**EMPLOYMENT AGREEMENT**

 

This EmploymentAgreement is entered into as of the 1st day of July, 2001, by and betweenGateway Energy Corporation, a Delaware corporation, with its principal place ofbusiness at 500 Dallas Street, Suite 2615, Houston, Texas  77002 (hereinafter the “Company”), subjectto the further definition set forth in Section 7.1, and Scott D. Heflin, whoseaddress is 12422 Rip Van Winkle Drive, Houston, Texas 77024  (hereinafter “Executive”).

 

WHEREAS, the Companyconsiders the establishment and maintenance of a sound and vital management tobe essential to protecting and enhancing the best interests of the Company andits shareholders; and

 

WHEREAS, the Board ofDirectors of the Company has determined that appropriate steps should be takento reinforce and encourage the continued attention and dedication of members ofthe Company's management, including Executive, to their assigned duties withoutdistraction.

 

NOW, THEREFORE, inconsideration of the mutual covenants and agreements of the parties set forthherein, and for other good and valuable consideration, the parties agree asfollows:

 

**Section 1.  Employment.**

 

The Company andExecutive agree that Executive shall serve as Treasurer, Secretary and ChiefFinancial Officer of the Company.  Executiveshall perform such duties and exercise such powers pertaining to the managementand operations of the Company as may be determined from time to time by theCompany.  Such duties and powers shallbe consistent with those normally expected of persons holding similarpositions.  Executive’s duties, however,are subject to reasonable modifications based on future developments in theCompany’s business.

 

**Section 2. Term of Agreement.**

 

This Agreement will beeffective as of July 1, 2001, and, except as otherwise provided in thisAgreement, will continue in effect until October 31, 2004 and shall berenewable for additional one (1) year terms at the option of the Company.  If either party chooses not to renew thisAgreement for a successive one year term, the party making that choice mustprovide the other party with notice of the intent not to renew at least 180days prior to the expiration of the then current term.  If a Change in Control occurs prior to theexpiration of the initial term of this Agreement, this Agreement will continuein effect for three (3) years from the Change in Control.  If a Change in Control occurs during a one(1) year renewal term, this Agreement will continue in effect for one (1) yearfrom the Change in Control.  Executive’sbase salary while employed will be determined from year to year in accordancewith the Company’s Executive Compensation Plan (the “Plan”), but shall be noless than $120,000 annually.

 

**Section 3. Change in Control.**

 

The Company recognizesthat, as is the case with many publicly held corporations, the possibility of achange in control exists, and that possibility, along with the uncertainty andquestions which may arise among management, may result in the departure ordistraction of management personnel to the detriment of the Company and itsshareholders.  In order to induceExecutive to remain in its employ, the Company agrees to provide Executive thepayments and benefits described in this Agreement if Executive's employmentwith the Company is terminated subsequent to a “Change in Control” of theCompany as defined in Section 4, under the circumstances described in Section5.

 

**Section 4. Definition of Change in Control.**

 

For purposes of thisAgreement, a Change in Control of the Company means the occurrence of any ofthe following events during the period in which this Agreement remains ineffect.  A Change in Control will bedeemed to occur on the date the event occurs:

 

4.1           Change in Voting Power. Anyperson or persons acting together which would constitute a “group” for purposesof Section 13(d) of the Exchange Act (other than the Company, or anySubsidiary, or any entity beneficially owned by any of the foregoing)beneficially own (as defined in Rule 13(d)-3 under the Exchange Act) withoutBoard approval or consent, directly or indirectly, at least thirty percent(30%) of the total voting power of the Company entitled to vote generally inthe election of the Board;

 

4.2           Change in Board of Directors.Either:

 

(a)           the Current Directors (as hereinafterdefined) cease for any reason to constitute at least a majority of the membersof the Board (for these purposes, a “Current Director” means any member of theBoard as of the date of this Agreement, and any successor of a Current Directorwhose election or nomination for election by the Company's stockholders wasapproved by at least a majority of the current Directors then on the Board); or

 

(b)           at any meeting of the stockholders ofthe Company called for the purpose of electing directors, a majority of thepersons nominated by the Board for election as directors fail to be elected; or

 

4.3           Liquidation, Merger orConsolidation. The stockholders of the Company approve:

 

(a)           a plan of complete liquidation of theCompany; or

 

(b)           an agreement providing for the mergeror consolidation of the Company (i) in which the Company is not the continuingor surviving corporation (other than consolidation or merger with a whollyowned subsidiary of the Company in which all shares outstanding immediatelyprior to the effectiveness thereof are changed into or exchanged for the sameconsideration) or (ii) pursuant to which the shares are converted intocash, securities or other property, except a consolidation or merger of theCompany in which the holders of the shares immediately prior to theconsolidation or merger have, directly or indirectly, at least a majority ofthe common stock of the continuing or surviving corporation immediately aftersuch consolidation or merger, or in which the Board immediately prior to themerger or consolidation would, immediately after the merger or consolidation,constitute a majority of the board of directors of the continuing or survivingcorporation; or

 

4.4           Sale of Assets. Thestockholders of the Company approve an agreement (or agreements) providing forthe sale or other disposition (in one transaction or a series of transactions)of all or substantially all of the assets of the Company.

 

**Section5.  Termination Following Change inControl.**

 

Ifany of the events described in Section 4 constituting a Change in Controloccur, Executive will be entitled to the payments and benefits provided for inSection 6 if a subsequent termination of Executive's employment occurs withinthree (3) years from the date of that Change in Control, unless that terminationis:

 

(a)           becauseof Executive's death;

 

(b)           bythe Company for Cause or Disability; or

 

(c)           byExecutive other than for Good Reason.

 

Those payments andbenefits will be in lieu of any severance payments Executive would otherwisereceive in accordance with Section 19 of this Agreement.

 

5.1           Cause. Termination by theCompany of Executive's employment for “Cause” means Executive has materiallybreached this Agreement or has engaged in action or misconduct in connectionwith the performance of his duties that is injurious to the business of theCompany, or is convicted of a felony or commits an act of gross, flagrant, andwillful misconduct relating to his employment or the Company’s business,including, but not limited to, theft or embezzlement of the Company’s propertyor money, or an act of fraud against the Company.  If Company believes Cause exists, as defined herein, a writtennotice will be delivered to Executive by the Chief Executive Officer of theCompany (or if Executive is the Chief Executive Officer, the Chairman ofthe  Compensation and Stock OptionCommittee) that specifically identifies the manner in which the Chief ExecutiveOfficer (or the Chairman of the Committee) believes that Executive has given theCompany Cause for termination of Executive's employment, and giving Executivean opportunity for Executive, together with Executive's counsel, to be heardbefore the Board of Directors of the Company. The Board of Directors of the Company may then make a finding that, inthe good faith opinion of two-thirds of the Board of Directors (excluding theExecutive), Executive acted (or failed to act when he should have acted) in amanner constituting Cause as defined herein, and specifying the particulars ofthat finding in detail. For purposes of this subsection 5.1, no act, or failureto act, on Executive's part will be considered “willful” unless done, oromitted to be done, by Executive not in good faith and without reasonablebelief that Executive's action or omission was in the best interest of theCompany.  Following the opportunity forthe Executive, together with the Executive’s counsel, to be heard, the Board ofDirectors may excuse the Executive from any further Board of Directors’proceeding where the finding is discussed or made.

 

5.2           Disability. Termination by theCompany of Executive's employment for “Disability” means termination ofExecutive’s employment following and because of Executive's failure to performsubstantially all of the material duties of his position for a period of at leastone hundred eighty (180) consecutive calendar days due to physical or mentalillness or injury.  Executive willcontinue to receive Executive's full base salary at the rate in effect and anybonus payments under the Plan payable during the one hundred eighty (180) dayqualification period until termination of Executive's employment forDisability. After that termination, Executive's benefit will be determined inaccordance with the Company's other benefit plans and practices then in effectthat apply to Executive.  The Companywill have no further obligation to Executive under this Agreement and allsupplemental benefits will be terminated. If the Company and Executive disagree as to Executive's incapacity, eachmay appoint a medical doctor to certify his opinion as to Executive'sincapacity, and if the doctors do not agree as to Executive's incapacity, thenthe two doctors will appoint a third medical doctor to certify his opinion asto Executive's incapacity, and the decision of a majority of the three doctorswill prevail.  The Company will bear thecosts of the doctors’ opinions.

 

5.3           Good Reason. Termination byExecutive of Executive's employment for “Good Reason” means termination byExecutive of Executive's employment based on:

 

(a)           The assignment to Executive of dutiesinconsistent with his position and status with the Company as they existedimmediately prior to a Change in Control, or a substantial change inExecutive's title, offices or authority, or in the nature of hisresponsibilities, as they existed immediately prior to a Change in Control,except in connection with the termination of his employment for Cause orDisability or as a result of his death or by Executive other than for GoodReason;

 

(b)           A reduction in Executive's basesalary as in effect on the date of this Agreement or as his salary may beincreased from time to time;

 

(c)           A failure to continue the Company'sPlan, as it may be modified from time to time, substantially in the form ineffect immediately prior to a Change in Control, or a failure to continueExecutive as a participant in the Plan on a basis substantially similar to hisparticipation immediately prior to a Change in Control, or to pay Executive theamounts that Executive would be entitled to receive in accordance with thePlan;

 

(d)           Requiring Executive to be based morethan fifty (50) miles from the location where Executive is based immediatelyprior to a Change in Control, except for required travel on business to anextent substantially consistent with Executive’s business travel obligationsprior to the Change in Control, or if Executive is agreeable to relocating,then the Company agrees to reimburse Executive for all reasonable movingexpenses incurred by Executive or to indemnify Executive against any loss realizedin the sale of his principal residence in connection with that relocation;

 

(e)           The failure to continue in effect anyretirement plan, life insurance plan, medical insurance plan, disability planor any other benefit plan in which Executive is participating immediately priorto a Change in Control (or provide plans providing Executive with substantiallysimilar benefits), the taking of any action by the Company that would adverselyaffect Executive's participation or materially reduce his benefits under any ofthose plans or deprive Executive of any material fringe benefit enjoyed byExecutive immediately prior to a Change in Control; or

 

(f)            The failure by the Company to obtainthe assumption of this Agreement by any successor, as contemplated in Section7.

 

5.4           Notice of Termination. Anypurported termination by the Company pursuant to subsections 5.1 or 5.2 or byExecutive pursuant to subsection 5.3 will be communicated by written Notice ofTermination to the other party. For purposes of this Agreement, a “Notice ofTermination” means a notice that indicates the specific termination provisionin this Agreement relied upon and setting forth in reasonable detail the factsand circumstances claimed to provide a basis for termination of Executive'semployment under the provision so indicated. Any purported termination noteffected pursuant to a Notice of Termination meeting the requirements set forthin this Agreement will not be effective.

 

5.5           Date of Termination.  For purposes of this Agreement, the date ofthe termination of Executive’s employment (“Date of Termination”) will be:

 

(a)           if Executive’s employment isterminated by his death, the end of the month in which his death occurs;

 

(b)           if Executive’s employment isterminated for Disability, thirty (30) days after Notice of Termination isgiven; or

 

(b)           if Executive’s employment isterminated by Executive or by the Company for any other reason, the datespecified in the Notice of Termination.

 

**Section 6.  Paymentsand Benefits Upon Certain Terminations Following a Change in Control.**

 

Ifwithin three (3) years following the Change in Control, Executive's employmentis terminated other than for Death, Disability or Cause, or if Executiveterminates his employment for Good Reason, then the following provisions willapply:

 

6.1           Compensation Through Date ofTermination. The Company will pay Executive within thirty (30) days aftertermination:

 

(a)           Anyunpaid amount of Executive’s base salary through the Date of Termination;

 

(b)           Withrespect to any year then completed, any unpaid amount accrued to Executivepursuant to the Plan; and

 

(c)           Withrespect to any year then partially completed, a pro rata portion through theDate of Termination of Executive’s annual bonus under the Plan, based upon theamount of his bonus for the previous year.

 

6.2           Additional Severance. In lieuof any further salary and bonus payments to Executive for periods subsequent tothe Date of Termination, or other severance payments, the Company will pay asseverance pay to Executive two times the sum of:

 

(a)           Executive's annual base salary as ofthe date of Change in Control, or as of the Date of Termination, whichever isgreater; and

 

(b)           Executive's annual bonus under thePlan.  Executive's annual bonus amountis to be based on the greater of:

 

(1)           the average of Executive's bonus forthe two fiscal years of the Company preceding the year in which the Change inControl occurs; or

 

(2)           the average of Executive's bonus forthe two fiscal years of the Company preceding the year in which the terminationof employment occurs.

 

Theseverance pay provided for in this Section 6.2 shall be transferred to a “RabbiTrust,” effective as of the Date of Termination, and paid to Executive intwenty-four (24) equal monthly installments commencing on the first day of thenext month following the Date of Termination, and on the first day of eachsubsequent month, until fully paid.

 

6.3           Benefit Plans.  In the event of a Change in Control, unlessExecutive's employment is terminated for Cause, the Company will, at theCompany expense, maintain in full force and effect for Executive's continuedbenefit, for a period of four (4) years following the Date of Termination, thehealth, dental, disability and other welfare benefits, plan, programs andarrangements substantially equivalent to the most valuable coverage providedunder any plan maintained by the Company from time to time during suchperiod.  In addition, Executive willcontinue to be provided during the four (4) years following the Date ofTermination, with the same life insurance coverage maintained on his lifeimmediately prior to the Date of Termination. These benefits shall be reduced by the amount of similar benefitsprovided to Executive during such period by a subsequent employer, asdetermined solely by the Board.  For thepurposes of enforcing this offset provision, Executive shall notify the Boardas to the terms and conditions of any subsequent employment and thecorresponding benefits received pursuant thereto, and shall provide, or causeto provide the Board, correct, complete, and timely information concerning thesame.

 

6.4           No Mitigation Required.  Executive will not be required to mitigatethe amount of any payment provided for in this Section 6 by seeking otheremployment or otherwise, nor will the amount of any payment provided for inthis Section 6 be reduced by any compensation earned by Executive as the resultof employment with another employer after the Date of Termination or otherwise,except for a reduction in benefits as set forth in subsection 6.3.

 

6.5           Tax Gross-up Payment.  If any payments or benefits providedpursuant to this Section 6 are subject to an excise tax on an “excess parachutepayment” under Section 4999 of the Internal Revenue Code of 1986 (the “Code”),or any successor provision of the Code, or are subject to an excise or penaltytax under any similar provision of any other revenue system to which Executivemay be subject, the Company will provide a gross-up payment to Executive inorder to place Executive in the same after-tax position Executive would havebeen in had no excise or penalty tax become due and payable under Code Section4999 (or any successor provision) or any similar provision of another revenuesystem.  No gross-up payment will bemade for any excise or penalty tax attributable to any stock options granted toExecutive, or for any other payments or benefits provided to Executive underother sections of this Agreement.

 

**Section 7. Successors; Binding Agreement.**

 

7.1           Assumption by Company’s Successor.The Company will request any successor (whether direct or indirect, bypurchase, merger, consolidation or otherwise) to all or substantially all ofthe business and/or assets of the Company, by agreement in form and substancereasonably satisfactory to Executive, to expressly assume and agree to performthis Agreement.  Failure of the Companyto obtain that agreement prior to the effectiveness of any succession will be abreach of this Agreement and will entitle Executive to payments and benefitsfrom the Company in the same amount and on the same terms to which Executivewould be entitled under this Agreement if Executive terminated Executive'semployment for Good Reason within three (3) years following a Change inControl, except that for purposes of implementing the foregoing, the date onwhich that succession becomes effective will be deemed the Date ofTermination.  As used in this Agreement,“Company” means Gateway Energy Corporation and any successor to its businessand/or assets, regardless of whether such successor specifically assumes andagrees to perform this Agreement.

 

7.2           Enforcement by Executive’sSuccessor. This Agreement will inure to the benefit of and be enforceableby Executive's personal or legal representatives, executors, administrators,successors, heirs, distributees, devisees and legatees.  If Executive dies subsequent to thetermination of Executive's employment while any amount would still be payableto Executive pursuant to this Agreement if Executive had continued to live, allthose amounts, will be paid in accordance with the terms of this Agreement toExecutive's devisee, legatee or other designee or, if there be no designee, toExecutive's estate. The foregoing payment will be made in a lump sum withinsixty (60) days following the date of Executive's death.

 

**Section 8.  WorkingFacility.**

 

Executivewill perform his services hereunder at the principal office of the Company,located in Houston, Texas, except as travel to other locations is warranted bythe business of the Company.  TheCompany shall provide Executive with such office space, secretarial help, andother facilities and services as may be suitable to his position andappropriate for the performance of his duties.

 

**Section 9.  Expensesand Benefits.**

 

TheCompany shall pay or reimburse Executive for any expenses reasonably incurredby him in furtherance of his duties hereunder, including, but not limited to,reasonable expenses for traveling, meals and hotel accommodations, uponsubmission by Executive of vouchers or itemized statements therefor, preparedin compliance with such rules and policies as the Company may from time to timeadopt and as may be required in order to permit such payments as properdeductions by the Company under the Internal Revenue Code and the rules andregulations adopted pursuant thereto, now or hereafter in effect.

 

Executiveshall have made available to him, on substantially the same terms as othermanagement level employees of the Company, group insurance, retirement plans,and other benefit programs in effect from time to time during the term ofExecutive’s employment.  Executive’sparticipation under any group insurance programs, retirement plans or otherbenefit programs shall be subject to the applicable terms and conditions of thesame.  This paragraph shall not beconstrued as a commitment on the part of the Company to establish, maintain, orcontinue any such plans or programs.

 

**Section 10. Notice.**

 

Forpurposes of this Agreement, notices and all other communications provided forin this Agreement will be in writing and will be deemed to have been duly givenwhen delivered or mailed by United States registered mail, return receiptrequested, postage prepaid, addressed to the respective addresses set forth onthe first page of this Agreement, provided that all notices to the Company willbe directed to the attention of the Chief Executive Officer of the Company (orif the notice is from the Chief Executive Officer, to the Secretary of theCompany), or to such other address as either party may have furnished to theother in writing in accordance with this Section 10, except that notice ofchange of address will be effective only upon receipt.

 

**Section 11. Modification and Waiver.**

 

Noprovision of this Agreement may be modified, waived or discharged unless thatwaiver, modification or discharge is agreed to in writing by Executive and suchofficer as may be specifically designated by the Board of Directors of theCompany. No waiver by either party at any time of any breach by the other partyof, or compliance with, any condition or provision of this Agreement to beperformed by that other party will be deemed a waiver of similar or dissimilarprovisions or conditions at the time or at any prior or subsequent time.

 

**Section 12. Construction.**

 

ThisAgreement supersedes any oral agreement between Executive and the Company andany oral representation by the Company to Executive with respect to the subjectmatter of this Agreement.  The validity,interpretation, construction and performance of this Agreement will be governedby the laws of the State of Texas.

 

**Section 13. Severability.**

 

Ifany one or more of the provisions of this Agreement, including but not limitedto Section 18 hereof, or any word, phrase, clause, sentence or other portion ofa provision is deemed illegal or unenforceable for any reason, that provisionor portion will be modified or deleted in such a manner as to make thisAgreement as modified legal and enforceable to the fullest extent permittedunder applicable laws. The validity and enforceability of the remainingprovisions or portions will remain in full force and effect.

 

**Section 14. Counterparts.**

 

ThisAgreement may be executed in two or more identical counterparts, each of whichwill take effect as an original and all of which will evidence one and the sameagreement.

 

**Section15. Legal Fees.**

 

Ifthe Company breaches this Agreement or if, within three (3) years following aChange in Control, (a) Executive's employment is terminated by the Companyother than for Cause or Disability; or (b) Executive terminates Executive'semployment for Good Reason, the Company will reimburse Executive for all legalfees and expenses reasonably incurred by Executive as a result of thattermination (including all those fees and expenses, if any, incurred incontesting or disputing the termination or in seeking to obtain or enforce anyright or benefit provided by this Agreement, unless the Company is theprevailing party in such contest or dispute).

 

**Section 16. Employment by a Subsidiary.**

 

Eitherthe Company or a Subsidiary may be Executive's legal employer. For purposes ofthis Agreement, any reference to Executive's termination of employment with theCompany means termination of employment with the Company and all Subsidiaries,and does not include a transfer of employment between any of them. The actionsreferred to under the definition of “Good Reason” in subsection 5.3 include theactions of the Company or Executive's employing Subsidiary, as applicable. Theobligations created under this Agreement are obligations of the Company. Achange in control of a Subsidiary will not constitute a Change in Control forpurposes of this Agreement unless there is also a contemporaneous Change inControl of the Company. For purposes of this Agreement, a “Subsidiary” means anentity more than fifty percent (50%) of whose equity interests are owneddirectly or indirectly by the Company.

 

**Section 17.  Arbitration.**

 

Exceptfor the rights and duties of the parties set forth in Section 18 of thisAgreement, any dispute or controversy arising under or in connection with thisAgreement shall be settled exclusively by arbitration in Houston, Texas,according to the rules of the American Arbitration Association then in effect.Judgment may be entered on the arbitrator's award in any court havingjurisdiction; provided, however, that Executive shall be entitled to seekspecific performance of his right to be paid for all periods up to the Date ofTermination during the pendency of any dispute or controversy arising under orin connection with this Agreement.

 

**Section 18.  RestrictiveCovenant.**

 

18.1         Need for Protection.  Executive acknowledges that, because of hissenior executive position with the Company, his knowledge of the affairs of theCompany and his relations with its suppliers and customers, he could do seriousdamage to the financial welfare of the Company, should he compete or assistothers in competing with the business of the Company.  Accordingly, the parties agree as follows:

 

18.2         Confidential Information.

 

(a)           Non-Disclosure.  Except as the Company may permit or directin writing, during the term of this Agreement and thereafter, Executive agreesthat he will never disclose to any person or entity any confidential orproprietary information, knowledge, or data of the Company, which he may haveobtained while in the employ of the Company, relating to any customers,customer lists, methods of distribution, sales, prices, profits, costs,contracts, inventories, suppliers, dealers, distributors, business prospects,business methods, manufacturing ideas, formulas, plans or techniques, research,trade secrets, or know how of the Company.

 

(b)           Return of Records.  All records, documents, software, computerdisks, and any other form of information relating to the business of theCompany, which are or were prepared or created by Executive, or which may ordid come into his possession during the term of his employment with theCompany, including any and all copies thereof, shall be returned to theCompany, or as the case may be, shall remain in the possession of the Company,upon termination of employment for any reason.

 

(c)           Future Employment.  Nothing in this section shall limit theExecutive’s right to carry Executive’s accumulated career knowledge andprofessional skills to any future employment, subject to the specificlimitations of the foregoing provisions of this section and the covenants setforth below.

 

18.3         Non-Competition.

 

(a)           Scope of Operations.  The parties hereto acknowledge that theCompany’s operations are within the continental United States, and that itconducts business throughout the continental United States, thus, the Company’sneed for protection against unfair competition is throughout the continentalUnited States.

 

(b)           Covenant Not To Compete.  Executive agrees that he will not, duringthe term of this Agreement and for a period of six (6) months after hisemployment with the Company has terminated:

 

(1)           engage directly or indirectly, for hisown personal benefit or the benefit of any person or entity other than theCompany, in bidding on any projects which would result in direct competitionwith the Company, anywhere in the continental United States; or

 

(2)           develop, promote, invest in, providefinancing for, be employed by, or operate any business on his own behalf, orfor any other person or entity, which bids or solicits on any projects whichwould result in direct competition with the Company, or, assist any otherperson in doing so.

 

18.4         Termination Without Cause.  It is understood and agreed that in theevent the Company terminates Executive’s employment without Cause, subsection18.3 hereof shall be null and void. Notwithstanding the foregoing provision, however, if Executive’s employmentis terminated under circumstances which entitle him to receive the payments andbenefits provided in Section 6 of this Agreement, then in such event, theprovisions of Section 18.3 hereof shall remain in full force and effect.

 

18.5         Judicial Modification.  In the event that any court of law or equityshall consider or hold any aspect of this Section 18 to be unreasonable orotherwise unenforceable, the parties hereto agree that the aspects of thissection so found may be reduced, reformed or modified by appropriate order ofthe court, and shall thereafter continue, as so modified, in full force andeffect.

 

18.6         Injunctive Relief.  The parties hereto acknowledge that theremedies at law for breach of this section will be inadequate, and the Companyshall be entitled to injunctive relief for violation thereof; provided,however, that nothing herein shall be construed as prohibiting the Company frompursing any other remedies available for such breach or threatened breach,including the recovery of damages from Executive.

 

**Section19.  Termination and Severance; NoChange in Control**.

 

Executive’semployment under this Agreement may be terminated, separate and apart from theoccurrence of a Change in Control, in one of the following ways:

 

19.1         Mutual Agreement.  At any time by mutual written agreement ofboth parties to this Agreement, subject to any terms and conditions specifiedin such mutual written agreement; or

 

19.2         For Cause.  At any time by the Company, by writtennotice to Executive, terminating this Agreement and discharging Executive forCause, as defined in Section 5.1 of this Agreement; or

 

19.3         Automatically.  Automatically and immediately should one ofthe following events occur:

 

(a)           Executive dies; or

 

(b)           Executive’s Disability, as defined inSection 5.2 of this Agreement.

 

19.4         Severance.  In addition to the foregoing, Company may atany time, upon thirty (30) days’ written notice, terminate this Agreementwithout Cause.  If termination occursduring the initial term of this Agreement, Executive shall be entitled toseverance pay in an amount equal to (including amounts paid during the 30-daynotice period) one (1) years’ base salary at the rate then in effect, or thebase salary attributable to the remaining months of the term of this Agreementat the rate then in effect, whichever is greater.  If termination occurs during a one (1) year renewal period underthis Agreement, Executive shall be entitled to severance pay in an amount equalto (including amounts paid during the 30-day notice period) the base salaryattributable to the remaining months of the one (1) year term at the rate thenin effect.  In either event, Executiveshall also receive a pro rata share of any cash bonus paid for the year,attributable to that portion of the year during which Executive was employed,and will also receive any unpaid bonus attributable to the previous year ofemployment.  The base salary portion ofthe severance shall be payable, at the Company’s option, in a lump sum or inequal monthly installments consistent with the Company’s ordinary payrollpractices.  The cash bonus portion ofthe severance shall be paid in accordance with the schedule set forth in thePlan.  Executive shall also be entitledto continuation of benefits through the end of the employment term then ineffect under this Agreement, or if sooner, until such time as he securesalternative employment which provides him with comparable benefits.  If the Company terminates this Agreementwithout Cause, the Company shall have the right at its option, to requireExecutive to immediately leave the Company’s premises; provided, that theCompany shall be obligated to pay (as part of the severance) Executive’s basesalary during the 30-day notice period.

 

**Section 20.  Exclusivityof Services.**

 

Executiveagrees that his employment with the Company will be full time, and that he willdevote his best efforts and attention to the business of the Company.  The Company agrees that Executive will serveas a member of the Board of Directors of the Company.  In the event of his election to the Board, Executive will receiveno additional compensation for his services as a Board member.  The Company, through the Board of Directors,agrees to nominate the Executive to serve as a member of the Board of Directorsof the Company.

 

 

INWITNESS WHEREOF, the parties have executed this Agreement as of the date firstabove written.

 
|   |   |   |   |   |   | GATEWAY ENERGY  CORPORATION, INC. |
|--------|--------|--------|--------|--------|--------|-----------------------------------|

 
|   |   |   |   |   |   |   |                           |
|--------|--------|--------|--------|--------|--------|--------|--------------------------------|
|   |   |   |   |   |   | By:    |                           |
|   |   |   |   |   |   |   | John B. Ewing,  Chairman       |
|   |   |   |   |   |   |   | Compensation and Stock  Option |
|   |   |   |   |   |   |   | Committee                      |
|   |   |   |   |   |   |   |                           |
|   |   |   |   |   |   |   |                           |
|   |   |   |   |   |   |   |                           |
|   |   |   |   |   |   |   |                           |
|   |   |   |   |   |   |   |                           |
|   |   |   |   |   |   |   | Scott D. Heflin                |