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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 9, 2007
(January 6, 2007)
DGSE COMPANIES, INC.
(Exact Name of Registrant as Specified in Charter)
Nevada 1-11048 88-0097334
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
2817 Forest Lane, Dallas, Texas 75234
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 484-3662
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[X] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01. Entry Into a Material Definitive Agreement.
Amended and Restated Agreement and Plan of Merger and Reorganization
Overview. On January 6, 2007, DGSE Companies, Inc. entered into an Amended
and Restated Agreement and Plan of Merger and Reorganization, which we refer to
as the merger agreement, with Superior Galleries, Inc., a Delaware corporation,
and Stanford International Bank Ltd., which we refer to as SIBL and which is
Superior's largest stockholder and principal lender, as stockholder agent. The
merger agreement materially amends the original Agreement and Plan of Merger and
Reorganization the parties entered into on July 12, 2006, which we refer to as
the original merger agreement. Pursuant to the terms and subject to the
conditions of the merger agreement, Superior will merge with and into a
newly-created, wholly-owned subsidiary of DGSE, with Superior the surviving
corporation. Holders of Superior common stock will become holders of DGSE common
stock following the merger. The merger agreement is subject to a number of
conditions described below, including effectiveness of a Form S-4 registration
statement and approval of the respective stockholders of DGSE and Superior. Each
outstanding share of DGSE common stock will remain unchanged in the merger.
Merger Consideration. At the effective time of the merger, DGSE will issue
approximately 3.6 million shares of DGSE common stock to the holders of Superior
common stock, using an exchange ratio of 0.2731 shares of DGSE common stock for
each outstanding share of Superior common stock.
Escrow. Fifteen percent (15%) of the number of shares of DGSE common stock
to be issued at the closing of the merger and upon exercise of the DiGenova
warrant described below will be deposited in an escrow account as security for
the payment of indemnification claims made under the merger agreement in the
event Superior's representations and warranties concerning its capitalization
are inaccurate. The escrow will expire one year after the consummation of the
merger. The stockholder agent, which will initially be SIBL, will have the
exclusive right to defend the escrow against claims made by DGSE or its related
parties on behalf of the Superior stockholders.
Superior Board of Directors. Upon the effectiveness of the merger
agreement, Silvano DiGenova, Paul Biberkraut, Lee Ittner and Anthony Friscia
resigned from the Superior board of directors, and the two remaining directors,
Mitchell Stolz and David Rector, elected William H. Oyster, our chief operating
officer, Scott Williamson, our executive vice-president, and John Benson, our
chief financial officer, to the Superior board to fill the vacancies.
Treatment of Stock Options. DGSE will assume a number of options (including
options granted to Superior employees, officers and directors pursuant to
Superior's stock option plans) disclosed by Superior in connection with the
merger. The Superior option holders will be required to surrender their
respective option agreements to DGSE after the closing, whereupon DGSE will
issue substitute options. The substitute options will have the exercise price
and share coverage adjusted by the applicable exchange ratio specified in the
merger agreement. The holders of all other options, warrants and other rights to
purchase Superior common stock must exercise such rights on or before the
closing of the merger, or those options, warrants or other rights will be
cancelled upon the consummation of the merger.
Exchange of Debt; Warrants. As a condition to the closing of the merger,
SIBL will need to convert approximately $8.4 million in Superior debt into
approximately 5 million shares of Superior common stock, at a conversion ratio
of $1.70 per share. As a result, Superior will have significantly less debt
outstanding at the time of the merger. In consideration of this exchange of debt
and an $11.5 million increase in the SIBL credit facility, at the closing of the
merger, DGSE will issue seven-year warrants, in the form attached to the merger
agreement, to SIBL and its designees entitling the holders thereof to purchase
845,634 shares of DGSE common stock at $1.89 per share and 863,000 shares of
DGSE common stock at their par value of $0.01 per share.
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Representations, Warranties and Covenants. DGSE and Superior have made
customary representations, warranties and covenants in the merger agreement,
including, among others, covenants (i) not to (A) solicit proposals relating to
alternative business combination transactions or (B) subject to certain
exceptions, enter into discussions concerning or provide information in
connection with alternative business combination transactions, (ii) to cause
stockholder meetings to be held to consider approval of the merger agreement,
and (iii) subject to certain exceptions, for the boards of directors of Superior
and DGSE to recommend adoption by their respective stockholders of the merger
agreement.
Conditions to Closing. Consummation of the merger is subject to certain
closing conditions, including, among others, stockholder approval of the merger
agreement by the stockholders of DGSE and Superior; DGSE stockholder approval of
an increase in the number of authorized shares of common stock of DGSE; absence
of governmental restraints; effectiveness of a Form S-4 registration statement
registering the shares of common stock to be issued as merger consideration; the
exchange by SIBL of approximately $8.4 million in debt for shares of Superior
common stock; the effectiveness of a DGSE corporate governance agreement; and
the provision by SIBL or an affiliate of a new secured credit facility of $11.5
million to Superior. The merger agreement allows DGSE and Superior to terminate
the merger agreement upon the occurrence (or non-occurrence) of certain events.
