acceleration or otherwise; or

     

    (b) If
Borrower shall be in default in the performance of or compliance with any other
term, covenant or condition applicable to it contained in this Agreement or
contained in any other Documents, and shall have failed to cure such default for
thirty (30) days after receipt of written notice from the Lender.

     

    (c) If
any representation or warranty made by or on behalf of Borrower in this
Agreement or in the Schedules hereto, or in any of the other Documents, or in
connection with the transactions contemplated hereby and thereby shall be false
or incorrect in any material respect; or

     

    (d) If
Borrower shall default in the payment of any Indebtedness for borrowed money,
including, but not limited to, the indebtedness which is referred to in Schedule “I” attached hereto
or shall default with respect to any of the terns of any evidence of such
Indebtedness or of any indenture or other agreement relating thereto, or if
Borrower shall commit any material breach or be in default under any contract
set forth in Schedule
“M” attached hereto; or

     

    (e) If
Borrower shall make an assignment for the benefit of creditors, or shall admit
in writing an inability to pay debts as they become due, or shall file a
voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or
insolvent, or shall file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting or shall fail to deny the
material allegations of a petition filed against it for any such relief, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of itself or of all or any substantial part of its
properties, or its directors or majority stockholders shall take any action
looking to its dissolution or liquidation, or it shall cease doing business as a
going concern; or

     

    (f) If,
within ninety (90) days after the commencement of any proceeding against
Borrower seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed, or if, within
ninety (90) days after the appointment, without its consent or acquiescence of
any trustee, receiver or liquidator of itself or himself or of all or any
substantial part of its properties, such appointment shall not have been
vacated;

     

    (g) If an
event of default shall occur under a Third Party Loan and is continuing or an
event which pursuant to the provisions of the Third Party Loan Documents with
the lapse of time and/or notice specified therein would become such an event of
default has occurred and is continuing;

     

    then, and
in any such event, in addition to its rights and remedies under this Agreement,
the other Documents and any other instruments, Lender may at its option declare
the Notes and the Obligations or any portion thereof

     

    
      
        
        

      

      
        C-12

        
          

        

      

      
        
        

      

    

     

    to be
immediately due and payable, whereupon the same shall forthwith mature together
with interest accrued thereon and together with any and all costs of collection,
including, but not limited to, reasonable attorney’s fees without notice and
without presentment, demand or protest, all of which are hereby
waived.

     

    Section
6. Payment Terms
..

     

    Payment
of all sums due hereunder shall become due and shall be payable on __________,
2011. Borrower shall make each payment of principal of, and interest on, the
Loans and of fees and all other amounts payable by Borrower under this
Agreement, in good funds no later than 5:00 p.m. (Eastern time) on the date when
due and payable, without condition or deduction for any counterclaim, defense,
recoupment or setoff, in Federal or other funds immediately available to Lender
at its address referred to herein and in the Note. All payments received by
Lender after 5:00 p.m. (Eastern time) shall be deemed to have been received by
Lender on the next succeeding Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon at the
then applicable rate, shall be payable for such extended time. Notwithstanding
the foregoing, upon the occurrence and continuance of an Event of Default, all
sums due hereunder shall, at the option of the Lender, become immediately due
and payable upon written notice to Borrower.

     

    Section
7. Remedies, Provisions re:
Collateral, etc.

     

    In the
event of an occurrence of an Event of Default which has not been cured or waived
within thirty (30) days after notice from Lender to Borrower of such occurrence,
Lender:

     

    (a) may
proceed to protect and enforce its rights if Lender deems necessary to do so by
suit in equity, action at law or other appropriate proceedings, whether for the
specific performance of any agreement contained herein or in any other Document,
or for an injunction against a violation of any of the terms hereof or thereof,
or in aid of the exercise of any right, power or remedy granted thereby or by
law, equity or otherwise.

     

    (b)
without limitation of any rights and remedies of Lender as a secured party under
the Uniform Commercial Code and any rights or remedies set forth in any of the
Documents, Lender shall have all of the following rights and remedies with
respect to the Collateral or any portion thereof:

     

    (i)
Lender may, at any time and from time to time, with or without judicial process
and the aid or assistance of others, reasonably enter upon any premises in which
any of the Collateral may be located and, without resistance or interference by
Borrower, take possession of the Collateral and/or dispose of any part or all of
the Collateral on any such premises; and/or require Borrower to assemble and
make available to Lender at the expense of Borrower any part or all of the
Collateral at any place or time designated by Lender which is reasonably
convenient to Borrower and Lender; and/or remove any part or all of the
Collateral from any premises on which any part may be located for the purpose of
effecting sale or other disposition thereof and/or sell, resell, lease, assign
and deliver, grant options for or otherwise dispose of any or all of the
Collateral in its then condition or following any commercially reasonable
preparation or processing, at public or private sale or proceedings, by one or
more contracts, in one or more parcels, at the same or different times, with or
without having the Collateral at the place of sale or other disposition, for
cash and/or credit and upon any reasonable and customary terms, at such place(s)
and time(s) and to such Persons as Lender shall deem best, all without demand
for performance or any notice or advertisement whatsoever, except that the owner
of the items to be sold shall be given fifteen (15) business days’ written
notice of the place and time of any public sale or of the time after which any
private sale or other intended disposition is to be made, which notice Borrower
hereby agrees shall be reasonable notice thereof. If any of the Collateral is
sold by Lender upon credit or for future delivery, Lender shall not be liable
for the failure of the purchaser to pay for same and in such event Lender may
resell such Collateral. Lender may buy any part or all of the Collateral at any
public sale and if any part or all of the Collateral is of a type customarily
sold in a recognized market or is of the type which is the subject of widely
distributed in standard price quotations Lender may buy at private sale and may
make payment therefor by application of all or a part of either
Loan.

     

    (ii)
Lender shall apply the cash proceeds from any sale or other disposition of the
Collateral first , to
the reasonable expenses of retaking, holding, preparing for sale, selling,
leasing and otherwise disposing of such Collateral, and to reasonable attorneys’
fees and all legal expenses, travel and other expenses which are to be paid or
reimbursed to Lender pursuant hereto or pursuant to the other Documents, second , to all accrued
interest, fees and charges outstanding with respect to the Loans, third , to all other
outstanding portions
of the Loans, fourth ,
if there is any surplus, to any other secured parties having an interest in the
Collateral known to Lender in accordance with their interests, and fifth, if
there is any surplus, to Borrower; provided, however, that Borrower shall remain
liable with respect to unpaid portions of the Loans.

