UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. 2 )
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Filed
by the Registrant x
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Filed
by a Party other than the Registrant o
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Check
the appropriate box:
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x
Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to
Sec.240.14a-12
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Entrx
Corporation
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(Name
of Registrant as Specified In Its
Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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x
No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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1) Title
of each class of securities to which transaction
applies:
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2) Aggregate
number of securities to which transaction applies:
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3) Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed
maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange
Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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1) Amount
Previously Paid:
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2) Form,
Schedule or Registration Statement
No.:
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ENTRX
CORPORATION
800
Nicollet Mall, Suite 2690
Minneapolis,
Minnesota 55402
____________________
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
to
be
held on
December
17, 2007
____________________
Notice
is
hereby furnished to the shareholders of Entrx Corporation, a Delaware
corporation (“Entrx”), of record as of the close of business on November 8,
2007, of the Annual Meeting of shareholders thereof, to be held at 10:00 a.m.
on
December 17, 2007, at the offices of Entrx, at 800 Nicollet Mall, Suite 2690,
Minneapolis, Minnesota, for the following purposes:
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1. |
To
elect the members of the Board of Directors of
Entrx; |
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2. |
To consider and vote on a proposal to amend Entrx’s
Restated and Amended Certificate of Incorporation to effect a reverse
stock split, followed by a forward stock split, of Entrx’s common stock;
and |
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3.
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To
transact such other business as may properly come before the meeting,
or
any adjournment thereof.
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Only
shareholders of record as of the close of business on November 8, 2007, or
their
legal representatives, are entitled to notice and to vote at the Annual Meeting
or any adjournment thereof. Each shareholder is entitled to one vote per share
on all matters to be voted on at the Annual Meeting.
A
Proxy,
Proxy Statement and the 2006 Annual Report on Form 10-KSB, and a Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2007, are enclosed
herewith. You are requested to complete and sign the Proxy, which is being
solicited by the Board of Directors and management of Entrx Corporation, and
to
return it in the envelope provided.
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By
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Order
of the Board
of Directors |
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By: |
/s/ Peter L. Hauser |
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Chief
Executive Officer and |
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Chairman of the
Board |
November
___, 2007
TABLE
OF CONTENTS
VOTING
INFORMATION
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1
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ELECTION
OF DIRECTORS
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4
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General
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4
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Information
Concerning Nominees
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4
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Information
Concerning Directors Not Standing for Re-Election
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5
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Meetings
of Board of Directors
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6
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PROPOSAL
TO AMEND THE RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
OF ENTRX
CORPORATION TO EFFECT A REVERSE STOCK SPLIT FOLLOWED BY A FORWARD
STOCK
SPLIT OF ENTRX'S COMMON STOCK
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6
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Summary
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6
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Negative
Aspects of the Reverse/Forward Split
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7
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Effect
on Shareholders
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8
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Reasons
for the Reverse/Forward Split
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8
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Structure
of the Reverse/Forward Split
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9
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Background
and Purpose of the Reverse/Forward Split
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10
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Effect
of the Reverse/Forward Split on Entrx
Shareholders
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11
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Fairness
of the Reverse/Forward Split
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13
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Effect
of the Reverse/Forward Split on Entrx
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14
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Stock
Certificates
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14
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Certain
Federal Income Tax Consequences
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14
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Federal
Income Tax Consequences to Shareholders Who Are Not Cashed Out
by the
Reverse/Forward Split:
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15
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Federal
Income Tax Consequences to Cashed-Out
Shareholders:
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15
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Appraisal
Rights
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16
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Reservation
of Rights
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16
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Board
of Directors’ Recommendation
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16
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COMMITTEES
OF BOARD OF DIRECTORS
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Director
Compensation
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18
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EXECUTIVE
OFFICERS
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18
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Information
Concerning Non-Director Executive Officers
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18
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Summary
Compensation Table
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19
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Outstanding
Option Awards at Year End
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20
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Director
Compensation
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20
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Equity
Compensation Plan Information
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Compensation
Committee Report
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CERTAIN
TRANSACTIONS
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Loan
to Affiliate of Wayne W. Mills
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Modification
of Loan to Affiliate of Wayne Mills
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Default
on Loan to Affiliate of Wayne Mills
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23
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COMMON
STOCK OWNERSHIP
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Share
Ownership of Officers and Directors and Director
Nominee
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Share
Ownership of Certain Beneficial Owners
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24
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Reporting
Under Section 16(a) of the Securities Exchange Act of
1934
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25
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AUDIT
COMMITTEE REPORT
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26
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INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
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26
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Accountants
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26
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Audit
Fees
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27
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Audit-Related
Fees
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27
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Tax
Fees
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27
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All
Other Fees
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27
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Approval
by Audit Committee
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27
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CODE
OF ETHICS
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SHAREHOLDER
PROPOSALS
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27
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ENTRX
CORPORATION
800
Nicollet Mall, Suite 2690
Minneapolis,
Minnesota 55402
PROXY
STATEMENT
2007
ANNUAL MEETING OF SHAREHOLDERS
This
Proxy Statement is furnished to the shareholders of Entrx Corporation
(hereinafter referred to as “Entrx” or “we”), in connection with the
solicitation by the Board of Directors of Entrx of proxies to be voted at the
annual meeting of Entrx shareholders (the “Meeting”), to be held at 10:00 a.m.
on December 17, 2007 at the offices of Entrx at 800 Nicollet Mall, Suite 2690,
Minneapolis, Minnesota. This Proxy Statement and the accompanying form of Proxy
(the “Proxy”) were first mailed on approximately November ___, 2007 to the
shareholders of record of Entrx as of the close of business on November 8,
2007.
VOTING
INFORMATION
Who
is entitled to vote?
The
holders of common stock of Entrx who are shareholders of record on November
8,
2007, may vote at the Meeting. As of November 8, 2007, there were 7,616,147
shares of Entrx's common stock outstanding.
What
are you voting on?
At
the
Meeting, the following matters will be voted on:
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The
election of four members of the Board of Directors (the “Board”) of
Entrx.
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A proposal to amend Entrx’s Restated and Amended
Certificate of Incorporation in order to effect a reverse stock split,
followed by a forward stock split, of Entrx’s common
stock. |
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Other
matters incident to the conduct of the
Meeting.
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How
does the Board recommend you vote on the proposals?
The
Board
recommends that you vote your shares FOR
the
election of each of Entrx's nominees for director.
The
Board
recommends that you vote your shares FOR
the
proposed amendments to Entrx’s Restated and Amended Certificate of Incorporation
in order to effect a reverse, followed by a forward, stock split of Entrx’s
common stock.
Who
will be soliciting your vote?
The
Board
is soliciting your vote by mail through this Proxy Statement. However, your
vote
may also be solicited in person or by telephone by an officer of Entrx. Other
than the forgoing, no one has been engaged to directly or indirectly make
solicitations or recommendations relating to the election of directors, or
the
reverse, followed by a forward, stock split. Brokers/dealers, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners of Entrx’s common stock, and will be reimbursed
for their expenses in connection with that activity. The cost of all of this
solicitation is being paid for by Entrx.
How
can you vote?
If
you
hold your shares as a shareholder of record, you can vote in person at the
Meeting or you can vote by mail. You are a “shareholder of record” if you hold
your shares directly in your own name. If you hold your shares indirectly in
the
name of a bank, broker or other nominee, you are a “street name shareholder.” If
you are a street name shareholder, you will receive instructions from your
bank,
broker or other nominee describing how to vote your shares.
How
do you vote by mail?
You
can
vote by mail by following the instructions on the accompanying form of Proxy,
signing the Proxy, and mailing it to the address noted on the Proxy or by using
the accompanying envelope provided for that purpose. The persons named as
proxies on the Proxy will vote your shares in accordance with your instructions.
If you sign and submit your Proxy without giving instructions, the proxies
named
on the Proxy will vote your shares as recommended by the Board of
Directors.
How
can you revoke your Proxy?
If
you
are a shareholder of record, you can revoke your Proxy by:
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Submitting
a new Proxy;
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Giving
written notice before the meeting to Entrx's Secretary, at 800 Nicollet
Mall, Suite 2690, Minneapolis, Minnesota 55402, stating that you
are
revoking your Proxy; or
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Attending
the Meeting and voting your shares in
person.
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Merely attending the meeting without voting will
not
revoke your Proxy. |
If
you
are a street name shareholder, you may revoke your Proxy only as instructed
by
the bank, broker or other nominee holding your shares.
How
do you sign the Proxy?
Sign
your
name exactly as it appears on the Proxy. If you are signing in a representative
capacity (for example, as a guardian, trustee, executor, administrator, attorney
or the officer or agent of a company), include your name and title or capacity.
If the shares are held in custody (for example, under the Uniform Transfer
to
Minors Act), the custodian should sign the Proxy, not the minor or other
beneficiary.
If
the
shares are held in joint ownership, both owners should sign the Proxy. If,
however, only one of the owners signs, that Proxy (referred to as the “first
Proxy”) will be counted, unless one or more of the other owners signs a Proxy or
casts a vote which is in conflict with the first Proxy, in which case the vote
of the majority of the owners in interest shall be entitled to vote or give
authority to vote all of the shares. If more than one owner votes, but the
vote
is evenly split on an issue, the shares may be voted proportionately; that
is,
one-half of the shares may be voted on one side of the issue, and the other
half
on the other side.
What
does it mean if you receive more than one proxy or voting instruction
card?
It
means
your shares are registered differently or are in more than one account. Please
provide voting instructions for each Proxy you receive to ensure all your shares
are voted.
What
constitutes a quorum?
A
quorum
of shareholders is necessary to hold a valid meeting of shareholders. A majority
of the outstanding shares, present in person or represented by proxy,
constitutes a quorum for the Meeting. Abstentions and broker non-votes (as
described below) are counted as present for establishing a quorum.
How
can you cast your vote for directors?
You
may
cast your vote for any nominee as a member of the Board of Directors two ways.
You may cast one vote for each share you own for each nominee, or you may
cumulate your votes. In order to cumulate your votes, you would multiply the
number of directors to be elected (four in this case) by the number of shares
you own. This is the total (or cumulative) number of votes you can exercise.
You
may then cast this cumulative number of votes for one nominee, or distribute
those votes among two or more nominees in any proportion you desire. In an
uncontested election there is normally no need to cumulate votes.
How
many votes are needed for approval of each proposal?
Persons
nominated to be a member of the Board of Directors are elected by a plurality.
That is, since there are four directorships established by the Board of
Directors, those four nominees who receive the greatest number of votes will
be
elected as members of the Board of Directors, regardless of whether they receive
the affirmative vote of the shareholders owning a majority of the shares of
common stock present in person or by proxy. In an uncontested election, the
plurality requirement is not a factor.
Approval
of the proposal to amend Entrx’s Restated and Amended Certificate of
Incorporation in order to effect a reverse, followed by a forward, stock split
of Entrx’s common stock, requires the affirmative vote of the holders of a
majority of the outstanding shares of Entrx’s common stock.
What
is a broker non-vote?
A
broker
non-vote occurs when a broker submits a Proxy that does not indicate a vote
for
some of the proposals because the broker did not receive instructions from
the
beneficial owner on how to vote on those proposals and does not have
discretionary authority to vote in the absence of instructions.
How
can you attend the Meeting?
If
you
are a shareholder of record on November 8, 2007, you can attend the meeting
by
presenting acceptable identification at the Meeting. If you are a street name
shareholder you may attend the meeting by presenting acceptable identification
along with evidence of your beneficial ownership of Entrx common
stock.
PROPOSAL
1
ELECTION
OF DIRECTORS
General
Four
persons, three of whom are currently members of Entrx's Board of Directors,
are
being nominated for election at the Meeting. Unless otherwise directed, it
is
the intention of those persons named as proxies in the accompanying form of
Proxy to vote for the election of Joseph M. Caldwell, Peter L. Hauser, E. Thomas
Welch and David E. Cleveland as the members of Entrx's Board of Directors.
Each
nominee is being nominated for a term which will end with the next annual
meeting of Entrx's shareholders.
Information
Concerning Nominees
The
name,
initial year of service as a director, age and respective office with Entrx
of
each nominee as a director of Entrx as of the date of this Proxy Statement,
are
as follows:
Name
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Director
Since
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Age
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Position
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Peter
L. Hauser
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2004
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66
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Chairman
of the Board President, Chief Executive Officer and
Director
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Joseph
M. Caldwell(1)
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2002
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39
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Director
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E.
Thomas Welch(2)
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2004
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69
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Director
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David
E. Cleveland
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N/A
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74
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Director
nominee
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(1)
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Member
of the Audit and Stock Option Committees since March 2003, Nominating
Committee since April 2004, and Compensation Committee since December
2004.
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(2)
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Member
of the Audit, Compensation, Nominating and Stock Option Committees
since
December 2004. Mr. Welch, who is an independent director, will serve
on
Entrx’s Audit Committee as a financial expert following his election to
the Board of Directors.
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The
business experience, principal occupations and directorships in publicly-held
companies for the persons nominated to be directors of Entrx are set forth
below.
Peter
L. Hauser
has been
the president and chief executive officer of Entrx Corporation since October
2004, and devotes approximately one-third of his working time to such office.
