Matthew M. PeakesJohn R. Loftus was appointed President, Chief Executive Officer and elected as Chairman of the Board on September 15, 2015.December 12, 2016. Mr. PeakesLoftus was elected to the Board becauseChief Executive Officer of hisexperience in the precious metals and diamond industries, background in implementing operational improvements, and financial expertise. From 2012 to 2015, Mr. Peakes was employed by Elemetal LLC (“Elemetal”), oura precious metals company and DGSE’s largest shareholder, as the Director of Corporate Development.stockholder, from 2012 to 2015 and was responsible for Elemetal’s operations. Prior to joining Elemetal, Mr. PeakesLoftus was with JPMorganthe 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 2007 to 2012 as Vice President. Mr. Peakes holds both aMasterSMU Cox School of Business Administration and B.B.A in Finance from Southern Methodist University..

Stephen R. Patterson, CPABret A. Pedersenwas selectedelected as acting Chief Financial Officer effective as of August 15, 2016.on January 17, 2017. Mr. Patterson is an associate of Capital CFO Partners, LLC since 2015, which provides strategic senior level executive management to mid-market publicPedersen 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 private companies on an interim or fractional basis. Prior to that, Mr. Patterson was with the Federal Deposit Insurance Corporation from 2010 to 2015,financially controlling companies. He has been serving in the Owned Real Estate section working on policy and procedures, business process solutions, portfolio management and bank failures. Previously, Mr. Patterson served numerous public and privatecapacity as a financial controller for various companies in senior financial leadership roles, includingduring the past twenty years. Two years prior to being elected as CFO of SEC registrants Network Security Corporation and Abatix Corp. Mr. Patterson was selected as acting Chief Financial Officer becausefor DGSE, Mr. Pedersen was the financial controller, from 2014 to 2016, for Payson Petroleum, Inc., which is the parent company of his business andPayson Operating, LLC. Prior to Payson Petroleum, Mr. Pedersen was the financial management experience, including the Chief Financial Officer roles he has held.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:

Advice of Compensation Consultant

In 2012, prior to the formation of our Compensation Committee, our Board, performing the function of a 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 those packages, as compared to executives holding similar positions at similarly-sized companies and/or labor market peers in related industries.

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 engagedretained 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 consultantcompetitive 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 review the policyexecutives holding similar positions as similar-sized companies and/or labor market peers in 2016.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 20152016 and the year ended December 31, 2014 (“Fiscal 2014”).2015.

Employment Agreement

Matthew M. Peakes.Pursuant to a written offer letter, and in consideration for Mr. Peakes’s service, DGSE: (i) shall pay Mr. Peakes a salaryThere are no Employment Agreements as of $315,000 per year; (ii) may pay Mr. Peakes a performance bonusDecember 31, 2016; however, each of up to 25%the executive officers are beneficiaries of his annual gross salary; and (iii) shall participate in any equity compensation grants, commensurate or exceeding those granted to other senior-level management. Mr. Peakes is an at-will employee of DGSE, and we may reassign Mr. Peakes, terminate Mr. Peakes’s employment or change Mr. Peakes’s compensation at any time with or without cause.indemnification agreements.

Outstanding Equity Awards at Fiscal Year End

In January 2014,March 2016, the Compensation Committee granted 112,000 RSUs162,720 Restricted Stock Units (“RSUs”) to the Company’s officers and certain key employees.then independent Board members. Each RSU iswas 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 January 23, 2014,March 24, 2016, between the Issuer and each recipient (the “RSU Award Agreement”). One-fourth (or 28,000)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) vestvested and will bewere exercisable onat the end of each subsequent anniversary of the date of grant until 100 percent of the RSUs have vested,quarter ending December 31, 2016, subject to the each recipients continued status as an employeeIndependent Board Member on each such date and other terms and conditions of set forth in the RSU Award Agreement. Upon terminationresignation 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 namedname executive officer as of the end of Fiscal 2015:2016:

Compensation of Directors

From January 1, 2015 through the final resignation of the former independent directors, the directors wereDuring 2016, each director was paid cash compensation of $20,000 per year, payable in $5,000 quarterly increments due on the day of each quarterly board meeting.

Beginning in January 2016, the Compensation Committee recommended that independent directors be paid cash compensation of $28,000$36,000 per year, to be paid in $7,000$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 Compensation Committee recommended thatElemetal Agreement as referenced in the Related Party Transactions. In addition, each independent directors bedirector 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.

