EXHIBIT 4.0
SECURITY AGREEMENT
August 13,1999
Dallas Gold & Silver Exchange, Inc.
2817 Forest Lane
Dallas, Texas 75234
(individually and collectively "Debtor")
First Union National Bank
201 South College Street, CP-1 3
Charlotte, North Carolina 28288-0659
(Hereinafter referred to as the "Bank")
For value received and to secure the payment and performance of the Promissory
Note executed by the Debtor dated August 13, 1999, In the original principal
amount of $2,500,000.00, payable to Bank, and any extensions, renewals,
modifications or novations thereof (the "Note"), this Security Agreement and the
other Loan Documents, and all costs and expenses incurred by Bank to obtain,
preserve, perfect and enforce the security interest granted herein and to
maintain, preserve and collect the property subject to the security interest
(collectively, "Obligations"), Debtor hereby grants to Bank a continuing
security Interest In and lien upon the following described property, now owned
or hereafter acquired, any additions, accessions, or substitutions thereof and
thereto (Including but not limited to Investment property and security
entitlements), and all cash and non-cash proceeds and products thereof
(collectively, "Collateral"):
All inventory purchased from Bank, improvements to and returns of such
inventory, all accounts arising from the disposition of such inventory.
Debtor hereby represents and agrees that:
OWNERSHIP. Debtor owns the Collateral. The Collateral is free and clear of all
liens, security Interests, and claims created by Debtor except those previously
reported in writing to Bank, and Debtor will keep the Collateral free and clear
from all liens, security interests and claims, other than those granted to Bank.
NAME AND OFFICES. There has been no change In the name of Debtor, or the name
under which Debtor conducts business, within the 5 years preceding the date of
execution of this Security Agreement and Debtor has not moved Its executive
offices or residence within the 5 years preceding the date of execution of this
Security Agreement except as previously reported in writing to Bank. The
taxpayer identification number of Debtor as provided herein Is correct.
TITLEITAXES. Debtor will not transfer, sell, or lease Collateral (except in the
ordinary course of business), except to a wholly owned subsidiary of Debtor.
Debtor agrees to pay promptly all taxes and assessments upon or for the use of
Collateral and on this Security Agreement. At its option, Bank may discharge
taxes, liens, security Interests or other encumbrances at any time levied or
placed on Collateral. Debtor agrees to reimburse Bank, on demand, for any such
payment made by Bank. Any amounts so paid shall be added to the Obligations.
WAIVERS. Debtor waives presentment, demand, protest, notice of dishonor, notice
of default, demand for payment, notice of Intention to accelerate, and notice of
acceleration of maturity. Debtor further agrees not to assert against Bank as a
defense (legal or equitable), as a set-off, as a counterclaim, or otherwise, any
claims Debtor may have against any seller or lessor that provided personal
property or services relating to any part of the Collateral. Debtor waives all
exemptions and homestead rights with regard to the Collateral. Debtor waives any
and all rights to notice or to hearing prior to Bank's taking immediate
possession or control of any Collateral, and to any bond or security which might
be required by applicable law prior to the exercise of any of Bank's remedies
against any Collateral.
EXTENSIONS, RELEASES. Debtor agrees that Bank may extend, renew or modify any of
the Obligations and grant any releases, compromises or indulgences with respect
to any security for the Obligations, or with respect to any party liable for the
Obligations, all without notice to or consent of Debtor and without affecting
the liability of Debtor or the enforceability of this Security Agreement.
NOTIFICATIONS OF CHANGE. Debtor will notify Bank in writing at least 30 days
prior to any change In: (i) Debtor's chief place of business and/or residence;
(ii) Debtor's name or identity; or (iii) Debtor's corporate/organizational
structure. Debtor will keep Collateral at the locations) previously provided to
Bank until such time as Bank provides written advance consent to a change of
location. Debtor will bear the cost of preparing and filing any documents
necessary to protect Bank's liens.
COLLATERAL CONDITION AND LAWFUL USE. Debtor shall use reasonable care to prevent
Collateral from being damaged or depreciating. Debtor shall immediately notify
Bank of any material loss or damage to Collateral. Debtor shall not permit any
Item of equipment to become a fixture to real estate or an accession to other
personal property. Debtor represents It Is In compliance In all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, Collateral, operations, business, and finances, Including, without
limitation, any federal or state laws relating to liquor (including 18 U.S.C. _
3617, et seq.) or narcotics (Including 21 U.S.C. _ 801, et seq.) and all
applicable federal, state and local laws, and regulations Intended to protect
the environment.
