<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
(Amendment No. )
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2)
/X/ 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
(1) Title of each class of securities to which transaction applies:
_______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
(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:
_______________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
(5) Total fee paid:
_______________________________________________________________
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_______________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_______________________________________________________________
(3) Filing Party:
_______________________________________________________________
(4) Date Filed:
_______________________________________________________________
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GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
_____________________________________________
SOLICITATION OF CONSENTS OF STOCKHOLDERS
JANUARY 13, 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 31, 1997.
By Order of the Board of Directors
Donald L. Anderson
Secretary
RAM/kg
<PAGE>
GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
________________________________
INFORMATION STATEMENT
SOLICITATION OF CONSENTS OF STOCKHOLDERS
JANUARY 13, 1997
SOLICITATION AND VOTING
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 13, 1997.
We are not asking you for a proxy and you are requested not to send us a
proxy. 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.
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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 redemption of a portion and the mandatory
conversion of the remaining portion of all outstanding Preferred Stock. Upon
completion of the Recapitalization, the Preferred Stock outstanding will be
redeemed and converted into other securities including Common Stock,
Subordinated Debt, and Common Stock Purchase Warrants. In addition to the
regular interest provisions of the Subordinated Debt, the holders will be
entitled to an amount not greater than 25% of any cash distributions received by
the Company from its limited partnership 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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GATEWAY ENERGY CORPORATION
Pro Forma Statement of Capitalization
AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
ACTUAL RECAPITALIZATION PROFORMA POST
------ ADJUSTMENTS RECAPITALIZATION
----------- ----------------
<S> <C> <C> <C>
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.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TITLE OF CLASS OFFICER OR DIRECTOR NUMBER OF PERCENT
SHARES OF CLASS
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Common Stock Charles A. Holtgraves 1,363,570 3.59%
--------------------------------------------------------------------------
Common Stock Larry J. Horbach 615,116 1.68%
--------------------------------------------------------------------------
Common Stock Donald L. Anderson 449,064 1.18%
--------------------------------------------------------------------------
Common Stock John B. Ewing 144,000 *
--------------------------------------------------------------------------
Common Stock Neil A. Fortkamp 37,500 *
--------------------------------------------------------------------------
--------------------------------------------------------------------------
* Represents less than 1% of Common Stock Ownership.
------------------------------------------------------------------------
------------------------------------------------------------------------
NUMBER OF PERCENT OF
SERIES NAME OF OWNER 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 Donald 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%
------------------------------------------------------------------------
------------------------------------------------------------------------
(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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The following table sets forth the year-end value of unexercised
options/SARs for officers of the Company:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name Number of Securities
underlying unexercised Value (1) of unexercised
options/SARs in-the-money-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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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's 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
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$480,000 represented by a promissory note requiring payments of $10,000 per
month commencing July 1, 1996 and ending June 1, 2000.
- - 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. Although some of the terms of the
$480,000 promissory note may be adjusted in connection with the
Recapitalization, the 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. 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."
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