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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [_] Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-12
Englobal Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[LOGO OF ENGLOBAL(SM) CORPORATION]
April 30, 2003
Dear Stockholder:
We invite you to attend the 2003 Annual Meeting of Stockholders ("Annual
Meeting") of ENGlobal Corporation to be held at 2 p.m. on Thursday, June 5,
2003, at the corporate offices of the Company, in Houston, Texas. At the
meeting, you will be asked to vote on several matters including proposals more
fully described in the Notice and the Proxy Statement on the following pages.
The proxy statement tells you more about the agenda and meeting procedures. It
also describes how the Board operates and gives personal information about our
director candidates.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU CAST YOUR VOTE IN
FAVOR OF EACH OF THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT.
Whether or not you attend the Annual Meeting, please vote your shares by
marking, signing, dating, and returning your proxy card in the enclosed envelope
as soon as possible. Your stock will be voted in accordance with the
instructions you have given in your proxy card. You may, of course, attend the
Annual Meeting and vote in person even if you have previously returned your
proxy card.
We hope you will be able to attend the meeting and look forward to
seeing you at the meeting on June 5th.
Sincerely,
/s/ Michael L. Burrow
------------------------------------
Michael L. Burrow
Chairman and Chief Executive Officer
IMPORTANT
A proxy card is enclosed. We urge you to complete and mail the proxy
card promptly. The enclosed envelope for return of the proxy card requires no
postage. Any stockholder attending the Annual Meeting may personally vote on all
matters that are considered, in which event the signed proxy will be revoked.
[LOGO OF ENGLOBAL(SM) CORPORATION]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF ENGLOBAL CORPORATION
To the Stockholders of
ENGlobal Corporation
DATE AND TIME:
June 5, 2003, at 2:00 p.m., Central Daylight Saving Time
PLACE:
600 Century Plaza Drive, Building 140
Houston, Texas 77073-6033
PURPOSE:
1. To elect directors;
2. For an amendment to the Company's 1998 Incentive Plan increasing
the number of options which may be issued under the Plan from
1,400,000 to 2,200,000 in order to restore the number of
available options to the number approved prior to grant of
options in connection with the Petrocon merger, which grants
were non-dilutive to the Company's stockholders, as explained
further in the Proxy;
3. To grant authority to extend the solicitation period if the
meeting is postponed or adjourned; and
4. To transact other business that is properly raised before the
Annual Meeting or any adjournment thereof.
The board of directors has fixed the close of business on April 8, 2003,
as the record date and only the stockholders of record on that date will be
entitled to notice of and to vote at the meeting. A list of these stockholders
will be available at the offices of ENGlobal commencing May 27, 2003, and may be
inspected during normal business hours by any holder of ENGlobal common stock
for any purposes relevant to the meeting.
YOUR VOTE IS IMPORTANT. All stockholders are invited to attend the
meeting in person, but even if you expect to be present at the meeting, you are
requested to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-paid envelope provided for your convenience to ensure
your representation.
YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND
RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH
THE SECRETARY OF ENGLOBAL CORPORATION A WRITTEN REVOCATION BEARING A LATER DATE
OR BY ATTENDING AND VOTING IN PERSON AT THE ANNUAL MEETING. STOCKHOLDERS
ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY
SENT IN A PROXY CARD.
The board of directors of ENGlobal unanimously recommends that you vote
to elect the directors nominated to the board of directors of ENGlobal, to
increase the options and shares issuable under the1998 Incentive Plan, and to
grant the authority to extend the solicitation period if our meeting is
postponed or adjourned. The affirmative vote of the holders of a majority of the
outstanding shares of common stock represented in person or by proxy at the
meeting is required to approve each of these proposals. Each member of
ENGlobal's board of directors intends to vote his or her shares in favor of each
of the proposals.
By Order of the Board of Directors,
/s/ Hulda L. Coskey
-----------------------------------
Hulda L. Coskey
Secretary
Houston, Texas
Date: April 30, 2003
TABLE OF CONTENTS
Page
General Information.......................................................... 1
ITEM 1 - Election of Directors............................................... 2
Information Regarding Director Nominees and Executive Officers............ 2
Board of Directors Meetings and Committees................................ 6
Compensation of Directors................................................. 6
Compensation Committee Interlocks and Insider Participation............... 7
Security Ownership Of Certain Beneficial Owners And Management............ 8
Section 16(a) Beneficial Ownership Reporting Compliance................... 10
Equity Compensation Plan Information...................................... 10
Information Concerning Executive Officers................................. 10
Executive Compensation.................................................... 11
Compensation Committee Report............................................. 17
Audit Committee Report.................................................... 18
Audit and Non-Audit Fees.................................................. 19
Work Performed by Principal Accountant's Full Time, Permanent Employees... 19
Comparison of Cumulative Total Return..................................... 19
Certain Relationships and Related Party Transactions...................... 20
ITEM 2 - Proposal to Amend the Company's 1998 Incentive Plan................. 20
Other Matters................................................................ 21
Stockholder Proposals........................................................ 21
Additional Information....................................................... 21
Appendix A - Audit Committee Charter........................................ A-1
Appendix B - Compensation Committee Charter................................. B-1
Proxy/Voting Instruction Card
i
ENGLOBAL CORPORATION
600 Century Plaza Drive, Building 140
Houston, Texas 77073-6033
---------------
PROXY STATEMENT
---------------
GENERAL INFORMATION ABOUT THIS PROXY STATEMENT
We have sent you these proxy materials because the Board of Directors of
ENGlobal Corporation ("ENGlobal", "ENG", or "the Company") is soliciting your
proxy to vote your shares at the Annual Meeting of ENGlobal which will be held
on Thursday, June 5, 2003 at 2:00 p.m. at the Company's principal executive
offices, which are located at 600 Century Plaza Drive, Building 140, Houston,
Texas. This Proxy Statement provides information required to be provided to you
under the rules of the Securities and Exchange Commission ("SEC") and is
designed to assist you in voting your shares. On April 30, 2003 we will begin
mailing these proxy materials to all stockholders of record at the close of
business on April 8, 2003.
WHO MAY VOTE
Stockholders of ENGlobal, as recorded in our stock register at the close
of business on April 8, 2003, may vote at the meeting. Each share of ENGlobal is
entitled to one vote. As of April 8, 2003, there were 22,861,199 shares of
common stock outstanding and entitled to vote.
HOW TO VOTE
You may vote in person at the meeting or by proxy. We recommend you vote
by proxy even if you plan to attend the meeting. You can always change your vote
at the meeting, in which case your proxy will be revoked. Stockholders are not
entitled to cumulative voting.
HOW PROXIES WORK
ENGlobal's Board of Directors is asking for your proxy to be voted by
mail. You may vote your proxy by mail by signing, dating and mailing the
enclosed proxy card.
Giving us your proxy means you authorize us to vote your shares at the
meeting in the manner you direct. If you sign your proxy but do not give voting
instructions, we will vote your shares in favor of our director candidates, in
favor of the proposal for an amendment to the Company's 1998 Incentive Plan
increasing the number of options which may be issued under the Plan from
1,400,000 to 2,200,000, and to grant the authority to extend the solicitation
period if our meeting is postponed or adjourned. For any other matters that may
properly come before the meeting, your shares will be voted at the discretion of
the proxy holders. You may vote for all, any or none of our director candidates.
You may also vote for or against the other proposals, or you may abstain from
voting.
The Company intends to solicit proxies principally by the use of the
mails and will bear all expenses in connection with such solicitations. In
addition, some of the directors, officers and regular employees of the Company
may, without extra compensation, solicit proxies by telephone, telegraph,
facsimile and personal interview. Arrangements have been made with banks,
brokerage houses and other custodians and nominees to forward copies of the
Proxy Statement and the Company's Annual Report for the fiscal year ended
December 31, 2002, to persons for whom they hold stock of the Company and to
request authority for the execution of proxies. The Company will reimburse the
foregoing persons for their reasonable expenses, upon request.
You may receive more than one voting or proxy card depending on how you
hold your shares. If you hold shares through someone else, such as a broker, you
may also get material from them asking how you want to vote. You should complete
and return each proxy or other voting instruction request provided to you. If
you hold your shares through a broker or other nominee, and you wish to vote in
person at the meeting, you will need to obtain a proxy form from the institution
that holds your shares.
REVOKING A PROXY
You may revoke your executed proxy at any time before it is exercised by
submitting a new proxy bearing a later date or by filing with the Secretary of
the Company, at the following address, a written notice of revocation: ENGlobal
Corporation, Corporate Secretary, 600 Century Plaza Drive, Suite 140, Houston,
Texas 77073-6033.
The execution of the enclosed proxy will not affect your right to vote
in person, should you find it convenient to attend the meeting and desire to
vote in person. Attendance at the meeting will not in and of itself constitute
the revocation of a proxy. Any written notice of revocation sent to us must
include the stockholder's name and must be received prior to the meeting to be
effective.
QUORUM
A quorum for the meeting is based on the number of votes that can be
cast rather than the number of actual shares that are represented, because each
share has one vote per share. To have a quorum, we need more than 50% of the
votes, which are entitled to be cast, to be present, in person or by proxy.
Votes which withhold authority, shares abstaining, and broker non-votes (where a
broker submits a proxy but does not have authority to vote a customer's shares
on one or more matters) - on any proposal - are all considered present at the
meeting for purposes of establishing a quorum at the meeting. Each will be
tabulated separately.
Votes cast by proxy will be tabulated by an automated system
administered by Computershare Investor Services, our transfer agent. The
independent persons appointed by the Company to act as election inspectors for
the meeting will count votes cast by proxy or in person at the meeting.
VOTES NEEDED
Directors are elected by a plurality of shares present at the meeting,
meaning that if a quorum is present, directors are elected by a majority of the
votes cast by the shares entitled to vote.
Any action to be taken by stockholders of the Company at the meeting
requires the vote or concurrence of the holders of a majority of the outstanding
shares, either by proxy or in person, entitled to vote on such matters.
Abstentions have the same effect as a vote against a matter because they are
present for purposes of the meeting and entitled to vote on such matter, but are
not a vote for such matter.