     

    
      
        
        

      

      
        C-13

        
          

        

      

      
        
        

      

    

     

    (iii) Any
of the proceeds of the Collateral received by Borrower after demand by Lender
for repayment of all or any part of the Loans, shall not be commingled with any
other of its property but shall be segregated, held by Borrower in trust as the
exclusive property of Lender, and it will immediately deliver to Lender the
identical checks, monies, or other proceeds of Collateral.

     

    (iv) At
its option, Lender may pay for insurance on the Collateral and taxes,
assessments or other charges which Borrower fails to pay in accordance with the
provisions hereof or of any related agreement, instrument or document and may
discharge any security interest or lien upon the Collateral. No such payment or
discharge of any such security interest or lien shall be deemed to constitute a
waiver by Lender of the violation of any covenant by Borrower as a result of
Borrower’s failure to make any such payment or Borrower’s suffering of any such
security interest or lien. Any payment made or expense incurred by Lender
pursuant to this or any other provisions of this Agreement shall be added and
become a part of the Obligations of Borrower to Lender, shall bear interest at a
rate per annum as provided for in the Notes, and shall be payable on
demand.

     

    Section
8. Cumulative Remedies; No
Waivers, etc.

     

    No right,
power or remedy granted to Lender in this Agreement or in the other Documents is
intended to be exclusive, but each shall be cumulative and in addition to any
other rights, powers or remedies referred to in this Agreement, in the other
Documents or otherwise available to Lender at law or in equity, and the exercise
or beginning of exercise by Lender of any one or more of such rights, powers or
remedies, shall not preclude the simultaneous or later exercise by Lender of any
or all of such other rights, powers or remedies. No waiver by, nor any failure
or delay on the part of Lender in any one or more instances to insist upon
strict performance or observance of one or more covenants or conditions hereof,
or of the other Documents shall in any way be, or be construed to be, a waiver
thereof or to prevent Lender’s rights to later require the strict performance or
observance of such covenants or conditions, or otherwise prejudice Lender’s
rights, powers or remedies.

     

    Section
9. Partial Invalidity,
Waivers

     

    (a) If
any term or provision of this Agreement or any of the other Documents or the
application thereof to any Person or circumstance shall, to any extent, be
invalid or unenforceable by reason of any applicable law, the remainder of this
Agreement and the other Documents, or application of such term or provision to
Persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement and the other Documents shall be valid and be enforced to the
fullest extent permitted by law. To the full extent, however, that the
provisions of any such applicable law may be waived, they are hereby waived by
Borrower to the end that this Agreement and the other Documents shall be deemed
to be valid and binding obligations enforceable in accordance with their
terms.

     

    (b) To
the extent permitted by applicable law, Borrower hereby waives presentment,
demand, protest, notice of protest, notice of default or dishonor, notice of
payments and non-payments, or of any default.

     

    (c)
BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE, JUDICIAL HEARING OR PRIOR COURT
ORDER TO WHICH IT MIGHT OTHERWISE HAVE THE RIGHT UNDER ANY FEDERAL OR STATE
STATUTE OR REGULATION IN CONNECTION WITH THE OBTAINING BY LENDER OF ANY
PREJUDGMENT REMEDY BY REASON OF THIS AGREEMENT, OR BY REASON OF BORROWER’S
OBLIGATIONS OR ANY RENEWALS OR EXTENSIONS OF THE SAME. BORROWER ALSO WAIVES ANY
AND ALL OBJECTION WHICH IT MIGHT OTHERWISE ASSERT, NOW OR IN THE FUTURE, TO THE
EXERCISE OR USE BY LENDER OF ANY RIGHT OF SET-OFF, REPOSSESSION OR SELF HELP AS
MAY PRESENTLY EXIST UNDER STATUTE OR COMMON LAW.

     

    Section
10. Definitions

     

    As used
herein, the following terms have the following meanings:

     

    Account Debtor : means a
Person who is obligated on an account.

     

    
      
        
        

      

      
        C-14

        
          

        

      

      
        
        

      

    

     

    Agreement : this Amended and
Restated Loan and Security Agreement, as it may be amended, amended and
restated, renewed or supplemented from time to time.

     

    Affiliate : with reference to
any Person, any director, officer or employee of such Person, any corporation,
association, firm or other entity in which such Person has a direct or indirect
substantial interest or by which such Person is directly or indirectly
controlled or is under direct or indirect substantial common control with such
Person. For purposes of this Agreement, Borrower, Parent and the Parent
Subsidiaries are Affiliates of one another.

     

    Bankruptcy Code : Title 11 of
the United States Code (11 U.S.C. Section 101 et seq. ), as amended from
time to time, or any successor statute.

     

    Borrower : the meaning
specified on page 1.

     

    Borrowing Base : as of any
date, an amount equal to the sum of: (a) seventy percent (70%) of Eligible
Accounts on such date, plus (b) seventy percent (70%) of the value of Eligible
Inventory, based upon the lower of cost (computed on a first-in-first-out
basis), fair market value or orderly liquidation value as determined by
Lender.

     

    Borrowing Base Certificate : a
certificate in the form of Schedule “O” attached
hereto.

     

    Collateral : the meaning
specified in Section 1.6.

     

    Documents : this Agreement,
the Notes, all collateral assignments of the notes and liens described in
Section 1.6(a)(iv), all UCC-1 Financing Statements, and all other agreements,
documents and instruments heretofore, now or hereafter executed and delivered
pursuant to this Agreement or pursuant to any of the aforesaid
documents.

     

    Eligible Accounts : all
accounts of Borrower that are deemed by Lender in the exercise of its sole and
absolute discretion to be eligible for inclusion in the calculation of the
Borrowing Base net of any and all interest, finance charges, sales tax, fees,
returns, discounts, claims, credits, charges, contra accounts, exchange
contracts or other allowances, offsets and rights of offset, deductions,
counterclaims, disputes, rejections, shortages or other defenses and all credits
owed or allowed by Borrower upon any of its accounts and further reduced by the
aggregate amount of all reserves, limits and deductions provided for in this
definition and elsewhere in this Agreement. Eligible Accounts shall not include
the following:

     

    (a)
accounts which remain unpaid more than ninety (90) days past their invoice
dates;

     

    (b)
accounts which are not due and payable within sixty (60) days after their
invoice dates;

     

    (c)
accounts owing by a single Account Debtor if twenty percent (20%) or more of the
aggregate balance owing by said Account Debtor is ineligible pursuant to clauses
(a) or (b) above;

     

