SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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ENGLOBAL CORPORATION
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ENGlobal
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
April 29, 2008
Dear Stockholder:
I am pleased to invite you to the Annual Meeting of Stockholders of
ENGlobal Corporation ("ENGlobal"). The meeting will be held at The Downtown Club
at Plaza, 910 Louisiana St., 49th Floor, Houston, Texas on Thursday, June 19,
2008 at 10:00 a.m., local time.
At the meeting, you and the other stockholders will be asked to vote on the
following:
o the election of four Directors to the Board of Directors of ENGlobal;
and
o any other business which properly comes before the meeting or at any
adjournment or postponement thereof.
This year we are furnishing proxy materials to our stockholders over the
Internet. You may read, print and download our proxy statement and annual report
at http://www.proxyvote.com. On or about May 9, 2008, we will mail our
stockholders a notice containing instructions on how to access our proxy
materials and vote online. The notice also provides instructions on how you can
request proxy materials to be sent to you by mail or email and how you can
enroll to receive proxy materials by mail or email for future meetings.
Stockholders of record at the close of business on April 21, 2008 are
entitled to vote. Each share entitles the holder to one vote. You can vote over
the Internet at http://www.proxyvote.com or by casting a ballot at the meeting.
You may also vote by telephone by following the instructions found on the
Internet site. If you request to receive proxy materials by mail or email, you
may vote by any of the above methods or by mailing a proxy card. For specific
voting information, see "General Information" beginning on page 1 of the
enclosed proxy statement. Please vote in advance of the meeting even if you plan
to attend the meeting.
Attendance is limited to stockholders of ENGlobal, their proxy holders and
our guests. Check-in will begin at 9:00 a.m. Stockholders holding stock in
brokerage accounts must bring a brokerage statement or other evidence of share
ownership as of April 21, 2008 in order to be admitted to the meeting.
Sincerely,
/s/ William A. Coskey
William A. Coskey, P.E.
Chairman of the Board and
Chief Executive Officer
ENGlobal
2008 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
-----------------
Page
----
GENERAL INFORMATION ................................................................1
CORPORATE GOVERNANCE ...............................................................3
Our Governance Practices ........................................................4
Corporate Governance Guidelines ...............................................4
Corporate Code of Conduct .....................................................4
The Board of Directors ..........................................................4
Board Size; Meetings of the Board .............................................4
Executive Sessions; Lead Director .............................................4
Director Independence .........................................................5
Director Attendance at Annual Meetings ........................................5
Board Evaluation Process ......................................................5
Director Elections ............................................................5
Committees of the Board of Directors ............................................5
Committee Composition and Meetings ............................................5
Summary of Committee Responsibilities .........................................5
Audit Committee .............................................................5
Nominating & Corporate Governance Committee .................................6
Compensation Committee ......................................................6
Compensation Committee Interlocks and Insider Participation ...................7
Director Nominations ............................................................7
Consideration of Director Nominees ............................................7
Stockholder Nominees ........................................................7
Director Qualifications .....................................................7
Identifying and Evaluating Nominees for Director ............................8
Communications with the Board .................................................8
ITEMS TO BE VOTED ON BY STOCKHOLDERS ...............................................8
Item 1: Election of Directors ...................................................8
Nominees ......................................................................8
Recommendation of the Board ..................................................10
Executive Officers .............................................................10
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .......................11
Directors and Executive Officers ...............................................11
Principal Stockholders .........................................................12
Section 16(a) Beneficial Ownership Reporting Compliance ........................13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................................13
EXECUTIVE COMPENSATION ............................................................13
Compensation Discussion and Analysis ...........................................13
Compensation Committee Report ..................................................19
Executive Compensation Tables ..................................................20
Summary Compensation Table ...................................................20
i
TABLE OF CONTENTS
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Page
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Severance ....................................................................20
Grants of Plan-Based Awards ..................................................22
Outstanding Equity Awards at Year End ........................................22
Option Exercises and Stock Vested ............................................22
Review of and Conclusion Regarding all Components of Executive Compensation ....23
DIRECTOR COMPENSATION .............................................................23
AUDIT MATTERS .....................................................................24
Report of the Audit Committee of the Board of Directors ........................24
Principal Auditor Fees .........................................................25
OTHER MATTERS .....................................................................26
STOCKHOLDER PROPOSALS FOR 2009 ....................................................26
ANNUAL REPORT TO STOCKHOLDERS .....................................................27
APPROVAL OF THE BOARD OF DIRECTORS ................................................27
APPENDIX A: AUDIT COMMITTEE CHARTER ..............................................A-1
ii
GENERAL INFORMATION
We are providing these proxy materials to you in connection with the
solicitation of proxies by the Board of Directors of ENGlobal Corporation
("ENGlobal") for the 2008 Annual Meeting of Stockholders (the "Meeting") and for
any adjournment or postponement of the Meeting. In this proxy statement, we
refer to ENGlobal as the "Company," "we," "our" or "us."
We are making these proxy materials available to you on the Internet. On or
about May 9, 2008, we will mail a notice to our stockholders containing
instructions on how to access the proxy materials at http://www.proxyvote.com
and vote online. In addition, stockholders may request proxy materials to be
sent to them by mail or email.
Who is soliciting my proxy?
We, the Board of Directors of ENGlobal, are making these proxy materials
available to you in connection with our solicitation of proxies for use at the
Meeting. Specified directors, officers, and employees of ENGlobal may also
solicit proxies on our behalf by mail, phone, fax, or in person.
Who is paying for this solicitation?
ENGlobal will pay for the solicitation of proxies, including the cost of
preparing and assembling these proxy materials, making these proxy materials
available on the Internet, mailing notices to our stockholders, and mailing
these proxy materials to our stockholders on request. We have retained and pay a
fee to Broadridge Financial Solutions, Inc. to assist us in making our proxy
materials available on the Internet and tabulating our proxies, but we pay no
separate compensation solely for the solicitation of proxies.
What is the purpose of the Meeting?
At the Meeting, stockholders will be asked to elect directors.
Who is entitled to vote at the Meeting?
Only stockholders of record at the close of business on April 21, 2008, the
record date for the Meeting, are entitled to receive notice of and participate
in the Meeting. If you were a stockholder of record on that date, you are
entitled to vote all of the shares you held on that date at the Meeting, or any
postponements or adjournments of the Meeting.
o If your shares are registered directly in your name, you are the
holder of record of these shares and we will send the notice directly
to you.
o If you hold your shares in a brokerage account or through a bank or
other holder of record, you hold the shares in "street name," and your
broker, bank or other holder of record will send the voting
instructions to you.
How many votes do I have?
You have one vote for each share of our Common Stock you owned as of the
record date for the Meeting, or any postponements or adjournments of the
Meeting.
1
How do I vote?
You may vote over the Internet at http://www.proxyvote.com by following the
instructions provided in the notice mailed to you or by voting in person at the
Meeting. You may also vote by telephone by following the instructions found on
the Internet site. If you request proxy materials by mail or email, you may vote
by any of the above methods or by mailing a proxy card.
If you hold your shares in street name, you have the right to direct your
broker, bank or other holder of record how to vote by following the instructions
sent to you by the holder of record. If you desire to vote in person at the
Meeting, as a holder in street name, you must provide a legal proxy from your
bank, broker or other holder of record.
May I change my vote?
Yes, you may change your vote at any time prior to the vote tabulation at
the Meeting by (a) voting in person at the Meeting, (b) casting a vote over the
Internet or by telephone at a later date or (c) sending a written notice of
revocation to our Corporate Secretary by mail to ENGlobal Corporation, 654 N.
Sam Houston Pkwy. E, Suite 400, Houston, Texas 77060-5914 or by facsimile at
(281) 878-1011. If you request proxy materials by mail or email, you may also
change your vote by mailing a proxy card with a later date. If you recast your
vote, only your later dated proxy (whether cast by Internet, telephone, mail or
in person) will be counted.
What are the Board's recommendations?
The Board's recommendations are set forth together with the description of
each item in this proxy statement. The Board recommends a vote FOR election of
four directors to our Board to serve until the next annual meeting of
stockholders.
If any other matter properly comes before the Meeting, William A. Coskey,
P.E. and R.W. (Bob) Raiford (the "Proxy Holders") will vote as recommended by
the Board or, if no recommendation is given, in their own discretion.
How many votes must be present to hold the Meeting?
We will have a quorum, and will be able to conduct the business of the
Meeting, if the holders of a majority of shares of Common Stock outstanding and
entitled to vote are represented in person or by proxy at the Meeting. As of the
record date, 27,063,541 shares of Common Stock, representing the same number of
votes, were outstanding. The presence of the holders of at least 13,531,772
shares of Common Stock will be required to establish a quorum. Proxies received
but marked as abstentions or broker non-votes will be included in the
calculation of the quorum. For more information regarding broker non-votes, see
"How are my votes counted?" below.
What vote is required to approve each item?
The election of directors is decided by a plurality of the votes cast. For
this purpose, "plurality" means that the individuals receiving the largest
number of votes, whether or not they receive a majority of the votes, are
elected as directors, up to the maximum number of directors to be chosen at the
election. You may either vote "FOR" or "ABSTAIN" from voting for the Company's
director nominees. If you "ABSTAIN" with respect to any nominee, your shares
will be counted for purposes of establishing a quorum, but will have no effect
on the election of that nominee.
2
How are my votes counted?
You may vote "FOR," "AGAINST" or "ABSTAIN." If you "ABSTAIN" on voting for
any nominee for director, your vote will not be counted as a vote cast.
Abstentions and broker non-votes will be counted for the purpose of
determining the presence or absence of a quorum. If you do not give instructions
to your broker, your broker can vote your shares with respect to "discretionary"
items, but not with respect to "non-discretionary" items. Discretionary items
are proposals considered routine under the rules of the applicable stock
exchange on which a broker may vote shares held in street name in the absence of
your voting instructions. On non-discretionary items for which you do not give
your broker instructions, the shares will be treated as broker non-votes. This
year, all of the proposals are considered discretionary items, which means that
if you do not instruct the broker on how to vote on the proposals, your broker
has the authority to vote your shares.
What if I do not mark a voting choice for some of the matters listed on my proxy
card?
If you request proxy materials by mail or email and send a proxy card
without indicating your vote, your shares will be voted "FOR" the director
nominees listed on the proxy card.
Could other matters be decided at the Meeting?
We do not know of any matters that will be considered at the Meeting other
than the items set forth in this proxy statement. If other matters are properly
raised at the Meeting, your proxy authorizes the Proxy Holders to vote as they
think best, unless authority to do so is withheld by you in your proxy.
What happens if the Meeting is postponed or adjourned?
If the Meeting is postponed or adjourned, your proxy will still be good and
may be voted at the postponed or adjourned meeting. You will still be able to
change or revoke your proxy until it is voted at the Meeting.
How do I get copies of the exhibits filed with ENGlobal's Form 10-K?
We are furnishing our annual report to our stockholders over the Internet.
You may read, print and download our annual report at http://www.proxyvote.com.
