<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
GATEWAY ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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
June 16, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Gateway Energy Corporation to be held at the Double Tree Hotel, 400 Dallas
Street, One Allen Center, Houston, Texas 77002 on July 16, 1998, at 10:00 a.m.
local time. The Notice of Annual Meeting and Proxy Statement accompanying this
letter describes the business to be transacted at the meeting.
During the meeting the Board of Directors will report to you on the
Company's progress during this past year and will discuss plans for the current
year. We welcome this opportunity to share our progress with you and look
forward to your comments and questions.
The Board of Directors appreciates and encourages stockholder participation
in the Company's affairs and we hope you can attend in person. Whether or not
you plan to attend the meeting, it is important that your shares be represented.
Therefore, please sign, date, and mail the enclosed proxy in the envelope
provided at your earliest convenience.
Sincerely,
/s/ L. J. Horbach
---------------------------------
L. J. Horbach
CHAIRMAN OF THE BOARD
<PAGE>
GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
__________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 16, 1998
To the Stockholders of Gateway Energy Corporation:
The Annual Meeting of Stockholders of Gateway Energy Corporation (the
"Company") will be held at the Double Tree Hotel, 400 Dallas Street, One Allen
Center, Houston, Texas 77002 on July 16, 1998, at 10:00 a.m. local time for the
following purposes:
1. To elect a Board of Directors to serve until the next annual meeting
of stockholders.
2. To approve the 1998 Stock Option Plan.
3. To ratify the appointment of Grant Thornton LLP as independent public
accountants.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on May 29, 1998, the Record
Date fixed by the Board of Directors, are entitled to notice of and to vote at
the Annual Meeting.
It is important that your shares be represented at the Annual Meeting
regardless of the number of shares you hold and whether or not you are
personally able to attend. Accordingly, please sign the enclosed proxy and
return it as soon as possible in the enclosed envelope provided for your
convenience.
By Order of the Board of Directors
/s/ L. J. Horbach
---------------------------------
L. J. Horbach
Chairman of the Board
Omaha, Nebraska
June 16, 1998
<PAGE>
GATEWAY ENERGY CORPORATION
10842 OLD MILL ROAD, SUITE 5
OMAHA, NEBRASKA 68154
__________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JULY 16, 1998
_______________
GENERAL INFORMATION
This Proxy Statement is furnished to the holders of the Common Stock, $.25
par value per share ("Common Stock") in connection with the solicitation of
proxies by the Board of Directors of Gateway Energy Corporation (the "Company")
for use at the Annual Meeting of Stockholders to be held on July 16, 1998, or
any adjournment thereof. The first mailing of the proxy material to the holders
of the Common Stock will be made on approximately June 16, 1998.
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies 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 proxy material to security owners and obtaining their
proxies.
Stockholders of record at the close of business on May 29, 1998, are
entitled to vote on matters to come before the meeting. On that date there were
outstanding and entitled to vote 14,457,400 shares of Common Stock. Each share
is entitled to one vote on each matter presented.
Any proxy may be revoked by a stockholder at any time before it is
exercised by giving written notice to that effect to the Secretary of the
Company or by signing a later-dated proxy. Stockholders who attend the Annual
Meeting may revoke any proxy previously granted and vote in person.
All properly executed proxies will be voted in accordance with the
instructions contained thereon, and if no choice is specified, the proxies will
be voted for the election of the ten directors named elsewhere in the Proxy
Statement, for approval of the 1998 Stock Option Plan, for ratification of the
appointment of Grant Thorton LLP as independent public accountants, and in
accordance with the instruction of the Board of Directors as to any other
matters. Abstentions do not constitute a vote "FOR" or "AGAINST" any matter
listed in the accompanying Notice of Annual Meeting, but will be included in
determining the number of shares present for purposes of obtaining a quorum.
Also broker "non-votes" (i.e. proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial or other persons
entitled to vote shares on a particular matter with respect to which the brokers
or nominees do not have discretionary power) will be treated the same as
abstentions.
-1-
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Following is a list of the names, addresses, and ages of the ten nominees,
eight of whom are presently serving as Directors. Also included in the
chart is the year in which each became a Director of the Company.