    (d)
accounts with respect to which the obligation of payment by the Account Debtor
is or may be conditional for any reason whatsoever including, without
limitation, accounts arising with respect to goods that were (i) not sold on an
absolute basis, (ii) sold on a bill and hold sale basis, (iii) sold on a
consignment sale basis, (iv) sold on a guaranteed sale basis, (v) sold on a sale
or return basis, or (vi) sold on the basis of any other similar
understanding;

     

    (e)
accounts with respect to which the Account Debtor is not a resident or citizen
of, or otherwise located in, the continental United States of America, or with
respect to which the Account Debtor is not subject to service of process in the
continental United States of America, unless such accounts are backed in full by
irrevocable letters of credit or insurance in form and substance satisfactory to
Lender issued or confirmed by a domestic commercial bank acceptable to
Lender;

     

    (f)
accounts with respect to which the Account Debtor is the United States of
America or any other federal governmental body unless such accounts are duly
assigned to Lender in compliance with all applicable governmental requirements
(including, without limitation, the Federal Assignment of Claims Act of 1940, as
amended, if applicable);

     

    (g)
accounts with respect to which Borrower is or may be liable to the Account
Debtor for goods sold or services rendered by such Account Debtor, but only to
the extent of such liability to such Account Debtor;

     

    
      
        
        

      

      
        C-15

        
          

        

      

      
        
        

      

    

     

    (h)
accounts with respect to which the goods giving rise thereto have not been
shipped and delivered to and accepted as satisfactory by the applicable Account
Debtor or with respect to which the services performed giving rise thereto have
not been completed and accepted as satisfactory by the Account Debtor
thereon;

     

    (i)
accounts which are not invoiced within thirty (30) days after the shipment and
delivery to and acceptance by said Account Debtor of the goods giving rise
thereto or the performance of the services giving rise thereto;

     

    (j)
accounts which are not subject to a first priority perfected security interest
in favor of Lender;

     

    (k) that
portion of an account balance owed by a single Account Debtor which exceeds
fifteen percent (15%) of total accounts otherwise deemed eligible hereunder;
and

     

    (l)
accounts with respect to which the Account Debtor is located in any state
requiring the filing of a Notice of Business Activities Report or similar report
in order to permit a Borrower to seek judicial enforcement in such state of
payment of such account, unless such Borrower has qualified to do business in
such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year.

     

    Eligible Inventory : as at any
date of determination, all inventory owned by and in the possession of Borrower
and located in the United States of America that Lender, in its sole and
absolute discretion, deems to be eligible for borrowing purposes. Without
limiting the generality of the foregoing, unless otherwise agreed by Lender, the
following is not Eligible Inventory:

     

    (a)
work-in-process;

     

    (b)
finished goods which do not meet the specifications of the purchase order for
such goods;

     

    (c)
inventory with respect to which Lender does not have a valid, first priority and
fully perfected security interest;

     

    (d)
inventory with respect to which there exists any security interest or lien in
favor of any Person other than Lender;

     

    (e)
packaging and shipping materials, products and labels;

     

    (f)
inventory that is obsolete;

     

    (g)
inventory produced in violation of the Fair Labor Standards Act, in particular
provisions contained in Title 29 U.S.C. 215 (a)(i); and

     

    (h)
inventory located at a location for which Lender does not have a valid
landlord’s or warehouseman’s waiver or subordination on terms and conditions
acceptable to Lender in its sole discretion and inventory located at any
location other than those listed on Schedule “G” .

     

    Financial Statements : the
reports, statements and other information to be delivered to Lender pursuant to
Section 3.5.

     

    First Revolving Loan : the
meaning specified in Section 1.1(a).

     

    First Revolving Loan Note :
the meaning specified in Section 1.1(a).

     

    Generally Accepted Accounting
Principles : generally accepted accounting principles and practices in
the United States of America, consistently applied.

     

    Indebtedness : as applied to a
Person, (a) all items, except items of capital stock or of surplus or of
unappropriated retained earnings or of amounts accrued for deferred income taxes
if in compliance with Section 3.2, which in accordance with Generally Accepted
Accounting Principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such person as at the date of
which Indebtedness is to be determined, (b) all indebtedness secured by any
mortgage, pledge, lease, lien or conditional sale or other title retention
agreement existing on any property or asset owned or held by such person subject
thereto, whether or not such indebtedness shall have been assumed, and (c) all
indebtedness of others which such Person has directly or indirectly guaranteed,
endorsed, discounted or agreed contingently or otherwise to purchase or
repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock purchase, capital contribution or
otherwise) or otherwise to become liable directly or indirectly with respect
thereto.

     

    
      
        
        

      

      
        C-16

        
          

        

      

      
        
        

      

    

     

    Lender : the meaning specified
on page 1.

     

    Loans : collectively, the
First Revolving Loan and the Second Revolving Loan.

     

    Merger : the merger of DGSE
Merger Corp., a Delaware corporation (“Merger Corp.”) and wholly-owned
subsidiary of Parent, with and into Borrower, by which Borrower shall become a
wholly-owned Subsidiary of Parent, on the terms and conditions set forth in that
certain Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of January 6, 2007, by and among Parent, Merger Corp., Borrower and the
stockholder agent named therein.

     

    Notes : collectively, the
First Revolving Loan Note and the Second Revolving Loan Note.

     

    Obligations : the meaning
specified in Section 1.2.

     

    Parent : DGSE Companies, Inc.,
a Nevada corporation and, following the consummation of the Merger, the sole
stockholder of Borrower.

     

    Parent Subsidiary : a
Subsidiary of Parent other than Borrower.

     

    Permitted Inter-Company
Transaction : a cash dividend or distribution made by Borrower to Parent
in accordance with any applicable restrictions of the General Corporation Law of
the State of Delaware or a loan by Borrower to Parent or to a Parent Subsidiary,
in each case with the proceeds of advances made by Lender to Borrower under the
First Revolving Loan or the Second Revolving Loan, provided that:

     

    (a)
Parent has executed and delivered to Lender a limited continuing guaranty of the
Obligations, in form and substance reasonably satisfactory to Lender, covering
an amount of the Obligations not to exceed the sum of (x) the aggregate
amount of all such dividends or distributions to Parent, less all amounts contributed
by Parent to Borrower as capital in return for such dividends or distributions,
and (y) the aggregate outstanding principal balance of all such inter-company
loans to Parent or any Parent Subsidiary; and

     

    (b)
Parent has executed and delivered to Lender a security agreement in form and
substance reasonably satisfactory to Lender, pursuant to which Parent has
granted Lender a second-priority security interest in all Stanford Collateral
(as defined in the Intercreditor Agreement, dated as of July ___, 2006, entered
into by and between Texas Capital Bank, National Association, a national banking
association Lender (“TCB”), Lender and Parent), subject only to the
first-priority security interest of TCB.