You may request the annual report be sent to you by mail or email by following
the instructions on the notice of internet availability mailed to you on May 9,
2008. ENGlobal will provide to any stockholder as of the record date, who so
specifically requests in writing, copies of the exhibits filed with ENGlobal's
Form 10-K for a reasonable fee. Requests for such copies should be directed to
Corporate Secretary, ENGlobal Corporation, 654 N. Sam Houston Parkway E., Suite
400, Houston, Texas 77060-5914. The annual report may also be read, downloaded
and printed at www.englobal.com. In addition, copies of all exhibits filed
electronically by ENGlobal may be reviewed and printed from the SEC's website
at: www.sec.gov.
CORPORATE GOVERNANCE
The following section summarizes information about our corporate governance
policies, our Board and its committees and the director nomination process.
3
Our Governance Practices
Corporate Governance Guidelines
We believe that good corporate governance helps to ensure that the Company
is managed for the long-term benefit of our stockholders. During the past year,
we continued to review our corporate governance policies and practices, the
corporate governance rules and regulations of the SEC, the listing standards of
AMEX, the stock exchange on which our shares of Common Stock were traded until
December 18, 2007, and the listing standards of NASDAQ, the stock exchange on
which our shares of Common Stock are traded, beginning December 18, 2007.
In 2007, we reviewed our Audit Committee, Compensation Committee,
Nominating and Corporate Governance Committee Charters, Corporate Code of
Conduct, and other policies and procedures required by applicable law or stock
exchange listing standards. You can access and print these documents from the
"Investor Relations" section of our website at www.englobal.com or you can
request copies at no cost by writing us at ENGlobal Corporation, 654 N. Sam
Houston Parkway E., Suite 400, Houston, TX 77060-5914, Attention: Investor
Relations.
Corporate Code of Conduct
The Company has adopted a Corporate Code of Conduct that applies to all of
the Company's directors, officers and employees in accordance with the NASDAQ
listing standards. The purpose and role of this code is to focus our officers,
directors, and employees on areas of ethical risk, provide guidance to help them
recognize and deal with ethical issues, provide mechanisms to report unethical
or unlawful conduct, and help enhance and formalize our culture of integrity,
honesty and accountability. We have posted our Code of Conduct on the "Investor
Relations" section of our website at www.englobal.com to satisfy the disclosure
requirement under Item 5.05 of Form 8-K.
The Company also has a Code of Ethics applicable to the Chief Executive
Officer and certain senior financial officers of the Company that complies with
Item 406 of Regulation S-K of the Exchange Act and with applicable NASDAQ rules.
As discussed above, we will disclose on our website waivers of or amendments to
the Code of Ethics granted to the Chief Executive Officer or the senior
financial officers subject to our Code of Ethics.
The Board of Directors
Board Size; Meetings of the Board
Our Board currently has four members (its authorized size). During 2007,
the Board met ten times and each director attended 95% of the meetings. For
information regarding meetings of the committees of our Board, see "Committees
of the Board of Directors--Committee Composition and Meetings" below.
Executive Sessions; Lead Director
In 2007, the Company held five executive sessions of its Non-employee
Directors, Messrs. Gent, Hale and Roussel. Any Non-Employee Director can request
that an executive session be scheduled. Mr. Gent has served as the Company's
Lead Independent Director since 2002, and was re-elected in 2008.
4
Director Independence
The Board has determined that no director has a relationship which, in the
opinion of the Board, would interfere with the exercise of his independent
judgment in carrying out the responsibilities of a director, and that all
directors, except Mr. Coskey, meet the criteria for independence under the
NASDAQ listing standards. The Board has also determined that the members of each
of its committees, including the Audit Committee, meet the criteria for
membership applicable to each committee under the NASDAQ listing standards and
applicable SEC rules and regulations.
Director Attendance at Annual Meetings
All of our directors attended the 2007 annual meeting and we expect all
directors standing for reelection will attend the 2008 Meeting.
Board Evaluation Process
The Nominating & Corporate Governance Committee conducts an annual
evaluation to determine whether the Board, its committees and its members are
functioning effectively. The evaluation focuses on the Board's (and each Board
committee's and member's) contribution as a whole to us and on areas that the
Board, any Board committee, any individual director and/or management believe
can be improved.
Director Elections
Directors will be elected by a favorable vote of a plurality of the shares
of common stock present, in person or by proxy, at the Meeting and entitled to
vote.
Committees of the Board of Directors
Committee Composition and Meetings
Each of our directors attended at least 95% of the total meetings held by
all Board committees on which they served in 2007.
Committee Members # of Meetings in 2007
--------- ------- ---------------------
Audit Committee Randall B. Hale (Chairperson)
David W. Gent
David C. Roussel 7
Compensation Committee David C. Roussel (Chairperson)
David W. Gent 5
Randall B. Hale
Nominating & Corporate David W. Gent (Chairperson)
Governance Committee Randall B. Hale 2
David C. Roussel
Summary of Committee Responsibilities
All of our committee charters are available at www.englobal.com.
5
Audit Committee
The purposes of the Audit Committee are to oversee:
o the quality and integrity of our financial statements;
o our compliance with legal and regulatory requirements; and
o our independent auditors' qualifications, independence and
performance.
In addition, the Audit Committee annually reviews our disclosures regarding
deficiencies, if any, in the design or operation of internal controls.
The Board has determined that Mr. Hale is qualified as an audit committee
financial expert under the SEC's rules and regulations. In addition, the Board
has determined that each member of the Audit Committee has the requisite
accounting and related financial management expertise under the NASDAQ Stock
Market listing standards.
Nominating & Corporate Governance Committee
The purposes of the Nominating & Corporate Governance Committee are to:
o assist the Board by identifying individuals qualified to become Board
members and recommend to the Board director nominees for election at
the annual meetings of stockholders or for appointments to fill
vacancies;
o recommend to the Board director nominees for each Board committee and
advise the Board on the appropriate composition of the Board and its
committees;
o make an annual report to the Board on succession planning;
o advise the Board about and recommend to the Board appropriate
corporate governance practices and assist the Board in implementing
those practices; and
o implement the annual performance review process for the Board and its
committees.
In addition, the Nominating & Corporate Governance Committee reviews all
relationships each director has with us and reports the results of its review to
the Board with appropriate recommendations, if any, for approval.
Compensation Committee
The purposes of the Compensation Committee are to:
o review, evaluate and approve our agreements, plans, policies and
programs to compensate our officers and directors;
o oversee our plans, policies and programs to compensate our employees;
o review the Compensation Discussion and Analysis and, based on that
review and discussion, determine whether to recommend to the Board
that the Compensation Discussion and Analysis be included in our
annual report or proxy statement for the Meeting;
o produce a report for inclusion in our proxy statement for the Meeting;
o evaluate the performance of our Chief Executive Officer and
executives;
o set the compensation for our Chief Executive Officer and such other
executives as the Compensation Committee deems appropriate and
otherwise discharge the Board's responsibilities relating to
compensation of our officers and directors; and
o encourage stock ownership by directors and executives, including
through the use of equity compensation programs.
6
The Compensation Committee has discretion to establish and delegate some or
all of its authority to subcommittees. During 2007, the Compensation Committee
did not establish or utilize a subcommittee for considering or determining
executive or director compensation, and it has no current plans to do so. For
information regarding the Compensation Committee's role in setting compensation,
see "Executive Compensation--Compensation Discussion and Analysis" and "Director
Compensation." For information regarding the role of our executive officers in
setting compensation, see "Executive Compensation--Compensation Discussion and
Analysis."
Compensation Committee Interlocks and Insider Participation
During 2007, all members of the Compensation Committee were independent
directors and no member is or was our employee. During 2007, none of our
executives served on a compensation committee (or equivalent) or a board of
directors of another entity that had an executive serving on our Compensation
Committee or Board.
Director Nominations
Consideration of Director Nominees
Stockholder Nominees
The Non-employee Directors will carefully consider all qualified director
candidates, whether such candidates are recommended by a stockholder or
otherwise. Any stockholder wishing to recommend a director candidate for the
2009 Annual Meeting of Stockholders should submit his nomination before January
1, 2009 to ENGlobal Corporation, 654 N. Sam Houston Parkway E., Suite 400,
Houston, TX 77060-5914, Attention: Corporate Secretary. Nominations should
include the following information in order to facilitate the Non-employee
Directors' review and consideration:
o the name, telephone number and address of the recommending
stockholder;
o the name, age, business address and residence of the director
candidate;
o the principal occupation or employment of the director candidate for
the past five years;
o a description of the director candidate's qualifications to serve as a
director, including financial expertise and why the candidate
qualifies or does not qualify as "independent" under the NASDAQ
listing standards;
o the number of shares of the Company's Common Stock beneficially owned
by the director candidate, if any;
o a description of any arrangements or understandings between the
recommending stockholder and the director candidate, if any, or any
other person for whom the recommending stockholder is making the
recommendation; and
o whether or not the recommending stockholder and the director candidate
consent to being named in the Company's Proxy Statement with respect
to disclosures regarding the nomination process.
No candidate for election to our Board has been recommended within the
preceding year by a beneficial owner of 5% or more of our Common Stock.
7
Director Qualifications
The Nominating and Corporate Governance Committee establishes criteria for
selecting new members of the Board. The Board as a whole should reflect a range
of skills, knowledge and experience in areas of importance to the Company.
Directors must be committed to upholding the highest standards of personal and
professional integrity and to representing the interests of all stockholders,
not particular stockholder constituencies. The Nominating and Corporate
Governance Committee places no specific restrictions on the number of terms
directors may serve or other Boards on which a director may sit, but directors
must possess sufficient time and energy to carry out their duties effectively. A
majority of directors must be "independent" under the NASDAQ listing standards.
No director will qualify as "independent" unless the Board affirmatively
determines that the director has no material relationship with the Company
(either directly or as a partner, stockholder or officer of an organization that
has a relationship with the Company). In determining whether a director is
independent, the Board will broadly consider all relevant facts and
circumstances.
Identifying and Evaluating Nominees for Directors
The Nominating and Corporate Governance Committee utilizes a variety of
methods for identifying and evaluating nominees for director. The Nominating and
Corporate Governance Committee regularly assesses the appropriate size of the
Board, and whether any vacancies on the Board are expected due to retirement or
otherwise. If vacancies are anticipated, or otherwise arise, the Nominating and
Corporate Governance Committee will consider various potential candidates for
director. Candidates may come to the attention of the Nominating and Corporate
Governance Committee through current Board members, stockholders or other
persons. These candidates will be evaluated at regular or special meetings of
the Nominating and Corporate Governance Committee, and may be considered at any
point during the year. As described above, the Nominating and Corporate
Governance Committee will consider properly submitted stockholder nominations
for candidates for the Board.