RISK OF LOSS AND INSURANCE. Debtor shall bear all risk of loss with respect to
the Collateral. The injury to or loss of Collateral, either partial or total,
shall not release Debtor from payment or other performance hereof. Debtor agrees
to obtain and keep in force casualty and hazard Insurance on Collateral. Such
Insurance is to be in form and amounts satisfactory to Bank. Debtor shall
furnish to Bank such policies, or other evidence of such policies satisfactory
to Bank. Bank Is authorized, but not obligated, to purchase any or all Insurance
or "Single Interest Insurance" protecting such interest as Bank deems
appropriate against such risks and for such coverage and for such amounts,
Including either the loan amount or value of the Collateral, all at its
discretion, and at Debtor's expense. In such event, Debtor agrees to reimburse
Bank for the cost of such Insurance and Bank may add such cost to the
Obligations. Debtor shall bear the risk of loss to the extent of any deficiency
In the effective insurance coverage with respect to loss or damage to any of the
Collateral. Debtor hereby assigns to Bank the proceeds of all such Insurance and
directs any Insurer to make payments directly to Bank. Debtor hereby appoints
Bank its attorney-in-fact, which appointment shall be Irrevocable and coupled
with an interest for so long as the Obligations are unpaid, to file proof of
loss and/or any other forms required to collect from any Insurer any amount due
from any damage or destruction of Collateral, to agree to and bind Debtor as to
the amount of said recovery, to designate payee(s) of such recovery, to grant
releases to Insurer, to grant subrogation rights to any Insurer, and to endorse
any settlement check or draft. Debtor agrees not to exercise any of the
foregoing powers granted to Bank, without the Bank's prior written consent.
FINANCING STATEMENTS. No financing statement executed by Debtor (other than any
filed by Bank or disclosed above) covering any of Collateral or proceeds thereof
Is on file in any public filling office. This Security Agreement, or a copy
thereof, or any financing statement executed hereunder may be recorded. On
request of Bank, Debtor will execute one or more financing statements in form
satisfactory to Bank and will pay all costs and expenses of filing the same or
of filing this Security Agreement in all public filing offices, where filing Is
deemed by Bank to be desirable. Bank is authorized to file financing statements
relating to Collateral without Debtor's signature where authorized by law.
Debtor appoints Bank as its attorney-in-fact to execute such documents necessary
to accomplish perfection of Bank's security Interest. The appointment is coupled
with an Interest and shall be Irrevocable as long as any Obligations remain
outstanding. Debtor further agrees to take such other actions as might be
requested for the perfection, continuation and assignment, In whole or In part,
of the security interests granted herein. If certificates are issued or
outstanding as to any of the Collateral, Debtor will cause the security
Interests of Bank to be properly protected, including perfection of notation
thereon.
ACCOUNT AND CONTRACT DEBTORS. After a Default occurs, and during its
continuance, Bank shall have the right to notify the account and contract
debtors obligated on any or all of the Collateral to make payment thereof
directly to Bank and Bank may take control of all proceeds of any such
Collateral, which rights Bank may exercise at any time. The cost of such
collection and enforcement, including attorneys' fees and expenses, shall be
borne solely by Debtor whether the same is incurred by Bank or Debtor. After a
Default occurs, upon demand of Bank, Debtor will, upon receipt of all checks,
drafts, cash and other remittances in payment on Collateral, deposit the same in
a special bank account maintained with Bank, over which Bank also has the power
of withdrawal.
If a Default occurs, and during its continuance, no discount, credit, or
allowance shall be granted by Debtor to any account or contract debtor and no
return of merchandise shall be accepted by Debtor without Bank's consent. Bank
may, after Default, settle or adjust disputes and claims directly with account
contract debtors for amounts and upon terms that Bank considers advisable. and
in such cases, Bank will credit the Obligations with the net amounts received by
Bank, after deducting all of the expenses Incurred by Bank. Debtor agrees to
indemnify and defend Bank and hold It harmless with respect to any claim or
proceeding arising out of any matter related to collection of Collateral.
INVENTORY. So long as no Default has occurred that is continuing. Debtor shall
have the right in the regular course of business, to process and sell Debtor's
inventory. Upon demand of Bank, after occurrence of and during the continuance
of a Default, Debtor will, upon receipt of all checks, drafts, cash and other
remittances, In payment of Collateral sold, deposit the same In a special bank
account maintained with Bank, over which Bank also has the power of withdrawal.
Debtor shall comply with all federal, state, and local laws. regulations,
rulings, and orders applicable to Debtor or Its assets or business, in all
respects. Without limiting the generality of the previous sentence, Debtor shall
comply with all requirements of the federal Fair Labor Standards Act In the
conduct of Its business and the production of Inventory. Debtor shall notify
Bank Immediately of any violation by Debtor of the Fair Labor Standards Act, and
a failure of Debtor to so notify Bank shall constitute a continuing
representation that all inventory then existing has been produced In compliance
with the Fair Labor Standards Act.
INSTRUMENTS. CHATTEL PAPER. Any Collateral that is Instruments, chattel paper
and negotiable documents will be properly assigned to, deposited with and held
by Bank, unless Bank shall hereafter otherwise direct or consent in writing.