     

    Person : a corporation, an
association, a partnership, an organization, a business, an individual or a
government or political subdivision thereof or any governmental
agency.

     

    Second Revolving Loan : the
meaning specified in Section 1.1(b).

     

    Second Revolving Loan Note :
the meaning specified in Section 1.1(b).

     

    Subsidiary : with reference to
any Person, a corporation, or similar association or entity of which not less
than a majority of the outstanding shares of the class or classes of stock, have
by the terms thereof ordinary voting power to elect a majority of the directors,
managers or trustees of such corporation, association or entity, of which are at
the time owned or controlled, directly or indirectly, by such Person or by a
Subsidiary of such Person.

     

    Third Party Loan Documents :
all agreements, documents and instruments heretofore, now or hereafter executed
and delivered pursuant to any Third Party Loans made by Borrower.

     

    Uniform Commercial Code : the
Uniform Commercial Code as in effect from time to time in the State of Texas,
including, without limitation, any amendments thereto which are effective after
the date hereof.

     

    
      
        
        

      

      
        C-17

        
          

        

      

      
        
        

      

    

     

    Section
11. Expenses

     

    Borrower
agrees to indemnify and save Lender harmless from, and to pay or reimburse
Lender for, all reasonable charges, costs, damages, liabilities and expenses,
including, without limitation, reasonable attorneys’ fees, if
any, incurred by Lender in defending or protecting the security interests and
liens granted pursuant to this Agreement or the other Documents, or the priority
of any thereof, or in the performance of any obligation of Borrower in
connection with the Collateral or in the attempted enforcement or enforcement of
this Agreement or the other Documents, or in the collection or attempted
collection of any of the obligations owing under any thereof, or in the
realization or attempted realization upon the Collateral.

     

    Section
12. Further Assurances;
Possession of Collateral; Custodians

     

    Borrower
will deliver to Lender such financing statements and other instruments
constituting or evidencing items of the Collateral as may be reasonably
requested by Lender to better assure it with respect to the security interests
granted to it pursuant to this Agreement and the other Documents. To the extent
permitted by applicable law, Borrower hereby authorizes Lender to file, in the
name of Borrower, financing statements which Lender in its sole discretion deems
necessary to further perfect the security interests granted under this Agreement
and the other Documents.

     

    Section
13. Survival of Agreements,
Representations and Warranties etc.

     

    All
agreements, representations and warranties contained herein or made in writing
by or on behalf of Borrower, in connection with the transactions contemplated
hereby shall survive the execution and delivery of this Agreement and the other
Documents shall survive any investigation at any time made by Lender and any
disposition of the Loans by Lender and, to the extent applicable, shall be
deemed to be made a new by each of them each time an advance is made pursuant
hereto or pursuant to the other Documents. All statements contained in any
certificate or other instrument delivered by or on behalf of Borrower pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed representations and warranties made hereunder.

     

    Section
14. Failure to
Perform

     

    If
Borrower shall fail to observe or perform any of the covenants hereof, Lender
may pay such reasonable amount or incur reasonable liabilities to remedy or
attempt to remedy any such failure, and all such payments made and liabilities
incurred shall be for the account of Borrower and shall be in Lender’s sole
discretion or shall be withdrawn from Borrower’s accounts maintained with
Lender.

     

    Section
15. Notices,
etc.

     

    All
notices, requests, consents and other communications hereunder shall be in
writing and shall be deemed to be duly delivered upon actual receipt if by
facsimile, email or over night courier, and five (5) days after mailing if by
first class registered mail, return receipt requested

     

    (a) if to
Lender:

     

    
      	
                                  

            	
                                           

            	
                   

            	
                                                                                                                                                  

            
	 
      	
              Lender:

            	 
      	
              Stanford
      International Bank Ltd.

              No.
      11 Pavilion Drive,

              St.
      John’s, Antigua, West Indies

              Attn:
      James M. Davis, Chief Financial Officer

              Facsimile:
      [omitted]

              Email:
      [omitted]

            

    

     

    
      	 
      	
              with
      a copy to:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              Adorno
      & Yoss LLP

              225
      Ponce de Leon Boulevard, Suite 400

              Coral
      Gables, FL 33134

              Attn:
      Seth P. Joseph, Esq.

              Facsimile:
      [omitted]

              Email:
      [omitted]

            

    

     

    or at
such other address as may have been furnished in writing by Lender to Borrower;
or

     

    
      
        
        

      

      
        C-18

        
          

        

      

      
        
        

      

    

     

    (b) if to
Borrower:

     

    
      	
                

            	
              Borrower:

            	 
      	
              Superior
      Galleries, Inc.

              9478
      W. Olympic Blvd.

              Beverly
      Hills, California 90212

              Attn:
      Chief Executive Officer

              Facsimile:
      [omitted]

              Email:
       [omitted]

            
	 
      	 
      	 
      	
               
      

            
	 
      	
              with
      a copy to:

            
	 
      	 
      	 
      	
               
      

            
	 
      	 
      	 
      	
              DGSE
      Companies, Inc.

              2817
      Forest Lane

              Dallas,
      TX 75234

              Attn:
      Dr. L.S. Smith

              Facsimile:
      [omitted]

              Email:
      [omitted]

            
	 
      	 
      	 
      	 
      
	 
      	
              with
      an additional copy to:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              Sheppard,
      Mullin, Richter & Hampton, LLP

              12275
      El Camino Real, Suite 200

              San
      Diego, California 92130-2006

              Attn:
      John J. Hentrich, Esq.

              Facsimile:
      [omitted]

              Email:
      [omitted]

            

    

     

    or at
such other address as may have been furnished in writing by Borrower to
Lender.

     

    Section
16. Amendments and
Waivers

     

    Neither
this Agreement nor any other Document nor any term hereof or thereof may be
changed, waived, discharged or terminated except by a writing signed by the
party to be charged.

     

    Section
17. Term

     

    The term
of this Agreement and the other Documents shall be from the date hereof and
continue until all amounts due hereunder are paid in full. Any expiration or
termination of this Agreement shall not affect any rights of Lender under this
Agreement or under the other Documents and upon any such expiration or
termination Borrower shall be obligated to forthwith pay all of the Loans and
Borrower shall continue to be bound by all of the provisions of this Agreement
until all of the Loans shall have been paid in full.