Mr. Hauser is a founder, and has been the principal owner and chairman of the
board of directors, of Health Care Financial Solutions, Inc., since March 2003.
Health Care Financial Solutions, Inc., with its office in St. Paul, Minnesota,
is engaged in the development and marketing of a health care claims
administration software system for use by third-party health care plan
administrators. Mr. Hauser was an account executive at Feltl & Company, a
Minneapolis, Minnesota securities brokerage firm, from April 2003 until June
2003, at which time he retired from the securities industry. From 1977 through
April 2003, Mr. Hauser was employed at Equity Securities Trading Co., Inc.,
a
Minneapolis, Minnesota-based securities brokerage firm (now known as The Oak
Ridge Financial Group, Inc.), where he acted as a vice president and a principal
beginning in 1993. From 1993 until 2003, Mr. Hauser was a member of the board
of
directors of GelStat Corp. (OTCBB: GSAC.OB), (formerly called “Developed
Technology Resources, Inc.”), which was previously engaged in various
enterprises in the former Soviet Union, including the distribution of airport
security equipment and the manufacture and distribution of dairy products and
snack foods. By 2003, GelStat had disposed of all of its assets relating to
its
former Soviet Union enterprises, and began engaging in the domestic production
and distribution of over-the-counter, non-prescription health care
products.
Joseph
M. Caldwell
founded
US Internet Corporation in March 1995, and since that date has served on
its board of directors. From March 1995 to May 2000 Mr. Caldwell was the chief
executive officer of US Internet Corporation. In June 2005 he became the
Vice President of Marketing for US Internet Corporation, a position he currently
holds. US Internet Corporation is a Minneapolis-based, privately held Internet
service provider, providing services in over 1,300 cities nationwide and
over 110 cities internationally. From April 2002 until June 2005, Mr. Caldwell
was the chief executive officer of Marix Technologies, Inc., and beginning
in
May, 2000, a member of its board of directors. Marix Technologies, Inc. was
a
privately held company based in Minneapolis, Minnesota that developed and
marketed software designs to facilitate and control offsite access to software
applications and information.
E.
Thomas Welch has
been
the president of BNC National Bank at its Minneapolis, Minnesota office, since
April 2005. BNC National Bank, with corporate offices in Phoenix, Arizona,
conducts banking business through 21 banks located in North Dakota, Minnesota
and Arizona. Mr. Welch was a Managing Director of the U. S. Trust Company,
at
its Minneapolis, Minnesota office, from April 2001 until March 2005, where
he
was primarily responsible for financial, risk management, compliance and
fiduciary matters. U.S. Trust Company was engaged nationally in the trust,
asset
management, investment and banking business. From 1984 until April 2001, Mr.
Welch was employed by Resource Trust Company, in Minneapolis, Minnesota, where
he acted as the president from 1988 to April 2001, in charge of private banking,
trust investment and corporate matters. Resource Trust Company and its principal
affiliated companies were acquired by U.S. Trust Company in April 2001. Mr.
Welch has a Bachelor’s degree in accounting and a J.D. degree in
law.
David
E. Cleveland
was
chairman of the Board of Associated Bank of Minnesota, in Minneapolis,
Minnesota, from March 2001 until April 2004, and President of the Board of
that
bank from March 13, 2000 until January 2001. From March 1987 until March 2000,
Mr. Cleveland was President of the Riverside Bank, in Minneapolis, Minnesota.
From April 1969 until March 1987, Mr. Cleveland served consecutively as
President of State Bank of Hudson, Hudson, Wisconsin, Riverside Community State
Bank, Minneapolis, and Resources Bank & Trust, Minneapolis. Mr. Cleveland
has been retired since April 2004.
Information
Concerning Directors Not Standing for Re-Election
Kenneth
W. Brimmer,
who has
been a member of Entrx’s Board of Directors since February 2002, resigned as a
member of Entrx’s Board of Directors on July 12, 2007. Mr. Brimmer became a
member of Entrx’s Compensation Committee and Nominating Committee in February
2002, Entrx’s Audit Committee in June 2002, and Entrx’s Stock Option Committee
in September 2002. Mr. Brimmer was designated as Entrx’s financial expert on the
Audit Committee.
Mr.
Brimmer has been the owner and chief manager of Brimmer Company, LLC, a private
investment company, since December 2001. Mr. Brimmer has been the chief
executive officer of STEN Corporation (Nasdaq-SC: STEN), since September 2003,
and has served as a member of its board of directors since February 1998 and
as
chairman of its board of directors since March 2000. STEN Corporation, with
offices in Minneapolis, Minnesota, provides contract manufacturing services
and
owns and operates drive-through restaurants under the name “Burger Time.” At the
request of Entrx’s Board of Directors, Mr. Brimmer acted as the chief executive
officer and chairman of the board of directors of VioQuest Pharmaceuticals,
Inc.
(formerly Surg II, Inc. and Chiral Quest, Inc.) (OTCBB: VQPH.OB), from May
2002
until February 2003. VioQuest Pharmaceuticals, Inc. was a 90%-owned Entrx
subsidiary during that period, until October 2003. He continued to serve as
a
board member at VioQuest Pharmaceuticals, Inc. until December 2005. Mr. Brimmer
was the chief executive officer and chief financial officer of Active IQ
Technologies, Inc. from March 2000 until December 2001, and acted as chairman
of
its board of directors until June 2003. Active IQ Technologies, Inc. was engaged
in providing accounting software services in Minnetonka, Minnesota, and is
now
in the precious metals exploration business under the name Wits Basin Precious
Metals, Inc. (OTCBB: WITN.OB). Mr. Brimmer is also a member of the board of
directors of Landry’s Restaurants (NYSE: LNY) and Hypertension Diagnostics
(OTCBB: HDII.OB).
Meetings
of Board of Directors
During
the year ended December 31, 2006, the Board of Directors held four meetings,
and
acted on one occasion by unanimous written consent. Each member of the Board
of
Directors was present for all of the meetings, except for Joseph M. Caldwell,
who missed one meeting.
We
do not
have a formal policy regarding attendance by members of the Board of Directors
at Entrx’s annual meetings of shareholders. All members of the Board of
Directors attended the annual shareholders meetings held in 2003 and 2004.
No
shareholder meetings were held in 2005 and 2006.
Management
recommends a vote in favor of each of the proposed nominees listed above, and
the proxies will be voted in favor of such proposed nominees or as otherwise
directed.
PROPOSAL
2.
PROPOSAL
TO AMEND THE RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF ENTRX
CORPORATION TO EFFECT A REVERSE STOCK SPLIT FOLLOWED BY A FORWARD STOCK SPLIT
OF
ENTRX'S COMMON STOCK
Summary
Term
Sheet
|
o
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We
plan to cause a reverse stock split of our common stock on a 1 for
500
share basis, whereby each 500 shares of our common stock will be
converted
into one share.
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o
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The
reverse stock split will result in shareholders who own less than
500
shares of our common stock holding only a fractional share (less
than one
share).
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o
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We
will purchase the fractional shares of our shareholders who held
less than
500 shares before the reverse stock
split.
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o
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The
cash price for the fractional shares (the “Cash-Out Price”) will be based
upon a per share price of $0.35 prior to the reverse stock
split.
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o
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Immediately
following the reverse stock split, and excluding those shareholders
left
with only a fractional share, we will cause a forward stock split
of our
common stock, whereby each share of our common stock will be converted
back into 500 shares.
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o
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As
a result of the foregoing, if you owned less than 500 shares you
will
receive cash for your fractional shares, and if you owned 500 shares
or
more you will retain the shares you owned prior to the implementation
of
the reverse stock split.
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|
o
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The
effective date of the reverse and forward stock split will be January
___,
2008.
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Discussion
The
Board
of Directors has authorized, and recommends for your approval a reverse
1-for-500 stock split followed immediately by a forward 500-for-1 stock split
of
Entrx’s Common Stock;
The
proposed transaction is comprised of a reverse stock split (the "Reverse Split")
pursuant to which each 500 shares of Common Stock registered in the name of
a
shareholder at the effective time of the Reverse Split will be converted into
one share of Common Stock, followed immediately by a forward stock split (the
"Forward Split") pursuant to which each share of Common Stock outstanding upon
consummation of the Reverse Split will be converted into 500 shares of Common
Stock. As permitted under Delaware law, shares of Common Stock that would be
converted into less than one share in the Reverse Split will instead be
converted into the right to receive a cash payment as described below (we refer
to the Reverse Split, the Forward Split and these cash payments, collectively,
as the "Reverse/Forward Split"). However, if a registered shareholder holds
500
or more shares of Common Stock in his or her account at the effective time
of
the Reverse Split, any fractional share in such account resulting from the
Reverse Split will not be cashed out and the total number of shares held by
such
holder will not change as a result of the Reverse/Forward Split.
The
Board
will have the discretion to determine whether to effect the Reverse/Forward
Split, if approved by the shareholders, and reserves the right to abandon such
transaction even if approved by the shareholders (see "Reservation of Rights").
If shareholders approve and the Board elects to implement the Reverse/Forward
Split, the Reverse/Forward Split will be consummated as to shareholders of
record as of 6:01 p.m. (eastern standard time) on January ___, 2008, upon the
filing of the necessary amendments to Entrx's Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware (the
"Effective Date"). The form of proposed amendments to Entrx's Restated
Certificate of Incorporation necessary to effect the Reverse/Forward Split
are
attached to this Proxy Statement as Appendix A.
Entrx
believes that the Reverse/Forward Split will result in significantly reduced
shareholder record keeping and mailing expenses for Entrx and provide holders
of
fewer than 500 shares with an efficient, cost-effective way to cash-out their
investments.
It
is
currently estimated that following the Reverse/Forward Split, Entrx will have
between 900 and 1,000 common stock shareholders, approximately 60 of whom will
be of record. Section 12(g)(4) of the Securities Exchange Act of 1934 provides
that the Company can terminate its registration under that Act upon the filing
of a certificate to the Securities and Exchange Commission that it has less
than
300 shareholders. Upon such termination, our obligations under the Securities
Exchange Act of 1934, including our obligations to file publicly available
periodic reports with the Securities and Exchange Commission and to provide
our
shareholders with proxy statements prior to shareholder meetings, would cease.
We have no present intention to terminate our registration under the Securities
and Exchange Act.
We
have
not sought any report, opinion or appraisal from any third party in connection
with the Reverse/Forward Split.
Negative
Aspects of the Reverse/Forward Split
Shareholders
owning less than 500 shares should consider the following negative aspects
of
the Reverse/Forward Split:
|
o
|
The
Cash-Out Price we pay for the fractional shares may be less than
the
market price on the Effective Date.
|
|
o
|
You
will no longer be entitled to vote as a shareholder of
Entrx.
|
|
o
|
You
will no longer be entitled to share in any assets, earnings or dividends
in Entrx.
|
|
o
|
You
will no longer be entitled to the receipt of proxy statements or
other
information material provided by Entrx to its
shareholders.
|
Shareholders
owning 500 shares or more should consider the following negative aspects of
the
Reverse/Forward Split:
|
o
|
While
we do not intend to do so, following the Reverse/Forward Split, we
will be
able to terminate our registration under the Securities Exchange
Act of
1934, in which case we would no longer be required to provide you
with
information regarding the Company through the filing of proxy statements,
periodic reports and other reports required to be filed with the
Securities and Exchange Commission.
|
Effect
on Shareholders
If
approved by shareholders at the Annual Meeting and implemented by the Board,
the
Reverse/Forward Split will affect Entrx shareholders as follows:
Shareholder
before completion of the Reverse/Forward Split
|
|
Net
effect after completion of the Reverse/Forward Split
|
Registered
shareholders holding 500 or more shares of Common Stock.
|
|
None.
|
|
|
|
Registered
shareholders holding fewer than 500 shares of Common
Stock.
|
|
Shares
will be converted into the right to receive cash (see "Fairness of
the
Reverse/Forward Split" at page 12).
|
|
|
|
Shareholders
holding Common Stock in street name through a nominee (such as a
bank or
broker).
|
|
Entrx
intends for the Reverse/Forward Split to treat shareholders holding
Common
Stock in street name through a nominee (such as a bank or broker)
in the
same manner as shareholders whose shares are registered in their
names.
Nominees will be instructed to effect the Reverse/Forward Split for
their
beneficial holders. However, nominees may have different procedures
and
shareholders holding shares in street name should contact their
nominees.
|
Reasons
for the Reverse/Forward Split
The
Board
recommends that shareholders approve the Reverse/Forward Split transaction
described herein for the following reasons. These, and other reasons, are
described in detail under "Background and Purpose of the Reverse/Forward Split"
below.