Bank may, without notice, before or after maturity of the Obligations, exercise
any or all rights of collection, conversion, or exchange and other similar
rights, privileges and options pertaining to Collateral, but shall have no duty
to do so.
COLLATERAL DUTIES. Bank shall have no custodial or ministerial duties to perform
with respect to Collateral pledged except as set forth herein; and by way of
explanation and not by way of limitations Bank shall incur no liability for any
of the following: (i) loss or depreciation of Collateral (unless caused by Its
willful misconduct), (ii) its failure to present any paper for payment or
protest, to protest or give notice of nonpayment, or any other notice with
respect to any paper or Collateral, or (iii) Its failure to present or surrender
for redemption, conversion or exchange any bond, stock, paper or other security
whether in connection with any merger, consolidation, recapitalization, or
reorganization, arising out of the refunding of the original security, or for
any other reason, or Its failure to notify any party hereto that Collateral
should be so presented or surrendered.
TRANSFER OF COLLATERAL. The Bank may assign Its rights in the Collateral or any
part thereof to any assignee who shall thereupon become vested with all the
powers and rights herein given to the Bank with respect to the property so
transferred and delivered, and the Bank shall thereafter be forever relieved and
fully discharged from any liability with respect to such property so
transferred, but with respect to any property not so transferred the Bank shall
retain all rights and powers hereby given.
SUBSTITUTE COLLATERAL. With prior written consent of Bank, other Collateral may
be substituted for the original Collateral herein In which event all rights,
duties, obligations, remedies and security Interests provided for, created or
granted shall apply fully to such substitute Collateral.
INSPECTION, BOOKS AND RECORDS. Debtor will at all times keep accurate and
complete records covering each item of Collateral, Including the proceeds there
from. Bank, or any of its agents, shall have the right, at Intervals to be
determined by Bank and without hindrance or delay, to inspect, audit, and
examine the Collateral and to make extracts from the books, records, journals,
orders, receipts, correspondence and other data relating to Collateral, Debtor's
business or any other transaction between the parties hereto.
CROSS COLLATERAILIZATION LIMITATION. As to any other existing or future consumer
purpose loan made by Bank to Debtor, within the meaning of the Federal Consumer
Credit Protection Act, Bank expressly waives any security interest granted
herein in Collateral that Debtor uses as a principal dwelling and household
goods.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Debtor shall pay all of Bank's
reasonable expenses Incurred In enforcing this Agreement and in preserving and
liquidating Collateral, including but not limited to, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether Incurred without
the commencement of a suit, In any trial, arbitration, or administrative
proceeding, or In any appellate or bankruptcy proceeding.
DEFAULT. If any of the following occurs, a default ("Default") under this
Security Agreement shall exist: (i) The failure of timely payment or performance
of any of the Obligations or a default under any Loan Document; (ii) Any breach
of any representation or agreement contained or referred to In this Security
Agreement or other Loan Document; (iii) Any loss, theft, substantial damage, or
destruction of Collateral not fully covered by insurance, or as to which
insurance proceeds are not remitted to Bank within 30 days of the loss; any sale
(except the sale of Inventory In the ordinary course of business), lease, or
encumbrance of any of Collateral without prior written consent of Bank: or the
making of any levy, seizure, or attachment on or of Collateral which is not
removed within 10 days; or (iv) the death of, appointment of guardian for,
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or Insolvency proceeding by or, against Debtor,
Its Subsidiaries or Affiliates ("Affiliate' shall have the meaning as defined in
11 U.S.C. _ 101; and 'Subsidiary" shall mean any corporation of which more than
50% of the Issued and outstanding voting stock is owned directly or Indirectly
by Debtor), If any, or any general partner of or the holder(s) of the majority
ownership interests in Debtor or any party to the Loan Documents.
