**Exhibit 4(c)(1)**

 

THIS NOTE HAS NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),AND MAY NOT BE OFFERED, TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OROTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THESECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WHICH HAS BECOME EFFECTIVEAND IS CURRENT WITH RESPECT TO THIS NOTE, OR (ii) PURSUANT TO AN EXEMPTION FROMREGISTRATION UNDER RULE 144 OF THE SECURITIES ACT BUT ONLY IF (a) THE REGISTEREDHOLDER HEREOF HAS FIRST OBTAINED THE WRITTEN OPINION OF COUNSEL TO GATEWAYENERGY CORPORATION (THE “COMPANY”), OR OTHER COUNSEL REASONABLY ACCEPTABLE TOTHE COMPANY, TO THE EFFECT THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALLAPPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE STATESECURITIES LAWS.

 

**GATEWAYENERGY CORPORATION**

 

**CONVERTIBLEPROMISSORY NOTE**

 

The Transferability of thisNote isRestricted as Provided in Section 7

 

***Certain capitalized terms used in this Note are defined in Section 1.1***

 
| N-1         | November 1, 2004 |
|-------------|-----------------------|
|        |                  |
| $115,000.00 | Houston, Texas        |

 

FOR VALUE RECEIVED, GATEWAY ENERGY CORPORATION, aDelaware corporation (the “Company”), promises to pay to Josh H. Buterin or hisPermitted Transferee(s) (the “Registered Holder”), the principal amount of OneHundred Fifteen Thousand Dollars and no/100 ($115,000.00), and to pay interest(computed on the basis of 360-day years, each of twelve 30-day months) on theunpaid principal amount hereof at the rate of eight percent (8%) per annumcompounded annually until the earlier of (i) the conversion of the unpaidprincipal amount and accrued but unpaid interest on this Note into Common Stockin accordance with the provisions of Section 5(a) hereof, and (ii)repayment in full of the principal amount and accrued and unpaid interest onthis Note.  Interest due shall be payableby the Company upon the Maturity Date, not upon conversion.

 

The Registered Holder of this Note has certainrights, including the right to convert this Note into Common Stock pursuant tothe terms of this Note.

 

1.                                       This Note is subject to the additional termsand conditions set forth below:

 

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1.1                                 Definitions.  The following terms, as usedin this Note, shall have the meanings ascribed to them below:

 

“Common Stock” shall mean the Common Stock, parvalue $0.25 per share, of the Company.

 

“Conversion Price” shall mean an amount per shareequal to the greater of (i) $0.25 (the “Minimum Conversion Price”), or (ii) 85%of the average of all closing prices or last sales price of the Common Stock,as reported on the principal securities exchange or quotation system thereof,for the ninety (90) days immediately prior to the conversion of this Note intoCommon Stock, taking into only those days on which trading occurs (for example,if trading only occurs on 50 trading days during such 90-day period, theaggregate of all closing prices on such days shall be divided by 50).

 

“Event of Default” shall have the meaning set forthin Section 8 hereof.

 

“Material Adverse Effect” shall mean any adverseeffect on the business, operations, properties, prospects or financialcondition of the entity or entities with respect to which such term is used andwhich is material to such entity and other entities controlling or controlledby such entity, taken as a whole.

 

“Maturity Date” shall mean March 31, 2005,unless extended with the consent of the Registered Holder to September 27,2005.

 

“Permitted Transferee” shall mean any Person to whomany Registered Holder or other Permitted Transferee transfers the Note incompliance with the terms of this Note, the Securities Act and the regulationspromulgated thereunder, and applicable state securities laws and regulations.

 

“Person” shall mean an individual, corporation,limited liability company, partnership, trust, firm, incorporated orunincorporated association, joint venture, joint stock company, government (oragency or political subdivision thereof), or other entity of any kind, and anysuccessor (by merger or otherwise) of any such entity.

 

“Registered Holder” shall mean the Person to whomthis Note is first issued and any Permitted Transferees hereof.

 

“Subscriptions” shall mean the subscriptions forCommon Stock described in Section 1.3.

 

This Note is subject to the following terms andconditions.

 

1.2                                 Unsecured Obligations.  ThisNote and the amounts payable hereunder, including principal and accruedinterest, are unsecured obligations of the Company.

 

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1.3                                 Obligation to Fund.  TheRegistered Holder is not obligated to fund this Note until written commitmentshave been obtained from directors of the Company or their families, tosubscribe for 316,667 shares of the Common Stock of the Company at a price of$.30 per share or an aggregate of $95,000.00 (the “Subscriptions”) .  Funding of this Note and funding of theSubscriptions need not be contemporaneous; the Registered Holder shall beobligated to fund this Note upon the Company obtaining the writtenSubscriptions.

 

2.                                       Covenants.  The Company covenants andagrees that, so long as this Note is outstanding and unpaid:

 

(a)                                  Payment of Note.  TheCompany will punctually pay or cause to be paid the principal and interest onthis Note on the dates, at the places and in the manner specified herein.  Any sums required to be withheld from anypayment of principal or interest on this Note by operation of law or pursuantto any order, judgment, execution, treaty, rule or regulation may be withheldby the Company and paid over in accordance therewith.

 

Nothing in this Note or in any other agreementbetween the Registered Holder hereof and the Company shall require the Companyto pay, or such Registered Holder to accept, interest in an amount which wouldsubject the Registered Holder to any penalty or forfeiture under applicablelaw.  In the event that the payment ofany charges, fees or other sums due under this Note or provided for in anyother agreement between the Company and the Registered Holder are or could beheld to be in the nature of interest and would subject the Registered Holder toany penalty or forfeiture under applicable law, then ipso facto theobligations of the Company to make such payment to the Registered Holder shallbe reduced to the highest rate authorized under applicable law and, in theevent that the Registered Holder shall have ever received, collected, acceptedor applied as interest any amount in excess of the maximum rate of interestpermitted to be charged by applicable law, such amount which would be excessinterest under applicable law shall be applied first to the reduction ofprincipal then outstanding, and, second, if such principal amount is paid infull, the remainder, if any, shall forthwith be returned to the Company.

 

(b)                                 Maintenance of Corporate Existence; Mergerand Consolidation.  The Company will at all times cause to bedone all things necessary to preserve and keep in full force and effect itscorporate existence and all of the respective rights and franchises of theCompany, and the Company shall not consolidate with or merge into any othercorporation or transfer all or substantially all of its assets to any Personunless (i) the survivor of such consolidation or merger is the Company, or is acompany organized in a state other than the Company’s original state ofincorporation, into which the Company has merged solely to effect a change inthe state of incorporation of

 

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theCompany, provided that such surviving company assumes the obligations of theCompany under the Note pursuant to operation of law, (ii) the company formed bysuch consolidation or into which the Company is merged or to which the assetsof the Company are transferred is a company which expressly assumes all of theobligations of the Company under the Note, and (iii) after giving effect tosuch transaction, no Event of Default and no event which, after notice or lapseof time, or both, would become an Event of Default, shall have occurred and becontinuing.

 

(c)                                  Use of Proceeds. The Company will restrict the use ofsubstantially all of the proceeds of this Note and the proceeds of theSubscriptions to meet, as needed, the monthly payments due Southwest Bank ofTexas on debt (the “Madisonville Project Debt”) incurred by Gateway PipelineCompany and Gateway Processing Company, wholly owned subsidiaries of theCompany, in connection with the construction of the Madisonville pipelinefacilities. The Madisonville Project Debt is guaranteed by the Company and hasinterest and principal payments due on or about the last day of eachmonth.  Note and Subscription proceedsmay also be used by the Company (a) to fund the construction of any and alladditional Madisonville pipeline facilities contemplated in Phase II of the MadisonvilleProject Debt, and (b) for interest payments as may come due with respect to theSubordinated Promissory Notes issued in connection with the Company’srecapitalization in 1997.

 

(d)                                 Separate Account.  TheCompany will place all proceeds received from this Note and Subscriptions into aninterest-bearing account, separate and distinct from the general accounts ofthe Company. The Company further agrees that two (2) signatures shall berequired to withdraw funds from such account. This authorization shall includeone executive officer of the Company and one designated member from theOversight Committee of the Board of Directors of the Company.

 

3.                                       Interest.  Interest shall be payable onthe unpaid principal amount of this Note at the rates and times established inthe first paragraph of the preamble of this Note.  Upon the occurrence of an Event of Default,interest on the unpaid principal amount of this Note shall increase to eightpercent (8%) per annum.

 

4.                                       Maturity.  If this Note is not convertedinto Common Stock of the Company in accordance with the terms of Section 5(a)hereof, the principal amount of this Note, together with all accrued and unpaidinterest thereon, shall be due and payable in cash on the Maturity Date.

 

5.                                       Common Stock Conversion.  Theprincipal amount of this Note and all accrued but unpaid interest may beconverted into Common Stock of the Company in an amount of shares determined bydividing the principal amount of this Note plus all accrued but unpaid interestby the Conversion Price.

 

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(a)                                  Effect of Conversion.  Uponconversion of all of the principal amount and accrued but unpaid interest onthis Note into Common Stock, the principal amount of this Note and all interestthereon shall have thereby been paid and discharged in full, this Note shall becanceled, and the Registered Holder shall have no recourse to the Company withrespect thereto.