DGSE and Superior expect the acquisition to close late in March 2007, subject to
the satisfaction or waiver of the various closing conditions in the merger
agreement.
Stockholder Changes. Upon consummation of the merger, SIBL will own
approximately 29 percent of the outstanding shares of DGSE (and will
beneficially own approximately 28 percent on a fully diluted basis); all
pre-merger Superior stockholders will own approximately 43 percent of the
outstanding shares of DGSE (and will beneficially own approximately 39 percent
on a fully diluted basis); and Dr. L.S. Smith, our chairman and chief executive
officer, will own approximately 26 percent of the outstanding shares of DGSE
(and will beneficially own approximately 26 percent on a fully-diluted basis).
DGSE Board of Directors. Following the effective time of the merger, DGSE's
board of directors will be comprised of the following individuals: Dr. Smith;
Mr. Oyster; David Rector, a current director of Superior nominated by SIBL; two
current "independent" directors of the DGSE board; and two "independent"
directors to be designated by SIBL. In connection with the closing, SIBL and Dr.
Smith will enter into a corporate governance agreement, in the form attached to
the merger agreement, with DGSE. Pursuant to this agreement, for so long as SIBL
and its affiliates beneficially own at least 15% of the outstanding DGSE common
shares, SIBL will have the right to nominate two "independent" directors to the
DGSE board; for so long as Dr. Smith and his affiliates and immediate family
beneficially own at least 10% of the outstanding DGSE common shares, Dr. Smith
will have the right to nominate two "independent" directors to the DGSE board;
for so long as Dr. Smith is an executive officer of DGSE, he will have the right
to be nominated to the DGSE board; and for so long as William H. Oyster is an
executive officer of DGSE, he will have the right to be nominated to the DGSE
board. The DGSE board will consist of seven members.
A copy of the merger agreement, and certain exhibits thereto, and the
limited joinder agreement, pursuant to which SIBL is joining the merger
agreement, are attached hereto as Exhibits 2.1 through 2.9, and are incorporated
herein by reference. The foregoing description of the merger agreement is
qualified in its entirety by reference to the full text of the merger agreement,
the exhibits and the limited joinder agreement.
Securities Exchange Agreement
In addition, on January 6, 2007, DGSE entered into a securities exchange
agreement with Silvano DiGenova, the former chairman, chief executive officer
and interim chief financial officer of Superior. Pursuant to this agreement,
DGSE issues Mr. DiGenova a warrant to acquire 96,951 shares of DGSE common stock
upon consummation of the merger for an exercise price of $0.01 per share, in
exchange for 355,000 shares of Superior common stock, which reflects the same
exchange ratio being used in the merger. The exchange was made in a private
placement pursuant to Regulation D promulgated under the Securities Act of 1933.
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Copies of the securities exchange agreement and the warrant issued to Mr.
DiGenova are attached hereto as Exhibits 99.2 and 99.3, respectively, and are
incorporated herein by reference. The foregoing descriptions of the securities
exchange agreement and warrant are qualified in their entirety by reference to
the full text of the securities exchange agreement and warrant.
Management Agreement
On January 6, 2007, in connection with DGSE entering into the merger
agreement, DGSE Merger Corp., a wholly-owned subsidiary of DGSE which will merge
into Superior as part of the merger, entered into a management agreement with
Superior. Under the management agreement, DGSE Merger Corp. will provide the
senior management to Superior on a part-time basis until the consummation of the
merger or the earlier termination of the merger agreement. Pursuant to the
management agreement, Mr. Oyster has been appointed interim chief executive
officer of Superior, Mr. Oyster has been appointed interim chief operating
officer of Superior and Mr. Benson has been appointed vice president, finance
and interim chief financial officer of Superior. All three officers will work
part-time pursuant to the management agreement, and will continue to provide
services to DGSE as part of senior management. Superior will pay DGSE a monthly
fee of $50,000, plus its expenses, for its services.
A copy of the management agreement is attached hereto as Exhibit 99.4 and
is incorporated herein by reference. The foregoing description of the management
agreement is qualified in its entirety by reference to the full text of the
management agreement.
Support Agreements
In connection with the merger agreement, Dr. L.S. Smith, our chairman and
chief executive officer and our largest stockholder, and our company entered
into a support agreement with Superior, pursuant to which Dr. Smith agreed to
vote all of his shares of DGSE common stock in favor of the merger and related
transactions, and against any proposal or action that could reasonably be
expected to delay, impede or interfere with the approval of the merger or any
related transaction. Dr. Smith owns approximately 46% of our outstanding shares.