REMEDIES ON DEFAULT (INCLUDING POWER OF SALE). If a Default occurs that is then
continuing, all of the Obligations shall be Immediately due and payable, upon
written notice and Bank shall have all the rights and remedies of a secured
party under the Uniform Commercial Code. Without limitation thereto, Bank shall
have the following rights and remedies after the occurrence and during the
continuation of a Default: (i) to take immediate possession of Collateral,
without notice or resort to legal process, and for such purpose, to enter upon
any premises on which Collateral or any part thereof may be situated and to
remove the same there from, or, at Its option, to render the Collateral unusable
or dispose of said Collateral on Debtor's premises; (ii) to require Debtor to
assemble the Collateral and make it available to Bank at a place to be
designated by Bank; (iii) to exercise its right of set-off or bank lien as to
any monies of Deb or deposited In demand, checking, time, savings, certificate
of deposit or other accounts of an I nature maintained by Debtor with Bank or
Affiliates of Bank, without advance notice, regardless of whether such accounts
are general or special; (iv) to dispose of Collateral, as a unit or in parcels,
separately or with any real property Interests also securing the Obligations, In
any county o' place to be selected by Bank, at either private or public sale (at
which public sale bank may be a purchaser) with or without having the Collateral
physically present at said sale. Any notice of sale, disposition or other action
by Bank required by law and sent to Debtor at Debtor's address shown above, or
at such other address of Debtor as may from time to time be shown on the records
of Bank, at least ten (10) days prior to such action, shall constitute
reasonable notice to Debtor. Notice shall be deemed given or sent when mailed
postage prepaid to Debtor's address as provided herein. Bank shall be entitled
to apply the proceeds of any sale or other disposition of the Collateral, and
the payments received by Bank with respect to any of the Collateral, Io the
Obligations in such order and manner as Bank may determine. Collateral that is
subject to rapid declines In value and is customarily sold In recognized markets
may be disposed of by lank In a recognized market for such collateral without
providing notice of sale.
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power or remedy hereunder preclude any other or further exercise ) thereof or
the exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
MISCELLANEOUS. (i) Amendments and Waivers. No waiver, amendment or modification
of any provision c f this Security Agreement shall be valid unless In writing
and signed by an officer of Bank. No waiver by Bank of any Default shall operate
as a waiver of any other Default or of the same Default on a future occasion.
Neither the failure of, nor any delay by, Bank In exercising any right, power or
privilege granted pursuant to this Security Agreement shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of any other right, power or privilege. (ii) Assignment. All
rights of Bank hereunder are freely assignable, In whole or In part, and shall
inure to the benefit of and be enforceable by Bank, Its successors, assigns and
affiliates. Debtor shall not assign its rights and interest hereunder without
the prior written consent of Bank, and any attempt by Debtor to assign without
Bank's prior written consent is null and void. Any assignment shall not release
Debtor from the Obligations. This Security Agreement shall be binding upon
Debtor, and the heirs, personal representatives, successors, and assigns of
Debtor. (iii) Applicable Law; Conflict Between Documents. This Security
Agreement shall be governed by and construed under the law of the state named in
Bank's address shown above without regard to that state's conflict of laws
principles. If any terms, of this Security Agreement conflict with the terms of
any commitment letter or loan proposal, the terms of this Security Agreement
shall control, (iv) Jurisdiction. Debtor Irrevocably agrees IT non-exclusive
personal jurisdiction In the state named in Bank's address shown above. (v)
Severability. If any provision of this Security Agreement shall be prohibited by
or invalid under applicable law, such provision shall be Ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Security Agreement. (vi)
Notices. Any notices to Debtor shall be sufficiently given, if In writing and
mailed or slivered to the address of Debtor shown above or such other address as
provided hereunder; an@ to Bank, if in writing and mailed or delivered to Banks
office address shown above or such other address as Bank may specify in writing
from time to time. In the event that the Debtor changes Debtor's mailing address
at any time prior to the date the Obligations are paid in full, Debtor agrees to
promptly give written notice of said change of address by registered or
certified mail, return receipt requested, all charges prepaid. (vii) Captions.
The captions contained herein are inserted for convenience only and shall not
affect the meaning or Interpretation of this Security Agreement or any provision
hereof. The use of the plural shall also mean the singular, and vice versa.
(vii) Loan Documents. The term "Loan Documents' refers to all documents, whether
now or hereafter existing, executed In connection with the Obligations and may
Include, without limitation and whether executed by Borrower, Debtor or others,
commitment letters, loan agreements, guaranty agreements, other security
agreements, letters of credit, Instruments, financing statements, mortgages,
deeds of trust, deeds to secure debt, and any amendments or supplements
(excluding swap agreements as defined In 11 U.S.C. - 101). (ix) Joint and
Several Liability. If more then one person has signed this Security Agreement,
such parties are jointly and severally obligated hereunder. (x) Binding
Contract. Debtor by execution and Bank by acceptance of this Security Agreement,
agree that each party Is bound by all terms and provisions of this Security
Agreement.
IN WITNESS WHEREOF, Debtor, on the day and year first written above, has caused
this Security Agreement to be executed under seal.
Dallas Gold & Silver Exchange, Inc.
By: L.S. Smith, Chairman
CORPORATE
SEAL
020551 1 v 1
100680-34515
Schedule A to UCC
Schedule A to UCC from Dallas Gold & Silver Exchange, Inc. ("Debtor") and for
the benefit of First Union National Bank ("Secured Party'),
Description of Collateral:
All Inventory purchased from Secured Party. improvements to and returns of such
inventory, all accounts arising from the disposition of such inventory.
AM products and proceeds (including Investment property and security
entitlements) of any of the property described above In any form, and all
proceeds of such products.
42055 II VI
iOO690.34515