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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): July 17, 2006 (July 14, 2006)
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DGSE COMPANIES, INC.
(Exact Name of Registrant as Specified in Charter)
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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.
Agreement and Plan of Merger and Reorganization
Overview. On July 14, 2006, DGSE Companies, Inc. entered into an
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., its largest stockholder and an affiliate of Superior's
principal lender, as stockholder agent. 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 an aggregate number of shares of DGSE common stock equal to the quotient
of (A) $14 million divided by (B) the greater of (1) $1.90 and (2) the lesser of
(x) $3.25 and (y) the volume weighted average closing price of DGSE common stock
for the preceding 20 trading days. As a result, DGSE will issue between
4,307,692 and 7,368,421 shares of its common stock at the closing of the merger.
Escrow. Fifteen percent (15%) of the number of shares of DGSE common
stock to be issued at the closing of the merger 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 Stanford, will have the exclusive right to defend the escrow
against claims made by DGSE or its related parties on behalf of the Superior
stockholders.
Treatment of Stock Options and Warrants. DGSE will assume a number of
options (including options granted to Superior employees, officers and directors
pursuant to Superior's stock option plans) and a warrant to purchase Superior
common stock disclosed by Superior in connection with the merger. The Superior
option and warrant holders will be required to surrender their respective option
agreements or warrant to DGSE after the closing, whereupon DGSE will issue
substitute options or warrant. The substitute options and warrant will have an
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.
Conversions of Superior Preferred Stock and Debt. In connection with
the merger, Superior, Stanford and an affiliate, and Silvano DiGenova, the
chairman, chief executive officer and interim chief financial officer of
Superior, will enter into a conversion and exchange agreement. Pursuant to this
agreement, all of the outstanding Superior preferred stock will be converted
into 3,803,136 shares of common stock of Superior pursuant to the conversion
rights provided by the terms of the preferred stock. In addition, the Stanford
affiliate will convert at least $5.5 million in Superior debt into shares of
Superior common stock at a conversion ratio of $2.00 per share. As a result,
Superior will have no shares of preferred stock, and significantly less debt,
outstanding at the time of the merger.
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,
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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; 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; entry into the conversion and
exchange agreement; entry into new employment agreements with Dr. L.S. Smith,
the chairman and chief executive officer of DGSE, and William H. Oyster, a
director and the president and chief operating officer of DGSE; entry into an
agreement regarding terms of employment with Mr. DiGenova; the accuracy of
representations and certifications; and the provision by a Stanford 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 October 2006, subject to the satisfaction or waiver of the
various closing conditions in the merger agreement.
Stockholder Changes. Upon completion of the merger, Superior
stockholders will beneficially own between 47 percent and 60 percent of the
outstanding shares of DGSE, Stanford will become the largest DGSE stockholder,
beneficially owning between 29 percent and 37 percent of the outstanding shares
of DGSE, and Dr. L.S. Smith will become the second largest DGSE stockholder,
beneficially owning between 18 percent and 24 percent of the outstanding shares
of DGSE.
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; a current director of Superior designated by Superior; two
current "independent" directors of the DGSE board; and two "independent"
directors to be designated by Stanford. In connection with the closing, Stanford
and Dr. Smith will enter into a corporate governance agreement with DGSE.
Pursuant to this agreement, for so long as Stanford and its affiliates
beneficially own at least 15% of the outstanding DGSE common shares, Stanford
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 is attached hereto as Exhibit 2.1 and is
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.
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
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.
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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 July 17, 2006, 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 99.1 to this report.
On July 17, 2006, 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 99.2 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 Agreement and Plan of Merger and Reorganization dated as of
July 12, 2006(a)
99.1 DGSE Press Release dated July 17, 2006(b)
99.2 Superior Press Release dated July 17, 2006(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: July 13, 2006 By: /s/ DR. L.S. SMITH
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Dr. L.S. Smith
Chairman & Chief Executive Officer
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