OurBeginning in January 2017, the Compensation Committee recommended that independent directors receive Board meeting feesbe paid cash compensation of $3,000 per year and committee fees of $5,000$10,000 per year, to be paid in $2,000$2,500 quarterly increments due on the last day of each quarter. In additionquarterly board meeting. No other compensation is to the quarterly payments, we reimburse our directors for their reasonable expenses incurred while attending meetings of ourbe paid. The full Board and its Committees or conducting other company business. We do not provide any health insurance, retirement or other benefit programs to our independent directors.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 2015.2016.

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 1,459,634shares1,459,634 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, 2015,2016, 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 40,000and the remaining 50,000 have expired and 10,000 remain outstanding as of December 31, 2015. Subsequent to December 31, 2015, the remaining 10,000 options to purchase our Common Stock expired.2016.

In January 2014, we granted 112,000 Restricted Stock Units (“RSUs”) to management and key employees, subject to the 2006 Plan. Under the terms of the RSU Award Agreements from January 2014, 25% of these RSUs vested immediately, with the remaining 75% to vest ratably over the next three years, pending each recipient’s continued employment by DGSE. On SeptemberMarch 24, 2014,2016, the Board awarded the three independent directors on the Board at that time a total of 42,600122,040 RSUs as compensation for their Board service. 100%One-fourth (or 30,510) of thesethe 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 day prior to DGSE’s 2015 Annual Meeting of Stockholders. The Company issued 42,600 shares of DGSE’s common stock to the independent directors on June 9, 2015 related to the September 2014 grant. applicable vesting date.

On December 10, 2014,April 27, 2016, the Board awarded DGSE’sMatthew Peakes, the Company’s former Chief Executive Officer, James D. Clem,and Nabil J. Lopez, the Company’s former Chief Financial Officer, a total of 75,000 and 50,000 RSUs, respectively, as partcompensation for their service as executives of his compensation package. 100%the Company. For Mr. Peakes, one-fourth (or 18,750), and for Mr. Lopez, one-fourth (or 12,500) of thesethe RSUs vested immediately,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 pursuant to this vesting, 75,000 shares of DGSE common stock were issued to Mr. Clem on December 18, 2014. On February 18, 2015, the Company issued 15,000 shares of DGSE’s common stock to managementother terms and key employees pursuant toconditions set forth in the RSU Award Agreement.

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 these grants, ashis resignation effective August 15, 2016, all 50,000 RSUs awarded to Mr. Lopez were forfeited. As a result of December 31, 2015, therethe 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 475,400 shares availableforfeited. In addition to the RSU grant above for future grants underMatthew Peakes and Nabil Lopez, the 2006 Plan.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, 2015:2016:

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 will vestvested ratably and will bewere exercisable at the end of every quarter (June 30, September 30 and December 31) during the year ending December 31, 2016, subject to the continued status as a director on each such date and other terms and conditions of set forth in the applicable RSU Award Agreement, dated March 24, 2016.. Each vested RSU is convertibleconverted into one share of our Common Stock, par value $0.01, without additional consideration. Upon termination of service ofconsideration, on the independent director, 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.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 willwould 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 controlling shareholder,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.Stock”). In April 2012, NTR announced its merger with OPM, one of the largest American-owned refinersrefiner of “good delivery” gold and silver. The combined company was originally called Global Metals Holdings, LLC, and has since been renamed Elemetal, LLC.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 ourDGSE Common Stock.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 isand 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 2015, 24%2016, 25% of sales and 26%27% of purchases were transactions with Elemetal, and in the same period of Fiscal 2014,2015, these transactions represented 23%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. As of December 31, 2014, the Company was obligated to pay $3,721,144 to Elemetal as a trade payable, and had a $34,343 receivable from Elemetal. For the year ended December 31, 20152016 and 2014,2015, the Company paid Elemetal $187,888$240,004 and $182,723,$187,888, respectively, in interest on the Company’s outstanding payable.

On July 19, 2012, the Company entered into that certainthe Loan Agreement between DGSE andwith NTR, dated July 19, 2012 (the “Loan Agreement”), 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 carriescarried 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 are expected 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, unless earlier terminated as described above. All other terms2017. 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 agreement remain the same.loan principal and accrued interest totaling $2,438,909. As of December 31, 20152016 and 2014,2015, the outstanding balance of the NTR loan was $2,303,359.$0 and $2,303,359 respectively. In the year ended December 31, 20152016 and 2014,2015, the Company paid NTR $45,810$43,723 and $46,019,$45,810, respectively, in interest on the Company’s line of credit.