     

    Section
18. Conditions
Precedent

     

    18.1 The
obligation of Lender to make the Loans and advances to be made by it hereunder
is subject to the following conditions precedent;

     

    (a) Approval of Lender
Counsel

     

    All legal
matters incident to the transactions hereby contemplated shall be satisfactory
to counsel for Lender.

     

    (b) Proof of Corporate
Action

     

    Lender
shall have received certified copies of all corporate action taken by Borrower
to authorize the execution and delivery of this Agreement and the Notes and
Loans hereunder, and such other documents as Lender or its counsel shall
reasonably request.

     

    
      
        
        

      

      
        C-19

        
          

        

      

      
        
        

      

    

     

    (c) Corporate Documents and
Opinions

     

    Borrower
is furnishing to Lender a certificate of good standing of the state of its
incorporation, resolutions, incumbency certificates, and other documents which
Borrower acknowledges are being relied upon by Lender, and such other documents
are to be in the form and of the content as may be satisfactory to Lender and
its counsel.

     

    (d) Loan Documents

     

    Receipt
by Lender of the Notes fully executed by Borrower, UCC-1 Financing Statements in
form satisfactory for filing with the Delaware Secretary of State and other
material documents required by Lender.

     

    (e) Insurance

     

    Receipt
by Lender of the policies of insurance in compliance with Section
1.9.

     

    (f) Opinion of
Counsel

     

    Lender
shall have received from counsel to Borrower a written opinion, reasonably
satisfactory to Lender.

     

    (g) Representations and
Warranties

     

    The
Representations and Warranties contained in Section 2 herein shall be true on
and as of the date of closing.

     

    (h) Collateral

     

    Receipt
by Lender of any of the Collateral where possession by Lender is necessary to
perfect its security interest therein.

     

    (i) Merger

     

    Lender
shall have received satisfactory evidence that the Merger has been
consummated.

     

    (j) Parent Approval

     

    Lender
shall have received satisfactory written approval by Parent of the terms and
provisions of this Agreement and the other Documents.

     

    18.2 The
obligation of the Lender to make each subsequent advance to be made by it
hereunder is subject to the conditions precedent that:

     

    (a) No Event of
Default

     

    No Event
of Default specified in Section 5 hereof, and no event which pursuant to the
provisions of Section 5 with the lapse of time and/or notice specified therein
would become such an Event of Default, has occurred and is continuing;
and

     

    (b) No Material Adverse
Change

     

    There has
been no material adverse change in the consolidated financial condition of
Borrower and its consolidated subsidiaries; and

     

    (c) Representations and
Warranties

     

    The
Representations and Warranties contained in Section 2 are true and
correct.

     

    Lender
shall have received a certificate of the CEO and CFO of Borrower certifying as
of the date of the current advance that (i) no Event of Default specified in
Section 5 hereof exists or is continuing, (ii) no material change has taken
place with regard to its financial condition as represented to Lender and (iii)
the Representations and Warranties contained in Section 2 are still true and
correct.

     

    
      
        
        

      

      
        C-20

        
          

        

      

      
        
        

      

    

     

    18.3 By
delivering the Notes and each other Document to Lender and receiving the Loans
and advances, Borrower represents that no Event of Default specified in Section
5 hereof exists or is continuing and no material adverse change has taken place
with regard to its financial condition as represented to Lender.

     

    18.4
Loan
Administration.

     

    Advances
made under the Loans shall be as follows:

     

    (a) A
request for an advance shall be made by Borrower giving Lender notice of its
intention to borrow, in which notice Borrower shall specify the amount of the
proposed borrowing, whether such proposed borrowing will be a borrowing under
this First Revolving Loan or the Second Revolving Loan, and the proposed
borrowing date, not later than 2:00 p.m. Eastern time one (1) business day prior
to the proposed borrowing date; provided, however, that no such request may be
made at a time when there exists an Event of Default.

     

    (b) In
the case of each request for an advance under the First Revolving Loan, Borrower
shall deliver to Lender, concurrently with delivery of the notice of borrowing
required by clause (a) of this Section 18.4, a Borrowing Base Certificate
executed by Borrower and prepared as of a date not more than thirty (30)
business days prior to the date of such requested advance.

     

    (c)
Borrower hereby authorizes Lender to disburse the proceeds of each revolving
credit advance requested by wire transfer to such bank account as may be agreed
upon by Borrower and Lender from time to time or elsewhere if pursuant to
written direction from Borrower.

     

    (d) All
revolving credit advances and other extensions of credit to or for the benefit
of Borrower shall constitute one general Obligation of Borrower and shall be
secured by Lender’s lien upon all of the Collateral.

     

    (e)
Lender shall enter all revolving credit advances as debits to a loan account in
the name of Borrower and shall also record in said loan account all payments
made by Borrower on any Obligations and all proceeds of Collateral which are
indefeasibly paid to Lender, and may record therein, in accordance with
customary accounting practice, other debits and credits, including interest and
all charges and expenses properly chargeable to Borrower. All payments and
collections shall be applied first to fees, costs and expenses due and owing
under the Documents, then to interest due and owing under the Documents, and
then to principal outstanding under the Loan.

     

    (f)
Lender will account to Borrower monthly with a statement of the Loans, charges
and payments made pursuant to this Agreement, and such accounting rendered by
Lender shall be deemed final, binding and conclusive upon Borrower unless Lender
is notified by Borrower in writing to the contrary within thirty (30) days of
the date each accounting is mailed to Borrower. Such notices shall be deemed an
objection to those items specifically objected to therein.

     

    (g)
Borrower shall establish one or more bank accounts for deposits of advances made
under the Loans and for deposits of repayments of Third Party Loans, and shall
assign such accounts to Lender. Borrower shall not deposit advances from Lender
or repayments from borrowers under Third Party Loans into any other
accounts.

     

    Section
19. Setoff
..

     

    Borrower
hereby gives Lender a security interest in, and a right of set-off for the Loans
upon or against, all the deposits, credits, Collateral, and property of
Borrower, now or hereafter in the possession or control of Lender or in transit
to it. Lender may at any time apply or set-off the same, or any part thereof, to
either of the Loans even though unmatured.

     

    Section
20. Miscellaneous

     

    (a) This
Agreement and each other document granting Lender a security interest in the
Collateral is a security agreement within the meaning of the Uniform Commercial
Code. Where any provision in this Agreement refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
To the extent there is any inconsistency between the terms of this Agreement and
any of the other Documents, this Agreement shall control. All of the terms of
this Agreement and the other Documents shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, executors,
administrators, successors and assigns of the parties hereto, whether so
expressed or not, and by any other holder or holders at the time of the Loan or
any part
thereof. The headings in this Agreement are for the purposes of reference only
and shall not limit or otherwise affect any of the terms hereof. This Agreement
may be executed in two (2) or more counterparts, each of which shall be deemed
an original, and by the several parties hereto in separate counterparts, but all
of which together shall constitute one and the same instrument.