ATTENDING IN PERSON
Only stockholders, their proxy holders and ENGlobal's guests may attend
the meeting. If you plan to attend, please bring identification and, if you hold
shares in street name, you should bring your bank or broker statement showing
your beneficial ownership of ENGlobal's stock for admittance to the meeting.
ITEM ONE
ELECTION OF DIRECTORS
INFORMATION REGARDING DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The Board of Directors of the Company presently consists of seven
members. Seven Directors are to be elected at the Annual Meeting, each for a
term expiring at the next Annual Meeting. Executive officers are elected
annually and serve at the discretion of the Board of Directors.
The Board of Directors has designated the persons named in the
accompanying proxy and, unless authority is withheld, they intend to vote for
the election of the nominees named below to the Board of Directors. If any
nominee should become unavailable for election, the proxy may be voted for a
substitute nominee selected by the persons named in the proxy; however, the
Board of Directors is not aware of any circumstances likely to render any
nominee unavailable. No nominees will be recognized other than those that are
nominated in accordance with the provisions contained in the By-laws of the
Company. No nominees, other than those proposed by the Board, were presented for
the 2003 Annual Meeting.
The Board of Directors proposes the election of the following nominees
as directors:
Michael L. Burrow, P.E.
William A. Coskey, P.E.
Hulda L. Coskey
David W. Gent, P.E.
Jimmie N. Carpenter, P.E.
David C. Roussel
Randall B. Hale
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF EACH NOMINEE FOR
DIRECTOR.
2
Following is statistical information and a brief biography of each
director nominee. You will find information on their holdings of ENGlobal stock
in the "Security Ownership of Certain Beneficial Owners and Management" section.
Michael L. Burrow, P.E. /(1)/ Mr. Burrow has served as Chairman of the Board,
Chief Executive Officer, and director of the
Company since the IDS/Petrocon merger (the
"Merger") in December 2001. Mr. Burrow founded
Petrocon, Inc. in 1977 and Petrocon Engineering,
Inc ("Petrocon") in 1988. From the formation of
Petrocon until the Merger, he served as Chairman
of the Board, Chief Executive Officer and
President of Petrocon, except for the period
from April 1999 through March 2000 when he
served as Chairman and Manager of Corporate
Marketing. Mr. Burrow received a Bachelor of
Science in Mechanical Engineering from Louisiana
Tech University in 1969 and did post graduate
studies in engineering and business
administration at Lamar University. He is a
Registered Professional Engineer in Texas and
Louisiana, a member of ASME and NSPE and serves
or has served on the boards of United Way,
Beaumont Chamber of Commerce, Partnership of
Southeast Texas, Lamar University Advisory
Council, and Texas Hazardous Waste Research
Council, among others. Mr. Burrow also serves as
Chairman of the Board of ENGlobal Engineering,
Inc., ENGlobal Systems, Inc., RPM Engineering,
Inc., ENGlobal Construction Resources, Inc.,
ENGlobal Technologies, Inc., Petrocon FSC, Ltd.
and Petrocon Engineering of Louisiana, Inc.;
President and Director of ENGlobal Corporate
Services, Inc.; President of IDS Engineering
Management, LC; and Director of IDS Engineering,
Inc., Thermaire, Inc., and ENGlobal Constant
Power, Inc.
Age: 55 Director since: 2001
William A. Coskey, P.E. /(2)/ Mr. Coskey serves as President, Chief Operating
Officer and Director of ENGlobal. Mr. Coskey is
the founder of ENGlobal and, until the Merger in
December 2001, had served as Chairman of the
Board, Chief Executive Officer and President of
the Company. Mr. Coskey also serves as Chairman
of the Board, Chief Executive Officer and
President of IDS Engineering, Inc. and
Thermaire, Inc., Chairman of the Board of
ENGlobal Constant Power, Inc.; Chairman of the
Board and CEO of ENGlobal Corporate Services,
Inc.; CEO and Director of ENGlobal Engineering,
Inc., RPM Engineering, Inc., ENGlobal
Construction Resources, Inc., ENGlobal
Engineering of Louisiana, Inc. and Petrocon FSC,
Ltd.; Director of ENGlobal Systems, Inc. and
ENGlobal Technologies, Inc.; and President and
Director of Petrocon FSC, Ltd. Mr. Coskey, an
honors graduate, received a Bachelor of Science
in Electrical Engineering from Texas A&M
University in 1975. He is a Registered
Professional Engineer and a member of the
Instrument Society of America. Mr. Coskey has
served on the Texas A&M University Electrical
Engineering Department Advisory Council since
1999. William A. Coskey is the spouse of Hulda
L. Coskey.
Age: 50 Director since: 1985
3
Hulda L. Coskey /(2)/ Mrs. Coskey serves as Chief Governance Officer,
Secretary and Director of the Company. From June
1994 until the Merger in December 2001, Mrs.
Coskey served as Chief Financial Officer,
Secretary/Treasurer and Director of ENGlobal.
During her 18 years with ENGlobal and its
predecessors, Mrs. Coskey has served as a
Director and in various corporate officer
positions for the Company's subsidiaries. She
currently serves as Secretary and Director for
each of the ENGlobal subsidiaries. Her primary
responsibilities include investor relations, SEC
compliance, and corporate governance functions.
She is a member of National Investor Relations
Institute and American Society of Corporate
Secretaries. Mrs. Coskey majored in Accounting
at the University of Houston. Hulda L. Coskey is
the spouse of William A. Coskey.
Age: 48 Director since: 1985
David W. Gent, P.E. /(2)/ Mr. Gent has served as a Director of ENGlobal
and its predecessor, IDS, since June 1994 and is
a member of the Audit Committee and the
Compensation Committee. Mr. Gent is Vice
President of Bray International, Inc. an
industrial flow control manufacturer located in
Houston, Texas, with the responsibility of
overseeing worldwide Production, Engineering,
Information Services, and Quality Control. Mr.
Gent founded SofTest Designs Corporation, a
privately held electronic test equipment
company, in 1980, and has served as a Director
since its inception and as its President from
1986 to 1991. 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. He also
holds several patents in the field of industrial
flow controls.
Age: 50 Director since: 1994
Member: Audit and Compensation Committee
Jimmie N. Carpenter, P.E. /(1)/ Mr. Carpenter has served as a Director of the
Company since the Merger in December 2001. He
also serves as Executive Vice President of
ENGlobal Engineering, Inc. and as President and
Director of ENGlobal Construction Resources,
Inc. Until its dissolution in December 2002, Mr.
Carpenter served as President and Director of
Triangle Engineers and Constructors, Inc. Mr.
Carpenter also served as President and Director
of ENGlobal Technologies, Inc. until corporate
restructuring in January 2003. From 1978 until
the Merger, Mr. Carpenter was employed by
Petrocon and served as project manager and
manager of various operations. He is a
Registered Professional Engineer and a graduate
of Texas A&M University with a Bachelor of
Science degree in Mechanical Engineering.
Age: 61 Director since: 2001
4
David C. Roussel /(3)/ Mr. Roussel has served as a Director of the
Company since the Merger in December 2001 and is
a member of the Audit Committee and Chairman of
the Compensation Committee. Since September
1998, Mr. Roussel's primary occupation has been
an independent business consultant. From 1994
until September 1998, Mr. Roussel served as Vice
President of Sterling Consulting Group, where he
performed various strategy design, alliance
structuring and benchmarking projects for
several major U.S. oil companies. Mr. Roussel
served as President of a nationally recognized
gas processing company from 1989 through 1994,
where he was responsible for gathering systems,
gas processing plants, chemical facilities,
international business development,
acquisitions, joint venture management, and
strategic planning and implementation. Mr.
Roussel was an officer, director and sole
shareholder of Cyclone Landscaping, Inc. which
filed for protection under Chapter 7 of the U.S.
Bankruptcy Code; bankruptcy proceedings were
finalized in November 2000. 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. He has also served as Vice
President, director and as a member of the
Executive and Ad Hoc Committees of the board of
directors of the Gas Processors Association.
Age: 53 Director since: 2001
Member: Audit and Compensation Committee
Randall B. Hale /(4)/ Mr. Hale has served as a Director of ENGlobal
since the Merger in December 2001 and is
Chairman of the Audit Committee and a member of
the Compensation Committee. Mr. Hale has been a
Vice President or agent for Equus Capital
Management Company since November 1992, and a
Director since February 1996. Equus Capital
Management Company is the financial advisor to
Equus II Incorporated, which is one of the
Company's lenders. See "Certain Relationships
and Related Transactions". Mr. Hale is also the
President and Chief Executive officer of
Container Care International, Inc. and a
director of several privately owned companies in
which Equus has an investment. Mr. Hale received
a BBA in Business Administration from Texas A&M
University in 1985 and is a certified public
accountant.
Age: 40 Director since: 2001
Member: Audit and Compensation Committee
In conjunction with the Merger, Equus, Alliance, and certain Petrocon
shareholders entered into a Voting Agreement dated December 21, 2001 (the
"Voting Agreement") requiring the parties to vote in the election of directors
in favor of three designees of Alliance, two designees of certain former
shareholders of Petrocon, and one designee of Equus. In addition, the parties
agree to vote in favor of one independent director who is acceptable both to
Alliance and to certain former shareholders of Petrocon.
/(1)/ Director nominee designated by certain former shareholders of Petrocon
pursuant to the Voting Agreement.
/(2)/ Director nominee designated by Alliance 2000 Ltd. ("Alliance") pursuant
to the Voting Agreement.
/(3)/ Director nominee designated by mutual agreement between Alliance and
certain former shareholders of Petrocon pursuant to the Voting
Agreement.
/(4)/ Director nominee designated by Equus II Incorporated ("Equus") pursuant
to the Voting Agreement.
5
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held five meetings and took two actions by
unanimous consent during 2002. All board members were present at 100% of the
board meetings held in 2002. The board establishes committees to help it carry
out its duties. Board Committees work on key issues in greater detail than would
be possible at full Board meetings. Each committee reviews the results of its
meetings with the full Board, and all members of the Board are invited to attend
all Committee meetings.
The Board of Directors has established a standing Audit Committee and
Compensation Committee. Additionally, the Board has the power to appoint
additional committees, as it deems necessary. In November 2002, the Board
established a Governance and Nominating Committee and unanimously elected Mr.
Gent to serve as Chairman of the Committee. It is expected that no action will
be taken on behalf of this committee until such time as a charter has been
adopted. The Board does not currently have an Executive Committee.
AUDIT COMMITTEE
The Audit Committee serves as an independent and objective party to
monitor the Company's financial reporting process and internal control system,
reviews and appraises the audit efforts of the Company's independent
accountants, and provides an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors. The
members of this Committee are Messrs. Randall B. Hale (chair), David W. Gent,
and David C. Roussel, all whom are Independent Directors as defined by Section
121 of the American Stock Exchange listing standards. All committee members
attended 100% of the committee meetings held in 2002. Mr. Hale, the Chairman of
our Audit Committee, is the Audit Committee's financial expert.
The committee met four times and took one action by unanimous consent
during 2002. The Committee meets separately with the independent auditors,
outside the presence of company management or other employees, to discuss
matters of concern, to receive recommendations or suggestions for change and to
exchange relevant views and information. The Audit Committee is ultimately
responsible for the selection, evaluation and replacement of the independent
auditors. The Audit Committee is governed by a written charter approved by the
Board of Directors, a copy of which is attached as Appendix B to this Proxy
Statement.
Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administering and granting stock options and other awards
under the Company's Incentive Stock Plan. Beginning in 2002, the Compensation
Committee evaluated compensation of its executive officers and made
recommendations to the Board of Directors concerning such compensation. It was
determined that current executive officer salary levels were fairly aligned with
the Company's peers; therefore, no changes were made to compensation of the
Company's executive officers in 2002. Employment agreements have been entered
into with a number of its executive officers. See "Employment Agreements".
The members of the Compensation Committee are Messrs. David C. Roussel
(chair), David W. Gent, and Randall B. Hale, all whom are independent directors.
The committee met two times and took one action by unanimous consent during
2002. All committee members attended 100% of the committee meetings held in
2002.
COMPENSATION OF DIRECTORS
Under the Company's 1998 Incentive Plan (the "Incentive Plan"),
directors who are not employed by the Company ("Independent Directors") are
eligible to receive non-statutory stock options. In recognition of the services
provided by its Board of Directors, Independent Directors have received, for
each fiscal year of service starting on December 13, 1999, options to acquire
shares of the Company's common stock at an exercise price at least equal to or
above fair market value on the date of the grant. From 1999 to 2001, options to
acquire 5,000 shares of the Company's common stock were granted annually to
Independent Directors.
6
On March 25, 2003, the Board of Directors unanimously voted to increase
the common stock option grants to Independent Directors from 15,000 to 20,000
for service provided in 2002 and subsequent years.
On April 1, 2003, Independent Directors, Messrs. Gent, Hale, and
Roussel, were each granted options to acquire 20,000 shares of the Company's
common stock in recognition of their service as members of the Board of
Directors in 2002. These stock options were issued at an exercise price of
$1.87, were fully vested at grant date and expire on April 1, 2013.
Stock options awarded to Independent Directors in 1999, 2000, and 2001
have five-year vesting periods, ten-year expiration dates, and were granted at
an exercise price of $1.25, $1.00, and $1.00, respectively.
On March 28, 2002, the Board of Directors authorized the re-issuance of
options to acquire 20,000 shares of the Company's common stock to Mr. Wingate in
recognition of his prior service on the Company's board. The re-granting of
these options were in the same amounts and on the same terms as previously
granted options which were canceled following Mr. Wingate's resignation from the
Board as pursuant to conditions of the Merger.
Stock options awarded to directors represent 3.4% of all stock options
issued to directors and key employees, not including Replacement Options (as
defined below in "Executive Compensation, 1998 Incentive Plan" and in Item Two)
granted to former Petrocon directors in connection with the Merger. As of April
8, 2003, no directors have exercised options under the Incentive Plan.
Prior to 2003, directors of the Company did not receive cash
compensation for board meetings attended, nor did they receive cash compensation
for committee meetings attended. In consideration of increased risk and time
commitments resulting from recent corporate reforms prescribed by the
Sarbanes-Oxley Act, on March 25, 2003, the Board of Directors unanimously voted
to pay Independent Directors a retainer in the amount of $16,000 per year,
payable on a quarterly basis. The Company continues to reimburse its independent
directors for out-of-pocket expenses incurred to attend board and committee
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2002, the Compensation Committee of the ENGlobal Board of
Directors consisted of Messrs. Roussel (chair), Gent and Hale. None of these
individuals was an officer or employee of the Company at any time during fiscal
2002. During fiscal 2002, no executive officer of the Company served as a member
of the board of directors or compensation committee of any entity that has or
has had one or more executive officers serving as a member of the ENGlobal Board
of Directors or Compensation Committee.
7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the common stock owned on April 8, 2003 by
each director, director nominee and executive officer named in the Summary
Compensation Table. Unless otherwise noted, the listed persons have sole voting
and dispositive powers with respect to the shares of common stock shown as
beneficially owned by them, subject to community property laws, if applicable.
The directors and officers of the Company are not aware of any person or company
that beneficially owns, directly or indirectly, or exercises control or
direction over, shares carrying more than five percent of the voting rights
attached to the common stock of the Company at the close of business on April 8,
2003, other than:
PERCENTAGE OF
NUMBER OF SHARES /(1)/ OUTSTANDING SHARES
---------------------- ------------------
Michael L. Burrow /(2)/ /(3)/ /(4)/ 1,842,819 8.06
3155 Executive Blvd.
Beaumont, TX 77705
Alliance 2000, Ltd. /(2)/ /(5)/ 9,530,100 41.69
William A. Coskey
Hulda L. Coskey
600 Century Plaza Dr.
Building 140
Houston, TX 77073
David W. Gent (6) 48,747 *
600 Century Plaza Dr.
Building 140
Houston, TX 77073
Equus II Incorporated /(2)/ /(3)/ /(7)/ 2,333,153 9.73
Randall B. Hale
600 Century Plaza Dr.
Building 140
Houston, TX 77073
Jimmie N. Carpenter /(2)/ /(3)/ /(8)/ 453,519 1.98
3155 Executive Blvd.
Beaumont, TX 77705
David C. Roussel (9) 20,000 *
600 Century Plaza Dr.
Building 140
Houston, TX 77073
Robert W. Raiford /(2)/ /(3)/ /(10)/ 387,994 1.68
3155 Executive Blvd.
Beaumont, TX 77705
Michael M. Patton /(11)/ 25,000 *
600 Century Plaza Dr.
Building 140
Houston, TX 77073
All executive officers and directors as a
group (9 persons) 14,641,332 60.34
* Less than 1%
/(1)/ Based on 22,861,199 shares of common stock outstanding as of April 8,
2003 and options to be exercisable on or before June 30, 2003.
/(2)/ Parties to a Voting Agreement pursuant to which the stockholders agree
to vote in favor of three directors designated by Alliance, two members
designated by certain former shareholders of Petrocon, one member
designated by Equus, and one member designated by agreement between
Alliance and certain former shareholders of Petrocon.
/(3)/ Parties to two certain Escrow Agreements pursuant to which certain
stockholders at the time of the Merger agreed to contribute a percentage
of their ENG common stock as indemnification against a) future claims
related to the Merger, or b) exercise of any Replacement Options issued
to prior shareholders of Petrocon.
8
/(4)/ Includes 1,830,731 shares of common stock held by a family limited
partnership and options to acquire 12,088 shares of common stock at
$0.96 per share, which are exercisable within 60 days of the date of
this proxy statement. Does not include options to acquire 1,954 shares
of common stock at $0.96 per share, which will not be exercisable within
60 days of the date of this proxy statement, nor does it include options
to acquire 300,000 shares of common stock at exercise prices ranging
from $0.75 to $1.25 which become vested and are exercisable only under
certain conditions set forth in the Option Pool Agreement between the
Company and Alliance 2000, Ltd. Mr. Burrow is the Shareholder
Representative under a Voting Agreement pursuant to which holders of
2,737,473 shares of common stock, acting by majority vote, nominate two
directors for election to the Company's Board of Directors. Mr. Burrow
is the beneficial owner of 540,006 of those shares.
/(5)/ Includes 9,500,000 shares of common stock held in the name of Alliance
2000, Ltd., a Texas limited partnership in which William A. Coskey and
Hulda L. Coskey are general partners. Of these shares, 2,600,000 are
held subject to an Option Pool Agreement pursuant to which options may
be granted to certain employees of ENGlobal and its subsidiaries, and
200,000 are subject to the Equus Call Agreement, pursuant to which Equus
has the right to acquire the shares under certain circumstances. Also
includes 100 shares of ENG common stock owned by William A. Coskey,
purchased on June 16, 1998 at the time ENGlobal became listed with the
American Stock Exchange; and 30,000 shares of common stock held in the
name of William A. Coskey for his children.
/(6)/ Includes options held by Mr. Gent to acquire 24,375 shares of common
stock at $1.25 per share, 4,372 shares of common stock at $1.00 per
share and 20,000 shares of common stock at $1.87, all of which are
exercisable within 60 days of the date of this proxy statement. Does not
include options to acquire 5,625 shares of common stock at $1.25 per
share, or options to acquire 5,628 shares of common stock at $1.00 per
share, which will not be exercisable within 60 days of the date of this
proxy statement.
/(7)/ Includes 1,225,758 shares of common stock held by Equus and 1,087,395
shares of common stock into which the ENGlobal preferred stock is
convertible. Includes options held by Mr. Hale to acquire 20,000 shares
of common stock at $1.87, which are exercisable within 60 days of the
date of this proxy statement. Does not include 200,000 shares of common
stock held by Alliance 2000, Ltd., which Equus has the right to acquire
under certain circumstances described in the Option Pool Agreement. Mr.
Hale is a director of ENGlobal and an Investment Officer of Equus II
Incorporated, which is one of the Company's lenders.
/(8)/ Includes 442,335 shares of common stock held by a family limited
partnership; options held by Mr. Carpenter to acquire 11,184 shares of
common stock at $0.96 per share, which are exercisable within 60 days of
the date of this proxy statement. Does not include options held by Mr.
Carpenter to acquire 2,606 shares of common stock at $0.96 per share,
which will not be exercisable within 60 days of the date of this proxy
statement; nor does it include options to acquire 100,000 shares of
common stock at exercise prices ranging from $0.75 to $1.25 which become
vested and are exercisable only upon certain conditions described in the
Option Pool Agreement between the Company and Alliance 2000, Ltd.
/(9)/ Includes options held by Mr. Roussel to acquire 20,000 shares of common
stock at $1.87, which are exercisable within 60 days of the date of this
proxy statement.
/(10)/ Includes 202,646 shares of common stock held by Mr. Raiford, and options
to acquire 11,852 shares of common stock at $0.96 per share, options to
acquire 61,235 shares of common stock at $4.26 per share, and options to
acquire 112,261 shares of common stock at $6.24 per share, all of which
are exercisable within 60 days of the date of this proxy statement. Does
not include options to acquire 2,606 shares of common stock at $0.96 per
share or options to acquire 48,112 shares of common stock at $6.24 per
share, none of which will be exercisable within 60 days of the date of
this proxy, nor does it include options to acquire 230,000 shares of
common stock at exercise prices ranging from $0.75 to $1.25 which become
vested and are exercisable only upon certain conditions related to the
Option Pool Agreement between the Company and Alliance 2000, Ltd.
/(11)/ Includes 5,000 shares of common stock held in trust for the benefit of
Mr. Patton and options held by Mr. Patton to acquire 20,000 shares of
common stock at $1.25 which are exercisable within 60 days of the date
of this proxy statement. Does not include options to acquire 200,000
shares of common stock at exercise prices ranging from $0.75 to $1.25
which become vested and are exercisable only upon certain conditions
related to the Option Pool Agreement between the Company and Alliance
2000, Ltd.
9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and 10% beneficial owners ("insiders")
to file with the United States Securities and Exchange Commission reports of
ownership and change in ownership of equity securities of the Company. Based
solely on its review of Forms 3 and 4 and amendments thereto furnished to the
Company under Rule 16a-3(e) during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, the Company believes that during the year ended December 31, 2002,
the Company's directors and officers complied with all of the filing
requirements of Section 16.
EQUITY COMPENSATION PLAN INFORMATION
Information regarding the Company's equity compensation plans as of
December 31, 2002 is incorporated by reference in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 27, 2003
and enclosed herewith.
INFORMATION CONCERNING EXECUTIVE OFFICERS
NAME AGE POSITION
----------------------- --- --------------------------------------------
Michael L. Burrow, P.E. 55 Chairman of the Board and Chief Executive
Officer
William A. Coskey, P.E. 50 Chief Operating Officer and President
Hulda L. Coskey 48 Chief Governance Officer and Secretary
Robert W. Raiford 58 Chief Financial Officer and Treasurer
Michael M. Patton, P.E. 50 Senior Vice President - Business Development
Our executive officers are elected by and serve at the discretion of our
Board of Directors. No arrangement or understanding exists between any executive
officer and any other person or persons pursuant to which he or she was selected
as an executive officer.
Set forth below is a brief description of the business experience of all
executive officers other than Michael L. Burrow, William A. Coskey and Hulda L.
Coskey. For information concerning Messrs. Burrow and Coskey and Mrs. Coskey,
who are also nominees for director, see "Proposal No. 1 - Election of Directors
- Information Concerning Nominees."
Robert W. Raiford joined us through our merger with Petrocon (the
"Merger") and was named Chief Financial Officer and Treasurer of ENGlobal in
December 2001. Mr. Raiford also serves as Chief Financial Officer and Treasurer
of each of ENGlobal's subsidiaries in addition to his position as Executive Vice
President of ENGlobal Engineering, Inc. Mr. Raiford has management
responsibility for the Company's administrative service functions including
Accounting and Financial Reporting, Cash Management, Human Resources, and Risk
Management. From the time he joined Petrocon in 1979 until the Merger in
December 2001, he served in numerous officer positions and as a director of the
various Petrocon subsidiaries. He received an MBA in 1974 and a BBA in Business
Management in 1968 from Lamar University.
Michael M. Patton, P.E. joined the Company through our IDS Engineering,
Inc. subsidiary in 1999 and was elected as Senior Vice President of Business
Development of ENGlobal Corporation in 2002. Mr. Patton is responsible for
planning and development of the Company's corporate growth strategies. He also
manages ENGlobal's marketing and sales activities, including both domestic and
international sales personnel, marketing goals and sales budgets. Mr. Patton has
27 years of experience in all aspects of multi-discipline engineering and
construction projects for the oil and gas, electrical power, military and
municipal utility industries, with 15 years specifically related to corporate
business development. Mr. Patton served as Vice President of Business
Development at Dresser Engineering, Inc. from 1996 through 1998. He is a
Registered Professional Engineer and earned a Bachelor of Science degree in
Electrical Engineering from University of Oklahoma in 1975. He holds memberships
in National Society of Professional Engineers (NSPE), Oklahoma Society of
Professional Engineers (OSPE), Instrument Society of America (ISA), and is a
Senior Member of IEEE (Power Engineering, Control Systems, and Industrial
Electronics).
10
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, the Company's
Chief Executive Officer, and the most highly compensated executive officers of
the Company whose aggregate cash compensation exceeded $100,000 (the "Named
Executive Officers") during the years ended December 31, 2000, 2001 and 2002.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS /(4)/ SATION /(5)/ SARS /(6)/ PAYOUTS SATION /(7)/
---------------------------- ---- ------------ ------------ ------------ ------------- ------------ ------------
($) ($) ($) (#) ($) ($)
Michael L. Burrow, P.E. /(1)/ 2002 239,941 9,490 8,250 - - -
Chairman of the Board and 2001 250,249 - - 300,000 - -
Chief Executive Officer
William A. Coskey, P.E. /(2)/ 2002 185,007 7,315 9,000 - - 3,524
Chief Operating Officer, 2001 114,858 - - - - 3,036
President and Director 2000 111,040 - - - - 3,168
Robert W. Raiford /(1)/ 2002 170,296 6,722 8,250 - - -
Chief Financial Officer and 2001 160,078 - - 230,000 - -
Treasurer
Michael M. Patton, P.E. /(3)/ 2002 137,264 8,853 8,942 100,000 - 4,489
Senior Vice President - 2001 108,789 1,522 9,000 100,000 - 3,581
Business Development 2000 103,450 4,106 9,000 - - 3,427
/(1)/ Messrs. Burrow and Raiford were not affiliated with ENGlobal prior to
December 21, 2001. Compensation shown above for 2001 includes
compensation from Petrocon and ENGlobal. In 2000, Messrs. Burrow and
Raiford were employed by Petrocon with base salaries of $249,968 and
$175,819, respectively.
/(2)/ Mr. Coskey served as Chairman of the Board, Chief Executive Officer and
President of the Company during 2000 and until December 21, 2001.
/(3)/ Mr. Patton was appointed an Executive Officer of the Company in 2002.
Prior to 2002, Mr. Patton served as an officer of an ENGlobal
subsidiary.
/(4)/ Consists of bonuses paid pursuant to the Incentive Bonus Plan, described
in "Incentive Bonus Plan" below.
/(5)/ Consists of automobile allowance.
/(6)/ Consists of Alliance option grants, described further in "Option Grants
and Aggregated Option Exercises in Fiscal 2002" below.
/(7)/ Consists of matching contribution made on behalf of the Named Executive
Officer pursuant to the IDS 401(k) plan, described in "401(k) Plans"
below.
OPTION GRANTS AND AGGREGATED OPTION EXERCISES IN FISCAL 2002
The Company made no grants of stock options to the Named Executive
Officers during fiscal 2002 and no Named Executive Officer exercised options
during fiscal 2002; therefore, tables regarding such activity have been
intentionally omitted.
Alliance 2000, Ltd., a Texas limited partnership in which William A.
Coskey and Hulda L. Coskey are general partners holds 2,600,000 shares of
ENGlobal common stock subject to an Option Pool Agreement (the Option Pool
Agreement") whereby options may be granted to certain employees of ENGlobal and
its subsidiaries, and 200,000 are subject to the Equus Call Agreement (the
"Equus Call Agreement"), pursuant to which Equus has the right to acquire the
shares under certain circumstances.
Although the Company did not issue any grants of stock to its Named
Executives in fiscal year 2002, options to acquire 100,000shares of ENGlobal
common stock were issued to Michael M. Patton in 2002, pursuant to the Option
Pool Agreement. Details regarding these options are included in Footnote 8 in
the table below.
11
FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive
Officers, certain information regarding the number of shares of common stock
underlying stock options held at fiscal year-end and the value of options held
at fiscal year-end based upon the last reported sales price of the common stock
on the American Stock Exchange on December 31, 2002 ($1.19 per share).
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT DECEMBER 31, 2002 DECEMBER 31, 2002 /(1)/
ON VALUE ----------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------- -------- --------- ------------ ------------- ----------- -------------
Michael L. Burrow /(2)/ - - 16,257 $ 2,780 1,955 $ 450
David W. Gent /(3)/ - - 26,248 $ 712 13,752 $ 1,188
Equus II Incorporated /(4)/ - - - - - -
Randall B. Hale
Jimmie N. Carpenter /(5)/ - - 15,354 $ 2,572 2,606 $ 599
David C. Roussel /(6)/ - - - - - -
Robert W. Raiford /(7)/ - - 172,437 $ 2,726 66,756 $ 599
Michael M. Patton /(8)/ - - 20,000 - - -
/(1)/ Year-end value is determined by subtracting the exercise price from the
fair market value of $1.19 per share (the closing price for our common
stock as reported by the American Stock Exchange on December 31, 2002)
and multiplying the remainder by the number of underlying shares of
common stock.
/(2)/ Includes options held by Mr. Burrow to acquire 12,088 shares of common
stock at $0.96 per share, which are exercisable within 60 days of the
date of this proxy statement. Does not include options to acquire 1,954
shares of common stock at $0.96 per share, which will not be exercisable
within 60 days of the date of this proxy statement, nor does it include
options to acquire 300,000 shares of common stock at exercise prices
ranging from $0.75 to $1.25 which become vested and are exercisable only
under certain conditions set forth in the Option Pool Agreement between
the Company and Alliance 2000, Ltd.
/(3)/ Includes options held by Mr. Gent to acquire 24,375 shares of common
stock at $1.25 per share, 4,372 shares of common stock at $1.00 per
share and 20,000 shares of common stock at $1.87, all of which are
exercisable within 60 days of the date of this proxy statement. Does not
include options to acquire 5,625 shares of common stock at $1.25 per
share, or options to acquire 5,628 shares of common stock at $1.00 per
share, which will not be exercisable within 60 days of the date of this
proxy statement.
/(4)/ Includes options held by Mr. Hale to acquire 20,000 shares of common
stock at $1.87, which are exercisable within 60 days of the date of this
proxy statement. Does not include 200,000 shares of common stock held by
Alliance 2000, Ltd. which Equus has the right to acquire under certain
circumstances described in the Option Pool Agreement. Mr. Hale is a
director of ENGlobal and an Investment Officer of Equus II Incorporated,
which is one of the Company's lenders.
/(5)/ Includes options held by Mr. Carpenter to acquire 11,184 shares of
common stock at $0.96 per share which are exercisable within 60 days of
the date of this proxy statement. Does not include options held by Mr.
Carpenter to acquire 2,606 shares of common stock at $0.96 per share,
which will not be exercisable within 60 days of the date of this proxy
statement; nor does it include options to acquire 100,000 shares of
common stock at exercise prices ranging from $0.75 to $1.25 which become
vested and are exercisable only upon certain conditions described in the
Option Pool Agreement between the Company and Alliance 2000, Ltd.
/(6)/ Includes options held by Mr. Roussel to acquire 20,000 shares of common
stock at $1.87 which are exercisable within 60 days of the date of this
proxy statement.
/(7)/ Includes options held by Mr. Raiford to acquire 11,852 shares of common
stock at $0.96 per share, options to acquire 61,235 shares of common
stock at $4.26 per share, and options to acquire 112,261 shares of
common stock at $6.24 per share, all of which are exercisable within 60
days of the date of this proxy statement. Does not include options to
acquire 2,606 shares of common
12
stock at $0.96 per share or options to acquire 48,112 shares of common
stock at $6.24 per share, none of which will be exercisable within 60
days of the date of this proxy, nor does it include options to acquire
230,000 shares of common stock at exercise prices ranging from $0.75 to
$1.25 which become vested and are exercisable only upon certain
conditions related to the Option Pool Agreement between the Company and
Alliance 2000, Ltd.
/(8)/ Includes options held by Mr. Patton to acquire 20,000 shares of common
stock at $1.25 which are exercisable within 60 days of the date of this
proxy statement. Does not include options to acquire 200,000 shares of
common stock at exercise prices ranging from $0.75 to $1.25 which become
vested and are exercisable only upon certain conditions related to the
Option Pool Agreement between the Company and Alliance 2000, Ltd.
KEY MAN INSURANCE
The Company does not carry insurance on the life of its key executive
officers. Messrs. Burrow and Coskey are key executives of the Company and the
loss of their services could adversely affect the Company's business.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with its executive
officers named in the Summary Compensation Table under the section titled
"Executive Compensation" shown above, and with other officers of the Company or
its subsidiaries. The employment agreements are for three-year terms all of
which expire in December 2004 unless extended by the Company pursuant to certain
terms in the agreement. Such agreements provide for minimum annual base salary
levels and other compensation which may be in the form of cash bonuses,
incentive compensation, stock options, stock appreciation rights, restricted
stock awards as the Board of Directors may, in its discretion, approve. The
aggregate commitment for future salaries at December 31, 2002, excluding
bonuses, was approximately $3.0 million.
The agreements also provide for certain severance payments and benefits
in the case of termination of employment. If employment ends because of death,
generally salary is paid for three months. In the case of disability, salary and
benefits generally maintained by the Company on behalf of the executive are paid
for up to six months of disability and for a period of six months following the
date of termination. At the option of the Company, severance payments and
benefits may be extended for an additional six-month period following the
initial severance period. Additionally, health and life insurance benefits are
paid in accordance with the terms of the Company's benefit plans.
If the Company terminates the executive's employment for "cause," as
defined in the employment agreements, and in the case of Messrs. Burrow and
Coskey, upon the affirmative vote of no less than five members of the Board of
Directors, the Company will pay any accrued but unpaid salary, expenses required
to be reimbursed, vacation and any earned but unpaid bonuses for prior periods.
Company benefits will be paid in accordance with the terms of the Company's
benefit plans and all unvested options or other awards will be cancelled in
accordance with conditions defined in the Company's Incentive Plan.
If the Company terminates the executive's employment without "cause", as
defined in the employment agreements, the Company will continue to pay the
executive for a period of six months following the date of termination and at
the option of the Company, severance payment and benefits may be extended for an
additional six-month period following the initial severance period.
The employment agreements also include covenants not to compete for a
six-month to three-year period following termination of employment depending on
basis for termination, as well as confidentiality provisions as are customary,
in nature and scope, for such agreements.
In conjunction with corporate restructuring of the Company, in December
2002, the Company and each of the executive officers named in the "Executive
Compensation" table shown above entered into amendments to existing employment
agreements to allow for changes in subsidiary names and various officer titles.
No salary increases or extensions of terms were granted as a result of the
corporate restructuring or these amendments.
13
1998 INCENTIVE PLAN
A total of 1,400,000 shares of common stock have previously been
reserved for issuance, pursuant to the Incentive Plan. On June 8, 1998,
stockholders of the Company approved the 1998 Incentive Plan (the "Plan") with
1,200,000 initial options authorized for grant. In December 2001, ENGlobal
stockholders authorized an increase of options in the Plan from 1,200,000 to
1,400,000. In conjunction with the Merger, the Company was authorized to issue
up to 1,737,473 options (the "Replacement Options") to existing optionholders of
Petrocon in exchange for previously outstanding options to purchase common stock
of Petrocon. At the same time, certain Petrocon shareholders deposited an
aggregate 1,737,473 shares of the Company's common stock into an escrow account,
pursuant to an Option Escrow Agreement, a copy of which was previously filed
with the Securities and Exchange Commission as Exhibit 10.50 to the Company's
Form 10-K for the period ended December 31, 2001. The Option Escrow Agreement
requires that if the Company issues shares of common stock on the exercise of a
Replacement Option, a like number of shares of common stock will be surrendered
from the escrow account to the Company whereas no dilution to existing
stockholders will occur as a result of the exercise.
As of December 31, 2002, 1,254,929 of the 1,400,000 authorized options
had been issued and remained outstanding under the Plan, of which 1,064,243 of
the options were granted as non-dilutive, Replacement Options. Although options
granted as Replacement Options are non-dilutive in nature, the issuance of such
options decreases the number of options available for issuance under the Plan.
As a result, the Company may not have sufficient options to use as incentive to
attract, motivate, and retain executives who are critical to the success of the
Company.
Therefore, the Company is asking its stockholders to vote for approval
of an increase in the number of options authorized under the Plan from 1,400,000
to 2,200,000 in order to allow the future issuance of options that were
otherwise used by the Company as Replacement Options. As the existing
Replacement Options are exercised or terminated in the future, the Company
intends to subsequently decrease the number of options that may be issued under
the Plan back to no fewer then the 1,200,000 originally authorized under the
Plan, automatically with no further action required by the board of directors or
stockholders of the Company.
Following is a summary of the material terms and conditions of the
Company's 1998 Incentive Plan. The Incentive Plan provides for the grant to
employees, including officers of ENGlobal, incentive stock options,
non-statutory stock options, stock appreciation rights and restricted stock. In
addition, non-employee directors and consultants are eligible to receive
non-statutory stock options.
The Incentive Plan provides that awards may be granted to employees,
consultants and directors of ENGlobal and its majority-owned subsidiaries. To
the extent that the aggregate fair market value of the shares with respect to
which options designated as incentive stock options are exercisable for the
first time by any optionee during any calendar year exceeds $100,000, such
options will be reclassified as non-statutory stock options in accordance with
the Code. The Incentive Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
The Board of Directors has delegated the Plan administration to the
Compensation Committee. The Compensation Committee selects persons to whom
awards may be granted and the type of award to be granted and determines, as
applicable, the number of shares to be subject to each award, the exercise price
and terms of vesting. In making such determination, the Compensation Committee
takes into account the grantee's present and potential contributions to the
success of ENGlobal and other relevant factors.
All incentive stock options granted under the Incentive Plan are at an
exercise price at least equal to the fair market value of the shares of common
stock on the date of grant. With respect to any participant who owns stock
representing more than 10% of the voting rights of ENGlobal's outstanding
capital stock, the exercise price of any incentive stock option granted under
the Incentive Plan is at least equal to 110% of the fair market value of the
shares of common stock subject to such option on the date of grant.
Options granted under the Incentive Plan vest pursuant to terms
determined by the Compensation Committee. The terms of all incentive stock
options and non-statutory stock options granted under the Incentive Plan may not
exceed 10 years. However, the terms of all incentive stock options granted to an
optionee who, at the time of grant, owns stock representing more than 10% of the
voting rights of ENGlobal's outstanding capital stock, may not exceed five
years.
Restricted common stock may be granted to employees pursuant to terms
determined by the Compensation Committee. Restricted common stock may not be
transferred until the restrictions are removed or have expired. Conditions to
the removal of restrictions may include, but are not required to be limited to,
continuing employment or service to ENGlobal or achievement of certain
performance objectives.
14
Stock appreciation rights may be granted to employees, either
independent of, or in connection with options. Stock appreciation rights are
exercisable in the manner, and pursuant to terms, determined by the Compensation
Committee. Terms to be determined by the Compensation Committee include the
number of shares to which the stock appreciation right applies, the vesting
schedule for the exercise of such right and the expiration date of the right.
Upon exercise of a stock appreciation right, the holder shall receive payment in
cash, stock or a combination of both at the discretion of the Compensation
Committee in an amount equal to the product of (i) the fair market value of a
share of ENG common stock as of the date of exercise, minus the fair market
value of a share of ENG common stock as of the date the stock appreciation right
was granted, multiplied by (ii) the number of shares as to which the stock
appreciation right is being exercised. The exercise of stock appreciation rights
granted in connection with options requires the holder to surrender the related
options (or any portion thereof, to the extent unexercised). No stock
appreciation right granted under the Incentive Plan is transferable by the
employee other than by will or the laws of descent and distribution and each
stock appreciation right is exercisable during the lifetime of the employee only
by such employee.
In the event of certain changes in ENGlobal's capitalization, including
as a result of a stock split or stock dividend, which results in a greater or
lesser number of shares of outstanding common stock, appropriate adjustment
would be made in the number of shares available under the Incentive Plan, the
exercise price of outstanding options, and the number of shares subject to
options, outstanding shares of restricted common stock and stock appreciation
rights.
Award agreements may, as determined by the Compensation Committee,
provide that, in the event of a change in control of ENGlobal, the following
will occur: the holder of a stock option will be granted a corresponding stock
appreciation right; all outstanding stock appreciation rights and stock options
will become immediately and fully vested and exercisable in full; and the
restriction period on any restricted common stock will be accelerated and the
restrictions will expire. In general, a change in control of ENGlobal occurs in
any of five situations:
(1) a person (other than (a) ENGlobal, (b) certain named affiliates
or affiliated companies or benefit plans, or (c) a company, a
majority of which is owned directly or indirectly by the
stockholders of ENGlobal) becomes the beneficial owner of 50% or
more of the voting power of ENGlobal's outstanding voting
securities;
(2) a majority of the Board of Directors is not comprised of the
members of the Board of Directors at the effective date of the
Incentive Plan and persons whose elections as directors were
approved by those original directors or their approved
successors;
(3) a person described in clause (1) above announces a tender offer
for 50% or more of ENGlobal's outstanding voting securities and
the Board of Directors approves or does not oppose the tender
offer;
(4) ENGlobal merges or consolidates with another corporation or
partnership, or ENGlobal's stockholders approve such a merger or
consolidation, other than mergers or consolidations in which
ENGlobal's voting securities are converted into securities
having the majority of voting power in the surviving company; or
(5) ENGlobal liquidates or sells all or substantially all of its
assets, or ENGlobal's stockholders approve such a liquidation or
sale, except sales to corporations having substantially the same
ownership as ENGlobal.
If a restructuring of ENGlobal occurs that does not constitute a change
in control of ENGlobal, the Compensation Committee may, but need not, cause
ENGlobal to take any one or more of the following actions: accelerate in whole
or in part the time of vesting and exercisability of any outstanding stock
options and stock appreciation rights to permit those stock options and stock
appreciation rights to be exercisable before, upon, or after the completion of
the restructure; grant each of the restrictions on any restricted common stock;
if the restructuring involves a transaction in which ENGlobal is not the
surviving entity, cause the surviving entity to assume in whole or in part any
one or more of the outstanding incentive awards upon such terms and provisions
as the board of directors or its designated committee deems desirable; or redeem
in whole or in part any one or more of the outstanding incentive awards, whether
or not then exercisable, in consideration of a cash payment as adjusted for
withholding obligations. A restructuring generally is any merger of ENGlobal or
the direct or indirect transfer of all or substantially all of ENGlobal's assets
in one transaction or a series of transactions.
15
401(k) PLANS
The Company has two 401(k) plans, the IDS Plan and the Petrocon Plan,
both established prior to the Merger. Each of the separate 401(k) plans is
currently being evaluated and in 2003, the Company may adopt one plan that will
cover all employees of its various subsidiaries.
On January 1, 1993, the Company adopted a Section 401(k) Profit Sharing
Plan and Trust (the "IDS Plan"). The IDS Plan is intended to qualify for tax
exemption under Section 401(k) of the Code and is subject to the Employee
Retirement Income Security Act of 1974. Management of the Company administers
the IDS Plan and all of the Company's employees who elect to do so are allowed
to participate, subject to certain eligibility requirements. Eligible employees
may contribute up to 15% of their annual compensation up to the maximum dollar
amount allowed by law, which is matched by the Company under a defined formula.
In addition, the Company may make discretionary contributions to the IDS Plan,
for the benefit of all participants, at the election of the Board of Directors.
Employee contributions are fully vested at all times and contributions by the
Company vest on a schedule of 25% per year over a four-year period, commencing
with the second year of employment. The Company made contributions to the IDS
Plan of approximately $127,000, $194,000 and $172,000, respectively, in 2000,
2001 and 2002.
Petrocon has adopted a Section 401(k) Profit Sharing Plan and Trust (the
"Petrocon Plan"). The Petrocon Plan is intended to qualify for tax exemption
under Section 401(k) of the Code and is subject to the Employee Retirement
Income Security Act of 1974. Management of Petrocon administers the Petrocon
Plan and all of Petrocon's employees who elect to do so are allowed to
participate, subject to certain eligibility requirements. Eligible employees may
contribute up to 20% of their annual compensation up to the maximum dollar
amount allowed by law. In addition, Petrocon may make discretionary
contributions to the Petrocon Plan, for the benefit of all participants, at the
election of the Board of Directors. Petrocon made no contributions to the Plan
for the years 2000 through 2002.
INCENTIVE BONUS PLAN
Effective January 1, 2002, the Company approved an incentive bonus plan
(the "Incentive Bonus Plan") primarily intended to reward key management or
other major contributors to ENGlobal's profitability. The Incentive Bonus Plan
is restricted to regular full time employees of ENGlobal or its subsidiaries.
Participation in the plan is determined at the discretion of the CEO and COO of
ENGlobal, and subject to Audit Committee approval. The addition of, or removal
of, participants to the plan requires the joint consent of both the CEO and COO
of ENGlobal.
An incentive bonus pool is calculated quarterly following the completion
of the review or audit of ENGlobal's financial results. The incentive bonus pool
available for distribution is calculated in two parts: a) 15% of ENGlobal's
consolidated net profit before tax, less accrued dividends on preferred shares
("ENGlobal Profit") that exceeds 2% of Consolidated Total Revenue, added to, b)
5% of ENGlobal Profit that exceeds 4% of Consolidated Total Revenue. Any
cumulative losses in ENGlobal Profit in prior quarters is subtracted from
ENGlobal Profit for the current quarter before performing the above calculation.
Incentive bonuses under the plan are paid only to those employees who
are employed on a regular full time basis on the last day of each calendar
quarter ended: March 31, June 30, September 30, December 31. Each participant's
share of the incentive bonus pool is determined by taking that participant's
annual salary divided by the total annual salary of all participants in the
plan. Participation in the plan replaced any and all prior bonus, commission or
incentive agreements, written or verbal, in which the participants may have been
a part of. Termination from employment with ENGlobal or its subsidiaries for any
reason, either voluntary or involuntary, immediately disqualifies an individual
from receiving currently payable incentive bonus amounts or any future payments
under the plan.
16
COMPENSATION COMMITTEE REPORT
The information contained in this Audit Committee Report shall not be
deemed to be "soliciting material" or to be "filed" or incorporated by reference
in future filings with the Securities and Exchange Commission, 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 is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administering and granting stock options and other awards
under the Company's 1998 Incentive Plan ("Plan"). The Compensation Committee of
the Board of Directors ("Committee") is made up of only Independent Directors.
The granting of options under the Plan is designed and utilized to:
. Attract, motivate, and retain executives of exceptional ability and
potential, who are critical to both the short-term and long-term success
of the Company
. Reinforce strategic performance objectives
. Create a mutuality of interest between executives and stockholders to
share the rewards and risks of strategic decision-making; and
. Provide executives with the opportunity to hold substantial stock options
in ENGlobal, to more closely align executives' interests with those of the
stockholders.
The Committee sets a target range for options to be granted to each
individual executive based primarily on the level of responsibilities. The
actual number of options granted is based on performance against annual
corporate, subsidiary, and individual goals. Annually, the Committee makes
recommendations to the Board of Directors for approval but has the discretion to
make recommendations, as it deems necessary throughout the year. When evaluating
the performance of the Chief Executive Officer, the Committee consults with the
Board of Directors. When evaluating the performance of executives other than the
Chief Executive Officer, the Committee consults with the Chief Executive Officer
and others in management, as applicable. Generally, executive performance is
reviewed and evaluated by the Committee during the fourth quarter each fiscal
year. In an effort to attract and retain highly qualified executives and other
employees, the Committee may also grant stock options to newly hired executives
and other employees as an inducement to accept employment with the Company.
COMPENSATION COMMITTEE
David C. Roussel, Chairman
David W. Gent
Randall B. Hale
April 15, 2003
17
AUDIT COMMITTEE REPORT
The information contained in this Audit Committee Report shall not be
deemed to be "soliciting material" or to be "filed" or incorporated by reference
in future filings with the Securities and Exchange Commission, 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 responsibilities of the Audit Committee include providing oversight
to the Company's financial reporting process through periodic meetings with the
Company's independent auditors and management to review accounting, auditing,
internal controls and financial reporting matters. The management of the Company
is responsible for the preparation and integrity of the financial reporting
information and related systems of internal controls. The Audit Committee, in
carrying out its role, relies on the Company's senior management, including
senior financial management, and its independent auditors.
We have reviewed and discussed with senior management the Company's
audited financial statements included in the 2002 Annual Report to Stockholders.
Management has confirmed to us that such financial statements (i) have been
prepared with integrity and objectivity and are the responsibility of management
and (ii) have been prepared in conformity with generally accepted accounting
principles. The Committee believes that management maintains an effective system
of internal controls which results in fairly presented financial statements.
We have discussed with Hein + Associates LLP, our independent auditors,
the matters required to be discussed by SAS 90 (Communications with Audit
Committee). SAS 90 requires our independent auditors to provide us with
additional information regarding the scope and results of their audit of the
Company's financial statements, including information with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, (iii) management judgments and estimates, (iv) any
significant audit adjustments, (v) any disagreements with management, and (vi)
any difficulties encountered in performing the audit.
We have received from Hein + Associates LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1.
(Independence Discussions with Audit Committees) with respect to any
relationships between Hein + Associates LLP and the Company, that in their
professional judgment, may reasonably be thought to bear on independence. Hein +
Associates LLP has discussed its independence with us, and has confirmed in such
letter that, in its professional judgment, it is independent of the Company
within the meaning of the federal securities laws. The Committee also has
considered whether the independent auditors' provision of non-audit services to
the Company is compatible with the auditors' independence. The Committee has
concluded that the independent auditors are independent from the Company and its
management.
Based on the review and discussions described above with respect to the
Company's audited financial statements included in the Company's 2002 Annual
Report to Stockholders, we have recommended to the Board of Directors that such
financial statements be included in the Company's Annual Report on Form 10-K for
filing with the Securities and Exchange Commission.
As specified in the Audit Committee Charter, it is not the duty of the
Audit Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and in accordance with generally
accepted accounting principles. That is the responsibility of management and the
Company's independent auditors. In giving our recommendation to the Board of
Directors, we have relied on (i) management's representation that such financial
statements have been prepared with integrity and objectivity and in conformity
with generally accepted accounting principles, and (ii) the report of the
Company's independent auditors with respect to such financial statements.
AUDIT COMMITTEE
Randall B. Hale, Chairman
David W. Gent
David C. Roussel
April 15, 2003
18
AUDIT AND NON-AUDIT FEES
The following table presents fees for audit services and fees billed for
other services rendered by Hein + Associates LLP for the fiscal year ended
December 31, 2002:
Fiscal Year Ended
December 31, 2002
-----------------
Audit fees /(1)/................................................. $ 125,860
Audit related fees /(2)/......................................... -
Tax fees /(3)/................................................... 26,323
All other fees /(4)/............................................. 16,628
Total............................................................ $ 168,811
/(1)/ Includes fees billed in connection with the audit of the Company's annual
financial statements and the reviews of ENGlobal's financial statements
included in the Company's Forms 10-Q.
/(2)/ No professional services for audit related services were provided by Hein
+ Associates LLP for fiscal year 2002.
/(3)/ Includes fees billed for tax services including the preparation of the
Company's statutory tax reports.
/(4)/ Includes fees billed for services rendered other than the services covered
in the table above which primarily consisted of Merger-related research
and analysis.
WORK PERFORMED BY PRINCIPAL ACCOUNTANT'S FULL TIME, PERMANENT EMPLOYEES
Hein + Associates LLP's work on ENGlobal's audit was performed by full
time, permanent employees and partners of Hein + Associates LLP.
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total stockholder return on
our common stock for the five-year period ended December 31, 2002, with the AMEX
US Index and the S&P 600 SmallCap Index, over the same period. This comparison
assumes the investment of $100 on December 31, 1997 and the reinvestment of all
dividends. The stockholder return set forth on the chart below is not
necessarily indicative of future performance.
[GRAPHIC APPEARS HERE]
ENG TOTAL RETURN
YEAR AMEX US INDEX S&P 600 SMALLCAP INDEX PERFORMANCE
---- ------------- ---------------------- ----------------
1997 100.000 100.000 100.00
1998 107.347 98.663 144.444
1999 141.637 110.710 14.453
2000 131.369 123.565 8.889
2001 122.262 131.435 12.622
2002 99.880 112.726 21.156
19
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.
ENGlobal Engineering, Inc. leases office space in a building owned by
PEI Investments, a joint venture in which Michael L. Burrow, the Chief Executive
Officer and a member of the Board of Directors of ENGlobal, ENGlobal
Engineering, Inc., and a stockholder who owns less than 1% of the Company's
common stock, each own a one-third interest. Each partner receives approximately
$30,000 annually under this lease arrangement. The current lease expired in
2001; however, ENGlobal Engineering expects to renegotiate the lease in 2003.
Randall B. Hale, a member of the Board of Directors of ENGlobal since
the Merger, is an executive officer of Equus. Equus holds a note from ENGlobal,
which had a balance of approximately $2.8 million at December 31, 2002. The note
is guaranteed by all of the subsidiaries of the Company, is further secured by a
lien on substantially all of the assets of ENGlobal and its subsidiaries, and is
subordinated to the Company's credit facility with Fleet Capital. In addition,
Equus owns 2,588,000 shares of ENGlobal convertible preferred stock and is party
to various agreements in conjunction with the Merger.
ITEM TWO
PROPOSAL TO AMEND THE COMPANY'S 1998 INCENTIVE PLAN
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Company's 1998 Incentive Plan increasing the number of options
which may be issued under the Plan from 1,400,000 to 2,200,000 in order to
restore the number of available options to the number approved prior to grant of
options in connection with the Petrocon merger, which grants were non-dilutive
to the Company's stockholders.
A total of 1,400,000 shares of common stock have previously been
reserved for issuance, pursuant to the Incentive Plan. On June 8, 1998, the
stockholders of the Company approved the 1998 Incentive Plan (the "Plan") with
1,200,000 initial options authorized for grant. In December 2001, ENGlobal
stockholders authorized an increase of options in the Plan from 1,200,000 to
1,400,000. In conjunction with the Merger, the Company was authorized to issue
up to 1,737,473 options (the "Replacement Options") to existing optionholders of
Petrocon in exchange for previously outstanding options to purchase common stock
of Petrocon. At the same time, certain Petrocon shareholders deposited an
aggregate 1,737,473 shares of the Company's common stock into an escrow account,
pursuant to an Option Escrow Agreement, a copy of which was previously filed
with the Securities and Exchange Commission as Exhibit 10.50 to the Company's
Form 10-K for the period ended December 31, 2001. The Option Escrow Agreement
requires that if the Company issues shares of common stock on the exercise of a
Replacement Option, a like number of shares of common stock will be surrendered
from the escrow account to the Company whereas no dilution to existing
stockholders will occur as a result of the exercise.
As of December 31, 2002, 1,254,929 of the 1,400,000 authorized options
had been issued and remained outstanding under the Plan, of which 1,064,243 of
the options were granted as non-dilutive, Replacement Options. Although options
granted as Replacement Options are non-dilutive in nature, the issuance of such
options decreases the number of options available for issuance under the Plan.
As a result, the Company may not have sufficient options to use as incentive to
attract, motivate, and retain executives who are critical to the success of the
Company.
Therefore, the Company is asking its stockholders to vote for approval
of an increase in the number of options authorized under the Plan from 1,400,000
to 2,200,000 in order to allow the future issuance of options that were
otherwise used by the Company as Replacement Options. As the existing
Replacement Options are exercised or terminated in the future, the Company
intends to subsequently decrease the number of options that may be issued under
the Plan back to no fewer then the 1,200,000 originally authorized under the
Plan, automatically with no further action required by the board of directors or
stockholders of the Company.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
THE COMPANY'S 1998 INCENTIVE PLAN INCREASING THE NUMBER OF OPTIONS WHICH MAY BE
ISSUED UNDER THE PLAN FROM 1,400,000 TO 2,200,000 IN ORDER TO RESTORE THE NUMBER
OF AVAILABLE OPTIONS TO THE NUMBER APPROVED PRIOR TO GRANT OF OPTIONS IN
CONNECTION WITH THE PETROCON MERGER, WHICH GRANTS WERE NON-DILUTIVE TO THE
COMPANY'S STOCKHOLDERS, AS DETAILED ABOVE.
20
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 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 action
of 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 2004
The 2004 annual meeting of stockholders is expected to be held in June
2004. The Company must receive by March 15, 2004 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, 600 Century Plaza Drive,
Building 140, Houston, Texas 77073-6033, Attn: Corporate Secretary, prior to the
specified deadline.
SEC rules and regulations provide that if the date of the Company's 2004
Annual Meeting is advanced or delayed more than 30 days from the date of the
2003 Annual Meeting, shareholder proposals intended to be included in the proxy
materials for the 2004 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 2004 Annual Meeting. The Company will disclose that change in the
earliest possible Quarterly Report on Form 10-Q, upon determination by the
Company that the date of the 2004 Annual Meeting will be advanced or delayed by
more than 30 days from the date of the 2003 Annual Meeting.
ADDITIONAL INFORMATION
A copy of the Company's 2002 Annual Report is being mailed with this
Proxy Statement to each stockholder of record. Stockholders not receiving a copy
of the Annual Report may obtain one without charge. The Company's Annual Report
on Form 10-K is also accessible through the Company's website at
http://www.englobal.com/ (follow the links to "Investor Relations", and then to
"SEC Filings"). Requests and inquiries should be addressed to:
Investor Relations
600 Century Plaza Drive, Building 140
Houston, Texas 77073-6033
(281) 821-3200
ir@ENGlobal.com
APPROVAL OF THE BOARD OF DIRECTORS
The contents of the Proxy Statement have been approved and the Board of
Directors of the Company has authorized the mailing thereof to the stockholders
of the Company.
DATED at Houston, Texas, the 30th day of April, 2003.
By Order of the Board of Directors,
/s/ Hulda L. Coskey
------------------------------------
Hulda L. Coskey, Secretary
Secretary
21
APPENDIX A
ENGLOBAL CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
GENERAL
The Committee's purpose is to provide assistance to the Board in
fulfilling its legal and fiduciary obligations with respect to matters involving
the accounting, auditing, financial reporting, and internal control functions of
the Corporation and its subsidiaries. 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 shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee. In
determining whether any director is independent, the Board shall take into
consideration the requirements of the principal exchange or system on which the
Corporation's common stock is traded. Directors, who are affiliates of the
Company, or officers or employees of the Company or its subsidiaries, will not
be considered independent. Notwithstanding the first sentence of this paragraph,
until June 14, 2001, the Committee may consist of two or more directors meeting
the qualifications of this section.
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 shall have accounting or
related financial management expertise, as such qualification may be determined
in the business judgment of the Board. Such expertise may be the result of past
employment or background experience including service as a chief executive
officer, a chief financial officer or other senior officer with financial
oversight responsibilities. Committee members, if they or the Board deem it
appropriate, may 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 and shall
serve until their successors are duly elected and qualified. Unless a Chair is
elected by the full Board, the members of the Committee may designate a Chair by
majority vote of the full Committee membership.
MEETINGS
The Committee shall hold regular meetings, as may be necessary, 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 at least
annually with management 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 Corporation's independent accountants are to be ultimately
accountable to the Board and the Committee, and the Committee and the Board
shall have the ultimate authority and responsibility to select, evaluate and,
where appropriate, replace the independent accountants (or nominate the outside
auditor to be proposed for stockholder approval in any proxy statement).
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):
. 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;
. 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;
. the methods used to account for significant unusual
transactions;
. the effect of significant accounting policies in
controversial or emerging areas for which there is a
lack of authoritative guidance or consensus;.
. management's process for formulating sensitive
accounting estimates and the reasonableness of these
estimates;
. significant recorded and unrecorded audit adjustments;
. any material accounting issues among management, members
of the Corporation's internal auditing department and
the independent auditors; and
. 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. Recommend to the Board the selection of the independent
accountants, considering independence and effectiveness, and
approve the fees and other compensation to be paid to the
independent accountants.
6. On an annual basis, obtain from the independent accountants, and
review and discuss with the independent accountants, a formal
written statement delineating all relationships that the
independent accountants have with the Corporation, consistent
with Independence Standards Board Standard 1, and actively
engage in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may
impact the objectivity and independence of the independent
accountants.
A-2
7. Recommend to the Board any appropriate action to oversee the
independence of the independent accountants.
8. Review the performance of the independent accountants and
approve any proposed discharge of the independent accountants
when circumstances warrant.
9. Periodically consult with the independent accountants outside of
the presence of management about internal controls and the
fullness and accuracy of the Corporation's financial statements.
10. Confirm through private discussions with the Corporation's
independent auditors and the Corporation's management that no
management restrictions are being placed on the scope of the
independent auditors' work.
Financial Reporting Processes
11. In consultation with the independent accountants, review the
integrity of the organization's financial reporting processes,
both internal and external.
12. Consider the independent accountant's judgments about the
quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting.
13. 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.
14. 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.
15. 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.
16. Review any significant disagreement among management and the
independent accountants in connection with the preparation of
the financial statements.
17. 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.
18. Review with management and the independent auditors any
reportable conditions and material weaknesses, as defined by the
American Institute of Certified Public Accountants, affecting
internal control.
19. 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.
20. Prepare a report annually which states, among other things,
whether:
. the Committee has reviewed and discussed with management
the audited financial statements to be included in the
Corporation's Annual Report on Form 10-K;
. 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);
. the Committee has received the written disclosures and
the letter from the Corporation's independent auditors
required by Independence Standards Board Standard No. 1,
as may be modified or supplemented, and has discussed
with the independent auditors their independence; and
. 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.
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Ethical and Legal Compliance
21. Establish, review and update periodically a Code of Conduct and
ensure that management has established a system to enforce this
Code.
22. Review with the Corporation's counsel, any legal matter that
could have a significant impact on the Corporation's financial
statements.
23. 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.
24. 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.
25. Review the Corporation's policies relating to the avoidance of
conflicts of interest and review past or proposed transactions
between the Corporation and members of management as well as
policies and procedures with respect to officers' expense
accounts and perquisites, including the use of corporate assets.
The Committee shall consider the results of any review of these
policies and procedures by the Corporation's independent
auditors.
26. Obtain from the independent auditors any information pursuant to
Section 10A of the Securities Exchange Act of 1934.
With respect to the duties and responsibilities listed above, the Committee
should:
. Report regularly to the Board on its activities, as
appropriate;
. Exercise reasonable diligence in gathering and
considering all material information;
. Understand and weigh alternative courses of conduct that
may be available;
. Focus on weighing the benefit versus harm to the
Corporation and its stockholders when considering
alternative recommendations or courses of action;
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
. 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. Similarly, it is not the responsibility of the Committee to resolve
disagreements, if any, between management and the independent auditors or to
ensure that the Corporation complies with all laws and regulations.
Adopted by Resolution of the Board of Directors
August 8, 2002
A-4
APPENDIX B
ENGLOBAL CORPORATION
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
CHARTER
AUTHORITY
The Compensation Committee (the "Committee") of the Board of Directors
(the "Board") of ENGlobal Corporation, a Nevada corporation (the "Corporation"),
is established pursuant to Article Tenth of the Corporation's Articles of
Incorporation and Section 78.125 of the Nevada General Corporation Law. The
Committee shall be comprised of three or more non-employee directors as
determined from time to time by resolution of the Board. Consistent with the
appointment of other Board committees, the members of the Committee shall be
elected by the Board at the annual organizational meeting of the Board or at
such other time as may be determined by the Board. The Chairman of the Committee
shall be designated by the Board, provided that if the Board does not designate
a Chairman, the members of the Committee, by majority vote, may designate a
Chairman. 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 Board
may give the Committee the power to retain outside consultants or others to
assist it in the evaluation of the Corporation's compensation and benefits
programs.
PURPOSE OF THE COMMITTEE
The Committee's primary function is to assist the Board in fulfilling
its oversight responsibilities by reviewing, approving and recommending employee
and management compensation and benefit policies for the Corporation. This
oversight includes the responsibility to consider and evaluate management's
recommendations and to further make recommendations to the Board as to the
amount and form of compensation of directors and executive employees of the
Corporation, and the administration of all annual bonus plans and the
Corporation's stock option plans in addition to any successor or replacement
stock option (the "Plans").
COMPOSITION OF THE COMMITTEE
The members of the Committee shall be non-employee directors who are
free from any relationship that might interfere with the exercise of his or her
independent judgment as a member of the Committee.
MEETINGS OF THE COMMITTEE
The Committee shall meet with such frequency and at such intervals as it
shall determine is necessary to carry out its duties and responsibilities, but
in any case, at least twice a year. The Committee shall meet at least annually
with management to discuss general compensation strategy.
Each member of the Committee shall have one vote. A quorum of the
Committee shall consist of a majority of the Committee's members. The Committee
shall be authorized to take any permitted action only by the affirmative vote of
a majority of the Committee members present at any meeting at which a quorum of
its members is present, or by the unanimous written consent of all of the
Committee members.
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 and all consents shall be placed in the Corporation's minute book.
DUTIES AND RESPONSIBILITIES OF THE COMMITTEE
The Committee shall determine the compensation of the Corporation's
executive officers (Parent company).
The Committee shall evaluate and recommend to the full Board appropriate
compensation for the Corporation's directors, including compensation and expense
reimbursement policies for attendance at Board and committee meetings.
The Committee shall review, approve and monitor any of the Corporation's
employee and management compensation plans as disclosed in the Corporation's
proxy statements, provide oversight of any employee benefit
B-1
plan review, approve, and recommend employee and management compensation and
benefit policies, plans, and performance criteria concerning the salaries,
bonuses, and other compensation of the Corporation's executive officers.
The Committee shall review any other benefit plan described from time to
time in the Corporation's proxy statements, including key man insurance, 401(k)
plans, stock incentive and stock purchase plans.
The Committee shall have the power (a) to make grants of options under
the Plans, (b) to establish the market price of the Corporation's common stock
for purposes of such grants, and (c) to approve and modify any and all stock
option award agreements.
The Committee shall perform such other duties as shall from time to time
be delegated to it by the Board of Directors.
Adopted by Resolution of the Board of Directors
June 6, 2002
B-2
ENGlobal Corporation
[_] Mark this box with an X if you have made
changes to your name or address details above.
Annual Meeting Proxy Card
A Election of Directors
1. The Board of Directors recommends a vote FOR the listed nominees.
For Withhold
[_] [_]
01 - Michael L. Burrow, P.E.
02 - William A. Coskey, P.E.
03 - Hulda L. Coskey
04 - David W. Gent, P.E.
05 - Jimmie N. Carpenter, P.E.
06 - David C. Roussel
07 - Randall B. Hale
B Issues
The Board of Directors recommends a vote FOR the following proposals.
2. For an amendment to the Company's 1998 Incentive Plan increasing the number
of options which may be issued under the Plan from 1,400,000 to 2,200,000
in order to restore the number of available options to the number approved
prior to grant of options in connection with the Petrocon merger, which
grants were non-dilutive to the Company's stockholders, as explained
further in the Proxy Statement.
For Against Abstain
[_] [_] [_]
3. For authority to extend the solicitation period if the meeting is postponed
or adjourned.
For Against Abstain
[_] [_] [_]
4. In their discretion, upon such other matters as may properly come before
the meeting; hereby revoking any proxy or proxies heretofore given by the
undersigned.
C Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished herewith.
Signature should agree with the name printed hereon. If Stock is held in the
name of more than one person, EACH joint owner should sign. Executors,
administrators, trustees, guardians and attorneys should indicate the capacity
in which they sign. Persons acting pursuant to power of attorney should submit
powers of attorney.
Signature 1 - Please keep signature within the box
Signature 2 - Please keep signature within the box
Date (mm/dd/yyyy)
__/__/____
Proxy - ENGlobal Corporation (ENG)
THE BOARD OF DIRECTORS SOLICITS THIS PROXY
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 5, 2003
The undersigned stockholder of ENGlobal Corporation (the "Company") hereby
appoints Michael L. Burrow, Hulda L. Coskey and/or any of them, attorneys and
proxies of the undersigned, each with full power of substitution, to vote on
behalf of the undersigned at the Annual Meeting of Stockholders of ENGlobal
Corporation to be held at the corporate offices located at 600 Century Plaza
Drive, Building 140, Houston, Texas 77073-6033, Thursday, June 5, 2003 at 2:00
p.m. Central Time, and at any adjournments of said meeting, all of the shares of
Common Stock in the name of the undersigned or which the undersigned may be
entitled to vote.
PLEASE SIGN AND RETURN IN THE ENCLOSED SELF ADDRESSED, STAMPED ENVELOPE
(Please sign on other side)