Footnoted below is the past five-year business history of each Director
nominee and any public company directorships held by such persons. The
proxy holders named in the proxy intend to vote "FOR" the election of the
ten nominees listed below unless authority to so vote is withheld. In the
unexpected event that any of the nominees are unable to serve or for good
cause will not serve as Directors, the proxy holders reserve the right to
vote for such substitute nominees that are designated by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF THE TEN NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND ADDRESS AGE SINCE
------------------ ----- --------
<S> <C> <C>
Larry J. Horbach 56 1990
10842 Old Mill Road #5
Omaha, NE. 68154
Charles A. Holtgraves 33 1988
6510 Indian Lane
Mission Hills, KS 66208
Donald L. Anderson 66 1993
420 Avenida Juraez
La Quinta, CA 92253
John B. Ewing, Jr. 76 1988
1621 Bay Point Court
Sarasota, FL 34236
Nicholas J. Pilger 61 1997
10 Salzburg
Newport Beach, CA. 92660
Abe Yeddis 80 1997
9505 Stateline, Cartwell #6
Kansas City, MO 64114
Neil A. Fortkamp 52 1997
13011 Lafayette Avenue
Omaha, NE 68154
Michael T. Fadden 57 1997
1701 Hermann #905
Houston, TX 77004
Gary A. McConnell 57 -------
12516 Shamrock Rd.
Omaha, NE 68154
Earl P. Hoffman 56 -------
2 Northpoint Drive, Ste. 820
Houston, TX 77060-3237
</TABLE>
-2-
<PAGE>
LARRY J. HORBACH. Mr. Horbach currently serves as the Chairman and CEO of
the Company. He served as President and CEO of the Company from June 1990 to
August 1997 at which time Mr. Fadden became President. Mr. Horbach is the owner
of L.J. Horbach & Associates, a Director of Regency Affiliates, Inc. and
Templeton Savings Bank.
CHARLES A. HOLTGRAVES. Mr. Holtgraves currently serves as a Director of
the Company and served as Secretary of the Company from June 1988 to 1995. He
also served as Treasurer of the Company from 1988 to 1994. Mr. Holtgraves is
Vice President of First Mortgage Investment Company.
DONALD L. ANDERSON. Mr. Anderson currently serves as a Director of the
Company and has served as Vice President of the Company since 1992. He has
served the Company as Secretary since 1996. For the past five years, he has
served as a private consultant to the investment banking community.
JOHN B. EWING, JR. Mr. Ewing currently serves as a Director of the
Company. He served as in-house counsel for the Company from June 1988 to 1995.
He has been in private practice for the past five years.
NICHOLAS J. PILGER. Mr. Pilger currently serves as a Director of the
Company. He is a registered representative of the National Association of
Securities Dealers and has represented emerging corporations in the securities
market for the past five years.
ABE YEDDIS. Mr. Yeddis currently serves as a Director of the Company. He
is President and CEO of Promotional Headwear International and has served in
such capacity since 1970. He serves as President of Advanced Project Financing
and as a Director of NT Realty Company.
NEIL A. FORTKAMP. Mr. Fortkamp currently serves as a Director of the
Company. He has served the Company as Executive Vice President, Treasurer and
CFO since January 1996. He served as Vice President, Treasurer and CFO from
January 1994 to January 1996. Prior to his affiliation with the Company, he
served as President of Data Duplicating Corporation from August 1991 to December
1993.
MICHAEL T. FADDEN. Mr. Fadden currently serves as a Director of the
Company. He has been President and COO of the Company since August 1997. Mr.
Fadden served as President of Abtech Resources, Inc. from September 1993 to
August 1997 and Executive Vice President of American Oil and Gas Corporation
from January 1990 to August 1993.
GARY A. MCCONNELL. Mr. McConnell served as Vice President of Finance and
Administration for Northern Plains Natural Gas Company, an Enron Corp.
subsidiary and operator for Northern Border Pipeline Company from 1987 to July
1994. He served as Chief Financial and Accounting Officer for Northern Border
Partners, L.P., the parent company of Northern Border Pipeline Company from July
1993 to July 1994. Mr. McConnell retired from Enron Corp. and became a private
investor in July 1994.