In April 2013, DGSE moved its principal corporate offices to office space at 15850 Dallas Parkway, Suite 140, Dallas, Texas. This property is owned by an affiliate of Elemetal and also serves as Elemetal’stheir headquarters. DGSE leasesleased space in the building subject to a lease that expired in December 2015. The Company continuescontinued to pay this lease on a month-to-month basis with no increase in the rent.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, 20152016 and 2014,2015, the Company recognized rent expense of $50,500$90,000 and $52,500,$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. In Fiscal 2014, the Company made sales of $37,148 to the Fund, had purchases of $152,328 from the Fund, and owed the Fund $136,755 as of December 31, 2014 in trade payables. Additionally, in Fiscal 2015,2016, the General Partner generated netno loss of $1,334 from its role with the Fund, while in the same period of 2014,2015, the General Partner generated net incomeloss of $35,190.$1,334. The loss in the current year2015 was driven by low activity within the Fund, combined with expenses related to the shutdown of the Fund.

On June 20, 2016,April 19, 2017, DGSE entered into a stock purchase agreement (the “Purchase Agreement”)non-binding letter of intent with Elemetal and NTR, pursuantElemetal Recycling, LLC (“Recycling”) and together with Elemetal, (“Sellers”) to which (i) DGSE agreedpurchase and acquire Recycling’s interest in and to sellthe tangible personal property assets, including inventory, located at 2101 W. Belt Line Road, Carrollton, Texas (the “Belt Line Location”) and issue to NTR sharescertain equipment located at 10707 Composite Drive, Dallas, Texas, and the accounts receivables of Common StockRecycling arising from the conduct by Recycling of its business at a stock price of $0.41 per share in exchangethe Belt Line Location. In consideration for the cancellation and forgiveness of all amounts outstanding under the Loan Agreement and an associated $7,500,000 Revolving Credit Note of the same date executedassets, DGSE would pay Recycling $ 16,000,000 in cash along with paying Recycling approximately $3,800,000 owed by DGSE, in favoror any of NTR (which indebtedness and accrued interest as of July 31, 2016 was $2,421,930.63), and (ii) DGSE agreed to sell and issue to Elemetal 8,536,585 shares of Common Stock at a stock price of $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 (the “Warrant”) in exchange for the cancellation and forgiveness of $3,500,000 of trade payables owed to Elemetalits subsidiaries, as a result of bullion-related transactions (together,transactions. Thus the “Transactions”). In connectioncash purchase price along with paying the closing of the Transactions, DGSE will enter into a registration rights agreement with NTR and Elemetal providing for, among other things, demand and piggyback registration rights with respect to the shares to be issued. The closing of the Transactionsbullion-related obligation is expected to take place following satisfactionbe approximately $19,000,000. DGSE would also accept an assignment from Recycling of various closingtheir 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 obtaining thenegotiation and execution of a definitive agreement, approval of DGSE’s stockholders, as set forth under Proposal Two, and amendmentthe Boards of the Company’s Articlesparties and approval of Incorporation, as set forth under Proposal Three.

A Special Committee of our Board of Directors comprised of our three independent directors has recommendedElemetal’s members. No assurance can be made that DGSE will be able to negotiate a mutually satisfactory definitive agreement with Recycling or that the Company enter into the Purchase Agreement (as set forth in more detail under Proposal Two).

Our Board has determined that J. Marcus Scudder, Douglas J. Lattner and Michael J. Noel are “independent” under the standards of the SEC and the Exchange.contemplated approval will be obtained.

PROPOSAL TWO:

APPROVAL OF ISSUANCE TO ELEMETAL, LLC AND NTR METALS, LLC OF SHARES OF THE COMPANY’S COMMON STOCK AND ISSUANCE OF A WARRANT TO ELEMETAL TO PURCHASE ADDITIONAL SHARES OF THE COMPANY’S COMMON STOCK IN CONSIDERATION OF CANCELLATION AND FORGIVENESS OF DEBT OWED TO NTR AND ELEMETAL BY THE COMPANY WHICH ISSUANCES MAY BE DEEMED TO RESULT IN A CHANGE IN CONTROL OF THE COMPANY.