     

    
      
        
        

      

      
        C-21

        
          

        

      

      
        
        

      

    

     

    (b) This
Agreement is between the Lender and the Borrower only and shall not be relied
upon by any third party. Without limiting the foregoing, Lender shall have no
liability to any third party whatever (including without limitation Borrower or
anyone conducting business with any of the foregoing) in the event Lender for
any reason and at any time determines not to advance sums under the Notes and/or
for any reason or otherwise exercises its rights under this Agreement and/or the
other Documents.

     

    (c)
Subject to Section 552(a) of the Bankruptcy Code, the security interests granted
hereby extends to the Collateral, whether acquired before or after the
commencement of a case under the Bankruptcy Code.

     

    Section
21. CHOICE OF LAW; CONSENT TO
JURISDICTION .

     

    THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR
THE NOTES IS COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE OF TEXAS OR IN
THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE
LAYING OF VENUE IN THE STATE OF TEXAS. ANY PROCESS IN ANY SUCH ACTION SHALL BE
DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT THE
ADDRESS DESCRIBED IN SECTION 15 HEREOF. ANY MATTERS AFFECTING THE ENFORCEMENT OR
INTERPRETATION OF LENDER’S SECURITY INTEREST IN THE COLLATERAL SHALL (TO THE
EXTENT NOT GOVERNED BY TEXAS LAW PURSUANT TO THE AGREEMENT SET FORTH HEREIN) BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
OR CALIFORNIA, AS APPLICABLE.

     

    [REST
OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]

     

    
 

    
      
        
        

      

      
        C-22

        
          

        

      

      
        
        

      

    

     

    

    IN WITNESS WHEREOF , each of
the parties hereto has executed this Agreement on the day first above
mentioned.

     

    SIGNED,
SEALED AND DELIVERED

     

    IN THE
PRESENCE OF:

    

    
      	 
      	 
      	 
      	 
      
	 
      	 
      	
              BORROWER

              Superior
      Galleries, Inc.

            
	 
      	 
      	 
      	 
      
	 
      	 
      	
              By:

            	 
      
	 
      	 
      	 
      	
              Name:

              Title:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	
              LENDER

              Stanford
      Financial Group Company

            
	 
      	 
      	 
      	 
      
	 
      	 
      	
              By:

            	 
      
	 
      	 
      	 
      	
              James
      M. Davis

              Its
      Chief Executive Officer

            
	 
      	 
      	 
      	 
      

    

     

    
      
        
        

      

      
        C-23Unassociated Document

    
      EXHIBIT
10.4

      

      DEBT
CONVERSION AGREEMENT

      

      

    

     

    This Debt
Conversion Agreement (“Agreement”) is made
this 27th day of January, 2010 (the “Effective Date”), by
and between Stanford International Bank, Ltd., an entity organized under the
laws of Antigua (“Stanford”), and DGSE
Companies, Inc., a Nevada corporation (the “Company”) and is
acknowledged and agreed to by Superior Galleries, Inc., a subsidiary of the
Company (“Superior”).

     

    WITNESSETH:

     

    WHEREAS, Superior and Stanford are
parties to that certain Amended and Restated Commercial Loan and Security
Agreement dated as of May 30, 2007 ( the “Credit Agreement”)
and as of the date hereof, the books and records of Stanford reflect total
outstanding principal in the amount of $10,550,000 (such amount, together with
all accrued but unpaid interest with respect thereto, the “Outstanding Debt”)
under the Credit Agreement.

     

    WHEREAS, the Company desires to issue
1,000 shares (the “Shares”) of its
common stock, $0.01 par value per share (“Common Stock”), in
full satisfaction of the Outstanding Debt, and in consideration for receiving
the Shares, Stanford agrees to cancel the Outstanding Debt and terminate the
Credit Agreement and all other agreements between the Company and
Stanford.

     

    WHEREAS, the United States District
Court for the Northern District of Texas, Dallas Division (the “Court”) entered an
order on February 17, 2009 appointing Ralph S. Janvey as receiver (the “Receiver”) for the
assets of Stanford, Stanford Group Company, Stanford Capital Management, LLC, R.
Allen Stanford, James M. Davis and Laura Pendergest-Holt, and the entities they
own or control (the “Receivership
Estate”).

     

    WHEREAS, in connection with this
Agreement, the Company, Stanford and certain other parties named therein, have
entered into that certain Purchase and Sale Agreement of even date herewith (the
“Purchase
Agreement”), pursuant to which Stanford will issue and sell the Shares
and all other equity securities it owns in the Company to the Buyers (as defined
therein).

     

    WHEREAS, the Company, Stanford and Dr.
L.S. Smith are also parties to that certain Corporate Governance Agreement dated
May 30, 2007 (the “Corporate Governance
Agreement”) pursuant to which Stanford has the right to nominate up to
two independent directors so long as Stanford Beneficially Owns (as defined
therein) at least 15% of the outstanding shares of Common Stock.

     

    WHEREAS, upon approval of the Purchase
Agreement by the Court and after Closing, Stanford shall no longer have any
rights under the Corporate Governance Agreement.

     

    NOW, THEREFORE, for and in
consideration of the premises and the mutual covenants and agreements herein
contained, Stanford and the Company hereby agree as follows:

     

    
      	
              1.  

            	
              DEFINED
      TERMS: Any
      capitalized terms used in this Agreement and not otherwise defined herein
      shall have the meaning given to them in the Purchase
      Agreement.

            

    

     

    
      	
              2.  

            	
              ISSUANCE
      AND SALE OF SHARES:  Subject to
      approval of this Agreement by the Court (as evidenced by entry of a Sale
      Order), the Company shall issue the Shares to Stanford, at the Closing,
      and deliver to Stanford one or more certificates representing the Shares,
      registered in the name of Stanford or its
  nominees.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              3.  

            	
              CANCELLATION
      OF THE OUTSTANDING DEBT; TERMINATION OF SECURITY INTEREST: In consideration for
      receiving the Shares, Stanford hereby agrees that, as of the Closing, the
      Outstanding Debt shall be canceled and the Credit Agreement and all other
      agreements between the Company and Stanford shall be
      terminated.  Stanford acknowledges and agrees that upon the
      termination of the Credit Agreement, the security interest it holds in
      Superior pursuant to the Credit Agreement shall be terminated and
      released.  Stanford hereby authorizes the Company to file any
      termination statements or other filings pursuant to the provisions of the
      Uniform Commercial Code with respect to the termination of such security
      interest and agrees to execute any and all further documents as the
      Company may deem necessary to cause the termination and release of such
      security interest.