EARL P. HOFFMAN. Mr. Hoffman has served as Vice Chairman and CEO of
Advanced Extraction Technologies, Inc., a technology licensing company serving
the natural gas, refining and petrochemical industries since October 1992.
-3-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As of February 28, 1998, there were no persons who are known to the Company
to be beneficial owners of more than five percent (5%) of the Company's voting
Common Stock. The following table sets forth information concerning the shares
of Common Stock beneficially owned by (i) each director of the Company; (ii)
each of the executive officers of the Company; and (iii) all directors and
executive officers as a group.
NAME NO. OF SHARES % (1)
------ ------------- ------
Larry J. Horbach 74,864 (2) .52%
Charles A. Holtgraves 208,075 (3) 1.44%
Donald L. Anderson 89,095 .62%
John B. Ewing 32,847 (4) .23%
Nicholas J. Pilger 79,797 (5) .55%
Abe Yeddis 72,004 (6) .50%
Neil A. Fortkamp 44,096 (7) .30%
Michael T. Fadden 345,750 (8) 2.38%
All directors and officers as a group beneficially own 946,528 shares,
including currently exercisable options or warrants, or 6.54% of the outstanding
Common Stock as of February 28, 1998. (1)(9)
(1) Based upon 14,457,400 shares of Common Stock outstanding as of February 28,
1998. Each named person is deemed to be the beneficial owner of shares of
Common Stock that may be acquired within 60 days upon exercise of stock
options and shares or options owned indirectly through a partnership or
corporation. Accordingly, the number of shares and percentage set forth
next to the name of such person and all officers and directors as a group
include the shares of Common Stock issuable upon presently exercisable
stock options and any shares or options owned indirectly. However, the
shares of Common Stock so issuable upon such exercise by any such person
are not included in calculating the percentage of Common Stock beneficially
owned by any other stockholder.
(2) This number of shares beneficially owned includes 25,096 shares and a
warrant to purchase 12,000 shares owned by H & F Investments, a partnership
in which Mr. Horbach has a 50% interest and 23,677 shares owned by H & H
Investments, a partnership in which Mr. Horbach also has a 50% interest.
(3) This number of shares beneficially owned includes 23,677 shares owned by
H & H Investments, a partnership in which Mr. Holtgraves has a 50%
interest. It also includes 10,000 shares purchasable pursuant to currently
exercised options or warrants.
(4) This number of shares beneficially owned includes 10,000 shares purchasable
pursuant to currently exercisable options or warrants.
(5) This number of shares beneficially owned includes 10,000 shares purchasable
pursuant to currently exercisable options or warrants.
(6) This number of shares beneficially owned includes 10,000 shares purchasable
pursuant to currently exercisable options or warrants.
(7) This number includes 6,500 shares and a warrant to purchase 500 shares
owned directly by Mr. Fortkamp. It also includes 25,096 shares and a
warrant to purchase 12,000 shares owned by H & F Investments, a partnership
in which Mr. Fortkamp has a 50% interest.
(8) This number of shares beneficially owned includes 225,750 shares
purchasable pursuant to currently exercisable options or warrants.
(9) The number of shares and percentage calculation includes 25,096 shares and
a warrant to purchase 12,000 shares owned by H & F Investments, the full
amount of shares and options being beneficially owned for reporting
purposes by both Mr. Horbach and Mr. Fortkamp; 23,677 shares owned by
H & H Investments, the full amount of shares being beneficially owned for
reporting purposes by both Mr. Horbach and Mr. Holtgraves; and 290,250
shares of Common Stock beneficially owned by directors and officers,
purchasable pursuant to presently exercisable options or warrants.
-4-
<PAGE>
ADDITIONAL INFORMATION CONCERNING BOARD OF DIRECTORS
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. There were six meetings in the fiscal year ending February 28, 1998.
There were also five occasions in which matters were decided using a Consent of
Directors. During the last fiscal year, all directors attended all of the
meetings of the Board of Directors. The Board of Directors has established an
Audit Committee, a Compensation Committee and a Stock Option Committee.
Presently the Board of Directors does not have a Nominating Committee.
AUDIT COMMITTEE
This committee reviews the independent audit of the Company and meets
with independent auditors as necessary to discuss matters pertaining to the
audit and any other matters which the Audit Committee or the auditors may wish
to discuss. Messrs. Holtgraves, Ewing and Yeddis comprise the Audit Committee.
The Committee met two times during the fiscal year ending February 28, 1998.
COMPENSATION COMMITTEE
This committee recommends to the Board of Directors compensation for
executive officers for each upcoming year. Messrs. Holtgraves, Ewing and Pilger
currently serve on the Committee. The committee met four times during the
fiscal year ending February 28, 1998.
STOCK OPTION COMMITTEE
This committee will administer the 1998 Stock Option Plan. Messrs.
Holtgraves, Ewing and Pilger currently serve on the committee.
COMPENSATION OF DIRECTORS
In the fiscal year ending February 28, 1998, non-management members of the
Board of Directors received $500 per day for attending regular Board and
Committee meetings. The Company does not compensate any employee-directors in
their capacities as directors of the Company. All directors were reimbursed for
reasonable travel and lodging expenses incurred while attending Board of
Directors or Committee meetings.
In February, 1998, the Compensation Committee recommended and the Board of
Directors approved a new compensation plan for Outside Directors. Each Outside
Director is to receive a one time grant of an option to purchase 10,000 shares
of the Company Common Stock. The Board of Directors approved an Outside
Directors Stock Option Plan (the "Plan") pursuant to which the above-referenced
options may be granted. A total of 100,000 shares of Common Stock have been
reserved for issuance under the Plan. The Plan provides for the automatic grant
to each Outside Director of a one-time option to purchase 10,000 shares of
Common Stock at a grant price equal to the fair market value of the Common Stock
on the first business day following their initial election to the Board. The
presently sitting Outside Directors received this one time option to purchase
10,000 shares on February 24, 1998, at a grant price equal to the fair market
value of the Common Stock on that date.
In addition to the one-time grant, Outside Directors will be paid an annual
retainer of $10,000, payable one-half in stock at the Annual Meeting date, such
stock to be valued at the market price on that date, and one-half in cash at a
rate of $1,250 per quarter, payable at each quarterly meeting of the Board.
Outside Directors will receive a cash payment of $125 per hour with a
minimum of two hours for each Board, Committee or annual stockholders' meeting
attended. Attendance at multi-day meetings and specific consultations with the
Company's executive management lasting at least eight (8) hours will be
compensated at a flat per diem rate of $1,000 per day.
-5-
<PAGE>
LIST OF CURRENT EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of the names and ages of the current executive
officers of the Company, their business history for the past five years and the
year in which each person became an Officer of the Company.
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION & PRINCIPAL OCCUPATION FOR LAST FIVE YEARS SINCE
------ --- --------------------------------------------------- ------
<S> <C> <C> <C>
Larry J. Horbach 56 Chairman and CEO of the Company since June 1990; 1990
President from June 1990 until August 1997.
Michael T. Fadden 57 President and COO of the Company since August 1997; 1997
President of 1997 Abtech Resources, Inc. since
September 1993. (1) Executive Vice President of
American Oil and Gas Corporation from January 1990
to August 1993.
Neil A. Fortkamp 52 Executive Vice President, Treasurer and CFO of 1994
Company from January 1996 to present; Vice
President , Treasurer and CFO January 1994
to January 1996; previously President of Data
Duplicating Corporation from August 1991 to
December 1993.
</TABLE>
(1) Abtech Resources, Inc. provided management consulting services to the
Company for five months in 1997. See Certain Relationships and Related
Transactions herein.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. Individual executive officer compensation for
the fiscal year ending February 28, 1998, includes base salary, certain expense
allowances provided by the Company and matching contributions of the Company to
its 401(k) Savings Plan. As of February 28, 1998 the Company had no bonus or
long-term incentive programs in effect and no bonuses were payable for the year
ended February 28, 1998. The following Summary Compensation Table includes
compensation paid in cash.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OTHER BONUS OPTIONS/SARS (#)
- --------------------------- ---- ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Larry J. Horbach 1998 110,800 14,600 0 0
CEO and Chairman of 1997 110,800 14,200 0 0
Board 1996 108,137 11,400 10,600 0
Michael T. Fadden (1) 1998 70,000 600 0 0
President and COO
Neil A. Fortkamp 1998 82,500 8,800 0 0
Executive Vice President 1997 82,500 8,700 0 0
Treasurer and CFO 1996 76,250 8,700 8,000 0
(1) Mr. Fadden became President and COO of the Company on August 1, 1997. His
salary began on that date.
</TABLE>
-6-
<PAGE>
The Board of Directors and Compensation Committee approved at the November
19, 1997 Board meeting, an Executive Compensation Plan ("Executive Plan") and a
Middle Management Compensation Plan ("Middle Management Plan") , both to be
effective March 1, 1998. The executives to be covered shall be determined by
the Compensation Committee of the Board. The Middle Management to be covered
shall be determined by the President. Currently the CEO, COO and CFO are
covered by the Executive Plan and three employees in the Company's Houston
operations office are covered by the Middle Management Plan.
Both the Executive Plan and the Middle Management Plan have three
components: base salary, short term incentive and long term incentive. Base
salaries are set yearly. The short term incentive under both plans is a cash
bonus to be paid upon attainment of certain goals, which goals are set by the
Board of Directors annually. The long term incentive portion is comprised of
incentive or non-qualified stock options on the Company's Common Stock. The
option pool, which includes options for both the Executive Plan and the Middle
Management Plan, shall be equal to two and one-half percent (2.5%) of the fully
diluted shares outstanding as of the Company's preceding fiscal year end. Said
options will be issued pursuant to the Company's 1998 Stock Option Plan
described in detail below.
The Compensation Committee and the Board of Directors are hopeful that the
Executive Plan and the Middle Management Plan will help the Company acquire and
retain key executive officers and employees, who will in turn maximize
stockholder value in the Company's Common Stock.
OPTION/SAR GRANTS IN FISCAL 1998
The following table sets forth information with respect to individual
options and/or SAR grants during the fiscal year ending February 28, 1998.
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NAME NUMBER OF PERCENT OF TOTAL EXERCISE EXPIRATION
SECURITIES OPTIONS/SARS OR BASE DATE
UNDERLYING GRANTED TO PRICE
OPTIONS/SARS EMPLOYEES IN ($/SH)
GRANTED (#) FISCAL YEAR
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael T. Fadden 50,000 72.6% $1.19 3/17/07
173,500 $ .69 8/1/07
2,250 $ .47 8/1/07
</TABLE>
-7-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to unexercised
options and SARs at fiscal year end. No stock options were exercised during
the fiscal year ending February 28, 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END
(#) ($)
NAME SHARES ------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE ("Ex") EXERCISABLE ("Ex")
EXERCISE (#) REALIZED ($) UNEXERCISABLE ("Un") UNEXERCISABLE ("Un")
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael T. Fadden 0 0 50,000 ("Ex") 0 ("Ex")
173,500 ("Ex") 0 ("Ex")
2,250 ("Ex") $135 ("Ex")
- -------------------------------------------------------------------------------------------------------------------------------
Neil A. Fortkamp 0 0 500 ("Ex") 0 ("Ex")
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 17, 1997, the Company entered into a Memorandum of Understanding
("Memorandum") with Abtech Resources, Inc. ("Abtech"). Mr. Fadden, the current
President, COO and a director of the Company is an officer and owner of Abtech.
The Memorandum provided that Abtech, through the services of Mr. Fadden, would
provide operating management and other services to the Company on an interim
basis for a fee of $6,875 per month. Abtech provided services to the Company
from March 17, 1997 through August 1, 1997 and received the above specified
monthly fee. Mr. Fadden became the President and COO of the Company on August
1, 1997 at which time he began receiving a salary from the Company. At that
time, the Company discontinued paying fees to Abtech for its services and Abtech
discontinued providing services.
As an inducement for Mr. Fadden to undertake and fulfill the
responsibilities of the Memorandum, Gateway issued warrants directly to Mr.
Fadden to purchase 50,000 shares of Common Stock, exercisable at any time for
ten years from date of issue at an exercise price of $1.19 per share, the quoted
market price of the Common Stock on the date of the issue of the warrant.
Further, Gateway issued options for 175,750 shares of Common Stock, 173,500 of
which were granted at an exercise price of $.69 and 2,250 share of which have an
exercise price of $.47. Such options are exercisable for a ten year period at
exercise prices equal to the quoted market prices on the date of issue or grant.
The total number of options and warrants granted to Mr. Fadden was equal to 1.5%
of the fully diluted common shares then outstanding.
In March 1997, H & F Investments, a partnership controlled by Larry Horbach
and Neil Fortkamp, officers and directors of the Company, acquired a $50,000
Convertible Promissory Note which had been issued in 1996 to an investor. The
investor, for reasons unrelated to the Company, requested the Company to seek a
substitute noteholder who would also assume a personal guarantee of a Company
line of credit at a commercial bank. In September 1997, the Company retired the
Convertible Promissory Note by a payment of $55,000 representing the balance due
on the note and payment of approximately $5,000 for continuance of the guarantee
of the line of credit. H & F Investments further
-8-
<PAGE>
received 5,000 shares of Common Stock and a warrant to purchase 12,000
shares at $3.00 per share from the investor at the closing of the transaction.
On May 28, 1998, the Board of Directors of the Company approved the
acquisition of Abtech for stock and cash consideration not to exceed 2.5% of the
then current market capitalization of the Company. Abtech is 82% owned by
Michael T. Fadden, the President, Chief Operating Officer and Director of the
Company. Mr. Fadden will receive 82% of the final consideration, upon
completion of the merger. The principal asset of Abtech is a License Agreement
between Abtech and Advanced Extraction Technologies, Inc. ("AET") which owns a
patented process for the extraction of nitrogen from natural gas. Upon
completion of the merger, the License Agreement will give the Company the
exclusive right to utilize the extraction process developed by AET for
conventional high nitrogen natural gas in the Permian Basin (West Texas and
Southeastern New Mexico) and for all high nitrogen coalbed methane or landfill
gas in the continental United States. The Company intends to dedicate a
meaningful portion of its business over the next several years to developing
projects which involve natural gas production and extraction of nitrogen
utilizing the AET process. AET owns 15% of Abtech and will receive that
percentage of the consideration upon the completion of the merger. Earl P.
Hoffman , a Nominee for Director of the Company, is the Chief Executive Officer
and a major stockholder in AET.
As the Company utilizes the AET process, it will be required, under the
License Agreement, to pay AET a license fee based upon gas through-put through
each processing unit so long as there are any unexpired patents covering the AET
technology. There are also certain minimum installed capacity requirements
which must be met in order to maintain the exclusive nature of the license.
At the May 28, 1998 Board Meeting, the Board of Directors also approved an
agreement in principle with VRI Oil Company, a Texas corporation ("VRI") in
which Michael T. Fadden owns a controlling interest. Prior to Mr. Fadden's
association with the Company, VRI developed expertise in evaluating and
developing high nitrogen natural gas projects and in extracting and handling
nitrogen contained in natural gas streams. The Board of Directors determined
that the knowledge and experience of VRI was important to the Company's business
plan to develop or obtain high nitrogen natural gas production and utilize the
AET process to extract the nitrogen and resell the natural gas. The agreement
in principle provides that VRI will receive a 5% overriding royalty interest,
subject to proportionate reduction if the Company has less than a 100% working
interest, in each high nitrogen gas well acquired or drilled and completed by
the Company or its partners through the time period ending August 1, 2007 and in
the area defined by the continental United States. VRI will receive a 5% net
profits interest, also proportionately reduced if the Company has less than a
100% ownership interest, in each undertaking where either coalbed methane or
landfill gas is treated to remove nitrogen. VRI is obligated to utilize 1% of
its 5% overriding royalty interest to compensate AET for an amendment to the AET
License Agreement effective upon the Abtech acquisition. The amendment
lengthened the period of time required to meet the minimum installed capacity
requirements and is favorable to the Company.
PROPOSAL NO. 2
ADOPTION OF THE COMPANY'S 1998 STOCK OPTION PLAN
I. INTRODUCTION.
On May 28, 1998, the Company's Board approved the Company's 1998 Stock
Option Plan (the "Stock Option Plan"), subject to stockholder approval. The
Stock Option Plan replaces the 1994 Incentive and Non-Qualified Stock Option
Plan, which the Board has chosen to terminate. Both outstanding options granted
pursuant to the 1994 Incentive and Non-Qualified Stock Option Plan were canceled
as of May 28, 1998.
The Stock Option Plan provides for the granting of incentive stock options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code ("Code")
and for the granting of non-incentive stock options ("NQSOs") to employees,
officers and directors and such other persons rendering substantial services to
the Company and its subsidiaries, provided, however, that only employees of the
Company or any subsidiary thereof shall be eligible to receive ISOs. The
maximum aggregate number of shares of Common Stock that may be issued under the
Stock Option Plan will be 600,000 shares (subject to adjustment as described
below).
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II. SUMMARY OF THE PLAN.
The Stock Option Plan will be administered by a committee (the "Stock
Option Plan Committee") consisting of not less than a number of "disinterested
persons" (as such term is defined in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) who are also "outside directors"
(within the meaning of Section 162(m) of the Code, so as to qualify the Stock
Option Plan Committee to administer the Stock Option Plan as contemplated by
Rule 16b-3 and Section 162(m), respectively.
Subject to the express terms of the Stock Option Plan, the Stock Option
Plan Committee will recommend and the Board will have the full and final
authority to determine the eligible individuals who shall be granted options and
the number of options to be granted, the vesting period, if any, for all options
granted, the date on which any option becomes first exercisable, the number of
shares of Common Stock subject to each option, the exercise price for the
shares of Common Stock subject to each option and whether the option to be
granted is an ISO or an NQSO.
The per share exercise price of incentive stock options granted under the
Stock Option Plan cannot be less than the fair market value of a share of Common
Stock on the date of grant (110% of fair market value in the case of an
incentive stock option granted to any person who, at the time the incentive
stock option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary (a "Ten Percent Owner"). With respect to non-incentive
stock options, the per share exercise price will be determined by the Board on
the date of grant, but will not be less than 85% of the fair market value of a
share of Common Stock on the date of grant. Each option shall vest and become
first exercisable as determined by the Board. The terms of options granted
under the Stock Option Plan may not exceed ten years (or five years for any
incentive stock option granted to a Ten Percent Owner).
In the event of a Change of Control (as defined in the Stock Option Plan),
unless otherwise determined by the Board at the time of grant or by amendment
(with the holder's consent) of such grant, all options not vested on or prior to
the effective time of any such Change of Control shall immediately vest as of
such effective time. The Board in its discretion may make provisions for the
assumption of outstanding options, or the substitution for outstanding options
of new incentive awards covering the stock of a successor corporation or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices so as to prevent dilution or enlargement of rights.
The Stock Option Plan contains customary anti-dilution provisions which provide
that in the event of a recapitalization, a change in the outstanding capital
stock of the Company and certain other events, an adjustment shall be made as
determined by the Board in its sole discretion, in the aggregate number of
shares of Common Stock available for issuance under the Stock Option Plan, the
number of shares of Common Stock available for any individual awards, and the
number and exercise price of shares of Common Stock subject to outstanding
options under the Stock Option Plan.
Incentive Stock options granted under the Stock Option Plan will not be
assignable or transferrable except by will or the laws of descent and
distribution. The Stock Option Plan may be amended, suspended or terminated by
the Board, except that: (i) any revision or amendment that would cause the Stock
Option Plan to fail to comply with Rule 16b-3 of the Exchange Act, Sections 422
or 162(m) of the Code or any other requirement shall not be effective until
stockholder approval is obtained; and (ii) no such action may impair rights
under a previously granted option.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL
OF THE 1998 STOCK OPTION PLAN.
PROPOSAL 3
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Grant Thornton LLP, independent public
accountants, to examine the financial statements of Gateway Energy Corporation
for the year ending February 28, 1999, and to perform other audit and accounting
related activities as may be requested from time to time by management or the
Board of Directors.
The Board has directed that the appointment of Grant Thornton LLP be
submitted to the stockholders for approval. The affirmative vote of a majority
of the shares of Common Stock present or represented and entitled to vote on the
proposal at the Annual Meeting is required for approval. If the stockholders do
not approve, the Audit Committee and the Board will reconsider the appointment.
Representatives of Grant Thornton LLP are expected to be present at the
Annual Meeting. They will be available to respond to appropriate questions and
will have an opportunity to make a statement if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT ACCOUNTANTS.
OTHER BUSINESS
Management does not intend to bring any business before the Annual Meeting
other than the matters referred to in the accompanying notice and at this date
has not been informed of any matters that may be presented to the Annual Meeting
by others. If, however, any other matters properly come before the Annual
Meeting, it is intended that the persons named in accompanying proxy will vote
in accordance with the instructions of the Board of Directors on such matters.
ANNUAL REPORT
The Company's Annual Report, including the Form 10-KSB for the year ended
February 28, 1998, is being mailed to all stockholders concurrently herewith.
The Annual Report is not a part of the proxy solicitation material. Additional
copies of the Annual Report which includes the Form 10-KSB for the year ended
February 28, 1998, will be provided, without charge, upon written request from
any stockholder to: Gateway Energy Corporation, 10842 Old Mill Road, Suite 5,
Omaha, Nebraska 68154.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors and persons who
own more than 10% of the registered class of the Company's equity securities to
file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5
with the Securities and Exchange Commission (the "SEC""). Such officers,
directors, and 10% stockholders are also required by the SEC rules to furnish
the Company with copies of all Section 16(a) forms they file.
STOCKHOLDER PROPOSALS FOR 1999
Stockholders may submit proposals on matters appropriate for stockholder
action at the Company's annual meeting, consistent with regulations adopted by
the Securities and Exchange Commission. Proposals to be considered for
inclusion in the Proxy Statement for the 1999 Annual Meeting must be received by
the Company not later than February 15, 1999. Proposals should be directed to
the attention of the Secretary, Gateway Energy Corporation, 10842 Old Mill Road,
Suite 5, Omaha, Nebraska 68154.
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE Please mark your
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF votes as indicated /X/
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE in this example
ELECTION OF ALL NOMINEES FOR DIRECTOR, FOR THE AMENDMENT TO
THE CERTIFICATE OF INCORPORATION, FOR THE AMENDMENT TO THE
STOCK OPTION PLAN AND WITH DISCRETIONARY AUTHORITY ON ALL
OTHER MATTERS.
1. Election of Directors Larry J. Horbach, Charles A. Holtgraves, Donald L,.
Anderson, John B. Ewing, Jr., Nicholas J. Pilger, Abe
Yeddis, Neil A. Fortkamp, Michael T. Fadden, Gary A.
McConnell and Earl P. Hoffman
FOR the ten nominees WITHHOLD (INSTRUCTION: To withhold authority to vote for any
(except as marked to the AUTHORITY individual nominee, write that nominee's name on the space
contrary to the right to vote for ten provided below.)
nominees listed to
the right.
/ / / /
______________________________________________________________
2. Approval of 1998 Stock Option Plan
FOR AGAINST ABSTAIN 3. Ratification of public 4. In their discretion, the
/ / / / / / accountants proxies are authorized
to vote upon such other
FOR AGAINST ABSTAIN business as may
/ / / / / / properly come before the
meeting.
Dated: _______________, 1998
_________________________________
Signature of Shareholder
_________________________________
Signature of Shareholder
Please sign exactly as your
name appears at the left.
When signing as attorney,
executor, administrator,
trustee, guardian or
conservator, five full title.
All joint trustees must sign.
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED
ENVELOPE.
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