Issue
|
|
Solution
|
Entrx
has a large number of shareholders. Specifically, of the approximately
4,700 shareholders, approximately 3,800 own less than 500 shares
and
approximately 2,500 own less than 100 shares. Continuing to maintain
accounts for these shareholders, including costs associated with
required
shareholder mailings, will cost Entrx approximately $20,000 per
year.
|
|
The
Reverse/Forward Split will reduce the number of shareholders which
own
relatively few shares, resulting in a cost saving to
Entrx.
|
|
|
|
In
many cases it is relatively expensive for shareholders with fewer
than 500
shares to sell their shares on the open market.
|
|
The
Reverse/Forward Split cashes out shareholders with small accounts
without
transaction costs such as brokerage fees. However, if these shareholders
do not want to cash out their holdings of Common Stock, they may
purchase
additional shares on the open market to increase the number of shares
of
Common Stock in their account to at least 500 shares, or if applicable,
consolidate/transfer their accounts into an account with at least
500
shares of Common Stock.
|
Structure
of the Reverse/Forward Split
The
Reverse/Forward Split includes both a reverse stock split and a forward stock
split of the Common Stock. If the Reverse/Forward Split transaction is approved
by shareholders and implemented by the Board, the Reverse Split is expected
to
occur at 6:00 p.m. Delaware time on the Effective Date and the Forward Split
is
expected to occur at 6:01 p.m. Delaware time on the Effective Date. Upon
consummation of the Reverse Split, each registered shareholder on the Effective
Date will receive one share of Common Stock for each 500 shares of Common Stock
held in his or her account at that time. If a registered shareholder holds
at
least 500 shares of Common Stock in his or her account, any fractional share
in
such account will not be cashed out after the Reverse Split and the total number
of shares held by such holder will not change as a result of the Reverse/Forward
Split. Any registered shareholder who holds fewer than 500 shares of Common
Stock in his or her account at the time of the Reverse Split (also referred
to
as a "Cashed-Out Shareholder") will receive a cash payment instead of fractional
shares. This cash payment has been determined and will be paid as described
below under "Fairness of the Reverse/Forward Split" at page 12. Immediately
following the Reverse Split, all shareholders who are not Cashed-Out
Shareholders will receive 500 shares of Common Stock for every one share of
Common Stock they held following the Reverse Split. We intend for the
Reverse/Forward Split to treat shareholders holding Common Stock in street
name
through a nominee (such as a bank or broker) in the same manner as shareholders
whose shares are registered in their names, and nominees will be instructed
to
effect the Reverse/Forward Split for their beneficial holders. Accordingly,
we
also refer to those street name holders who receive a cash payment instead
of
fractional shares as "Cashed-Out Shareholders." However, nominees may have
different procedures, and shareholders holding shares in street name should
contact their nominees.
In
general, the Reverse/Forward Split can be illustrated by the following
examples:
Hypothetical
Scenario
|
|
Result
|
Mr.
Anderson is a registered shareholder who holds 400 shares of Common
Stock
in his account immediately prior to the Reverse/Forward
Split.
|
|
Instead
of receiving a fractional share of Common Stock after the Reverse
Split,
Mr. Anderson's shares will be converted into the right to receive
cash.
Applying the Cash-Out Price of $0.35 per share, Mr. Anderson would
receive
$140 ($0.35 x 400 shares).
Note:
If Mr. Anderson wants to continue his investment in Entrx, he can,
prior
to the Effective Date, buy at least 100 more shares and hold them
in his
account with the 400 shares he already has, giving him 500 shares.
Mr.
Anderson would have to act far enough in advance of the Reverse/Forward
Split so that the purchase is completed and the additional shares
are
credited in his account by the close of business (eastern standard
time)
on the Effective Date.
|
|
|
|
Ms.
Smith has two separate record accounts. As of the Effective Date,
she
holds 300 shares of Common Stock in one account and 400 shares of
Common
Stock in the other. All of her shares are registered in her name
only.
|
|
As
described above, Ms. Smith will receive cash payments equal to the
Cash-Out Price of $0.35 per share for her Common Stock in each record
account instead of receiving fractional shares. Accordingly, Ms.
Smith
would receive two checks totaling $245 (300 x $0.35 = $105; 400 x
$0.35 =
$140; 105 + $140 = $245).
|
|
|
Note:
If Ms. Smith wants to continue her investment in Entrx, she can
consolidate or transfer her two record accounts prior to the Effective
Date into an account with at least 500 shares of Common Stock.
Alternatively, she can buy at least 200 more shares for the first
account
and at least 100 more shares for the second account. She would have
to act
far enough in advance of the Reverse/Forward Split so that the
consolidation or the purchase is completed by the close of business
(eastern standard time) on the Effective Date.
|
|
|
|
Mr.
Johnson holds 500 shares of Common Stock as of the Effective
Date.
|
|
After
the Reverse/Forward Split, Mr. Johnson will continue to hold all
500
shares of Common Stock.
|
|
|
|
Ms.
Jones holds 1,000 shares of Common Stock in a brokerage account as
of the
Effective Date.
|
|
Entrx
intends for the Reverse/Forward Split to treat shareholders holding
Common
Stock in street name through a nominee (such as a bank or broker)
in the
same manner as shareholders whose shares are registered in their
names.
Nominees will be instructed to effect the Reverse/Forward Split for
their
beneficial holders. However, nominees may have different procedures.
Ms.
Jones should contact her nominees to ascertain the procedure being
adopted
by that nominee.
|
Background
and Purpose of the Reverse/Forward Split
Entrx
has
a shareholder base of approximately 4,700 shareholders. This is a relatively
large number of shareholders for a company of our size. As of November 8, 2007,
approximately 3,800 holders of our Common Stock owned fewer than 500 shares.
At
that time, these 3,800 shareholders represented approximately 81% of the total
number of holders of Common Stock, but held in the aggregate approximately
360,000 shares, or only five percent of the total number of outstanding shares
of Common Stock.
Entrx
expects to benefit from a cost saving as a result of the Reverse/Forward Split.
The cost of administering each registered shareholder's account is the same
regardless of the number of shares held in that account. Therefore, Entrx's
costs to maintain such small accounts are disproportionately high when compared
to the total number of shares involved. In 2007, we expect that each registered
street name and shareholder will cost Entrx approximately $5.00, or at least
$20,000, for transfer agent and other administrative fees as well as printing
and postage costs to mail proxy materials and the annual report. We expect
that
these costs will only increase over time.
Moreover,
the Reverse/Forward Split will provide shareholders with fewer than 500 shares
of Common Stock with a cost-effective way to cash out their investments, because
Entrx will pay all transaction costs in connection with the Reverse/Forward
Split. Otherwise, shareholders with small holdings would likely incur brokerage
fees which are disproportionately high relative to the market value of their
shares if they wanted to sell their stock. The Reverse/Forward Split will
eliminate these problems for most shareholders with small holdings.
In
light
of these disproportionate costs, the Board believes that it is in the best
interests of Entrx and its shareholders to eliminate the administrative burden
and costs associated with such small accounts, and to provide our
less-than-500-share shareholders a way of disposing of their shares on an
economical basis.
The
estimated cost of effecting the reverse/forward stock split, including legal
fees and stock transfer fees, is $30,000 (not counting the amount we will pay
for fractional shares). Printing and mailing costs in connection with our annual
meeting proxy statement are only marginally increased by reason of the
Reverse/Forward Split. None of our executive officers, directors or affiliates
that own any shares of our common stock own less than 500 shares, and none
of
them will accordingly be cashed out.
Entrx
has
in the past and may in the future pursue alternative methods of reducing its
shareholder base, whether or not the Reverse/Forward Split is approved and
implemented, including odd-lot tender offers and programs to facilitate sales
by
shareholders of odd-lot holdings. However, there can be no assurance that Entrx
will decide to pursue any such transaction.
Effect
of the Reverse/Forward Split on Entrx Shareholders
Registered
Shareholders with Fewer Than 500 Shares
of Common Stock:
If
we
complete the Reverse/Forward Split and you are a Cashed-Out Shareholder (i.e.,
a
shareholder holding fewer than 500 shares of Common Stock immediately prior
to
the Reverse Split):
|
o
|
You
will not receive fractional shares of stock as a result of the Reverse
Split in respect of your shares being cashed out.
|
|
o
|
Instead
of receiving fractional shares, you will receive a cash payment in
respect
of your affected shares. See "Fairness of the Reverse/Forward Split"
at
page 12.
|
|
o
|
After
the Reverse Split, you will have no further interest in Entrx with
respect
to your cashed-out shares. These shares will no longer entitle you
to the
right to vote as a shareholder or share in Entrx's assets, earnings,
or
profits or in any dividends paid after the Reverse Split. In other
words,
you will no longer hold your cashed-out shares, you will have only
the
right to receive cash for these shares. In addition, you will not
be
entitled to receive interest with respect to the period of time between
the Effective Date and the date you receive your payment for the
cashed-out shares.
|
|
o
|
You
will not have to pay any service charges or brokerage commissions
in
connection with the Reverse/Forward
Split.
|
|
o
|
As
soon as practicable after the time we effect the Reverse/Forward
Split,
you will receive a payment for the cashed-out shares you held immediately
prior to the Reverse Split in accordance with the procedures described
below.
|
If
You
Hold Book-Entry Shares:
|
o
|
Most
of Entrx's registered shareholders hold their shares in book-entry
form
under the Direct Registration System for securities. These shareholders
do
not have stock certificates evidencing their ownership of Common
Stock.
They are, however, provided with a statement reflecting the number
of
shares registered in their
accounts.
|
|
o
|
If
you are a Cashed-Out Shareholder who holds registered shares in a
book-entry account, you do not need to take any action to receive
your
cash payment. A check will be mailed to you at your registered address
as
soon as practicable after the Effective Date. By signing and cashing
this
check, you will warrant that you owned the shares for which you received
a
cash payment.
|
If
You
Hold Certificated Shares:
|
o
|
If
you are a Cashed-Out Shareholder with a stock certificate representing
your cashed-out shares, you will receive a transmittal letter as
soon as
practicable after the Effective Date. The letter of transmittal will
contain instructions on how to surrender your certificate(s) to Entrx's
transfer agent, American Stock Transfer, for your cash payment. You
will
not receive your cash payment until you surrender your outstanding
certificate(s) to American Stock Transfer, together with a completed
and
executed copy of the letter of transmittal. Please do not send your
certificates until you receive your letter of transmittal. For further
information, see "Stock Certificates"
below.
|
|
o
|
All
amounts owed to you will be subject to applicable federal income
tax and
state abandoned property laws.
|
|
o
|
You
will not receive any interest on cash payments owed to you as a result
of
the Reverse/Forward Split.
|
NOTE:
If
you want to continue to hold Common Stock after the Reverse/Forward Split,
you
may do so by taking either of the following actions far enough in advance so
that it is completed by the Effective Date:
(1)
purchase a sufficient number of shares of Common Stock on the open market so
that you hold at least 500 shares of Common Stock in your account prior to
the
Reverse Split; or
(2)
if
applicable, consolidate your accounts so that you hold at least 500 shares
of
Common Stock in one account prior to the Reverse Split.
Registered
Shareholders with 500 or More Shares of Common Stock:
If
You
Hold Certificated Stock:
If
you
are a registered shareholder with 500 or more shares of Common Stock as of
6:00
p.m. Delaware time on the Effective Date, we will first reclassify your shares
into one-five hundredth (1/500) of the number of shares you held immediately
prior to the Reverse Split. One minute after the Reverse Split, at 6:01 p.m.
Delaware time, we will reclassify your shares in the Forward Split into 500
times the number of shares you held after the Reverse Split, which will result
in the same number of shares you held before the Reverse Split. As a result,
the
Reverse/Forward Split will not affect the number of shares that you hold if
you
hold 500 or more shares of Common Stock immediately prior to the Reverse Split.
To illustrate, if we were to effect the 1-for-500 Reverse/500-for-1 Forward
Split and you held 1,000 shares of Common Stock in your account immediately
prior to the Reverse Split, your shares would be converted into two shares
in
the Reverse Split and then back to 1,000 shares in the Forward
Split.
If
You
Hold Shares in Street Name:
Entrx
intends for the Reverse/Forward Split to treat shareholders holding Common
Stock
in street name through a nominee (such as a bank or broker) in the same manner
as shareholders whose shares are registered in their names. Nominees will be
instructed to effect the Reverse/Forward Split for their beneficial holders.
However, nominees may have different procedures and shareholders holding Common
Stock in street name should contact their nominees.
Option
and Warranty Holders:
If
you
hold options or warrants to purchase Entrx stock, the Reverse/Forward Split
will
not affect the number of shares of Common Stock you may acquire under those
options or warrants.
Fairness
of the Reverse/Forward Split
We
believe that the reverse/forward stock split is fair to all of our unaffiliated
shareholders. Only those shareholders owning less than 500 shares are affected
financially. Based upon the Cash-Out Price of $0.35, a shareholder owning 499
shares would receive $174.65, without paying a commission. This is an
opportunity for shareholders with small holdings to obtain the value of the
shares without payment of a commission, which would, in many cases, equal or
exceed the value of the shares. For a relatively small amount of money,
shareholders can also acquire additional shares to bring their holdings to
500
shares or greater.
We
have
reported earnings of $562,000, or $0.06 per share, for the first three quarters
of 2007, and project that we will be profitable for 2007, but we cannot assume
that we will be profitable in 2008. Furthermore, Entrx has not paid any cash
dividends for at least the past five years, and does not plan to do so in the
near future.
Our
historical profits and losses since 2003 are as follows:
Year
|
|
Profit
(Loss)
|
|
Per
Share
|
|
2006
|
|
$
|
2,052,000
|
|
$
|
0.26
|
|
2005
|
|
|
(1,743,000
|
)
|
|
(0.23
|
)
|
2004
|
|
|
611,000
|
|
|
0.08
|
|
2003
|
|
|
(3,006,000
|
)
|
|
(0.41
|
)
|
Significant
swings in our profits and losses over the past approximately five years have
often been greatly influenced by events outside of normal day-to-day operations,
such as the sale of our office and manufacturing facilities in 2006.
Nevertheless, our earnings history has been erratic, and an unreliable criterion
by which to measure the value of our common stock.
Our
book
value per share was $0.86 at September 30, 2007. Because of the uncertainty
of
future asbestos claims, management is of the opinion that it would be unlikely
that we could realize that amount in the sale or liquidation of our company.
This could be one reason that our common stock has traded at a price which
is
less than our book value over the past three years.
Entrx
Corporation common stock is traded sporadically over the counter, and bid and
asked quotations, as well as transactions, are reported in the pink sheets.
The
high and low bid quotations, as reported in the pink sheets for each quarter
during the past two years, are as follows:
|
|
High
Bid
|
|
Low
Bid
|
|
2005
|
|
|
|
|
|
|
|
4th
Quarter
|
|
$
|
0.25
|
|
$
|
0.15
|
|
2006
|
|
|
|
|
|
|
|
1st
Quarter
|
|
|
0.24
|
|
|
0.13
|
|
2nd
Quarter
|
|
|
0.25
|
|
|
0.15
|
|
3rd
Quarter
|
|
|
0.35
|
|
|
0.18
|
|
4th
Quarter
|
|
|
0.23
|
|
|
0.11
|
|
2007
|
|
|
|
|
|
|
|
1st
Quarter
|
|
|
0.47
|
|
|
0.16
|
|
2nd
Quarter
|
|
|
0.34
|
|
|
0.17
|
|
3rd
Quarter
|
|
|
0.38
|
|
|
0.16
|
|
At
the
close of business on November ___, 2007, the closing bid price of our common
stock was $0.___ per share. The closing bid price of our common stock over
the
past 20 trading days ending on November ___, 2007 was approximately $0.___
per
share, and over the past three months was even lower. In establishing the
Cash-Out Price of $0.35 per share, we have primarily taken into consideration
the historical market price of our common stock, and not necessarily the price
quoted on November ___, 2007, as the market price is easily and materially
affected by small dollar amounts of trading.
Effect
of the Reverse/Forward Split on Entrx
It
is
currently estimated that following the Reverse/Forward Split, Entrx will have
approximately 900 common stock shareholders, approximately 60 of whom will
be of
record. Section 12(g)(4) of the Securities Exchange Act of 1934 provides that
the Company can terminate its registration under that Act upon the filing of
a
certificate with the Securities and Exchange Commission stating that it has
less
than 300 shareholders. Upon such termination, our obligations under the
Securities Exchange Act of 1934, including our obligations to file publicly
available periodic reports with the Securities and Exchange Commission and
to
provide our shareholders with proxy statements prior to shareholder meetings,
would cease. We do not intend to terminate our registration under the Securities
Exchange Act in the near future.
On
September 26, 2007, there were 7,616,147 shares of Common Stock issued and
outstanding. The number of shares of authorized shares of Common Stock will
not
change as a result of the Reverse/Forward Split.. On the other hand, the total
number of outstanding shares of Common Stock will be reduced by the number
of
shares held by the Cashed-Out Shareholders immediately prior to the Reverse
Split.
The
total
number of shares that will be cashed-out and the total cash to be paid by Entrx
is unknown at this time; we estimate, however, that 360,000 shares may be cashed
out, and that the cash payments that will be paid to Cashed-Out Shareholders,
including both registered and street name holders, will be approximately
$125,000. The actual amounts will depend on the number of Cashed-Out
Shareholders on the Effective Date, which may vary from the number of such
shareholders on November 8, 2007. Payment for the shares of Cashed-Out
Shareholders will come out of our cash reserves. All shares acquired will be
held in treasury and eventually retired.
The
par
value of the Common Stock will remain at $.10 per share after the
Reverse/Forward Split.
Stock
Certificates
The
Reverse/Forward Split will not affect any certificates representing shares of
Common Stock held by registered shareholders owning 500 or more shares of Common
Stock immediately prior to the Reverse Split. Old certificates held by any
of
these shareholders will continue to evidence ownership of the same number of
shares as is set forth on the face of the certificate.
Any
Cashed-Out Shareholder with share certificates will receive a letter of
transmittal after the Reverse/Forward Split is completed. These shareholders
must complete and sign the letter of transmittal and return it with their stock
certificate(s) to Entrx's transfer agent, American Stock Transfer, before they
can receive cash payment for those shares.
Certain
Federal Income Tax Consequences
We
have
summarized below certain federal income tax consequences to Entrx and
shareholders resulting from the Reverse/Forward Split. This summary is based
on
U.S. federal income tax law existing as of the date of this Proxy Statement,
and
such tax laws may change, even retroactively. This summary does not discuss
all
aspects of federal income taxation which may be important to you in light of
your individual circumstances. Many shareholders (such as financial
institutions, insurance companies, broker-dealers, tax-exempt organizations,
and
foreign persons) may be subject to special tax rules. Other shareholders may
also be subject to special tax rules, including but not limited to: shareholders
who received Common Stock as compensation for services or pursuant to the
exercise of an employee stock option, or shareholders who have held, or will
hold, stock as part of a straddle, hedging, or conversion transaction for
federal income tax purposes. In addition, this summary does not discuss any
state, local, foreign, or other tax considerations. This summary assumes that
you are a U.S. citizen and have held, and will hold, your shares as capital
assets under the Code. You should consult your tax advisor as to the particular
federal, state, local, foreign, and other tax consequences, in light of your
specific circumstances.
We
believe that the Reverse/Forward Split will be treated as a tax-free
"recapitalization" for federal income tax purposes. Accordingly, the
Reverse/Forward Split will not result in any material federal income tax
consequences to Entrx.
Federal
Income Tax Consequences to Shareholders Who Are Not Cashed Out by the
Reverse/Forward Split:
If
you
(1) continue to hold Common Stock immediately after the Reverse/Forward Split,
and (2) receive no cash as a result of the Reverse/Forward Split, you will
not
recognize any gain or loss in the Reverse/Forward Split and you will have the
same adjusted tax basis and holding period in your Common Stock as you had
in
such stock immediately prior to the Reverse/Forward Split.
Federal
Income Tax Consequences to Cashed-Out Shareholders:
If
you
receive cash as a result of the Reverse/Forward Split, your tax consequences
will depend on whether, in addition to receiving cash, you or a person or entity
related to you continues to hold Common Stock immediately after the
Reverse/Forward Split, as explained below.
Shareholders
Who Exchange All of Their Common Stock for Cash as a Result of the
Reverse/Forward Splits
If
you
(1) receive cash in exchange for a fractional share as a result of the
Reverse/Forward Split, (2) do not continue to hold any Common Stock immediately
after the Reverse/Forward Split, and (3) are not related to any person or entity
which holds Common Stock immediately after the Reverse/Forward Split, you will
recognize capital gain or loss. The amount of capital gain or loss you recognize
will equal the difference between the cash you receive for your cashed-out
stock
and your aggregate adjusted tax basis in such stock.
If
you
are related to a person or entity who continues to hold Common Stock immediately
after the Reverse/Forward Split, you will recognize gain in the same manner
as
set forth in the previous paragraph, provided that your receipt of cash either
(1) is "not essentially equivalent to a dividend," or (2) is a "substantially
disproportionate redemption of stock," as described below.
|
o
|
"Not
Essentially Equivalent to a Dividend." You will satisfy the "not
essentially equivalent to a dividend" test if the reduction in your
proportionate interest in Entrx resulting from the Reverse/Forward
Split
is considered a "meaningful reduction" given your particular facts
and
circumstances. The Internal Revenue Service has ruled that a small
reduction by a minority shareholder whose relative stock interest
is
minimal and who exercises no control over the affairs of the corporation
will meet this test. In consultation with your own tax advisor, you
should
determine whether that Internal Revenue Service ruling would, or
would
not, apply given your particular facts and
circumstances.
|
|
o
|
"Substantially
Disproportionate Redemption of Stock." The receipt of cash in the
Reverse/Forward Split will be a "substantially disproportionate redemption
of stock" for you if the percentage of the outstanding shares of
Common
Stock owned by you immediately after the Reverse/Forward Split is
less
than 80% of the percentage of shares of Common Stock owned by you
immediately before the Reverse/Forward
Split.
|
In
applying these tests, you will be treated as owning shares actually or
constructively owned by certain individuals and entities related to you. If
the
taxable amount is not treated as capital gain under any of the tests, it will
be
treated first as ordinary dividend income to the extent of your ratable share
of
Entrx's undistributed earnings and profits, then as a tax-free return of capital
to the extent of your aggregate adjusted tax basis in your shares, and any
remaining gain will be treated as capital gain.
Shareholders
Who Both Receive Cash and Continue to Hold Common Stock Immediately After the
Reverse/Forward Splits
If
you
both receive cash as a result of the Reverse/Forward Split and continue to
hold
Common Stock immediately after the Reverse/Forward Split, you generally will
recognize gain, but not loss, in an amount equal to the lesser of (1) the excess
of the sum of aggregate fair market value of your shares of Common Stock plus
the cash received over your adjusted tax basis in the shares, or (2) the amount
of cash received in the Reverse/Forward Split. In determining whether you
continue to hold Common Stock immediately after the Reverse/Forward Split,
you
will be treated as owning shares actually or constructively owned by certain
individuals and entities related to you. Your aggregate adjusted tax basis
in
your shares of Common Stock held immediately after the Reverse/Forward Split
will be equal to your aggregate adjusted tax basis in your shares of Common
Stock held immediately prior to the Reverse/Forward Split, increased by any
gain
recognized in the Reverse/Forward Split, and decreased by the amount of cash
received in the Reverse/Forward Split.
Any
gain
recognized in the Reverse/Forward Split will be treated, for federal income
tax
purposes, as capital gain, provided that your receipt of cash either (1) is
"not
essentially equivalent to a dividend" with respect to you, or (2) is a
"substantially disproportionate redemption of stock" with respect to you. (Each
of the terms in quotation marks in the previous sentence is discussed above
under the heading "Shareholders who Exchange all of their Common Stock for
Cash
as a Result of the Reverse/Forward Split.") In applying these tests, you may
possibly take into account sales of shares of Common Stock that occur
substantially contemporaneously with the Reverse/Forward Split. If your gain
is
not treated as capital gain under any of these tests, the gain will be treated
as ordinary dividend income to you to the extent of your ratable share of
Entrx's undistributed earnings and profits, then as a tax-free return of capital
to the extent of your aggregate adjusted tax basis in your shares, and any
remaining gain will be treated as a capital gain.
The
preceding summary was not intended or written to be used, and cannot be used,
for the purpose of avoiding any tax penalties. It is intended to provide general
information in support of the Board of Directors’ recommendation to effect the
Reverse/Forward Stock Split. You should consult your tax advisor as to the
particular federal, state, local, foreign, and other tax consequences of the
Reverse/Forward Split, in light of your specific
circumstances.
Appraisal
Rights
Shareholders
do not have appraisal rights under Delaware state law or under Entrx's Restated
and Amended Certificate of Incorporation or By-laws in connection with the
Reverse/Forward Split.
Reservation
of Rights
We
reserve the right to abandon the Reverse/Forward Split without further action
by
our shareholders at any time before the filing of the necessary amendments
to
Entrx's Restated and Amended Certificate of Incorporation with the Delaware
Secretary of State, even if the Reverse/Forward Split has been authorized by
our
shareholders at the Annual Meeting, and by voting in favor of the
Reverse/Forward Split you are expressly also authorizing us to determine not
to
proceed with the Reverse/Forward Split if we should so decide.
Board
of Directors’ Recommendation
The
Board of Directors Recommends That You Vote for the Proposals to Amend the
Restated and Amended Certificate of Incorporation of Entrx Corporation to Effect
the Reverse/Forward Stock Split.
COMMITTEES
OF BOARD OF DIRECTORS
Audit
Committee.
The
Audit Committee has the authority and responsibilities set forth in Entrx’s
Audit Committee Charter (the “Charter”) originally adopted in 2001 and amended
in April 2004. A copy of the Charter is included as Appendix B to this Proxy
Statement. Under the Charter, the Audit Committee has the authority and
responsibility of (i) reviewing audited annual consolidated financial
statements, and reports and consolidated financial statements submitted to
any
governmental body or disclosed to the public; (ii) consulting with Entrx's
independent registered
public accountants
on various audit and financial personnel issues, including questions of
independence, disagreement between the auditors and Entrx's financial personnel,
reviewing of internal financial controls; (iii) recommending to the Board of
Directors the engagement of independent registered public accountants to audit
the consolidated financial statements of Entrx, and reviewing the performance
of
such accountants; (iv) reviewing and considering the appropriateness of
accounting principles or practices applied to Entrx's consolidated financial
statements; and (v) reviewing Entrx's financial personnel and organization.
Kenneth W. Brimmer, a member of the Audit Committee, was designated as its
financial expert. E. Thomas Welch, another member of the Audit Committee, has
replaced Mr. Brimmer as the Audit Committee’s financial expert. Each member of
the Audit Committee is independent as that term is defined in Rule 4200 of
the
National Association of Securities Dealers, Inc. The Audit Committee held four
meetings during the year ended December 31, 2006.
Compensation
Committee.
The
Compensation Committee, which consists solely of non-employee directors, has
the
obligation to adopt policies applicable to the compensation of Entrx's executive
officers, and has authority to consider and recommend to the Board of Directors
the salaries, bonuses, share options, and other forms of compensation of those
executive officers. The Compensation Committee did not hold any meetings during
the year ended December 31, 2006, and the compensation of Entrx’s executive
officers for 2006 was unchanged from 2005.
Nominating
Committee.
Entrx's
Nominating Committee was initially established by resolution of the Board of
Directors in February 2002. The Board of Directors expanded and revised the
duties of the Nominating Committee by resolutions adopted in April 2004. The
Nominating Committee is charged with the responsibility to seek out and consider
the qualifications of new candidates and incumbents for election as members
of
our Board of Directors, and to recommend to the Board of Directors those persons
it believes would be suitable candidates for election or, in the case of a
vacancy, appointment, as members of our Board of Directors. The full Board
of
Directors nominates persons to be members of the Board of Directors, after
considering the recommendation of the Nominating Committee. Each member of
the
Nominating Committee is independent, as that term is defined in Rule 4200 of
the
National Association of Security Dealers, Inc. The Nominating Committee has
no
charter, and did not meet in 2006, as there was no meeting of the shareholders
held in that year.
The
Nominating Committee met on two occasions by conference telephone, in June
and
then in August, to discuss and establish its recommendations for nominees for
election to the Company’s Board of Directors, and recommended the re-election of
Peter L. Hauser, Joseph M. Caldwell and E. Thomas Welch. Also recommended to
be
nominated for election as a director, was David E. Cleveland, who was introduced
to the Nominating Committee by Mr. Welch. Mr. Cleveland was a former business
associate of Mr. Welch. The Board of Directors adopted the recommendations
of
the Nominating Committee.
We
have
found it to be difficult to find suitable candidates who would be willing to
serve as a member of the Board of Directors of a small company such as ours.
We
are looking for candidates with a good business background, preferably with
some
experience in starting or growing, and running a business. We would also
favorably entertain a candidate with a good financial background, either as
a
chief financial officer or chief executive officer of another company, or by
reason of education and experience in accounting. We would exclude any candidate
who had any criminal record, or a background which exhibited any illegal or
unethical activities, or questionable business practices.
Shareholders
are encouraged to send the resumes of persons they believe would be suitable
candidates to E. Thomas Welch, Entrx Corporation, 800 Nicollet Mall, Suite
2690,
Minneapolis, Minnesota 55402. Along with the resume of the proposed candidate,
please have the candidate provide a written consent to serve as a member of
our
Board of Directors if so elected, or to acknowledge in writing that he or she
would like to be considered for nomination.
Shareholders
are further encouraged to submit the names of proposed candidates at any time
throughout the year. We will not likely be able to consider any candidate
submitted to us for inclusion in our proxy statement for the annual meeting
to
be held in 2008, after January 31, 2008.
Stock
Option Committee.
Entrx’s
Stock Option Committee was established by resolutions adopted by the Board
of
Directors in September 2002. The Stock Option Committee, which consists solely
of independent members, has the authority to grant options to purchase common
stock of Entrx to employees and members of the Board of Directors. In granting
options to non-executive officer employees, the Stock Option Committee generally
considers the recommendation of management. In the past, the Stock Option
Committee worked closely with, and considered the recommendations of, the
Compensation Committee in cases involving the granting of stock options to
executive officers of Entrx. The Stock Option Committee did not meet in 2006,
and no options were granted in that year.
Director
Compensation
In
March
2002, the Board of Directors established a plan whereby each member of Entrx's
Board of Directors would receive a stock option for 10,000 shares of Entrx's
common stock in January of each year, at the then fair market value of the
shares. In furtherance of such plan on January 3, 2005, the Stock Option
Committee granted options to each of Kenneth W. Brimmer, E. Thomas Welch and
Joseph M. Caldwell to purchase 10,000 shares of Entrx’s common stock at $0.55
per share, which was the fair market value of those shares as reported on the
Nasdaq Market System as of that date. As an inducement to his joining the Board
of Directors, we granted an option to E. Thomas Welch on January 3, 2005, to
purchase 15,000 shares of Entrx common stock at $0.55 per share. All options
are
fully vested and were granted under Entrx’s 2000 Omnibus Stock Option and
Incentive Plan, as amended in 2002, which plan and amendment were approved
by
Entrx’s shareholders.
In
2006,
no options or purchase Entrx’s common stock were granted. On June 7, 2006,
however, the Board of Directors authorized the issuance of 10,000 shares of
Entrx’s common stock to each of its then four directors. On January 4, 2007, the
Board of Directors authorized the issuance of 20,000 shares of Entrx’s common
stock to each of its then four directors. The price of Entrx’s common stock
based upon transactions on the over-the-counter market on June 7, 2006, and
January 4, 2007, was $0.16 and $0.20 per share, respectively.
EXECUTIVE
OFFICERS
Information
Concerning Non-Director Executive Officers
The
names, ages, positions and business experience of Entrx's non-director executive
officers, as of the date of this Proxy Statement, are as follows:
Name
|
Age
|
Position
|
Brian
D. Niebur
|
44
|
Treasurer
and Chief Financial Officer
|
David
R. Trueblood
|
36
|
President
of Metalclad Insulation Corporation
|
Brian
D. Niebur
has been
employed part time by Entrx as its treasurer and chief financial officer since
February 2002. At the request of Entrx’s Board of Directors, from May 2002,
until February 2003 Mr. Niebur served as chief financial officer and a member
of
the Board of Directors of Chiral Quest, Inc. (formerly Surg II, Inc.) (OTCBB:
CQST). Chiral Quest, Inc. was a 90%-owned subsidiary of Entrx until Entrx’s
shares of Chiral Quest, Inc. were spun out to Entrx’s shareholders in October
2002. Mr. Niebur has a Bachelor of Arts degree in accounting and is a certified
public accountant (inactive). Since July 2000, Mr. Niebur has acted as a vice
president and controller for Wyncrest Capital, Inc. in Minneapolis, Minnesota,
a
privately held venture capital firm. Mr. Niebur’s primary duties for Wyncrest
Capital, Inc. have been to act as chief financial officer and a director for
Spectre Gaming, Inc. (OTCBB: SGMG), in which Wyncrest Capital, Inc. has made
an
equity investment, from January 2003 until November 2005. Spectre Gaming, Inc.
is engaged in the business of developing and marketing electronic gaming systems
for the Native American gaming market. From January 2005 until March 2007,
Mr.
Niebur’s duties for Wyncrest Capital, Inc. also included acting as Chief
Financial Officer and Secretary of Ready Credit Corporation (Pink Sheets: RCTC),
another corporation in which Wyncrest Capital, Inc. as an investment. Mr. Niebur
has acted as a member of the board of directors of Ready Credit Corporation
since January, 2005. From August 1997 until July 2000, Mr. Niebur was the
controller for Vital Images, Inc., a developer and marketer of medical
visualization and analysis software, in Plymouth, Minnesota.
David
R. Trueblood
was
elected as the President of Entrx’s wholly owned subsidiary, Metalclad
Insulation Corporation, on February 1, 2007. Mr. Trueblood replaced John J.
Macias, Metalclad Insulation Corporation’s former President, after Mr. Macias
experienced major medical problems which prevented him from continuing as
President and resulted in his taking a long-term disability leave. Mr. Trueblood
has been employed by Metalclad Insulation Corporation since November 1993,
in
various capacities. Immediately prior to his appointment as President, Mr.
Trueblood served as a Project Manager, bidding, securing and managing many
of
our most important projects.
Summary
Compensation Table
The
following table sets forth certain compensation information for: (i) each person
who served as the chief executive officer of Entrx at any time during the year
ended December 31, 2006, regardless of compensation level, and (ii) each of
our
other executive officers, other than the chief executive officer, serving as
an
executive officer at December 31, 2006. The foregoing persons are collectively
referred to in this Proxy Statement as the “Named Executive Officers.”
Compensation information is shown for fiscal years 2006 and 2005.
Name/Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
Nonqualified
Deferred Compensation Earnings
($)
|
|
All
Other Compensation
($)
|
|
Total
($)
|
|
Peter
L. Hauser
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
and
|
|
|
2006
|
|
|
75,000
|
|
|
—
|
|
|
1,600
|
(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76,600
|
|
Chief
Executive Officer
|
|
|
2005
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
D. Niebur
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasurer
and
|
|
|
2006
|
|
|
75,000
|
|
|
|
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,000
|
|
Chief
Financial Officer
|
|
|
2005
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
J. Macias(1)
|
|
|
2006
|
|
|
161,333
|
|
|
|
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
161,333
|
|
President
of Metalclad Insulation Corporation
|
|
|
2005
|
|
|
160,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
160,000
|
|
There
are
no employment agreements between Entrx and any executive officer of Entrx or
any
subsidiary.
(1)
|
On
February 1, 2007, Mr. Macias was replaced by David R. Trueblood as
the
President of our wholly owned subsidiary, Metalclad Insulation
Corporation, as the result of Mr. Macias’ current medical incapacity to
fulfill his duties as President.
|
(2)
|
Pursuant
to a profit sharing plan established for Mr. Niebur, he earned a
bonus
based upon Metalclad’s net profit for 2006, equal to $15,310. The bonus
was paid in 2007 and is not included in the table
above.
|
(3)
|
Pursuant
to a profit sharing plan established for the employees of Entrx’s
subsidiary, Metalclad Insulation Corporation, Mr. Macias earned a
bonus
based upon Metalclad’s net profits for 2006, equal to $37,717. The bonus
was paid in 2007 and is not included in the table
above.
|
(4)
|
A
10,000 share common stock award valued at $1,600 was granted to Mr.
Hauser
in 2006 for services as a member of the Board of Directors, and was
included in the table above, rather than in the table headed “Director
Compensation.”
|
Outstanding
Option Awards at Year End
The
following table provides certain information regarding unexercised options
to
purchase common stock, stock options that have not vested, and equity-incentive
plan awards outstanding at December 31, 2006, for each Named Executive
Officer.
Outstanding
Equity Awards At Fiscal Year-End
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
Option
Exercise Price ($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested (#)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested ($)
|
|
Peter
L. Hauser (1)
|
|
|
200,000
10,000
|
|
|
0
0
|
|
|
0
0
|
|
$
|
0.50
0.55
|
|
|
10/15/09
12/31/09
|
|
|
0
0
|
|
|
n/a
n/a
|
|
|
0
0
|
|
|
0
0
|
|
Brian
D. Niebur
|
|
|
50,000
20,000
|
|
|
0
0
|
|
|
0
0
|
|
$
|
2.50
0.65
|
|
|
3/10/10
3/04/09
|
|
|
0
0
|
|
|
n/a
n/a
|
|
|
0
0
|
|
|
0
0
|
|
John
J. Macias
|
|
|
14,000
750
|
|
|
0
0
|
|
|
0
0
|
|
$
|
1.20
15.00
|
|
|
9/23/09
1/26/08
|
|
|
0
0
|
|
|
n/a
n/a
|
|
|
0
0
|
|
|
0
0
|
|
(1)
|
Not
included are 50,000 shares which Mr. Hauser may purchase under a
warrant
issued to Mr. Hauser in February 2003, before he became an employee,
director or executive officer of Entrx. The warrant is exercisable
through
February 12, 2008 at $0.50 per
share.
|
Director
Compensation
The
following table sets forth the compensation paid to our directors for our fiscal
year ended December 31, 2006, excluding Entrx’s Chief Executive Officer Peter L.
Hauser, whose compensation is set forth in the Summary Compensation Table for
Named Executive Officer, set forth above.
Director
Compensation
|
|
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
Stock
Awards (1)
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Nonqualified
Deferred Compensation Earnings
($)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
|
Kenneth
W. Brimmer (2)
|
|
|
0
|
|
|
1,600
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,600
|
|
Joseph
M. Caldwell (2)
|
|
|
0
|
|
|
1,600
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,600
|
|
E.
Thomas Welch (3)
|
|
|
0
|
|
|
1,600
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,600
|
|
____________________
(1)
|
On
June 7, 2006, the Company issued each of its three independent directors
10,000 shares of common stock. The stock was valued at $0.16 per
share,
the fair market value on June 7, 2006.
|
(2)
|
At
December 31, 2006, Messrs. Brimmer and Caldwell each had exercisable
options to purchase 90,000 shares of our common stock: (i) 50,000
shares
at $2.50 per share, expiring on March 4, 2009 (with respect to Mr.
Brimmer) and June 24, 2009 (with respect to Mr. Caldwell); (ii) 10,000
shares at $1.03 per share, which expire on December 31, 2010; (iii)
10,000
shares at $0.80 per share, which expire on December 31, 2009; (iv)
10,000
shares at $0.50 per share, which expire on April 10, 2010; and (v)
10,000
shares at $0.55 per share, which expire on December 31, 2009.
|
(3)
|
At
December 31, 2006, Mr. Welch had exercisable options to purchase
25,000
shares of our common stock at $0.55 per
share.
|
Equity
Compensation Plan Information
The
following table sets forth as of December 31, 2006, the total number of
shares of Entrx's common stock which may be issued upon the exercise of
outstanding stock options and other rights under compensation plans approved
by
the shareholders, and under compensation plans not approved by the shareholders.
The table also sets forth the weighted average purchase price per share of
the
shares subject to those options, and the number of shares available for future
issuance under those plans.
Plan
Category
|
|
(a)
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
(b)
Weighted-average
exercise price of outstanding options warrants and rights
|
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by security holders
|
|
|
2,129,710(1
|
)
|
$
|
2.23
|
|
|
477,100
|
|
Equity
compensation plans not approved by security holders
|
|
|
166,000(2
|
)
|
$
|
6.34
|
|
|
None
|
|
Total
|
|
|
2,295,710
|
|
$
|
2.52(3
|
)
|
|
477,100
|
|
____________________
(1)
|
Options
for 1,672,900 shares have been granted under Entrx’s 2000 Omnibus Stock
Option and Incentive Plan (the “2000 Plan”) which was approved by Entrx’s
shareholders. The remaining options for 456,810 shares were granted
under
similar plans which were previously adopted and approved by the
shareholders, and which have been
terminated.
|
(2)
|
Options
for 66,000 shares were granted at various times from January 1996
through
February 1998 to three employees. The options are exercisable at
$15.00
per share. Warrants for 100,000 shares have been issued from February
1,
2003 through December 31, 2006, to two persons in connection with
various
financings, services and concessions. The warrants are exercisable
at
prices ranging from $0.50 to $0.75 per share, some of which are subject
to
price adjustments under the anti-dilution provisions of the
warrants.
|
(3)
|
The
prices at which all options are exercisable range from $0.50 to $15.00
per
share.
|
Compensation
Committee Report
As
the
Compensation Committee of Entrx Corporation (“Entrx”), it is our duty to review
and recommend the compensation levels for members of Entrx's management,
evaluate the performance of management and the administration of Entrx's various
incentive plans.
In
determining management's compensation, this Committee evaluates management’s
performance, reflected in part by Entrx’s financial performance, the time
devoted to their respective duties, their experience, and the stage of
development of Entrx. The Committee also takes into account such relevant
external factors as general economic conditions, stock price performance, and
stock market prices generally.
Management
compensation has historically been composed of salary, bonuses, and options
to
purchase shares of Entrx’s common stock. In the past, the Committee believed
that stock options would provide a strong incentive to increase the value of
stockholders' interests and help management focus on the long-term success
of
Entrx. Lately, however, as a result of the poor market performance exhibited
by
our common stock, and the reduced attractiveness of stock options in view of
the
limited liquidity of our common stock and certain new accounting rules, we
have
de-emphasized the use, and have not recommended the granting, of stock
options.
Bonuses
may be discretionary, or based upon an established plan. No bonuses were paid
to
the current executive officers in 2006.
Significant
to the Committee's recommendations concerning executive compensation and option
grants are significant events which have occurred over time as well as
objectives set for the coming year. With regard to the year ended December
31,
2006, the Committee took into account the increase in Entrx’s liquidity and
favorable operating results of its subsidiary, Metalclad Insulation Corporation,
as well as disappointing overall operating results and performance of the market
value of Entrx’s common stock in 2006.
|
|
|
|
Compensation Committee |
|
|
|
|
By: |
/s/ E. Thomas Welch |
|
E.
Thomas Welch,
Chairman |
CERTAIN
TRANSACTIONS
Loan
to Affiliate of Wayne W. Mills
On
December 10, 2001, Entrx loaned Blake Capital Partners, LLC (“Blake Capital”), a
Minnesota limited liability company, $1,250,000 under a non-recourse secured
note (the “Note”). Blake Capital is wholly owned by Wayne W. Mills who
became a director and the President of Entrx on February 13, 2002. The
Note, with interest at the rate of 6% per annum, was due June 10, 2002. Under
the terms of the Note, Blake Capital had the right to extend the due date to
September 8, 2002, which it did. After June 10, 2002, the interest rate
increased to 12% per annum. The Note was not repaid on September 8, 2002, but
was amended to establish a due date of October 31, 2007, as discussed
below.
As
security for the loan, Mr. Mills pledged 500,000 shares of Entrx's common
stock, under the terms of a pledge agreement (the “Pledge Agreement”) dated as
of December 10, 2001. In October 2002, Entrx spun off shares of the common
stock of Chiral Quest, Inc., now known as VioQuest Pharmaceuticals, Inc., as
a
dividend to its shareholders, on the basis of one share of VioQuest
Pharmaceuticals, Inc. (then Chiral Quest, Inc.) common stock for each two shares
of Entrx common stock held as of October 11, 2002. Prior to the dividend,
VioQuest Pharmaceuticals, Inc. was a 90% owned subsidiary of Entrx. As a result
of the dividend, Mr. Mills received 250,000 shares of the common stock of
VioQuest Pharmaceuticals, Inc., which were added to the 500,000 shares of
Entrx’s common stock held as collateral for the loan.
To
satisfy its obligations under the Note, all or a portion of the 500,000 shares
of Entrx common stock, or 250,000 shares of VioQuest Pharmaceuticals, Inc.
common stock, could have been sold at the direction of Blake Capital, in which
case the proceeds of such sale would have been applied against the principal
and
interest due under the Note. The terms of the Note also provided that Blake
Capital could request that the Entrx shares be cancelled, in which case they
would have carried a value of $2.50 per share which would be applied against
the
amount due under the Note, regardless of a then lower market value. If the
Note
was in default, Entrx could have canceled the shares at a value of $2.50 per
share, and applied the amount cancelled against the principal and interest
due
under the Note. Although the Pledge Agreement was not clear, Entrx took the
position that the $2.50 value related to one share of Entrx common stock and
one
half-share of VioQuest Pharmaceuticals, Inc. common stock.
Since
the
Note was non-recourse to Blake Capital, neither Blake Capital nor Mr. Mills
had
any personal liability under the Note, except for the interest on the Note,
and
Entrx's only recourse for repayment of the Note was the 500,000 shares of Entrx
common stock, and 250,000 shares of VioQuest Pharmaceuticals, Inc. common stock,
pledged as security. The market value of the stock held as collateral never
exceeded the principal balance of the Note since it became due.
Modification
of Loan to Affiliate of Wayne Mills
The
Sarbanes-Oxley Act of 2002 was adopted on August 1, 2002, while the loan to
Blake Capital Partners, as discussed in the foregoing section entitled “Loan to
Affiliate of Wayne W. Mills,” was outstanding. Under Section 402 of the
Sarbanes-Oxley Act, it is unlawful for any company registered under Section
12
of the Securities Exchange Act of 1934 to make a personal loan to any directors
or executive officers of that company. The provision also provides that a loan
outstanding on the date of the enactment of Section 402 is not in violation
of
that provision, provided that there is no material modification to any terms
of
the loan after such enactment. The independent members of the Board of
Directors, taking into consideration the purpose and policy of Section 402,
have
concluded that the prohibition against any modification to the loan to Mr.
Mills
would not be applicable where the modification was, in their reasonably
exercised determination, on balance materially beneficial to Entrx.
Accordingly,
for several months beginning in August 2003, the independent members of Entrx’s
Board of Directors, negotiated an amendment to the Note and Pledge Agreement
with Blake Capital Partners and Mr. Mills, which culminated in the execution
of
an amendment to the Note and Pledge Agreement (the “Amended Pledge Agreement”),
which they believed to be beneficial to the Entrx. The Note as amended, is
in
the principal amount of $1,496,370, is with recourse to Blake Capital Partners,
and now provides for an October 31, 2007 due date. Interest on the amended
Note
is at 2% over the prime rate established by Wells Fargo Bank, NA in Minneapolis,
Minnesota, adjusted on March 1 and September 1 of each year, instead of the
12%
rate established in the original Note. Interest only was payable commencing
March 1, 2004, and at the end of each six-month period thereafter. The amended
Note is with full recourse to Blake, which has minimal assets. The Amended
Pledge Agreement does not require Entrx, nor permit Blake or Mr. Mills, to
cancel the shares of Entrx’s common stock, and requires Entrx to apply the value
of those cancelled shares at $2.50 per share, to be applied against the
principal balance of the amounts due. In addition, Mr. Mills has personally
guaranteed the repayment of the Note.
Default
on Loan to Affiliate of Wayne Mills
Blake
Capital failed to pay the interest due under the Note on September 1, 2006,
and
Mr. Mills has recently indicated to us that he is currently unable to fulfill
his obligations under his guarantee of the Note. Accordingly, on January 4,
2007, consistent with authority given by the Board of Directors, we gave notice
to Blake and Mr. Mills that we were declaring the New Note to be in default,
and
in February 2007, we commenced foreclosure proceedings on the 500,000 shares
of
the Company held as collateral for the New Notes. The 500,000 shares held as
collateral were cancelled on April 23, 2007. We credited Blake Capital with
the
fair market value of those shares, or $115.00, as of March 19, 2007. The Company
is currently in the process of foreclosing on the 250,000 shares of VioQuest
Pharmaceuticals, Inc. common stock held as collateral by sale through the
trustee holding such shares, and will apply the proceeds of such sale to the
amount due under the Note. At December 31, 2006, we increased our reserve
against the Note, bringing the receivable less the reserve down to $210,000,
representing the estimated fair value of the collateral held for the Note.
As of
September 30, 2007, we valued the note at $75,000, which is the market value
of
the collateral on that date.
COMMON
STOCK OWNERSHIP
Share
Ownership of Officers and Directors and Director Nominee
The
following table sets forth certain information as of November 8, 2007, with
respect to the shares of common stock beneficially owned by: (i) each director
and director nominee; (ii) each executive officer; and (iii) all current
executive officers (regardless of salary and bonus level) and directors as
a
group. The address for each shareholder is 800 Nicollet Mall, Suite 2690,
Minneapolis, MN 55402, except for Mr. Trueblood, whose address is 1818 Rossyln
Avenue, Fullerton, CA 92831. Unless otherwise indicated, the shareholders listed
in the table below have sole voting and investment powers with respect to the
shares indicated:
Name
of Beneficial Owner
|
|
Number
of
Common
Shares
Beneficially
Owned
|
|
Percentage
of
Outstanding
Shares(7)
|
|
Peter
L. Hauser
|
|
|
1,027,075(1
|
)
|
|
13.0
|
|
David
E. Cleveland
|
|
|
none
|
|
|
0
|
|
Joseph
M. Caldwell
|
|
|
120,000(2
|
)
|
|
1.6
|
|
E.
Thomas Welch
|
|
|
55,000(3
|
)
|
|
*
|
|
Brian
D. Niebur
|
|
|
80,000(4
|
)
|
|
1.0
|
|
David
R. Trueblood
|
|
|
7,900(5
|
)
|
|
*
|
|
All
current executive officers, directors and director nominee, as
a group (7
persons)
|
|
|
1,509,975(6
|
)
|
|
18.5
|
|
____________________
*
|
Less
than 1%
|
(1)
|
Includes
260,000 shares that Mr. Hauser may acquire upon the exercise of
outstanding stock options and warrants.
|
(2)
|
Includes
90,000 shares that Mr. Caldwell has the right to acquire upon the
exercise
of outstanding stock options.
|
(3)
|
Includes
25,000 shares that Mr. Welch may acquire upon the exercise of outstanding
stock options.
|
(4)
|
Includes
70,000 shares which Mr. Niebur may acquire upon the exercise of
outstanding stock options.
|
(5)
|
Includes
7,900 shares which Mr. Trueblood may acquire upon the exercise of
outstanding stock options.
|
(6)
|
Assumes
that each shareholder listed exercised all options available to that
person which would vest as of January 7, 2008.
|
(7)
|
The
percentage of outstanding shares of common stock as shown in the
table
above is calculated on 7,616,147 shares outstanding, as of November
8,
2007, plus it assumes in each case that the shareholder exercised
all
vested options available to that person as of January 7,
2008.
|
Share
Ownership of Certain Beneficial Owners
The
following table sets forth the name, address, number of shares of Entrx's common
stock beneficially owned, and the percentage of the outstanding shares of common
stock such shares represent, of each person or group of persons, known by Entrx
to beneficially own more than 5% of Entrx's outstanding common stock as of
November 8, 2007. Unless otherwise indicated, the shareholders listed in the
table below have sole voting and investment powers with respect to the shares
indicated:
|
|
|
|
|
|
|
|
|
|
Name
and Address
of
Beneficial Owner
|
|
Number
of
Common
Shares
Beneficially
Owned
|
|
Percentage
of
Outstanding
Shares
(6)
|
Peter
L. Hauser
16913
Kings Court
Lakeville,
MN 55044
|
|
1,027,075(1)
|
|
13.0
|
|
|
|
|
|
Wayne
W. Mills
5020
Blake Road
Edina,
MN 55436
|
|
800,000(2)
|
|
10.4
|
|
|
|
|
|
Grant
S. Kesler
3739
Brighton Point Drive
Salt
Lake City, UT 84121
|
|
764,033
(3)
|
|
9.3
|
|
|
|
|
|
Anthony
C. Dabbene
26921
Magnolia Court
Laguna
Hills, CA 92653
|
|
487,200
(4)
|
|
6.0
|
|
|
|
|
|
George
W. Holbrook, Jr.
1157
S.W. 30th
Street
Suite
E
Box
1938
Palm
City, FL 34991
|
|
551,615
(5)
|
|
7.2
|
|
|
|
|
|
James
R. McGoogan
1157
S.W. 30th
Street
Suite
E
Box
1938
Palm
City, FL 34991
|
|
487,740
(5)
|
|
6.4
|
|
|
|
|
|
Bradley
Resources Company
1157
S.W. 30th
Street
Suite
E
Box
1938
Palm
City, FL 34991
|
|
476,255
(5)
|
|
6.2
|
____________________
(1)
|
Includes
warrant to purchase 50,000 shares exercisable at $0.50 per share
through
February 12, 2008, 10,000 shares which Mr. Hauser may purchase under
currently exercisable options at $0.55 per share, and 200,000 shares
which
Mr. Hauser may purchase under currently exercisable options at $0.50
per
share.
|
(2)
|
Includes
50,000 shares which are owned by Blake Capital Partners, LLC, which
is
owned by Mr. Mills, 400,000 shares which are owned by Mr. Mills’
Individual Retirement Account, and 50,000 shares which Mr. Mills
may
purchase under currently exercisable options at prices ranging from
$0.50
to $2.50 per share.
|
(3)
|
Includes
620,000 shares which Mr. Kesler may purchase under currently exercisable
options at prices ranging from $2.00 to $3.00 per
share.
|
(4)
|
Includes
450,000 shares which Mr. Dabbene may purchase under currently exercisable
options at prices ranging from $2.00 to $3.00 per
share.
|
(5)
|
As
reported in a Form 13-G on January 7, 2005, Messrs.
Holbrook and McGoogan own 75,360 and 11,485 shares, respectively,
of our
common stock and are both partners of Bradley Resources Company with
shared voting and dispositive power with respect to the 476,255 shares
owned by Bradley Resources Company. Included in the shares owned
by Mr.
Holbrook is a warrant to purchase 50,000 shares, and included in
the
shares owned by Bradley Resources Company is a warrant for the purchase
of
100,000 shares. Bradley Resources Company, Mr. Holbrook and Mr. McGoogan
may be considered to be a “group” as defined under Rule 13d-5 of the
Securities Exchange Act of 1934, with the power to vote and dispose
of an
aggregate of 563,100 shares of our common stock, or 7.0% of our common
stock.
|
(6)
|
The
percentage of outstanding shares of common stock shown in the table
above
is calculated based upon 7,616,147 shares outstanding as of the close
of
business November 8, 2007, plus it assumes in each case that the
shareholder exercised all options available to that person that would
vest
within 60 days thereafter.
|
Reporting
Under Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 requires executive officers and
directors of Entrx, and persons who beneficially own more than 10 percent of
Entrx's outstanding shares of common stock, to file initial reports of ownership
and reports of changes in ownership of securities of Entrx with the Securities
and Exchange Commission (“SEC”) and the Nasdaq Stock Market. Officers, directors
and persons owning more than 10 percent of Entrx's outstanding common stock
are
required by SEC regulation to furnish Entrx with copies of all Section 16(a)
forms filed. Based solely on a review of the copies of such reports and
amendments thereto furnished to or obtained by Entrx or written representations
that no other reports were required, Entrx believes that during the year ended
December 31, 2006, all filing requirements applicable to its directors,
officers or beneficial owners of more than 10 percent of Entrx's outstanding
shares of common stock were complied with, except that Kenneth W. Brimmer,
a
former director, filed a Form 5 on June 8, 2006, to reflect an option for 10,000
shares of Entrx’s common stock granted to him on January 3, 2005, and Joseph M.
Caldwell, a director, filed a Form 5 on June 8, 2006, to reflect an option
granted to him on each of January 3, 2005 and May 10, 2004.
AUDIT
COMMITTEE REPORT
The
following Audit Committee report shall not be deemed to be soliciting material
or to be filed with the Securities and Exchange Commission under the Securities
Act of 1933 or the Securities Exchange Act of 1934 nor incorporated by reference
into any document so filed.
The
purpose of the Audit Committee is to assist the Board of Directors in its
oversight of management's conduct of the Company's financial reporting process.
The Audit Committee reviewed and discussed with management of the Company and
Virchow, Krause & Company, LLP the audited consolidated financial statements
of the Company contained in the Company's Annual Report on Form 10-KSB for
the
fiscal year ended December 31, 2006. Management is responsible for the
Company's internal controls and the financial reporting process. Virchow, Krause
& Company, LLP is responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with the standards
of
the Public Company Accounting Oversight Board (United States) and issuing a
report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.
The
Audit
Committee discussed with Virchow, Krause & Company, LLP the matters required
by Codification of Statements on Auditing Standards No. 61. The Audit Committee
also received and reviewed the written disclosures and the letter from Virchow,
Krause & Company, LLP required by the Independence Standards Board Standard
No. 1, and discussed with that firm its independence from the Company. The
Audit Committee discussed with management of the Company and Virchow, Krause
& Company, LLP such other matters and received such assurances as the Audit
Committee deemed appropriate.
The
Audit
Committee considered the effect that provision of all other non-audit related
fees may have on the independence of Virchow, Krause & Company, LLP. The
Audit Committee has determined that provision of those services is compatible
with maintaining the independence of Virchow, Krause & Company, LLP as the
Company's principal accountants.
Based
on
the foregoing review and discussions and a review of the report of Virchow,
Krause & Company, LLP, and relying thereon, the Audit Committee recommended
the inclusion of the audited consolidated financial statements in the Company's
Annual Report on Form 10-KSB for the year ended December 31,
2006.
|
|
|
|
|
|
|
The
Audit Committee
of
the Board of Directors
|
|
|
|
|
|
|
|
/s/
Kenneth W. Brimmer
Kenneth
W. Brimmer, Chairman
E.
Thomas Welch
Joseph
M. Caldwell
|
INDEPENDENT
REGISTERED
PUBLIC ACCOUNTANTS
Accountants
On
April
16, 2002, upon the recommendation of the Audit Committee, Entrx engaged Virchow,
Krause & Company, LLP (“Virchow Krause”), independent registered public
accountants with offices in Minneapolis, Minnesota, to audit Entrx’s
consolidated financial statements for 2002 and to perform other appropriate
accounting services for Entrx as needed. Entrx had not previously engaged
Virchow Krause on any matter. Virchow Krause was engaged directly by the Audit
Committee to provide its services with respect to Entrx’s 2003 through 2006
fiscal years. All services performed by Virchow Krause in 2006 were approved
by
the Audit Committee.
A
representative of Virchow Krause will be present at the Annual Meeting of the
shareholders to be held on December 17, 2007, will have the opportunity to
make
a statement if the representative so desires, and will be available to respond
to appropriate questions.
Below
is
a breakdown of the fees paid to Virchow Krause for services performed in 2005
and 2006. None of the fees paid to Virchow Krause under the headings
Audit-Related Fees or Tax Fees were attributable to work performed by persons
other than full-time permanent employees of Virchow Krause.
Audit
Fees
Virchow
Krause billed Entrx $63,365 and $73,925 for the annual audit of Entrx’s
consolidated financial statements, and the review of Entrx’s consolidated
financial statements included in Entrx’s quarterly reports on Forms 10-Q and
10-QSB filed with the Securities and Exchange Commission, for the 2005 and
2006
fiscal years, respectively.
Audit-Related
Fees
Virchow
Krause billed Entrx $6,385 and $12,050 for assurance and related services
provided to Entrx that are not included under the caption “Audit Fee” above, and
were reasonably related to the performance of its audit or review of Entrx’s
financial statements for the 2005 and 2006 fiscal years, respectively. Such
services were provided in connection with the review of a Form S-2 registration
statement filed with the Securities and Exchange Commission (“SEC”) in April
2004, and assisting management in preparing responses to SEC comment letters
direct to us in connection with such filing. The registration statement was
withdrawn in 2005.
Tax
Fees
Virchow
Krause billed Entrx $14,325 and $13,610 for services in connection with tax
compliance, tax advice and tax planning for the 2005 and 2006 fiscal years,
respectively. The services billed for in 2005 and 2006 were in connection with
the preparation of Entrx’s federal and state income tax returns.
All
Other Fees
No
other
accounting services were provided or billed in 2005 or 2006.
Approval
by Audit Committee
According
to Entrx’s Audit Committee charter, all services provided to Entrx by its
independent registered public accountants must be approved by the Audit
Committee. The Audit Committee pre-approved the engagement of Virchow Krause
related to (i) the audit of the consolidated financial statements of Entrx
for
2005 and 2006, and to provide its report thereon, (ii) the preparation of our
2005 and 2006 federal and state income tax returns, (iii) the review of our
quarterly reports on Form 10-Q filed in 2005 and Forms 10-QSB filed in 2006,
and
(iv) review of a Form S-2 registration statement filing and assistance with
responses to SEC comment letters on the Form S-2 filing. No other services,
other than those set forth in the foregoing sentence, were performed by Virchow
Krause on our behalf in 2005 or 2006.
CODE
OF ETHICS
We
have
adopted a Code of Ethics which is intended to govern the conduct of our
officers, directors and employees in order to promote honesty, integrity,
loyalty and the accuracy of our financial statements. You may obtain a copy
of
the Code of Ethics without charge by writing us and requesting a copy,
attention: Brian Niebur, 800 Nicollet Mall, Suite 2690, Minneapolis, Minnesota
55402. You may also request a copy by calling us at (612) 333-0614.
SHAREHOLDER
PROPOSALS
Proposals
that shareholders may wish to present at the annual meeting of Entrx's
shareholders in 2008 must be received by Entrx in writing at 800 Nicollet Mall,
Suite 2690, Minneapolis, Minnesota, 55402, prior to February 29, 2008, in
order to be included in the proxy statement and form of proxy relating to that
meeting.
Entrx's
latest Annual Report on Form 10-KSB for the year ended December 31, 2006,
without the exhibits listed in the Form 10-KSB, and Entrx’s latest Quarterly
Report on Form 10-QSB for the six month period ended June 30, 2007, both of
which have been filed with the Securities and Exchange Commission, have been
furnished to each shareholder of record as of November 8, 2007, and have been
furnished to nominees of street-name shareholders in sufficient quantities
to be
provided to all beneficial shareholders on November 8, 2007. If, however, you
as
a record or beneficial shareholder on the record date did not receive a copy
of
the Annual Report on Form 10-KSB or the Quarterly Report on Form 10-QSB, you
may
request in writing that a copy of each be mailed to you, making a representation
(in the case of a street name shareholder) that you were a beneficial owner
of
Entrx's shares on the record date. Upon such request, the Form 10-KSB Annual
Report Form 10-QSB Quarterly Report will be mailed to you without charge. If
you
would like a copy of any of the exhibits listed in the Form 10-KSB Annual
Report, we will mail you a copy upon request and upon the payment of $5.00
per
document, and $0.25 per page. All requests should be made in writing and
addressed to Brian Niebur, Chief Financial Officer, Entrx Corporation, 800
Nicollet Mall, Suite 2690, Minneapolis, Minnesota 55402.
A
form of Proxy is enclosed for your use. Please date, sign and return the Proxy
at your earliest convenience. Prompt return of your Proxy will be
appreciated.
PROXY
ENTRX
CORPORATION
This
Proxy is Solicited on Behalf of the Board of Directors and
Management
of Entrx Corporation
The
undersigned, revoking all prior proxies, hereby appoints Peter L. Hauser
and E.
Thomas Welch, and each or either of them, as proxies, with full power of
substitution, to vote all shares of common stock of Entrx Corporation (the
“Company”) which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of Entrx Corporation, to be held at the offices of the Company,
Suite 2690, 800 Nicollet Mall, Minneapolis, Minnesota on December 17, 2007,
at
10:00 a.m. or at any adjournment thereof, and hereby instructs said proxies
to
vote said shares as specified below:
1.
|
Election
of
Directors
|
FOR
all
nominees listed at right, except where I have crossed out the name
of a
nominee.
|
WITHHOLD
AUTHORITY to
vote for all nominees
listed
at right.
o
|
I
wish to cumulate my vote as follows:
Nominees:
Number
of Votes (See Instruction below)
Peter
L.
Hauser
______________
Joseph
M.
Caldwell ______________
E.
Thomas
Welch
______________
David
E.
Cleveland
______________
|
|
|
|
|
INSTRUCTION:
If
you intend to cumulate your votes in the election of directors,
multiply
the number of shares you own by four, and distribute that resulting
number
among the nominees as you choose under the column headed “Number of
Votes.”
|
2.
|
Reverse/
Forward
Stock
Split
|
|
FOR an
amendment to the Company’s Restated and Amended Certificate of
Incorporation which will result in a 1-for-500 share reverse common
stock
split, and an amendment to the Company’s Restated and Amended Certificate
of Incorporation which will be effective one minute later and result
in a
500-for-1 share forward common stock split.
AGAINST:
Check
the box below only if you wish to vote Against such
amendments.
|
NOTE:
In
their discretion, the proxies are authorized to vote upon matters which are
incidental to the conduct of the Annual Meeting, and upon other business
of
which the Board of Directors is presently unaware and which may properly
come
before the meeting.
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND MANAGEMENT OF ENTRX CORPORATION
AND WILL BE VOTED IN FAVOR OF THE ELECTION OF THE FOUR NOMINEES NAMED ABOVE
AND
FOR THE AMENDMENTS TO THE COMPANY’S RESTATED AND AMENDED CERTIFICATE OF
INCORPORATION EFFECTING A REVERSE AND FORWARD STOCK SPLIT, UNLESS OTHER
INSTRUCTIONS ARE GIVEN.
Signature(s) ________________________________________________________
Dated
______________,
2007
Please
sign exactly as your name appears hereon; if stock is held jointly, each
owner
must sign. When signing as executor, trustee, guardian, attorney, agent or
proxy, please indicate title. Please
sign, date and return this Proxy promptly.
APPENDIX
A
Page
1
CERTIFICATE
OF AMENDMENT
TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
ENTRX
CORPORATION
The
undersigned, Peter L. Hauser, President of Entrx Corporation, a Delaware
corporation (the "Corporation"), being duly authorized, hereby certifies that,
as declared advisable by resolution of the Board of Directors of the
Corporation, and as adopted by the affirmative vote of shareholders of the
Corporation owning a majority of the outstanding shares of the Corporation
(there being only common stock outstanding) at a duly called and held meeting
thereof on December ___, 2007, all in accordance with Section 242 of the
Delaware General Corporation Law, a resolution was adopted amending Section
4.1
contained in the Fourth Article of the Corporation’s Certificate of
Incorporation to read in its entirety as follows:
FOURTH:
Section
4.1
Without
regard to any other provision of this Certificate of Incorporation, each one
share of Common Stock (as defined below), either issued and outstanding or
held
by the Corporation as treasury stock, immediately prior to the time this
amendment becomes effective shall be and is hereby automatically reclassified
and changed (without any further act) into one five-hundredth (1/500) of a
fully-paid and nonassessable share of Common Stock, without increasing or
decreasing the amount of stated capital or paid-in surplus of the Corporation,
provided that no fractional shares shall be issued to any holder of fewer than
500 shares of Common Stock immediately prior to the time this amendment becomes
effective, and that instead of issuing such fractional shares, the Corporation
shall pay in cash the fair value of such fractional shares as of the time when
this amendment becomes effective.
The
total
number of shares of stock which the Corporation shall have authority to issue
is
85,000,000, of which 80,000,000 shares shall be Common Stock having a par value
of $0.10 per share, and 5,000,000 shares shall be Preferred Stock having a
par
value of $1.00 per share.
IN
WITNESS WHEREOF, Entrx Corporation has caused this Certificate of Amendment
to
be signed on its behalf by the undersigned officer, duly authorized, this ____
day of ___________, 2007.
ENTRX
CORPORATION
By:
APPENDIX
A
Page
2
CERTIFICATE
OF AMENDMENT
TO
RESTATED
CERTIFICATE OF INCORPORATION
OF
ENTRX
CORPORATION
The
undersigned, Peter L. Hauser, President of Entrx Corporation, a Delaware
corporation (the "Corporation"), being duly authorized, hereby certifies that,
as declared advisable by resolution of the Board of Directors of the
Corporation, and as adopted by the affirmative vote of shareholders of the
Corporation owning a majority of the outstanding shares of the Corporation
(there being only common stock outstanding) at a duly called and held meeting
thereof on December ___, 2007, all in accordance with Section 242 of the
Delaware General Corporation Law, a resolution was adopted amending Section
4.1
contained in the Fourth Article of the Corporation’s Certificate of
Incorporation to read in its entirety as follows:
FOURTH:
Section
4.1
Without
regard to any other provision of this Certificate of Incorporation, each one
share of Common Stock (as defined below), either issued and outstanding or
held
by the Corporation as treasury stock (and including each fractional share in
excess of one share held by any stockholder and each fractional share in excess
of one share held by the Corporation) immediately prior to the time this
amendment becomes effective shall be and are hereby automatically reclassified
and changed (without any further act) into 500 fully-paid and nonassessable
shares of Common Stock (or, with respect to such fractional shares and
interests, such lesser number of shares and fractional shares or interests
as
may be applicable based upon such 500/1 ratio), without increasing or decreasing
the amount of stated capital or paid-in surplus of the corporation, provided
that no fractional shares shall be issued.
The
total
number of shares of stock which the Corporation shall have authority to issue
is
85,000,000, of which 80,000,000 shares shall be Common Stock having a par value
of $0.10 per share, and 5,000,000 shares shall be Preferred Stock having a
par
value of $1.00 per share.
IN
WITNESS WHEREOF, Entrx Corporation has caused this Certificate of Amendment
to
be signed on its behalf by the undersigned officer, duly authorized, this ____
day of ___________, 2007.
ENTRX
CORPORATION
By:
APPENDIX
B
ENTRX
CORPORATION
AUDIT
COMMITTEE CHARTER
There
shall be a committee of the Board of Directors (“Board”) for Entrx Corporation,
a Delaware corporation (“Corporation”), to be known as the Audit Committee
(“Committee’). The members of the Committee shall be elected by the Board from
time to time at the Board’s discretion, and shall serve until their successors
shall be duly elected and qualified. Unless a chairperson is elected by the
full
Board, the members of the Committee may designate a chairperson by majority
vote
of the full Committee membership.
II. |
COMPOSITION/INDEPENDENCE
|
The
Committee shall be comprised of three or more members of the Board as determined
by the Board. Each member of the Committee must (i) be “independent” as defined
under Rule 4200 of the Nasdaq Stock Market; (ii) meet the criteria for
independence as set forth under Rule 10A-3 of the Securities Exchange Act
of
1934, except where otherwise permitted by said Rule; (iii) not have participated
in the preparation of the financial statements of the Corporation or any
current
subsidiary of the Corporation any time during the past three years; and (iv)
must not have any relationship with any person which would or could result
in a
conflict of interest between such member and his or her duties under this
Charter.
All
members of the Committee shall have a working familiarity with basic finance
and
accounting practices, and be able to read and understand fundamental financial
statements, including a company’s balance sheet, income statement and cash flow
statement, or will become able to do so within a reasonable time after
appointment to the Committee. At least one member of the Committee shall
have
past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual’s financial sophistication, including being or
having been a senior officer of another entity with financial oversight
responsibilities. Committee members may obtain or enhance their familiarity
with
finance and accounting by participating in education programs conducted by
the
Corporation or an outside consultant, at the Corporation’s expense.
The
Committee shall provide assistance to the directors in fulfilling their
responsibility to the shareholders relating to the accounting and financial
reporting practices of the Corporation, and the quality and integrity of
the
Corporation’s financial reports. It shall be the responsibility of the Committee
to maintain free and open means of communication between the directors, the
registered public accounting firm (the “Auditor”) selected to audit the
financial statements of the Corporation, and the financial management and
other
employees of the Corporation. Consistent with this function, the Committee
should encourage continuous improvement of, and should foster adherence to,
the
Corporation’s policies, procedures and practices at all levels. While the
Committee has the responsibilities and powers set forth in this Charter,
it is
not the duty of the Committee to plan or conduct audits or to determine that
the
Corporation’s financial statements are complete and accurate, or are in
accordance with generally accepted accounting principles.
V. |
FINANCIAL
AUTHORITY AND RESPONSIBILITIES
|
In
connection with the Corporation’s financial controls, procedures, preparation
and reporting, the Audit Committee shall have the authority and responsibility
to:
1.
|
Select,
appoint and engage the public accounting firm (the “Auditors”) to audit
the financial records and accounts of the Corporation, and to prepare
and
report on the Corporation’s financial statements based upon such audit,
and in such process.
|
2.
|
Consider
and determine the independence of the Auditors and potential auditors
under existing accounting standards and the rules of the U.S. Securities
and Exchange Commission (the “SEC”), and in that regard, obtain from the
Auditors a written statement delineating all relationships between
the
Auditors and the Corporation consistent with Independence Standards
Board
Standard 1, as amended or modified, and any other standard for
independence imposed by law or applicable oversight authority on
the
Auditors, and continuously engage in dialogue with the Auditors
with
respect to any relationship or service which may impact the objectivity
and independence of the Auditors.
|
3.
|
Discuss
with the Auditors matters required to be discussed by the Codification
on
Statements of Accounting Standards, AU §380 (SAS
61).
|
4.
|
Review
and approve of any services which may be provided to the Corporation
by
the Auditors, prior to the time those services are
provided.
|
5.
|
Establish
and approve of the fees and other compensation of the
Auditors.
|
6.
|
Review
and oversee the performance of the Auditors, and terminate the
services of
the Auditors if it deems it
appropriate.
|
7.
|
Require
the Auditors to report directly to the Audit
Committee.
|
8.
|
Meet
with the Auditors at least four times each year outside the presence
of
the Corporation’s management or any member of the Board of Directors who
is not deemed to be independent, for the purpose of fulfilling
its
responsibilities under this
Charter.
|
9.
|
Review
the Corporation’s annual audited financial statements and the
Corporation’s unaudited quarterly financial statements to be included in
the forms 10Q to be filed with the
SEC.
|
10.
|
Review
the integrity of the Corporation’s internal and external financial
controls, and reporting processes and
procedures.
|
11.
|
Ascertain
the level of cooperation given to the Auditors by the Corporation’s
management.
|
12.
|
Ascertain
and consider the Auditor’s judgments about the quality and appropriateness
of the Corporation’s accounting principles as applied to the preparation
and reporting of the Company’s financial statements, and any material
change made or proposed to be made to such accounting
principles.
|
13.
|
Ascertain
from the Auditors all critical accounting policies and practices
to be
used in presenting the Corporation’s financial
statements.
|
14.
|
Ascertain
from the Auditors alternative treatments of financial information
consistent with generally accepted accounting principles that have
been
discussed with the Corporation’s management, the ramifications of the use
of such alternative treatments, and the treatment preferred by
the
Auditors.
|
15.
|
Ascertain
and resolve disagreements between the Corporation’s management and the
Auditors regarding financial recording or
reporting.
|
16.
|
Review,
approve and recommend to the Board of Directors the inclusion of
the
Corporation’s financial reports in its periodic filings with the
SEC.
|
17.
|
Receive,
retain, review, investigate and act upon any complaint received
by the
Committee relating to accounting, internal accounting controls
or auditing
matters.
|
18.
|
Establish
a method whereby the Corporation’s employees may notify the Committee of
complaints or concerns regarding questionable accounting or auditing
matters, and provide assurances that any such notice may be made
anonymously, or if not inimical to the best interests of the Corporation,
may be made on a confidential
basis.
|
19.
|
Review
this Charter at least annually, and recommend to the Board of Directors
changes to this Charter which the Audit Committee deems necessary
or
appropriate, including any matter required under applicable laws
or
regulations, or the applicable rules of NASDAQ or any oversight
board.
|
20.
|
Review,
consider, investigate and act upon any other matter relating to
the
Auditors, or the Corporation’s financial statements, financial controls,
financial recording or financial reporting process as it deems
appropriate.
|
VI. |
OTHER
AUTHORITY AND RESPONSIBILITIES
|
The
Audit
Committee shall have the authority and responsibility to:
1.
|
Review
and approve or disapprove of any transaction or series of transactions
proposed to be entered into, or entered into, between the corporation
and
(i) any executive officer or member of the Board, (ii) any nominee
for
election as a member of the Board, (iii) any holder of more than
five
percent of the Corporation’s outstanding common stock, of record or
beneficially, or (iv) any member of the immediate family of any
of the
persons identified in (i) through (iii) above, except for transactions
involving the compensation of any officer or director adopted or
approved
by the Corporation’s Compensation Committee or full
Board.
|
2.
|
Receive,
review, investigate and act upon any violation of the Corporation’s Code
of Ethics by any officer or director of the Corporation, as permitted
or
authorized by such Code of Ethics.
|
3.
|
Establish
a method whereby the Corporation’s employees may notify the Committee of
violations of the Corporation’s Code of Ethics, and provide assurances
that such notice may be made confidentially or anonymously, or
if not
inimical to the best interests of the Corporation, may be made
on a
confidential basis.
|
VII. |
OBLIGATIONS
OF MANAGEMENT
|
The
President, Treasurer and controller, and each other person engaged to perform
similar functions, shall, promptly upon learning of the following events,
inform
the Committee of any: (i) dispute between management and the Auditors; (ii)
change or proposed change in accounting principles or estimates, or the
application of accounting principles not considered to be generally accepted,
used or proposed to be used in the recording or preparation of financial
information or statements; and (iii) any violation of the Corporation’s Code of
Ethics as provided therein.
The
Audit
Committee shall have the authority on behalf of the Corporation to (i) contract
for legally permissible non-audit and auditing services from the Auditors
or any
other accounting professionals; (ii) engage such persons as it may deem
appropriate to advise it with respect to any matter consistent with its duties
under this Charter, including but not limited to independent counsel of its
choosing; and (iii) incur such ordinary administrative expenses as it determines
are necessary or appropriate in fulfilling its duties under this
Charter.