            

    

     

    
      	
              4.  

            	
              REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY:  The Company
      hereby represents and warrants to Stanford as
  follows:

            

    

     

    
      
        	
              	
                A. 

              	
                Power and
      Authority. The Company has the full corporate power and authority
      to execute and deliver this Agreement, to perform its obligations
      hereunder, and to consummate the transactions contemplated hereby,
      including the issuance of the
Shares.

              

      

    

     

    
      
        	
              	
                B. 

              	
                Valid Issuance of
      Shares.  The Shares, when issued and delivered in
      accordance with the terms and for the consideration set forth in this
      Agreement, will be validly issued, fully paid and nonassessable and free
      of restrictions on transfer other than restrictions on transfer under
      applicable state and federal securities laws and liens or encumbrances
      created by or imposed by Stanford.  Based in part upon the
      representations of Stanford in Section 5 of this Agreement, the Shares
      will be issued in compliance with or exempt from the registration or
      qualification requirements of all applicable federal and state securities
      laws.

              

      

    

     

    
      	
              5.  

            	
              REPRESENTATIONS
      AND WARRANTIES OF STANFORD:  Stanford
      hereby represents and warrants to the Company as
  follows:

            

    

     

    
      	
            	
              A.  

            	
              Power and
      Authority. Subject to Court approval (as evidenced by entry of a
      Sale Order), Stanford has the full corporate power and authority to
      execute and deliver this Agreement, to perform its obligations hereunder,
      and to consummate the transactions contemplated
  hereby.

            

    

     

    
      	
            	
              B.  

            	
              Accredited
      Investor.  Stanford is an accredited investor as defined
      in Rule 501(a) of Regulation D promulgated under the Securities
      Act of 1933, as amended (the “Securities
      Act”). Stanford has such knowledge and experience in financial and
      business matters that it is capable of evaluating the merits and risks of
      an investment in the Shares.

            

    

     

    
      	
            	
              C.  

            	
              Disclosure of
      Information. Stanford has had an opportunity to discuss the
      Company's business, management and financial affairs with the Company's
      management. Stanford (i) has made its own independent investigation of the
      Company and has been furnished with such information relating to the
      Company and the Shares as Stanford has requested and (ii) has relied
      solely upon the information made available by the Company, the Company's
      representations and warranties contained in Section 4 hereof and its own
      analysis and due diligence, in making the decision to acquire the Shares
      pursuant to this Agreement. Stanford understands that its acceptance of
      the Shares in exchange for the satisfaction of the Outstanding Debt
      involves a high degree of risk.  Stanford has sought such
      accounting, legal and tax advice as it has considered necessary to make an
      informed investment decision with respect to its acquisition of the
      Shares.

            

    

     

    
      
        
        

      

      
        - 2
-

        
          

        

      

      
        
        

      

    

     

    
      	
            	
              D.  

            	
              Investment
      Representation. Stanford is acquiring the Shares for its own
      account and not with a view to distribution in violation of any securities
      laws.  Stanford has been advised and understands that the Shares
      have not been registered under the Securities Act or under the “blue sky”
      laws of any jurisdiction and the Shares may be resold only if registered
      pursuant to the provisions of the Securities Act or if an exemption from
      registration is available.  Stanford has been advised and
      understands that the Company, in issuing the Shares, is relying upon,
      among other things, the representations and warranties of Stanford
      contained in this Section 5 in concluding that such issuance is a “private
      offering” and is exempt from the registration provisions of the Securities
      Act.

            

    

     

    
      	
            	
              E.  

            	
              Legends.
      Stanford understands that the Shares may bear the following
      legend:

            

    

     

    “THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO
SUCH TRANSFER MAY BE AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.”

     

    
      	
            	
              F.  

            	
              Knowledge of the
      Receiver: To the extent that the Receiver or the Receivership
      Estate is deemed to have made any of the representations of Stanford in
      this Agreement, any such representation shall be made subject to the
      Receiver’s knowledge.  All such representations shall be binding
      on the Receiver and the Receivership
Estate.

            

    

     

    
      	
            	
              G.  

            	
              Access
      to Information:  Without
      limitation to Section 5(C), Stanford has had access to all reports
      required to be filed by the Company (the "SEC Reports") under the 1934 Act
      as well as other material information concerning the Company which is
      known to the Buyers.  Stanford represents that it has had the
      opportunity to ask questions of, and receive answers from, the Company and
      the Buyers regarding the foregoing documents and
    information.

            

    

     

    
      	
              6.  

            	
              MUTUAL
      RELEASE:

            

    

     

    
      	
            	
              A.  

            	
              Stanford, on its own behalf and on behalf
      of its past, present
      and future successors, assigns, agents, representatives, and attorneys,
      hereby completely releases, waives and forever discharges Superior, the Company and Dr.
      L.S. Smith (only with respect to the Corporate Governance Agreement),
      their past, present and future affiliates, and each of their past, present
      and future successors, assigns, shareholders, lenders, officers,
      directors, employees, agents, representatives and attorneys from any and
      all claims, rights, demands, actions, obligations, liabilities and causes
      of action of any and every kind, nature, and character whatsoever, known
      and unknown, which Stanford may now have or may in the future
      have, arising from or relating to the Outstanding Debt, the Credit
      Agreement and the Corporate Governance Agreement (the “Stanford
      Released
      Claims”), whether
      based on tort, contract (express or implied) or any federal, state or
      local law, statute or regulation; provided, however, that this Agreement
      does not release or discharge the Company from its obligations under this
      Agreement or the
      Purchase Agreement;
      provided, further, that this release shall not extend to any claims
      related to fraudulent inducement, conspiracy, theft or similar
      misconduct.

            

    

     

    
      
        
        

      

      
        - 3
-

        
          

        

      

      
        
        

      

    

     

    
      	
            	
              B.  

