UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE
14A
Proxy Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
Filed
by the Registrant
x
Filed
by a Party other than the Registrant
¨
Check the appropriate box:
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Preliminary Proxy Statement
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¨
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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x
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Definitive Proxy Statement
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¨
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Definitive Additional Materials
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¨
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Soliciting Material Pursuant to §240.14a-12
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DGSE
COMPANIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
¨
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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¨
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Fee paid previously with preliminary materials.
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¨
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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DGSE
Companies, Inc.
13022
Preston Road
Dallas,
Texas 75240
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD December 29, 2017
Dear Stockholder:
As
a stockholder of DGSE Companies, Inc. (the “Company”), you are hereby given notice of and invited to attend in person
or by proxy our 2017 Annual Meeting of Stockholders to be held in the conference room at the Holiday Inn located at 6055 LBJ Freeway,
Dallas, Texas 75240, on December 29, 2017
,
at 10:00 a.m. (local time).
At this year’s stockholders’
meeting, you will be asked to: (i) elect four directors to serve until the next annual meeting of stockholders and until their
respective successors shall have been duly elected and qualified; (ii) ratify the appointment of Whitley Penn LLP (“Whitley
Penn”) as our independent registered public accountants for the fiscal year ending December 31, 2017; (iii) vote to
adjourn the annual meeting, if necessary, to solicit additional proxies in favor of proposals one through two; and (iv) transact
such other business as may properly come before the meeting and any adjournment(s) thereof. Our Board of Directors unanimously
recommends that you vote: (a) FOR the directors nominated; and (b) FOR the ratification of Whitley Penn. Accordingly, please give
careful attention to these proxy materials.
Only holders of record
of our Common Stock as of the close of business on December 1, 2017, are entitled to notice of and to vote at our annual meeting
and any adjournment(s) thereof. Our transfer books will not be closed.
You are cordially invited
to attend the annual meeting. Whether you expect to attend the annual meeting or not, please vote, sign, date and return in the
self-addressed envelope provided the enclosed proxy card as promptly as possible. If you attend the annual meeting, you may vote
your shares in person, even though you have previously signed and returned your proxy.
By Order of the Board of Directors,
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/s/ Bret A. Pedersen
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Bret A. Pedersen
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Chief Financial Officer
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Dallas, Texas
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December 7, 2017
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YOUR VOTE IS IMPORTANT.
PLEASE EXECUTE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED
HEREIN.
TABLE OF CONTENTS
DGSE
Companies, Inc.
13022
pRESTON rOAD
Dallas,
Texas 75240
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD dECEMBER 29, 2017
To Our Stockholders:
This proxy statement (this
“Proxy Statement”) is furnished in connection with the solicitation of proxies by the Board of Directors (our “Board
of Directors” or “Board”) of DGSE Companies, Inc., a Nevada corporation (the “Company,” “we,”
“us,” “our,” and “DGSE”), to be used at our Annual Meeting of Stockholders to be held in a
conference room at the Holiday Inn located at 6055 LBJ Freeway, Dallas, Texas 75240, on December 29, 2017 at 10:00 a.m. (local
time), or at any adjournment or adjournments thereof. Our stockholders of record as of the close of business on December 1, 2017
(the “Record Date”) are entitled to vote at our annual meeting.
Important Notice of Availability
of Proxy Materials for the Annual Meeting
of Stockholders to be held on December 29, 2017.
Our proxy materials, including
our Proxy Statement for the 2017 Annual
Meeting, 2016 Annual Report on Form 10-K for the year ended
December 31, 2016 and
proxy card, are being sent to security holders on
December 8, 2017 and are available on the internet at
www.DGSECompanies.com.
VOTING PROCEDURES AND
REVOCABILITY OF PROXIES
The accompanying proxy
card is designed to permit each of our stockholders as of the Record Date to vote on each of the proposals properly brought before
the annual meeting. As of the Record Date, there were 26,943,131 shares of our common stock, par value $0.01 per share (our “Common
Stock”), issued and outstanding and entitled to vote at the annual meeting. Each outstanding share of our Common Stock is
entitled to one vote.
The holders of a majority
of our outstanding shares of Common Stock entitled to vote, present in person or by proxy, will constitute a quorum for the transaction
of business at the annual meeting. If a quorum is not present, the annual meeting may be adjourned from time to time until a quorum
is obtained.
Abstentions and broker
non-votes will be counted for the purpose of determining whether a quorum is present. Abstentions, but not broker non-votes, are
treated as shares present and entitled to vote. Broker non-votes are treated as shares present but not entitled to vote on the
particular matter. Broker non-votes occur when nominees, such as banks and brokers holding shares on behalf of beneficial owners,
do not receive voting instructions from the beneficial holders at least ten days before the meeting. If that happens, the nominees
may vote those shares only on matters deemed “routine” by the NYSE American LLC (the “Exchange”), such
as the ratification of auditors. Nominees cannot vote on non-routine matters unless they receive voting instructions from beneficial
holders, resulting in so-called “broker non-votes.”
Assuming that a quorum
is present, directors will be elected by a plurality vote and the four nominees who receive the most votes will be elected. As
a result, abstentions and broker non-votes, if any, will not affect the outcome of the vote on this proposal. There is no right
to cumulative voting unless cumulative voting is requested at the Annual Meeting by a stockholder who has complied with the requirements
set forth in our bylaws with respect to cumulative voting.
Assuming that a quorum
is present, the ratification of the appointment of Whitley Penn as our independent registered public accountants for the fiscal
year ending December 31, 2017 and approval of any other matter that may properly come before the annual meeting, requires the affirmative
vote of a majority of the total votes cast on these proposals, in person or by proxy, is required to approve these proposals. As
a result, abstentions and broker non-votes, if any, will not affect the outcome of the vote on these proposals because they are
not considered votes cast. We believe that the proposal for the ratification of our independent registered public accounting firm
is considered to be a “routine” matter, and hence we do not expect that there will be a significant number of broker
non-votes on such proposal.
The accompanying proxy
card provides space for you to vote in favor of, against or to withhold or abstain voting for: (i) the nominees for the Board
of Directors identified herein; (ii) ratification of the appointment of Whitley Penn as our independent registered public
accountants for the fiscal year ending December 31, 2017; (iii) adjournment of the annual meeting, if necessary, to solicit additional
proxies in favor of proposals one through two; and (iv) transaction of such other business as may properly come before the
meeting and any adjournment(s) thereof. Our Board of Directors urges you to complete, sign, date and return the proxy card in the
accompanying envelope, which is postage prepaid for mailing in the United States.
When a signed proxy card
is returned with choices specified with respect to voting matters, the proxies designated on the proxy card will vote the shares
in accordance with the stockholder’s instructions. We have designated Bret Pedersen and Tim Natoli as proxies for the stockholders.
If you desire to name another person as your proxy, you may do so by crossing out the names of the designated proxies and inserting
the name of the other person to act as your proxy. In that case, it will be necessary for you to sign the proxy card and deliver
it to the person named as your proxy and for the named proxy to be present and vote at the annual meeting. Proxy cards so marked
should not be mailed to us.
If you sign your proxy
card and return it to us and you have made no specifications with respect to voting matters, your shares will be voted FOR: (i) the
election of the nominees for director identified herein; (ii) ratification of the appointment of Whitley Penn as our independent
registered public accountants for the fiscal year ending December 31, 2017; (iii) adjournment of the annual meeting, if necessary,
to solicit additional proxies in favor of proposals one through two; and (iv) transaction of such other business as may properly
come before the meeting and any adjournment(s) thereof.
You have the unconditional
right to revoke your proxy at any time prior to the voting of the proxy by taking any act inconsistent with the proxy. Acts inconsistent
with the proxy include notifying our Secretary in writing of your revocation, executing a subsequent proxy, or personally appearing
at the annual meeting and casting a contrary vote. However, no revocation shall be effective unless at or prior to the annual meeting
we have received notice of such revocation.
At least ten (10) days
before the annual meeting, we will make a complete list of the stockholders entitled to vote at the annual meeting open to the
examination of any stockholder for any purpose germane to the meeting. The list will be open for inspection during ordinary business
hours at our executive offices located at 13022 Preston Road, Dallas, Texas 75240, and will also be made available to stockholders
present at the meeting.
PROPOSAL ONE:
ELECTION OF DIRECTORS
Four directors are proposed
to be elected at the annual meeting. If elected, each director will hold office until the next annual meeting of stockholders or
until his successor is elected and qualified. The election of directors will be decided by a plurality vote.
The four nominees for election
as directors to serve until the next annual meeting of stockholders and until their successors have been duly elected and qualified
are John R. Loftus, Joel S. Friedman, Jim R. Ruth, and Alexandra C. Griffin. All four nominees are members of our current Board
of Directors, and have served since January 2017. All nominees have consented to serve if elected and we have no reason to believe
that any of the nominees named will be unable to serve. If any nominee becomes unable to serve: (i) the shares represented
by the designated proxies will be voted for the election of a substitute as our Board of Directors may recommend; or (ii) our
Board of Directors may fill the vacancy at a later date after selecting an appropriate nominee.
The Compliance, Governance
and Nominating Committee of the Board nominated the individuals named below for election to our Board of Directors, and information
regarding the background and qualifications of each of the nominees is set forth below. See “Security Ownership of Certain
Beneficial Owners and Management” for additional information about the nominees, including their ownership of securities
issued by DGSE.
Name
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Age
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Director
Since
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Position
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John R. Loftus
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48
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2016
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Chairman of the Board, Chief Executive Officer and President
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Joel S. Friedman (1)
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49
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January 2017
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Lead Independent Director and Chairman of the Compensation Committee
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Alexandra C. Griffin (1)
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28
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January 2017
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Independent Director and Chairman of the Audit Committee
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Jim R. Ruth (1)
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53
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January 2017
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Independent Director and Chairman of the Compliance, Governance and Nominating Committee
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(1)
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Member of the Audit Committee, Compensation Committee, and Compliance, Governance and Nominating Committee.
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The following paragraphs
summarize each nominee’s principal occupation, business affiliations and other information.
John R. Loftus
was
appointed Chief Executive Officer and elected as Chairman of the Board on December 12, 2016. Mr. Loftus was the Chief
Executive Officer of Elemetal LLC (“Elemetal”), a precious metals company and DGSE’s largest stockholder, from
2012 to 2015 and was responsible for Elemetal’s operations. Prior to Elemetal, Mr. Loftus was the founder of NTR Metals,
LLC, a precious metals refiner for jewelers, pawnbrokers, and metal industries customers worldwide. Previous to his work at NTR
Metals, Mr. Loftus was a commodities floor trader and holds an M.B.A. from the SMU Cox School of Business
.
Joel S. Friedman
has served as the Lead Independent Director and Chairman of the Compensation Committee since January of 2017. Mr. Friedman is a
Senior Vice President – Mortage Originations Development with Citi, where he has served since 2012. Mr. Friedman received
his undergraduate degree from the University of North Texas and holds an M.B.A. from the SMU Cox School of Business.
Alexandra C. Griffin
has served as an Independent Director and Chairman of the Audit Committee since January of 2017. Ms. Griffin has a Bachelor
of Science Degree in Accounting from the University of Texas at Arlington. She has been with PrimeLending since December 2014 and
is currently an Accounting Supervisor. Prior to PrimeLending, Ms. Griffin worked as a Senior Accountant for NTR Metals, LLC from
2012 to 2014. Ms. Griffin is a CPA skilled in financial analysis and financial statement reporting in accordance with GAAP.
Jim R. Ruth
has
served as an Independent Director and Chairman of the Compliance, Governance and Nominating Committee since January 2017. Mr. Ruth
is currently the President and Chief Executive Officer of OppMetrix. From 2010 to 2015 he was the Executive Vice President –
Sales and Marketing, Strategic Planning of OppMetrix. He obtained his Bachelor of Science Degree from the University of Michigan
and holds an M.B.A. from the SMU Cox School of Business.
None of the individuals
listed above have been involved in a legal proceeding as defined by Item 401(f) of Regulation S-K.
Family Relationships
There are no family relationships
among our directors, our executive officers or our key employees.
Vote Required
Directors will be elected
by a plurality of the votes cast by the holders of our Common Stock voting in person or by proxy at the annual meeting. Abstentions
and broker non-votes will each be counted as present for purposes of determining the presence of a quorum, but will have no effect
on the vote for election of directors.
THE BOARD OF DIRECTORS URGES YOU TO VOTE
“FOR”
EACH OF THE NOMINEES
FOR DIRECTOR SET FORTH ABOVE.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets
forth the beneficial ownership each stockholder known by us to own beneficially more than five (5) percent of our outstanding shares
of Common Stock as of December 1, 2017. Common Stock beneficially owned and percentage ownership as of December 1, 2017 was based
on 27,943,131 shares outstanding.
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Name and
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Amount
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Address of
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and nature
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Sole
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Shared
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Sole
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Shared
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Title of
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beneficial
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of beneficial
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Percent
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Voting
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Voting
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Investment
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Investment
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class
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owner
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ownership
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of class
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Power
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Power
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Power
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Power
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Common Stock
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Elemetal, LLC (1)
15850 Dallas Parkway Dallas, TX 75248
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20,180,187
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72.3
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%
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(1)
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(1)
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(1)
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(1)
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(1)
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Based
solely on information disclosed in the Schedule 13D/A, jointly filed with the SEC on February 16, 2017 by Elemetal, LLC (“Elemetal”),
NTR Metals, LLC (“NTR”) and John R. Loftus. Elemetal reported sole reporting and dispositive power with respect to
13,814,727 shares, including a warrant held by Elemetal to purchase up to 1,000,000 shares of our common stock. NTR and Mr. Loftus
reported shared voting and dispositive power with respect to 6,365,460 shares.
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The following table sets forth information with
respect to beneficial ownership of our Common Stock by each of our executive officers, by each of our directors and nominees, and
by all executive officers and directors as a group as of December 1, 2017. Except as otherwise noted, the address of each of the
following beneficial owners is c/o DGSE Companies, Inc., 13022 Preston Road, Dallas, Texas 75240.
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Amount and
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nature of
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Sole
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Shared
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Name and Address of
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beneficial
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Percent of
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Sole voting
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Shared voting
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investment
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investment
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Title of Class
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beneificial owner
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ownership
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class
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power
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power
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power
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power
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Common Stock
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John R. Loftus (1)
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6,365,460
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23.60
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%
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-
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6,365,460
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-
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6,365,460
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Common Stock
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Bret A. Pedersen (2)
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9,800
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0.03
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%
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9,800
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-
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-
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-
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Common Stock
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Alexandra C. Griffin (3)
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-
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0
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%
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-
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-
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-
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-
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Common Stock
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Jim R. Ruth (4)
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-
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0
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%
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-
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-
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-
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-
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Common Stock
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William LeRoy (5)
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-
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0
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%
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-
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-
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-
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-
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Common Stock
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Joel S. Friedman (6)
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7,267
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0.03
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%
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7,267
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-
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-
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-
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Common Stock
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All Directors and Executive Officers
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6,382,527
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23.66
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%
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17,067
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6,365,460
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-
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6,365,460
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(1)
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John R. Loftus was elected
as the Company’s Chairman of the Board, Chief Executive Officer and President upon the resignation of Matthew M. Peakes
on December 10, 2016. Pursuant to the Schedule 13D/A, jointly filed with the SEC on February 16, 2017 by NTR Metals, LLC (“NTR”)
and John R. Loftus, Mr. Loftus may be deemed to beneficially own 6,365,460 shares held by NTR.
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(2)
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Bret A. Pedersen was elected
as Chief Financial Officer upon the resignation of the Acting Chief Financial Officer, Steven Patterson, on January 14, 2017.
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(3)
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Alexandra C. Griffin was
elected as independent director on January 17, 2017
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(4)
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Jim R. Ruth was elected as
independent director on January 17, 2017.
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(5)
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William Leroy was elected
as a member of the Board on August 2, 2016. Mr. Leroy resigned from the Board on June 30, 2017.
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(6)
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Joel S. Friedman was elected
as independent director on January 17, 2017.
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BOARD OF DIRECTORS AND COMMITTEES
During the latter part
of December 2016 and the fiscal year 2017, up to the time of the release of the proxy materials, two executive officers resigned
from their respective roles. Matthew M. Peakes tendered his resignation as Chairman of the Board, President and Chief Executive
Officer effective on December 10, 2016. On December 12, 2016, John R. Loftus was elected to the position of the Chairman of the
Board, President and Chief Executive Officer. William LeRoy resigned as a member of the Board effective June 30, 2017. A replacement
for Mr. LeRoy has not been identified at this time.
All three of our independent
directors elected at our last annual stockholders meeting held on December 7, 2016 resigned. On January 12, 2017, J Marcus
Scrudder tendered his resignation as Lead Independent Director and Chairman of the Audit Committee to the Board of Directors of
DGSE and the other committees of the Board on which he served. On January 12, 2017, Michael J. Noel tendered his resignation as
a member of the Board of Directors of DGSE and Chairman of the Compliance, Governance, and Nominating Committee to the Board and
the other committees of the Board on which he served. On January 12, 2017, Douglas J. Lattner tendered his resignation as
a member of the Board and Chairman of the Compensation Committee to the Board and the other committees of the Board on which he
served. On January 17 and January 18, 2017, we elected new independent board members, Joel S. Friedman, age 48, as Lead Independent
Director and Chairman of the Compensation Committee to the Board along with being a member of the Audit and Compliance, Governance
and Nominating committees, Alexandra C. Griffin, age 27, as Chairman of the Audit Committee to the Board, along with being a member
of the Compensation and Compliance, Governance and Nominating Committees, and Jim R. Ruth, age 52, as Chairman of the Compliance,
Governance and Nominating Committee to the Board, along with being a member of the Audit and Compensation Committees.
Our Board is currently
composed of five directors, with one position currently vacant. Our Board has determined that current board members Joel S. Friedman,
Alexandra C. Griffin and Jim R. Ruth are “independent” under the standards of the SEC and the Exchange. Under applicable
SEC and Exchange rules, the existence of certain “related person” transactions above certain thresholds between a director
and us are required to be disclosed and preclude a finding by our Board that the director is independent. In addition to transactions
required to be disclosed under SEC rules, our Board considered certain other relationships in making its independence determinations,
and determined in each case that such other relationships did not impair the director’s ability to exercise independent judgment
on our behalf.
Our directors are elected
at an annual meeting of our shareholders by the holders of shares entitled to vote in the election of directors, except in the
case of vacancy, which can be filled by an affirmative vote of a majority of the remaining directors. Each director is elected
to serve until the annual meeting of shareholders following his election or until he chooses to resign from his position.
Board Meetings
Our Board meets as often
as necessary to perform its duties and responsibilities. During Fiscal 2016, the Board met four times in person or telephonically.
All members of our Board were present at and participated in all meetings and all members attended the 2016 annual meeting. In
addition, our Board acted by written consent one time. Management also regularly conferred with directors between meetings regarding
our affairs.
Audit Committee
The Audit Committee, established
in accordance with Section 3(a)(58)(A) of the Exchange Act, consisting of all three independent directors of our Board, is chaired
by Alexandra C. Griffin, who is also an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii)
of Regulation S-K, promulgated under the Securities Act. Ms. Griffin is “independent,” as defined by the listing standards
of the Exchange. The other members of the Audit Committee are Joel S. Friedman and Jim R. Ruth. The Audit Committee is primarily
tasked with overseeing our financial reporting process, evaluation of independent auditors and, where appropriate, exercising its
duty to replace our independent auditors. Management is responsible for preparing our financial statements, and the independent
auditors are responsible for auditing those financial statements. During Fiscal 2016, the Audit Committee met four times in person
or telephonically.
In addition to their regular
activities, the Audit Committee is available to meet with the independent auditors, the Chief Executive Officer or the Chief Financial
Officer whenever a special situation arises and meets as often as necessary to perform its duties and responsibilities. The charter
for the Audit Committee is available under the “Investors” menu of our corporate website at www.DGSECompanies.com.
We certify that we have adopted a formal written audit committee charter and that the Audit Committee reviews and reassesses the
adequacy of the charter annually.
Audit Committee Report
The Audit Committee has
reviewed and discussed the audited financial statements with management and Whitley Penn LLP (“Whitley Penn”), our
independent registered accounting firm, and all matters required to be discussed by the American Institute of Certified Public
Accountants, Professional Standards, Vol. 1, AU Section 380, as adopted by the Public Company Accounting Oversight Board (“PCAOB”)
in Rule 3200T.
The Audit Committee has
received written disclosures and the letter from Whitley Penn required by applicable rules of the PCAOB regarding Whitley Penn’s
communications with the Audit Committee concerning independence, and the Audit Committee has discussed with Whitley Penn its independence.
Based on the review and
discussions noted in the preceding two paragraphs, the Audit Committee recommended to the Board that the audited financial statements
for the year ended December 31, 2016 and 2015 be included in our annual report on Form 10-K with the SEC.
All 3 independent directors,
Joel S. Friedman, Alexandra C. Griffin and Jim R. Ruth, are members of the Audit Committee. The Audit Committee acts pursuant to
our Audit Committee Charter. Each of the members of the Audit Committee qualifies as an independent director under the current
listing standards of the Exchange.
Compensation Committee
On August 31, 2012, the
Board approved the creation of a Compensation Committee comprised of our independent directors. The Compensation Committee is chaired
by Joel S. Friedman and is primarily concerned with reviewing, approving and determining the compensation of our executive officers
to ensure that we employ ethical compensation standards and that our executive officers are fairly compensated based upon their
performance and contribution to us. The Compensation Committee meets as often as necessary to perform its duties and responsibilities.
During Fiscal 2016, the Compensation Committee met four times in person or telephonically. We have adopted a formal written Compensation
Committee Charter, and the Compensation Committee reviews and reassesses the adequacy of the charter annually. The charter for
the Compensation Committee is available under the “Investors” menu of our corporate website at www.DGSECompanies.com.
Compliance, Governance,
and Nominating Committee
On January 17, 2013, the
Board approved the creation of a Nominating and Corporate Governance Committee comprised of our independent directors, and on February
20, 2015, the Board approved a resolution, which changed the name of this committee to the Compliance, Governance, and Nominating
Committee, and also delegated certain additional responsibilities to the committee. The Compliance, Governance, and Nominating
Committee is chaired by Jim R. Ruth and is primarily concerned with matters relating to the Company’s director nominations
process and procedures, developing and maintaining the Company’s corporate governance policies, monitoring the Company’s
compliance with its code of conduct and ethics, and any related matters required by the federal securities laws. The Committee
will consider any nominations of director candidates validly made by stockholders in accordance with applicable laws, rules and
regulations and the provisions of the Company’s charter documents. The Compliance, Governance, and Nominating Committee meets
as often as necessary to perform its duties and responsibilities. During Fiscal 2016, the Compliance, Governance, and Nominating
Committee met once. We have adopted a formal written Compliance, Governance, and Nominating Committee Charter, and the Compliance,
Governance, and Nominating Committee reviews and reassesses the adequacy of the charter annually. The charter for the Compliance,
Governance and Nominating Committee is available under the “Investors” menu on our corporate website at www.DGSECompanies.com.
All nominees standing for election as a member of our Board were selected by the Compliance, Governance, and Nominating Committee,
based on a review of each individual’s background, credentials and business experience.
Leadership
Pursuant to our bylaws,
the Chairman of our Board shall be and is our Chief Executive Officer. On June 11, 2014, the Board passed a resolution to create
the role of Lead Independent Director. The independent directors elected Joel S. Friedman to fill that role. The Lead Independent
Director consults with the Chairman in setting the schedule and agenda for Board meetings, coordinates and moderates executive
sessions of the independent directors, acts as a liaison between the independent directors and the Chairman, and assists the Board
and officers in providing oversight for the Company’s governance guidelines and policies. As noted above, Mr. Friedman also
serves as chairman of the Compensation Committee.
Pursuant to our bylaws,
the Chairman of our Board and Chief Executive Officer presides, when present, at all meetings of the shareholders and at all meetings
of our Board. The Chairman of our Board and Chief Executive Officer generally supervises over our affairs, has general and active
control of all of our business and sees that all orders and resolutions of our Board and our shareholders are carried into effect.
We have determined this leadership structure appropriate given the need for a centralized model of oversight.
Risk Oversight
Like other companies, we face a variety of risks, including investment
risk, liquidity risk, and operational risk. Our Board believes an effective risk management system should: (i) timely identify
the material risks that we face; (ii) communicate necessary information with respect to material risks to senior executives
and, as appropriate, to the Board or the relevant committee of our Board of Directors; (iii) implement appropriate and responsive
risk management strategies consistent with our risk profile; and, (iv) integrate risk management into decision-making. Our Board
is tasked with overseeing risk oversight, and periodically meets with management and advisors regarding the adequacy and effectiveness
of our risk management processes and to analyze the most likely areas of future risk for us. In addition to the formal compliance
program, our Board encourages management to promote a corporate culture that incorporates risk management into our corporate strategy
and day-to-day business operations.
Code of Business Conduct & Ethics and Related Party Transaction
Policy
We have adopted a Code
of Business Conduct and Ethics that applies to our directors, officers and employees, as well as a Related Person Transaction Policy,
that applies to our directors (and director nominees), executive officers (or persons performing similar functions), and certain
of our family members, affiliates, associates and/or related persons, as well as stockholders owning at least 5% of our Common
Stock. The latest copies of our Code of Business Conduct and Ethics, and Related Person Transaction Policy are available under
the “Investors” menu on our corporate website at www.DGSECompanies.com. Any transactions between us and our officers,
directors, principal shareholders, or other affiliates have been on terms no less favorable to us than the Board believes could
be obtained from unaffiliated third parties on an arms-length basis. We intend to disclose future amendments to these policies,
or waivers of such provisions, at the same location on our website and also in public filings.
Shareholder Communication
Shareholders may send communications
to our Board, individual directors or officers through our Investor Relations Department, Attn: Secretary, c/o DGSE Companies,
Inc., 13022 Preston Road, Dallas, TX 75240, by phone at 972-587-4021, or via email at investorrelations@dgse.com. The Secretary
will forward all shareholder communications that, in his judgment, are appropriate for consideration by members of our Board. Comments
or questions regarding our accounting, internal controls or auditing matters will be referred to members of the Audit Committee.
Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to our Compliance,
Governance, and Nominating Committee.
EXECUTIVE OFFICERS
The following table sets forth certain information
regarding the current executive officer of DGSE:
|
|
|
|
Employee or
|
|
|
|
|
|
|
Director
|
|
|
Name
|
|
Age
|
|
Since
|
|
Position
|
|
|
|
|
|
|
|
John R. Loftus
|
|
48
|
|
2016
|
|
Chairman of the Board, President and Chief Executive Officer
|
|
|
|
|
|
|
|
Bret A. Pedersen
|
|
56
|
|
2017
|
|
Chief Financial Officer
|
John R. Loftus
was
appointed President, Chief Executive Officer and elected as Chairman of the Board on December 12, 2016. Mr. Loftus was
the Chief Executive Officer of Elemetal LLC (“Elemetal”), a precious metals company and DGSE’s largest stockholder,
from 2012 to 2015 and was responsible for Elemetal’s operations. Prior to Elemetal, Mr. Loftus was the founder of NTR Metals,
LLC, a precious metals refiner for jewelers, pawnbrokers, and metal industries customers worldwide. Prior to his work at NTR Metals,
Mr. Loftus was a commodities floor trader and holds an M.B.A. from SMU Cox School of Business
.
Bret A. Pedersen
was
elected as Chief Financial Officer on January 17, 2017. Mr. Pedersen has a bachelor’s degree in Accounting from Southwest
Texas State University. Having been a CPA for over twenty years, he has extensive experience in reporting, analyzing, and financially
controlling companies. He has been serving in the capacity as a financial controller for various companies during the past twenty
years. Two years prior to being elected as Chief Financial Officer for DGSE, Mr. Pedersen was the financial controller, from 2014
to 2016, for Payson Petroleum, Inc., which is the parent company of Payson Operating, LLC. Prior to Payson Petroleum, Mr. Pedersen
was the financial controller, from 2009 to 2014, for Iron Creek Ventures, Inc.
EXECUTIVE COMPENSATION
Our
Board is responsible for establishing and administering our executive compensation and employee benefit programs in the context
of our overall goals and objectives. This Board duty has been delegated to the Compensation Committee of our Board of Directors
(the “Compensation Committee”) in accordance with the Compensation Committee’s Charter. The Compensation Committee
reviews the executive compensation program at least annually and approves appropriate modifications to executive officer compensation,
including specific amounts and types of compensation. The Compensation Committee is responsible for establishing the compensation
of the CEO and CFO. The Compensation Committee establishes the annual compensation of the non-employee directors and oversees our
equity compensation plans, including the administration of our stock-based compensation plans.
The
objectives of our compensation program are to: (i) provide a competitive, comprehensive compensation package to attract, retain
and motivate highly talented personnel at all levels of our organization; and, (ii) provide incentives and rewards for implementing
and accomplishing our short-term and long-term strategic and operational goals and objectives. Therefore, we strive to structure
compensation packages that are competitive within the industry, while maintaining and promoting our interests, as well as the interests
of our shareholders.
We
believe that specific levels of executive compensation should reflect the responsibilities of each position within our Company,
the relative value of the position and the competition for quality, key personnel in our industry. Our executive compensation program
includes three primary components:
|
·
|
Base salary
. Base salary is the
guaranteed element of an executive’s annual cash compensation. The level of base salary reflects the Compensation Committee’s
assessment of the employee’s long-term performance, his or her skill set and the market value of that skill set.
|
|
·
|
Annual cash bonus opportunities
.
Performance-based incentive cash bonuses are intended to reward executives for achieving specific financial and operational goals
both at a corporate and an individual level.
|
|
·
|
Long-term incentive awards
. Long-term
incentives are provided through grants of stock options and restricted stock units intended to encourage our executives to take
steps that they believe are necessary to ensure our long-term success, and to align their interests with our other shareholders.
|
Advice of Compensation Consultant
In February 2015, as part
of a set of corporate governance reforms that the Board implemented, the Compensation Committee recommended and the Board approved
an Executive Compensation Policy. As part of this policy, the Compensation Committee is required to retain an independent compensation
consultant at least once every three years to review the Company’s compensation philosophy and plan to ensure that the criteria,
factors, and policies and procedures for determining compensation comport with current best practices. Such consultant shall make
recommendations to the Compensation Committee and/or the entire Board regarding any appropriate actions to better align executive
and director compensation with shareholder interests and long-term value creation. Accordingly, in 2016, the Compensation Committee
retained an independent compensation consultant, Paradox Compensation Advisors (“Paradox”), to analyze our executive
compensation program as compared to our peers. Paradox also advised the Compensation Committee regarding appropriate elements of
a competitive executive compensation structure, including fixed and at-risk elements, short-term and long-term incentives, and
cash and equity components. Paradox reported the results of its analysis of our total executive compensation packages for positions
held by members of our executive leadership team, as well as specific components of these packages, as compared to executives holding
similar positions as similar-sized companies and/or labor market peers in related industries.
Summary Compensation Table
The following tables and discussion sets forth
the compensation paid or accrued to our Chief Executive Officer (or person acting in a similar capacity), and our two most highly
compensated executive officers other than our Chief Executive Officer (“Named Executive Officers”), for all services
rendered to us by these individuals in all capacities for Fiscal 2016 and Fiscal 2015.
Name and
|
|
|
Fiscal
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Other
|
|
|
Total
|
|
Principal Position
|
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Awards ($)
|
|
|
Compensation
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew M. Peakes
|
|
|
2015
|
|
|
|
82,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,385
|
|
Former Chief
|
|
|
2016
|
|
|
|
315,474
|
|
|
|
|
|
|
|
|
|
|
|
81,000
|
|
|
|
315,474
|
|
Executive Officer (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nabil J. Lopez
|
|
|
2015
|
|
|
|
177,662
|
|
|
|
12,360
|
|
|
|
775
|
|
|
|
|
|
|
|
190,797
|
|
Former Chief
|
|
|
2016
|
|
|
|
148,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,291
|
|
Financial Officer (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven R. Patterson
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
180,000
|
|
Former Acting Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Officer (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Loftus
|
|
|
2016
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Matthew M. Peakes was
elected as the Company’s Chairman of the Board, Chief Executive Officer and President upon the resignation of James D. Clem
on September 15, 2015. Mr. Peakes resigned from his position as Chairman of the Board, Chief Executive Officer and President on
December 10, 2016.
|
|
(2)
|
Nabil J. Lopez was elected
as Chief Financial Officer and member of the Board on November 4, 2015. Prior to this election, Mr. Lopez served as the Company’s
Senior Vice President and Controller. Mr. Lopez resigned his position as Chief Financial Officer and member of the Board on August
15, 2016.
|
|
(3)
|
Steven R. Patterson
was elected as Acting Chief Financial Officer on August 15, 2016. Mr. Patterson’s election was strictly on a contractual
basis and not as an employee. His firm was paid $9,000 per week.
|
|
(4)
|
John R. Loftus was elected
as the Company’s Chief Executive Officer, Chairman of the Board, and President on December 12, 2016 upon the resignation
of Matthew M. Peakes on December 10, 2016. Mr. Loftus has chosen not to receive a salary at this time.
|
Employment Agreement
There are no Employment Agreements as of December 31, 2016; however,
each of the executive officers are beneficiaries of indemnification agreements.
Outstanding Equity Awards at Fiscal Year End
In March 2016, the Compensation Committee granted
162,720 Restricted Stock Units (“RSUs”) to the Company’s then independent Board members. Each RSU was convertible
into one share of Common Stock, par value $0.01, of the Company without additional payment pursuant to the terms of the Restricted
Stock Unit Award Agreement, dated March 24, 2016, between the Issuer and each recipient (the “RSU Award Agreement”).
One-fourth (or 40,680) of the RSUs vested and were exercisable as of the date of the grant, and an additional one-fourth of the
RSUs (calculated using the total number of RSUs at the time of grant) vested and were exercisable at the end of each subsequent
quarter ending December 31, 2016, subject to each recipients continued status as an Independent Board Member on each such date
and other terms and conditions of set forth in the RSU Award Agreement. Upon resignation of service of the recipient to the Company,
other than by reason of death or disability, any RSUs that had not vested would have been forfeited and the award of such units
would have terminated. As of December 31, 2016, all RSUs held by the then independent Board members were fully vested.
On April 27, 2016, the Board awarded Matthew Peakes, the Company’s
former Chief Executive Officer, and Nabil J. Lopez, the Company’s former Chief Financial Officer, a total of 75,000 and 50,000
RSUs, respectively, as compensation for their service as executives of the Company. For Mr. Peakes, one-fourth (or 18,750), and
for Mr. Lopez, one-fourth (or 12,500) of the RSUs were to vest ratably in equal annual installments over a four year period beginning
on April 27, 2017, subject to a continued status as an employee on each such date and other terms and conditions set forth in the
RSU Award Agreement, dated April 27, 2016. Each vested RSU is convertible into one share of our Common Stock, par value $0.01,
without additional consideration. Upon termination of service of the employee, other than by death or disability, any RSUs that
have not vested will be forfeited and the award of such units shall terminate. As a result of his resignation effective August
15, 2016, all 50,000 RSUs awarded to Mr. Lopez were forfeited. As a result of the continued employment of Matthew Peakes on April
27, 2017, his first annual installment (or 18,750) RSUs became vested. As a result of Matthew Peakes resignation effective June
30, 2017, all further service RSUs awarded to Mr. Peakes were forfeited. In addition to the RSU grant above for Matthew Peakes
and Nabil Lopez, the compensation committee granted an additional 75,000 and 50,000, respectively, performance based RSUs to the
executives that were to vest ratably over a four year period beginning April 27, 2017 if certain financial performance criteria
are achieved. As a result of his resignation effective August 15, 2016, all 50,000 of such RSUs awarded to Mr. Lopez were forfeited.
As a result of the financial performance being below the minimum level, no RSUs were vested on the first annual installment. As
a result of Matthew Peakes resignation effective June 30, 2017, all 75,000 performance RSUs awarded to Mr. Peakes were forfeited.
The following table sets forth information concerning outstanding
RSUs that have not vested for each name executive officer as of the end of Fiscal 2016:
|
|
|
|
|
Market Value of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Unvested RSUs as
|
|
|
RSU
|
|
|
RSU
|
|
Name and
|
|
Unvested
|
|
|
of December 31,
|
|
|
Exercise
|
|
|
Vesting
|
|
Principal Position
|
|
RSUs (#)
|
|
|
2016
|
|
|
Price ($)
|
|
|
Date
|
|
Matthew M. Peakes
|
|
|
150,000
|
|
|
$
|
186,000
|
|
|
|
|
(1)
|
|
|
|
(2)
|
Former Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1)
|
All stock issued pursuant to RSUs will be granted
at no cost to the recipient. The Company will recognize stock compensation expense based on the market price of the stock on the
date that it issues, pursuant to the RSUs.
|
|
2)
|
On April 27, 2016, the Compensation Committee awarded
Matthew Peakes, the Company’s former Chief Executive Officer, a total of 75,000 RSUs as compensation for his service as
an executive of the Company. For Mr. Peakes, one-fourth (or 18,750), of the RSUs were to vest ratably in equal annual installments
over a four year period beginning on April 27, 2017, subject to a continued status as an employee on each such date and other
terms and conditions set forth in the RSU Award Agreement, dated April 27, 2016. As a result of the continued employment of Matthew
Peakes on April 27, 2017, his first annual installment (or 18,750) RSUs became vested. As a result of Matthew Peakes resignation
effective June 30, 2017, all further RSUs awarded to Mr. Peakes were forfeited. In addition, the Compensation Committee granted
an additional 75,000 performance based RSUs to Mr. Peakes that were to vest ratably over a four year period beginning April 27,
2017 if certain financial performance criteria are achieved. As a result of the financial performance being below the minimum
level, no RSUs were vested on the first annual installment. As a result of Matthew Peakes resignation effective June 30, 2017,
all performance RSUs awarded to Mr. Peakes were forfeited.
|
Compensation of Directors
During 2016, each director
was paid $36,000 per year, to be paid in $9,000 quarterly increments due on the last day of each quarter. In addition, each director
was paid $5,000 per month, from February through June, for time spent on a Special Committee to consider transactions relating
to the Elemetal Agreement as referenced in the Related Party Transactions. In addition, each independent director was issued 40,680
RSUs per annum in equity awards that vest ratably over a one year period at the end of each quarter. Similar to the RSUs granted
to management and certain employees, if the independent directors terminate their service with the Company, other than by death
or disability, any RSUs that have not vested will be forfeited and the award will terminate. The full Board subsequently approved
these recommendations.
Beginning in January 2017,
the Compensation Committee recommended that independent directors be paid cash compensation of $10,000 per year, to be paid in
$2,500 quarterly increments due on the day of each quarterly board meeting. No other compensation is to be paid. The full Board
subsequently approved these recommendations.
Our employee directors
receive no separate compensation for their services as directors.
The following table sets
forth the total compensation paid to our directors (other than directors who are Named Executive Officers and whose compensation
is described above under the heading Summary Compensation Table) for their service on our Board and committees of the Board during
Fiscal 2016.
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Paid in
|
|
|
Stock
|
|
|
All Other
|
|
|
|
|
Name
|
|
Cash ($)
|
|
|
Awards ($)(8)
|
|
|
Compensation
|
|
|
Total ($)
|
|
Joel S. Friedman (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Alexandra C. Griffin (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Jim R. Ruth (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
J. Marcus Scrudder (4)
|
|
|
66,000
|
(7)
|
|
|
22,374
|
|
|
|
-
|
|
|
|
88,374
|
|
Douglas J. Lattner (5)
|
|
|
66,000
|
(7)
|
|
|
22,374
|
|
|
|
-
|
|
|
|
88,374
|
|
Michael J. Noel (6)
|
|
|
61,000
|
|
|
|
22,374
|
|
|
|
-
|
|
|
|
83,374
|
|
|
(1)
|
Joel S. Friedman was elected as independent director
on January 18, 2017.
|
|
(2)
|
Alexandra C. Griffin was elected as independent director
on January 17, 2017.
|
|
(3)
|
Jim R. Ruth was elected as independent director on
January 17, 2017.
|
|
(4)
|
J Marcus Scrudder was elected as independent director
on October 9, 2015. Mr Scrudder resigned his position as independent director effective January 12, 2017.
|
|
(5)
|
Douglas L. Lattner was elected as independent director
on October 14, 2015. Mr. Lattner resigned his position as independent director effective January 12, 2017.
|
|
(6)
|
Michael J. Noel was elected as independent director
January 6, 2016. Mr. Noel resigned his position as independent director effective January 12, 2017.
|
|
(7)
|
J. Marcus Scrudder and Douglas J. Lattner each received
$5,000 in February 2016 for their Q4 2015 director fees.
|
|
(8)
|
Mr. Scrudder, Mr. Lattner and Mr. Noel each received
a grant of 40,680 RSUs on March 24, 2016. These RSUs vested ratably and were exercisable at the end of every quarter during the
year ending December 31, 2016. These RSUs had no value until vesting, but the value of the underlying shares as of the date of
issuance was $0.55 per share, or $22,374 for each grant of 40,680 shares.
|
Equity Compensation Plan Information
On June 21, 2004, our shareholders
approved the adoption of the 2004 Stock Option Plan (the “2004 Plan”) which reserved 1,700,000 shares of our Common
Stock for issuance upon exercise of options to purchase our Common Stock. We granted options to purchase an aggregate of 1,459,634
shares of our Common Stock under the 2004 Plan to certain of our officers, directors, key employees and certain other individuals
who provided us with goods and services. Each option vested on either January 1, 2004 or immediately upon issuance thereafter.
The exercise price of each option issued pursuant to the 2004 Plan is equal to the market value of our Common Stock on the date
of grant, as determined by the closing bid price for our Common Stock on the Exchange on the date of grant or, if no trading occurred
on the date of grant, on the last day prior to the date of grant on which our securities were listed and traded on the Exchange.
Of the options issued under the 2004 Plan, as of December 31, 2016, 845,634 have been exercised, 599,000 have expired, and
15,000 remain outstanding. No further issuances can be made pursuant to the 2004 Plan.
On June 27, 2006, our shareholders
approved the adoption of the 2006 Equity Incentive Plan (the “2006 Plan”), which reserved 750,000 shares for issuance
upon exercise of options to purchase our Common Stock or other stock awards. We subsequently granted options to purchase 150,000
shares of our Common Stock pursuant to the 2006 Plan, of which 100,000 have been exercised and the remaining 50,000 have expired
as of December 31, 2016.