Summary of the Transactions

Elemetal, together with its affiliate NTR, is the Company’s largest shareholder. Elemetal and its affiliates are also the Company’s primary refiner and bullion trading partner.

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”). 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 carries 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. NTR and the Company have extended the term of the Loan Agreement on three occasions, the most recent of which was on February 4, 2015, when the parties extended the termination date to August 1, 2017, unless earlier terminated as described above. As of July 31, 2016, the balance under the Loan Agreement, including principal and interest, equaled $2,421,930.63.

Additionally, the Company also owed Elemetal $5,509,627 as of July 31, 2016 as a result of bullion-related transactions (the “Elemetal Debt”).

On June 20, 2016, the Company entered into a stock purchase agreement (the “Purchase Agreement”) withNTR and Elemetal, pursuant to which (i) the Company agreed to sell and issue to NTR shares of Common Stock at a stock price of $0.41 per share in exchange for the cancellation and forgiveness of all amounts outstanding under the Loan Agreement, and (ii) the Company agreed to sell and issue to Elemetal 8,536,585 shares of Common Stock at a stock price of $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 (the “Warrant”) in exchange for the cancellation andforgiveness of$3,500,000of the Elemetal Debt (together, the “Transactions”). In connection with the closing of the Transactions, the Companywill enter into a registration rights agreement with NTR and Elemetal (the “Registration Rights Agreement” and together with the Purchase Agreement and the Warrant, the “Transaction Documents”) providing for, among other things, demand and piggyback registration rights with respect to the shares to be issued. The closing of the Transactions is expected to take place following satisfaction of various closing conditions, including obtaining the approval of our stockholders of the Transactions and the amendment of our Articles of Incorporation. Further details regarding the Transaction Documents are set forth below under “Summary of Transaction Documents.” As of July 31, 2016, principal and interest under the Loan Agreement totaled $2,421,930.63, which would have resulted in the issuance of 5,907,148 shares of Commission Stock. Interest will continue to accrue under the Loan Agreement, so the number of shares of Common Stock to be issued to NTR will only be calculable on the closing date for the Transactions. Assuming no additional borrowings under the Loan Agreement, principal and interest is expected to be $2,438,604.54 as of December 7, 2016, the date of the Annual Meeting, which would result in issuance of an additional 40,668 shares for a total of 5,947,816 shares through such date.

As of July 15, 2016, Elemetal owned 9,278,142 shares of Common Stock (including an option to purchase 5,000,000 shares of the Company’s common stock at a price of $15 per share, which option subsequently expired on October 25, 2016, or 53.4% of the issued and outstanding Common Stock of the Company (assuming exercise of the option). Excluding shares covered by the option, Elemetal’s ownership percentage of the issued and outstanding shares as of July 15, 2016 would have been approximately 38.0%. As of July 15, 2016, NTR (an affiliate of Elemetal) owned 416,900 shares of Common Stock, or 3.37% of the issued and outstanding shares of Common Stock of the Company. Following the issuance of Common Stock and the Warrant in the Transactions, Elemetal would own approximately 49.7% of the issued and outstanding stock of the Company (excluding the now-expired option), and NTR would own approximately 22.7% of the issued and outstanding stock of the Company. As a result, the Transactions may be deemed to result in a change of control of the Company to the extent Elemetal and NTR are not already considered to control the Company.

The shares of Common Stock and the Warrant will be issued pursuant to an exemption from registration pursuant to Section 4(a)(2) of the Securities Act for transactions by an issuer not involving any public offering.

Background of the Transactions

This background section is intended to provide a description of the events leading up to the Board’s decision to approve the Transactions.

Throughout the term of the Loan Agreement, the Company has had various discussions with Elemetal and NTR regarding methods for the Company to repay its outstanding indebtedness under the Loan Agreement and the Elemetal Debt. No definitive agreement was ever reached.

