Brought this over from the GSX board- THE MERGER
General Description of the Merger
The merger agreement provides for the merger of Gasco Acquisition, Inc., a wholly owned subsidiary of Gasco, with and into Brek, with Brek surviving the merger as a wholly owned subsidiary of Gasco. At the effective time, each outstanding share of Brek common stock will be converted into a number of shares of Gasco common stock equal to 11,000,000 divided by the total number of outstanding shares of Brek common stock, calculated on a fully diluted basis. As of the date of this proxy statement/prospectus there were 80,343,062 shares of Brek common stock outstanding, calculated on a fully diluted basis. Based on this number of outstanding shares, Brek stockholders will receive approximately 0.1369 of a share of Gasco common stock for each share of Brek common stock. Such shares will constitute approximately 9% of the outstanding shares of Gasco common stock (on a fully diluted basis) following the merger.
Background of the Merger
In July 2002, Brek and Gasco entered into a transaction in which Brek acquired an undivided 25% working interest in Gasco’s oil and gas interests in Utah, Wyoming and California. Since that time Brek maintained its interest in these oil and gas properties and from time to time participated in the development of oil and gas wells on these properties.
In September 2005, Chuck Crowell, a director of Gasco, and Mark Erickson, a director of Gasco and Gasco’s president and chief executive officer, met with Richard Jeffs, Brek’s president and chief executive officer, to explore the possible acquisition by Gasco of the interests held by Brek in Gasco’s oil and gas properties. Throughout the fall of 2005, the parties continued to discuss in general terms the possibility of Gasco’s acquisition of such properties.
On January 26, 2006, the board of directors of Gasco discussed the strategic aspects of acquiring Brek’s interest in Gasco’s oil and gas properties, including various alternative structures of such an acquisition and preliminary valuations. At the meeting, the board authorized management of Gasco to perform an internal due diligence and valuation analysis. In addition, Gasco’s board authorized Marc A. Bruner, Gasco’s chairman, to contact Mr. Jeffs regarding the possibility of consummating an acquisition transaction for total consideration of 10,500,000 shares of Gasco common stock. Mr. Marc A. Bruner discussed the proposed consideration with Mr. Jeffs by phone. Mr. Jeffs indicated that a transaction involving total consideration of 11,000,000 shares of Gasco common stock might be acceptable to the Brek board of directors.
Throughout the spring of 2006, Mr. Erickson and Mr. Crowell maintained informal discussions with Mr. Jeffs regarding a possible acquisition transaction. In March 2006, Gasco’s management delivered the results of their internal analysis to the board of directors of Gasco. Gasco’s board met on March 9, 2006 to discuss the analysis and the valuation proposed by management. At the meeting Mr. Marc A. Bruner, the chairman of the board of Gasco, informed the board that he held options to acquire 50,000 shares of Brek common stock. In order to eliminate the appearance of a conflict, Mr. Marc A. Bruner stated that he would relinquish such options in the event that a transaction between Gasco and Brek was consummated. After discussing the analysis regarding a possible transaction provided by management, Gasco’s board approved a transaction involving the acquisition of the outstanding shares of Brek common stock for consideration of up to 11,000,000 shares of common stock of Gasco, conditioned on Brek’s prior elimination of all liabilities and the prior divestiture of its oil and gas assets in Texas. At the conclusion of the meeting, Gasco’s board authorized a special committee of the board comprised of Mark Erickson, Chuck Crowell and John Schmit to deliver the proposed terms to Brek and negotiate on behalf of Gasco regarding such transaction.
On March 31, 2006, Gasco communicated to Brek indicative terms of which it would be willing to proceed with a merger. The proposed terms contemplated the acquisition of Brek through a tax free reorganization through which the stockholders of Brek would receive 11,000,000 shares of Gasco common stock and all outstanding options and warrants to acquire securities of Brek would be eliminated. The terms also contemplated that the subsidiaries of Brek that held interests in certain oil and gas assets in Texas would not be acquired by Gasco. In addition, as a condition to proceeding with its due diligence, the proposed terms contemplated that Brek would agree to reimburse Gasco for up to $1.0 million of its expenses incurred in connection with its due diligence should a transaction not be consummated for any reason.
On April 4, 2006, Mr. Crowell and Mr. Erickson, together with King Grant, Gasco’s chief financial officer and Vinson & Elkins L.L.P., legal advisor to Gasco, discussed by telephone the proposed terms with Mr. Jeffs. During this discussion, Mr. Jeffs indicated that the proposed terms would likely be supported by the board of directors of Brek. On March 29, 2006 Brek and Gasco executed a confidentiality agreement under which the parties would conduct mutual due diligence.
On April 20, 2006, representatives of Gasco and Brek held an organizational meeting by telephone conference to discuss the timing and mechanics of proceeding with the proposed merger transaction, including drafting the merger agreement and conducting further due diligence. Throughout the months of April and May 2006, officers of Gasco conducted due diligence and, together with members of the special committee, further discussed with Mr. Jeffs the terms of the proposed merger.
Subsequently, during the summer of 2006, Brek’s board of directors authorized management to retain the investment banking firm of Gemini Partners and on May 11, 2006 Brek executed an engagement letter with Gemini Partners.
On May 10, 2006, legal counsel for Gasco transmitted a draft Agreement and Plan of Merger to Brek and its legal counsel for their review and comment. Over the following several months Gasco’s and Brek’s representatives held numerous discussions and negotiations regarding the terms of the draft agreement, principally regarding the process under which Brek would divest itself of its Texas assets, provisions regarding indemnification of Gasco for any claims made as a result of breaches of representations and warranties made by Brek and the treatment of options and warrants.
At a special meeting of Brek’s board of directors held on June 7, 2006, the board discussed the preliminary opinion of Brek’s financial advisor, Gemini Partners, which reviewed the financial aspects of the consideration proposed by Gasco. After considering its financial advisor’s preliminary opinion and its counsel’s comments, Brek’s board of directors authorized the transaction and instructed management to proceed as necessary to secure a firm agreement.
On June 7, 2006, representatives of Brek and Gasco again met by telephone conference to discuss the treatment of Brek’s outstanding options and warrants in the proposed merger.
On June 12, 2006, representatives of Brek and Gasco continued negotiating the terms of a merger agreement and came to a tacit agreement with respect to merger expenses and the terms under which Mr. Jeffs would deposit shares of Gasco common stock in escrow to satisfy any claims for breaches of representations or warranties by Brek following the consummation of a transaction. It was agreed that Mr. Jeffs would deposit 550,000 shares of Gasco common stock acquired by Mr. Jeffs in the merger into an escrow account to satisfy any such claims.
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