SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. __________ )
GASCO ENERGY, INC.
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(Name of Issuer)
Common Stock, par value $0.01 per share
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(Title of Class of Securities)
367220100
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(CUSIP Number)
Russell Cleveland
8080 N. Central Expressway, Suite 210, LB-59
Dallas, TX 75206-1857
214-891-8294
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 15, 2003
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(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [_].
Note: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7 for
other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of Pages)
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(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
CUSIP No. 367220100 13D Page 2 of __ Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
BFS US Special Opportunities Trust PLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_] (b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United Kingdom
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7 SOLE VOTING POWER
NUMBER OF
4,083,332
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY None
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING
4,083,332
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,083,332
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[-]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.0%
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14 TYPE OF REPORTING PERSON*
IV
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 367220100 13D Page 3 of __ Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Renaissance Capital Growth & Income Fund III, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_] (b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
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7 SOLE VOTING POWER
NUMBER OF
2,041,667
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY None
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING
2,041,667
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,041,667
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[-]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.5%
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14 TYPE OF REPORTING PERSON*
IV
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 367220100 13D Page 4 of __ Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Renaissance US Growth Investment Trust PLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_] (b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United Kingdom
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7 SOLE VOTING POWER
NUMBER OF
2,041,668
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
None
OWNED BY
-----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
2,041,668
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,041,668
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[-]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.5%
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14 TYPE OF REPORTING PERSON*
IV
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 367220100 13D Page 5 of __ Pages
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Item 1. Security and Issuer.
This statement relates to the common stock, par value $0.01 per share
("Common Shares") of Gasco Energy, Inc. (the "Company"). The principal executive
offices of the Company are located at 14 Inverness Drive East, Suite H-236,
Englewood, Colorado 80112.
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Item 2. Identity and Background.
(a) This statement is filed by BFS US Special Opportunities Trust PLC (BFS
US), Renaissance Capital Growth and Income Fund III, Inc. ("Renaissance III"),
and Renaissance US Growth Investment Trust PLC ("Renaissance US") (collectively,
the "Reporting Persons").
(b) BFS US is an investment trust organized under the laws of England and
Wales. Its address in the United States is c/o RENN Capital Group, Inc.,
Investment Adviser, 8080 N. Central Expressway, Suite 210, LB-59, Dallas, Texas
75206-1857.
Renaissance III is a business development company regulated under the
Investment Company Act of 1940, as amended, and organized under the laws of the
State of Texas, with its principal business and principal office at 8080 N.
Central Expressway, Suite 210, LB-59, Dallas, Texas 75206-1857.
Renaissance US is an investment trust organized under the laws of England
and Wales. Its address in the United States is c/o RENN Capital Group, Inc.,
Investment Manager, 8080 N. Central Expressway, Suite 210, LB-59, Dallas, Texas
75206-1857.
RENN Capital Group, Inc. ("RCG") is a corporation organized under the laws
of the State of Texas, with its principal business and principal office at 8080
N. Central Expressway, Suite 210, LB-59, Dallas, Texas 75206-1857. RCG is
registered as an investment adviser under the Investment Adviser Act of 1940,
and is the investment adviser for BFS US and Renaissance III, and the investment
manager for Renaissance US.
John A. Schmit, Vice President of Investments for RCG, serves on the Board
of Directors of the Company. Certain information concerning the directors and
executive officers of the Reporting Persons is set forth on Attachment 1
attached hereto and incorporated herein by reference.
The business addresses of the directors and executive officers of the
Reporting Persons are set forth on Attachment 1 to this Statement and
incorporated herein by reference.
(c) BFS US was organized to carry on the business of an investment trust
company and to undertake all kinds of trust and agency business, including but
not limited to investing in emerging or undervalued U.S. public companies.
Renaissance III and Renaissance US are engaged in the business of investing
principally in emerging or undervalued U.S. public companies. RCG is engaged in
the business of an investment adviser and serves as investment adviser to
Renaissance III and BFS US and investment manager to Renaissance US.
(d) Neither any of the Reporting Persons nor, to the best knowledge of such
persons, any person named in Attachment 1 to this Statement, has been convicted
in a criminal proceeding in the past five years (excluding traffic violations or
similar misdemeanors).
(e) Neither any of the Reporting Persons nor, to the best knowledge of such
persons, any person named in Attachment 1 to this Statement, was during the last
five years a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which such person was or is subject to a
judgment, decree, or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) All persons named on Attachment 1 to this Statement are citizens of the
United States or the United Kingdom. All of the directors and executive officers
of Renaissance III are citizens of the United States. All of the directors of
Renaissance US and BFS US are citizens of the United Kingdom, except for Russell
Cleveland and C. A. Rundell, Jr., who are citizens of the United States.
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CUSIP No. 367220100 13D Page 6 of __ Pages
Item 3. Source and Amount of Funds or Other Consideration.