On July 2, 2015, Elemetal submitted a proposed term sheet to the Company laying out a proposal for Elemetal to convey to the Company the trade name and inventory of Elemetal Diamond, LLC, a subsidiary of Elemetal, as well as a license for the Company to be the exclusive purchaser and seller of diamonds and other precious stones through buying and selling events at Elemetal’s refining locations in North America and a first opportunity to purchase certain other products to be agreed on. The proposed consideration for the conveyance was shares of the Company’s common stock equal to the value of the assets to be conveyed and license using a stock price equal to 15% over the 30 day average closing price of the Company’s common stock as of the date of execution of the term sheet. The term sheet stated that it was contemplated that upon successful completion of the transaction, the Company would convert debt under the Loan Agreement into shares of common stock at the same price per share, eliminate or significantly reduce its accounts payable to Elemetal, reduce its number of stores to three or less and install William E. LeRoy as the Chairman of the Company’s Board of Directors. The Company’s Board of Directors met to discuss the proposed term sheet, after which it advised Elemetal that it was declining to move forward with the proposal as presented.

On November 16, 2015, the Company received a proposed non-binding letter of intent from Elemetal setting forth the general terms upon which Elemetal proposed to satisfy a portion of the Elemetal Debt owed by the Company and a non-binding letter of intent from NTR setting forth the general terms upon which NTR proposed to satisfy the indebtedness under the Loan Agreement. Elemetal proposed that in exchange for satisfaction of $2,500,000 of the Elemetal Debt, the Company would issue 6,666,666 shares of its Common Stock at a stock price of $0.375 per share, and a one-year option to purchase 2,666,666 shares of Common Stock at an exercise price of $0.375 per share. NTR proposed that in exchange for satisfaction of the NTR Loan (with a balance owing of $2,387,893.79), the Company would issue 6,367,716 shares of its Common Stock at a stock price of $0.375 per share. The Company’s Board of Directors met to discuss the proposed term sheet, after which it advised Elemetal that it was declining to move forward with the proposal as presented.

On January 25, 2016, the Company received a proposed non-binding letter of intent dated January 21, 2016 from Elemetal setting forth the general terms upon which Elemetal proposed to satisfy a portion of the Elemetal Debt owed by the Company and a non-binding letter of intent from NTR setting forth the general terms upon which NTR proposed to satisfy the indebtedness under the Loan Agreement. Elemetal proposed that in exchange for satisfaction of $2,500,000 of the Elemetal Debt, the Company would issue 6,345,177 shares of its Common Stock at a stock price of $0.394 per share, which represented a fifteen percent premium over the 120-day moving average price, and a one-year option to purchase 2,538,071 shares of Common Stock at an exercise price of $0.394 per share. NTR proposed that in exchange for satisfaction of the NTR Loan (with a balance owing of $2,395,186.99), the Company would issue 6,079,154 shares of its Common Stock at a stock price of $0.394 per share.

On February 5, 2016, the Board of Directors met to discuss the proposed letters of intent. The Board discussed the terms of the letters of intent as well as the process by which it might review and consider the proposal with representatives of the Company’s legal counsel, Thompson & Knight, LLP. The Board discussed the formation of a special committee and requested that Thompson & Knight, LLP prepare draft resolutions for the purpose of establishing a special committee of the Board of Directors for the purpose of reviewing the proposed transactions set forth in the letters of intent for consideration at a future meeting. The Board also authorized Messrs. Lattner, Noel and Scrudder to begin gathering information regarding potential financial advisors to present to the special committee in the event a special committee was formed.

On February 8, 2016, Elemetal issued a press release announcing its proposal as set forth in the January 21, 2016 letters of intent. The Company issued a press release on February 10, 2016 acknowledging receipt of the proposal.

On February 11, 2016, the Board met and unanimously approved the formation of a committee of the Board (the “Special Committee”) composed of Messrs. Lattner, Noel and Scrudder, each of whom was determined to be independent, not to be members of the Corporation’s management and not to have an interest in a proposed transaction that was different from, or in addition to, the interests of the Company’s stockholders generally, for the purpose of considering the proposed transactions with NTR and Elemetal as well as any other strategic alternative that might be considered by the Special Committee in its sole discretion.

On February 12, 2016, the Special Committee voted unanimously to engage RGL Advisors, LLC (“RGL Advisors”) to provide financial advisory services to the Special Committee in connection with its evaluation of the Transactions and to provide a financial fairness opinion relating to the Transactions. The Special Committee considered several investment banking firms, and, after carefully reviewing the possible candidates, selected RGL Advisors.