            	
              The Company, on its own behalf and
      on behalf of Superior and Dr. L.S. Smith (only with respect to the
      Corporate Governance Agreement), hereby completely releases, waives and
      forever discharges Stanford and the Receiver from any and all claims,
      rights, demands, actions, obligations, liabilities and causes of action of
      any and every kind, nature, and character whatsoever, known and unknown,
      which Stanford may now have or may in the future have, arising from or
      relating to the Outstanding Debt, the Credit
      Agreement and the Corporate Governance Agreement (the “Company
      Released
      Claims”), whether
      based on tort, contract (express or implied) or any federal, state or
      local law, statute or regulation; provided, however, that this Agreement
      does not release or discharge Stanford from its obligations under this
      Agreement or the Purchase Agreement; provided, further, that this
      release shall not extend to any claims related to fraudulent inducement,
      conspiracy, theft or similar misconduct.

            

    

     

    
      	
            	
              C.  

            	
              The Parties hereto
      understand and
      agree that the release contained in
      this Section 6 is a full and final release covering all Stanford Released
      Claims and Company Released Claims, except as set forth in the provisos of Sections 6(A) and
      6(B) above.

            

    

     

    
      	
            	
              D.  

            	
              Stanford,
      the Company and Superior hereby acknowledge that it or its attorneys or
      agents may hereafter discover claims or facts in addition to or different
      from those which they now know or believe to exist with respect to the
      Stanford Released Claims or the Company Released Claims, but that it is
      Stanford’s, the Company’s and Superior’s intention hereby fully, finally
      and forever to settle and release all of the Stanford Released Claims and
      the Company Released Claims, except as set forth in the provisos of
      Sections 6(A) and 6(B).  In furtherance of each Party’s
      intention, the release herein given shall be and remain in effect as a
      full and complete release notwithstanding the discovery or existence of
      any such additional or different claim or
fact.

            

    

     

    
      	
            	
              E.  

            	
              Each
      of Stanford, the Company and Superior hereby represents and warrants
      that it has not heretofore assigned, transferred, granted, or purported to
      assign, transfer or grant, any of the claims, demands and cause of actions
      disposed of by this Section 6.  Each of Stanford, the Company
      and Superior agrees that it shall not (i) institute a lawsuit, arbitration
      or other legal proceeding based upon, arising out of, or relating to any
      of the claims, demands and causes of action disposed of by this Section 6,
      except as set forth in the provisos of Sections 6(A) or 6(B), (ii)
      participate, assist or cooperate in any such proceedings, unless and to
      the extent required or compelled by law, or (iii) encourage, assist and/or
      solicit any third party to institute any such
  proceeding.

            

    

     

    
      	
              7.  

            	
              EFFECTIVENESS:  The
      effectiveness of this Agreement and the consummation of the transactions
      contemplated hereby are conditioned upon the Court’s approval (as
      evidenced by entry of a Sale Order) and the occurrence of the Closing
      pursuant to the terms of the Purchase Agreement.  In the event
      that the Court does not approve this Agreement or the Purchase Agreement
      or the Closing does not occur, this Agreement shall be of no force or
      effect.

            

    

     

    
      	
              8.  

            	
              ENTIRE
      AGREEMENT:  This
      Agreement contains the entire agreement of the parties with respect to the
      subject matter hereof, and supersedes all prior agreements, representation
      and warranties, written or oral, with respect to the subject matter
      hereto.

            

    

     

    
      
        
        

      

      
        - 4
-

        
          

        

      

      
        
        

      

    

     

    
      	
              9.  

            	
              WAIVERS
      AND AMENDMENTS: Any term or provision
      of this Agreement may be amended or waived, or the time for its
      performance may be extended, only in writing by the party or parties
      entitled to the benefit thereof.

            

    

     

    
      	
              10.  

            	
              SUCCESSORS
      AND ASSIGNS: Stanford shall have
      the right to assign its rights and obligations under this
      Agreement.  The Company shall not assign any interest in this
      Agreement to any other party without the prior consent of
      Stanford.  Subject to any limitations on assignment, this
      Agreement shall bind and benefit the parties and their respective
      representatives, successors and
assigns.

            

    

     

    
      	
              11.  

            	
              FURTHER
      ASSURANCES:  Each party
      shall from time to time, before and after Closing, at the other party’s
      request, execute and deliver such further documents and instruments and
      take such further action as either party may reasonably require to
      consummate the transactions contemplated by this
  Agreement.

            

    

     

    
      	
              12.  

            	
              GOVERNING
      LAW: This
      Agreement shall be construed in accordance with the laws of the State of
      Texas notwithstanding any contrary “choice of laws” provision of that or
      any other State.  Each party hereto agrees that it shall bring
      any action or proceedings with respect of any claim arising out of or
      related to this Agreement, whether in tort or contract (express or
      implied) or at law or in equity, exclusively in the
  Court.

            

    

     

    
      	
              13.  

            	
              NOTICES: Any notice, consent or
      other communication required or permitted hereunder shall be given to the
      parties at their respective addresses and in the manner provided for in
      the Purchase Agreement.

            

    

     

    
      	
              14.  

            	
              COUNTERPARTS/FACSIMILE
      SIGNATURES:
      This Agreement may be executed in multiple counterparts, including emailed
      or faxed counterparts, each of which shall be deemed to be an original,
      but all of which, taken together, shall constitute one and the same
      agreement.

            

    

     

    
      	
              15.  

            	
              HEADINGS:  The
      headings herein are for reference only and shall not affect the
      interpretation of this Agreement.

            

    

     

    
      	
              16.  

            	
              SEVERABILITY:  Whenever
      possible, each provision of this Agreement shall be interpreted in such
      manner as to be effective and valid under applicable law, but if any
      provision of this Agreement is held to be prohibited by or invalid under
      applicable law, such provision shall be ineffective only to the extent of
      such prohibition or invalidity in such jurisdiction without invalidating
      the remainder of such provision or the remaining provisions of this
      Agreement.

            

    

     

     

     (Signature
Page Follows)

     

    
      
        
        

      

      
        - 5
-

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the signatories
hereto have executed this Agreement as of the Effective Date.

    
 

    
      
        	 	

                DGSE
      COMPANIES, INC.,

                a
      Nevada corporation

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	 
      	 
	 	 	Dr.
      L.S. Smith	 
	 	 	Chief
      Executive Officer	 
	 	 	 	 

      

    

    
      
 

      
        
          	 	

                  

                    STANFORD INTERNATIONAL BANK,
      LTD.,

                    an
      entity organized under the laws of Antigua

                  

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	 
      	 
	 	 	Name:
      Ralph S. Janvey	 
	 	 	Title:
      Receiver	 
	 	 	 	 

        

         

      

    

    Acknowledged
and Agreed to:

    superior
galleries, inc.

    

    

    ____________________________

    By:  Scott
Williamson

    Chief
Operating Officer

    

    

    
      
        
        

      

      
        - 6
-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00174-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00174-of-00352.parquet"}]]