SIBL and Superior have entered into a corresponding support agreement with
our company, pursuant to which SIBL and some individual stockholders of Superior
have agreed to vote all of their shares of Superior common stock in favor of the
merger and related transactions, and against any proposal or action that could
reasonably be expected to delay, impede or interfere with the approval of the
merger or any related transaction. These stockholders own approximately 57% of
Superior's outstanding shares, which represents sufficient shares to approve the
merger.
Copies of the support agreements are attached hereto as Exhibits 99.1 and
99.5, and are incorporated herein by reference. The foregoing description of the
support agreements is qualified in its entirety by reference to the full text of
the support agreements.
While SIBL has agreed to all of the terms of the agreements to which SIBL
is a party and has satisfied all of its current obligations relating to such
agreements, SIBL has not yet delivered executed copies of those agreements.
SIBL's signatures are expected this week.
Additional Information and Where to Find It
In connection with the proposed acquisition, DGSE and Superior intend to
file relevant materials with the SEC. DGSE intends to file a registration
statement on Form S-4, which will contain a prospectus and related materials to
register the DGSE common stock to be issued in the merger, and a joint proxy
statement, which DGSE and Superior plan to mail to their respective stockholders
in connection with the approval of the proposed merger by their respective
stockholders. The registration statement and the joint proxy
statement/prospectus included therein will contain important information about
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DGSE, Superior, the proposed merger and related matters. Investors and security
holders are urged to read this filing when it becomes available because it will
contain important information about the merger transaction. Investors and
security holders will be able to obtain free copies of this document (when it
becomes available) and other documents filed with the SEC at the SEC's web site
at www.sec.gov or by calling the SEC at 1-800-SEC-0330. In addition, investors
and security holders may obtain free copies of the documents filed by DGSE with
the SEC by contacting DGSE Investor Relations at (972) 484-3662.
Participation in Solicitations
DGSE and its directors and executive officers also may be deemed to be
participants in the solicitation of proxies from the stockholders of DGSE in
connection with the proposed merger transaction. Information regarding the
special interests of these directors and executive officers in the merger
transaction will be included in the joint proxy statement/prospectus described
above. Additional information regarding these directors and executive officers
is also included in DGSE's proxy statement for its 2006 Annual Meeting of
Stockholders, which was filed with the SEC on or about June 23, 2006. This
document is available free of charge at the SEC's web site at www.sec.gov and
from DGSE by contacting DGSE Investor Relations at (972) 484-3662.
Superior and its directors and executive officers also may be deemed to be
participants in the solicitation of proxies from the stockholders of DGSE in
connection with the proposed merger transaction. Information regarding the
special interests of these directors and executive officers in the merger
transaction will be included in the joint proxy statement/prospectus described
above. Additional information regarding these directors and executive officers
is also included in Superior's proxy statement for its 2005 Annual Meeting of
Stockholders, which was filed with the SEC on or about October 6, 2005. This
document is available free of charge at the SEC's web site at www.sec.gov and
from Superior by contacting Superior Investor Relations at (800) 421-0754.
Item 7.01. Regulation FD Disclosure.
On January 9, 2007, DGSE issued a press release announcing that it had
entered into the merger agreement with Superior. A copy of the press release is
attached as Exhibit 99.6 to this report.
On January 9, 2007, Superior issued a press release announcing that it had
entered into the merger agreement with DGSE. A copy of the press release is
attached as Exhibit 99.7 to this report.
The disclosure in this Item 7.01, and the press releases being filed as
exhibits, are being furnished and will not be deemed "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that section.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
2.1 Amended and Restated Agreement and Plan of Merger and Reorganization
dated January 6, 2007 (a)
2.2 Form of Escrow Agreement
2.3 Form of Amended and Restated Commercial Loan and Security Agreement
2.4 Form of Warrant
2.5 Form of Note Exchange Agreement
2.6 Form of Termination and Release Agreement
2.7 Form of Registration Rights Agreement
2.8 Form of Corporate Governance Agreement
2.9 Limited Joinder Agreement dated January 6, 2007
99.1 Support Agreement - DGSE Stockholders dated January 6, 2007
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99.2 Securities Exchange Agreement dated January 6, 2007
99.3 Warrant to DiGenova issued January 6, 2007
99.4 Management Agreement dated January 6, 2007
99.5 Support Agreement - Superior Stockholders dated January 6, 2007
99.6 DGSE Press Release dated January 9, 2007 (b)
99.7 Superior Press Release dated January 9, 2007 (b)
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(a) Certain exhibits and schedules have been omitted and DGSE agrees to furnish
supplementally to the SEC a copy of any omitted exhibits or schedules upon
request.
(b) This exhibit is being furnished and will not be deemed "filed" for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liabilities of that section.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DGSE COMPANIES, INC.
Date: January 9, 2007 By: /s/ Dr. L.S. Smith
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Dr. L.S. Smith
Chairman & Chief Executive Officer
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