<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JULY , 1996
REGISTRATION NO. 333-4163
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GATEWAY INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 33-0637631
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION ORGANIZATION)
c/o MARSEL MIRROR & GLASS PRODUCTS, ROBERT W. FORMAN, ESQ.
INC. GREENBERGER & FORMAN
101-01 FOSTER AVENUE 1370 AVENUE OF THE AMERICAS
BROOKLYN, NY 11236 NEW YORK, NY 10019
(718) 272-9700 (212) 757-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1), check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................. 3,105,039 $3.25 $10,091,376 $3,481.00
</TABLE>
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<PAGE>
GATEWAY INDUSTRIES, INC.
PURSUANT TO ITEM 501(B) OF REGULATION S-K
CROSS-REFERENCE SHEET
LOCATION IN
ITEM AND CAPTION PROSPECTUS
---------------- -----------
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside
Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Prospectus Summary; Risk
Factors
4. Use of Proceeds.............................. Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price.............. *
6. Dilution..................................... Risk Factors--Certain
Rights Offering
Considerations--Dilution
7. Selling Securities Holders................... *
8. Plan of Distribution......................... Rights Offering; Plan of
Distribution
9. Description of Securities To Be Registered... Description of Capital Stock
10. Interest of Named Experts and Counsel........ *
11. Information with Respect to the Registrants.. Prospectus Summary; The
Company; Risk Factor;
Documents Incorporated by
Reference
12. Incorporation of Certain Information by
Reference.................................... Documents Incorporated by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Indemnification of Officers
and Directors--Disclosure
of Commission's Position on
Indemnification
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* Not applicable.
<PAGE>
PROSPECTUS 3,105,039 SHARES
GATEWAY INDUSTRIES, INC.
COMMON STOCK
----------------
Gateway Industries, Inc., a Delaware corporation (the "Company"), is
distributing to holders of record of shares of its common stock, $.001 par
value per share (the "Common Stock"), as of the close of business on June 27,
1996 (the "Record Date"), transferable subscription rights (the "Rights") to
purchase additional shares of Common Stock (the "Basic Subscription Privilege")
at a price of $3.25 per share (the "Subscription Price"). Stockholders will be
entitled to three Rights for each share of Common Stock held on the Record
Date. Each Right will entitle its holder (a "Holder") to purchase one share of
Common Stock (collectively the "Underlying Shares"). No fractional shares of
Common Stock will be sold, and fractional interests will be rounded down.
Upon exercise of the Basic Subscription Privilege, a Holder will also be
entitled to purchase at the Subscription Price a pro rata portion of any
Underlying Shares that are not otherwise subscribed for pursuant to the
exercise of Basic Subscription Privileges (the "Oversubscription Privilege";
and collectively, with the Basic Subscription Privilege, and the sale of shares
of Common Stock in connection therewith, the "Rights Offering.")
The Underlying Shares are currently traded on the OTC Bulletin Board. On June
27, 1996, the last bid price of the Common Stock as reported on the OTC
Bulletin Board was $3.75 per share. The Company believes that the Rights will
also be traded on the OTC Bulletin Board; however, no assurances can be given
that a market for the Rights will develop. In addition, the Company has applied
to list the Common Stock (including the Underlying Shares) and the Rights on
the NASDAQ Small Cap Market. There can be no assurance that such Shares or
Rights will be so listed before completion of the Rights Offering or at all.
The Rights will expire at 5:00 p.m., New York City time, on August 9, 1996,
unless extended by the Company (such date, as it may be extended on one or more
occasions, is referred to herein as the "Expiration Date"). In no event will
the Expiration Date be extended beyond August 23, 1996. If the Company elects
to extend the term of the Rights, it will issue a press release to such effect
not later than the first day The Nasdaq National Market is open for trading
following the most recently announced Expiration Date. Funds provided in
payment of the Subscription Price will be held by American Stock Transfer &
Trust Company, as the Subscription Agent, until the closing, which will occur
promptly following the Expiration Date. The exercise of Rights is irrevocable
once made, and no interest will be paid to Holders exercising their Rights.
AN INVESTMENT IN THE COMPANY'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is July 1, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (together with any
amendments thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Rights and the
Underlying Shares. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in schedules
and exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other document referred to herein or therein
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, or incorporated by reference therein, for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in all respects by such reference. Such additional information may be
obtained from the Commission's principal office in Washington, DC.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. The
Registration Statement and the exhibits thereto, as well as such reports and
other information, filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, DC 20549, and at the Regional Offices of the
commission located at 7 World Trade Center, New York, NY 10048 and Citicorp
Center, 500 Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
material can be obtained upon written request addressed to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, DC 20549, at
prescribed rates. The Common Stock is traded on the OTC Bulletin Board and
reports, proxy statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, DC 20006.
----------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Company with the Commission are incorporated
herein by reference and, except for the exhibits thereto, accompany this
Prospectus:
(i) the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995;
(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarter
ended March, 31, 1996; and
(iii) the Company's Current Report on its Form 8-K/A dated February 1, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the Rights Offering, shall be deemed to be incorporated
by reference to this Prospectus and to be a part hereof from the respective
dates of the filing thereof. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including each
beneficial owner, to whom a copy of this Prospectus is delivered, on the
written or oral request of such person, a copy of any or all documents
incorporated by reference into this Prospectus that are not delivered herewith,
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should
be directed to the Company's principal office: Gateway Industries, Inc., c/o
Marsel Mirror & Glass Products, Inc., 101-01 Foster Avenue, Brooklyn, NY 11236,
Attn.: Paul Barlow, Tel. 718-272-9700.
2
<PAGE>
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the information
appearing elsewhere in or incorporated by reference into this Prospectus.
THE COMPANY
Gateway Industries, Inc., a Delaware corporation (the "Company"), through its
wholly owned subsidiary, Marsel Mirror & Glass Products, Inc., a New York
Corporation ("Marsel"), is a manufacturer of mirrors and related glass products
and framed art principally sold to mass market retailers throughout the
country. The Company's principal executive offices are located at 101-01 Foster
Avenue, Brooklyn, NY 11236 and its telephone number is (718) 272-9700.
THE RIGHTS OFFERING
Rights...................... Each holder of Common Stock will receive three
transferable Rights for each share of Common
Stock held of record on the Record Date. An
aggregate of 3,105,039 Rights will be distributed
pursuant to the Rights Offering. An aggregate of
3,105,039 shares of Common Stock will be sold if
all Rights are exercised. The exercise of Rights
is irrevocable once made, and no Underlying
Shares will be issued until the closing following
the Expiration Date. See "The Rights Offering."
Basic Subscription
Privilege................... Holders are entitled to purchase at the
Subscription Price one share of Common Stock for
each Right held. See "The Rights Offering -- The
Rights" and Subscription Privileges -- Basic
Subscription Privileges."
Oversubscription
Privilege................... Each Holder who exercises his or her Basic
Subscription Privilege may also subscribe at the
Subscription Price for Underlying Shares, if any,
remaining unissued after satisfaction of all
subscriptions pursuant to the Basic Subscription
Privilege. If an insufficient number of
Underlying Shares is available to satisfy fully
all elections to exercise the Oversubscription
Privilege, the available Underlying Shares will
be allocated on a pro rata basis among Holders
who exercise their Oversubscription Privilege
based on the respective number of Underlying
Shares subscribed for by such Holders pursuant to
the Basic Subscription Privilege. See "The Rights
Offering--The Rights" and "Subscription
Privileges--Oversubscription Privilege."
Subscription Price.......... $3.25 per share of Common Stock.
Shares of Common Outstanding
after Rights Offering....... Assuming that all Rights are fully exercised,
4,140,052 shares will be outstanding after the
Rights Offering, based on 1,035,013 shares
outstanding on the Record Date. The final number
of shares of Common Stock that will be outstanding
after the Rights Offering is dependent upon the
extent to which Rights are exercised.
3
<PAGE>
Transferability of Rights... The Rights are transferrable, and it is
anticipated that they may trade on the OTC
Bulletin Board until the close of business on the
last trading day prior to the Expiration Date. In
addition, the Company has applied to list the
Common Stock (including the Underlying Shares)
and the Rights on the NASDAQ Small Cap Market.
There can be no assurance that such Shares or
Rights will be so listed before completion of the
Rights Offering or at all. The Basic Subscription
Privilege and the Oversubscription Privilege are
only transferable together, and any transfer of
Rights will be deemed a transfer of both the
Basic Subscription Privilege and the
Oversubscription Privilege. There can be no
assurance, however, that any market for Rights
will develop. See "The Rights Offering--Method of
Transferring Rights."
Record Date................. June 27, 1996.
Expiration Date............. August 9, 1996, unless extended by the Company
from time to time, provided that the Expiration
Date shall not be later than August 23, 1996,
unless the Board of Directors determines that a
material event has occurred which necessitates one
or more further extensions of the Rights in order
to permit adequate disclosure of information
concerning such event to Holders. See "The Rights
Offering--Expiration Date." If the Company elects
to extend the term of the Rights, it will issue a
press release to such effect not later than the
first day on which The Nasdaq National Market is
open for trading following the most recently
announced Expiration Date. In the event Company
elects to extend the term of the Rights Offering
by more than 14 calendar days, it will, in
addition, cause written notice of such extension
to be promptly sent to all Holders of record on
the Record Date.
Procedure for Exercising
Rights...................... Rights may be exercised by properly completing
the certificate evidencing such Rights (the
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the
Guaranteed Delivery Procedures, as defined below)
to the Subscription Agent on or prior to the
Expiration Date, together with payment in full of
the Subscription Price for each Underlying Share
subscribed for pursuant to the Subscription
Privileges. If the mail is used to forward
Subscription Certificates, it is recommended that
insured, registered mail be used. The exercise of
a Right may not be revoked or amended. If time
does not permit a Holder or transferee of a Right
to deliver its Subscription Certificate to the
Subscription Agent on or before the Expiration
Date, such Holder or transferee should make use
of the Guaranteed Delivery Procedures described
under "The Rights Offering--Exercise of Rights."
If paying by uncertified personal check, please
note that the funds paid thereby may take at
least five business days to clear.
4
<PAGE>
Accordingly, Holders who wish to pay the
Subscription Price by means of uncertified
personal check are urged to make payment
sufficiently in advance of the Expiration Date to
ensure that such payment is received and clears
by such date and are urged to consider payment by
means of certified or cashier's check, money
order or wire transfer of funds.
Persons Holding Shares, or
Wishing to Exercise Rights
Through Others............. Persons holding shares of Common Stock, and
receiving the Rights distributable with respect
thereto, through a broker, dealer, commercial
bank, trust company or other nominee, as well as
persons holding certificates of Common Stock
personally who would prefer to have such
institutions effect transactions relating to
Rights on their behalf, should contact the
appropriate institution or nominee and request it
to effect the transactions for them. See "The
Rights Offering--Exercise of Rights."
Closing and Issuance of
Common Stock............... The closing will occur and certificates
representing Underlying Shares will be delivered
to subscribers as soon as practicable after the
Expiration Date and after all prorations have been
effected. See "The Rights Offering--Subscription
Privileges." No Underlying Shares will be issued
until the closing. Funds delivered to the
Subscription Agent for the exercise of
Subscription Privileges will be held in escrow by
the Subscription Agent until the closing. No
interest will be paid to Holders on funds held by
the Subscription Agent. In the case of Holders
exercising Over-subscription Privileges, any
excess funds will be returned to the Holders as
soon as practicable following the closing.
Use of Proceeds............. It is anticipated that the net proceeds to
Company will be approximately $10,000,000 if all
of the Underlying Shares are purchased in the
Rights Offering. If less than all of the
Underlying Shares are purchased, the proceeds
will be correspondingly reduced. Proceeds will be
used for general corporate purposes and working
capital, to fund potential future acquisitions
and internal expansion, and possibly, to repay
certain of Marsel's indebtedness. See "Purpose of
the Rights Offering and Use of Proceeds."
Subscription Agent.......... AMERICAN STOCK TRANSFER & TRUST COMPANY
The Nasdaq National Market
Common Symbol.............. GWAY
The Nasdaq National Market
Rights Symbol.............. GWAYR
5
<PAGE>
Risk Factors................ The purchase of Rights and the purchase of
Common Stock in the Rights Offering involves
investment risks particular to the Company, and
risks particular to the Rights Offering. Investors
are urged to read and consider carefully the
information set forth under the heading "Risk
Factors," beginning on page 9.
6
<PAGE>
THE COMPANY
Gateway Industries, Inc. (the "Company") has been engaged in the manufacture
and sale of mirror and glass products since November 24, 1995. The Company was
incorporated under the laws of the State of Delaware in July 1994 for the
purpose of effecting a reincorporation of Gateway Communications, Inc. (the
Company's predecessor), a California corporation. To effectuate the
reincorporation, Gateway Communications, Inc. was merged into the Company on
September 22, 1994. Immediately preceding the merger, Gateway Communications,
Inc. effected a one-for-five reverse stock split. Thereafter, each outstanding
share of common stock of Gateway Communications, Inc., no par value, was
automatically converted into one share of the Company's Common Stock, $.001 par
value ("Common Stock"). The Company's headquarters are located at 101-01 Foster
Avenue, Brooklyn, New York 11236, and its telephone number is (718) 272-9700.
Prior to September 1994, the Company's principal business was the design,
development, manufacture and sale of local area network ("LAN") communication
products for use in IBM and compatible personal computers. On September 14,
1994, the Company completed the sale of substantially all its assets relating
to its LAN business. During the second quarter of 1994, the Company ceased
revenue producing activities in anticipation of the sale. Thereafter, until
November 24, 1995, the Company had no operating business.
THE MARSEL ACQUISITION
On November 24, 1995, Glass Acquisition Corp., a wholly-owned subsidiary of
the Company, acquired (the "Acquisition") substantially all the assets and the
business of Marsel Mirror & Glass Products, Inc., a New York corporation ("Old
Marsel"), and the related real estate interest of Barlow Associates, a New York
general partnership ("Barlow"), from which Old Marsel conducted its business.
Subsequent to the closing of the Acquisition, Glass Acquisition Corp. changed
its name to Marsel Mirror & Glass Products, Inc. ("Marsel").
As part of the Acquisition, Marsel entered a new loan agreement with one of
Old Marsel's lenders, replaced its other lender and entered into a composition
agreement (the "Composition Agreement") with substantially all Old Marsel's
trade creditors who were owed approximately $2.9 million. Pursuant to the
Composition Agreement, such creditors agreed to accept, and Marsel agreed to
pay, approximately $540,000 upon closing of the Acquisition (the "Marsel
Closing") and $100,000 on each of the first four anniversaries following such
closing. All Old Marsel's trade creditors were sent bulk sales notices and were
to receive no payment unless they signed the Composition Agreement.
The consideration for the purchase from Old Marsel was (i) the assumption by
Marsel of an obligation to the New York City Industrial Development Authority
(the "IDA") of approximately $4.78 million, (ii) the satisfaction of
approximately $1,575,000 of debt owed by Barlow (which was secured by a second
mortgage on the real estate interest), and (iii) the satisfaction of
approximately $2.4 million of short term debt owed by Old Marsel, which was
replaced with a loan and security agreement with another commercial lender.
Simultaneously with the Marsel Closing, the Company invested $2.8 million in
Marsel.
MARSEL
Old Marsel was incorporated in New York in 1952, and had engaged in the
manufacture and sale of mirrors and related consumer glass products since its
inception. It was one of the originators of mass producing mirrors for
consumption across the country. Barlow was formed in 1985 by the then owners of
Old Marsel. Barlow's sole business was the leasing of the premises from which
Old Marsel conducted its business.
7
<PAGE>
Before the Acquisition, Old Marsel's financial condition had substantially
deteriorated as a result of declining sales and large operating losses. It was
in default under its loan agreements, its accounts payable were all overdue,
and virtually all its suppliers were shipping only on a C.O.D. basis. For 1994
and 1995 (including the six-week period that Marsel has been owned by Gateway),
the combined revenues of Marsel and Barlow were $29,733,916 and $21,910,706,
respectively, and their combined losses before taxes were $353,354 and
$1,688,483, respectively. For the Company's Pro Forma results assuming that the
acquisition of Marsel occurred on January 1, 1994, see note 14 to the
Consolidated Financial Statements contained in the Company's Form 10-KSB
accompanying this Prospectus. Revenues and income were negatively impacted by
the sluggish retail environment and the bankruptcy of several of Marsel's
customers. Marsel's deteriorating financial condition caused its suppliers to
limit shipments of raw materials, resulting in inventory shortfalls and an
inability to fill customer orders in a timely and complete manner. In addition,
the reduced supplies caused operating inefficiencies and increased Marsel's
cost of goods sold.
RECENT DEVELOPMENTS
The Company reported a loss of $449,000 for its fiscal quarter ended March
31, 1996 and anticipates a loss of approximately $660,000 for the quarter ended
June 30, 1996, primarily due to declining sales. Such losses have caused the
Company not to be in compliance with certain financial covenants contained in
its Loan Agreements with its lenders. See "Risk Factors--History of Operating
Losses" and "Loan Agreement Defaults," and "Management Discussion and Analysis
of Financial Condition and Results of Operations" incorporated by reference
from the Company's quarterly report on Form 10-QSB for the quarter ended March
31, 1996.
8
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors in
addition to other information set forth in this Prospectus before making a
decision to purchase any of the securities offered hereby.
GOING CONCERN AUDIT OPINION
The Auditor's Report on the Company's Financial Statements for the year ended
December 31, 1995 contains a "going concern" qualification. This means that the
financial statements do not contain any adjustments to reflect possible future
effects on the assets and liabilities that may result from the possible
inability of Marsel to continue as a going concern. See Financial Statements
included in the Form 10-KSB accompanying this Prospectus.
HISTORY OF, AND CONTINUING, OPERATING LOSSES AT MARSEL AND DECLINING REVENUES
The Company's sole operating business is that of Marsel, which was acquired
on November 24, 1995. Before the Acquisition, Old Marsel's financial condition
had substantially deteriorated as a result of declining sales and large
operating losses. It was in default under its loan agreements, its accounts
payable were all overdue, and virtually all its suppliers were shipping only on
a C.O.D. basis. For 1994 and 1995 (including the six-week period that Marsel
has been owned by Gateway), the combined revenues of Marsel and Barlow were
$29,733,916 and $21,910,706, respectively, and their combined losses before
taxes were $353,354 and $1,688,483, respectively. Revenues and income were
negatively impacted by the sluggish retail environment and the bankruptcy of
several of Marsel's customers. Marsel's deteriorating financial condition
caused its suppliers to limit shipments of raw materials, resulting in
inventory shortfalls and an inability to fill customer orders in a timely and
complete manner. In addition, the reduced supplies caused operating
inefficiencies and increased Marsel's cost of goods sold.
For the three months ended March 31, 1996, Marsel incurred losses of $449,000
on sales of $4,431,000. Management anticipates that Marsel will incur losses of
approximately $660,000 for the quarter ended June 30, 1996. Continued losses
will negatively impact its working capital and the extension of credit by its
lenders and could cause such lenders to declare a default under the Company's
loan agreements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's Form 10-KSB for
the year ended December 31, 1995 and for its Form 10-QSB the quarter ended
March 31, 1996 incorporated herein by reference; and "Risk Factors--Loan
Agreement Defaults".
While Marsel has taken certain steps in an attempt to curtail the losses it
has incurred, there can be no assurance that any of those measures will be
successful or that it will achieve profitability. Continued large losses could
lead to Marsel filing for protection under the bankruptcy laws. The Company has
not guaranteed any of Marsel's obligations to its lenders. Therefore, the
proceeds of this Offering will not be subject to such liabilities unless the
Company chooses to invest further amounts in Marsel, guaranty some or all of
such obligations or use a portion of the proceeds to pay such obligations. The
Company has made no decisions with respect to any of the foregoing
alternatives. See "Use of Proceeds".
LOAN AGREEMENT DEFAULTS
Marsel is party to a loan agreement (the "Commercial Loan Agreement") with a
commercial bank (the "Commercial Lender") providing for revolving loans of up
to $4 million and a term loan of $500,000, which expires on October 31, 1996.
As of March 31, 1996, $2,938,000 and $475,000 were outstanding under the
revolver and term loan, respectively.
Marsel possesses a leasehold interest in approximately 314,000 square foot
facility located in Brooklyn, New York from which it conducts its operations.
The building and improvements on the real property are
9
<PAGE>
subject to bonds issued by the IDA (the "Bonds") which, as of March 31, 1996,
had an outstanding principal balance of $4.78 million. Interest on the Bonds
accrues at the rate of 7.5% per annum and is payable semi-annually on May 15
and November 15. In addition, principal payments of $450,000 are due on
November 15, 1996, 1997 and 1998 and a final principal payment of $3,430,000 is
due on November 15, 1999.
Marsel's obligations under the Bonds are secured by an irrevocable letter of
credit (the "L/C") issued by National Bank of Canada (the "L/C Bank") pursuant
to an Amended and Restated Loan and Security Agreement (the "L/C Loan
Agreement" and, collectively with the Commercial Loan Agreement, the "Loan
Agreements") between Marsel and the "L/C Bank". Marsel has agreed to reimburse
the L/C Bank for all payments made to or on behalf of Marsel, including
drawings on the L/C. Marsel's reimbursement obligations are secured by a lien
on all its real estate related assets.
The Loan Agreements contain various covenants relating to Marsel's
performance and financial condition. Marsel was not in compliance with certain
of such covenants as of March 31, 1996 and will not be in compliance as of June
30, 1996. Such non-compliance constitutes an event of default under the Loan
Agreements. Marsel is negotiating with each Bank to waive such non-compliance
or to modify the covenants. If such waivers or modifications are not received,
each Bank could declare all outstanding amounts immediately due and payable.
Marsel does not currently have the financial resources to make such payments.
In addition, the L/C Bank could require Marsel to make monthly sinking fund
payments of principal so that the L/C Bank has sufficient funds on deposit to
make the next principal payment. The Company is seeking to obtain a mortgage
loan with a longer amortization schedule, in an amount sufficient to repay all
amounts due under the Bonds. There can be no assurance that such mortgage loan
will be obtained on favorable terms, or at all. The Company may use a portion
of the proceeds of this Rights Offering to reduce amounts outstanding under the
Bonds or due to its Commercial Lender, but has not made any decision to do so.
POTENTIAL NON-RENEWAL OF THE L/C
Marsel's obligations under the Bonds are secured by the L/C, which expires on
December 1, 1996, and the L/C Bank is obligated to renew it only in certain
circumstances described in the next paragraph. If the L/C is not renewed, all
outstanding payments (currently aggregating $4,780,000) under the Bonds will
become due and payable.
The L/C Loan Agreement provides that the L/C Bank must renew the L/C annually
if Marsel (a) meets certain financial covenants and reporting requirements, (b)
has met all L/C reimbursement obligations, and (c) either (x) renewed the
Commercial Loan Agreement, or obtained a new loan agreement (in either case on
terms reasonably satisfactory to the L/C Bank) to finance its working needs for
at least one year past the then expiration date of the L/C, or (y) has
deposited cash collateral sufficient to make the next annual payment under the
Bonds with the L/C Bank. The Company has not met the first condition and there
is no assurance that it will satisfy the others. If the L/C is not renewed, all
amounts due under the Bonds will become due and payable. The Company may use a
portion of the proceeds of this Offering to reduce or repay amounts due under
the Bonds, but has not yet made any decision to do so. The Company is seeking
to obtain a mortgage loan with a longer amortization schedule in an amount
sufficient to repay all amounts due under the Bonds. There can be no assurance
that any refinancing can be consummated on favorable terms, or at all.
DEPENDENCE ON MAJOR CUSTOMER
For 1995, sales to Wal-Mart represented 38% of the Company's revenues. The
Company has no contract for the future sale of products to Wal-Mart. If, for
any reason, Wal-Mart ceased purchasing merchandise from Marsel or if it
significantly reduced its level of such purchases, the Company's business and
financial condition would be materially adversely effected. While Management
knows of no plans by Wal-Mart to reduce its purchases from the Company, there
can be no assurance that it will continue its purchases at prior levels.
10
<PAGE>
DEPENDENCE ON KEY SUPPLIERS
Approximately 98% of Marsel's single most important component, glass, is
provided by P.P.G. Industries. While other sources of supply are available,
their pricing, terms and reliability are less advantageous. Its other principal
raw materials are corrugated and framing materials. Two suppliers represented
68% and 21%, respectively, of Marsel's purchases of corrugated materials in
1995. Marsel does not have any significant long-term purchase commitments with
any of its suppliers. While Marsel has long-term relationships with its key
suppliers, there can be no assurance that such suppliers will continue to do
business with Marsel. The loss of any such supplier could have a material
adverse effect on the business and financial condition of the Company.
COMPETITION
Marsel's principal competitors for its mirrors are Monarch Mirror, a division
of Stanley Works ("Stanley"), and Silverwood Industries, based in Arkansas
("Silverwood"). Stanley's pricing structure is usually higher, and its products
tend to focus on wardrobe mirrored doors, sold at retail, primarily in the home
improvement market. Stanley is a much larger company with greater financial
resources. Silverwood is smaller than Marsel, with a similar, but more narrowly
focused, product line, and is relatively new to the industry.
The dominant competitors in the framed art category are National Picture &
Frame Co., Decorel, Impulse Graphics, and Crystal Art Galleries. Each is larger
and has greater financial resources than Marsel and provides products that are
decorative, sell at competitive prices and in packages that are well suited for
mass merchandising. Marsel competes in this area by incorporating mirror or
screen printed accents into its framed art products. The lower barriers to
entry in this market tend to attract a higher number of competitors.
NEW OPERATING MANAGEMENT TEAM; MANAGEMENT OF GROWTH
When the Company acquired Old Marsel's business, Old Marsel needed new senior
operating management. Immediately following the Acquisition, the Company
installed an interim president in an attempt to turnaround Marsel's
deteriorating results and financial condition. In February, 1996, the Company
hired a permanent president for Marsel. There can be no assurance that Marsel's
new management will lead it to profitability.
Depending on the extent of its future growth, the Company may experience a
significant strain on its management, operational and financial resources. The
Company's ability to manage its growth effectively may require it to continue
to implement and improve its operational and financial systems and may require
the addition of new management personnel. The failure of the Company's
management team to effectively manage growth, should it occur, could have a
material adverse effect on the Company's financial condition and results of
operations.
POTENTIAL CONTROL BY WARREN G. LICHTENSTEIN
Warren G. Lichtenstein, a member of the Board of Directors, individually and
through entities controlled by, or affiliated with, him beneficially owns
370,016 shares of Common Stock, representing 35.7% of the currently outstanding
shares of Common Stock (excluding options for 100,000 shares of Common Stock
exercisable after 60 days). By virtue of such ownership and his position with
the Company, Mr. Lichtenstein may have the practical ability to determine the
election of all directors and control the outcome of substantially all matters
submitted to the Company's stockholders. Such concentration of ownership could
have the effect of making it more difficult for a third party to acquire, or
discourage a third party from seeking to acquire, control of the Company. In
addition, Mr. Lichtenstein has advised the Company that entities whose Common
Stock purchases he controls currently intend to exercise all Rights distributed
to such
11
<PAGE>
entities. If all Rights are not exercised by other Shareholders, entities
controlled by Mr. Lichtenstein will increase their pro rata ownership of the
Company's Common Stock. (See "Certain Rights Offering Considerations--
Dilution.")
ENVIRONMENTAL CONSIDERATIONS
The Company's manufacturing operations are subject to environmental laws and
regulations which govern waste water discharges, air emissions, the handling
and disposal of solid and hazardous wastes and the remediation of contamination
associated with the disposal of such wastes. The failure to comply with such
laws could result in substantial fines, penalties or other liabilities.
POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW; POSSIBLE ISSUANCES OF
PREFERRED STOCK
Certain provisions of Delaware law could delay, impede or make more difficult
a merger, tender offer or proxy context involving the Company, even if such
events could be beneficial to the interests of the stockholders. Such
provisions could limit the price that certain investors might be willing to pay
for shares of common Stock. In addition, preferred stock can be issued by the
Board of Directors without stockholder approval on such terms as the Board may
determine. The rights of holders of Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock in
connection with possible acquisitions and other corporate purposes, such
issuance may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, a majority of the voting stock of the
Company. See "Description of Capital Stock."
FUTURE ACQUISITIONS
The Company's current revenues are derived from a business acquired in
November 1995. The Company intends to continue to pursue acquisitions of
businesses and product lines which the Company believes have significant growth
possibilities. A portion of the proceeds of this Offering may be used for such
acquisitions. There can be no assurance that future acquisitions, if made, will
be profitable.
MERCHANDISING
The Company's success depends to a large degree on its ability to introduce
in a timely manner new or updated products which are affordable, functional,
distinctive in quality and design and tailored to the purchasing patterns of
the Company's customers. Misjudgments as to customer interest in new or updated
products could lead to excess inventories and markdowns and could have a
material adverse effect on the Company's financial condition and results of
operations.
NON-LISTING OF UNDERLYING SHARES IN NASDAQ SYSTEM
The Company has applied to list the Common Stock (including the Underlying
Shares) and the Rights on the NASDAQ Small Cap Market. There can be no
assurance that the Shares or Rights will be so listed before completion of the
Rights Offering, or at all. If such listing is not obtained, trading, if any,
in the Company's Common Stock would continue to be conducted in the over-the-
counter market on an electronic bulletin board established for securities that
do no meet the NASDAQ System listing requirements or in what are commonly
referred to as the "pink sheets". If this were to occur, an investor might find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of, the Company's securities.
POSSIBLE VOLATILITY OF STOCK PRICE
The Company's Common Stock, is thinly traded and may experience significant
price and volume fluctuations which could adversely affect the market price of
the Common Stock without regard to the operating performance of the Company.
12
<PAGE>
CERTAIN RIGHTS OFFERING CONSIDERATIONS
NO COMMITMENTS TO PURCHASE AND NO MINIMUM SIZE OF RIGHTS OFFERING
Although Warren G. Lichtenstein has indicated that entities whose securities
purchases he controls currently intend to exercise their Rights, the Company
does not have a commitment from any person to purchase any shares of Common
Stock pursuant to the Rights. In addition, no minimum amount of proceeds is
required for the Company to consummate this Offering. Accordingly, no
assurances can be given as to the amount of gross proceeds that the Company
will realize from the Rights Offering. See "Reasons for the Offering and Use of
Proceeds," "The Rights Offering," and "Plan of Distribution."
DILUTION; DISCOUNT FROM MARKET PRICE
Holders who do not exercise their Subscription Privileges in full will
realize a dilution in their percentage voting interest and ownership interest
in future net earnings, if any, of the Company to the extent that Rights are
exercised by other Holders. Mr. Lichtenstein has informed the Company that
entities whose Common Stock purchases he controls intend to exercise their
Basic Subscription Privilege. Assuming such entities fully subscribe to their
Basic Subscription Privilege, and no other Rights are exercised, they will
collectively own approximately 69% of the Company's voting Common Stock. In
addition, the Subscription Price represents a 13% discount from the closing bid
price as of June 28, 1996 and could result in a reduction in the market price
for the Company's common stock. As of March 31, 1996, the book value per share
of common stock was $2.59. Assuming all Shares offered hereby are subscribed
for, the pro forma book value per share as of March 31, 1996 would be $3.11,
representing an immediate dilution of $.14 per share to subscribers in this
Offering.
LIMITED LIQUIDITY OF SECURITIES AND TRADING ACTIVITY
The Common Stock is thinly traded. Approximately 35.7% of the Company's
Common Stock is beneficially owned by entities affiliated with Mr.
Lichtenstein. While the Company anticipates that the Rights will be traded on
OTC Bulletin Board, no assurances can be given that an efficient market for the
Rights will develop or, if developed, be maintained. In addition, the Company
has applied to list the Common Stock (including the Underlying Shares) and the
Rights on the NASDAQ Small Cap Market. There can be no assurance that such
Shares or Rights will be so listed before completion of the Rights Offering, or
at all.
POSSIBLE EXTENSION OF EXPIRATION DATE
The Company has reserved the right to extend the Expiration Date to as late
as August 23, 1996. Funds deposited in payment of the Subscription Price may
not be withdrawn and no interest will be paid thereon to Holders.
MANAGEMENT'S DISCRETION IN ALLOCATING PROCEEDS
Management has not yet determined the manner in which it will allocate the
proceeds received in this Offering. Management will, therefore, have broad
discretion in allocating such proceeds, including making future, unidentified
acquisitions. Shareholders will not have the ability to vote for such
acquisitions or review the financial statements of the companies subject to
such acquisitions. See "Reasons for the Offering and Use of Proceeds."
13
<PAGE>
REASON FOR THE OFFERING AND USE OF PROCEEDS
Management believes that the proceeds of this Offering will provide the
Company with flexibility to address its financial needs including its desire to
grow through acquisitions. Although the Company intends to pursue acquisitions,
it has no current contract or commitment with respect to any particular
acquisition. The Company is currently evaluating the possibility of seeking to
acquire one or more companies in Marsel's industry. Because of Marsel's
operating losses, the Company may use a portion of the proceeds to infuse
Marsel with capital or to reduce its debt levels.
The net proceeds from the Rights Offering is estimated to be approximately
$10,000,000, net of expenses and assuming the Rights Offering is fully
subscribed. If less than all the Shares are purchased, the net proceeds will be
correspondingly smaller. Such proceeds will be used for general corporate
purposes and working capital, potential acquisitions and internal growth and
possibly to reduce certain of Marsel's indebtedness. Management has not
determined how such proceeds will be allocated.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company includes 10,000,000 shares of
Common Stock, par value $.001 per share, 1,000,000 shares of Preferred Stock,
par value $.01 per share. Holders of Common Stock have no preemptive rights.
The outstanding shares of Common Stock are fully paid and non-assessable.
Holders of Common Stock are entitled to dividends when, as and if declared by
the Board of Directors of the Company out of any funds legally available to the
Company for that purpose.
Holders of Common Stock are entitled to one vote per share held of record
with respect to all matters submitted to a vote of the stockholders. There is
no cumulative voting for the election of directors, who are elected annually to
one-year terms. Directors are elected by a plurality; all other matters require
the affirmative vote of a majority of the votes cast the meeting.
PREFERRED STOCK
The Company is authorized to establish and issue shares of Preferred Stock in
series and to fix, determine and vary the voting rights, designations,
preferences, qualifications, privileges, options, conversion rights and other
special rights of each series of Preferred Stock. As of the date of this
Prospectus, no shares of Preferred Stock were issued and outstanding.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in a wide range of
specified transactions with any interested stockholder, defined to include,
among others, any person or entity who in the previous three years obtained 15%
or more of any class or series of stock entitled to vote in the election of
directors, unless, among other exceptions, the transaction is approved by (i)
the Board of Directors prior to the date the interested stockholder obtained
such status or (ii) the holders of two-thirds of the outstanding shares of each
class or series owned by the interested stockholder.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
On November 17, 1994, due to the Company's lack of revenue producing
operations, the Common Stock was delisted from the Nasdaq National Market
System ("NMS") where it had been traded since 1985 under the symbol GWAY. The
Common Stock has since traded over-the-counter using the same symbol, GWAY, in
what is commonly referred to as the Bulletin Board. On September 22, 1994, the
Company effected a one-for-five reverse stock split. The following table sets
forth (i) the range of high and low last sale prices for the Common Stock prior
to the delisting, as reported on the NMS, and (ii) the prices after the
delisting as quoted on the Bulletin Board. Prices after November 18, 1994 are
bid and ask prices which represent prices between broker-dealers and do not
include retail markups and markdowns, or any commissions to the broker-dealer.
The prices do not reflect prices in actual transactions. All sale prices prior
to September 22, 1994 have been adjusted to give effect to the reverse stock
split.
<TABLE>
<CAPTION>
CLOSING SALES
--------------
1994 HIGH($) LOW($)
---- ------- ------
<S> <C> <C>
FIRST QUARTER.............................................. 5.31 3.75
SECOND QUARTER............................................. 5.63 3.44
THIRD QUARTER.............................................. 5.16 3.13
OCT 3--NOV 17.............................................. 4.00 3.75
</TABLE>
<TABLE>
<CAPTION>
BID PRICES ASK PRICES
------------- -------------
HIGH($) LOW($) HIGH($) LOW($)
------- ----- ------ -----
<S> <C> <C> <C> <C>
1994
----
NOV 18--DEC 30.............................. 3.50 2.50 5.00 3.50
1995
----
FIRST QUARTER............................... 3.50 2.75 4.44 3.75
SECOND QUARTER.............................. 3.44 2.00 4.44 3.63
THIRD QUARTER............................... 3.63 2.00 4.63 3.63
FOURTH QUARTER.............................. 4.25 2.88 4.75 3.88
1996
----
FIRST QUARTER............................... 8.25 3.50 9.50 4.50
APRIL 1--JUNE............................... 7.75 3.25 8.25 4.50
</TABLE>
DIVIDENDS
The Company has not paid dividends on the Common Stock and does not
anticipate doing so in the foreseeable future.
HOLDERS OF RECORD
At June 27, 1996, the approximate number of holders of record of the Common
Stock was approximately 1,500.
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<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing, at no cost, to the record holders of its
outstanding Common Stock as of the close of business on June 27, 1996 (the
"Record Date") transferable Rights to purchase additional shares of Common
Stock (the "Basic Subscription Privilege") at a price of $3.25 per share (the
"Subscription Price"). The Company will distribute three Rights for each share
of Common Stock held on the Record Date. Each Right will entitle its Holder to
purchase one share of Common Stock. The Rights will be evidenced by
transferable subscription certificates (the "Subscription Certificates"). An
aggregate of 3,105,039 shares of Common Stock (the "Underlying Shares") will be
sold if all Rights are exercised.
No fractional Underlying Shares, or cash in lieu thereof, will be issued or
paid. The number of Underlying Shares distributed to each Holder will be
rounded down to the nearest whole share in connection with the exercise of
Subscription Privileges.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right will entitle the Holder thereof to
receive, upon payment of the Subscription Price, one share of Common Stock.
Certificates representing shares of Common Stock purchased pursuant to the
Basic Subscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date, irrespective of whether the Subscription
Privilege is exercised immediately prior to the Expiration Date or earlier.
Holders exercising their Subscription Privilege will not be shareholders of
record with respect to the shares issuable pursuant to such Subscription
Privilege until the closing, which it is anticipated will occur five business
days after the Expiration Date.
Oversubscription Privilege. Subject to the allocation described below, each
Right also carries the right to subscribe at the Subscription Price for any
Underlying Shares not subscribed for through the exercise of Basic Subscription
Privileges by other Holders (the "Excess Shares"). If the Excess Shares are not
sufficient to satisfy all subscriptions pursuant to the Oversubscription
Privilege, such Excess Shares will be allocated pro rata (subject to the
elimination of fractional shares) among those Holders exercising the
Oversubscription Privilege, in proportion, not to the number of shares
requested pursuant to the Oversubscription Privilege, but to the number of
shares each Holder exercising the Oversubscription Privilege subscribed for
pursuant to the Basic Subscription Privilege; provided, however, that if such
pro rata allocation results in any Holder being allocated a greater number of
Excess Shares than such Holder subscribed for pursuant to the exercise of such
holder's Oversubscription Privilege, then such Holder will be allocated only
such number of Excess Shares as such Holder subscribed for and the remaining
Excess Shares will be allocated among all other Holders exercising the
Oversubscription Privilege. Only beneficial holders who exercise the Basic
Subscription privilege in full will be entitled to exercise the
Oversubscription Privilege. Certificates representing Excess Shares purchased
pursuant to the Oversubscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all prorations have
been effected.
EXPIRATION DATE
The Rights will expires at 5:00 p.m., New York City time, on August 9, 1996,
unless extended by the Company from time to time. Notwithstanding the
foregoing, the Expiration Date in no event shall be later than August 23, 1996,
except that the Company reserves the right to extend the exercise period on one
or more occasions if the Board of Directors determines that the occurrence of a
material event necessitates an amendment of the Registration Statement or
recirculation of the Prospectus that forms a part thereof in order to permit
time for the distribution of such information. After the Expiration Date,
unexercised Rights will be null and void. The Company will not be obligated to
honor any purported exercise of Rights received by the Subscription Agent after
the Expiration Date, regardless of when the documents relating to such exercise
were sent, except pursuant to the Guaranteed Delivery Procedures described
below.
16
<PAGE>
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the Subscription Agent, on or prior
to 5:00 p.m., New York City time, on the Expiration Date, the properly
completed and executed Subscription Certificate evidencing such Rights with any
required signatures guaranteed, together with payment in full of the
Subscription Price for each Underlying Share subscribed for pursuant to the
Subscription Privileges (except as permitted pursuant to clause (iii) of the
next sentence). Such payment in full must be by: (i) check or bank draft drawn
upon a U.S. bank or postal telegraphic or express money order payable to
American Stock Transfer & Trust Company, as Subscription Agent; or (ii) wire
transfer of funds to the account maintained by the Subscription Agent for such
purpose; or (iii) in such other manner as Company may approve in writing in the
case of persons acquiring Underlying Shares at an aggregate Subscription Price
of $500,000 or more, provided in each case that the full amount of such
Subscription Price is received by the Subscription Agent in immediately
available funds within five Nasdaq National Market trading days following the
Expiration Date (the payment method under (iii) being an "Approved Payment
Method"). Payment of the Subscription Price will be deemed to have been
received by the Subscription Agent only upon (a) clearance of any uncertified
check, (b) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a United States bank or of any postal, telegraphic or express
money order, (c) receipt of good funds in the Subscription Agent's account
designated above, or (d) receipt of good funds by the Subscription Agent
through an Approved Payment Method.
If paying by uncertified personal check, please note that the funds paid
thereby may take at least five business days to clear. Accordingly, Holders who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such date and are urged to consider
payment by means of certified or cashier's check, money order or wire transfer
of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
If a Holder wishes to exercise Rights, but time will not permit such Holder
to cause the Subscription Certificate or Subscription Certificates evidencing
such Rights to reach the Subscription Agent on or prior to the Expiration Date,
such Rights may nevertheless be exercised if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
(i) such Holder has caused payment in full of the Subscription Price for
each Underlying Share being subscribed for pursuant to the Subscription
Privileges to be received (in the manner set forth above) by the
Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration Date,
a guaranteed notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Gateway Industries,
Inc. Subscription Certificates (the "Instructions") distributed with the
Subscription Certificates, from an "Eligible Institution" (as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934), stating the name
of the exercising Holder, the number of Rights represented by the
Subscription Certificate(s) held by such exercising Holder, the number of
Underlying Shares being subscribed for pursuant to the Subscription
Privileges and guaranteeing the delivery to the Subscription Agent of any
Subscription certificate(s) evidencing such Rights within three Nasdaq
National Market trading days following the date of the Notice of Guaranteed
Delivery; and
(iii) the properly completed Subscription Certificate(s), with any
required signatures guaranteed, is received by the Subscription Agent
within three Nasdaq National Market trading days following the
17
<PAGE>
date of the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the same
manner as Subscription Certificates at the addresses set forth above, or
may be transmitted to the Subscription Agent by facsimile transmission
(telecopy number (718) 236-4588). Additional copies of the form of Notice
of Guaranteed Delivery are available upon request from the Subscription
Agent, whose address and telephone number are set forth under "Subscription
Agent."
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Holder
exercising the Oversubscription Privilege is allocated less than all of the
Excess Shares that such Holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such Holder shall be
returned by mail without interest or deduction as soon as practicable after the
Expiration Date.
A Holder who holds shares of Common Stock for the account of others, such as
a broker, a trustee or a depositary for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owner's intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment. In addition, the beneficial owner
of Common Stock or Rights held through such a holder of record should contact
the Holder and request the Holder to effect transactions in accordance with the
beneficial owner's instructions.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are
to be delivered to the Holder or (ii) is submitted for the account of an
Eligible Institution, signatures on such Subscription Certificate must be
guaranteed by an Eligible Institution.
If either the number of Underlying Shares being subscribed for pursuant to
the Basic Subscription Privilege is not specified on the Subscription
Certificate, or the amount delivered is not enough to pay the Subscription
Price for all Underlying Shares stated to be subscribed for, the number of
Underlying Shares subscribed for will be assumed to be the maximum amount that
could be subscribed for upon payment of such amount, after allowance for the
Subscription Price of any specified Underlying Shares. If the number of
Underlying Shares being subscribed for is not specified, or payment of the
Subscription Price for the indicated number of Rights that are being exercised
exceeds the required Subscription Price, the payment will be applied, until
depleted, to subscribe for Underlying Shares in the following order: (i) to
subscribe for the number of Underlying Shares indicated, if any, pursuant to
the Basic Subscription Privilege; (ii) to subscribe for Underlying Shares until
the Basic Subscription Privilege has been fully exercised with respect to all
of the Rights represented by the Subscription Certificate; and (iii) to
subscribe for additional Underlying Shares pursuant to the Oversubscription
Privilege (subject to any applicable proration).
The Instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS
HOLDER IS STRONGLY URGED TO PAY, OR ARRANGE FOR
18
<PAGE>
PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus or the Instructions
or the Notice of Guaranteed Delivery should be directed to the Subscription
Agent, telephone number 718-921-8200, or Information Agent at 1-800-322-2885.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
It is anticipated that the Rights will be listed for trading on the OTC
Bulletin Board and may be purchased or sold through usual investment channels,
including banks and brokers. Trading in Rights will cease on the close of
business on The Nasdaq National Market trading day preceding the Expiration
Date.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights evidenced by a
single Subscription Certificate may be transferred by delivering to the
Subscription Agent a Subscription Certificate properly endorsed for transfer,
with instructions to register such portion of the Rights evidenced thereby in
the name of the transferee (and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights). In such event, a new
Subscription Certificate evidencing the balance of the Rights will be issued to
the Holder or, if the Holder so instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights should allow a
sufficient amount of time prior to the Expiration Date for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) a new
Subscription Certificate to be issued and transmitted to the transferee or
transferees with respect to transferred Rights, and to the transferor with
respect to retained Rights, if any, and (iii) the Rights evidenced by such new
Subscription Certificates to be exercised or sold by the recipients thereof. If
time does not permit a transferee of a Right who wishes to exercise its Right
to deliver its Subscription Certificate to the Subscription Agent on or before
the Expiration Date, such transferee should make use of the Guaranteed Delivery
Procedure described under "The Rights Offering-Exercise of Rights." Neither the
Company nor the Subscription Agent shall have any liability to a transferee or
transferor of Rights if Subscription Certificates or new Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
All commissions, fees and other expenses (including brokerage commissions and
transfer taxes) incurred in connection with the purchase, sale or exercise of
Rights will be for the account of the transferor or subscriber of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.
The Company anticipates that the Rights will be eligible for transfer, and
that the Right will be exercisable through the facilities of Depository Trust
Company ("DTC").
19
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discusses the material federal income tax consequences of the
Rights Offering to the holders of Common Stock upon the distribution (the
"Distribution") of Rights, and to holders of Rights upon the exercise and
disposition of the Rights.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder, judicial
authority, and current administrative rulings and practice, all of which are
subject to change on a prospective or retroactive basis. The tax consequences
of the Rights Offering under state, local and foreign law are not discussed.
Moreover, special considerations not described herein may apply to certain
taxpayers, such as financial institutions, broker-dealers, life insurance
companies, and tax-exempt organizations. The discussion is limited to those who
have held the Common Stock, and will hold the Rights and any Common Stock
acquired upon the exercise of Rights as capital assets (generally, property
held for investment) within the meaning of Section 1221 of the Code.
Distribution of the Rights. Holders of Common Stock will not recognize
taxable income for federal income tax purposes in connection with the receipt
of the Rights.
Stockholder Basis and Holding Period of the Rights. Except as provided in the
following sentence, the basis of the Rights received by a stockholder as a
distribution with respect to such stockholder's Common Stock will be zero. If,
however, either (i) the fair market value of the Rights on the date of
Distribution is 15% or more of the fair market value (on the date of
Distribution) of the Common Stock with respect to which they are received or
(ii) the stockholder properly elects, in his or her federal income tax return
for the taxable year in which the Rights are received, to allocate part of the
basis in such Common Stock between the Common Stock and the Rights in
proportion to the fair market values of each on the date of Distribution.
The holding period of a stockholder with respect to the Rights received as a
distribution on such stockholder's Common Stock will include the stockholder's
holding period for the Common Stock with respect to which the Rights were
issued.
In the case of a stockholder who purchases Rights, the tax basis of such
Rights will be equal to the purchase price paid therefor, and the holding
period for such Rights will commence on the day following the date of the
purchase.
Sale of the Rights. A Stockholder who sells the Rights received in the
Distribution prior to exercise will recognize gain or loss equal to the
difference between the amount realized on the sale of such stockholder's
adjusted basis (if any in the Rights sold. Such gain or loss will be capital
gain or loss if gain or loss from a sale of Common Stock held by such
stockholder would be characterized as capital gain or loss at the time of such
sale. Any gain or loss recognized on a sale of Rights acquired by purchase will
be capital gain or loss if Common Stock would be a capital asset in the hands
of the stockholder. Capital gain or loss will be classified as short-term if
the stockholder's holding period in the Rights is one year or less and long-
term if the stockholder's holding period in the Rights is more than one year.
Lapse of the Rights. Stockholders who allow the Rights received by them at
the distribution to lapse will not recognize any gain or loss, and no
adjustment will be made to the basis of the Common Stock owned by such
stockholders.
Stockholders who are purchasers of the Rights will be entitled to a loss
equal to their adjusted tax basis in the Rights, if such Rights expire
unexercised. Because by their terms the Rights will expire on or prior to
August 23, 1996, any loss recognized on the expiration of the Rights acquired
by purchase will be a short-term capital loss if Common Stock would be a
capital asset in the hands of purchaser.
Exercise of the Rights, Basis and Holding Period of Common
Stock. Stockholders will not recognize any gain or loss upon the exercise of
Rights. The basis of the Common Stock acquired through exercise of
20
<PAGE>
the Rights will be equal to the sum of the Subscription Price therefor and the
stockholder's basis in such Rights (if any).
A stockholder's holding period for the Common Stock acquired through exercise
of the Rights will begin on the date the Rights are exercised.
Sale of Common Stock. The sale of Common Stock will result in the recognition
of gain or loss to the stockholder in an amount equal to the difference between
the amount realized on the sale and the stockholder's adjusted basis in the
Common Stock. Gain or loss on the sale of the Common Stock will be classified
as short-term capital gain or loss, if the stockholder's holding prior in the
Common Stock is one year or less and long- term capital gain or loss if the
stockholder's holding period in the Common Stock is more than one year.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR HER OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND
LOCAL INCOME AND OTHER TAX LAWS.
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, and the Subscription Agent's
telephone number and facsimile number, are:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Telephone No. 718-921-8200
Telecopier No. 718-236-4588
The Company will pay the fees and expenses of the Subscription Agent, and has
also agreed to indemnify it from any liability which it may incur in connection
with the Rights Offering.
PLAN OF DISTRIBUTION
The Common Stock offered hereby is being offered by the Company pursuant to
the issuance of the Rights directly to holders of shares of Common Stock on the
Record Date. Certain employee, officers or directors of the Company may solicit
responses from Holders to the Rights Offering, but such individuals will not
receive any commissions or compensation for such services other than their
normal employment compensation.
The Company intends to distribute Rights and copies of this Prospectus to
stockholders of record on the Record Date promptly following the effective date
of the Registration Statement of which this Prospectus forms a part.
Holders who desire to subscribe for the purchase of shares of Common Stock in
the Rights Offering are urged to complete, date and sign the Subscription
Certificate and return it to the Subscription Agent on or before the Expiration
Date, together with payment in full of shares should be directed to the
Subscription Agent.
21
<PAGE>
INFORMATION AGENT
The Company has appointed MacKenzie Partners, Inc. as Information Agent for
the Rights Offering. Any questions or requests for additional copies of this
Prospectus, the Instructions or the Notice of Guaranteed Delivery may be
directed to the Information Agent at the telephone number and address below.
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(212) 929-5500
or call
Toll Free
(800) 322-2885
The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities in
connection with the Rights Offering.
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby and the tax matters discussed under "Certain Federal Income Tax
Consequences" are being passed upon for Company by Greenberger & Forman, 1370
Avenue of the Americas, New York, NY 10019. Greenberger & Forman has from time
to time performed and may in the future perform legal services for certain
shareholders of the Company, including affiliates of Warren G. Lichtenstein.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance on such report given on the authority of such firm as experts in
auditing and accounting. The consolidated Financial Statements of Old Marsel
and Barlow Associates appearing in the Company's current report on Form 8-K/A
dated February 1, 1996, have been audited by Berenson & Company, LLP,
independent accountants, as set forth in their report thereon, included therein
and incorporated herein. Such financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in auditing and accounting.
INDEMNIFICATION OF DIRECTORS AND OFFICERS--
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION
Under provisions of the Company's Certificate of Incorporation, any person
made a party to any lawsuit by reason of being a director or officer of the
Company, or any parent or subsidiary thereof, may be identified by the Company
to the full extent authorized by the General Corporation Law of the State of
Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
22
<PAGE>
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- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS SHALL NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION
IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Available Information...................................................... 1
Documents Incorporated by Reference........................................ 1
Prospectus Summary......................................................... 2
The Company................................................................ 7
Risk Factors............................................................... 9
Purpose of the Rights Offering and Use of Proceeds......................... 14
Description of Capital Stock............................................... 14
Price Range of Common Stock................................................ 15
Dividend Policy............................................................ 15
The Rights Offering........................................................ 16
Certain Federal Income Tax Consequences.................................... 20
Subscription Agent......................................................... 21
Plan of Distribution....................................................... 21
Information Agent.......................................................... 22
Legal Matters.............................................................. 22
Experts.................................................................... 22
Indemnification of Directors and Officers.................................. 22
</TABLE>
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,105,039 SHARES
GATEWAY INDUSTRIES, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
July 1, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 3,481.00
NASDAQ Entry Fee................................................. 10,175.00
Subscription Agent's fees and expenses........................... 10,000.00
Printing fees.................................................... 13,000.00
Legal fees and expenses.......................................... 35,000.00
Accounting fees and expenses..................................... 8,000.00
Blue Sky fees and expenses (including legal fees)................ 25,000.00
----------
TOTAL........................................................ 101,656.00
==========
</TABLE>
- --------
The foregoing, except for the Securities and Exchange Commission registration
fee and the NASDAQ Entry Fee are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of Delaware (the "DGCL")
empowers a corporation to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Subsection 145(b) of the DGCL empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that despite the adjudication of liability such person
is fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, and that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled. It empowers the corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
The Company's certification of incorporation provides:
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section.
The Company has entered into indemnification agreements with each director
providing for indemnification to the fullest extent permitted by Delaware law.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
----------- ----------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Merger of Gateway
Industries, Inc., a Delaware Corporation, and
Gateway Communications, Inc., a California
Corporation. (a)
3.1 Articles of Incorporation. (a)
3.2 Amended and Restated Bylaws.
5 Opinion of Greenberger & Forman.
8 Tax opinion of Greenberger & Forman.
10.6 1987 Incentive and Nonstatutory Stock Option
Plans. (b)
10.8 Amended and Restated 1990 Incentive Stock Option
Plan and 1990 Nonstatutory Stock Option Plan. (f)
(g)
10.9 Form of Indemnity Agreement between the Registrant
and certain of its Officers and Directors. (c)
10.10 Schedule of Officers and Directors with Indemnity
Agreements. (d)
10.17 Termination Agreement between Registrant and
Patrick F. Cadigan. (d)
10.18 Asset Purchase Agreement between Microdyne Peyton
Street Corporation and Gateway. (a)
10.19 Asset Purchase Agreement, dated as of November 22,
1995, by and among Marsel and Old Marsel and its
Stockholders. (e)
10.20 Real Estate Purchase Agreement, dated November 22,
1995, by and among Marsel and Barlow Associates
and Old Marsel. (e)
10.21 Commercial Revolving Loan, Term Loan and Security
Agreement, dated November 22, 1995, by and between
Marsel and Shawmut (Connecticut), N.A. (e)
10.22 Amended and Restated Loan and Security Agreement
dated November 22, 1995 by and among National Bank
of Canada and Marsel, et al. (e)
10.23 Lease, dated as of September 1, 1984, between the
City of New York and Beckie Realty Co., as
assigned to the New York City Industrial
Development Authority for real property located at
101-01 Foster Avenue, Brooklyn, New York (e)
10.24 Lease Agreement (the "Lease Agreement"), dated as
of December 1, 1989, between the New York City
Industrial Development Agency (the "Agency") and
Barlow Associates, as Lessee (the "Lessee"). (e)
10.25 Assignment and Assumption by Marsel of, and First
Amendment dated as of November 1, 1995, to Lease
Agreement. (e)
10.26 Indenture of Trust, dated as of December 1, 1989,
between the Agency and United States Trust Company
of New York, as Trustee (the "Trustee"). (e)
10.27 First Supplemental Indenture dated as of November
1, 1995. (e)
10.28 Tax Regulatory Agreement, dated December 1, 1989,
from the Agency and the Lessee (as joined in by
the Sublessee) to the Trustee. (e)
10.29 Assumption by Marsel of, and First Amendment dated
as of November 1, 1995 to, Tax Regulatory
Agreement. (e)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
----------- ----------- -------------
<C> <S> <C>
10.30 Guaranty Agreement (the "Guaranty Agreement"),
dated as of December 1, 1989, from the Lessee, the
Sublessee and Sheldon Barlow and Clive Barlow to
the Trustee. (e)
10.31 Assumption by Marsel of, and First Amendment dated
as of November 1, 1995, to Guaranty Agreement. (e)
10.32 Agency Mortgage and Security Agreement, dated as
of December 1, 1989. (e)
10.33 Assumption by Marsel of, and First Amendment dated
as of November 1, 1995 to, Agency Mortgage and
Security Agreement. (e)
10.34 PILOT Recapture and Guaranty Agreement dated as of
December 1, 1989. (e)
10.35 Assumption by Marsel of, and First Amendment dated
as of November 1, 1995 to, PILOT and Recapture
Guaranty Agreement. (e)
10.36 Assumption Agreement made as of November 22, 1995,
between Marsel and National Bank of Canada. (e)
10.37 Composition Agreement, dated October 20, 1995,
between Marsel, Old Marsel and certain Creditors
named therein. (e)
10.38 Collective Bargaining Agreement dated February 12,
1996 between Marsel and the United Brotherhood of
Carpenters and Joiners of America, AFL-CIO, Local
3127. (f)
21.1 List of Subsidiaries. (f)
23.1 Consent of Ernst & Young, LLP.
23.2 Consent of Greenberger & Forman (included in
Exhibits 5 and 8).
23.3 Consent of Berenson & Company, LLP
99.1 Form of Subscription Certificate.
99.2 Form of Instructions for Subscription
Certificates.
99.3 Form of Notice of Guaranteed Delivery.
99.4 Form of Subscription Agency Agreement.
99.5 Notice to Certain Shareholders
</TABLE>
- --------
(a) Filed as an exhibit to Registrant's Proxy Statement for Special Meeting of
Shareholders held on September 9, 1994, such previously filed exhibit being
incorporated herein by this reference.
(b) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 20, 1987, such previously filed exhibit being
incorporated herein by this reference.
(c) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989, such previously filed exhibit being
incorporated herein by this reference.
(d) Incorporated herein by reference from the Registrant's Form 10-KSB for the
year ended December 31, 1994.
(e) Incorporated herein by reference from the Registrant's Form 8-K filed with
the Commission on or about December 7, 1995.
(f) Incorporated herein by reference from the Registrant's Form 10-KSB for the
year ended December 31, 1995.
(g) Subject to approval by Shareholders.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer.
E. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
I. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GATEWAY INDUSTRIES, INC.
Date: July 1, 1996 /s/ Jack Howard
By: _____________________________
Jack Howard, Acting
President
Date: July 1, 1996 /s/ Warren Lichtenstein
By: _____________________________
Warren Lichtenstein
Chairman of the Board and
Principal Financial and
Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Date: July 1, 1996 /s/ Jack Howard
By: _____________________________
Jack Howard,
Acting President and
Director
Date: July 1, 1996 /s/ Warren Lichtenstein
By: _____________________________
Warren Lichtenstein,
Director
II-5
<PAGE>
EXHIBIT 3.2
Amended and Restated
(as of June 26, 1996)
BY-LAWS
of
GATEWAY INDUSTRIES, INC.
ARTICLE I.
Stockholders
------------
Section A. Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation shall be held annually at such place within or without the State of
Delaware, at such time and on such date as may from time to time be designated
by the Board of Directors, for the election of directors and for the
transaction of any other proper business.
Section B. Special Meetings. Special meetings of the stockholders of the
----------------
Corporation may be called at any time and from time to time by the President or
by a majority of the di rectors then in office or by stockholders of record
holding not less than 10% of the issued and outstanding shares of the
Corporation entitled to vote at such a meeting. Special meetings shall be held
at such place within or without the State of Delaware, at such time and on such
date as shall be specified in the call thereof.
Section C. Notice of Meetings. Written notice of each meeting of the
------------------
stockholders, stating the place, date and hour thereof and, in the case of a
special meeting, the purpose or
<PAGE>
purposes for which it is called, shall be given, not less than ten nor more than
sixty days before the date of such meeting (or at such other time as may be
required by statute), to each stockholder entitled to vote at such meeting. If
mailed, such notice is given when deposited in the United States mail, postage
prepaid, directed to each stockholder at his or her address as it appears on the
records of the Corporation.
Section D. Waiver of Notice. Whenever notice is required to be given of
----------------
any annual or special meeting of the stock holders, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
in such notice, shall be deemed equivalent to notice. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice. Attendance of a
person at a meeting of the stockholders shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section E. Adjournment. When any meeting of the stockholders is adjourned
-----------
to another time or place, notice need not be given of the adjourned meeting if
the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken. At the adjourned meeting any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than 30
<PAGE>
days, or if after such adjournment the Board of Directors shall fix a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at such meeting.
Section F. Quorum. At any meeting of the stockholders the presence, in
------
person or by proxy, of the holders of a majority of the issued and outstanding
shares of the Corporation entitled to vote at such meeting shall be necessary in
order to constitute a quorum for the transaction of any business. If there
shall not be a quorum at any meeting of the stockholders, the holders of a
majority of the shares entitled to vote present at such meeting, in person or by
proxy, may adjourn such meeting from time to time, without further notice to the
stockholders other than an announcement at such meeting, until holders of the
amount of shares required to constitute a quorum shall be present in person or
by proxy.
Section G. Voting. Each stockholder shall be entitled to one vote for
------
each share of capital stock held by such stock holder. Voting need not be by
ballot, except that all election of directors shall be by written ballot unless
otherwise provided in the Certificate of Incorporation. Whenever any corporate
action is to be taken by vote of the stockholders, it shall, except as otherwise
required by law or by the Certificate of Incorporation, be authorized by a
majority of the votes cast at a meeting of stockholders of the holders of shares
entitled to vote thereon, except that all elections shall be decided by a plural
ity of the votes cast.
<PAGE>
Section H. Action Without a Meeting. Any action required or permitted to
------------------------
be taken at any annual or special meeting of stockholders may be taken without a
meeting thereof, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
out standing stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
such corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section I. Record Date. The Board of Directors may fix, in advance, a
-----------
record date, which shall not be more than sixty nor less than ten days before
the date of any meeting of stockholders, nor more than sixty days prior to any
other action, as the record date for the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action.
Section J. Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize
<PAGE>
another person or persons to act for him or her by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
Section K. Notice of Shareholder Nominees.
------------------------------
(a) Nominations of persons for election to the Board of the Corporation
shall be made only at a meeting of shareholders and only (1) by or at the
direction of the Board or (2) by any shareholder of the Corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section K. Such nominations, other than those made
by or at the direction of the Board, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than thirty (30) days nor more than sixty
(60) days prior to the meeting; provided, however, that in the event that less
than forty (40) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. For purposes of this Section K, any adjournment(s)
or postponement(s) of the original meeting whereby the meeting will reconvene
within forty-five (45) days from the original date shall be deemed for purposes
of notice to be a continuation of the original meeting and no nominations by a
shareholder of person(s) to be elected
<PAGE>
director(s) of the Corporation may be made at any such reconvened meeting unless
pursuant to a notice which was timely for the meeting on the date originally
scheduled. Such shareholder's notice shall set forth: (i) as to each person
whom the shareholder proposes to nominate for election or re-election as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to the Securities Exchange Act of 1934, as
amended, (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the shareholder giving the notice (A) the name and address, as they appear on
the Corporation's books, of such shareholder, and (B) the class and number of
shares of the Corporation which are beneficially owned by such shareholder.
Notwithstanding the foregoing, nothing in this Section K shall be interpreted or
construed to require the inclusion of information about any such nominee in any
proxy statement distributed by, at the direction of, or on behalf of the Board.
(b) The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section K, and if the chairman should so
determine, the chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
Section L. Shareholder Proposals at Annual Meetings.
----------------------------------------
(a) Business may be properly brought before an annual
<PAGE>
meeting by a shareholder only upon the shareholder's timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than thirty (30) days nor more than sixty
(60) days prior to the meeting as originally scheduled; provided, however, that
in the event that less than forty (40) day's notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received no later than the close of business
on the 10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. For purposes of this
Section L, any adjournment(s) or postponement(s) of the original meeting whereby
the meeting will reconvene within forty-five (45) days from the original date
shall be deemed for purposes of notice to be a continuation of the original
meeting and no business may be brought before any reconvened meeting unless such
timely notice of such business was given to the Secretary of the Corporation for
the meeting as originally scheduled. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business. Notwithstanding the foregoing, nothing in
this Section L shall be
<PAGE>
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the direction of, or on
behalf of the Board.
(b) The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section L, and if
the chairman should so determine, the chairman shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
ARTICLE II.
Directors
---------
Section A. Number; Qualifications. The Board of Directors shall consist
----------------------
of one or more members. The number of directors shall be fixed by the Board of
Directors, but shall not be less than three or more than ten. Directors need
not be stockholders of the Corporation.
Section B. Term of Office. Each director shall hold office until his or
--------------
her successor is elected and qualified or until his or her earlier death,
resignation or removal.
Section C. Meetings. A meeting of the Board of Directors shall be held
--------
for the election of officers and for the transaction of such other business as
may come before such meeting as soon as practicable after the annual meeting of
the stockholders. Other regular meetings of the Board of Directors
<PAGE>
may be held at such times as the Board of Directors of the Corporation may from
time to time determine. Special meetings of the Board of Directors may be
called at any time by the President of the Corporation or by a majority of the
directors then in office. Meetings of the Board of Directors may be held within
or without the State of Delaware.
Section D. Notice of Meetings; Waiver of Notice; Adjournment. No notice
-------------------------------------------------
need be given of the first meeting of the Board of Directors after the annual
meeting of stockholders or of any other regular meeting of the Board of
Directors. Notice of a special meeting of the Board of Directors, specifying
the place, date and hour thereof, shall be delivered personally, mailed or
telegraphed to each director at his or her address as such address appears on
the books of the Corporation at least two business days (Saturdays, Sundays and
legal holidays not being considered business days for the purpose of these By-
Laws) before the date of such meeting. Whenever notice is required to be given
under any provision of the Certificate of Incorporation or these By-Laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a director at a special meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not law fully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the
<PAGE>
stockholders, the directors or any committee of directors need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these By-Laws. A majority of the directors present whether or
not a quorum is present, may adjourn any meeting to another time and place.
Notice need not be given of the adjourned meeting if the time and place to which
the meeting is adjourned are announced at the meeting at which the adjournment
is taken, and at the adjourned meeting any busi ness may be transacted that
might have been transacted at the original meeting.
Section E. Quorum; Voting. A majority of the total number of directors
--------------
shall constitute a quorum for the transaction of business. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section F. Participation by Telephone. Members of the Board of Directors
--------------------------
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall consti tute
presence in person at such meeting.
Section G. Action Without a Meeting. Any action required or permitted to
------------------------
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or such
<PAGE>
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceeding of the Board of Directors or
of such committee.
Section H. Committees. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors. Any such committee, to
the extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed by the officers on all papers which may
require it, but no such committee shall have the power or authority in reference
to (a) amending the Certificate of Incorporation (except that a com mittee may,
to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of the assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation, or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series); (b) adopting an agreement of merger or consolidation; (c) recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and
<PAGE>
assets; (d) recommending to the stockholders a dissolution of the Corporation or
a revocation of a dissolution; or (e) amending these By-Laws and, unless the
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of such committee. In the ab sence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimous ly
appoint another director to act at the meeting in the place of such absent or
disqualified member.
Section I. Removal; Resignation. Any director or the entire Board of
--------------------
Directors may be removed with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors. Any director may
resign at any time, upon written notice to the Corporation.
Section J. Vacancies. Vacancies and newly created directorships resulting
---------
from any increase in the authorized number of directors may be filled by a
majority of directors then in of fice, although less than a quorum, or by a sole
remaining direc tor. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations
<PAGE>
shall become effective, and each director so chosen shall hold office as
provided above in the filling of other vacancies. A director elected to fill a
vacancy shall hold office for the unexpired term of his or her predecessor and
until his successor is elected and qualified.
Section K. Compensation. The Board of Directors may fix the compensation
------------
of directors.
ARTICLE III.
Officers
--------
Section A. Election; Qualifications. At the first meeting of the Board of
------------------------
Directors and as soon as practicable after each annual meeting of stockholders,
the Board of Directors shall elect or appoint a President, one or more Vice-
Presidents, a Secretary and a Treasurer, and may elect or appoint at such time
or from time to time such additional officers as it deems advisable. No officer
need be a director of the Corporation. Any number of offices may be held by the
same person, except that there shall always be two persons who hold offices
which entitle them to sign instruments and stock certificates.
Section B. Term of Office; Vacancies. Each officer shall hold office
-------------------------
until the election and qualification of his or her successor or until his or her
earlier death, resignation or removal. Any vacancy occurring in any office,
whether because of death, resignation or removal, with or without cause, or
other wise, shall be filled by the Board of Directors.
<PAGE>
Section C. Removal; Resignation. Any officer may be removed from office
--------------------
at any time with or without cause by the Board of Directors. Any officer may
resign his or her office at any time upon written notice to the Corporation.
Section D. Powers and Duties of the President. The President shall be the
----------------------------------
chief executive officer of the Corporation and shall have the general charge and
supervision of its business affairs. The President shall from time to time make
such reports concerning the Corporation as the Board of Directors of the
Corporation may require. The President shall preside at all meetings of the
stockholders and the Board of Directors. The President shall have such other
powers and perform such other duties as may from time to time be assigned to him
or her by the Board of Directors.
Section E. Powers and Duties of the Vice-Presidents. Each of the Vice-
----------------------------------------
Presidents shall be given such titles and desig nations and shall have such
powers and perform such duties as may from time to time be assigned to him or
her by the Board of Directors.
Section F. Powers and Duties of the Secretary. The Secretary shall
----------------------------------
record and keep the minutes of all meetings of the stockholders and of the Board
of Directors in a book to be kept for that purpose. The Secretary shall attend
to the giving and serving of all notices by the Corporation. The Secretary
shall be the custodian of, and shall make or cause to be made the proper entries
in, the minute book of the Corporation and such
<PAGE>
other books and records as the Board of Directors may direct. The Secretary
shall be the custodian of the corporate seal of the Corporation and shall affix
or cause to be affixed such seal to such contracts and other instruments as the
Board of Directors may direct. The Secretary shall have such other powers and
shall perform such other duties as may from time to time be assigned to him or
her by the Board of Directors.
Section G. Powers and Duties of the Treasurer. The Treasurer shall be
----------------------------------
the custodian of all funds and securities of the Corporation. Whenever required
by the Board of Directors, the Treasurer shall render a statement of the
Corporation's cash and other accounts, and shall cause to be entered regularly
in the proper books and records of the Corporation to be kept for such purpose
full and accurate accounts of the Corporation's receipts and disbursements. The
Treasurer shall at all reason able times exhibit the Corporation's books and
accounts to any director of the Corporation upon application at the principal
office of the Corporation during business hours. The Treasurer shall have such
other powers and shall perform such other duties as may from time to time be
assigned to him or her by the Board of Directors.
Section H. Delegation. In the event of the absence of any officer of the
----------
Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Di rectors may at any time or from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
<PAGE>
ARTICLE IV.
Stock
-----
The shares of the Corporation shall be represented by certificates signed
by the President or any Vice-President and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assis tant Secretary. Any of or all the
signatures on the certificate may be a facsimile.
ARTICLE V.
Execution of Documents
----------------------
All contracts, agreements, instruments, bills payable, notes, checks,
drafts, warrants or other obligations of the Corporation shall be made in the
name of the Corporation and shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
ARTICLE VI.
Seal
----
The seal of the Corporation shall contain the name of the Corporation, the
words "Corporate Seal", the year of its or ganization and the word "Delaware".
ARTICLE VII.
Indemnification
---------------
Section A. Indemnification. The Corporation hereby agrees to hold
---------------
harmless and indemnify any of its officers, direc-
<PAGE>
tors, employees or agents from and against, and to reimburse such persons for:
any and all judgments, fines, liabilities, amounts paid in settlement and
expenses, including attorneys' fees, in curred directly or indirectly as a
result of or in connection with any threatened, pending or completed action,
suit or pro ceeding, whether civil, criminal, administrative or investigative
(an "Action"), including Actions by or in the right of the Corporation or any
other corporation or entity ("Other Entity") for which such person served in any
capacity at the request of the Corporation, to which such person is, was or at
any time becomes a party, or is threatened to be made a party by reason of the
fact that such person is, was or at any time becomes a director, officer,
employee or agent of the Corporation or Other Entity; provided, however, that
-------- -------
(i) indemnification shall be paid pursuant to this Article VII if and only if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and (ii) no indemnifi cation shall be payable pursuant to
this Article VII if a court having jurisdiction in the matter shall determine
that such indemnification is not lawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable
<PAGE>
cause to believe that his conduct was unlawful. No indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section B. Continuation of Indemnity. All agreements and obligations of
-------------------------
the Corporation contained herein shall continue during the period such person
shall serve as a director, officer, employee or agent of the Corporation and
shall continue thereafter so long as such person shall be subject to any
possible Action by reason of the fact that such person was a director or officer
of the Corporation or served at the request of the Corporation in any capacity
for an Other Entity.
Section C. Advancement and Repayment of Expenses. Expenses incurred by an
-------------------------------------
officer, director, employee or agent in defending any Action, shall be paid by
the Corporation in advance of the final disposition thereof, other than those
expenses for which such director or officer is not entitled to indemnification
pursuant to the proviso to, or the last sentence of, Section 1 of this Article
VII. The Corporation shall make such payments upon receipt of (i) a written
request made by such person for payment of such expenses, (ii) an undertaking by
or on behalf of such
<PAGE>
person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized herein and (iii)
evidence satisfactory to the Corporation as to the amount of such expenses.
Section D. Authorization. Any indemnification under this Article VII
-------------
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a deter mination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1 of this Article VII. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of direc tors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders of the Corporation.
Section E. Notification and Defense of Claim. Promptly after receipt by a
---------------------------------
person seeking indemnification pursuant to this Article VII of notice of the
commencement of any action, suit or proceeding, such person will, if a claim in
respect thereof is to be made against the Corporation under this Article VII,
notify the Corporation of the commencement thereof; but the omission so to
notify the Corporation will not relieve it from any liability which it may have
to such person otherwise than under this Article VII. With respect to any such
action, suit or proceeding as to which such person notifies the
<PAGE>
Corporation of the commencement thereof:
1. The Corporation will be entitled to partici pate therein at its own
expense; and,
2. Except as otherwise provided below, to the ex tent that it may wish,
the Corporation jointly with any other in demnifying party similarly notified
will be entitled to assume the defense thereof, with counsel satisfactory to the
person to be indemnified. After notice from the Corporation to the person to be
indemnified of its election so to assume the defense thereof, the Corporation
will not be liable to such person under this Article VII for any legal or other
expenses subsequently incurred by such person in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. The person to be indemnified shall have the right to employ his or her
own counsel in such action, suit or proceeding but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of such person unless (i) the employment
of counsel by such person has been authorized by the Corporation in connection
with the defense of such action, (ii) such person shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
such person in the conduct of the defense of such action, or (iii) the Corpo
ration shall not in fact have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of counsel for such person
shall be borne by the Corpo ration (it being understood, however, that the
Corporation shall
<PAGE>
not be liable for the expenses of more than one counsel for such person in
connection with any action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances).
The Corporation shall not be entitled to assume the defense of any action, suit
or proceed ing brought by or on behalf of the Corporation or as to which such
person shall have made the conclusion provided for in (ii) above.
3. The Corporation shall not be liable to indemnify any person seeking
indemnification under this Article VII for any amounts paid in settlement of any
action or claim effected without its written consent. The Corporation shall not
settle any action or claim in any manner which would impose any penalty or
limitation on the person to be indemnified without such person's written
consent. Neither the Corporation nor any such person will unreasonably withhold
their consent to any proposed settlement.
Section F. Nonexclusivity. The indemnification and advancement of
--------------
expenses provided by or granted pursuant to this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the General Corporation Law of the
State of Delaware, the Corporation's Certificate of Incorporation, as amended,
the Corporation's By-Laws, as now in effect or as here after amended, any
agreement, any vote of stockholders or direc tors, any applicable law, or
otherwise.
<PAGE>
Section G. Indemnification of Other Expenses. In the event any person
---------------------------------
seeking indemnification hereunder is required to bring any action to enforce
rights or to collect monies due under this Article VII and is successful in such
action, the Corporation shall reimburse such person for all costs and expenses,
including attorney's fees, incurred by such person in connection with such
action.
ARTICLE VIII.
Amendment of By-Laws
--------------------
These By-Laws may be amended or repealed, and any new By-Law may be
adopted, by the stockholders entitled to vote or by the Board of Directors.
<PAGE>
EXHIBIT 5
July 1, 1996
Gateway Industries, Inc.
c/o Marsel Mirror & Glass Products, Inc.
101-01 Foster Avenue
Brooklyn, NY 11236
Re: Gateway Industries, Inc.
Form S-2 Registration Statement
No. 333-4163
--------------------------------
Ladies & Gentlemen:
We have acted as counsel for Gateway Industries, Inc., a Delaware
corporation (the "Company"), in connection with the registration by Gateway
Industries, Inc. on a Form S-2 Registration Statement No. 333-4163 (as amended
through the date hereof, the "Registration Statement"), under the Securities Act
of 1933, as amended, of (i) transferrable rights (each a "Right") to purchase
the an aggregate of up to 3,105,039 additional shares of the Company's common
stock, $.001 par value per share (the "Common Stock"), to be distributed to
holders of record of the outstanding Common Stock on the close of business on
June 27, 1996 (the "Record Date"), and (ii) the shares of Common Stock issuable
upon exercise of the Rights. All terms not expressly defined hereinabove are
used with the same meaning as set forth in the Registration Statement.
In connection with the opinion set forth herein, we have assumed that
(a) the Rights are dividended to stock holders or record on the Record Date, and
(b) the Rights are exercised and the Underlying Shares are sold in accordance
with the provisions, terms and conditions set forth in the Registration
Statement, including, in the case of Underlying Shares, the payment in full of
the Subscription Price in accordance with the Subscription Certificate
representing the Rights and the Instructions related thereto (in each case in
the form included in the Registration Statement as an exhibit). On the basis of
the foregoing and such additional proceedings being taken as contemplated by us
as your counsel and such other investigation as we have deemed necessary, we are
of the opinion that (i) the Rights and Underlying Shares will have been duly
authorized by
<PAGE>
Gateway Industries, Inc.
July 1, 1996
Page 2
all necessary corporate action and (ii) that, when certificates therefor have
been executed and delivered, such Rights and Underlying Shares will have been
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" contained in the prospectus which forms a part of the
Registration Statement.
Very truly yours,
GREENBERGER & FORMAN
By: /s/ Robert W. Forman
------------------------
Robert W. Forman
<PAGE>
EXHIBIT 8
July 1, 1996
Gateway Industries, Inc.
- ------------------------
c/o Marsel Mirror & Glass Products, Inc.
101-01 Foster Avenue
Brooklyn, New York 11236
Re: Federal Income Tax Consequences --
of Gateway Rights Offering
----------------------------------
Dear Sirs:
You have requested our opinion on certain federal income tax
consequences of Gateway Industries, Inc. Rights Offering pursuant to the
Registration Statement on Form S-2 (Registration No. 333-4163), filed by Gateway
Industries, Inc. with the Securities and Exchange Commission on July 1, 1996, as
amended (the "Registration Statement"). Capitalized terms not otherwise defined
have the meanings given to them in the Registration Statement.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts and information contained in the
Registration Statement. Our opinion is conditioned on the accuracy of those
facts and information.
In our explanation, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the documents. We have also assumed the Rights Offering will be
consummated in accordance with the Registration Statement.
The tax consequences of the Rights Offering under state, local and
foreign law are not discussed. Moreover, special considerations may apply to
certain taxpayers, such as financial institutions, broker-dealers, life
insurance companies and tax-exempt organizations. Our opinion is limited to
persons who have held the Common Stock, and will hold the Rights and any Common
Stock acquired upon the exercise of Rights as capital assets
<PAGE>
- 2 -
(generally, property held for investment) within the meaning of section 1221 of
the Internal Revenue Code of 1986 (the "Code").
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service and other
authorities we have considered relevant. We caution that statutes, regulations,
judicial opinions and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A change in the
authorities upon which our opinion is based could affect its conclusions, and
because we have not been engaged by you to do so, we do not assume any
obligation to update or supplement this opinion to reflect changes by any legal
authorities.
Based upon and subject to the foregoing, our
opinion is:
1. A Holder of shares of Common Stock will not recognize taxable
income for federal income tax purposes in connection with the receipt of the
Rights. Code (S) 305(a), (d)(1); Rev. Rul. 72-71, 1972-1 C.B. 99, 100.
2. Except as provided in the following sentence, the basis of the
Rights received by a Holder as a distribution with respect to such Holder's
shares of Common Stock will be zero. Code (S)307(b)(1); Treas. Reg. (S)1.307-2.
If, however, either (i) the fair market value of the Rights on the date of
Distribution is 15% or more of the fair market value (on the date of
Distribution) of the shares of Common Stock with respect to which they are
received or (ii) the Holder properly elects, in his or her federal income tax
return for the taxable year in which the Rights are received, to allocate part
of the adjusted basis of the shares of Common Stock to the Rights, then upon
exercise or sale of the Rights, the Holder's basis in the shares of Common Stock
will be allocated between the shares of Common Stock and the Rights in
proportion to the fair market values of each on the date of Distribution. Code
(S)307(a)-(b); Treas. Reg. (S)1.307-1 to -2; Rev. Rul. 72-71, 1972-1 C.B. 99,
100.
3. The holding period of a Holder with respect to the Rights received
as a distribution on that Holder's shares of Common Stock will include the
Holder's holding period for the shares of Common stock with respect to which the
Rights were issued. Code (S)1223(5); Treas. Reg. (S)1.1223-1(e); Rev. Rul. 72-
71, 1972-1 C.B. 99, 100.
4. In the case of a Holder who purchases Rights, the tax basis of
those Rights will be equal to the purchase price paid therefor. Code (S)1012.
The holding period for those Rights will commence on the day following the trade
date. Rev. Rul. 70-598,
<PAGE>
- 3 -
1970-2 C.B. 168.
5. A Holder who sells the Rights received in the Distribution prior to
exercise will recognize gain or loss equal to the difference between the amount
realized on the sale and that Holder's adjusted basis (if any) in the Rights
sold. Code (S)1001; Rev. Rul. 72-71, 1972-1 C.B. 99, 100.
6. Any gain or loss recognized by a Holder on the sale of Rights
received in the Distribution will be capital gain or loss, if gain or loss from
a sale of shares of Common Stock held by that Holder would be characterized as
capital gain or loss at the time of sale. Code (S)1234(a)(1).
7. Any gain of loss recognized on a sale of Rights acquired by
purchase will be capital gain or loss if shares of Common Stock would be a
capital asset in the hands of the Holder. Code (S)1234(a)(1); Rev. Rule. 78-
182, 1978-1 C.B. 265, 266.
8. Capital gain or loss will be classified as short-term if the
Holder's holding period in the Rights is 1 year or less and long-term if the
Holder's holding period in the Rights is 1 year or less and long-term if the
Holder's holding period in the Rights is more than 1 year. Code (S)1222(1)-(4).
9. A Holder that allows Rights received at the Distribution to lapse
will not recognize loss because allocation of basis from the basis of the shares
of Common Stock will be made to the Rights only if those Rights are exercised or
sold. See Rev. Rul. 74-501, 1974-2 C.B. 98; Rev. Rul. 72-71, 1972-1 C.B. 99,
100; cf. code (S)1234(a)(1)-(2); Treas. Reg. (S)1.1234-1(b).
10. A Holder, who is a purchaser of the Rights, will be entitled to a
loss equal to the Holder's adjusted tax basis in the Rights, if these Rights
expire unexercised. Code (S)1234A; Treas. Reg. (S)1.1234-1(b); Code (S)1001(a)-
(b). Because by their terms the Rights will expire thirty days after the date
of Distribution, any loss recognized on the expiration of the Rights acquired by
purchase will be a short-term capital loss if shares of Common Stock would be a
capital asset in the hands of the purchaser. Code (S)1234(a)(1).
11. A Holder will not recognize any gain or loss upon the exercise of
Rights. Code (S)305(a); Rev. Rul. 72-71, 1972-1 C.B. 99, 100.
12. The basis of the shares of Common Stock acquired through exercise
of the Rights will be equal to the sum of the Subscription Price paid therefor
and the Holder's basis in the exercised Rights, if any. See Treas. Reg.
(S)1.307-1(b); Rev. Rul. 78-182, 1978-1 C.B. 265, 266.
<PAGE>
- 4 -
13. A Holder's holding period for the shares of Common Stock acquired
through exercise of the Rights will begin on the date the Rights are exercised.
Code (S)1223(6).
14. The sale of shares of Common Stock will result in the recognition
of gain or loss to the Holder in an amount equal to the difference between the
amount realized on the sale and the Holder's adjusted basis in the shares of
Common Stock. code (S)1001(a)-(b).
15. Gain or loss on the sale of the shares of Common Stock will be
classified as short-term capital gain or loss, if the Holder's holding period in
the shares of Common Stock is 1 year or less and long-term capital gain or loss
if the Holder's holding period in the Rights is more than 1 year. Code
(S)1222(1)-(4).
Except as expressly set forth above, we express no opinion to any
party as to the tax consequences, whether federal, state, local or foreign, of
Gateway Industries, Inc. Rights Offering.
We are furnishing this opinion to you solely in connection with
Gateway Industries, Inc. Rights Offering. We consent to the reference to us
under the heading "Certain Federal Income Tax Consequences" and to the filing of
this opinion as an exhibit to the Registration Statement. This opinion is
solely for you and your Holders' benefit and may not be relied upon by other
persons without our express prior written permission.
GREENBERGER & FORMAN
By: /S/ Robert W. Forman
----------------------
Robert W. Forman
<PAGE>
[LETTERHEAD OF BERENSON & COMPANY LLP]
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Gateway Industries, Inc. on Form S-2 of our reports dated February 8, 1995 and
December 29, 1995 appearing in and incorporated by reference in Form 8-K/A,
dated December 7, 1995 and filed February 1, 1996, of Gateway Industries, Inc.
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ Berenson & Company LLP
New York, NY
July 1, 1996
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-2 No. 333-4163) and
related Prospectus of Gateway Industries, Inc. for the registration of 3,105,039
shares of its common stock and to the incorporation by reference therein of our
report dated April 1, 1996, with respect to the consolidated financial
statements of Gateway Industries, Inc. included in its Annual Report (Form
10-KSB) for the year ended December 31, 1995, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
July 2, 1996
<PAGE>
SUBSCRIPTION CERTIFICATE NO. GATEWAY INDUSTRIES, INC. NUMBER OF RIGHTS:
CUSIP NO. 367595 14 7
THE TERMS AND CONDITIONS OF THE OFFERING ARE SET FORTH IN THE GATEWAY
INDUSTRIES, INC. PROSPECTUS DATED July 1, 1996 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON
REQUEST FROM GATEWAY INDUSTRIES, INC., THE SUBSCRIPTION AGENT AND THE
INFORMATION AGENT.
THIS CERTIFICATE OR A NOTICE OF GUARANTEED DELIVER MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK TIME, ON AUGUST
9, 1996 (SUCH DATE, SUBJECT TO EXTENSION AS PROVIDED IN THE PROSPECTUS, IS
REFERRED TO IN THIS CERTIFICATE AS THE "EXPIRATION DATE").
The Rights represented by this Subscription Certificate may be exercised by
duly completing Form 1; and may be transferred, assigned, exercised or sold
through a bank or broker by duly completing Form 2; Rights holders are
advised to review the Prospectus and instructions (copies of which are
available from Gateway Industries, Inc. and the Subscription Agent) before
exercising or selling their Rights.
IMPORTANT: Complete the appropriate FORM and if applicable, delivery
instructions, and SIGN on reverse side.
SUBSCRIPTION PRICE $3.25PER SHARE RIGHTS TO PURCHASE
COMMON STOCK OF
GATEWAY INDUSTRIES, INC.
The registered owner, or assigns, whose name is inscribed hereon is
entitled to subscribe for shares of Common Stock upon the terms and subject to
the conditions set forth in the Prospectus and instructions relating thereto.
By_______________________________ By_______________________________________
Jack Howard, Acting President Robert W. Forman, Assistant Secretary
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE
AND MAY BE COMBINED OR DIVIDED AT THE OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER
LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW
SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS
EVIDENCED THEREBY.
Delivery: Holder:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
EXHIBIT 99.1
<PAGE>
FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocable
exercises one or more Rights evidenced by this Certificate to subscribe for
shares of Common Stock as indicated below, on the terms and subject to the
conditions specified in this Prospectus, receipt of which is hereby
acknowledged.
(a) Number of shares subscribed for pursuant to the Basic Subscription
Privilege. (One Right equal one shares.)
__________ X $3.25 per share = $_________
(Number of shares - whole number only)
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege. (No shares may be subscribed for pursuant to the Oversubscription
Privilege unless all of the Rights represented by this Subscription Certificate
are fully exercised pursuant to the Basic Subscription Privilege)*
__________ X $3.25 per share = $_________
(Number of shares - whole number only)
(c) Total Subscription Price. (Add far right columns in a and b.)
$______________________.
METHOD OF PAYMENT (CHECK ONE)
___ CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO ________________________.
___ WIRE TRANSFER DIRECTLY TO CHEMICAL BANK, ACCOUNT NO.610-093045, ABA
NO. 021-000128
(d) If the number of Rights being exercised pursuant to the Basic
Subscription Privilege is less than all of the Rights represented by this
Subscription Certificate (check only one):
___ DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE
REMAINING RIGHTS TO WHICH I AM ENTITLED.
___ DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING
RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (please include
any required signature guarantees).
___ CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO
THE DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):_________________________________
Window Ticket Number (if any)___________________________________
Date of Execution of Notice of Guaranteed Delivery______________
Name of Institution which guaranteed delivery___________________
___ FORM 2 -- CHECK HERE TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR
SOME OR ALL OF YOUR RIGHTS EVIDENCED HEREBY OR TO EXERCISE OF SELL
RIGHTS THROUGH YOUR BANK OR BROKER: For value received, _________
Rights represented by this Subscription Certificate are hereby
assigned to (please print name and address and Taxpayer
Identification No. of transferee in full:
Name____________________________________________________________
Address_________________________________________________________
________________________________________________________________
Taxpayer Identification No.**___________________________________
_____________________________________
Signature of Subscriber/Transferor***
*The number of Underlying Shares available to Holders pursuant to the
Oversubscription Privilege may be limited in the Prospectus. If the number of
Underlying Shares subscribed for exceeds the number of shares actually tendered
to the subscriber, the portion of the Subscription Price tendered corresponding
to those excess shares shall be returned to the subscriber, without interest, as
soon as practicable after the Expiration Date.
**Social Security Number of individuals.
***For a Transfer, A Signature Guarantee must be provided by an Eligible
Institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934.
<PAGE>
INSTRUCTIONS AS TO USE OF GATEWAY INDUSTRIES, INC.
SUBSCRIPTION CERTIFICATES
----------------
CONSULT GATEWAY INDUSTRIES, INC., THE INFORMATION AGENT, THE SUBSCRIPTION
AGENT, YOUR BANK OR BROKER AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Gateway Industries, Inc., a Delaware corporation (the "Company"),
to the holders of its Common Stock, $.001 par value per share (the "Common
Stock"), as described in the Company's Prospectus dated July 1, 1996, as such
prospectus may be amended and/or updated prior to the Expiration Date (as
defined below; such Prospectus, as so amended and/or updated, being the
"Prospectus"). Holders of record of Common Stock at the close of business on
June 27, 1996 (the "Record Date"), are receiving three transferable
subscription rights (collectively, the "Rights") for each share of Common Stock
held by them of record on the Record Date. An aggregate of approximately
3,105,039 Rights exercisable to purchase an aggregate of 3,105,039 shares of
Common Stock (the "Underlying Shares") are being distributed in connection with
the Rights Offering. Each Right entitles its holder (a "Holder") to purchase
one share of Common Stock (the "Basic Subscription Privilege") at $3.25 per
share (the "Subscription Price").
In addition, subject to the allocation described below, each Right entitles
its Holder to subscribe at the Subscription Price for Underlying Shares after
satisfaction of all subscriptions made pursuant to the Basic Subscription
Privilege (the "Oversubscription Privilege"; collectively, with the Basic
Subscription Privilege, the "Subscription Privileges"), provided that all of
the Rights of such Holder have been fully exercised with respect to such
Holder's Basic Subscription Privilege. The Company and American Stock Transfer
& Trust Company, as subscription agent (the "Subscription Agent"), will
endeavor to use their best efforts to ensure that Holders fully exercise their
Basic Subscription Privileges before subscribing for and acquiring Underlying
Shares pursuant to their Oversubscription Privileges, but such compliance
cannot be guaranteed. Underlying Shares will be available for purchase pursuant
to the Oversubscription Privilege only to the extent that all the Underlying
Shares are not subscribed for through the exercise of the Basic Subscription
Privilege by the Expiration Date (the "Excess Shares"). If the Excess Shares so
available are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata among
the Holders who exercise the Oversubscription Privilege in proportion, not to
the number of shares requested pursuant to the Oversubscription Privilege, but
to the number of shares they have subscribed for pursuant to the Basic
Subscription Privilege; provided, however, that if such pro rata allocation
results in any Holder being allocated a greater number of Excess Shares than
such Holder subscribed for pursuant to the exercise of such Holder's
Oversubscription Privilege, then such Holder will be allocated only such number
of Excess Shares as such Holder subscribed for and the remaining Excess Shares
will be allocated among all other Holders exercising their Oversubscription
Privileges. See "The Rights Offering" in the Prospectus.
The Rights will expire at 5:00 p.m., New York time, on August 9, 1996,
subject to extension as described in the Prospectus (the "Expiration Date").
The number of Rights to which you are entitled is printed on the face of your
subscription certificate (the "Subscription Certificate"). You should indicate
your wishes with regard to the exercise or sale of your Rights by completing
the appropriate form or forms on your subscription certificate and returning
the certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, OR
GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION CERTIFICATES
MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE INCLUDING FINAL
CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR
BEFORE 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE (EXCEPT IN THE CASE OF
AN APPROVED PAYMENT METHOD). YOU MAY NOT REVOKE ANY EXERCISE OR A RIGHT.
<PAGE>
1. SUBSCRIPTION PRIVILEGES; EXERCISE.
To exercise Rights, complete Form 1 and send your properly completed and
executed subscription certificate, together with payment in full of the
Subscription Price for all Underlying Shares subscribed for pursuant to the
Subscription Privileges, to the Subscription Agent. Payment of the Subscription
Price must be made in U.S. dollars for the full number of Underlying Shares
being subscribed for by check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to American Stock Transfer and Trust
Company, as Subscription Agent; by wire transfer of same day funds to the
account maintained by the Subscription Agent for such purpose at Chemical Bank,
Account No.610-093045; ABA No. 021-000128; or in such other manner as the
Company may approve in writing in the case of persons acquiring Underlying
Shares at an aggregate Subscription Price of $500,000 or more; provided that,
in the case of clause (c), in any event, the full amount of such Subscription
Price is received by the Subscription Agent in currently available funds by no
later than the fifth (5th) Nasdaq National Market trading day following the
Expiration Date (the payment method under (c) being an "Approved Payment
Method"). Payment of the Subscription Price will be deemed to have been
received by the Subscription Agent only upon the clearance of any uncertified
check, the receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or any postal, telegraphic or express money order,
the receipt of good funds in the Subscription Agent's account designated above
or (iv) receipt of funds by the Subscription Agent through an Approved Payment
Method. If paying by uncertified personal check, please note that the funds
paid thereby may take at least five (5) business days to clear. Accordingly,
Holders who wish to pay the Subscription Price by means of uncertified personal
check are urged to make payment sufficiently in advance of the Expiration Date
to ensure that such payment is received and clear by such date and are urged to
consider payment by means of certified or cashier's check, money order or wire
transfer of funds. You may also transfer your subscription certificate to your
bank or broker in accordance with the procedures specified in Section 3(a)
below, make arrangements for the delivery of funds on your behalf and request
such bank or broker to exercise the subscription certificate on your behalf.
Alternatively, you may cause a written guarantee substantially in the form
attached to these instructions (the "Notice of Guaranteed Delivery") from an
"Eligible Institution" within the meaning of Rule 17Ad-15 under the Securities
Act of 1934, to be received by the Subscription Agent at or prior to the
Expiration Date together with payment in full of the applicable Subscription
Price. Such Notice of Guaranteed Delivery must state your name, the number of
Rights represented by your subscription certificate, the number of Underlying
Shares being subscribed for pursuant to the Basic Subscription Privilege, the
number of Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription Privilege and will guarantee the delivery to the Subscription
Agent of your properly completed and executed subscription certificates within
five (5) Nasdaq National Market trading days following the date of the Notice
of Guaranteed Delivery. If this procedure is followed, your subscription
certificates must be received by the Subscription Agent within five (5) Nasdaq
National Market trading days of the Notice of Guaranteed Delivery. Additional
copies of the Notice of Guaranteed Delivery may be obtained upon request from
the Subscription Agent or Information Agent at the address, or by calling the
telephone number, indicated below.
Banks, brokers and other nominee holders of Rights who exercise Rights on
behalf of beneficial owners of Rights will be required to certify to the
Subscription Agent and the Company, as a condition of their exercise of such
Rights on behalf of such beneficial owners, as to: 1) the names of the
beneficial owners on whose behalf they are acting; 2) the nominee holder's
authority to so act; 3) the aggregate number of Rights to be exercised on
behalf of each beneficial owner, and 4) the number of Underlying Shares that
are being subscribed for pursuant to the Subscription Privileges of each
beneficial owner of Rights on whose behalf such nominee holder is acting.
If more Underlying Shares are subscribed for pursuant to the Oversubscription
Privileges than are available for sale, Underlying Shares will be allocated, as
described above, among persons exercising the Oversubscription Privilege in
proportion to such persons' exercise of Rights pursuant to the Basic
Subscription Privilege.
2
<PAGE>
The address, telephone and telecopier numbers of the Information Agent and
Subscription Agent are as follows:
Information Agent
Subscription Agent
MacKenzie Partners, Inc.
American Stock Transfer & Trust Company 156 Fifth Avenue
40 Wall Street New York, NY 10010
New York, N.Y. 10005 Telephone: (212) 929-5500
Telephone: (212) 936-5700 Telecopier: (212) 929-0308
Telecopier: (718) 236-4588
If you exercise less than all of the Rights evidenced by your subscription
certificate by so indicating in Form 1 of your subscription certificate, the
Subscription Agent will issue to you a new subscription certificate evidencing
the unexercised Rights. However, if you choose to have a new subscription
certificate sent to you, you may not receive any such new subscription
certificate in sufficient time to permit you to sell or exercise the Rights
evidenced thereby.
If the number of Underlying Shares being subscribed for pursuant to the Basic
Subscription Privilege is not specified, you will be deemed to have exercised
such Basic Subscription Privilege with respect to the maximum whole number of
Shares that may be acquired for the Subscription Price payment delivered after
allowances for the Subscription Price of any specified Underlying Shares. If
the number of Underlying Shares being subscribed for is not specified, or full
payment of the Subscription Price for the indicated number of Rights that are
being exercised is not forwarded or if the payment delivered exceeds the
required Subscription Price, the payment will be applied, until depleted, to
subscribe for Underlying Shares in the following order: 1) to subscribe for the
number of Underlying Shares indicated, if any, pursuant to the Basic
Subscription Privilege; 2) to subscribe for Underlying Shares until the Basic
Subscription Privilege has been fully exercised with respect to all of the
Rights represented by your Subscription Certificate; and 3) to subscribe for
additional Underlying Shares pursuant to the Oversubscription Privilege
(subject to any applicable proration).
2. DELIVERY OF STOCK CERTIFICATES, ETC.
The following deliveries and payments will be made to the address shown on
the face of your subscription certificate.
(A) BASIC SUBSCRIPTION PRIVILEGE. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Holder who
validly exercises the Basic Subscription Privilege certificates
representing shares of Common Stock purchased pursuant to the Basic
Subscription Privilege.
(B) OVERSUBSCRIPTION PRIVILEGE. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Holder who
validly exercises the Oversubscription Privilege a certificate representing
the number of shares of Common Stock allocated to such Holder pursuant to
the Oversubscription Privilege.
(C) CASH PAYMENTS. As soon as practicable after the Expiration Date, the
Subscription Agent will mail to each Holder who exercises the
Oversubscription Privilege, without interest, any excess funds received in
payment of the Subscription Price for Underlying Shares that are subscribed
for by such Holder but not allocated to such Holder pursuant to the
Oversubscription Privilege.
3. SALE OR TRANSFER OF RIGHTS.
The Basic Subscription Privilege and the Oversubscription Privilege are only
transferable together, and any transfer of Rights will be deemed a transfer of
both the Basic Subscription Privilege and the Oversubscription Privilege
related thereto. A portion of the Rights evidenced by a single Subscription
Certificate may be transferred only in units to purchase whole shares and
Subscription Certificates may only be divided into units to purchase whole
shares.
(A) SALE OF RIGHTS THROUGH A BANK OR BROKER. To sell all Rights evidenced
by a subscription certificate through your bank or broker, so indicate on
Form 2 and deliver your properly completed and executed subscription
certificate to your bank or broker and have your signature guaranteed by an
3
<PAGE>
Eligible Institution. Your subscription certificate should be delivered to
your bank or broker in ample time for it to be exercised. If Form 2 is
completed without designating a transferee, the Subscription Agent may
thereafter treat the bearer of the subscription certificate as the absolute
owner of all of the Rights evidenced by such subscription certificate for
all purposes, and the Subscription Agent shall not be affected by any
notice to the contrary. Your bank or broker cannot issue subscription
certificates. If you wish to sell less than all of the Rights evidenced by
a subscription certificate, either you or your bank or broker must instruct
the Subscription Agent as to the action to be taken with respect to the
Rights not sold, or you or your bank or broker must first have your
subscription certificate divided into subscription certificates of
appropriate denominations by following the instructions in paragraph 4 of
these instructions. The subscription certificates evidencing the number of
Rights you intend to sell can then be transferred by your bank or broker in
accordance with the instructions in this paragraph 3(a).
(B) TRANSFER OF RIGHTS TO A DESIGNATED TRANSFEREE. To transfer all of
your Rights evidenced by your subscription certificate to a transferee
other than a bank or broker, you must check the box for Form 2 and complete
Form 2 in its entirety, execute the subscription certificate and have your
signature guaranteed by an Eligible Institution. If Form 2 is completed
without designating a transferee, the Subscription Agent may thereafter
treat the bearer of the subscription certificate as the absolute owner of
all of the Rights evidenced by such subscription certificate for all
purposes, and the Subscription Agent shall not be affected by any notice to
the contrary. Only the Subscription Agent can issue subscription
certificates. If you wish to transfer less than all of the Rights evidence
by your subscription certificates of appropriate smaller denominations by
following the instructions in paragraph 4 below. The subscription
certificate the number of Rights you intend to transfer can then be
transferred by following the instructions in this paragraph 3(b).
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
To have a subscription certificate divided into smaller denominations, you
must send your subscription certificate, together with complete separate
instructions (including specification of the denominations into which you wish
your Rights to be divided) signed by you, to the Subscription Agent, allowing a
sufficient amount of time for new subscription certificates to be issued and
returned so that they can be used prior to the Expiration Date. Alternatively,
you may ask a bank or broker to effect such actions on your behalf. Your
signature must be guaranteed by an Eligible Institution if any of the new
subscription certificates are to be issued in a name other than that in which
the old subscription certificate was issued. Subscription certificates may not
be divided into units to purchase fractional shares and any instruction to do
so will be rejected. As a result of delays in the mail, the time of the
transmittal, the necessary processing time and other factors, you or your
transferee may not receive such new subscription certificates in time to enable
the Holder to complete a sale or exercise by the Expiration Date. Neither the
company nor the Subscription Agent will be liable to either a transferor or
transferee for any such delays.
5. EXECUTION.
(A) EXECUTION BY REGISTERED HOLDER. The signature on the subscription
certificate must correspond with the name of the registered Holder exactly as
it appears on the face of the subscription certificate without any alteration
or change whatsoever. Persons who sign the subscription certificate in a
representative or other fiduciary capacity must indicate their capacity when
signing and, unless waived by the Subscription Agent in its sole and absolute
discretion, must certify to the Subscription Agent and the Company as to their
authority to so act.
(B) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the subscription
certificate is executed by a person other than the Holder named on the face of
the subscription certificate, proper evidence of authority of the person
executing the subscription certificate must accompany the same unless, for good
cause, the Subscription Agent dispenses with proof of authority.
(C) SIGNATURE GUARANTEES. Your signature must be guaranteed by an Eligible
Institution if you wish to transfer your Rights, as specified 3(b) above, to a
transferee including a bank or broker.
4
<PAGE>
6. METHOD OF DELIVERY.
The method of delivery of subscription certificates and payment of the
Exercise Price to the Subscription Agent will be at the election and risk of
the Holder, but, if sent by mail, it is recommended that they be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be allowed by ensure delivery to the Subscription
Agent and the clearance of any checks sent in payment of the Exercise Price
prior to 5:00 p.m., New York City time, on the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE DEPOSITORY
TRUST COMPANY.
In the case of holders of Rights that are held of record through The
Depository Trust Company ("DTC"), the exercise of the Subscription Privileges
may be effected by instructing DTC to transfer Rights (such Rights being "DTC
Exercised Rights"), from the DTC account of such Holder to the DTC account of
the Subscription Agent, together with payment of the Subscription Price for
each Underlying Share subscribed for pursuant to the Subscription Privileges.
5
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION CERTIFICATES
ISSUED BY
GATEWAY INDUSTRIES, INC.
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated July
1, 1996 (the "Prospectus"), of Gateway Industries, Inc., a Delaware corporation
(the "Company"), if a holder of Rights cannot deliver the subscription
certificate(s) evidencing the Rights (the "subscription certificate(s)") to the
Subscription Agent listed below (the "Subscription Agent"), at or prior to 5:00
p.m. New York City time, on August 9, 1996 (such date, subject to extension as
provided in the Prospectus, is referred to as the "Expiration Date"). Such form
must be delivered by hand or sent by facsimile transmission or mail to the
Subscription Agent, and must be received by the Subscription Agent on or prior
to the Expiration Date. See "The Rights Offering-Exercise of Rights" in the
Prospectus. Payment of the Subscription Price of $3.25 per share for each share
of the Company's Common Stock subscribed for upon exercise of such Rights must
be received by Subscription Agent in the manner specified in the Prospectus at
or prior to 5:00 p.m. New York City time, on the Expiration Date, even if the
subscription certificate evidencing such Rights is being delivered pursuant to
the procedure for guaranteed delivery thereof.
The Subscription Agent is:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby represents that he, she or it is the holder of
subscription certificate(s) representing Rights and that such subscription
certificate(s) cannot be delivered to the Subscription Agent at or before 5:00
p.m., New York City time on the Expiration Date. Upon the terms and subject to
the conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the undersigned hereby elects to irrevocably exercise one or more
Rights evidenced by the subscripting certificate to subscribe for shares of
Common Stock as indicated below.
(a) Number of shares subscribed for x $3.25 per share = $______
pursuant to the Basic (Number of shares--
Subscription Privilege. (One whole number only)
Right equals one share.)
(b) Number of shares subscribed for x $3.25 per share = $______
pursuant to the Oversubscription (Number of shares--
Privilege. (No shares may be whole number only)
subscribed for pursuant to the
Oversubscription Privilege
unless all of the Rights
represented by this Subscription
Certificate are fully exercised
pursuant to the Basic
Subscription Privilege.)
(c) Total Subscription Price. (Add $______
far right columns in (a) and
(b).)
2
<PAGE>
The undersigned understands that payment in full of the Subscription Price,
as computed above, of $3.25 per share for each share of Common Stock subscribed
for pursuant to the Basic Subscription Privilege and Oversubscription Privilege
must be received by the Subscription Agent at or before 5:00 p.m. New York City
time on the Expiration Date and represents that such payment either (check or
appropriate box):
[_]is being delivered to the Subscription Agent herewith
or
[_]has been delivered separately to the Subscription Agent, and is or was
delivered in the manner set forth below (check appropriate box and
complete information relating thereto):
[_]wire transfer of funds
name of transferor institution _________________________________________
date of transfer _______________________________________________________
confirmation number (if available) _____________________________________
[_]uncertified check (Payment by uncertified check will not be deemed to
have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment clears by such date.)
[_]certified check
[_]bank draft (cashier's check)
[_]money order
name of maker __________________________________________________________
date of check, draft or money order ____________________________________
check, draft or money order number _____________________________________
bank on which check is drawn or issuer of money order __________________
Signature(s) ________________________ Address _____________________________
_____________________________________ _____________________________________
Name(s) _____________________________ _____________________________________
_____________________________________ Area Code and Tel. No(s). ___________
PLEASE TYPE OR PRINT
Subscription Certificate No(s). (if Available) _______________________________
3
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, an "Eligible Institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, guarantees that the undersigned will
deliver to the Subscription Agent the certificates representing the Rights
being exercised hereby, with any required signature guarantees and any other
required documents, all within five (5) Nasdaq National Market trading days
after the date hereof.
_____________________________________ Dated: _______________________ , 1996
_____________________________________ _____________________________________
(NAME OF FIRM)
_____________________________________
(ADDRESS) _____________________________________
_____________________________________ (AUTHORIZED SIGNATURE)
(AREA CODE AND TELEPHONE NUMBER)
The institution which completes this form must communicate the guarantee to
the Subscription Agent and must deliver the subscription certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
4
<PAGE>
GATEWAY INDUSTRIES, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
SUBSCRIPTION AGENCY AGREEMENT
DATED AS OF JULY 1, 1996
EXHIBIT 99.4
<PAGE>
SUBSCRIPTION AGENCY AGREEMENT dated as July 1, 1996 by and between Gateway
Industries, Inc., a Delaware corporation (the "Company") and American Stock
Transfer & Trust Company, as Subscription Agent (the "Subscription Agent").
WHEREAS, the Company has caused a Registration Statement on Form S-2
(Registration No.333-4163) under the Securities Act of 1933, as amended (the
"Act"), to be filed with the Securities and Exchange Commission (the
"Commission") relating to a proposed distribution by the Company to holders of
records of shares of its Common Stock, $.001 par value (the "Common Stock"), as
of the close of business on June 27, 1996 (the "Record Date"), of transferable
subscription rights (the "Rights") to purchase additional shares of its Common
Stock (the "Basic Subscription Privilege") at a price of $3.25 per share (the
"Subscription Price"). Each Right will entitle its holder (a "Holder") to
purchase one share of Common Stock. Such Registration Statement, in the form in
which it first becomes effective under the Act, and it may thereafter be amended
from time to time, is referred to herein as the "Registration Statement";
WHEREAS, the Rights will be distributed to holders of records (other than
the Company) of shares of Common Stock as of the Record Date at a rate of three
Rights for each share of Common Stock held on the Record Date;
WHEREAS, upon the full exercise of the Rights of a Holder pursuant to the
Basic Subscription Privilege, such Holder will be entitled to subscribe for
additional shares of Common Stock (the "Oversubscription Privilege";
collectively, with the Basic Subscription Privilege, the "Subscription
Privileges");
WHEREAS, the Company has reserved for issuance, and has authorized the
issuance of, an aggregate of 3,015,039 authorized and unissued shares of Common
Stock (the Underlying Shares") to be distributed pursuant to the exercise of the
Subscription Privileges in the Rights Offering;
WHEREAS, the Company desires the Subscription Agent to act on its behalf in
connection with the Rights Offering as set forth herein, and the Subscription
Agent is willing so to act.
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
SECTION 1. APPOINTMENT OF SUBSCRIPTION AGENT. The Company hereby appoints
the Subscription Agent to act as agent for the Company in accordance with the
instruction set forth in this Agreement, and the Subscription Agent hereby
accepts such appointment. The Company may from time to time appoint such co-
subscription agents as it may deem necessary or desirable. The duties of the
Subscription Agent shall include those contemplated
<PAGE>
by the Subscription Certificate (as defined below) and the Instructions as to
Use of Gateway Industries, Inc. Subscription Certificate included as Exhibit
99.2 to the Registration Statement (the "Instructions") and those forth on
Exhibit A hereto.
SECTION 2. ISSUE OF SECURITIES.
(a) The Company has authorized the issuance of the Rights and,
following the effectiveness of the Registration Statement and the Record Date,
will issue such Rights to holders of record of shares of Common Stock as of the
close of business on the Record Date as contemplated by the Registration
Statement. The Company will promptly notify the Subscription Agent upon the
effectiveness of the Registration Statement. As transfer agent and registrar for
the shares of Common Stock, the Subscription Agent shall provide such assistance
as the Company may require in order to effect the distribution of the Rights to
holders of record of shares of Common Stock as of the close of business on the
Record Date, including assistance in determining the number of Rights to be
distributed to each record holder and assistance in distributing the
Subscription Certificates (as defined in Section 3(b) hereof) evidencing the
Rights. The Company has authorized the issuance of and will hold in reserve the
Underlying Shares, and upon the valid exercise of Rights, the Company will issue
Underlying Shares to validly exercising Holders as set forth in the Prospectus.
SECTION 3. SUBSCRIPTION PRIVILEGES; FORM OF SUBSCRIPTION CERTIFICATE.
(i) Each Right carries with it a Basic Subscription Privilege and an
Oversubscription Privilege:
(i) Each Right entitles its Holder to purchase one share of Common Stock
at a price of $3.25 per share pursuant to such Holder's Basic Subscription
Privilege.
(ii) Holders exercising all of their Rights pursuant to their Basic
Subscription Privileges will be entitled to subscribe for additional Underlying
Shares at the Subscription Price pursuant to their Oversubscription Privileges.
The Company and the Subscription Agent agree to use their respective best
efforts to ensure that Holders exercise in full their Basic Subscription
Privileges before subscribing for and acquiring Underlying Shares pursuant to
their Oversubscription Privileges but acknowledge that such compliance cannot be
guaranteed. Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that the maximum number of
Underlying Shares are not subscribed for through the exercise of all Basic
Subscription Privileges by the Expiration Date (as defined below). If the
Underlying Shares so available (the "Excess Shares") are not sufficient to
satisfy all subscriptions pursuant to the Oversubscription Privilege, the Excess
Shares will be allocated pro rata (subject to the elimination of fractional
shares) among those Holders exercising
<PAGE>
the Oversubscription Privilege, in proportion, not the number of Underlying
Shares subscribed for pursuant to the Oversubscription Privilege, but to the
number of Underlying Shares they have subscribed for pursuant to the Basic
Subscription Privilege; provided, however, that if such pro rata allocation
results in any Holder being allocated a greater number of Excess Shares than
such Holder subscribed for pursuant to the exercise of such Holder's
Oversubscription Privilege, then such Holder will be allocated only such number
of Excess Shares such Holder subscribed for and the remaining Excess Shares will
be allocated among all other Holders exercising Oversubscription Privileges.
(iii) Banks, brokers and other nominee holders of Rights who exercise
Rights on behalf of beneficial owners shall, as a condition of the exercise of
such Rights, be required to certify to the Subscription Agent and the Company
(by delivery to the Subscription Agent of a Nominee Holder Certification
substantially in the form of Exhibit C hereto) as to: 1 the names of the
beneficial owners on whose behalf they are acting; 1 the nominee holder's
authority so to act; 1 the aggregate number of Rights to be exercised on behalf
of each such beneficial owner; 1 the number of Underlying Shares that are being
subscribed for pursuant to the Subscription Privileges of each beneficial owner
of Rights on whose behalf such nominee holder is acting.
(b) The Rights shall be evidenced by subscription certificates (the
"Subscription Certificates"). Subscription Certificates (and the form of
election to exercise of transfer Rights to be printed on the reverse thereof)
shall be substantially in the form attached as Exhibit A hereto. The
Subscription Certificates shall be fully transferable.
SECTION 4. SIGNATURE AND REGISTRATION.
(a) The Subscription Certificates shall be executed on behalf of the
Company by its President and its Secretary by facsimile signature. Any
Subscription Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Subscription Certificate, shall
be a proper officer of the Company to sign such Subscription Certificate, even
if at the date of the execution of this Agreement or the date of the actual
issuance of such certificate any person is not such an officer.
(b) The Subscription Agent will keep or cause to be kept, at its principal
offices in the State of New York, books for registration and transfer of the
Rights issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights and the number of Rights evidenced by each
outstanding Subscription Certificate.
<PAGE>
SECTION 5. DIVISION, COMBINATION AND EXCHANGE OF SUBSCRIPTION CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN SUBSCRIPTION CERTIFICATES.
(a) Any Subscription Certificate, or any two or more Subscription
Certificate, may be divided, combined or exchanged for any number of
Subscription Certificates or for a single Subscription Certificate of different
denominations; provided however, that the aggregate number of Rights evidence by
the Subscription Certificate or Subscription Certificates so issued shall not
exceed the aggregate number of Rights evidenced by the Subscription Certificate
or Subscription Certificates surrendered in exchange therefor. No Subscription
Certificate evidencing fractional Rights will be issued upon division,
combination or exchange of other Subscription Certificates, and any instructions
to divide, combine or exchange Subscription Certificates which would result in
the issuance of Subscription Certificates evidencing fraction Rights shall be
rejected. Any Holder desiring to divide, combine or exchange any Subscription
Certificate or Subscription Certificates to be divided, combined or exchanged
shall be delivered to the Subscription Agent with the transfer information on
the reverse side of the Subscription Certificate properly completed and
executed. Thereupon the Subscription Agent shall deliver to the person entitled
thereto a Subscription Certificate or Subscription Certificates, as the case may
be, as so requested. In all cases of transfer by an attorney-in-fact, the
original power of attorney, duly approved, or a copy thereof, duly certified,
shall be deposited and remain with the Subscription Agent. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority satisfactory to the Subscription Agent
shall be produced and may be required to be deposited and to remain with the
Subscription Agent in its discretion. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any division, combination or exchange of Subscription
Certificates.
(b) Upon receipt by the Company and the Subscription Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Subscription Certificate, and, in case of loss, theft or destruction, of
indemnity and/or security satisfactory to them, which may be in the form of an
open penalty bond, and reimbursement to the Company and the Subscription Agent
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the mutilated Subscription Certificate, the Company will make
and deliver a new Subscription Certificate of like tenor to the Subscription
Agent for delivery to the registered owner in lieu of the Subscription
Certificate so lost, stolen, destroyed or mutilated. If required by the Company
or the Subscription Agent, an indemnity bond must be sufficient in the judgment
of both to protect the Company, the Subscription Agent or any agent thereof from
any loss which any of them may suffer if a Subscription Certificate is replaced.
<PAGE>
SECTION 6. SUBSEQUENT ISSUE OF SUBSCRIPTION CERTIFICATES. Subsequent to
their original issuance, no Subscription Certificates shall be issued except (a)
Subscription Certificates issued upon any transfer, combination, division or
exchange of Rights pursuant to Section 5(a) or 10 hereof; (b) Subscription
Certificates issued in replacement of mutilated, destroyed, lost or stolen
Subscription Certificates issued in replacement of mutilated, destroyed , lost
or stolen Subscription Certificates pursuant to Section 5(b) hereof; and (c)
Subscription Certificates issued pursuant to Section 7(h) hereof upon the
partial exercise of any Subscription Certificate to evidence the unexercised
portion of such Subscription Certificate.
SECTION 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE.
(a) The Holder of any Subscription Certificate may exercise some or all of
the Rights evidenced thereby by delivering to the Subscription Agent, on or
prior to 5:00 p.m., New York City time, on August 9, 1996 (such date subject to
extension as provided in the Prospectus, is referred to herein as the
"Expiration Date"), a properly completed and executed Subscription Certificate
evidencing such Rights (with signature guaranteed, if necessary, an "Eligible
Institution", as defined in Rule 17Ad-15 under the Securities Act of 1934),
together with payment of the Subscription Price (as hereinafter defined) for the
Underlying Share subscribed for pursuant to the Subscription Privileges, subject
to Section 7(d)(iii). In the case of Holders of Rights that are held of record
through the Depository Trust Company ("DTC"), the exercise of the Subscription
Privileges may be effected by instructing DTC to transfer Rights (such Rights
being "DTC Exercised Rights") from the DTC account of such Holder to the DTC
account of the Subscription Agent, together with payment of the Subscription
Price for each Underlying Share subscribed for. Alternatively, the Holder of any
Subscription Certificate may exercise the Rights evidenced thereby effecting
compliance with the procedures for guaranteed delivery set forth in Section 7(b)
below.
(b) If a Holder wishes to exercise Rights, but time will not permit such
Holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) Subject to Section 7(d)(iii), such Holder has caused payment in full of
the Subscription Price for each Underlying Share being subscribed for pursuant
to the Subscription Privileges to be received (in the manner set forth in
Section 7(d) hereof) by the Subscription Agent on or prior to the Expiration
Date;
(ii) the Subscription Agent receives, on or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed
<PAGE>
Delivery"), substantially in the form provided with the Instructions as to Use
of Gateway Industries, Inc. Subscription Certificates (the "Instruction")
distributed with the Subscription Certificates, from an Eligible Institution,
stating the name of the exercising Holder, the number of Rights represented by
the Subscription Certificate or Subscription Certificates held by such
exercising Holder, the number of Underlying Shares being subscribed for pursuant
to the Subscription Privilege, and guaranteeing to the Subscription Agent the
delivery of the Subscription Certificate evidencing such Rights within five (5)
business days following the date of the Notice of Guaranteed Delivery.
(iii) the properly completed Subscription Certificate(s) evidencing the
Rights being exercised, with any required signatures guaranteed, are received by
the Subscription Agent, or such Rights are transferred into the DTC account of
the Subscription Agent, within five (5) business days following the date of the
Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the addresses set forth above, or may be
transmitted to the Subscription Agent by telegram or facsimile transmission
(telecopy no 718-236-4588).
(c) The Rights shall expire at 5:00 p.m. New York City time on the
Expiration Date.
(d) The "Subscription Price" shall be $3.25 per Underlying Shares
subscribed for pursuant to the Subscription Privileges payable (in United States
Dollars) (i) by check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to the Subscription Agent; (ii) by
wire transfer of funds to the account maintained by the Subscription Agent for
such purpose at Chemical Bank, Account No.610-093045, ABA No. 021-000128; or
(iii) by such other manner as the Company may approve in writing in the case of
persons acquiring Underlying Shares at a Subscription Price of $500,000 or more;
provided that, in the case of clause (iii), in any event, the full amount of
such Subscription Price is received by the Subscription Agent in currently
available funds by no later than the fifth (5th) business day following the
Expiration Date (the payment method under (iii) being an "Approved Payment
Method"). The Subscription Price shall be deemed to have been received by the
Subscription Agent only upon (1) clearance of any uncertified check; (2) receipt
by the Subscription Agent of any certified check or bank draft or postal,
telegraphic or express money order, (3) receipt of good funds in the
Subscription Agent's account designated above, in payment of the Subscription
Price; or (4) receipt of funds by the Subscription Agent through an Approved
Payment Method.
(e) If the number of Underlying Shares being subscribed for is not
specified, or full payment of the Subscription Price for the indicated number of
Rights that are being exercised is not forwarded or if the payment delivered
exceeds the required
<PAGE>
Subscription Price, the payment will be applied, until depleted, to subscribe
for Underlying Shares in the following order: (1) to subscribe for the number of
Underlying Shares indicated, if any, pursuant to the Basic Subscription Price;
(2) to subscribe for Underlying Shares until the Basic Subscription Price has
been fully exercised with respect to all of the Rights represented by such
Subscription Certificate; (3) to subscribe for additional Underlying Shares
pursuant to the Oversubscription Privilege (subject to any applicable
proration).
(f) Funds received by the Subscription Agent in payment of the Subscription
Price shall be held in a segregated, interest bearing account until the closing
of the Rights Offering, at which time they shall be paid over to the Company.
All interest accrued on such account shall be for the account of the Company.
(g) If a Holder exercising the Oversubscription Privilege is allocated less
than all of the Underlying Shares which such Holder subscribed for, or if the
number of Underlying Shares purchased by a Holder is otherwise reduced as set
forth in the Section 3(a)(iii), the Subscription Agent, as soon as practicable
after the Expiration Date, shall mail to such Holder the Subscription Price paid
by such Holder in respect of the number of such shares that were subscribed for
but not ultimately issued, without interest of deduction.
(h) In case the Holder of any Subscription Certificate shall exercise less
than all the Rights evidenced thereby (other than a Holder to whom Section
3(a)(iii) applies), a new Subscription Certificate evidencing the number of
Rights remaining unexercised shall be issued by the Subscription Agent to the
registered Holder of such Subscription Certificate or to such Holder's duly
authorized assigns.
(i) The Subscription Agent is authorized to accept only Subscription
Certificates (other than Subscription Certificates delivered in accordance with
the procedure for guaranteed delivery set forth in Section 7(b)), or transfers
of Rights to its account at DTC, received prior to 5:00 p.m., New York City
time, on the Expiration Date.
(j) Once a Holder has exercised a Right, such exercise may not be revoked.
(k) Rights may be exercised by certain transferees in the manner set forth
in the Instructions, without issuance of new Subscription Certificates in the
name of such transferee.
SECTION 8. DELIVERY OF STOCK CERTIFICATES.
(a) BASIC SUBSCRIPTION PRIVILEGE. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Holder who validly
exercised the Basic Subscription Privilege certificates representing Underlying
Shares purchased pursuant to
<PAGE>
the Basic Subscription Price.
(b) OVERSUBSCRIPTION PRIVILEGE. As soon as practicable after the
Expiration Date, the Subscription Agent will mail to each Holder who validly
exercised the Oversubscription Privilege certificates representing the number of
Underlying Shares allocated to such Holder pursuant to the Oversubscription
Privilege.
SECTION 9. FRACTIONAL SHARES. No fractional Underlying Shares, or cash in
lieu thereof, will be issued or paid. The number of Underlying Shares
distributed to each holder will be rounded down to the nearest whole share in
connection with the exercise of Subscription Privileges.
SECTION 10. TRANSFER OF RIGHTS.
Any holder may transfer (i) all of the Rights evidenced by a Subscription
Certificate by properly endorsing the Subscription Certificate for transfer in
accordance with the Instructions accompanying the Subscription Certificate or
(ii) some of the Rights evidenced by a Subscription Certificate (but not
fractional Rights) by delivering to the Subscription Agent such Subscription
Certificate properly endorsed for transfer, with instruction to register the
Rights to be transferred in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
If requested to do so, the Subscription Agent shall issue a new Subscription
Certificate evidencing the balance of the Rights to the Holder or, if so
instructed, to an additional transferee. For purposes of this Agreement the
term "properly endorsed for transfer" shall mean that each and every signature
of a registered Holder or Holders or assigns shall be made or guaranteed by an
Eligible Institution.
SECTION 11. REPORTS. The Subscription Agent shall notify both the Company
and its designated representatives by telephone as requested during the period
ending five (5) business days after the Expiration Date, which notice shall
thereafter be confirmed in writing, of (a) the number of Rights exercised on the
day of such request; (b) the number of Underlying Shares subscribed for pursuant
to the Basic Subscription Price and the number of such Rights for which payment
has been received; (c) the number of Underlying Shares subscribed for pursuant
to the Oversubscription Privilege and the number of such Rights for which
payment has been received; (d) the number of Rights subject to guaranteed
delivery pursuant to Section 7(b) on such day; (e) the number of Rights for
which defective exercises have been received on such day; and (f) cumulative
totals derived from the information set forth in clauses (a) through (e) above.
At or before 5:00 p.m. New York City time, on the first Nasdaq National Market
trading day following the Expiration Date, the Subscription Agent shall certify
in writing to the Company the cumulative totals through the Expiration Date
derived from the information set forth in clauses (a) through (e) above. The
Subscription Agent shall also maintain their Rights and their transferees, and
Holders who have not exercised their Rights.
<PAGE>
The Subscription Agent shall provide the Company or its designated
representatives with the information compiled pursuant to this Section 11 as any
of them shall request.
SECTION 12. FUTURE INSTRUCTION AND INTERPRETATION.
(a) All questions as to the timeliness, validity, form, and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
shall be final and binding. The Company in its sole discretion may waive any
defect or irregularity or permit a defect or irregularity to be corrected within
such time as it may determine or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent shall be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification to any Holder.
(b) The Subscription Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from an
authorized officer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
SECTION 13. PAYMENT OF TAXES. The Company covenants and agrees that it
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Subscription
Certificate or of the Underlying Shares; provided however, that the Company
shall not be liable for any tax liability arising out of any transaction which
results in, or is deemed to be, an exchange of Rights or shares or a
constructive dividend with respect to the Rights or shares and provided further
that the Company shall not be required to pay any tax or other governmental
charge which may be payable in respect of any transfer involved in the transfer
or delivery of any Subscription Certificate or the issuance or delivery of
certificates for shares of Common Stock in a name other than that of the
registered Holder of such Subscription Certificate evidencing the Rights
exercised or transferred, and the Subscription Agent shall not register any such
transfer or issue any such certificate until such tax or governmental charge, if
required, shall have been paid.
SECTION 14. CANCELLATION AND DESTRUCTION OF SUBSCRIPTION. All Subscription
Certificates surrendered for the purpose of exercise, exchange, substitution or
transfer shall be cancelled by the Subscription Agent, and no Subscription
Certificates shall be issued in lieu thereof except as expressly permitted by
provisions of this Agreement. The Company shall deliver to the Subscription
Agent for cancellation and retirement, and the Subscription Agent
<PAGE>
shall so cancel and return, any other Subscription Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. Subscription
Agent shall deliver all cancelled Subscription Certificates to the Company or
shall, at the written request of the Company, destroy such cancelled
Subscription Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
SECTION 15. RIGHT OF ACTION. All rights of action in respect of this
Agreement are vested in the Company and the respective registered Holders of the
Subscription Certificates; and any registered Holder of any Subscription
Certificate, without the consent of the Subscription Agent or of the Holder of
any other Subscription Certificate, may, on his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Subscription Certificate in the manner
provided in such Subscription Certificate and in the Agreement.
SECTION 16. CONCERNING THE SUBSCRIPTION AGENT.
(a) The Company agrees to pay to the Subscription Agent compensation in
accordance with the fee schedule attached hereto as Exhibit B for all services
rendered by it hereunder and, from time to time, on demand of the Subscription
Agent, its reasonable expenses and counsel fees and other disbursements incurred
in the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Subscription Agent for, and to hold it harmless against, any loss, liability, or
expense incurred without negligence or bad faith on the part of the Subscription
Agent for anything done or omitted by the Subscription Agent in connection with
the acceptance and administration of this Agreement, including the reasonable
costs and expenses of defending against any cost or liability on the premises.
The foregoing notwithstanding, the Company shall not indemnify the Subscription
Agent with respect to any claim or action settled without its consent, which
consent shall not be unreasonably withheld.
(b) The Subscription Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Subscription
Certificate, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document reasonably believed by it to be genuine and
to be signed, executed and, where necessary, verified or acknowledged by the
proper person or persons.
SECTION 17. MERGER OR CONSOLIDATION OF SUBSCRIPTION AGENT. Any corporation
into which the Subscription Agent or any successor Subscription Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any corporation
<PAGE>
resulting from any merger or consolidation to which the Subscription Agent or
any successor Subscription Agent shall be a party, or any corporation succeeding
to the corporate trust business of the Subscription Agent or any successor
Subscription Agent, shall be the successor to the Subscription Agent under this
Agreement without the execution or filing of any paper or any further act on the
party of any of the parties hereto.
SECTION 18. DUTIES OF SUBSCRIPTION AGENT. The Subscription Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders of
Subscription Certificates by their acceptance thereof shall be bound.
(a) The Subscription Agent may consult with legal counsel (who may be, but
is not required to be, legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the
Subscription Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever, in the performance of its duties under this Agreement, the
Subscription Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificated signed by either the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
of the Company and delivered to the Subscription Agent; and such certificate
shall be full authorization to the Subscription Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Subscription Agent shall be liable hereunder only for its own
negligence or willful misconduct.
(d) The Subscription Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Subscription Certificates or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
(e) The Subscription Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Subscription Agent) or in respect of the
validity or execution of any Subscription Certificate, nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Subscription Certificate; nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock to be issued in
connection with the exercised Rights or
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pursuant to any Subscription Certificate or as to whether any shares of Common
Stock will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Subscription Agent for the carrying out or performing by the Subscription
Agent of the provisions of this Agreement.
(g) Nothing herein shall preclude the Subscription Agent from acting in any
other capacity for the Company.
SECTION 19. NOTICES TO THE COMPANY, HOLDERS AND SUBSCRIPTION AGENT. All
notices and other communications provided for or permitted hereunder shall be
made by hand delivery, prepaid first class mail, or telecopier:
(a) if to the Company, to:
Gateway Industries, Inc.
c/o Warren G. Lichtenstein
750 Lexington Avenue
New York, NY 10022
with a copy to:
Greenberger & Forman
1370 Avenue of the Americas
New York, NY 10019
Attn: Robert W. Forman, Esq.
Telecopier No.: 212-757-4054
if to the Subscription Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Telecopier No.:(718)236-4588
(b) if to a registered Holder, at the address shown on the registry books
of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered, two (2) business days
after being deposited in the mail, postage prepaid, if mailed as aforesaid; when
answered back if telexed; and when receipt is acknowledged, if telecopied.
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SECTION 20. SUPPLEMENTS AND AMENDMENTS. The Company and the Subscription
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of Subscription Certificates in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provisions herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Subscription Agent may deem necessary or desirable and which
shall not adversely affect the interest of the Holders of the Subscription
Certificates.
SECTION 21. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Subscription Agent shall bind and
inure to the benefit to their respective successors and assigns hereunder.
SECTION 22. TERMINATION. This Agreement shall terminate at 5:00 p.m. New
York City time, on the thirteenth day following the Expiration Date. Upon
termination of this Agreement, and provided that the Underlying Shares for
Rights accepted for exercise prior to such termination are issued and delivered
by the Company, the Company shall be discharged from all obligations under this
Agreement except for its obligations to the Subscription Agent under Section 13
and 16 hereof and except with respect to the obligation of the Company to
provide instruction and direction of the Subscription Agent as may be provided
in this Agreement.
SECTION 23. GOVERNING LAW. This Agreement and each Subscription Certificate
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the internal laws of
said State.
SECTION 24. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give any persons or corporation other than the Company, the
Subscription Agent and the Holders of the Subscription Certificates any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Subscription Agent and
the Holders of the Subscription Certificates.
SECTION 25. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
SECTION 25. DESCRIPTIVE HEADINGS. Description headings of the several
Sections of this Agreement are inserted for the convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, each of the parties hereto caused the Agreement to be
duly executed as of the date first above written.
GATEWAY INDUSTRIES, INC.
By:_______________________
Jack Howard
Acting President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_______________________
Title:____________________
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EXHIBIT A
SUBSCRIPTION AGENT DUTIES AND FEES
Subscription Agent Duties and Services
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1. Calculate and verify number of rights to be issued to each
shareholder;
2. Issue and mail notice of exercise form to each claimant along with the
appropriate rights offering material.
3. Split-up, issue and mail notice of exercise forms as requested by
offerees.
4. Receive and time stamp surrendered notice of exercise forms and
checks.
5. Examine notice of exercise forms and checks for acceptance.
6. Write regarding deficient items.
7. Calculate and verify exercises price received and number of shares to
be issued.
8. Deposit checks into a fiduciary account.
9. Wire funds to corporation's account on business day following end of
offering period.
10. Handle all letters of inquiry regarding lost, destroyed or stolen
notices of exercise forms.
11. Adjust Rights on disputed claims as per Company's instructions and
refund to the holder any excess subscription price resulting from a
reduction of disputed claim.
12. If applicable, reflect restrictive legend on certain stock
certificates to be issued in connection with the offering. Please
provide us with the name(s) of the shareholders and the exact legend
to be shown on the new certificates.
13. Keep accurate controls of all notice of exercise forms exercised and
cancellation of such forms.
14. Issue and mail stock certificates to subscribers.
15. Furnish periodic reports of exercised rights.
16. Track oversubscription privilege.
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17. Calculate pro-ration on oversubscription.
Subscription Agent Fees
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$10 for each exercise of Rights, with a minimum fee of $5,000.
Plus out-of-pocket expenses incurred such as postage, telephone and telegraph,
shipping costs, stationery, counsel and fees, etc.
<PAGE>
EXHIBIT 99.5
NOTICE TO GATEWAY INDUSTRIES, INC. SHAREHOLDERS HOLDING CERTIFICATES OF
GATEWAY COMMUNICATIONS, INC.
The enclosed prospectus and accompanying materials relate to a Rights
Offering by Gateway Industries, inc., a Delaware Corporation (the "Company"),
formerly Gateway Communications, Inc., a California Corporation, ("Old
Gateway"). In the Rights Offering, shareholders of the Company are being granted
three Rights to purchase one share of the Company's common stock for each share
of common stock held as of the close of business on June 27, 1996. Each share of
common stock evidenced by the Old Gateway certificates, entitles you to one-
fifth of a share of the Company's common stock. Accordingly, for each share
listed on your Old Gateway certificate, you will be entitled to one-fifth of a
Right.
Whether or not you decide to exercise your Rights, we urge you to exchange
your Old Gateway certificate for new certificates. You may do so by sending
your old certificate to the Company's transfer agent, American Stock Transfer &
Trust Company, 40 Wall Street, New York, NY 10005.
EXHIBIT 99.5