The total amount of funds required by BFS US to acquire the securities
reported in Item 5(a) was $2,957,591. The source of such funds was working
capital of BFS US.
The total amount of funds required by Renaissance III to acquire the
securities reported in Item 5(a) was $1,514,105. The source of such funds was
working capital of Renaissance III.
The total amount of funds required by Renaissance US to acquire the
securities reported in Item 5(a) was $1,482,095. The source of such funds was
working capital of Renaissance US.
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Item 4. Purpose of Transaction.
Each of the Reporting Persons acquired beneficial ownership of the Common
Shares reported in Item 5(a) in the ordinary course of business for investment
purposes. As stated in Item 2(b) above, John A. Schmit, Vice President of
Investments for RCG, serves on the Board of Directors of the Company.
The Reporting Person(s) may participate in discussions with management or
third parties in which the Reporting Person(s) may suggest or take a position
with respect to potential changes in the operations, management, or capital
structure of the Company as a means of enhancing stockholder value. Such
suggestions or positions may relate to one or more of the transactions specified
in clauses (a) through (j) of Item 4 of this Schedule 13D form.
Each Reporting Person continues to assess the Company's business, financial
condition, results of operations and prospects, general economic conditions, the
securities markets in general and those for the Company's securities in
particular, other developments and investment opportunities, as well as each
Reporting Person's investment objectives. Depending on such assessments, any or
all of the Reporting Persons may acquire additional securities or may determine
to sell or otherwise dispose of some or all of its holding of securities.
Other than as described above and in clauses (a) and (c) below, none of the
Reporting Persons has any present plans or proposals which relate to or would
result in any transaction, change, or event specified in clauses (a) through (j)
of Item 4 of this Schedule 13D.
(a) On October 15, 2003, BFS US, Renaissance III, Renaissance US, and RCG
entered into a convertible loan agreement (the "Loan Agreement") with the
Company pursuant to which BFS US, Renaissance III, and Renaissance US purchased
an aggregate of $2,500,000 in 8% Convertible Debentures (the "8% Convertible
Debentures"). This transaction is more fully described in Item 6 and the form of
8% Convertible Debenture is attached hereto as Exhibit 2.
(c) The Loan Agreement gives RCG the right to designate a nominee to serve
as a member of the Board of Directors of the Company, and to designate a second
nominee if the Company is in monetary default under the terms of the Loan
Agreement, subject to certain limitations and restrictions. This transaction is
more fully described in Item 6.
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Item 5. Interest in Securities of the Issuer.
(a) Under SEC rules and as of the date of this filing, BFS US beneficially
owns 4,083,332 Common Shares, Renaissance III beneficially owns 2,041,667 Common
Shares and Renaissance US beneficially owns 2,041,668 Common Shares, each as
computed on a fully converted basis.
Based upon information filed with the Securities and Exchange Commission,
the Common Shares beneficially owned by BFS US, Renaissance III, Renaissance US,
and together represent approximately 9.0%, 4.5%, 4.5% and 17.9%, respectively,
of the outstanding Common Shares of the Company. The foregoing percentages are
calculated based on the 45,602,236 shares of the Company's Common Shares
outstanding as of November 7, 2003, as reported in the Company's most recently
filed Form 10-Q.
BFS US, Renaissance III, and Renaissance US disclaim that they are members
of a group for purposes of Regulation 13D.
CUSIP No. 367220100 13D Page 7 of __ Pages
The Common Shares deemed to be beneficially owned by BFS US are comprised
of 1,999,999 Common Shares and 2,083,333 Common Shares issuable upon conversion
of a $1,250,000 8% Convertible Debenture. This debenture is fully described in
Item 6 and is in substantially the form of Exhibit 2.
The Common Shares deemed to be beneficially owned by Renaissance III are
comprised of 1,000,000 Common Shares and 1,041,667 Common Shares issuable upon
conversion of a $625,000 8% Convertible Debenture. This debenture is fully
described in Item 6 and is in substantially the form of Exhibit 2.
The Common Shares deemed to be beneficially owned by Renaissance US are
comprised of 1,000,001 Common Shares and 1,041,667 Common Shares issuable upon
conversion of a $625,000 8% Convertible Debenture. This debenture is fully
described in Item 6 and is in substantially the form of Exhibit 2.
Number of shares as to which BFS US has:
(i) Sole power to vote or to direct the vote of: 4,083,332.
(ii) Shared power to vote or to direct the vote of: None.
(iii) Sole power to dispose or to direct the disposition of: 4,083,332.
(iv) Shared power to dispose or to direct the disposition of: None.
Number of shares as to which Renaissance III has:
(i) Sole power to vote or to direct the vote of: 2,041,667.
(ii) Shared power to vote or to direct the vote of: None.
(iii) Sole power to dispose or to direct the disposition of: 2,041,667.
(iv) Shared power to dispose or to direct the disposition of: None.
Number of shares as to which Renaissance US has:
(i) Sole power to vote or to direct the vote of: 2,041,667.
(ii) Shared power to vote or to direct the vote of: None.
(iii) Sole power to dispose or to direct the disposition of: 2,041,667.
(iv) Shared power to dispose or to direct the disposition of: None.
(b) No transaction in the Common Shares was effected by a Reporting Person
within the last 60 days.
(c) No person other than the Reporting Persons has the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, the Common Shares beneficially owned by the Reporting Persons.
(d) Not applicable.
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Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
On October 15, 2003, BFS US, Renaissance III, Renaissance US, and RCG
entered into a Convertible Loan Agreement (the "Loan Agreement") with the
Company pursuant to which BFS US, Renaissance III, and Renaissance US purchased
an aggregate of $2,500,000 in 8% Convertible Debentures (the "8% Convertible
Debentures"). BFS US purchased $1,250,000 in such 8% Convertible Debentures, and
Renaissance III and Renaissance US each purchased $625,000 in such Debentures.
The Debentures bear interest at 8% per annum, which is payable monthly, and are
convertible into 4,166,777 Common Shares of the Company, at the holder's option,
at a conversion price of $0.60 per share. Monthly principal payments of $37,500
(in the aggregate) begin in the fourth quarter of 2006 and the maturity date of
the 8% Convertible Debentures is October 15, 2008. The 8% Convertible Debentures
are secured by the producing wellbores that the Company develops using the funds
raised by the 8% Convertible Debentures.
CUSIP No. 367220100 13D Page 8 of __ Pages
The Loan Agreement gives RCG the right to designate a nominee to serve as a
member of the Board of Directors of the Company while the 8% Convertible
Debentures are outstanding. In addition, if the Company is in monetary default
under the Loan Agreement and remains in such monetary default for at least ten
(10) days during any period when RCG has the right to designate a nominee to the
Board of Directors, the Loan Agreement gives RCG the right to designate another
nominee to the Board of Directors. The Loan Agreement requires the Company to
nominate any designee that RCG has the right to designate, and requires the
Company to use its best efforts to secure the election of any such designee.
When the Reporting Persons cease, in the aggregate, to be the beneficial holders
of Common Shares representing at least five percent (5%) of the issued and
outstanding Common Shares of the Company, the Company shall not be obligated to
nominate designees of RCG who are not affiliates of RCG. John Schmit, Vice
President of Investments for RCG, joined the Board of Directors of the Company
as the designee of RCG effective October 15, 2003.
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Item 7. Material to be Filed as Exhibits.
Exhibit 1: Joint Filing Agreement Pursuant to Rule 13d-1(k)
Exhibit 2: Form 8.00% Convertible Debenture of the Company dated October 15,
2003 by and among The Frost National Bank, Custodian FBO Renaissance US,
HSBC Global Custody Nominee (U.K.) Limited, Custodian FBO BFS US, and The
Frost National Bank, Custodian FBO Renaissance III (previously filed as
Exhibit 4.5 to the Company's Quarterly Report on From 10-Q for the
quarterly period ended September 30, 2003, which was filed with the
Commission on November 10, 2003, and which is incorporated herein by
reference).
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CUSIP No. 367220100 13D Page 9 of 9 Pages
SIGNATURE
After reasonable inquiry and to the best of the knowledge and belief of the
undersigned persons, such persons certify that the information set forth in this
statement is true, complete and correct.
Dated as of: December 23, 2003
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By:
Name: Russell Cleveland
Title: President and Chief Executive Officer
RENAISSANCE US GROWTH & INCOME TRUST PLC
By:
Name: Russell Cleveland
Title: Director
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By:
Name: Russell Cleveland
Title: Director
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Attention. Intentional misstatements or omissions of fact constitute federal
criminal violations (see 18 U.S.C. 1001).
ATTACHMENT 1
The name, business address, and principal occupation of the directors and
executive officers of Renaissance III are as follows:
DIRECTORS
Name Business Address Principal Occupation
Edward O. Boshell, Jr. c/o RENN Capital Group, Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Russell Cleveland c/o RENN Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Peter Collins c/o RENN Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Ernest C. Hill c/o RENN Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Charles C. Pierce, Jr. c/o RENN Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
OFFICERS
Name Business Address Principal Occupation
Russell Cleveland c/o RENN Capital Group, Inc. President and Chief
8080 North Central Expressway Executive Officer
Suite 210, LB-59
Dallas, TX 75206-1857
John A. Schmit c/o RENN Capital Group, Inc. Vice President
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Robert C. Pearson c/o RENN Capital Group, Inc. Vice President
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Barbara A. Butschek c/o RENN Capital Group, Inc. Secretary and
8080 North Central Expressway Treasurer
Suite 210, LB-59
Dallas, TX 75206-1857
The name, business address, and principal occupation of the directors and
executive officers of Renaissance US are as follows:
DIRECTORS
Name Business Address Principal
Occupation
Michael B. Cannan c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Russell Cleveland c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Ernest J. Fenton c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Lord Mark Fitzalan Howard OBE c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
C. A. Rundell, Jr. c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
William W. Vanderfelt c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
OFFICERS
None
The name, business address, and principal occupation of the directors and
executive officers of BFS US are as follows:
DIRECTORS
Name Business Address Principal
Occupation
Lord Lang of Monkton c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Russell Cleveland c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Ernest John Fenton c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Anthony Arthur Reid c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
William Weeks Vanderfelt c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
OFFICERS
None
EXHIBIT 1
JOINT FILING AGREEMENT PURSUANT TO RULE 13d-1(k)
The undersigned acknowledge and agree that the foregoing statement on
Schedule 13D is filed on behalf of each of the undersigned in the capacities set
forth below. The undersigned acknowledge that each shall be responsible for the
timely filing of such amendments, and for the completeness and accuracy of the
information concerning it contained therein, but shall not be responsible for
the completeness and accuracy of the information concerning the others, except
to the extent it knows or has reason to believe that such information is
inaccurate. This Joint Filing Agreement may be executed in any number of
counterparts and all of such counterparts taken together shall constitute one
and the same instrument.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By:
Name: Russell Cleveland
Title: President and Chief Executive Officer
RENAISSANCE US GROWTH & INCOME TRUST PLC
By:
Name: Russell Cleveland
Title: Director
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By:
Name: Russell Cleveland
Title: Director
EXHIBIT 2
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This Debenture has not been registered under the Securities Act of 1933, as
amended ("Act"), or applicable state securities laws ("State Acts"), and shall
not be sold, hypothecated, or otherwise transferred, unless such transfer is
made in compliance with the Act and the State Acts.
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GASCO ENERGY, INC.
8.00% Convertible Debenture
$1,000,000 No. 3
Date of Issue: September30, 2003
Gasco Energy, Inc., a Nevada corporation (the "Company" or "Borrower"), for
value received, promises to pay to:
HSBC Global Custody Nominee (U.K.) Limited
Designation No. 896414
or to its order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on or before September 30, 2008 (the "Due Date") (unless this
Debenture shall have been sooner called for redemption or presented for
conversion as herein provided), the sum of One Million Dollars ($1,000,000) (the
"Principal Amount") and to pay interest on the unpaid Principal Amount at the
rate of 8.00% per annum. All payments of both principal and interest shall be
made at the address of the Holder hereof as it appears in the books and records
of the Borrower, or at such other place as may be designated by the Holder
hereof.
1. Interest. Interest on the Principal Amount outstanding from time to time
shall be payable in monthly installments commencing November 1, 2003, and
subsequent payments shall be made on the first day of each month thereafter
until the Principal Amount and all accrued and unpaid interest shall have been
paid in full. Overdue principal and interest on the Debenture shall bear
interest at the maximum rate permitted by applicable law.
2. Maturity. If not sooner paid, redeemed or converted, this Debenture
shall mature on September 30, 2008 at which time the remaining unpaid Principal
Amount, and all accrued and unpaid interest and any other charges then due under
the Convertible Loan Agreement, shall be due and payable in full. This Debenture
shall be prepaid pro rata with any prepayments of Indebtedness other than Senior
Obligations. This Debenture shall be senior in right of payment to all other
Indebtedness of the Company, except the Senior Obligations.
3. Mandatory Principal Installments. If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commencing on October 1, 2005 and continuing on the first day of each successive
month thereafter prior to maturity, mandatory principal redemption installments,
each of such installments to be in the amount of Fifteen Dollars ($15) per One
Thousand Dollars ($1,000) of the then remaining Principal Amount, and further,
at maturity, Borrower shall pay to Holder a final installment of the remaining
unpaid Principal Amount and all accrued and unpaid interest on this Debenture
and any other charges then due under this Debenture or the Convertible Loan
Agreement.
4. Optional Redemption by Holder.
(a) If at any time after the date hereof (i) the Company's Common
Stock, par value $0.01 per share ("Common Stock"), is not listed on the New
York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX"), or
quoted on the NASDAQ National Market System ("National Market") or the
NASDAQ SmallCap System ("SmallCap") or the Over-the-Counter Bulletin Board
("OTCBB"), (ii) there is a change of control of the Company's voting
securities, without the written consent of the Holder, (iii) there is a
change of at least two-thirds (2/3) of the members of the Company's Board
of Directors as it shall exist on the date hereof, without the written
consent of the Holder, (iv) all or substantially all of the assets or
capital stock of the Company or its subsidiaries are sold, without the
consent of the Holder, or (v) the Company or its subsidiaries are merged or
consolidated with or into unaffiliated entities, without the written
consent of Holder, the Holder shall have the right to require this
Debenture to be redeemed by the Company at the sum equal to the Principal
Amount, together with an amount equal to an 18% annual yield on the
Principal Amount outstanding from time to time through the date of
redemption (the "Redemption Date").
(b) The Holder may exercise its right to require that the Company
redeem this Debenture pursuant to Section 4(a) prior to maturity by giving
notice thereof to the Company, which notice shall specify the terms of
redemption (including the place at which the Holder may obtain payment),
the total redemption payment and the Redemption Date, which date shall not
be less than 30 days nor more than 90 days after the date of the notice.
5. Optional Redemption by Company.
(a) On any interest payment date, and after receipt of irrevocable
notice from the Borrower as provided for below, this Debenture is
redeemable, in whole but not in part, at 101% of the Principal Amount,
together with accrued and unpaid interest through the Redemption Date, by
the Company, if all of the following conditions are satisfied: (i) the
average closing bid price for the Common Stock for the twenty (20)
consecutive trading days prior to the date of notice exceeds an amount
equal to three and one third (3 1/3) times the Conversion Price then in
effect, and the Common Stock is listed or quoted on the National Market,
the SmallCap, AMEX, OTCBB or NYSE; (ii) the average daily trading volume
for the twenty (20) consecutive trading days prior to the date of the
irrevocable notice shall be no less than One Hundred Thousand (100,000)
shares; (iii) the market price for the Common Stock at the time of notice
reflects a price-to-book value ratio, based upon the most recently filed
quarterly financial statements of the Borrower, of no greater than three
(3), and (iv) the shares of Common Stock issuable upon conversion of this
Debenture shall have been fully registered under applicable securities
laws. The Company's right of redemption is subject to the Holder's prior
right of conversion of the Debenture.
(b) If the Holder shall notify the Company in writing of its intent to
sell or otherwise transfer the Debenture (other than to an affiliate or a
nominee holder of record), this Debenture is redeemable at the Borrower's
option, in whole but not in part, at 101% of the Principle Amount, together
with accrued and unpaid interest through the Redemption Date, by the
Company for a period of up to thirty (30) days after the date of notice.
(c) The Company may exercise its right to redeem this Debenture
pursuant to Sections 5(a) and (b) prior to maturity by giving notice
thereof to the Holder of this Debenture as such name appears on the books
of the Borrower, which notice shall specify the terms of redemption
(including the place at which the Holder may obtain payment), the total
redemption payment and the Redemption Date, which date shall not be less
than 30 days nor more than 90 days after the date of the notice.
6. Conversion Right. The Holder of this Debenture shall have the right, at
Holder's option, at any time, to convert all, or, in multiples of $100,000, any
part of this Debenture into such number of fully paid and nonassessable shares
of Common Stock as provided herein. The Holder of this Debenture may exercise
the conversion right by giving written notice (the "Conversion Notice") to
Borrower of the exercise of such right and stating the name or names in which
the stock certificate or stock certificates for the shares of Common Stock are
to be issued and the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by the Debenture. The number of shares of
Common Stock that shall be issuable upon conversion of the Debenture shall equal
the outstanding Principal Amount of the Debenture divided by the Conversion
Price (as defined below) and in effect on the date the Conversion Notice is
given; provided, however, that in the event that this Debenture shall have been
partially redeemed, shares of Common Stock shall be issued pro rata, rounded to
the nearest whole share. Conversion shall be deemed to have been effected on the
date the Conversion Notice is received (the "Conversion Date"). In the case of
any Debenture called for redemption, the conversion rights will expire at the
close of business on the Redemption Date. Within twenty (20) business days after
receipt of the Conversion Notice, Borrower shall issue and deliver by hand
against a signed receipt therefor or by United States registered mail, return
receipt requested, to the address designated in the Conversion Notice, a stock
certificate or stock certificates of Borrower representing the number of shares
of Common Stock to which Holder is entitled and a check or cash in payment of
all interest accrued and unpaid on the Debenture up to and including the
Conversion Date. The conversion rights will be governed by the following
provisions:
(a) Conversion Price. On the issue date hereof and until such time as
an adjustment shall occur, the initial Conversion Price shall be $0.60.
(b) One Time Adjustment. In the event that Company's net cash flow
from operations for the period commencing with the date of this Debenture
through the end of the Company's fiscal year ending in 2004, is less than
$2,000,000, and for the ten (10) trading days following the announcement of
the Company's financial results for that period, whether by press release
or public announcement or public filing, the volume-weighted average
closing bid price for the Common Stock (the "New Average Price") is less
than the Conversion Price, the Conversion Price shall be immediately
reduced to the New Average Price.
(c) Adjustment for Issuance of Shares at Less Than the Conversion
Price. If and whenever any Additional Common Stock shall be issued by
Borrower (the "Stock Issue Date") for a consideration per share less than
the Conversion Price, then in each such case the initial Conversion Price
shall be reduced to a new Conversion Price in an amount equal to the price
per share for the Additional Common Stock then issued, if issued in
connection with a sale of shares, or the value of the Additional Common
Stock then issued, as determined in accordance with generally accepted
accounting principles, if issued other than for cash, and the number of
shares issuable to Holder upon conversion shall be proportionately
increased; and, in the case of Additional Common Stock issued without
consideration, the initial Conversion Price shall be reduced in amount and
the number of shares issued upon conversion shall be increased in an amount
so as to maintain for the Holder the right to convert the Debenture into
shares equal in amount to the same percentage interest in the Common Stock
of the Company as existed for the Holder immediately preceding the Stock
Issue Date.
(d) Sale of Shares. In case of the issuance of Additional Common Stock
for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the gross amount of the
cash paid to Borrower for such shares, before deducting any underwriting
compensation or discount in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith. In case of the issuance of any
shares of Additional Common Stock for a consideration part or all of which
shall be other than cash, the amount of the consideration therefor, other
than cash, shall be deemed to be the then fair market value of the property
received.
(e) Stock Splits, Subdivisions or Combinations. In the event of a
stock split or subdivision of shares of Common Stock into a greater number
of shares, the Conversion Price shall be proportionately decreased, and in
the event of a combination of shares of Common Stock into a smaller number
of shares, the Conversion Price shall be proportionately increased, such
increase or decrease, as the case may be, becoming effective at the record
date.
(f) Stock Dividends. Shares of Common Stock issued as a dividend or
other distribution on any class of capital stock of Borrower shall be
deemed to have been issued without consideration.
(g) Exceptions. The term "Additional Common Stock" herein shall mean
all shares of Common Stock or securities convertible or exercisable into
shares of Common Stock hereafter issued by Borrower (including Common Stock
held in the treasury of Borrower), except (A) Common Stock issued upon the
conversion of any of the Debentures; (B) Common Stock issuable upon
conversion of presently issued and outstanding shares of Preferred Stock of
the Borrower or (C) Common Stock issuable upon exercise of presently
outstanding stock options and warrants.
(h) Adjustment for Mergers and Consolidations. In the event of any
consolidation or merger of the Company with or into, or the sale of all or
substantially all of the properties and assets of the Company, to any
person, and in connection therewith, consideration is payable to holders of
Common Stock in cash, securities or other property, then as a condition of
such consolidation, merger or sale, lawful provision shall be made, and
duly executed documents evidencing the same shall be delivered to the
Holder, so that the Holder shall have the right at any time prior to the
maturity of this Debenture to purchase, at a total price equal to the
Conversion Price immediately prior to such event, the kind and amount of
cash, securities or other property receivable in connection with such
consolidation, merger or sale, by a holder of the same number of shares of
Common Stock as were convertible by the Holder immediately prior to such
consolidation, merger or sale. In any such case, appropriate provisions
shall be made with respect to the rights and interest of the Holder so that
the provisions hereof shall thereafter be applicable with respect to any
cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or consolidates
with, or sells all or substantially all of its property and assets to, any
other person, and consideration is payable to holders of Common Stock in
exchange for their Common Stock in connection with such merger,
consolidation or sale which consists solely of cash, or (ii) in the event
of the dissolution, liquidation or winding up of the Company, then the
Holder shall be entitled to receive distributions on the date of such event
on the same basis with holders of Common Stock as if this Debenture had
been converted immediately prior to such event, less the Conversion Price.
Upon receipt of such payment, if any, the rights of the Holder shall
terminate and cease and this Debenture shall expire. In case of any such
merger, consolidation or sale of assets, the surviving or acquiring person
and, in the event of any dissolution, liquidation or winding up of the
Company, the Company shall promptly, after receipt of this surrendered
Debenture, make payment by delivering a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such person as it may be directed in
writing by the Holder surrendering this Debenture.
(i) Distributions. In the event of distribution to all Common Stock
holders of any securities, cash or properties or assets or other rights to
purchase securities or assets, then, after such event, this debenture will
also be convertible into the kind and amount of securities, cash and other
property which the Holder would have been entitled to receive if the Holder
owned the Common Stock issuable upon conversion of the Debenture
immediately prior to the occurrence of such event.
(j) Capital Reorganization and Reclassification. In case of any
capital reorganization or reclassification of the Common Stock of Borrower
(other than a change in par value or as a result of a stock dividend,
subdivision, split up or combination of shares), this Debenture shall be
convertible into the kind and number of shares of stock or other securities
or property of Borrower to which the Holder of the Debenture would have
been entitled to receive if the Holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such
event. The provisions of the immediately foregoing sentence shall similarly
apply to successive reorganizations, reclassifications, consolidations,
exchanges, leases, transfers or other dispositions or other share
exchanges.
(k) Notice. In the event Borrower shall propose to take any action
which shall result in an adjustment in the Conversion Price, Borrower shall
give notice to the Holder of this Debenture, which notice shall specify the
record date, if any, with respect to such action and the date on which such
action is to take place. Such notice shall be given on or before the
earlier of 10 days before the record date or the date which such action
shall be taken. Such notice shall also set forth all facts (to the extent
known) material to the effect of such action on the Conversion Price and
the number, kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of this Debenture.
(l) Certificate. Following completion of an event which results in an
adjustment to the Conversion Price, Borrower shall furnish to the Holder of
this Debenture a statement, signed by the Chief Executive Officer and the
Secretary of the Borrower, of the facts creating such adjustment and
specifying the resultant adjusted Conversion Price then in effect, which
statement shall constitute an amendment to this Debenture.
(m) Vote of Shareholders. In the event of an adjustment to the
Conversion Price due to a sale of securities by the Borrower below the
Conversion Price which would result in the Holders of all Debentures
evidencing the Loan having the right to acquire more than 20% of the then
outstanding shares of Common Stock, the Borrower agrees to hold a vote of
the shareholders prior to such event to authorize such an adjustment. In
the event the shareholders do not authorize the issuance of such additional
shares within such period, the Holder shall have the right to cause the
Company to redeem the Debenture in accordance with the provisions of
Section 4.
7. Reservation of Shares. Borrower warrants and agrees that it shall at all
times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of Common
Stock necessary to effect conversion of this Debenture.
8. Taxes. The Company shall pay any documentary or other transactional
taxes attributable to the issuance or delivery of this Debenture or the shares
of Common Stock issued upon conversion by the Holder (excluding any federal,
state or local income taxes and any franchise taxes or taxes imposed upon the
Holder by the jurisdiction, or any political subdivision thereof, under which
such Holder is organized or is qualified to do business).
9. Default.
(a) Event of Default. An "Event of Default" shall exist if an "Event
of Default" (as defined in that certain Convertible Loan Agreement, dated,
September 30, 2003, among Borrower, Lenders and Renaissance Capital Group,
Inc., a Texas corporation, as Agent for the Lenders (the "Agent")) shall
occur and be continuing.
(b) Remedies Upon Event of Default. If an Event of Default shall have
occurred and be continuing, then the Holder may exercise any one or more of
the rights and remedies provided in the Loan Documents, as the Holder, in
its sole discretion, may deem necessary or appropriate.
(c) Remedies Nonexclusive. Each right, power or remedy of the Holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute
shall be cumulative and concurrent and shall be in addition to every other
right, power or remedy provided for in this Debenture or now or hereafter
existing at law or in equity or by statute, and the exercise or beginning
of the exercise by the Holder or transferee hereof of any one or more of
such rights, powers or remedies shall not preclude the simultaneous or
later exercise by the Holder of any or all such other rights, powers or
remedies.
(d) Expenses. Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all reasonable costs and
expenses (including attorneys' fees and expenses) incurred by the Holder in
connection with the preservation and enforcement of Holder's rights under
the Convertible Loan Agreement, the Debenture, or any other Loan Document.
10. Failure to Act and Waiver. No failure or delay by the Holder hereof to
require the performance of any term or terms of this Debenture or not to
exercise any right or any remedy shall constitute a waiver of any such term or
of any right or of any default, nor shall such delay or failure preclude the
Holder hereof from exercising any such right, power or remedy at any later time
or times. By accepting payment after the due date of any amount payable under
this Debenture, the Holder hereof shall not be deemed to waive the right either
to require payment when due of all other amounts payable, or to later declare a
default for failure to effect such payment of any such other amount. The failure
of the Holder of this Debenture to give notice of any failure or breach of the
Borrower under this Debenture shall not constitute a waiver of any right or
remedy in respect of such continuing failure or breach or any subsequent failure
or breach.
11. Consent to Jurisdiction. The Company hereby agrees and consents that
any action, suit or proceeding arising out of this Debenture shall be brought in
any state or federal court located in Dallas County, Texas, including the United
States District Court for the Northern District of Texas, all at the sole
election of the Holder hereof, and by the issuance and execution of this
Debenture, the Borrower irrevocably consents to the exclusive jurisdiction and
venue of each such courts. The Company hereby irrevocably appoints CT
Corporation System, Dallas, Texas, as agent for the Borrower to accept service
of process for and on behalf of the Borrower in any action, suit or proceeding
arising out of this Debenture. Except for default in payment of interest or
principal when and as they become due, and except as otherwise specifically set
forth herein or otherwise agreed to in writing by the parties, any action,
dispute, claim or controversy (all such herein called "Dispute") between or
among the parties as to the facts or the interpretation of the Debenture shall
be resolved by arbitration as set forth in the Convertible Loan Agreement.
12. Holder's Right to Request Multiple Debentures. The Holder shall, upon
written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into multiple
instruments, each of such to be in such amounts as shall be requested; provided,
however, that no Debenture shall be issued in denominations of less than
$50,000.
13. Transfer. Subject to Section 12.08 of the Convertible Loan Agreement,
this Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, in multiples
of $50,000, only upon (i) delivery to the Borrower of a duly executed assignment
of the Debenture, or part thereof, to the proposed new Holder, along with a
current notation of the amount of payments received and net Principal Amount yet
unfunded, and presentment of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new Holder, (ii) the
designation by the new Holder of the Lender's agent for notice, such agent to be
the sole party to whom Borrower shall be required to provide notice when notice
to Holder is required hereunder and who shall be the sole party authorized to
represent Lender in regard to modification or waivers under the Debenture, the
Convertible Loan Agreement, or other Loan Documents; and any action, consent or
waiver (other than a compromise of principal and interest) when given or taken
by Lender's agent for notice, shall be deemed to be the action of the holders of
a majority in amount of the Principal Amount of the Debenture, as such holders
are recorded on the books of the Borrower, and (iii) in compliance with the
legend to read as follows:
"This Debenture has not been registered under the Securities Act of
1933, as amended ("Act"), or applicable state securities laws ("State
Acts"), and shall not be sold, hypothecated, or otherwise transferred,
unless such transfer is made in compliance with the Act and the State
Acts."
The Company shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
14. Notices. All notices and communications under this Debenture shall be
in writing and shall be either delivered in person or by overnight service, such
as FedEx, and accompanied by a signed receipt therefor; or mailed first-class
United States certified mail, return receipt requested, postage prepaid, and
addressed as follows: (i) if to the Borrower at its address for notice as stated
in the Convertible Loan Agreement; and (ii) if to the Holder of this Debenture,
to the address (a) of such Holder as it appears on the books of the Borrower or
(b) in the case of a partial assignment to one or more Holders, to the Lender's
agent for notice, as the case may be. Any notice of communication shall be
deemed given and received as of the date of such delivery if delivered; or if
mailed, then three days after the date of mailing.
15. Maximum Interest Rate.
(a) Regardless of any provision contained in this Debenture, Lender
shall never be entitled to receive, collect or apply as interest on the
Debenture any amount in excess of interest calculated at the Maximum Rate,
and, in the event that Lender ever receives, collects or applies as
interest any such excess, the amount which would be excessive interest
shall be deemed to be a partial prepayment of principal and treated
hereunder as such; and, if the principal amount of the Debenture is paid in
full, any remaining excess shall forthwith be paid to Borrower. In
determining whether or not the interest paid or payable under any specific
contingency exceeds interest calculated at the Maximum Rate, Borrower and
Lender shall, to the maximum extent permitted under applicable law, (i)
characterize any non principal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) amortize, pro rate, allocate and spread, in equal parts,
the total amount of interest throughout the entire contemplated term of the
Debenture; provided that, if the Debenture is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest
calculated at the Maximum Rate, Lender shall refund to Borrower the amount
of such excess or credit the amount of such excess against the principal
amount of the Debenture and, in such event, Lender shall not be subject to
any penalties provided by any laws for contracting for, charging, taking,
reserving or receiving interest in excess of interest calculated at the
Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious
rate of interest (if any) permitted by applicable law on such day that, at
any time or from time to time, may be contracted for, taken, reserved,
charged or received on the Indebtedness evidenced by the Debenture under
the laws which are presently in effect of the United States of America or
by the laws of any other jurisdiction which are or may be applicable to the
Holders of the Debenture and such Indebtedness or, to the extent permitted
by law, under such applicable laws of the United States of America or by
the laws of any other jurisdiction which are or may be applicable to the
Holder of the Debenture and which may hereafter be in effect and which
allow a higher maximum nonusurious interest rate than applicable laws now
allow.
16. Convertible Loan Agreement, Guaranty and [the Mortgage]. This Debenture
is issued pursuant to the Convertible Loan Agreement, and the Holder is entitled
to all the rights and benefits thereunder. Both Borrower and the Holder have
participated in the negotiation and preparation of the Convertible Loan
Agreement and of this Debenture. Borrower agrees that a copy of the Convertible
Loan Agreement with all amendments, additions and substitutions therefor shall
be available to the Holder at the offices of Borrower. The indebtedness
evidenced by this Debenture is secured pursuant to [the Mortgage] dated of even
date herewith among the Company, certain of its subsidiaries and the Holder, and
the Holder is entitled to all rights and benefits of a secured party thereunder.
The payment and performance of this Debenture is guaranteed by the Company's
subsidiaries pursuant to their Guaranty dated of even date herewith.
[Remainder of Page Intentionally Left Blank]
17. Defined Terms. Capitalized terms used but not defined herein shall have
the meaning given them in the Convertible Loan Agreement.
18. Governing Law. This Debenture shall be governed by and construed and
enforced in accordance with the substantive laws of the State of Texas, without
regard to the conflicts of laws provisions thereof, and the applicable laws of
the United States.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
issued, executed and delivered on the date and year above stated.
GASCO ENERGY, INC.
By:
Name:
Title: