<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14c
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
(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:
<PAGE>
GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
_____________________________________________
SOLICITATION OF CONSENTS OF COMMON STOCKHOLDERS
MARCH __, 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
increase the authorized Common Stock of the Company from
10,000,000 shares to 17,500,000 shares.
Stockholders of record at the close of business on February 28, 1997 (the
"Record Date") are entitled to vote on the above referenced matter. Information
concerning the matter to be voted upon is set forth in the attached Information
Statement. We encourage you to review the attached material carefully.
CONSENT CARDS MUST BE RETURNED TO THE COMPANY NOT LATER THAN APRIL __,
1997.
By Order of the Board of Directors
Larry J. Horbach
President
<PAGE>
GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
________________________________
INFORMATION STATEMENT
SOLICITATION OF CONSENTS OF COMMON STOCKHOLDERS
MARCH __, 1997
SOLICITATION AND VOTING
This Information Statement is furnished to the holders of the Common Stock,
$.25 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 increase the authorized Common Stock
from 10,000,000 shares to 17,500,000 shares. The first mailing of this
Information Statement and accompanying material to the holders of the Common
Stock will be made on March __, 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 or by persons
engaged by the Company for such purposes. If the Company engages outside persons
to solicit Consents, said cost will not exceed $ 5,000. 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 February 28, 1997 are
entitled to vote on matters set forth herein. On that date there were
outstanding and entitled to vote 48,245,344 shares of Common Stock.
VOTE REQUIREMENTS
The effectuation of the Amendment requires receipt of the affirmative vote,
by consent, of a majority of the 48,245,344 shares of Common Stock entitled to
vote as a single class.
<PAGE>
DISCUSSION CONCERNING INCREASE IN AUTHORIZED SHARES
The Company announced at its 1996 Annual Stockholders Meeting, and in
consultation with Growth Capital Partners, Inc., the Company's investment
banker, a proposed Recapitalization of the Company ("Recapitalization"). The
Recapitalization included two steps. First, pursuant to an Information
Statement dated January 13, 1997, the Company solicited the consent of the
holders of Common Stock to adopt an amendment to the Company's Restated
Certificate of Incorporation to (i) effect a 1 for 25 reverse stock split of the
outstanding Common Stock of the Company; (ii) 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.
The Company received the required vote to adopt this amendment to the Restated
Certificate of Incorporation on January 31, 1997. The 1 for 25 reverse stock
split was effected by the Company on March 4, 1997.
The second step of the Recapitalization included the adoption by each of
the outstanding nine (9) series of Preferred Stock of Amended and Restated
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 would be redeemed and converted into other securities including
Common Stock, Subordinated Debt, and Common Stock Purchase Warrants
(collectively the "Recapitalization Securities"). The Company received the
required vote from each series of Preferred Stock to adopt Amended and Restated
Certificates of Designation for each series of Preferred Stock on February 28,
1997.
The request to authorize 10,000,000 shares included in the Information
Statement sent to holders of Common Stock on January 13, 1997, anticipated
issuing to current holders of Preferred Stock in connection with the second step
of the Recapitalization, 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. These amounts were calculated
based upon the assumption that all holders of Preferred Stock would take the
Recapitalization Securities.
Subsequent to the Solicitation of Consents dated January 13, 1997 to reduce
the authorized shares of Common Stock to 10,000,000 and in order to (1) provide
an option for the Preferred Stockholders; (2) offer an additional incentive for
the Preferred Stockholders to approve the Recapitalization; and (3) further
improve its balance sheet, the Company, in consultation with its investment
banker, provided each Preferred Stockholder the right to elect to convert any or
all of their Preferred Stock into Common Stock at the Conversion Price set forth
in each respective Certificate of Designation, in lieu of taking the
Recapitalization Securities. Said election is required to be made within
fourteen (14) days of notification to holders of Preferred Stock that the second
step of the Recapitalization received the requisite vote to be implemented.
<PAGE>
The Company cannot calculate with any certainty the number of elections it
will receive from holders of Preferred Stock over the next 14 days to convert
Preferred Stock into Common Stock. However, based upon preliminary discussions
with brokers and Preferred Stockholders, the Company has determined that it is
likely that it will be unable to honor all elections to convert Preferred Stock
to Common Stock currently sent to the Company because the Company does not have
enough Common Stock authorized.
It is estimated that if all holders of Preferred Stock elect to convert to
Common Stock at the conversion prices set forth in their original Certificates
of Designation (said Conversion Price to be calculated for all classes of
Preferred Stock as of February 28, 1997) instead of taking the Recapitalization
Securities, the Company will need an additional 6,050,000 shares to cover the
conversions. This number includes approximately 175,000 shares of Common Stock
reserved for the exercise of outstanding options and warrants. In addition, the
Company wishes to authorize an additional 1,275,000 shares of Common Stock to be
used to provide financing for potential future acquisitions which may be
financed, in part with Common Stock of the Company.
As shown below, the effect of the Recapitalization on the book value per
share of Common Stock is anti-dilutive. Book value per Common Share will
increase from ($4.20) at November 30, 1996 to $.79 on a pro forma basis if all
Preferred Stockholders elect to convert all of their Preferred Stock to Common
Stock at the Conversion Price set forth in their respective Certificates of
Designation. If all Preferred Stockholders elect the Recapitalization
Securities, the book value on a pro forma basis would be $.94 per share of
Common Stock.
THE COMPANY RECOMMENDS THAT THE COMMON STOCKHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
PRO FORMA TABLE OF CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of November 30, 1996, reflecting the successful completion of both steps of
the Recapitalization as described above. The table reflects actual numbers as of
November 30, 1996, numbers assuming 100% of Preferred Stockholders accept the
Recapitalization Securities, numbers assuming 50% of Preferred Stockholders
convert to Common Stock and numbers assuming 100% of Preferred Stockholders
convert to Common Stock.
3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA TABLE OF CAPITALIZATION
Assuming 100% Assuming 50% Assuming 100%
Actual Accept Accept Accept
as of Recapitalization Conversion Conversion
11-30-96 Securities To Common To Common
---------- ---------- ---------- ----------
(1) (2) (3)
<S> <C> <C> <C> <C>
Long-Term Debt, Less
Current Maturities $10,111,500 $10,111,500 $10,111,500 $10,111,500
Subordinated Debt 0 6,770,700 3,212,500 0
Minority Interests 1,077,400 1,077,400 1,077,400 1,077,400
Mandatory Redeemable
Preferred Stock 7,809,500 0 0 0
Stockholders Equity
Preferred Stock 9,400 0 0 0
Common Stock 373,600 1,563,000 2,800,400 4,012,000
Paid-in Capital 10,926,800 11,697,600 14,018,400 16,019,300
Accumulated Deficit ( 6,823,100) ( 7,362,400) ( 7,362,400) ( 7,362,400)
---------- ---------- ---------- ----------
4,486,700 5,898,200 9,456,400 12,668,900
---------- ---------- ---------- ----------
Total Capitalization $23,485,100 $23,857,800 $23,857,800 $23,857,800
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Shares
Outstanding 1,494,400(4) 6,252,000 11,201,600 16,048,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Book Value Per Share of
Common Stock After
Deducting Stated
Value of
Preferred Stock $(4.21) $0.79 $0.84 $0.94
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
(1) Assumes that all Preferred Stockholders accept the Recapitalization
Securities which includes Common Stock, Common Stock Purchase Warrants and
Subordinated Debt.
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<PAGE>
(2) Assumes that fifty percent of each class of Preferred Stockholders elect
the Recapitalization Securities described in Note 1 above and the remaining
fifty percent elect to convert their Preferred Stock into Common Stock at the
Conversion Price set forth in the original Certificates of Designation.
(3) Assumes that all Preferred Stockholders convert all of their Preferred
Stock into Common Stock at the Conversion Price stipulated in the Certificates
of Designation.
(4) After 1 for 25 reverse stock split.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of February 28, 1997 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 first chart below sets forth the actual Common and Preferred Stock
ownership of the officers and directors of the Company. The second chart sets
forth the options owned by officers and directors. The third chart sets forth
the ownership of officers and directors Post Recapitalization. The charts were
prepared assuming the officers and directors elect to convert their Preferred
Stock to Common Stock in lieu of taking the Recapitalization Securities, that
the 1 for 25 reverse stock split was effected and that there would be 16,047,800
shares of Common Stock outstanding after the Recapitalization.
Statement of Common and Preferred Stock Ownership
As of February 28, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
- ---------------------------------------------------------------------------------------
Officer or Director # of Shares Percent of # of Shares of Percent
of Common Class Preferred Stock of
Stock Class
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles A. Holtgraves 54,554 2.8% Series B / 25 (2) 1.5%
Series M / 100(2) 22.9%
- ---------------------------------------------------------------------------------------
Larry J. Horbach 24,605 1.3% 0 0
- ---------------------------------------------------------------------------------------
Donald L. Anderson 44,204 (3) 2.3% Series O / 1 (4) 100%
- ---------------------------------------------------------------------------------------
John B. Ewing 5,760 (1) Series B / 25 1.5%
- ---------------------------------------------------------------------------------------
Neil A. Fortkamp 1,500 (1) 0 0
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Represents less than 1% Common Stock ownership.
(2) The shares hereby disclosed are owned by the Holtgraves Family Limited
Partnership of which Charles A. Holtgraves is a General Partner.
(3) Donald Anderson owns 7,547 shares individually and personally and has
a one-third interest in the 36,657 shares held by Pipeline Capital,
Inc.
(4) 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
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<PAGE>
Company's 10-KSB filed for the year ended February 29, 1996.
Donald L. Anderson is a one-third owner of Pipeline Capital, Inc.
The following table sets forth the value at December 31, 1996 of unexercised
options/SARs for officers of the Company:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Name Number of Securities underlying Value (1) of unexercised in-the-money
unexercised options/SARS at year-end options/SARs at year-end: ($)
(#) exercisable/unexercisable exercisable/unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Larry J. Horbach 7,000/0 $0/0
- -----------------------------------------------------------------------------------------------------------
Neil A. Fortkamp 6,500(2)/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 31, 1996, and the exercise price of
the options, multiplied by the number of options held.
(2) Includes warrants to purchase 500 shares of Company's Common Stock.
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<PAGE>
The following table sets forth the Post Recapitalization ownership of
officers and directors assuming all officers and directors elect to convert
their Preferred Stock to Common Stock in lieu of taking the Recapitalization
Securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Officer or Director Common Stock/ Subordinated Warrants Options
% of Class Debt
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles A.
Holtgraves (1) 139,989/.9% 0 0 0
- ---------------------------------------------------------------------------------------
Larry J. Horbach 24,605/.2% --- 0 7,000
- ---------------------------------------------------------------------------------------
Donald L.
Anderson (2) 225,131/1.4% --- 0 0
- ---------------------------------------------------------------------------------------
John B. Ewing 22,847/.1% 0 0 0
- ---------------------------------------------------------------------------------------
Neil A. Fortkamp 1,500/ - % --- 500 6,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Charles A. Holtgraves holds 28,014 shares of Common Stock in his own
name. The Holtgraves Family Limited Partnership holds 26,540 shares
and will receive 85,435 shares of Common Stock upon conversion of
Preferred Stock.
(2) Donald L. Anderson owns 7,547 shares individually. PCI, of which he
is a one-third owner, will own 217,584 shares after the
Recapitalization is effected.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 1992, the Company entered into an agreement ("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
Stockholders Meeting, the parties had several ongoing disagreements regarding
the proper interpretation
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<PAGE>
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 ("Settlement Agreement") effective May 6, 1996. In summary,
pursuant to the Settlement Agreement, the Company issued one share of Series O
Preferred Stock to PCI and a promissory note for $480,000. PCI executed a
promissory note in the amount of $278,725 plus interest at 7% in favor of the
Company.
Pursuant to the Recapitalization, PCI exchanged its one share of Series O
Preferred Stock for 180,927 shares of Common Stock of the Company. Upon
completion of the Recapitalization, the holders of Series O Preferred Stock will
hold Common Stock equal to approximately 1.4% 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.
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. The total aggregate number of shares which the Company shall
have authority to issue is seventeen million five hundred and ten
thousand, (17,510,000) shares designated as follows: (i) seventeen
million five hundred thousand (17,500,000) 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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