Communications with the Board
Stockholders may communicate with the Board, Board committees, Non-employee
Directors as a group and individual directors by submitting their communications
in writing to ENGlobal Corporation, 654 N. Sam Houston Parkway E., Suite 400,
Houston, TX 77060-5914, Attention: Corporate Secretary. Any communication must
contain:
o a representation that the stockholder is a holder of record of our
capital stock;
o the name and address, as they appear on our books, of the stockholder
sending the communication; and
o the number of shares of our capital stock that are beneficially owned
by such stockholder.
ENGlobal's Corporate Secretary will distribute such communications to the
intended recipient upon receipt, unless the communication is unduly hostile,
threatening, illegal or similarly inappropriate, in which case the Corporate
Secretary has the authority to discard the communication or to take appropriate
legal action regarding the communication.
8
ITEMS TO BE VOTED ON BY STOCKHOLDERS
Item 1. Election of Directors
Nominees
The number of directors of the Company has been set at four in connection
with the Annual Meeting. At the Annual Meeting, you and the other stockholders
will elect four individuals to serve as directors until the next annual meeting
of stockholders, until their successors are duly elected or appointed or until
their death, resignation, or removal. Each of the nominees is currently a member
of the Board of Directors (the "Board").
The individuals named as proxies will vote the attached or enclosed proxy
for the election of all nominees, unless you direct them to withhold your votes.
If any nominee becomes unable to serve as a Director before the Annual Meeting,
an event that is not presently anticipated, discretionary authority may be
exercised by the persons named as proxies to vote for substitute nominees
proposed by the Board of Directors.
There are no arrangements or understandings between ENGlobal and any person
pursuant to which such person has been elected as Director.
The nominees for Director, each of whom has consented to serve, if elected,
are as follows:
Director
Name of Nominee Since Age Principal Occupation During the Last 5 Years
--------------- ----- --- --------------------------------------------
William A. Coskey, P.E. 1994 55 Mr. Coskey has served as Chief Executive Officer since April
Chairman of the Board 2007 and Chairman of the Board since June 2005. He founded
and Chief Executive Officer ENGlobal in 1985 and, until December 2001, served as
Chairman of the Board, Chief Executive Officer and President
of the Company. From 2001 to 2003, he served as Chief
Operating Officer and held the position of President from
2001 to June 2005. Mr. Coskey, an honors graduate, received
a Bachelor of Science in Electrical Engineering from Texas
A&M University in 1975 and is a Registered Professional
Engineer. Mr. Coskey has served on the Texas A&M University
Electrical Engineering Department Advisory Council since
1999, and as Chairman of the Council since 2006.
David W. Gent, P.E. 1994 55 Mr. Gent has served as a Director of ENGlobal since June
1994, is Chairman of the Nominating & Corporate Governance
Committee and is a member of the Audit and Compensation
Committees. Mr. Gent has served as the Company's Lead
Independent Director since 2002. Since 1991, Mr. Gent has
held various positions for Bray International, Inc., an
industrial flow control manufacturer located in Houston,
Texas. Since 2005, Mr. Gent has served as Senior Vice
President of Bray International and is responsible for
overseeing worldwide engineering, information services, and
training. Mr. Gent, an honors graduate, received a Bachelor
of Science in Electrical Engineering from Texas A&M
University in 1975 and an MBA from Houston Baptist
University. He is a Registered Professional Engineer and a
senior member of the Instrument Society of America. Mr. Gent
serves on the Texas A&M University Electrical Engineering
Department Advisory Council, chairs the Bray International,
Inc. 401(k) committee and is the Bray representative on
various councils including the Open DeviceNet Vendors
Association and American Water Works Association. He also
holds several patents in the field of industrial flow
controls.
Randall B. Hale 2001 45 Mr. Hale has served as a Director of ENGlobal since December
2001, and is Chairman of the Audit Committee and a member of
the Compensation and Nominating & Corporate Governance
Committees. Mr. Hale was appointed Chairman of ConGlobal
Industries, Inc., a provider of intermodal services to the
shipping industry, in September 2004. From February 2003 to
September 2004, Mr. Hale was the President and Chief
Executive Officer of Container Care International, Inc., an
intermodal services company. Previously, Mr. Hale was a Vice
President of Equus Capital Management Corporation, a manager
of private equity investment funds, from November 1992 to
February 2003, and a Director of Equus from February 1996 to
February 2003. Mr. Hale received a BBA in Business
Administration from Texas A&M University in 1985 and is a
certified public accountant.
9
Director
Name of Nominee Since Age Principal Occupation During the Last 5 Years
--------------- ----- --- --------------------------------------------
David C. Roussel 2001 58 Mr. Roussel has served as a Director of the Company since
December 2001, and is Chairman of the Compensation Committee
and a member of the Audit and Nominating and Corporate
Governance Committees. Mr. Roussel is a Vice President with
Jefferies Randall & Dewey, a leading mergers and
acquisitions advisor in the global oil and gas industry, and
is responsible for managing acquisition and divestiture
projects on behalf of clients. Jefferies Randall & Dewey is
a division of Jefferies & Company, Inc., a global investment
bank and institutional securities firm. From 1998 to 2002,
Mr. Roussel's primary occupation was independent business
consultant. Mr. Roussel received a Bachelor of Science
degree in Mechanical Engineering from Iowa State University
in 1971 and completed the Harvard Advanced Management
Program in 1992.
Recommendation of the Board
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE NOMINEES
TO SERVE AS DIRECTORS OF ENGLOBAL.
Executive Officers
Set forth below is a brief description of the business experience of each
Named Executive Officer of ENGlobal Corporation, as defined in Item 402 of
Regulation S-K (the "Named Executive Officers"), except Mr. Coskey, whose
biography is listed above.
Name of Executive Officer Position Age Principal Occupation During the Last 5 Years
------------------------- -------- --- --------------------------------------------
Robert W. Raiford Chief Financial 63 Mr. Raiford has served as Chief Financial Officer and
Officer and Treasurer of ENGlobal since December 2001. Mr. Raiford
Treasurer joined Petrocon Engineering in 1979 and prior to joining
ENGlobal, he served as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer of Petrocon and
as a director and Secretary of various Petrocon
subsidiaries. Mr. Raiford received an MBA in 1974 and a BBA
in Business Management in 1968 from Lamar University.
Michael M. Patton, P.E. Senior Vice 55 Mr. Patton joined ENGlobal in 1999, and was appointed Senior
President, Vice President of Business Development of ENGlobal in 2002.
Business From November 2004 to January 2006, Mr. Patton also served
Development as President of the Western Division of ENGlobal
Engineering, Inc. and has been the sponsor for the Technical
Services division since January 2004. Mr. Patton is a
Registered Professional Engineer and earned a Bachelor of
Science degree in Electrical Engineering from University of
Oklahoma in 1975.
10
Name of Executive Officer Position Age Principal Occupation During the Last 5 Years
------------------------- -------- --- --------------------------------------------
R. David Kelley Senior Vice 56 Mr. Kelley has served as the Senior Vice President of
President, Corporate Services since November 2006. He served as
Corporate President of ENGlobal Engineering, Inc.'s Western Division
Services from January 2006 to November 2006 and as a consultant to
the Company from December 2004 to January 2006. From
September 1995 to November 2004, Mr. Kelley concurrently
served as the President of Aker Kvaerner's Process Services
Company and its Panamanian subsidiary, Investigacion Y
Evaluacion Ambiental (IEA). He has considerable
international operations experience including experience in
the Middle East, Caribbean, and Central America. Mr. Kelley
graduated from Texas Wesleyan University with a BBA in
Accounting.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Directors and Executive Officers
The following table shows the number of shares of our Common Stock
beneficially owned as of March 31, 2008 by each director, the executives named
in the "Summary Compensation Table" and all directors and executives as a group.
None of these shares are pledged as security.
Amount and Nature of
Beneficial Ownership Percent of
Name of Beneficial Owner Position (1) Class (1)
---------------------------------- ------------------------------------ -------------------- ----------
Mr. Coskey....................... Chairman and CEO 8,869,386(2) 32.77%
Mr. Gent......................... Independent Director 237,500(3) *
Mr. Hale......................... Independent Director 172,500(4) *
Mr. Roussel...................... Independent Director 177,500(5) *
Mr. Raiford...................... Treasurer and CFO 250,693(6) *
Mr. Patton....................... Senior Vice President - Business 113,000(7) *
Development
Mr. Kelley....................... Senior Vice President - Corporate 12,085(8) *
Services
Mr. Burrow....................... Former President and Chief 476,247(9) *
Executive Officer
All current directors, nominees, 9,832,664(10) 35.23%
and Named Executive Officers as
a group (7 persons).............. --
--------------------------
* Represents less than 1% of the shares of Common Stock outstanding.
(1) Beneficial ownership of Common Stock has been determined for this purpose
in accordance with Rule 13d-3 under the Exchange Act, under which a person
is deemed to be the beneficial owner of securities if such person has or
shares voting power or investment power with respect to such securities,
has the right to acquire beneficial ownership within 60 days, or acquires
such securities with the purpose or effect of changing or influencing the
control of ENGlobal.
(2) Includes 8,839,286 shares of Common Stock held in the name of Alliance
2000, Ltd., whose general partner, BHC Management Corporation, is jointly
owned by Mr. Coskey and his spouse. Mr. Coskey has shared power to vote and
dispose of such shares. Also includes 30,000 shares of Common Stock held in
the name of Mr. Coskey for the benefit of his children.
(3) In accordance with Rule 13d-3(d)(1)(i)(A), options held by Mr. Gent to
acquire an aggregate 237,500 shares of Common Stock that are exercisable on
or within 60 days of March 31, 2008
(4) In accordance with Rule 13d-3(d)(1)(i)(A), options held by Mr. Hale to
acquire an aggregate 172,500 shares of Common Stock that are exercisable on
or within 60 days of March 31, 2008.
(5) In accordance with Rule 13d-3(d)(1)(i)(A), options held by Mr. Roussel to
acquire an aggregate 177,500 shares of Common Stock that are exercisable on
or within 60 days of March 31, 2008.
(6) In accordance with Rule 13d-3(d)(1)(i)(A), options held by Mr. Raiford to
acquire an aggregate 250,693 shares of Common Stock that are exercisable on
or within 60 days of March 31, 2008.
11
(7) Includes 5,000 shares of Common Stock held in a trust for the benefit of
Mr. Patton. Mr. Patton has sole power to vote and dispose of such shares.
In addition, in accordance with Rule 13d-3(d)(1)(i)(A), includes options
held by Mr. Patton to acquire an aggregate 108,000 shares of Common Stock
that are exercisable on or within 60 days of March 31, 2008.
(8) In accordance with Rule 13d-3(d)(1)(i)(A), options held by Mr. Kelley to
acquire an aggregate 12,085 shares of Common Stock that are exercisable on
or within 60 days of March 31, 2008.
(9) Mr. Burrow resigned as President and Chief Executive Officer of the Company
May 18, 2007 and April 2, 2007, respectively. Includes 371,705 shares of
Common Stock held by Mr. Burrow's family limited partnership, for which Mr.
Burrow serves as general partner. The foregoing is derived from information
set forth in a Schedule 13G/A filed with the SEC on February 14, 2008 by
Mr. Burrow.
(10) In accordance with Rule 13d-3(d)(1)(i)(A), includes options to acquire an
aggregate 9,832,664 shares of Common Stock that are exercisable on or
within 60 days of March 31, 2008. The number of shares beneficially owned
by all directors and executives as a group represents approximately 35% of
our outstanding common stock as of March 31, 2008.
Principal Stockholders
The following table sets forth information about persons whom we know to be
the beneficial owners of more than 5% of our issued and outstanding Common Stock
based solely on our review of the Schedule 13G Statement of Beneficial Ownership
filed by these persons with the SEC as of the date of such filing:
Amount and Nature of
Name and Address Beneficial Ownership Percent of
of Beneficial Owner Position (1) Class (1)
------------------- -------- --- ---------
Alliance 2000, Ltd. -- 8,839,286(2) 32.66%
c/o 654 N. Sam Houston Pkwy. E.
Suite 400
Houston, TX 77060-5914
FMR LLC -- 3,503,821(3) 12.95%
Edward C. Johnson 3d
82 Devonshire Street
Boston, MA 02109
Tontine Overseas Associates, L.L.C. -- 2,693,700(4) 9.95%
Tontine Capital Partners, L.P.
Tontine Capital Management, L.L.C.
Jeffrey L. Gendell
55 Railroad Avenue, 3rd Floor
Greenwich, CT 06830
-------------------------------
(1) Beneficial ownership of Common Stock has been determined for this purpose
in accordance with Rule 13d-3 under the Exchange Act, under which a person
is deemed to be the beneficial owner of securities if such person has or
shares voting power or investment power with respect to such securities,
has the right to acquire beneficial ownership within 60 days, or acquires
such securities with the purpose or effect of changing or influencing the
control of ENGlobal.
(2) Alliance 2000, Ltd. ("Alliance") is a Texas limited partnership whose
general partner, BHC Management Corporation, is jointly owned by Mr. Coskey
and his spouse. Of these shares, 2,600,000 are held subject to an Option
Pool Agreement pursuant to which options are granted to certain employees
of ENGlobal and its subsidiaries.
(3) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR LLC and an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, is the beneficial owner of
3,027,080 shares or 11.203% of the Common Stock outstanding of ENGlobal as
a result of acting as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940. The
ownership of one investment company, Fidelity Small Cap Stock Fund,
amounted to 2,084,460 shares or 7.714% of the Common Stock outstanding. The
foregoing is derived from information set forth in a Schedule 13G/A filed
with the SEC on February 14, 2008 by Edward C. Johnson 3d and FMR LLC. Each
has sole power to dispose of the 3,027,080 shares owned by the Funds.
(4) Tontine Overseas Associates, L.L.C., serves as investment manager to
Tontine Capital Overseas Master Fund, L.P. Tontine Capital Management,
L.L.C. is the general partner, and thus has the power to direct the
affairs, of Tontine Capital Partners, L.P. Jeffrey L. Gendell is the
managing member of Tontine Overseas Associates, L.L.C. and Tontine Capital
Management, L.L.C. As of January 9, 2007, Tontine Capital Management,
L.L.C. and Tontine Capital Partners, L.P. had shared power to vote and
dispose of 2,619,400 shares of Common Stock, Tontine Overseas Associates,
L.L.C. had shared power to vote and dispose of 74,300 shares of Common
Stock, and Jeffrey L. Gendell shares power to vote and dispose of 2,693,700
shares of Common Stock. The foregoing is derived from information set forth
in a Schedule 13G/A filed with the SEC on January 16, 2007 by Jeffrey L.
Gendell, individually, and as managing member of Tontine Capital
Management, L.L.C., general partner of Tontine Capital Partners, L.P. and
as managing member of Tontine Overseas Associates, L.L.C.
12
Section 16(A) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, executive officers and persons
holding more than 10% of Common Stock must report their initial ownership of
Common Stock and any changes in that ownership to the SEC. The SEC has
designated specific due dates for such reports and ENGlobal must identify in
this Proxy Statement those persons who did not file such reports when due.
Based solely upon a review of Forms 3 and 4 and any amendments furnished to
ENGlobal during our fiscal year ended December 31, 2007 and any amendments
furnished to ENGlobal with respect to the same fiscal year, we believe that our
Directors, officers, and greater than 10% beneficial owners complied with all
applicable Section 16 filing requirements, except for the following: (1) on
December 11, 2007, Mr. Michael Lee, President of the Company's land group, filed
a Form 4 representing two sales totaling 15,400 shares of Common Stock between
the prices of $12.31 and $12.40 on December 7, 2007 and December 10, 2007; (2)
on August 16, 2007, Mr. Lee filed a Form 4 representing three sales totaling
22,100 shares of Common Stock between the prices of $10.62 and $10.95 from
August 13, 2007 to August 15, 2007; (3) on July 6, 2007, Messrs. Gent, Hale and
Roussel filed separate Form 4s reporting an option grant on June 14, 2007.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors has adopted a policy requiring that all transactions
between the Company and its officers, directors, principal stockholders and
their affiliates be on terms no less favorable to the Company than could be
obtained from unrelated third parties and that any such transactions be approved
by a majority of the disinterested members of the Company's Board. The Company's
Audit Committee is responsible for the review and assessment of all related
party transactions.
The Board has determined that no related party transactions existed during
fiscal 2007. See "Corporate Governance--Our Governance Practices" for a
discussion of our policies and procedures related to conflicts of interest.
EXECUTIVE COMPENSATION
Compensation Discussion & Analysis
This Compensation Discussion and Analysis generally describes the
development and current composition of our executive and director compensation
programs and policies, and discusses the philosophy and principles underlying
those policies and programs. It also gives greater context to the data presented
in the tables and narratives that follow. This discussion should be read in
conjunction with such tables, which follow beginning on page 20 of this Proxy
Statement.
What is our executive compensation program designed to reward?
Our executive compensation program is designed to reward individual
performance and to achieve strategic business objectives that are aimed at
growing our business and aligning the long-term interests of our executives and
stockholders. Specifically, as our production and profits increase, so does
executive compensation. Conversely, if production and profits decrease,
executive compensation may be less generous.
13
What are the elements and objectives of our executive compensation program?
Our compensation program for executives consists of base salary, annual
incentive awards, long-term incentive awards, and termination and
change-in-control arrangements. Using these elements, the Compensation Committee
(the "Committee") has designed our compensation program to prudently use our
resources while meeting the following objectives:
o attract and retain the talent that we believe is required to
successfully execute our business strategy;
o align the interests of our executives with the interests of our
stockholders;
o reinforce expectations of leadership and achievement, consistent with
our values and our vision to be the best positioned, most trusted
choice for engineering and professional services in the energy sector;
and
o provide a strong incentive to our executives to achieve their
potential and our goals and long-term success.
How are executive compensation amounts determined?
In determining target compensation levels for each executive, the Committee
considers:
o total compensation amounts;
o market data;
o individual performance;
o corporate performance;
o compensation history; and
o internal equity.
None of these factors are weighted, but are considered together.
Total Compensation Amounts
In determining the individual compensation for ENGlobal's executives, the
Committee considers the total compensation to be awarded to each executive (base
salary, annual incentive awards, long-term incentive awards, and termination and
change-in-control arrangements) and may exercise discretion in determining the
portion allocated to the various components of total compensation. ENGlobal
believes that the focus on total compensation provides the ability to align pay
decisions with our short and long term business needs. This approach also allows
for the flexibility needed to recognize differences in performance by providing
differentiated pay.
Market Data
Market data is a key consideration for the Committee. The Committee
considers this data for general market movement and trends and the positioning
of our executives relative to the market. The Committee reviewed and considered
market data for a peer group composed of six other engineering and construction
companies (Xanser Corporation, Michael Baker Corporation, Matrix Service
Company, Tetra Tech, Inc., Willbros Group, and VSE Corporation). These companies
were selected primarily because they are representative of the sector in which
we operate. The group was chosen because of each company's relative leadership
position in our sector, its relative size as measured by market capitalization,
the relative complexity of the business, and the CEO's role and
responsibilities.
14
Market data for target total direct compensation (base salary, targeted
annual incentive and expected value of long-term incentive awards) is developed
to provide a broad market view. Each executive's position relative to the market
data is reflective of his experience (both with us and with other organizations)
and the other factors described below.
Individual Performance
The Committee also considers individual performance, including achievement
of individualized goals, current and potential impact on corporate performance,
reputation, skills, experience, criticality and demonstration of our values as
important factors. Our values are to:
o act with absolute integrity;
o provide superb service to our customers;
o collaborate with, support and respect our employees;
o embrace the entrepreneurial spirit;
o encourage a passion for excellence in everything we do; and
o operate in a safe and responsible manner.
The format used for our executives' annual performance evaluations is the
same as for all employees (except our Chief Executive Officer). See "What is the
role of our executives in the compensation process?"
Corporate Performance
Significant portions of our annual incentive awards and long-term incentive
awards are tied to corporate and operational results, which must be measured to
determine the level of payout. See "Why do we choose to pay each element?"
Compensation History
In determining an executive's compensation, the Committee considers the
base salary and the annual incentive payout history of each executive for the
preceding four years. The Committee also considers each executive's equity
holdings, including the date of any grants, the types of awards (stock options
or cash), the vesting provisions, the expiration dates, the exercise prices, and
the number of shares granted. The Committee reviews these historical awards in
order to allocate an appropriate portion of executive compensation to retention
value.
Internal Equity
The Committee believes that the success of a company depends to a large
extent on honest and ethical leadership and teamwork. Consequently, compensation
among senior executives is roughly equivalent. However, some differences in
levels of compensation among our executives exist because of differences in
their roles and responsibilities and in the factors discussed above. The
Committee does not use formulas in determining base compensation amounts, but is
mindful of internal equity and the impact of perceived fairness related to its
decisions. Bonuses are based on a formula tied to increases in earnings per
share.
15
How does each element and our decisions regarding that element fit into our
compensation program's objectives and affect other elements?
The Committee believes that in order to achieve our compensation program's
objectives, a significant portion of executive compensation should be composed
of variable, at risk elements, with the majority of these elements being based
on alignment with our stockholders and achievement of our long-term success.
Base salaries attract and retain the talent we need to lead and grow our
business. The Committee strives for a balanced and effective mix of elements,
which are not weighted in any particular manner. We have no policies or formulas
for allocating among different forms of pay.
Mr. Coskey did not receive a salary increase in 2007 and elected not to
participate in the 2007 Key Manager Incentive Plan. See "Annual Incentive
Awards" below.
Why do we choose to pay each element?
Base Salary
Base salary is paid in cash commensurate with the responsibilities of each
individual's position, subject to adjustment by the Committee based on its
annual review of the factors discussed under "How are executive compensation
amounts determined?" The Committee believes the base salaries provide a
competitive level of fixed compensation based on the individual's experience and
performance as well as the position's market value. See "Summary Compensation
Table" for amounts of 2007 base salaries.
