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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 22, 2000
(Date of earliest event reported)
TANGIBLE ASSET GALLERIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 0-27121 88-0396772
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
3444 Via Lido, Newport Beach, California, 92663
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 566-0021
Not applicable
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 21, 2000, Tangible Asset Galleries, Inc. ("Tangible") and
Gavelnet.com, Inc. ("Gavelnet.com") executed and delivered an Agreement and Plan
of Reorganization (the "Merger Agreement") that provides for a newly-formed
subsidiary of Tangible to merge with and into Gavelnet.com. The Merger Agreement
is filed herewith as Exhibit 2.1. Upon consummation of the merger, Gavelnet.com
will become a wholly owned subsidiary of Tangible. The closing of the merger is
subject to numerous conditions, as described below.
Structure of the Merger
Upon closing of the Merger, Gavelnet.com will merge with a subsidiary
of Tangible, and will be the surviving corporation. Thus, as a result of the
merger, Gavelnet.com will become a wholly owned subsidiary of Tangible.
Purchase Price
The purchase price for all of the Gavelnet.com shares of capital stock
will be paid exclusively in shares of common stock of Tangible, par value $0.001
(the "Common Stock"), except that a portion of the proceeds raised from a
private financing transaction will be used to repay a portion of Gavelnet.com's
outstanding convertible debt. The number of shares of Common Stock to be paid in
the merger will be calculated as follows. The initial purchase price will be
9,250,000 shares of Common Stock, less one share for every dollar that the
Gavelnet.com total liabilities, as adjusted, including amounts loaned to
Gavelnet.com by Tangible, less the total current assets of Gavelnet.com, exceeds
$1,250,000. Of the shares to be issued in exchange for the Gavelnet.com capital
stock, 1,911,904 will be either paid directly to the holders of Gavelnet.com
convertible debt, or if a portion of such debt is repaid, then to the
shareholders of Gavelnet.com. At June 22, 2000, the date the potential merger
with Gavelnet.com was announced, the closing price of Common Stock was $0.625
per share. As a result, the value of the Common Stock to be paid to former
Gavelnet.com stockholders is approximately $5,781,250.
In addition to the Common Stock, Tangible will also assume options to
purchase Gavelnet.com common stock, which will be converted into options to
purchase approximately 500,000 shares of Common Stock at a weighted average
exercise price of approximately $1.50 per share.
In addition, Tangible may deliver additional shares of Common Stock to
Benchmark Merchant Partners, L.P. if Tangible receives proceeds of more than
$8.0 million of Common Stock on or before December 18, 2000, in connection with
certain private financing transactions. The Merger Agreement contemplates that
Tangible, through the services of Benchmark Merchant Partners, L.P. ("Merchant
Partners"), may receive $7.0 million of proceeds in excess of $8.0 million
through the sale of Common Stock. For each $1,000 of net proceeds raised in such
sale of Common Stock, Tangible will (a) deliver 300 shares of Common Stock as a
fee to Merchant Partners; and (b) as additional consideration to the former
stockholders of Gavelnet.com, deliver 300 shares of Common Stock to such former
stockholders (without the payment of any additional consideration by such former
stockholders to Tangible). In no event will the number of shares delivered to
Merchant Partners exceed 2,100,000 shares nor will the number of shares
delivered to the former Gavelnet.com stockholders exceed 2,100,000 shares.
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Timing of Merger
The merger must close, if at all, no later than September 19, 2000.
Closing Conditions
The closing of the merger is subject to the satisfaction or waiver of a
number of conditions. If any one of these conditions is not satisfied or waived,
then the closing will not occur.
Conditions to Both Parties' Obligations. The merger must be approved by
the stockholders of both Tangible and Gavelnet.com. Additionally, the Common
Stock to be issued in the merger must be exempt from the registration
requirements of the Securities Act of 1933. Tangible and Gavelnet.com have
agreed to seek a fairness hearing in California if no other exemption is
available. If the merger is not approved at the fairness hearing, the parties
have agreed to register the shares to be issued in the merger with the
Securities and Exchange Commission, with Tangible and the Gavelnet.com
stockholders each bearing one half of the costs thereof.
Conditions to Tangible's Obligations. If any of the following
conditions is not satisfied, Tangible may terminate the Merger Agreement and
cancel the merger. Tangible may also waive any condition, but is under no
obligation to do so. The condition precedent to Tangible's obligations include,
among other things, the following:
o Tangible will have consummated certain private financing
transactions;
o All holders of the Gavelnet.com convertible debt shall have
agreed to convert into an aggregate of 1,911,904 shares of Common
Stock;
o Tangible shall have completed its due diligence review of
Gavelnet.com's business and assets and determined the business
and assets to be satisfactory;
o Not more than five percent (5%) of the stockholders of
Gavelnet.com shall have exercised their dissenters' rights;
o There has been no material adverse change in Gavelnet.com's
assets since the signing of the Merger Agreement.
Conditions to Gavelnet.com's Obligations. Gavelnet.com may terminate
the Merger Agreement and cancel the merger if, among other things, there has
been a material adverse change in the business or assets of Tangible or if the
Common Stock is not listed on the Over the Counter Bulletin Board (or some other
exchange).
Financial Support Agreement
As a condition to the execution of the Merger Agreement, Tangible and
Gavelnet.com executed a Financial Support Agreement pursuant to which Tangible
will lend to Gavelnet.com up to $1,250,000. Such loan will be secured by a first
priority security interest in the assets of Gavelnet.com. If the merger is not
consummated, Gavelnet.com may be unable to repay this loan and the assets may
not have a liquidation value equal to the loan amount. As a result, Tangible may
not be able to obtain repayment in full from Gavelnet.com. The Financial Support
Agreement is filed herewith as Exhibit 99.2.
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Escrow Provisions
The Merger Agreement provides that 20% of the shares to be paid to the
former stockholders of Gavelnet.com will be deposited into an escrow to be held
for a period of three years from the date of Gavelnet.com's last sale of
securities. If any representation or warranty of Gavelnet.com is inaccurate or
if Gavelnet.com breaches the Merger Agreement, then Tangible is entitled to
offset its damages (after the first $100,000 of damages) against such escrowed
shares. The escrowed shares will be valued at the price of Common Stock on the
effective date of the merger.
Employment Agreements
Upon consummation of the merger, Tangible anticipates that it will
enter into employment agreements with Michael Haynes and Mary Inman, former
officers of Gavelnet.com. The terms of such employment agreements have not yet
been negotiated, but are not expected to be on terms any less favorable to
Tangible than agreements with existing employees.
Registration Rights
Tangible has agreed to grant to the former stockholders of Gavelnet.com
the "piggyback" registration rights with respect to the shares of Common Stock
issued in the merger. Such registration rights entitle the holder of Common
Stock to register the shares at the same time Tangible is registering any other
share with the Securities and Exchange Commission, except registrations in
connection with employee benefit plans and mergers or acquisitions. Tangible
will pay all the expenses of such registration.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
By amendment to this Current Report, no later than 60 days after the
filing date hereof, the Registrant will file with the Securities and Exchange
Commission the financial statements required by this item.
(b) Pro Forma Financial Information.
By amendment to this Current Report, no later than 60 days after the
filing date hereof, the Registrant will file with the Securities and Exchange
Commission the pro forma financial information required by this item.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization dated June 21, 2000
99.1 Press Release dated June 22, 2000
99.2 Financial Support Agreement dated June 21, 2000 (and related exhibits)
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on July 6, 2000.
TANGIBLE ASSET GALLERIES, INC.
/S/ Paul Biberkraut
By ---------------------------------
Paul Biberkraut
Chief Financial Officer
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INDEX TO EXHIBITS
The following exhibits are filed with the Current Report on Form 8-K.
Exhibit No. Description
2.1 Agreement and Plan of Reorganization dated June 21,
2000
99.1 Press Release dated June 22, 2000
99.2 Financial Support Agreement dated June 21, 2000 (and
related exhibits)