On March 24, 2016, the
Board awarded the three independent directors on the Board at that time a total of 122,040 RSUs as compensation for their Board
service. One-fourth (or 30,510) of the RSUs vested and were issued on March 31, 2016. The remaining RSUs vested ratably and were
exercisable at the end of every quarter (June 30, September 30, and December 31, 2016). Each vested RSU converted into one share
of our Common Stock, par value $0.01, without additional consideration, on the applicable vesting date.
On April 27, 2016, the
Board awarded Matthew Peakes, the Company’s former Chief Executive Officer, and Nabil J. Lopez, the Company’s former
Chief Financial Officer, a total of 75,000 and 50,000 RSUs, respectively, as compensation for their service as executives of the
Company. For Mr. Peakes, one-fourth (or 18,750), and for Mr. Lopez, one-fourth (or 12,500) of the RSUs were to vest ratably in
equal annual installments over a four year period beginning on April 27, 2017, subject to a continued status as an employee on
each such date and other terms and conditions set forth in the RSU Award Agreement, dated April 27, 2016. Each vested RSU was convertible
into one share of our Common Stock, par value $0.01, without additional consideration. Upon termination of service of the employee,
other than by death or disability, any RSUs that have not vested will be forfeited and the award of such units shall terminate.
As a result of his resignation effective August 15, 2016, all 50,000 RSUs awarded to Mr. Lopez were forfeited. As a result of the
continued employment of Matthew Peakes on April 27, 2017, his first annual installment (or 18,750) RSUs became vested. As a result
of Matthew Peakes resignation effective June 30, 2017, all further service RSUs awarded to Mr. Peakes were forfeited. In addition
to the RSU grant above for Matthew Peakes and Nabil Lopez, the compensation committee granted an additional 75,000 and 50,000,
respectively, performance based RSUs to the executives that were to vest ratably over a four year period beginning April 27, 2017
if certain financial performance criteria are achieved. As a result of his resignation effective August 15, 2016, all additional
50,000 RSUs awarded to Mr. Lopez were forfeited. As a result of the financial performance being below the minimum level, no RSUs
were vested on the first annual installment. As a result of Matthew Peakes resignation effective June 30, 2017, all performance
RSUs awarded to Mr. Peakes were forfeited.
Subsequent to such grants,
the 2006 Plan expired, as a result, no further issuances can be made pursuant to the 2006 Plan.
On December 7, 2016, our
shareholders approved the adoption of the 2016 Equity Incentive Plan (the “2016 Plan”), which reserved 1,100,000 shares
for issuance pursuant to awards issued thereunder. As of December 31, 2016, no awards had been made under the 2016 Plan.
The following table summarizes
options to purchase shares of Common Stock, and RSUs, outstanding as of December 31, 2016:
|
|
|
|
|
|
|
|
Numbers of securities
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
Number of
|
|
|
|
|
|
future issuance under
|
|
|
|
securities to be
|
|
|
Weighted average
|
|
|
equity compensation plans
|
|
|
|
issued upon
|
|
|
exercise price of
|
|
|
(excluding securities
|
|
Plan Category
|
|
exercise of options
|
|
|
outstanding options
|
|
|
reflected in column (a))
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
167,000
|
(1)
|
|
|
2.17
|
(2)
|
|
|
1,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by
|
|
|
None
|
|
|
|
|
|
|
|
None
|
|
security holders
|
|
|
167,000
|
|
|
|
|
|
|
|
1,100,000
|
|
|
(1)
|
Includes 152,000 RSUs
that were not vested, of which 150,000 units were granted to Matthew Peakes on April 27, 2016 as compensation for his service
as an executive of the Company, as of December 31, 2016.
|
|
(2)
|
Weighted average exercise
price does not include 152,000 RSUs issued to employees, management and directors of DGSE as incentive compensation for their
continued services. Pursuant to the terms of individual Restricted Stock Unit Award Agreements, such RSUs will vest over time,
or subject to performance conditions contingent upon the continued service to DGSE by the recipient. Each vested RSU may be converted
into one share of common stock, par value $0.01, of DGSE without additional consideration (other than such conversion and reduction
in the number of RSUs held).
|
On March 24, 2016, the
Board awarded the three independent directors a total of 122,040 RSUs as compensation for their Board service. One-fourth (or 30,510)
of the RSUs vested and were issued on March 31, 2016. The remaining RSUs vested ratably and were exercisable at the end of every
quarter (June 30, September 30 and December 31). Each vested RSU converted into one share of our Common Stock, par value $0.01,
without additional consideration, on the applicable vesting date.
On April 27, 2016, the
Board awarded Matthew M. Peakes and Nabil J. Lopez a total of 125,000 RSUs as compensation for their service as executives of the
Company. One-fourth (or 31,250) of the RSUs will vest ratably in equal annual installments over a four-year period beginning on
April 27, 2017, subject to the continued status as an employee on each such date and other terms and conditions of set forth
in the RSU Award Agreement, dated April 27, 2016. Each vested RSU is convertible into one share of our Common Stock, par value
$0.01, without additional consideration. Upon termination of service of the employee, other than by reason of death or disability,
any RSUs that have not vested will be forfeited and the award of such units shall terminate. As a result of his resignation effective
August 15, 2016, 50,000 RSUs awarded to Mr. Lopez were forfeited. As a result of the continued employment of Matthew
Peakes on April 27, 2017, his first annual installment (or 18,750) RSUs became vested. As a result of Matthew Peakes resignation
effective June 30, 2017, all further service RSUs awarded to Mr. Peakes were forfeited.
In addition to the RSU
grant above for Matthew Peakes and Nabil Lopez, the Compensation Committee granted an additional 125,000 performance-based RSUs
to the executives that would vest ratably over a four-year period beginning April 27, 2017 if certain financial performance criteria
is achieved. Subsequent to such grants, the 2006 Plan expired. As a result, no further issuances can be made pursuant to the 2006
Plan. As a result of his resignation effective August 15, 2016, all 50,000 of such RSUs awarded to Mr. Lopez were forfeited.
As a result of the financial performance being below the minimum level, no RSUs were vested on the first annual installment. As
a result of Matthew Peakes resignation effective June 30, 2017, all performance RSUs awarded to Mr. Peakes were forfeited.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, we engage in business transactions
with our shareholders, Elemetal, NTR and other related parties. Set forth below in the section entitled “Related Party Transactions”
is a summary of such transactions.
Relationship with Elemetal, LLC
Elemetal is a global precious
metals conglomerate based in Dallas, Texas. Its principal holdings include: Elemetal Refining, LLC (formerly known as OPM Metals
or OPM), the Ohio-based, American-owned refiner of “good delivery” gold and silver; Elemetal Direct, a Texas-based
wholesale dealer of precious metals; Elemetal Capital, LLC, a leading market maker in the bullion and precious metals industries;
Provident Precious Metals LLC, an online retailer of bullion and precious metal products; and Elemetal Recycling, LLC (formerly
known as Echo Environmental), a Texas-based firm focusing on electronic waste recycling and precious metal recovery.
Through a series of transactions
beginning in 2010, NTR Metals, LLC (“NTR”) became the largest shareholder of our common stock, par value $0.01 per
share (“Common Stock”). In April 2012, NTR announced its merger with OPM, the largest American-owned refiner of “good
delivery” gold and silver. The combined company was originally called Global Metals Holdings, LLC, and has since been rechristened
as Elemetal. In January 2013, NTR announced it would contribute 4,393,142 of its shares of our Common Stock to Elemetal, in exchange
for ownership units in Elemetal. NTR also agreed to contribute its option to buy 5,000,000 additional shares of DGSE Common Stock
at $15 a share, which expired unexercised on October 25, 2016. On December 9, 2016, DGSE and NTR closed the transactions contemplated
by the Stock Purchase Agreement dated June 20, 2016 (the “Elemetal Agreement”) whereby DGSE issued NTR 5,948,560 shares
of Common Stock for $0.41 per share in exchange for the cancellation and forgiveness of indebtedness under a Loan Agreement dated
July 19, 2012 and an associated Revolving Credit Note (which indebtedness and accrued interest was $2,438,909). Also on the same
date and pursuant to the Elemetal Agreement, DGSE issued Elemetal 8,536,585 shares of its Common Stock for $0.41 per share and
a warrant to purchase an additional 1,000,000 shares of Common Stock at an exercise price of $0.65 per share, exercisable within
two years after December 9, 2016, in exchange for the cancellation and forgiveness of $3,500,000 of trade payables owed to Elemetal
as a result of bullion-related transactions. Following these stock issuances Elemetal owns 12,814,727 shares of Common Stock (47.7%)
(excluding shares that may be purchased upon exercise of the warrant) and NTR owns 6,365,460 shares of Common Stock (23.7%).
In addition to being our
largest shareholder, Elemetal and its affiliates are also our primary supplier for bullion products and is our primary refiner
of recyclable precious metal. These and other transactions with Elemetal are more fully described in Note 13 to our consolidated
financial statements, Related Party Transactions.
Related Party Transactions
DGSE has a corporate policy
governing the identification, review, consideration and approval or ratification of transactions with related persons, as that
term is defined in the Instructions to Item 404(a) of Regulation S-K, promulgated under the Securities Act (“Related Party”).
Under this policy, all Related Party transactions are identified and approved prior to consummation of the transaction to ensure
they are consistent with DGSE’s best interests and the best interests of its stockholders. Among other factors, DGSE’s
Board considers the size and duration of the transaction, the nature and interest of the of the Related Party in the transaction,
whether the transaction may involve a conflict of interest and if the transaction is on terms that are at least as favorable to
DGSE as would be available in a comparable transaction with an unaffiliated third party. DGSE’s Board reviews all Related
Party transactions at least annually to determine if it is in DGSE’s best interests and the best interests of DGSE’s
stockholders to continue, modify, or terminate any of the Related Party transactions. DGSE’s Related Person Transaction Policy
is available for review in its entirety under the “Investors” menu of the Company’s corporate relations website
at www.DGSECompanies.com.
Elemetal is DGSE’s
largest shareholder. Elemetal and its affiliates are also DGSE’s primary refiner and bullion trading partner. In Fiscal 2016,
25% of sales and 27% of purchases were transactions with Elemetal, and in the same period of Fiscal 2015, these transactions represented
24% of DGSE’s sales and 26% of DGSE’s purchases. On December 9, 2016, DGSE and Elemetal closed the transactions contemplated
by the Elemetal agreement whereby DGSE issued Elemetal 8,536,585 shares of its common stock and a warrant to purchase an additional
1,000,000 shares to be exercised within two years after December 9, 2016, in exchange for the cancellation and forgiveness of $3,500,000
of trade payables owed to Elemetal as a result of bullion-related transactions. As of December 31, 2016, the Company was obligated
to pay $4,107,425 to Elemetal as a trade payable, and had a $40,627 receivable from Elemetal. As of December 31, 2015, the
Company was obligated to pay $4,176,037 to Elemetal as a trade payable, and had a $169,136 receivable from Elemetal. For the year
ended December 31, 2016 and 2015, the Company paid Elemetal $240,004 and $187,888, respectively, in interest on the Company’s
outstanding payable.
On July 19, 2012,
the Company entered into the Loan Agreement with NTR, pursuant to which NTR agreed to provide the Company with a guidance line
of revolving credit in an amount up to $7,500,000. The Loan Agreement anticipated termination–at which point all amounts
outstanding thereunder would be due and payable–upon the earlier of: (i) August 1, 2014; (ii) the date that is
twelve months after DGSE receives notice from NTR demanding the repayment of the Obligations; (iii) the date the Obligations
are accelerated in accordance with the terms of the Loan Agreement; or, (iv) the date on which the commitment terminates under
the Loan Agreement. In connection with the Loan Agreement, DGSE granted a security interest in the respective personal property
of each of its subsidiaries. The loan carried an interest rate of two percent (2%) per annum for all funds borrowed pursuant to
the Loan Agreement. Proceeds received by DGSE pursuant to the terms of the Loan Agreement were used for repayment of all outstanding
financial obligations incurred in connection with that certain Loan Agreement, dated as of December 22, 2005, between DGSE
and Texas Capital Bank, N.A., and additional proceeds were used as working capital in the ordinary course of business. On February
25, 2014, we entered into a one-year extension of the Loan Agreement with NTR, extending the termination date to August 1, 2015,
and on February 4, 2015, we entered into an additional two-year extension, extending the termination date to August 1, 2017.
On December 9, 2016, DGSE and NTR closed the transactions contemplated by the Elemetal Agreement whereby DGSE issued NTR 5,948,560
shares of common stock in exchange for the cancellation and forgiveness of the loan principal and accrued interest totaling $2,438,909.
As of December 31, 2016 and 2015, the outstanding balance of the NTR loan was $0 and $2,303,359 respectively. In the year
ended December 31, 2016 and 2015, the Company paid NTR $43,723 and $45,810, respectively, in interest on the Company’s
line of credit.
In April 2013, DGSE moved
its principal corporate offices to 15850 Dallas Parkway, Suite 140, Dallas, Texas. This property is owned by an affiliate of Elemetal
and also serves as their headquarters. DGSE leased space in the building subject to a lease that expired in December 2015. The
Company continued to pay this lease on a month-to-month basis with no increase in the rent until our new Midtown retail location
was completed in December 2016. The Midtown location is large enough to facilitate the retail space and our corporate offices.
For the year ended December 31, 2016 and 2015, the Company recognized rent expense of $90,000 and $50,500, respectively, related
to this lease.
In the fourth quarter of
Fiscal 2013, the Company established a wholly owned subsidiary named Carbon Fund One, LLC to act as the general partner (the “General
Partner”) for Carbon Fund One, LP (the “Fund”), which was established at the same time. The Fund was an investment
fund specializing in the buying and selling of gemstones. The General Partner receives a one percent ownership interest of the
Fund, and is paid 2% carried interest on assets under management by the Fund, and 20% of net earnings before distributions to the
limited partners. The Fund was intended to provide an investment vehicle for individuals interested in investment opportunities
in diamonds and gemstones, and provide incremental value to the Company’s shareholders by utilizing the Company’s expertise,
infrastructure, and retail and wholesale customer base, to generate additional profit through earnings from its role as General
Partner. Ultimately DGSE’s management made the decision to end its involvement in the Fund, and the General Partner has wound
down the Fund’s activities and liquidated all remaining inventory. The Fund transacted business with the Company from time
to time, including buying gemstones from and selling gemstones to the Company. In Fiscal 2016, the Company made no sales to the
Fund, had no purchases from the Fund, and owed the Fund nothing as of December 31, 2016 in trade payables. In Fiscal 2015, the
Company made no sales to the Fund, had purchases of $5,665 from the Fund, and owed the Fund nothing as of December 31, 2015 in
trade payables. Additionally, in Fiscal 2016, the General Partner generated no loss from its role with the Fund, while in the same
period of 2015, the General Partner generated net loss of $1,334. The loss in 2015 was driven by low activity within the Fund,
combined with expenses related to the shutdown of the Fund.
On April 19, 2017, DGSE
entered into a non-binding letter of intent with Elemetal and Elemetal Recycling, LLC (“Recycling”) and together with
Elemetal, (“Sellers”) to purchase and acquire Recycling’s interest in and to the tangible personal property assets,
including inventory, located at 2101 W. Belt Line Road, Carrollton, Texas (the “Belt Line Location”) and certain equipment
located at 10707 Composite Drive, Dallas, Texas, and the accounts receivables of Recycling arising from the conduct by Recycling
of its business at the Belt Line Location. In consideration for the assets, DGSE would pay Recycling $ 16,000,000 in cash along
with paying Recycling approximately $3,800,000 owed by DGSE, or any of its subsidiaries, as a result of bullion-related transactions.
Thus the cash purchase price along with paying the bullion-related obligation is expected to be approximately $19,000,000. DGSE
would also accept an assignment from Recycling of their rights and obligations under their existing lease for the Belt Line Location
and would assume the accounts payables and other liabilities of Recycling arising from the conduct of business at the Belt Line
Location. The letter of intent is non-binding and is subject to numerous conditions, including negotiation and execution of a definitive
agreement, approval of the Boards of the parties and approval of Elemetal’s members. No assurance can be made that DGSE will
be able to negotiate a mutually satisfactory definitive agreement with Recycling or that the contemplated approval will be obtained.
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT OF
WHITLEY PENN AS INDEPENDENT AUDITORS OF DGSE
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017
The Audit Committee has
appointed Whitley Penn as our independent registered accountants to audit our financial statements for the fiscal year ending December
31, 2017, and has further directed that management submit the selection of independent registered accountants for ratification
by our stockholders at the annual meeting. Stockholder ratification of the selection of Whitley Penn is not required by our bylaws
or otherwise. However, we are submitting the selection of Whitley Penn to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain
Whitley Penn. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if it is determined that such a change would be in the best interests of
DGSE and our stockholders.
Representatives of the
firm of Whitley Penn are expected to be present at our annual meeting and will have an opportunity to make a statement, if they
so desire, and will be available to respond to appropriate questions.
In accordance with the
requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all
non-audit work performed by our independent accountants, Whitley Penn, is approved in advance by the Audit Committee, including
the proposed fees for such work. The Audit Committee is informed of each service actually rendered.
The following table presents
fees for the audits of our annual Consolidated Financial Statements for Fiscal 2016 and Fiscal 2015.
Type of Fees
|
|
2016
|
|
|
2015
|
|
Audit Fees
|
|
$
|
206,000
|
|
|
$
|
229,257
|
|
Tax Fees
|
|
|
14,800
|
|
|
|
31,450
|
|
Total
|
|
|
220,800
|
|
|
$
|
260,707
|
|
The amounts for audit fees
include generally the fees charged for: (i) the audit of our annual consolidated financial statements included in the Company’s
Form 10-K; and, (ii) the reviews of our quarterly consolidated financial statements included in the Company’s Forms 10-Q.
The tax fees were primarily for tax return preparation and tax-related services, including the preparation of all applicable state
tax returns.
All audit services were
pre-approved by the Audit Committee, which concluded that the provision of such services by Whitley Penn LLP was compatible with
the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s pre-approval
policy: (i) identifies the guiding principles that must be considered by the audit committee in approving services to ensure that
Whitley Penn LLP’s independence is not impaired; (b) describes the audit, and tax services that may be provided; and (c)
sets forth pre-approval requirements for all permitted services. Under the policy, all services to be provided by Whitley Penn
LLP must be pre-approved by the Audit Committee.
We originally engaged the
firm of Whitley Penn in May 2012, as our principal independent accountant to audit our financial statements. The members of our
Board of Directors unanimously approved the engagement of Whitley Penn. Prior to the engagement of Whitley Penn, neither we nor
any person on our behalf consulted Whitley Penn regarding either: (i) the application of accounting principles to a specified completed
or proposed transaction or the type of audit opinion that might be rendered on our financial statements; or, (ii) any matter that
was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K, promulgated under the Securities Act and
the related instructions to such Item) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K, promulgated under
the Securities Act).
Vote Required
The affirmative vote of
a majority of the votes cast at the Annual Meeting, assuming a quorum is present, is required for the ratification of our independent
registered accountants.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF Whitley Penn AS INDEPENDENT
AUDITORS
OF DGSE FOR THE FISCAL YEAR ENDING December 31, 2017.
PROPOSAL THREE:
ADJOURNMENT OF THE ANNUAL MEETING TO SOLICIT
ADDITIONAL
PROXIES IN FAVOR OF PROPOSALS ONE THROUGH TWO
At the Annual Meeting,
we may ask stockholders to vote to adjourn the Special Meeting to solicit additional proxies in favor of the approval of Proposals
One through Two if we have not obtained sufficient votes to approve any such proposal. Approval of the Adjournment Proposal requires
the affirmative vote of a majority of the votes cast on the matter, assuming a quorum is present at the meeting. As this vote is
a non-routine matter under applicable rules, your bank, broker or other nominee cannot vote without instructions from you.
THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE “FOR” THE
PROPOSAL TO ADJOURN THE ANNUAL MEETING TO SOLICIT ADDITIONAL
PROXIES IN FAVOR OF PROPOSALS
ONE THROUGH TWO.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange
Act requires our directors and officers and persons who beneficially own more than ten percent of our common stock to file with
the SEC reports of beneficial ownership on Forms 3 and changes in beneficial ownership of our common stock and other equity securities
on Forms 4 or Forms 5. SEC regulations require all officers, directors and greater than 10% stockholders to furnish us with copies
of all Section 16(a) forms they file.
Based solely upon a review
of Forms 3 and 4 and amendments thereto furnished to us during, and Forms 5 and amendments thereto furnished to us with respect
to, Fiscal 2016, and any written representations from reporting persons that no Form 5 is required, the following table sets forth
information regarding each person who, at any time during Fiscal 2016, was a director, officer or beneficial owner of more than
10% of our common stock who failed to file on a timely basis, as disclosed in the above forms, reports required by Section 16(a)
of the Exchange Act during Fiscal 2016 or prior fiscal years:
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Transactions Not
|
|
|
Known Failures
|
|
|
|
Number of
|
|
|
Reported On a
|
|
|
to File a Required
|
|
Name
|
|
Late Reports
|
|
|
Timely Basis
|
|
|
Form
|
|
Matthew M. Peakes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
J. Marcus Scrudder
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Michael J. Noel
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
William E. LeRoy
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
John R. Loftus
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
STOCKHOLDER COMMUNICATIONS
AND PROPOSALS
We have adopted a formal
process by which stockholders may communicate with our Board of Directors. Our Board recommends that stockholders initiate any
communications with the Board in writing and send them in care of the investor relations department by mail to our principal offices
at 13022 Preston Road, Dallas, Texas 75240. This centralized process will assist the Board in reviewing and responding to stockholder
communications in an appropriate manner. The name of any specific intended Board recipient should be noted in the communication.
The Board of Directors has instructed the investor relations department to forward such correspondence only to the intended recipients;
however, the Board has also instructed the investor relations department, prior to forwarding any correspondence, to review such
correspondence and, in its discretion, not to forward certain items if they are deemed of a personal, illegal, commercial, offensive
or frivolous nature or otherwise inappropriate for the Board’s consideration. In such cases, that correspondence will be
forwarded to our corporate secretary for review and possible response. This information is also contained on our website at www.DGSECompanies.com.
Stockholder proposals made
in compliance with Rule 14(a)-8 of the Exchange Act to be presented at our Annual Meeting of Stockholders to be held in 2017, for
inclusion in our proxy statement and form of proxy relating to that meeting, must be received on or before October 31, 2017, unless
the Annual Meeting has been changed by more than thirty days from the date of the 2017 Annual Meeting, in which case stockholder
proposals must be received by a reasonable time before the Company begins to print and send its proxy materials. Stockholder proposals
made outside the process described in Rule 14(a)-8 of the Exchange Act must be received by October 31, 2017. Such stockholder proposals
must comply with our bylaws and the requirements of Regulation 14A of the Exchange Act.
Rule 14a-4 of the
Exchange Act governs our use of discretionary proxy voting authority with respect to a stockholder proposal that is not addressed
in the proxy statement. With respect to our 2017 Annual Meeting of Stockholders, if we are not provided notice of a stockholder
proposal by October 31, 2017, we will be permitted to use our discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
PERSONS MAKING THE SOLICITATION
The enclosed proxy is solicited
on behalf of our Board of Directors. We will pay the cost of soliciting proxies in the accompanying form. Our officers may solicit
proxies by mail, telephone, telegraph or fax. Upon request, we will reimburse brokers, dealers, banks and trustees, or their nominees,
for reasonable expenses incurred by them in forwarding proxy material to beneficial owners of our shares of Common Stock.
OTHER MATTERS
The Board of Directors
is not aware of any matter to be presented for action at the meeting other than the matters set forth herein. Should any other
matter requiring a vote of stockholders arise, the proxies in the enclosed form confer upon the person or persons entitled to vote
the shares represented by such proxies’ discretionary authority to vote the same in accordance with their best judgment in
the interest of DGSE.
DGSE has adopted a process
for mailing the 2016 Annual Report and the 2017 Proxy Statement called “householding,” which has been approved by the
Securities and Exchange Commission. Householding means that stockholders who share the same last name and address will receive
only one copy of the 2016 Annual Report and Proxy Statement, unless DGSE receives contrary instructions from any stockholder at
that address. DGSE will continue to mail a proxy card to each stockholder of record.
If you prefer to receive
multiple copies of the 2016 Annual Report and the 2017 Proxy Statement at the same address, additional copies will be promptly
provided to you upon your request. If you are a stockholder of record, you may contact us by writing to Bret Pedersen at 13022
Preston Road, Dallas, TX 75240. Eligible stockholders of record receiving multiple copies of the 2016 Annual Report and the 2017
Proxy Statement can request householding by contacting DGSE in the same manner. DGSE has undertaken householding to reduce printing
costs and postage fees, and we encourage you to participate.
If you are a beneficial
owner, you may request additional copies of the 2016 Annual Report and Proxy Statement or you may request householding by notifying
your broker, bank or nominee.
Current and prospective
investors can also access free copies of our 2016 Annual Report, the 2017 Proxy Statement and other financial information on our
Investor Relations section of our web site at http://www.egain.com/company/investors/.
ANNNUAL REPORT ON FORM 10-K
A copy of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2016, including financial statements, accompanies this proxy statement.
The Annual Report is not to be regarded as proxy soliciting material or as a communication by means of which any solicitation is
to be made. A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC, is available
(excluding exhibits) without cost to stockholders upon written request made to Investor Relations, DGSE Companies, Inc., 13022
Preston Road, Dallas, TX 75240 or online at our website http://dgsecompanies.com.
By Order of the Board of Directors,
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/s/ Bret A. Pedersen
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Bret A. Pedersen
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Chief Financial Officer
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December 7, 2017
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