Annual Incentive Awards
Annual incentive awards are paid in cash and are tied to annual achievement
against earnings per share results. The purpose of our annual incentive awards
is to encourage superior performance on key corporate and employee metrics that
are critical to our business. Under the Key Manager Incentive Plan, if the
Company's adjusted earnings per share for a year, after subtracting all
incentive compensation, exceeds adjusted earnings per share in the immediately
preceding calendar year, the Company designates a bonus pool equal to $80,000
for each penny per share of earnings the Company makes which is above the prior
year's earnings per share. However, for 2007, earnings per share were measured
against 2005 earnings per share. The amount of the bonus pool under the Key
Manager Incentive Plan is not permitted to exceed 12.50% of adjusted pre-tax,
pre-bonus earnings (after adjusting for non-operating and non-recurring events)
for the year for which the bonus is paid.
Amounts in the bonus pool are distributed in the discretion of the Chief
Executive Officer, after consultation with the Company's management, based on
evaluations of each eligible participant, assessing factors such as financial
performance, client satisfaction, and leadership. In addition, in the discretion
of the Chief Executive Officer, an amount equal to 10% to 15% of the total bonus
pool may be allocated for any employees exhibiting performance over and above
requirements of their position, when their performance has resulted in the
addition of new clients, an improvement in the Company's financial performance,
the award of new projects, or other significant activities that reflect the
Company's core values. A copy of the Key Manager Incentive Plan approved by the
Board of Directors was previously filed with the SEC as Exhibit 10.43 to the
Company's Form 8-K dated April 10, 2007.
Long-Term Incentive Awards
The long-term incentive awards are equity-based awards to align our
executives' interests with those of our stockholders. These awards are designed
to retain our executives and to provide them continued motivation to achieve our
long-term success. In selecting recipients for equity grants and in determining
the size of such grants, we consider various factors, including:
16
o our achievements, financial performance and financial ratios,
including revenues, operating income, and earnings per share;
o Company and individual performance, both on an absolute basis in terms
of growth over prior year performance, and against pre-established
performance goals;
o compensation paid by companies of comparable size in businesses
similar to our business;
o the executive's level of responsibility; and
o the executive's contributions in support of our strategies.
The structure of our long-term incentive awards reflects the Committee's
view that the purpose of the executive's equity compensation should strengthen
alignment with stockholders, provide incentives tied to our performance and
serve as a retention vehicle. Performance-based cash awards are primarily a
stockholder alignment tool, as they are earned or vested upon the achievement of
a key performance metric, earnings per share. Time-based Common Stock options
can be retentive and they create stockholder alignment because their value
increases as our stock price increases. The weighting of the long-term incentive
award vehicles is reflective of the Committee's goal to have a balanced and
effective mix of cash and equity elements.
In 2007, the Committee did not award any long-term incentive awards to any
of its Named Executive Officers.
Employment Agreements; Termination and Change-in-Control Arrangements
Messrs. Coskey and Raiford are each a party to a written employment
agreement (the "Employment Agreements") with ENGlobal. Messrs. Patton and Kelley
do not currently have an employment agreement, but both have agreed to continue
their employment with the Company without an employment agreement, subject to
Texas "at-will" employment law. Mr. Patton was formerly a party to an employment
agreement with the Company, which expired on February 7, 2008. Mr. Burrow was
also a party to an employment agreement with the Company prior to his
resignation on April 2, 2007. The Employment Agreements provide for an annual
base salary, subject to discretionary increases by the Board of Directors, and
other compensation in the form of cash bonuses, incentive compensation, stock
options, stock appreciation rights, and restricted stock awards. Additionally,
the executives receive health, life, and other insurance benefits in accordance
with the terms of the Company's benefit plans, and the Company provides
management level support services and reimbursement for specified business
expenses. Copies of the Employment Agreements are on file with the SEC as
Exhibits 10.39 and 10.41, respectively, to the Company's Form 10-K/A for the
fiscal year ended December 31, 2006.
The Employment Agreements provide for severance payments and benefits in
the case of termination of employment. If employment ends because of death, the
Company will pay any accrued but unpaid salary, additional compensation, and
other benefits earned up to that date. In the case of disability, salary and
benefits would generally be maintained by the Company on behalf of the disabled
executive for up to six months of disability and for a period of six months
following the date of termination, and the executive would receive health and
life insurance benefits in accordance with the terms of the Company's benefit
plans during that period. At the Company's option, severance payments and full
benefits may be extended for an additional six-month period following the
initial period of severance for disability.
If the Company terminates an executive's employment for "cause," as defined
in the Employment Agreements, the Company will pay any accrued but unpaid
salary, additional compensation, and other benefits earned up to the effective
17
date of termination. If the Company terminates an executive's employment without
"cause," as defined in the employment agreement, the Company will continue to
pay him for a period of six months following the date of termination and, at the
Company's option, severance payments and full benefits may be extended for an
additional six-month period following the initial severance period. See
"Executive Compensation Tables - Severance."
The Employment Agreements include a covenant not to compete following
termination of employment for a period of up to one year as well as
confidentiality provisions as are customary in nature and scope, for such
agreements.
The terms of the Employment Agreements were set through the course of
arms-length negotiations with the executives. As part of these negotiations, the
Committee analyzed the terms of the same or similar arrangements for comparable
executives employed by some companies in our peer group. The Committee used this
approach in setting the amounts payable and the triggering events under the
Employment Agreements. The Employment Agreements' termination of employment
provisions were entered into in order to address competitive concerns by
providing the executives with a fixed amount of compensation that would offset
the potential risk of foregoing other opportunities. At the time of entering
into the Employment Agreements, the Committee considered ENGlobal's aggregate
potential obligations in the context of retaining the executive and his expected
compensation.
In addition, Messrs. Burrow, Raiford, and Patton are parties to an option
pool agreement with Alliance 2000, Ltd. ("Alliance"), a Texas limited
partnership beneficially owned and controlled by our Chief Executive Officer.
Under the option pool agreement, options to acquire shares of ENGlobal's common
stock owned by Alliance were granted to Messrs. Burrow, Raiford, and Patton.
These options vest and become exercisable upon a change of control of the
Company. This arrangement, which was entered into in connection with the merger
of Industrial Data Systems Corporation (ENGlobal's predecessor) with Petrocon
Engineering, Inc. ("Petrocon"), was intended to provide an incentive to certain
key employees of the Company and Petrocon to remain in the Company's service
after the merger. The Alliance option pool agreement is scheduled to expire in
December 2011.
Executive Perquisites
We do not provide substantial personal benefits or perquisites. The current
executive officers, including those who are Named Executive Officers (as defined
in Item 402(a)(3) of Regulation S-K), are eligible to receive an executive
vehicle/auto allowance perquisite having an annual value of up to $9,000. See
"Summary Compensation Table."
Other Compensation
From time to time, we make available to employees and executives certain
other fringe benefits. We may provide club memberships, tickets to sporting or
cultural events, tickets to community events, etc. To the extent that such items
are taxable to the individual, they are considered to be part of the
individual's compensation package. Other benefits provided to our executives are
generally available to all employees, such as medical, dental, life, short-term
disability, and long-term disability insurances, personal leave benefits,
reimbursement for an annual physical exam, and Company matching contributions to
the ENGlobal Corporation 401(k) Plan equal to 50% of regular employee
contributions up to 6% of employee compensation. See "Summary Compensation
Table."
18
What is the role of our executives in the compensation process?
Our Chief Executive Officer has access to the internal and external
compensation information described above, including each executive's annual
performance review. Using that information, our Chief Executive Officer makes
recommendations to the Committee regarding the compensation of our other
executives. The Committee independently reviews the data and makes its own
determinations for our executives. The Committee is comprised of all of the
Non-Employee Directors; each of whom is able to provide his views of the Chief
Executive Officer's performance and compensation. The Committee has not
historically engaged or retained any outside advisors or consultants with
respect to executive or director compensation.
What are our equity and security ownership requirements?
We encourage stock ownership by executives through the use of equity
awards.
When are awards granted and base salaries approved?
Each year, the Committee approves our executives' base salaries, payout of
annual incentive awards for the prior year, and annual and long-term incentive
awards for the current year at its first regular quarterly meeting (generally in
March or April). Any awards for newly hired executives are granted at the next
regularly scheduled Committee meeting. Offers to executive candidates are
reviewed with the Committee prior to being made. Any equity awards included in
an offer are subject to the Committee's approval.
Our executives do not have any role in establishing the timing of grants or
vesting of stock options. We do not have any program, plan or practice to time
grants of equity or equity-based awards in coordination with the release of
material non-public information and we do not set grant dates to new executives
in coordination with the release of such information. We have not timed, and do
not intend to time, our release of material non-public information for the
purpose of affecting the value of executive compensation.
Does the accounting and tax treatment of a particular form of compensation
impact the form and design of awards?
The Committee considers tax, tax deductibility and accounting treatment of
various compensation alternatives. However, these are not typically driving
factors. The Committee may approve non-deductible compensation arrangements if
it believes they are in the best interests of the Company and its stockholders
taking into account several factors, including our ability to utilize the
deduction based on projected taxable income.
Compensation Committee Report
The information contained in this Compensation Committee Report shall not
be deemed to be "soliciting material" or to be "filed" or incorporated by
reference in future filings with the SEC, or to be subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934, except to the extent that we
specifically incorporate it by reference into a document filed under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
The Compensation Committee oversees the compensation plans, policies and
programs of ENGlobal on behalf of the Board of Directors. In performing its
oversight function, the Compensation Committee reviewed and discussed with
management the Compensation Discussion & Analysis prior to its inclusion in this
19
proxy statement. Based on these reviews and discussions, the Compensation
Committee recommended to the Board, and the Board approved, that the
Compensation Discussion & Analysis be included in this proxy statement.
The undersigned members of the Compensation Committee have submitted this
Report to the Board of Directors.
Compensation Committee of the Board of Directors,
David C. Roussel, Chairman
David W. Gent
Randall B. Hale
April 25, 2008
Executive Compensation Tables
Summary Compensation Table
As of December 31, 2007, the following table sets forth information
regarding compensation earned during the last fiscal year by the Named Executive
Officers.
Salary Option Awards All Other
Name and Principal Position Year ($) Bonus ($) ($)(1) Compensation ($)(2) Total ($)
--------------------------- ---- --- --------- ------ ------------------- ---------
W.A. Coskey ~ Chairman and CEO 2007 $245,000 -- -- $ 23,980 $268,980
M.L. Burrow ~ Former President and 2007 $316,250 -- -- $ 19,370 $335,619
CEO(3)
R.W. Raiford ~ Treasurer & CFO 2007 $245,000 $ 65,000 -- $ 23,545 $333,543
M.M. Patton ~ SVP, Business 2007 $210,000 $ 60,000 -- $ 23,884 $293,881
Development
R.D. Kelley ~ SVP, Corporate 2007 $160,000 $ 40,000 -- $ 21,398 $221,398
Services
------------------------
(1) For a description of certain assumptions made in the valuation of stock
option awards, see Note 2 to the Company's audited consolidated financial
statements, included in the Company's Form 10-K for the fiscal year ended
December 31, 2007, filed with the SEC on March 28, 2007.
(2) Consists of benefits relating to the Executive Benefits Policy, including
medical, dental, life, short-term disability, and long-term disability
insurances. Also includes personal leave benefits and reimbursement for the
executive's annual physical exam and Company matching contributions to the
ENGlobal Corporation 401(k) Plan equal to 50% of regular employee
contributions up to 6% of employee compensation. The current executive
officers, including those who are Named Executive Officers (as defined in
Item 402(a)(3) of Regulation S-K), are eligible to receive an executive
vehicle/auto allowance perquisite having an annual value of up to $9,000.
(3) Mr. Burrow resigned as President and Chief Executive Officer of the Company
May 18, 2007 and April 2, 2007, respectively.
Severance
The following table sets forth benefits payable to the Named Executive
Officers upon the occurrence of a change in control of the Company, or the
termination of employment (without cause), death or permanent disability of the
Named Executive Officers. The information in the table assumes that the subject
event took place on December 31, 2007 and that the price per share of the
Company's Common Stock is $11.36, the closing price on NASDAQ on December 31,
2007.
20
Termination Change in
Name without Cause Death Disability Control
---- ------------- ----- ---------- -------
W.A. Coskey ~ Chairman and CEO Compensation:
Severance(1)....................... $122,500 -- $122,500 --
Benefits and Perquisites:
Health/Dental/Medical(2)........... $8,080 -- $8,080 --
M.L. Burrow ~ Former President and CEO(3)
Compensation:
Severance.......................... $118,594 -- $118,594 --
Stock Options...................... -- -- -- $711,750(4)
(Unvested and Accelerated)
Benefits and Perquisites:
Health/Dental/Medical.............. $8,212 -- $8,212 --
R.W. Raiford ~ Treasurer & CFO
Compensation:
Severance.......................... $122,500 -- $122,500 --
Stock Options...................... -- -- -- $945,750(5)
(Unvested and Accelerated)
Benefits and Perquisites:
Health/Dental/Medical.............. $7,645 -- $7,645 --
M.M. Patton ~ SVP, Business Development(6)
Compensation:
Severance.......................... $105,000 -- $105,000 --
Stock Options...................... -- -- -- 585,000(7)
(Unvested and Accelerated)
Benefits and Perquisites:
Health/Dental/Medical.............. $7,984 -- $7,984 --
R.D. Kelley ~ SVP, Corporate Services
Compensation:........................ -- -- -- --
Benefits and Perquisites:............ -- -- -- --
--------------------------------
(1) Pursuant to Employment Agreement, if executive's employment is terminated
for any reason other than (i) for cause, as defined in the Employment
Agreement, (ii) voluntary resignation, or (iii) his death, then for a
period of six months following the date of termination of employment the
Company shall continue to pay to the executive his monthly salary. Amount
in table based on base salary at December 31, 2007.
(2) Pursuant to Employment Agreement, if executive's employment is terminated
for any reason other than (i) for cause, as defined in the Employment
Agreement, (ii) voluntary resignation, or (iii) his death, then for a
period of six months following the date of termination of employment the
Company shall continue to include the executive and his dependents under
the coverage of all group health, medical and dental insurance plans and
policies.
(3) Mr. Burrow resigned as President and Chief Executive Officer of the Company
May 18, 2007 and April 2, 2007, respectively. The Company entered into a
Separation Agreement and Release with Mr. Burrow, providing for severance
payments equal to his current salary for a period of up to one year
following the date of his retirement. In addition, Mr. Burrow's health,
medical, and dental insurance policies will remain in effect for the
one-year period following the date of his retirement.
(4) In connection with the Separation Agreement and Release, the Company, Mr.
Burrow, and Alliance 2000, Ltd. ("Alliance"), a partnership controlled by
Mr. Coskey and Hulda Coskey, entered into a Second Amended and Restated
Alliance 2000, Ltd. Stock Option Agreement. Under the amended agreement,
Mr. Burrow's option to acquire shares from Alliance did not expire on his
retirement, but rather will remain in existence until December 20, 2011. In
exchange, Mr. Burrow agreed to certain covenants, including non-competition
and non-interference covenants. Includes options valued at $711,750, issued
by Alliance, which vest upon a change in control of the Company and are
exercisable only under certain conditions set forth in the Option Pool
Agreement between the Company and Alliance. The strike price of the
Alliance options was $1.95 as of December 31, 2007.
(5) Includes options valued at $945,750, issued by Alliance, which vest upon a
change in control of the Company and are exercisable only under certain
conditions set forth in the Option Pool Agreement between the Company and
Alliance.The strike price of the Alliance options was $1.95 as of December
31, 2007.
(6) Mr. Patton's Employment Agreement expired on February 7, 2008.
(7) Includes options valued at $948,520, issued by Alliance, which vest upon a
change in control of the Company and are exercisable only under certain
conditions set forth in the Option Pool Agreement between the Company and
Alliance. The strike price of the Alliance options was $1.95 as of December
31, 2007.
21
Grants of Plan Based Awards
There were no grants of an equity-based awards during 2007 to the
individuals named in the Summary Compensation Table above.
Outstanding Equity Awards at Year End
As of December 31, 2007, the following table sets forth information
regarding outstanding equity awards held by the individuals named in the Summary
Compensation Table above.
Option Option
Exercise Expiration
Number of Securities Underlying Price Date
Name and Position Unexercised Options (#) -------- ----------
----------------- ------------------------------- ($)
Exercisable Unexercisable --------
----------- -------------
W.A. Coskey ~ Chairman and CEO (1) -- -- -- --
M.L. Burrow ~ Former President and CEO 365,000 (2) -- -- --
R.W. Raiford ~ Treasurer & CFO 175,000 -- $6.83 12/4/2016
R.W. Raiford ~ Treasurer & CFO 4,034 -- $0.96 10/24/2010
R.W. Raiford ~ Treasurer & CFO 10,424 -- $0.96 10/31/2010
R.W. Raiford ~ Treasurer & CFO 485,000 (3) -- -- --
M.M. Patton ~ SVP, Business Development 20,000 -- $1.25 12/13/2009
M.M. Patton ~ SVP, Business Development 40,000 -- $2.05 3/25/2014
M.M. Patton ~ SVP, Business Development 48,000 (4) 32,000 $11.97 4/17/2016
M.M. Patton ~ SVP, Business Development 300,000 (5) -- -- --
R.D. Kelley ~ SVP, Corporate Services -- -- -- --
------------------------------
(1) Mr. Coskey is a general partner of Alliance. Mr. Coskey beneficially owns
2,600,000 shares that are subject to an Option Pool Agreement pursuant to
which options to acquire shares of the Company's Common Stock that is owned
by Alliance have been granted to certain employees of ENGlobal and its
subsidiaries.
(2) Mr. Burrow resigned as President and Chief Executive Officer of the Company
May 18, 2007 and April 2, 2007, respectively. Includes options to acquire
365,000 shares of Common Stock at exercise prices ranging from $1.56 to
$3.81 per share which become vested and are exercisable only under certain
conditions set forth in the Option Pool Agreement between the Company and
Alliance.
(3) Includes options to acquire 485,000 shares of Common Stock at exercise
prices ranging from $1.56 to $3.81 per share which become vested and are
exercisable only under certain conditions set forth in the Option Pool
Agreement between the Company and Alliance.
(4) The option vests as follows: 20% on date of grant and four equal annual
installments of 20% each beginning on December 31, 2007. Consists of
options to acquire 80,000 shares of Common Stock granted pursuant to the
ENGlobal Corporation 1998 Incentive Plan.
(5) Includes options to acquire 300,000 shares of Common Stock at exercise
prices ranging from $1.56 to $3.81 per share which become vested and are
exercisable only under certain conditions set forth in the Option Pool
Agreement between the Company and Alliance.
Option Exercises and Stock Vested
As of December 31, 2007, the following table sets forth information
regarding outstanding equity awards held by the individuals named in the Summary
Compensation Table above.
Name and Position Number of Shares Value
----------------- Acquired on Realized on
Exercise (#) Exercise ($)
------------ ------------
W.A. Coskey ~ Chairman and CEO -- --
M.L. Burrow ~ Former President and CEO 20,000 $80,800 (1)
R.W. Raiford ~ Treasurer & CFO -- --
M.M. Patton ~ SVP, Business Development -- --
R.D. Kelley ~ SVP, Corporate Services -- --
----------------------------
(1) Mr. Burrow resigned as President and Chief Executive Officer of the Company
May 18, 2007 and April 2, 2007, respectively. He exercised 20,000 options
on February 28, 2007 at a strike price of $2.05. The market closing price
on February 28, 2007 was $6.09.
22
Review of and Conclusion Regarding All Components of Executive Compensation
Based on our performance during the past several years, and in light of our
executives' efforts in directing the Company, the Compensation Committee and the
Board have determined that the compensation paid to Mr. Coskey, as well as
compensation paid to our other Named Executive Officers, serves the best
interests of our stockholders and continues to emphasize programs that the
Compensation Committee and the Board believe positively affect stockholder
value.
DIRECTOR COMPENSATION
As of December 31, 2007, the following table discloses cash and equity
awards and other compensation earned, paid or awarded, as the case may be, to
each of the Company's Non-employee Directors during the last fiscal year.
Name Fees Earned or Paid in Cash Option Awards Total
---- --------------------------- ------------- -----
($) ($)(1)(2)
Mr. Hale $36,000 $327,409 $363,409
Mr. Gent $32,000 $327,409 $359,409
Mr. Roussel $32,000 $327,409 $359,409
------------------------
(1) This column shows the amount that the Company expensed during 2007 under
SFAS 123R for all outstanding stock option awards and includes compensation
cost recognized in the financial statements with respect to awards granted
in previous fiscal years and in 2007.
(2) There were 50,000 options granted to each director on June 14, 2007
pursuant to the ENGlobal Corporation 1998 Incentive Plan, as director
compensation. Options vest 25% quarterly on each of September 14, 2007,
December 14, 2007, March 14, 2008, and June 14, 2008. The market closing
price (exercise price) on June 1, 2007 was $10.93. The grant date fair
value of options issued to each director during 2007 was $352,787. The
exercise price of the options has been less than the fair market value for
significant periods of time since their issuance.
The principal objectives of our director compensation programs are to
compensate the directors for time spent on the Company's behalf, to ensure
long-term retention of the directors and to align the directors' compensation
programs with long-term value to the Company's stockholders. We attempt to
accomplish these objectives in an economical manner through a combination of
reasonable director retainer fees and option grants to the directors.
Our Non-employee Directors, Messrs. Gent, Hale and Roussel, receive a
retainer of $32,000 per year. Non-employee Directors are also eligible for
reimbursement of travel and other miscellaneous expenses associated with
attendance at Board of Directors and Committee meetings. The chairman of the
Audit Committee, Mr. Hale, receives an additional $4,000 per year.
In addition, under the Company's 1998 Incentive Plan, Non-employee
Directors are eligible to receive non-statutory stock options. In 2008,
Non-employee Directors will each receive options to acquire 50,000 shares of the
Company's Common Stock, with a quarterly vesting schedule, for their service to
the Company during 2008-2009. We anticipate that the options will be granted on
June 19, 2008, will fully vest on June 19, 2009, and will expire on June 19,
2019.
The Board considers the director compensation programs to be in conformity
with industry standards and to be reasonable by comparison to directors'
compensation at the comparable companies that we used for our evaluation of
executive compensation.
23
AUDIT MATTERS
Report of the Audit Committee
The information contained in this Report of the Audit Committee shall not
be deemed to be "soliciting material" or to be "filed" or incorporated by
reference in future filings with the SEC, or to be subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934, except to the extent that we
specifically incorporate it by reference into a document filed under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
In accordance with its written charter, the Audit Committee assists the
Board in, among other things, oversight of our financial reporting process,
including the effectiveness of our internal accounting and financial controls
and procedures, and controls over our accounting, auditing, and financial
reporting practices. A copy of the Audit Committee Charter is attached as
Appendix A and is available on our website at www.englobal.com.
Our Board of Directors has determined that all three members of the
Committee are "independent" based upon the standards adopted by the Board, which
incorporate the independence requirements under applicable laws, rules and
regulations.
Management is responsible for the financial reporting process, the
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, our system of
internal controls, and procedures designed to ensure compliance with accounting
standards and applicable laws and regulations. Our independent auditors are
responsible for auditing the financial statements. The Audit Committee's
responsibility is to monitor and review these processes and procedures. The
members of the Audit Committee are not professionally engaged in the practice of
accounting or auditing and we are not professionals in those fields. The Audit
Committee relies, without independent verification, on the information provided
to us and on the representations made by management that the financial
statements have been prepared with integrity and objectivity and on the
representations of management and the opinion of the independent auditors that
such financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America.
During fiscal 2007, the Audit Committee held seven meetings. The Audit
Committee's meetings were conducted so as to encourage communication among the
members of the Audit Committee, management, and our independent auditors, Hein &
Associates, LLP. Among other things, the Audit Committee discussed with our
internal and independent auditors the overall scope and plans for ENGlobal's
audits. The Audit Committee met separately with the independent auditors, with
and without management, to discuss the results of their examinations and their
observations and recommendations regarding our internal controls. The Audit
Committee also discussed with our independent auditors all matters required by
generally accepted auditing standards, including those described in Statement on
Auditing Standards No. 61, as amended, "Communication with Audit Committees."
The Audit Committee reviewed and discussed our audited consolidated
financial statements as of and for the year ended December 31, 2007 with
management and our independent auditors. Management's discussions with the Audit
Committee included a review of critical accounting policies.
The Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between us and our auditors that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees." The Audit
Committee discussed with the auditors any relationships that may have an impact
24
on their objectivity and independence and satisfied itself as to the auditors'
independence. The Audit Committee has reviewed and approved the amount of fees
paid to Hein & Associates for audit and non-audit services. The Audit Committee
concluded that the provision of services by Hein & Associates is compatible with
the maintenance of Hein & Associates' independence.
At four of its meetings during 2007, the Audit Committee met with members
of senior management and the independent auditors to review the certifications
provided by the Chief Executive Officer and Chief Financial Officer under the
Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC and the overall
certification process. At these meetings, Company officers reviewed each of the
Sarbanes-Oxley certification requirements concerning internal control over
financial reporting and any fraud, whether or not material, involving management
or other employees with a significant role in internal control over financial
reporting.
Based on the above-mentioned review and discussions with management, the
internal auditors, and the independent auditors, and subject to the limitations
on our role and responsibilities described above and in the Audit Committee
Charter, the Audit Committee recommended to the Board of Directors that our
audited consolidated financial statements be included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007, for filing with the SEC.
Audit Committee of the Board of Directors,
Randall B. Hale, Chairman
David W. Gent, P.E.
David C. Roussel
April 25, 2008
Principal Auditor Fees
The Audit Committee has appointed Hein & Associates, LLP as ENGlobal's
independent auditors for the fiscal year ended December 31, 2008.
Representatives of Hein & Associates are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
The following table shows the fees paid or accrued by ENGlobal for the
audit and other services provided by Hein & Associates for fiscal 2007 and 2006.
2007 2006(1)
-------- --------
Audit Fees $502,048 $247,805
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees -- --
-------- --------
Total $502,048 $247,805
======== ========
(1) Corrected numbers for audit fees, audit-related fees and all other
fees reported in the 2007 Proxy Statement for fiscal year 2006.
As defined by the SEC, (i) "audit fees" are fees for professional services
rendered by the company's principal accountant for the audit of the company's
annual financial statements and review of financial statements included in the
company's Form 10-Q, or for services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years; (ii) "audit-related fees" are fees for assurance and
related services by the company's principal accountant that are reasonably
related to the performance of the audit or review of the company's financial
statements and are not reported under "audit fees;" (iii) "tax fees" are fees
for professional services rendered by the company's principal accountant for tax
25
compliance, tax advice, and tax planning; and (iv) "all other fees" are fees for
products and services provided by the company's principal accountant, other than
the services reported under "audit fees," "audit-related fees," and "tax fees."
Hein & Associates was paid audit-related and other fees for assisting the
Company with its SEC comment letter response process.
Under applicable SEC rules, except for the ability to designate a portion
of this responsibility as described below, the full Audit Committee is required
to pre-approve the audit and non-audit services performed by the independent
auditors in order to ensure that they do not impair the auditors' independence
from ENGlobal. The Audit Committee may delegate pre-approval authority to a
member of the Audit Committee and if it does, the decisions of that member must
be presented to the full Audit Committee at its next scheduled meeting. The
SEC's rules specify the types of non-audit services that an independent auditor
may not provide to its audit client and establish the Audit Committee's
responsibility for administration of the engagement of the independent auditors.
Consistent with the SEC's rules, the Audit Committee Charter requires that
the Audit Committee review and pre-approve all audit services and permitted
non-audit services provided by the independent auditors to ENGlobal or any of
its subsidiaries, except that the Audit Committee Chairman has the right to
approve up to $25,000 of services in any year. During 2007, all fees were
preapproved by the Audit Committee.
OTHER MATTERS
To the best of the knowledge, information and belief of the directors,
there are no other matters which are to be acted upon at the Annual Meeting. If
such matters arise, the form of proxy provides that discretionary authority is
conferred on the designated persons in the enclosed form of proxy to vote with
respect to such matters.
The Company has received no notice of any other items to be submitted for
consideration at the meeting and, except for reports of operations and
activities by management, which are for informational purposes only and require
no approval or disapproval, and consideration of the minutes of the preceding
annual meeting for approval, which may involve technical corrections to the text
where actions taken were incorrectly recorded, but which require no action of
approval or disapproval of the subject matter, management neither knows of nor
contemplates any other business that will be presented for action by the
stockholders at the meeting. If any further business is properly presented at
the meeting, the persons named as proxies will act in their discretion on behalf
of the stockholders they represent.
STOCKHOLDER PROPOSALS FOR 2009
The 2009 Annual Meeting of Stockholders is expected to be held in June
2009. The Company must receive by January 1, 2009 any stockholder proposal
intended to be presented at the next annual meeting of stockholders for
inclusion in the Company's proxy materials. Proposals must comply with the proxy
rules relating to stockholder proposals, including Rule 14a-8 under the
Securities Exchange Act of 1934, in order to be included in our proxy materials.
Proposals should be delivered to ENGlobal Corporation, 654 N. Sam Houston
Parkway E., Suite 400, Houston, Texas 77060-5914, Attention: Corporate
Secretary, prior to the specified deadline.
SEC rules and regulations provide that if the date of the Company's 2009
Annual Meeting is advanced or delayed more than 30 days from the date of the
2008 Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2009 Annual Meeting must be received by the Company within a
reasonable time before the Company begins to print and mail the proxy materials
for the 2009 Annual Meeting. The Company will disclose such a change in the
earliest possible Quarterly Report on Form 10-Q, upon determination by the
Company that the date of the 2009 Annual Meeting will be advanced or delayed by
more than 30 days from the date of the 2008 Annual Meeting. If you intend to
present a proposal at our 2009 Annual Meeting, but you do not intend to have it
included in our 2009 proxy statement, your proposal must be delivered to the
Secretary of ENGlobal no later than March 25, 2009.
26
ANNUAL REPORT TO STOCKHOLDERS
We are furnishing our annual report to our stockholders over the Internet.
You may read, print and download our annual report at http://www.proxyvote.com.
You may request the annual report be sent to you by mail or email by following
the instructions on the notice of internet availability mailed to you on May 9,
2008. The annual report may also be read, downloaded and printed at
www.englobal.com.
APPROVAL OF THE BOARD OF DIRECTORS
The contents of this Proxy Statement have been approved by the Board of
Directors, and the Board of Directors has authorized the mailing of this Proxy
Statement to the stockholders of the Company.
By Order of the Board of Directors,
/s/ Natalie S. Hairston
Natalie S. Hairston
Chief Governance Officer and Corporate
Secretary
Houston, Texas
April 29, 2008
27
Appendix A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
ENGLOBAL CORPORATION
--------------------------------------------------------------------------------
GENERAL
The Committee's purpose is to oversee the accounting and financial
reporting processes of the Corporation and the audits of the financial
statements of the Corporation. The Committee shall oversee the audit efforts of
the Corporation's independent accountants and any internal auditors employed by
the Corporation and, in that regard, shall take such actions as it may deem
necessary to satisfy itself that the Corporation's auditors are independent of
management. It is the objective of the Committee to maintain free and open means
of communications among the Board, the independent accountants, any internal
auditors employed by the Corporation, and the financial and senior management of
the Corporation.
COMPOSITION
The Audit Committee shall consist of three or more directors as determined
by the Board, each of whom is determined by the Board to be "independent" under
Section 10A(m)(3) of the Securities Exchange Act of 1934, the rules of the
NASDAQ Stock Market, and the rules and regulations of the SEC.
All members of the Committee shall be financially literate at the time of
their election to the Committee or shall become financially literate within a
reasonable period of time after their appointment to the Committee. "Financial
literacy" shall be determined by the Board in the exercise of its business
judgment, and shall include a working familiarity with basic finance and
accounting practices. At a minimum, all members of the Committee must be able to
read and understand fundamental financial statements, including the
Corporation's balance sheet, income statement, and cash flow statement or become
able to do so within a reasonable period of time after his or her appointment to
the Committee. At least one member of the Committee must be a financial expert
as such term is defined by the SEC. Committee members, are encouraged to enhance
their understanding of finance and accounting by participating in educational
programs conducted by the Corporation or an outside consultant or firm.
The members of the Committee are to be elected by the Board upon the
recommendation of the Nominating/Corporate Governance Committee and shall serve
until their successors are duly elected and qualified. Unless a Chair is elected
by the full Board upon the recommendation of the Nominating/Corporate Governance
Committee, the members of the Committee may designate a Chair by majority vote
of the full Committee membership. The Chair will chair all regular sessions of
the Audit Committee and set the agenda for Audit Committee Meetings.
MEETINGS
The Committee shall hold regular meetings as may be necessary, but no less
than once per quarter, and special meetings as may be called by the Chairman of
the Committee. As part of its job to foster open communication, the Committee
should meet regularly with each of management, the principal internal auditor of
the Corporation, and the independent accountants in separate executive sessions
to discuss any matters that the Committee or either of these groups believe
should be discussed privately. In addition, the Committee or its Chair should
meet with the independent accountants and management quarterly to review the
Corporation's financial statements.
The presence in person or by telephone of a majority of the Committee's
members shall constitute a quorum for any meeting of the Committee. All actions
of the Committee will require the vote of a majority of its members present at a
meeting of the Committee at which a quorum is present.
The Committee Chairman should consult with management in the process of
establishing agendas for Committee meetings.
A-1
The Committee shall maintain and submit to the Board copies of minutes of
each meeting of the Committee, and each written consent to action taken without
a meeting, reflecting the actions so authorized or taken by the Committee since
the preceding meeting of the Board. A copy of the minutes of each meeting shall
be placed in the Corporation's minute book.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Committee shall be directly responsible, in its capacity as a committee
of the Board, for the appointment, compensation, retention and oversight of the
outside auditing firm. In this regard, the Audit Committee shall have the sole
authority to (A) appoint and retain, (B) determine the funding for, and (C) when
appropriate, terminate, the outside auditing firm, which shall report directly
to the Committee. The Committee will be responsible for resolving any disputes
between the independent accountants and the Corporation's management.
RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
------------------------
1. Review and assess the adequacy of this Charter at least annually, and
otherwise as conditions dictate.
2. Review the results of the year-end audit of the Corporation, including (as
applicable):
o the audit report, the published financial statements, the management
representation letter, the "Memorandum Regarding Accounting Procedures
and Internal Control" or similar memorandum prepared by the
Corporation's independent auditors, any other pertinent reports and
management's responses concerning such memorandum;
o the qualitative judgments of the independent auditors about the
appropriateness, not just the acceptability, of accounting principle
and financial disclosure practices used or proposed to be adopted by
the Corporation and, particularly, about the degree of aggressiveness
or conservatism of its accounting principles and underlying estimates;
o the methods used to account for significant unusual transactions;
o the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
o management's process for formulating sensitive accounting estimates
and the reasonableness of these estimates;
o significant recorded and unrecorded audit adjustments;
o any material accounting issues among management, members of the
Corporation's internal auditing department and the independent
auditors; and
o other matters required to be communicated to the Committee under
generally accepted auditing standards, as amended, by the independent
auditors.
3. Review with financial management and the independent accountants the
Corporation's filings with the Securities and Exchange Commission on Form
10-Q and Form 10-K prior to their filing or prior to the release of
earnings. The Chair of the Committee may represent the entire Committee for
purposes of this review.
4. Review with management and the Corporation's independent auditors such
accounting policies (and changes therein) of the Corporation, including any
financial reporting issues which could have a material impact on the
Corporation's financial statements, as are deemed appropriate for review by
the Committee prior to any interim or year-end filings with the SEC or
other regulatory body.
Independent Accountants
-----------------------
5. Approve in advance all audit, review or attest engagements required under
the securities laws to be provided by the outside auditing firm, including
fees and terms.
A-2
6. Establish policies and procedures for the engagement of the outside
auditing firm to provide permissible non-audit services, which shall
require pre-approval by the Committee (other than with respect to de
minimis exceptions described in Section 10A(i)(1)(B) of the Exchange Act
that are approved by the Audit Committee prior to the completion of the
audit). Ensure that approval of non-audit services are disclosed to
investors in periodic reports required by Section 13(a) of the Exchange
Act.
7. The authority to grant pre-approval of audit and non-audit services may be
delegated to one or more designated members of the Committee who are
independent directors. Any such delegation shall be presented to the full
Audit Committee at its next scheduled meeting.
8. Review, at least annually, a report by the outside auditor describing (i)
the firm's internal quality-control procedures, (ii) any material issues
raised by the most recent internal quality-control review, or peer review,
of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the last five years, respecting one or
more independent audits carried out by the firm, and any steps taken to
deal with any such issues, and (iii) all relationships between the
independent auditor and the Corporation.
9. In connection with the report review described in the previous paragraph,
review and evaluate the lead partner of the outside auditor and present to
the Board Committee conclusions with respect to the qualifications and
performance of the outside auditing firm.
10. Consider, at least annually, the independence of the outside auditing firm,
including whether the outside auditing firm's performance of permissible
non-audit services is compatible with the auditor's independence; obtain
and review the report by the outside auditing firm describing any
relationships between the outside auditing firm and the Corporation
referred to in paragraph four above or any relationships between the
outside auditing firm and the Corporation or any other relationships that
may adversely affect the independence of the auditor; discuss with the
outside auditing firm any disclosed relationship or services that may
impact the objectivity and independence of the auditor; and present to the
Board the Committee's conclusions with respect to the independence of the
outside auditing firm.
11. Ensure rotation of the audit partners as required by law.
12. Establish policies for the hiring of employees and former employees of the
outside auditing firm.
Financial Reporting Processes
-----------------------------
13. Review the adequacy and effectiveness of the organization's disclosure
controls and procedures and management reports thereon.
14. Review disclosures made to the Committee by the Corporation's Chief
Executive Officer and Chief Financial Officer during their certification
process for the Form 10-K and 10-Q about any significant deficiencies in
the design or operation of internal controls or material weaknesses therein
and any fraud involving management or other employees who have a
significant role in the Corporation's internal controls.
15. Consider the independent accountant's judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
16. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants or management.
17. Establish regular and separate reporting to the Committee by each of
management and the independent accountants regarding any significant
judgments made in management's preparation of the financial statements and
the view of each as to appropriateness of such judgments.
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18. Following completion of the annual audit, review separately with each of
management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information.
19. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial statements.
20. Review with the independent accountants and management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Committee, have been implemented.
21. Discuss and review earnings press releases, including the type and
presentation of information to be included in earnings press releases, in
particular the use of "pro forma" or "adjusted" non-GAAP information.
22. Review with management and the independent auditors any reportable
conditions and material weaknesses affecting internal control.
23. Receive periodic reports from the Corporation's independent auditors and
management of the Corporation to assess the impact on the Corporation of
significant accounting or financial reporting developments proposed by the
Financial Accounting Standards Board or the SEC or other regulatory body,
or any other significant accounting or financial reporting related matters
that may have a bearing on the Corporation.
24. Prepare a report annually which states, among other things, whether:
o the Committee has reviewed and discussed with management and
independent auditors the audited financial statements to be included
in the Corporation's Annual Report on Form 10-K;
o the Committee has discussed with the Corporation's independent
auditors the matters that the auditors are required to discuss with
the Committee by Statements on Auditing Standard No. 61, (as it may be
modified or supplemented) and SEC rules;
o the Committee has determined that the Corporation's outside auditors
are "independent" under SEC and NASDAQ Stock Market rules; and
o based on the review and discussions described in subsections (i), (ii)
and (iii) above, the Committee has recommended to the Board that the
audited financial statements be included in the Corporation's Annual
Report on Form 10-K for the last fiscal year for filing with the SEC.
Ethical and Legal Compliance
----------------------------
25. Establish, review and update periodically a Code of Conduct that applies to
the Corporation's employees and directors and ensure that management has
established a system to enforce this Code. The Code must be publicly
available and waivers for executive officers and directors granted and
disclosed in accordance with applicable law.
26. Review with the Corporation's counsel, any legal matter that could have a
significant impact on the Corporation's financial statements.
27. Meet annually with the general counsel, and outside counsel when
appropriate, to review legal and regulatory matters, including any matters
that may have a material impact on the financial statements of the
Corporation.
28. Review and approve, if the duty is not delegated to a comparable body of
the Board, all related party transactions in accordance with the
regulations of the NASDAQ Stock Market and other applicable law.
29. Obtain from the independent auditors any information pursuant to Section
10A of the Securities Exchange Act of 1934.
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30. Establish procedures for the receipt, retention and treatment of complaints
received by the Corporation regarding accounting, internal accounting
controls or auditing matters, including procedures for confidential,
anonymous submission of concerns by employees regarding accounting and
auditing matters.
31. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
Outside Advisors
----------------
The Audit Committee shall have the authority to retain such outside
counsel, accountants, experts and other advisors as it determines appropriate to
assist the Audit Committee in the performance of its duties. The Audit Committee
shall have sole authority to approve related fees and retention terms.
With respect to the duties and responsibilities listed above, the Committee
should:
o Report regularly to the Board on its activities, as appropriate;
o Exercise reasonable diligence in gathering and considering all
material information;
o Understand and weigh alternative courses of conduct that may be
available;
o Focus on weighing the benefit versus harm to the Corporation and its
stockholders when considering alternative recommendations or courses
of action;
o If the Committee deems it appropriate, secure independent expert
advice and understand the expert's findings and the basis for such
findings, including retaining independent counsel, accountants or
others to assist the Committee in fulfilling its duties and
responsibilities; and
o Provide management, the Corporation's independent auditors, and any
internal auditors employed by the Corporation with appropriate
opportunities to meet privately with the Committee.
* * *
While the Committee has the duties and responsibilities set forth in this
charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. These are the responsibilities of management and the outside
auditor.
Adopted by Resolution of the Board of Directors
March 12, 2008
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ENGlobal
PROXY CARD
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints William A. Coskey and Robert W. Raiford,
either of them, jointly and severally, with power of substitution, to represent
and to vote as designated all shares of Common Stock which the undersigned would
be entitled to vote at the Annual Meeting of Stockholders of ENGlobal
Corporation, to be held at the Downtown Club at Plaza, 910 Louisiana St., 49th
Floor, Houston, Texas on Thursday, June 19, 2008 at 10:00 a.m., local time, or
any adjournment thereof.
1. Election of directors.
a. William A. Coskey, P.E. c. Randall B. Hale
b. David W. Gent, P.E. d. David C. Roussel
|_| FOR |_| AGAINST |_| ABSTAIN
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH OR OTHERWISE STRIKE THE NOMINEE'S NAME.
|_| If you plan to attend the Annual Meeting, please check here.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES TO ENGLOBAL'S BOARD OF DIRECTORS AND FOR THE
APPROVAL TO AMEND ENGLOBAL'S 1998 INCENTIVE PLAN.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the accompanying Proxy Statement.
Please sign exactly as name appears hereon and date. If the shares are jointly
held, each holder should sign. When signing as an attorney, executor,
administrator, trustee, or as an officer signing for a corporation, please give
full title under signature.
____________________________________ Date: _______________
____________________________________ Date: _______________
Signatures of Stockholder(s)
(PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE)