<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement
Gateway Energy Corporation
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
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GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
_____________________________________________
SOLICITATION OF CONSENTS OF STOCKHOLDERS
JANUARY , 1997
To the Stockholders of Gateway Energy Corporation:
This Solicitation of Consents is being sent to Common Stockholders of
Gateway Energy Corporation (the "Company") in lieu of a meeting of
Stockholders, for the following purpose:
1. To obtain stockholders' consent to the adoption of an amendment to
the Company's Restated Certificate of Incorporation to (i) effect a 1
for 25 reverse split of the outstanding Common Stock of the Company;
(ii) to decrease the authorized Common Stock of the Company from
75,000,000 shares to 10,000,000 shares; and (iii) decrease the
authorized Preferred Stock from 1,750,000 shares to 10,000 shares.
Stockholders of record at the close of business on December 9, 1996 (the
"Record Date") are entitled to vote on the above referenced matters.
Information concerning the matters to be voted upon is set forth in the
attached Information Statement. We encourage you to review the attached
material carefully.
IN ORDER FOR THE COMPANY TO MOVE FORWARD ON ITS PROPOSED RECAPITALIZATION AS
DESCRIBED IN THE ATTACHED INFORMATION STATEMENT, CONSENT CARDS MUST BE
RECEIVED BY THE COMPANY NOT LATER THAN JANUARY , 1997.
By Order of the Board of Directors
Donald L. Anderson
Secretary
RAM/kg
client\gateway\solict
121396
<PAGE>
GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
________________________________
INFORMATION STATEMENT
SOLICITATION OF CONSENTS OF STOCKHOLDERS
JANUARY , 1997
SOLICITATION AND VOTING
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement is furnished to the holders of the Common
Stock, $.01 par value per share ("Common Stock") in connection with the
solicitation of consents ("Consents") by the Board of Directors of Gateway
Energy Corporation (the "Company") to adopt an amendment (the "Amendment") to
the Company's Restated Certificate of Incorporation to (i) effect a 1 for 25
reverse split of the outstanding Common Stock of the Company; (ii) decrease
the authorized Common Stock, after effectuating the 1 for 25 reverse split,
from 75,000,000 shares to 10,000,000 shares; and (iii) decrease the
authorized Preferred Stock from 1,750,000 shares to 10,000 shares. The first
mailing of this Information Statement and accompanying material to the
holders of the Common Stock will be made on January , 1997.
Delaware law permits Stockholders to vote by consent in lieu of an
actual meeting of Stockholders. The Company has determined not to hold an
actual meeting of Stockholders in order to save cash and reduce expenses.
The cost of solicitation of Consents will be borne by the Company. In
addition to the use of the mails, Consents may be solicited personally, or by
telephone or electronic media by regular employees of the Company. The
Company will reimburse brokers and other custodians, nominees or fiduciaries
for their expenses in forwarding the Information Statement and accompanying
material to security owners and obtaining the Consents.
Stockholders of record at the close of business on December 9, 1996 are
entitled to vote on matters set forth herein. On that date there were
outstanding and entitled to vote 37,909,334 shares of Common Stock.
VOTE REQUIREMENTS
The effectuation of the Amendment requires receipt of the affirmative
vote, by consent, of a majority of the 37,909,334 shares of Common Stock
entitled to vote as a single class.
1
<PAGE>
EFFECTIVENESS OF AMENDMENT
The proposed Amendment will only become effective upon the receipt of
the requisite affirmative vote of the holders of all nine (9) series of the
Preferred Stock of the Company to effectuate the second step of the
Recapitalization described below. Any fractional shares created by the 1 for
25 reverse stock split will be paid for in cash, based upon the average of
the bid and ask price of the Common Stock on the day prior to the
effectiveness. Cash payments of less than $1.00 will not be made.
RECAPITALIZATION
Over the past four years, the Company has utilized the issuance of a
number of series of Preferred Stock to accredited investors to initially
secure the capitalization of the Company for the acquisition of its gas
pipelines and oil and gas properties. As of November 30, 1996, the Company
has outstanding nine (9) separate series of Preferred Stock with a stated
value of $18,587,340. All but one series of Preferred Stock carry a dividend
requirement which in total is approximately $2,200,000 annually. The
existing properties of the Company are currently unable to support this
amount of Preferred Stock. Since the Company, for all intents and purposes,
is 100% leveraged (the preferred stocks' dividends, and in certain cases
redemption requirements utilize all of the current cash flow), the Company
has no cash flow available after servicing this present capital structure to
improve existing properties, pursue acquisition opportunities or provide the
access to future debt and equity financing. Accordingly, the Company is
unable to build real value for its Common Stockholders.
As a result of this situation, the Company, as announced at its recent
Annual Shareholders Meeting, and in consultation with Growth Capital
Partners, the Company's investment banker, is proposing a recapitalization of
the Company ("Recapitalization"). The first step is the adoption of the
proposed Amendment as discussed earlier, and the second step is a proposal to
the holders of all nine (9) series of Preferred Stock to amend their
respective Certificates of Designation to allow for the mandatory conversion
of all outstanding Preferred Stock. Upon completion of the Recapitalization,
the Preferred Stock outstanding will be converted into other securities
including Common Stock, Subordinated Debt, and Common Stock Purchase
Warrants. Additionally, the Subordinated Debt will contain an additional
interest provision which collectively grants to all Preferred Stockholders an
amount not greater than 25% of any cash distributions from the Company's
interest in Castex Energy 1995 L.P., a Texas limited partnership owning certain
oil and gas producing properties.
If the Recapitalization is approved, the Company anticipates issuing to
the current holders of Preferred Stock approximately 4,493,000 shares of
Common Stock (after the 1 for 25 reverse stock split), approximately
$6,134,000 in Subordinated Debt and 386,000 Common Stock Purchase Warrants.
Following the Recapitalization, there will be no remaining Preferred Stock
outstanding and all Preferred Stock dividend requirements will be eliminated.
The current holders of Common Stock will own approximately 1,516,400 shares,
or approximately 25.2% of the total outstanding shares of Common Stock after
the Recapitalization.
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POST RECAPITALIZATION STRATEGY
Assuming that the holders of the Common Stock approve the proposed
Amendment and the holders of the Preferred Stock, voting as separate classes,
agree to amend their respective Certificates of Designation as set forth
above, management of the Company, upon the advice and consultation of Growth
Capital Partners, intends to implement a number of strategies to build
enhanced stockholder value. Because of the 1 for 25 reverse stock split and
the elimination of all Preferred Stock and Preferred Stock dividends,
management anticipates that the Common Stock will trade at a significantly
higher price. Management anticipates that if it can successfully implement
the Recapitalization, the Company should be in a position to seek a NASDAQ
listing for its Common Stock. If that can be accomplished, management
anticipates that additional market makers might be attracted.
Additionally, as part of a program initiated earlier this year,
management has reduced general and administrative expenses to levels that
are appropriate with the Company's revenues and cash flow. Management has
discontinued the joint venture operating strategy on all property
acquisitions and will seek to terminate current joint venture relationships
as appropriate. The Board of Directors will seek to add at least two new
Board members. Management will seek to employ an experienced operating
person in Houston, Texas, to review and analyze current properties and
negotiate with joint venture partners to improve their performance or to
assume operating management. The Company intends to substantially reduce its
reliance on joint venture partners and, as a result, decrease the cost of
managing these properties. During the next fiscal year, the Company plans to
continue building an "in-house" organization capable of managing all of its
properties and pursuing other investment opportunities.
THE COMPANY RECOMMENDS THAT THE COMMON STOCKHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma capitalization of the
Company as of August 31, 1996, assuming the Recapitalization plan described
above is successfully completed. The table reflects the 1 for 25 reverse
stock split, and the amendment of the respective Certificates of Designation
of each class of Preferred Stock.
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<TABLE>
<CAPTION>
GATEWAY ENERGY CORPORATION
Pro Forma Statement of Capitalization
AS OF AUGUST 31, 1996
------------------------------------------------------
<S> <C> <C> <C>
ACTUAL RECAPITALIZATION PROFORMA POST
ADJUSTMENTS RECAPITALIZATION
---------------- ----------------
DEBT:
Senior Debt (1) $14,438,700 $ ---- $14,438,700
Subordinated Debt ---- 6,133,800 6,133,800
----------- ---------- -----------
TOTAL DEBT $14,438,700 $6,133,800 $20,572,500
Minority Interests 1,091,500 ---- 1,091,500
Preferred Stock of Subsidiary 470,500 (470,500) 0
Mandatory Redeemable Pfd (2) 8,313,800 (8,313,800) 0
STOCKHOLDERS' EQUITY
Preferred Stock (3) 9,400 (9,400) 0
Common Stock 327,100 1,123,200 (4) 1,450,300
Additional Paid-In Capital 10,477,800 1,258,000 11,735,800
Accumulated Deficit (5,979,700) ---- (5,979,700)
----------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,834,600 2,371,800 7,206,400
----------- ---------- -----------
TOTAL CAPITALIZATION $29,149,100 ($278,700) $28,870,400
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
(1) Includes a $12,064,800 nonrecourse loan relating to Castex Energy 1995
L.P. and $2,373,900 of other notes payable.
(2) Includes the mandatory redeemable Series G & O Preferred Stock.
(3) Includes all other shares of outstanding preferred stock (excluding Series
G and O) at $1.00 par value per share.
(4) Common Stock issued in connection with the Recapitalization at $.25 par
value.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. As of the Record Date,
no person was known to the Company to be a beneficial owner of more than five
percent (5%) of the Company's voting Common Stock. The charts below set forth
the stock ownership of the officers and directors of the Company as to Common
Stock and different series of Preferred Stock.
<TABLE>
==============================================================================
TITLE OF CLASS OFFICER OR DIRECTOR NUMBER OF PERCENT
SHARES OF CLASS
==============================================================================
<S> <C> <C> <C>
Common Stock Charles A. Holtgraves 1,363,570 3.59%
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Common Stock Larry J. Horbach 615,116 1.68%
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Common Stock Donald L. Anderson 449,064 1.18%
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Common Stock John B. Ewing 144,000 *
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Common Stock Neil A. Fortkamp 37,500 *
==============================================================================
</TABLE>
* Represents less than 1% of Common Stock Ownership.
<TABLE>
<CAPTION>
==============================================================================
<S> <C> <C> <C>
SERIES NAME OF OWNER NUMBER PERCENT
OF OF
SHARES CLASS
==============================================================================
Preferred Stocks
- ----------------
Series B Charles A. Holtgraves 2.5 .5%
John B. Ewing 25.0 1.5%
Series L, M, K, J Charles A. Holtgraves 10.0 .44%
Series O Donmald L. Anderson(1) 1.0 100%
- ------------------------------------------------------------------------------
All Executive officers and directors as a group:
Series B 27.5 1.59%
Series L, M, K, J 10.0 .44%
Series O 1.0 100%
==============================================================================
</TABLE>
(1) The Company issued one share of Series O Preferred Stock to
Pipeline Capital, Inc. in connection with a Settlement and Purchase Agreement
described in the Company's 10-KSB filed for the year ended February 29, 1996.
Donald L. Anderson is a one-third (1/3) owner of Pipeline Capital, Inc.
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<PAGE>
The following table sets forth the year-end value of unexercised
options/SARs for officers of the Company:
<TABLE>
<CAPTION>
===============================================================================
<S> <C> <C>
Name Number of Securities Value (1) of unexercised
underlying unexercised in-the-money-options/SARs
options/SARs at year-end: ($)
at year-end: (#) exercisable/unexercisable
exercisable/unexercisable
===============================================================================
Larry J. Horbach 175,000/0 $0/0
Neil A. Fortkamp (2) 162,500/0 $0/0
===============================================================================
</TABLE>
(1) The value of unexercised, in-the-money options has been calculated by
determining the difference between the fair market value of the
Company's Common Stock on December 9, 1996, and the exercise price of
the options, multiplied by the number of options held.
(2) Includes warrants to purchase 12,500 shares of Company Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 1992, the Company entered into an agreement with Pipeline
Capital, Inc. ("PCI") (which was subsequently amended several times) whereby
PCI, through a sponsorship arrangement, was to raise up to $50,000,000 in
capital for the Company over five years. Donald L. Anderson is a shareholder
of PCI and has a one-third interest in the capital and in all profits and
losses of PCI. To date, $20,291,000 of capital has been raised.
As more fully set forth in the 1996 Proxy Materials for the Annual
Meeting, the parties had several ongoing disagreements regarding the proper
interpretation of various sections of the agreement. In an attempt to settle
these, the parties terminated all prior agreements and entered into a
Settlement and Purchase Agreement ("Agreement") effective May 6, 1996. In
summary, the Agreement provides as follows:
- The Company issued to PCI, one share of its Series O Preferred Stock which
is non-voting and has no dividend rights. Upon the following described
events, the following payments will be made to PCI: (i) PCI is entitled to
receive 10% of the consideration paid in the event of a merger of the
Company, the sale of all, or substantially all of its assets or the sale
or exchange of a majority or more of the outstanding Common Stocks;
(ii) in the event of liquidation and dissolution of the Company, after
payment of all debts senior to Series O, PCI shall receive a payment equal
to 10% of the remaining assets of the Company; and (iii) if neither event
above has occurred by July 1, 2000, PCI shall receive an amount equal to
10% of the fair market value appraisal of the Company, said appraisal to
be done by an investment banking or appraisal firm.
- The Company repurchased the 56.3 shares of Series C Preferred Stock owned
by PCI, representing its right to receive the above referenced payments
for $480,000 represented by a promissory note requiring payments of
$10,000 per month commencing July 1, 1996 and ending June 1, 2000.
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<PAGE>
- PCI executed a promissory note in the amount of $278,728 plus interest at
7% representing all advances to PCI to the date of the Agreement. All
principal and interest on this note will be offset against the amounts
which are payable to PCI upon a payment event described above.
- In the event the Company pays less than $5,000 on any monthly payment
under the $480,000 promissory note described above, and has failed to pay
any remaining amount within thirty (30) days, PCI may accelerate all
remaining amounts under the note or shall have a one time right to
increase the 10% amount described above to 20%.
The proposed Recapitalization provides that PCI shall exchange its one
share of Series O Preferred Stock for shares of Common Stock of the Company.
The actual number of shares to be issued will be determined based upon the
number of shares of Common Stock outstanding on the date this Information
Statement is first mailed to Stockholders. The amount will be such that the
holders of Series O receive Common Stock equal to 10% of the fully diluted
shares outstanding at that time. Upon completion of the Recapitalization,
however, the holders of Series O Preferred Stock will hold Common Stock equal
to approximately 2.6% ownership of the Company. The $480,000 promissory note
will remain a legal obligation of the Company following the Recapitalization
and the Company will continue to pay $10,000 per month to PCI as provided in
the note. PCI will not retain the one time right to increase the 10% amount
(post Recapitalization to be 2.6%) to 20% (or 5.2% post Recapitalization).
As part of the Recapitalization, the Company will forgive the $278,728
promissory note from PCI.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Information
Statement the following documents previously filed by the Company with the
Securities and Exchange Commission pursuant to the Exchange Act:
1. Annual Report on Form 10-KSB for the year ended February 29, 1996;
2. Quarterly Reports on Form 10-QSB for the quarters ended May 31, 1996,
and August 31, 1996; and
3. Current Report on Form 8-K dated July 30, 1996.
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TEXT OF PROPOSED AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION
If the proposed amendment to the Restated Certificate of Incorporation
is adopted, Article IV will read as follows:
"Fourth. Effective ______________, 1997, the shares of Common Stock
outstanding on that date shall be split 1 for 25 with the result that
each 25 shares of outstanding Common Stock shall become 1 share of
outstanding Common Stock. The total aggregate number of shares which
the Company shall have authority to issue is ten million, ten thousand
(10,010,000) shares designated as follows: (i) ten million
(10,000,000) shares of Common Stock, par value $.25 per share; and
(ii) ten thousand (10,000) shares of Preferred Stock, par value
$1.00 per share, which shares of Preferred Stock may be issued in
series, all with such rights, privileges and restrictions and
preferences as the Board of Directors may authorize from time to
time."
8
