-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Az3lTl1AVTPrCieRVgeqzEdloezY7bTXwHFhBJQPErlT5WgE2T41sa0Q+WH/4vfh wHGycoa205Rh0+HKUtHFQw== 0000950130-96-002470.txt : 19960703 0000950130-96-002470.hdr.sgml : 19960703 ACCESSION NUMBER: 0000950130-96-002470 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19960702 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GATEWAY INDUSTRIES INC /CA/ CENTRAL INDEX KEY: 0000725876 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953702929 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-04163 FILM NUMBER: 96590340 BUSINESS ADDRESS: STREET 1: 101-01 FOSTER AVENUE CITY: BROOKLYN STATE: NY ZIP: 11236 BUSINESS PHONE: 7182729700 MAIL ADDRESS: STREET 1: 101-01 FOSTER AVENUE CITY: BROOKLYN STATE: NY ZIP: 11236 FORMER COMPANY: FORMER CONFORMED NAME: GATEWAY COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 S-2/A 1 AMENDMENT NO. 1 TO FORM S-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JULY , 1996 REGISTRATION NO. 333-4163 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- 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 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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 - ----------------------------------------------------------------------------------- Common Stock, $.001 par value.................. 3,105,039 $3.25 $10,091,376 $3,481.00
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------- * Not applicable. 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 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.
CLOSING SALES -------------- 1994 HIGH($) LOW($) ---- ------- ------ FIRST QUARTER.............................................. 5.31 3.75 SECOND QUARTER............................................. 5.63 3.44 THIRD QUARTER.............................................. 5.16 3.13 OCT 3--NOV 17.............................................. 4.00 3.75
BID PRICES ASK PRICES ------------- ------------- HIGH($) LOW($) HIGH($) LOW($) ------- ----- ------ ----- 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
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. 15 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 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 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 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 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 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 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 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
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,105,039 SHARES GATEWAY INDUSTRIES, INC. COMMON STOCK ---------------- PROSPECTUS ---------------- July 1, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. 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 ==========
- -------- 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 ITEM 16. EXHIBITS.
SEQUENTIALLY EXHIBIT NO. DESCRIPTION NUMBERED PAGE ----------- ----------- ------------- 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)
II-2
SEQUENTIALLY EXHIBIT NO. DESCRIPTION NUMBERED PAGE ----------- ----------- ------------- 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
- -------- (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 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 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 EX-3.2 2 AMENDED AND RESTATED BY-LAWS 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 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 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. 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 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 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 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 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 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 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 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 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 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. 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 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. 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- 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 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 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 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 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. 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. EX-5 3 OPINION OF GREENBERGER & FORMAN 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 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 EX-8 4 TAX OPINION OF GREENBERGER & FORMAN 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 - 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, - 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. - 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 EX-23.2 5 CONSENT OF BERENSON & COMPANY, LLP [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 EX-23.1 6 CONSENT OF ERNST & YOUNG, LLP [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 EX-99.1 7 FORM OF SUBSCRIPTION CERTIFICATES 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 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. EX-99.2 8 FORM OF INSTRUCTIONS FOR SUBSCRIPTION 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. 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 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 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 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 EX-99.3 9 FORM OF NOTICE OF GUARANTEED DELIVERY 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. 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 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 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 EX-99.4 10 FORM OF SUBSCRIPTION AGENCY AGREEMENT GATEWAY INDUSTRIES, INC. AND AMERICAN STOCK TRANSFER & TRUST COMPANY SUBSCRIPTION AGENCY AGREEMENT DATED AS OF JULY 1, 1996 EXHIBIT 99.4 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 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 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. 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. 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 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 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 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. 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 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 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 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. 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. 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:____________________ EXHIBIT A SUBSCRIPTION AGENT DUTIES AND FEES Subscription Agent Duties and Services - -------------------------------------- 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. 17. Calculate pro-ration on oversubscription. Subscription Agent Fees - ----------------------- $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. EX-99.5 11 NOTICE TO CERTAIN SHAREHOLDERS 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 -----END PRIVACY-ENHANCED MESSAGE-----