 

(b)                                 Method of Conversion. Conversion shall be effected by surrendering this Note to the Company atits address set forth herein for notices or to an agent designated by theCompany by notice given to the Registered Holder.  Interest on the principal amount of this Noteshall cease to accrue on and after the conversion hereof on the date the noticeof conversion is received by the Company.

 

(c)                                  Reservation of Stock.  TheCompany shall at all times reserve and keep available out of its authorized butunissued shares such number of shares of Common Stock necessary for theconversion of this Note, and if at any time the number of authorized butunissued shares of Common Stock is not sufficient to effect for the purposesdescribed above, then the Company shall take such corporate action as in theopinion of its counsel may be necessary to increase the number of authorizedbut unissued shares to the number of shares sufficient for such purpose andshall use the Company’s best efforts to obtain the requisite stockholderapproval.

 

(d)                                 Anti-Dilution Provisions.  Inthe event of any change in capitalization affecting the Common Stock of theCompany, such as a stock dividend, stock split or recapitalization, the Companyshall make appropriate adjustments with respect to (i) the aggregate number ofshares of Common Stock issuable upon conversion of this Note, (ii) the MinimumConversion Price or the Conversion Price, or (iii) such other matters as may beappropriate in light of the circumstances.

 

6.                                       Restrictions Upon Transferability. Neither this Note nor the Common Stock intowhich it may be converted has been registered under the Securities Act of 1933or applicable state securities laws, and may not be offered, sold, transferred,pledged, hypothecated, assigned or otherwise disposed of except (a) pursuant toan effective registration statement under the Securities Act and such State lawwhich is current with respect to this Note or the Common Stock, or (b) pursuantto an exemption from registration under the Securities Act and such State lawif the Registered Holder hereof shall have first obtained the written opinionof counsel to the Company, or other counsel reasonably acceptable to theCompany, to the effect that the proposed disposition is consistent with allapplicable provisions of the Securities Act and applicable State securitieslaws. Currently, the Company and the Registered Holder understand that afterthe Common Stock of the Company has been held for two (2) years, it may beresold under Rule 144.

 

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7.                                       Prepayment Restriction. The principal amount of this Note may beprepaid, in whole or in part, at any time prior to the Maturity Date withoutpenalty.  The conversion of the principalof and any accrued but unpaid interest on this Note into Common Stock may beelected by the Registered Holder hereof in lieu of prepayment by the Companyprior to the Maturity Date.

 

8.                                       Events of Default.  Theoccurrence of each of the following shall constitute an event of defaulthereunder (each, an “Event of Default”):

 

(a)                                  Payment of Note.  Thedefault by the Company in the payment of the principal of or interest on thisNote, when and as the same becomes due and payable, whether on the MaturityDate, upon acceleration or otherwise, which default remains uncured for aperiod of five (5) days or longer; or

 

(b)                                 Performance of Covenants, Conditions orAgreements.  The default by the Company in any materialrespect in the performance or observance of any material covenant, condition oragreement set forth in this Note, which default continues uncured for a periodof thirty (30) days or longer after the Company receives written notice fromany Registered Holder indicating the particular default to have occurred; or

 

(c)                                  Bankruptcy, Insolvency, etc.  TheCompany shall file or consent by answer or otherwise to the entry of an orderfor relief or approving a petition for relief, reorganization or arrangement orany other petition in bankruptcy for liquidation or to take advantage of anybankruptcy or insolvency law of any jurisdiction, or shall make an assignmentfor the benefit of its respective creditors, or shall consent to theappointment of a custodian, receiver, trustee or other officer with similarpowers of itself or of any substantial part of their respective property, orshall be adjudicated a bankrupt or insolvent, or shall take corporate action forthe purpose of any of the foregoing, or if a court or governmental authority ofcompetent jurisdiction shall enter an order appointing a custodian, receiver,trustee or other officer with similar powers with respect to the Company or anysubstantial part of its respective property or an order for relief or approvinga petition for relief or reorganization or any other petition in bankruptcy orfor liquidation or to take advantage of any bankruptcy or insolvency law, or anorder for the dissolution, winding up or liquidation of the Company, or if anysuch petition shall be filed against the Company and such petition shall not bedismissed within sixty (60) days.

 

9.                                       Remedies.  If an Event of Default otherthan (i) an Event of Default resulting from the Company’s failure to pay theprincipal of this Note or any interest thereon, when the same is due andpayable in accordance with the terms hereof, or (ii) an Event of Defaultresulting from bankruptcy, insolvency or reorganization of the Company, occursand is continuing, the Majority

 

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RegisteredHolders may declare, by notice in writing to the Company, all unpaid principalof and accrued interest on the Note then outstanding to be due and payableimmediately.  Upon the occurrence of anEvent of Default resulting from the Company’s non-payment of principal of, orinterest on, this Note, the Registered Holder hereof may declare all unpaidprincipal of and accrued interest on this Note due and payable immediately.Upon the occurrence of an Event of Default resulting from bankruptcy,insolvency or reorganization of the Company, the outstanding principal balanceof this Note and accrued and unpaid interest thereon shall be due and payableimmediately without the requirement of any declaration or other act on the partof the Registered Holder. Any such acceleration may be annulled and pastdefaults (except a default in payment of principal of or interest on the Noteor resulting from the bankruptcy, insolvency or reorganization of the Company,in any event which has not theretofor been cured) may be waived by theRegistered Holder.

 

The rights and remedies provided herein arecumulative and are not exclusive of any rights or remedies which any party mayotherwise have at law or in equity.

 

10.                                 Costs of Collection.  Ifthe indebtedness represented by this Note or any part thereof is collected inany proceeding or if this Note is placed in the hands of attorneys forcollection after the occurrence of an Event of Default, the Company shall pay,as an obligation under this Note, in addition to the obligation to payprincipal and interest, all costs of collecting this Note, including reasonableattorneys’ fees.

 

11.                                 Waiver and Amendments.  ThisNote may be amended, modified, superseded, canceled, renewed or extended, andthe terms hereof may be waived only by a written instrument signed by theCompany and the Registered Holder.

 

12.                                 Loss, Theft, Destruction or Mutilation ofNote.  Upon receipt by the Company of (a) evidencereasonably satisfactory to the Company of the loss, theft, destruction ormutilation of this Note and (b) indemnity or security reasonably satisfactoryto the Company, and upon (i) reimbursement to the Company of all reasonableexpenses incidental thereto and (ii) surrender and cancellation of this Note,if mutilated, the Company will make and deliver a new Note of like tenor, inlieu of this Note.  Any replacement notemade and delivered in accordance with the provisions of this Section 12shall be dated (a) as of the date to which interest has been paid on this Note,or (b) if no such interest has theretofore been paid, then dated as of the datehereof.

 

13.                                 Notices.  All notices and othercommunications given hereunder shall be in writing and shall be deemed to bereceived when delivered personally or sent by facsimile with writtenconfirmation of complete

 

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transmission,one day after being sent by overnight courier service or express mail requiringsigned acknowledgment of delivery, or five (5) business days after mailing byregistered or certified mail, return receipt requested with all postage andcertified or registration fees prepaid, in each case if addressed to the partyfor whom intended at the address for such party set forth below or to suchother address as such party may designate by notice given in accordance withthe provisions of this Section 13:

 

(a)                                  If to the Company:

 

Gateway Energy Corporation

One Allen Center

500 Dallas Street, Suite 2615

Houston, Texas 77002

Attention: President

 

with a copy to:

 

Shook, Hardy & Bacon, L.L.P.

2555 Grand Blvd.

Kansas City, Missouri 64108

Attn: Craig L. Evans

 

(b)                                 if to the Registered Holder, to the addressof such Registered Holder as shown on the books of the Company.

 

14.                                 Governing Law.  ThisNote has been prepared and delivered in the State of Missouri and shall begoverned by and construed in accordance with the laws of such State withoutgiving effect to the principles thereof relating to the conflict of laws.

 

15.                                 Successors and Assigns. All the covenants, stipulations, promisesand agreements by or on behalf of the Company contained in this Note shall bebinding upon the Company’s successors and assigns, whether or not so expressed.

 

16.                                 Severability.  Ifany provision of this Note is found by a court of competent jurisdiction to beinvalid, illegal or unenforceable, all other provisions of this Note shallremain in effect, and if any provision is inapplicable to any Person orcircumstances, such provision shall nevertheless remain applicable to all otherPersons and circumstances.

 

17.                                 Headings.  The headings in this Note aresolely for convenience of reference and shall be given no effect in theconstruction or interpretation of this Note.

 

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IN WITNESS WHEREOF, the Company has caused this Noteto be signed in its corporate name by a duly authorized officer and to be datedas of the date first above written.

 

 
|   | GATEWAY ENERGY CORPORATION |
|--------|----------------------------|
|   |                       |
|   |                       |
|   | By:                        | /s/ John A. Raasch |   |
|   |                       |   |   |
|   |                       |   |   |
|   |                       |   John A. Raasch |   |
|   |                       | (Name) |   |
|   |                       |   |   |
|   |                       |   |   |
|   |                       |   President |   |
|   |                       | (Title) |   |

 

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