On February 12, 2016, the Special Committee met with representatives of Thompson & Knight, LLP to discuss any potential conflicts of interest that might prevent Thompson & Knight from serving as counsel to the Special Committee. Representatives from Thompson & Knight, LLP advised the Special Committee that the Special Committee had complete authority to select counsel of its choosing. Representatives of Thompson & Knight, LLP discussed that their firm provides legal services to the Company; however, the firm does not represent Elemetal or NTR. They further discussed that the potential transaction being discussed did not contemplate any agreements involving management of the Company. Following a discussion, the Special Committee discussed certain efficiencies that were likely to arise as a result of Thompson & Knight, LLP’s familiarity with the Company and voted unanimously to engage Thompson & Knight, LLP as the Special Committee’s legal counsel.

In February and March, 2016, representatives of RGL Advisors met with members of the Company’s management in order to gather certain pertinent financial information regarding the Company and its future prospects.

On March 4, 2016, the Special Committee met to discuss certain financial information that had been provided by members of management to RGL Advisors. Also present at the meeting were representatives of RGL Advisors and Thompson & Knight, LLP. The Special Committee discussed certain additional financial information that the Special Committee wished for management to provide to the Special Committee and to RGL Advisors. RGL Advisors also discussed with the Special Committee that it considered the overall consideration to be received by the Company pursuant to the January 25 letter of intent to be several cents per share less than the $0.394 per share stated price due to the potentially dilutive impact of the warrant based on the proposed warrant terms included in the January 25 letter of intent.

Following the March 4, 2016 meeting, representatives of RGL Advisors had additional meetings with members of the Company’s management in order to gather additional financial information regarding the Company.

During the months of February and March 2016, at the direction of the Special Committee, Matthew Peakes, the Company’s Chief Executive Officer, had multiple meetings with William LeRoy, the Chief Executive Officer of Elemetal, at which Mr. Peakes sought to negotiate an increase in the price per share for issuance of the Common Stock and an increase in the exercise price of the Warrant. Mr. Peakes presented a counter-proposal of $0.50 per share for the Common Stock and an exercise price of $0.65 per share for the Warrant. Mr. LeRoy agreed to consider the counter-proposal.

On April 12, 2016, the Company received a notice from the Exchange stating that the Company is not in compliance with the Exchange’s continued listing standards as set forth in the NYSE MKT Company Guide (the “Company Guide”). Specifically, Section 1003(a)(ii) of the Company Guide provides that the Exchange will consider delisting an issuer if the issuer has stockholders’ equity of less than $4,000,000 if such issuer has sustained losses from continuing operations and/or net losses in three of its four most recent fiscal years. The notice provided that the Company is below compliance with Section 1003(a)(ii) since it reported stockholders equity of $3.87 million as of December 31, 2015 and net losses in three of its four most recent fiscal years ended December 31, 2015. The Exchange advised the Company that it must submit a plan by May 12, 2016 advising of actions that the Company has taken or will take to regain compliance with the continued listing standards by October 12, 2017, and further advised the Company that if a plan is not submitted or the plan is not commenced, delisting procedures will commence. On May 10, 2016, the Company submitted its plan to the Exchange, and the plan was accepted by the Exchange on May 26, 2016. The Exchange granted a plan period through October 12, 2017 during which the Exchange will review the Company periodically for compliance with the initiatives outlined in the plan.

On April 13, 2016, the Company received a new non-binding letter of intent from Elemetal setting forth the general terms upon which Elemetal proposed to satisfy $3,500,000 of the Elemetal Debt owed by the Company and a new non-binding letter of intent from NTR setting forth the general terms upon which NTR proposed to satisfy the indebtedness under the Loan Agreement (collectively, the “LOIs”). Elemetal proposed that in exchange for satisfaction of $3,500,000 of the Elemetal Debt, the Company would issue 8,536,585 shares of its Common Stock at a stock price of $0.41 per share, which represented an additional premium to its previous proposal, and a one-year option to purchase 1,000,000 shares of Common Stock at an exercise price of $0.65 per share. NTR proposed that in exchange for satisfaction of the indebtedness under the Loan Agreement, the Company would issue shares of its Common Stock at a stock price of $0.41 per share (which based on the $2,408,238.91 of principal and interest outstanding as of April 13, 2016, would have resulted in the issuance of 5,873,753 shares), which represented an additional premium to its previous proposal.

On April 13, 2016, the Special Committee met to discuss the terms of the LOIs. Representatives of RGL Advisors and Thompson & Knight, LLP were present at the meeting. At the meeting, a representative of RGL Advisors made a preliminary presentation to the Special Committee in which he discussed several valuation analyses that RGL had used to analyze the terms of the Transactions as proposed in the LOIs and indicated to the Special Committee that he believed RGL would be in a position to conclude that the Transactions were fair, from a financial point of view, to the stockholders of the Company, subject to completion of RGL’s analysis upon completion of the definitive documents with respect to the Transactions. The Special Committee and the representative of RGL Advisors also discussed that the Transactions were expected to increase stockholders’ equity such that the Company would regain compliance with the listing standards set forth in the Exchange’s Company Guide. At the conclusion of the meeting, the Special Committee recommended authorizing the Company to enter into the non-binding LOIs, subject to clarification in the LOI that the Transactions would be conditioned upon the receipt of the vote of a majority of shares not owned by Elemetal, NTR or their affiliates in addition to any vote required under Exchange rules or Nevada law and receipt of a fairness opinion.

Immediately following the Special Committee Meeting on April 13, 2016, the full Board of Directors of the Company met. Representatives of RGL Advisors and Thompson & Knight, LLP were present at the meeting. The representative of RGL Advisors presented a summary of the presentation that had been provided to the Special Committee, and the Board discussed the terms of the LOIs. Based on the Special Committee’s recommendation, the Board authorized the Company to enter into the non-binding LOIs, subject to clarification in the LOI that the Transactions would be conditioned upon the receipt of the vote of a majority of shares not owned by Elemetal, NTR or their affiliates in addition to any vote required under Exchange rules or Nevada law and receipt of a fairness opinion.

On April 14 and 15, 2016, Mr. Peakes and representatives of Elemetal discussed the clarifications that the Board requested to the LOIs. On April 15, 2016, Elemetal and NTR submitted revised LOIs that included the clarification that the Transactions would be conditioned upon the receipt of the vote of a majority of shares not owned by Elemetal, NTR or their affiliates in addition to any vote required under Exchange rules or Nevada law and receipt of a fairness opinion. The Company executed the revised LOIs on April 15, 2016.

Following the execution of the LOIs, the parties negotiated the terms of the draft Transaction Documents.

On June 16, 2016, the Special Committee met for the purpose of considering the drafts of the Transaction Documents and whether to recommend the Transactions to the Board. In connection with its presentation at such meeting, RGL Advisors delivered its written opinion that, as of June 16, 2016, the Transactions are fair, from a financial point of view, to the stockholders of the Company. The Special Committee determined to recommend the Transactions to the Board.

Following the Special Committee meeting, on June 17, 2016 the Board met to receive the recommendation of the Special Committee relating to the proposed Transactions. At such meeting, the Board determined that the consummation of the Transactions, as contemplated by the Purchase Agreement and the other Transaction Documents, is in the best interests of the Company and its stockholders. Accordingly, the Board approved, adopted and caused the Company to enter into the Purchase Agreement and the other Transaction Documents and is now recommending the approval of the Transactions, the Purchase Agreement and the other Transaction Documents to our stockholders. In making this determination, the Board considered a number of factors, which supported its decision to enter into the Purchase Agreement and the other Transaction Documents and to recommend this Proposal Two to the Company’s stockholders.

On June 20, 2016, the Company, Elemetal and NTR executed the Transaction Documents.

The Special Committee’s and Board of Director’s Reasons for the Transactions

In the course of its deliberations, the Special Committee and the Board considered a variety of factors and risks, including the following:

Opinion of RGL Advisors

In connection with the Transactions, at the meeting of the Special Committee (the “Special Committee”) on June 16, 2016, RGL Advisors, the Special Committee’s financial advisor, rendered to the Special Committee its oral opinion, subsequently confirmed in writing, that as of June 16, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by RGL Advisors as set forth in the written opinion, the financial terms of the Transactions pursuant to the Transaction Documents were fair from a financial point of view to the common stockholders of the Company (other than the investors in the Transactions).

The full text of the written opinion of RGL Advisors, June 16, 2016, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached asAppendix A and is incorporated herein by reference in this Proxy Statement. You are encouraged to read this opinion carefully and in its entirety. RGL Advisors has consented to the inclusion of its opinion in this Proxy Statement. The summary of the opinion of RGL Advisors in this section is qualified in its entirety by reference to the full text of the opinion. RGL Advisors’ opinion was addressed to, and provided for the information and benefit of, the Special Committee in connection with its evaluation of whether the financial terms of the Transaction pursuant to the Agreement (the “Transaction Consideration”) are fair, from a financial point of view to holders of Company Common Stock (other than the investors in the Transactions). The opinion does not constitute a recommendation to the Special Committee, Company Board, any stockholder of the Company or to any other persons in respect of the Transactions, including as to how any holder of Voting Common Stock should vote or act in respect of the Transaction Proposal. RGL Advisors’ opinion does not address the relative merits of the Transactions as compared to other business or financial strategies that might be available to the Company, nor does it address the underlying business decision of the Company to engage in the Transactions.

The Special Committee retained RGL Advisors to provide it with financial advisory services in connection with the Transactions The Special Committee selected RGL Advisors to act as its financial advisor based on RGL Advisors’ qualifications, expertise and reputation, its knowledge of and involvement in transactions in the Company’s industry and its knowledge of the Company’s business and affairs. RGL Advisors is a recognized investment banking firm with deep experience in providing and evaluating various types of financial opinions. At the meeting of the Special Committee on June 16, 2016, RGL Advisors rendered its oral opinion, subsequently confirmed in writing, that as of June 16, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by RGL Advisors as set forth in the written opinion, the financial terms of the Transactions pursuant to the Transaction Documents were fair from a financial point of view to the common stockholders of the Company (other than the investors in the Transactions).

In connection with rendering its opinion, RGL Advisors, among other things:

In arriving at its opinion, RGL Advisors assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to RGL Advisors by the Company, and formed a substantial basis for its opinion. RGL Advisors further relied upon the assurances of the management of the Company that it was not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections, RGL Advisors assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as well as the future financial performance of the Company. In addition, RGL Advisors assumed that the Transactions will be consummated in accordance with the terms set forth in the draft Transaction Documents without any waiver or amendment of any terms or conditions and that the definitive Agreement would not differ in any material respect from the draft furnished to RGL Advisors. RGL Advisors assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Transactions, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed Transactions.

RGL Advisors is not a legal, tax or regulatory advisor. RGL Advisors is a financial advisor and relied upon, without independent verification, the assessment the Company and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. RGL Advisors expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the Transaction Consideration. RGL Advisors did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was RGL Advisors furnished with any such valuations or appraisals. RGL Advisors’ opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to RGL Advisors as of, June 16, 2016. Events occurring after June 16, 2016 may affect RGL Advisors’ opinion and the assumptions used in preparing it, and RGL Advisors does not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a brief summary of the material analyses performed by RGL Advisors in connection with its oral opinion and the preparation of its written opinion letter to the Special Committee dated June 16, 2016. The following summary is not a complete description of RGL Advisors’ opinion or the financial analyses performed and factors considered by RGL Advisors in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before June 16, 2016, the last full trading day prior to the meeting of the Special Committee to approve and adopt the Transaction Documents and approve the Transactions. The various analyses summarized below were based on the closing price of $0.42 per Share as of February 5, 2016 (the last full trading day prior to Elemetal’s press release announcing delivery of a proposal to acquire shares of Common Stock of the Company or the “Unaffected Date”), and are not necessarily indicative of current market conditions. As part of the Transactions, the Company will grant to Elemetal a two-year warrant to purchase 1,000,000 shares of Common Stock at a per share exercise price of $0.65. As a result, RGL Advisors adjusted the Transaction Consideration from $0.42 to $0.40 per share to account for the potentially dilutive impact of the Warrant also being issued to Elemetal. The Warrant was valued as of the date of the fairness opinion under several scenarios using a Black-Scholes pricing framework, taking into account the specific features of the Warrant.

Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by RGL Advisors, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying RGL Advisors’ opinion.

In performing the financial analyses summarized below and arriving at its opinion, RGL Advisors used and relied upon certain financial projections prepared by the Company’s management (the “Management Projections”). These financial projections are more fully described below in this Proposal Two under the heading “Management Projections.” RGL Advisors defines EBITDA as earnings before interest, taxes, depreciation and amortization. Neither the Special Committee nor the Company imposed any limitations on the financial analyses conducted by RGL Advisors.

Comparable Company Analysis

RGL Advisors reviewed and compared certain financial information and estimates for the Company with the publicly available equity analyst research estimates for current year (“CY”) and next twelve month (“NTM”) periods for selected companies that share similar business characteristics and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (we refer to these companies as the comparable companies). The comparable companies were as follows: