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 |X|
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 ss. 240.14a-11(c) or ss. 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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously by written 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:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
ENGlobal Corporation
April 29, 2005
Dear Stockholder:
I am pleased to invite you to the Annual Meeting of Stockholders of
ENGlobal Corporation. The meeting will be held on Thursday, June 16, 2005 at
10:00 a.m., local time, at The Greenspoint Club, 16925 Northchase Drive, 5th
Floor, Houston, Texas 77060.
At the meeting, you and the other stockholders will be asked to vote on the
following:
1. the election of five directors to the Board of Directors of ENGlobal;
2. the approval of an amendment to the Company's 1998 Incentive Plan to
increase the number of shares reserved for issuance thereunder from
2,200,000 to 2,650,000; and
3. any other business which properly comes before the meeting or at any
adjournment or postponement thereof.
You will also hear an overview of ENGlobal's current and prior year
operations from senior management to be followed by a question and answer
session open to all stockholders. Our Annual Report, which is enclosed with the
accompanying Notice of Annual Meeting and Proxy Statement, contains other
detailed information about ENGlobal, including its audited financial statements
for the year ended December 31, 2004.
Stockholders are urged to carefully read the accompanying Notice of Annual
Meeting and Proxy Statement in its entirety before voting on the proposals. This
Proxy Statement and the enclosed proxy card are being mailed to stockholders on
or about April 29, 2005.
We hope you can join us on June 16, 2005. Regardless of whether or not you
expect to attend the meeting in person, please read the Proxy Statement and vote
as soon as possible. You may vote over the Internet, by telephone or by mailing
a completed proxy card as an alternative to voting in person at the meeting. It
is important that your shares be represented, and your promptness will assist us
in making necessary preparations for the meeting.
Sincerely,
/s/ Michael L. Burrow
Michael L. Burrow
Chairman of the Board
ENGlobal Corporation
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Time and Date 10:00 a.m., local time, on Thursday, June 16, 2005
Place The Greenspoint Club
16925 Northchase Drive, 5th Floor
Houston, Texas 77060
Items of Business (1) To elect five directors to the Board of Directors of
ENGlobal (the Board of Directors recommends a vote FOR
the nominees named in the attached proxy statement
proposal);
(2) To approve an amendment to the Company's 1998 Incentive
Plan to increase the number of shares reserved for
issuance thereunder from 2,200,000 to 2,650,000 (the
Board of Directors recommends a vote FOR this
proposal); and
(3) To consider such other business as may properly come
before the meeting
Except with respect to the procedural matters incident to
the conduct of the Annual Meeting, we are not aware of any
other business to be brought before the Annual Meeting.
Adjournments and
Postponements Any action on the items of business described above may be
considered at the Annual Meeting at the time and on the date
specified above or at any time and date to which the Annual
Meeting may be properly adjourned or postponed.
Record Date You are entitled to notice of, and to vote at, the Annual
Meeting only if you were an ENGlobal stockholder as of the
close of business on April 18, 2005.
Meeting Admission You are entitled to attend the Annual Meeting only if you
were an ENGlobal stockholder as of the close of business on
April 18, 2005 or hold a valid proxy for the Annual Meeting.
You should be prepared to present photo identification for
admittance. If you are not a stockholder of record but hold
shares through a broker or nominee (i.e., in street name),
you should provide proof of beneficial ownership as of the
record date, such as your most recent account statement
prior to April 18, 2005, a copy of the voting instruction
card provided by your bank or brokerage firm, or other
similar evidence of ownership. If you do not provide photo
identification or comply with the other procedures outlined
above upon request, you will not be admitted to the Annual
Meeting.
The Annual Meeting will begin promptly at 10:00 a.m., local
time. Check-in will begin at 9:00 a.m., local time, and you
should allow ample time for the check-in procedures.
Voting Your vote is very important. Whether or not you plan to
attend the Annual Meeting, we encourage you to read the
accompanying Proxy Statement and vote as soon as possible.
This will ensure the presence of a quorum at the Annual
Meeting and that your shares are voted in accordance with
your wishes. You may vote via the Internet, by telephone or
by mailing a completed proxy card as an alternative to
voting in person at the meeting. For detailed information
regarding voting, please refer to the section entitled
"Questions and Answers - How Can I Vote?" on page 3 of this
Proxy Statement and the instructions on the proxy or voting
instruction card.
By Order of the Board of Directors,
/s/ Natalie S. Hairston
Natalie S. Hairston
Chief Governance Officer and Corporate
Secretary
This notice of Annual Meeting and Proxy Statement and form of proxy are first
being distributed to stockholders on or about April 29, 2005.
i
ENGlobal Corporation
2005 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
-----------------
Page
----
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS.......................................i
QUESTIONS AND ANSWERS..........................................................3
PROPOSAL ONE: ELECTION OF DIRECTORS...........................................7
Nominees..............................................................7
Recommendation of the Board...........................................9
Executive Officers....................................................9
Remuneration of Directors.............................................9
MEETINGS OF THE BOARD AND ITS COMMITTEES......................................10
Board Meetings.......................................................10
Audit Committee......................................................10
Compensation Committee...............................................11
Nominating and Corporate Governance Committee........................11
CORPORATE GOVERNANCE..........................................................11
Corporate Code of Conduct............................................12
Director Independence................................................12
Executive Sessions; Lead Director....................................12
Consideration of Director Nominees...................................12
Communications with the Board........................................13
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS.......................14
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.......................15
Compensation Philosophy..............................................15
Compensation Structure...............................................16
Incentive Compensation...............................................16
Stock Option Plan....................................................17
Compensation of the Chief Executive Officer..........................17
Executive Compensation Deductibility.................................17
Compensation Committee Interlocks and Insider Participation..........17
EXECUTIVE COMPENSATION........................................................18
Summary Compensation Table...........................................18
Option/SAR Grants in Last Fiscal Year................................18
Aggregate Option Exercises and Year-End Option Value Table...........19
Key Man Insurance....................................................19
Employment Agreements................................................19
1998 Incentive Plan..................................................20
401(k) Plans.........................................................20
Incentive Bonus Plan.................................................21
Key Manager and Executive Level Incentive Plans......................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................21
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS, NOMINEES, AND
EXECUTIVE OFFICERS.........................................................22
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.......................23
STOCK PERFORMANCE GRAPH.......................................................24
PRINCIPAL AUDITOR FEES AND SERVICES...........................................24
PROPOSAL TWO: APPROVAL TO AMEND THE COMPANY'S 1998 INCENTIVE PLAN.............26
OTHER MATTERS.................................................................31
STOCKHOLDER PROPOSALS FOR 2006................................................32
ADDITIONAL INFORMATION........................................................32
APPROVAL OF THE BOARD OF DIRECTORS............................................32
APPENDIX A: AMENDMENT TO THE COMPANY'S 1998 INCENTIVE PLAN...................A-1
ii
QUESTIONS AND ANSWERS
Q: Who is soliciting my proxy?
A: We, the Board of Directors of ENGlobal Corporation ("ENGlobal" or the
"Company"), are sending you this Proxy Statement in connection with our
solicitation of proxies for use at ENGlobal's 2005 Annual Meeting of
Stockholders. Specified directors, officers, and employees of ENGlobal may
also solicit proxies on our behalf by mail, phone, fax or in person.
Q: Who is paying for this solicitation?
A: ENGlobal will pay for the solicitation of proxies, including the cost of
preparing, assembling, and mailing this Proxy Statement, the proxy card,
the Annual Report and all other materials which may be sent to stockholders
in connection with this solicitation.
Q: On what am I voting?
A: The items of business scheduled to be voted at the Annual Meeting are:
o The election of Michael L. Burrow, P.E., William A. Coskey, P.E.,
Randall B. Hale, David W. Gent, P.E., and David C. Roussel to the
Board; and
o The approval of an amendment to the Company's 1998 Incentive Plan to
increase the number of shares reserved for issuance thereunder from
2,200,000 to 2,650,000.
o The stockholders will also consider other business that properly comes
before the Annual Meeting. Except with respect to the procedural
matters incident to the conduct of the meeting, we are not aware of
any other business to be brought before the Annual Meeting.
Q: Who can vote?
A: Each share of ENGlobal Common Stock issued and outstanding as of the close
of business on April 18, 2005, the record date, is entitled to be voted on
all items being voted upon at the Annual Meeting. You may vote all shares
owned by you as of that time, including (1) shares held directly in your
name as the stockholder of record, and (2) shares held for you as the
beneficial owner through a bank or brokerage firm. On the record date we
had 23,500,842 shares of Common Stock issued and outstanding. If you
beneficially owned any Common Stock on the record date, you have one vote
per share of Common Stock.
Q: What is the difference between holding shares as a stockholder of record
and as a beneficial owner?
A: Stockholder of Record - If your shares are registered directly in your name
with ENGlobal's transfer agent, Computershare Investor Services, LLC, you
are considered, with respect to those shares, the stockholder of record,
and these proxy materials are being sent directly to you by ENGlobal. As
the stockholder of record, you have the right to grant your voting proxy
directly to ENGlobal or to vote in person at the meeting. You may vote via
the Internet, by telephone or by competing and mailing the enclosed proxy
card as an alternative to voting in person at the meeting.
Beneficial Owner - If your shares are held in a brokerage account or by
another nominee, you are considered the beneficial owner of shares held in
street name, and these proxy materials are being forwarded to you together
with a voting instruction card. As the beneficial owner, you have the right
to direct your bank or brokerage firm how to vote and are also invited to
attend the Annual Meeting.
Since a beneficial owner is not the stockholder of record, you may not vote
these shares in person at the meeting unless you obtain a "legal proxy"
from the bank or brokerage firm that holds your shares, giving you the
right to vote the shares at the meeting. Your bank or brokerage firm has
enclosed or provided voting instructions for you to use in directing the
bank or brokerage firm how to vote your shares. Your bank or brokerage firm
may also have a process for providing instructions over the phone or via
the Internet.
3
If you hold your shares through a broker or other nominee, your broker or
nominee may only exercise voting discretion with respect to matters deemed
routine by NASD, such as the election of directors. On a non-routine
matter, a broker or other nominee cannot cast a vote (a so-called "broker
non-vote"). Broker non-votes will not be treated as votes cast, and
therefore, will not affect the outcome of the matters referred to above.
Q: How can I vote?
A: You may vote your shares either in person or by proxy. Shares held in your
name as the stockholder of record may be voted in person at the Annual
Meeting. Shares held beneficially in street name may be voted in person
only if you obtain a legal proxy from the bank or brokerage firm that holds
your shares giving you the right to vote the shares. Even if you plan to
attend the Annual Meeting, we recommend that you also submit your proxy or
voting instructions as described below so that your vote will be counted if
you later decide not to attend the meeting.
To vote by proxy, you may vote via the Internet, by telephone or by mailing
a completed proxy card. Instructions for voting via the Internet or by
telephone are set forth on the enclosed proxy card. To vote by mailing a
proxy card, mark, date, sign, and mail the enclosed proxy card in the
postage-paid envelope. Granting a proxy will not affect your right to vote
your shares if you attend the Annual Meeting and want to vote in person; by
voting in person you will revoke your proxy. You may also revoke your proxy
at any time before the vote at the meeting by providing ENGlobal's
Corporate Secretary written notice of your revocation or by submitting a
later-dated proxy. If you return your proxy but do not mark your voting
preferences, Michael L. Burrow and William A. Coskey, the proxy holders,
will vote your shares:
o FOR the election of each of the nominees for director;
o FOR the approval of an amendment to the Company's 1998 Incentive Plan
to increase the number of shares reserved for issuance thereunder from
2,200,000 to 2,650,000; and
o As they determine approval with respect to any other matters that may
properly come before the meeting.
If your shares are registered in the name of a bank or brokerage firm you
will receive instructions from your holder of record that must be followed
in order for the record holder to vote the shares per your instructions.
Many banks and brokerage firms have a process for their beneficial holders
to provide instructions over the phone or via the Internet. If Internet or
telephone voting is unavailable from your bank or brokerage firm, please
complete and return the enclosed voting instruction card in the addressed,
postage paid envelope provided.
Q: Can I change my vote?
A: You may change your vote at any time prior to the vote at the Annual
Meeting. If you are the stockholder of record, you may change your vote by
granting a new proxy bearing a later date (which automatically revokes the
earlier proxy), by providing a written notice of revocation to ENGlobal's
Corporate Secretary prior to your shares being voted, or by attending the
Annual Meeting and voting in person. Attendance at the meeting will not
cause your previously granted proxy to be revoked unless you specifically
so request. For shares you hold beneficially in street name, you may change
your vote by submitting new voting instructions to your bank or brokerage
firm, or, if you have obtained a legal proxy from your bank or brokerage
firm giving you the right to vote your shares, by attending the meeting and
voting in person.
4
Q: What constitutes a quorum?
A: On the record date, ENGlobal had 23,500,842 shares of Common Stock issued
and outstanding. In order for the Annual Meeting to be properly held, a
majority of the outstanding shares (a quorum) outstanding on the record
date, or 11,750,422 shares, must be present at the meeting or represented
by proxy. Both abstentions and broker non-votes are counted for the purpose
of determining the presence of a quorum.
Q: How are votes counted?
A: In the election of directors, you may vote "FOR" all of the nominees or
your vote may be "WITHHELD" with respect to one or more of the nominees. If
your vote is withheld with respect to any nominee, your shares will be
counted for purposes of establishing a quorum, but will have no effect on
the election of that nominee.
For the proposal to amend the 1998 Incentive Plan and any other proposals
that properly come before the meeting, you may vote "FOR," "AGAINST" or
"ABSTAIN." If you "ABSTAIN," your shares will be counted for purposes of
establishing a quorum, and the abstention will have the same effect as a
vote "AGAINST." If you provide specific instructions with regard to certain
items, your shares will be voted as you instruct on such items. If you sign
your proxy card or voting instruction card without giving specific
instructions, your shares will be voted in accordance with the
recommendations of the Board ("FOR" all of ENGlobal's nominees to the
Board, "FOR" approval of the amendment to the 1998 Incentive Plan, and in
the discretion of the proxy holders on any other matters that properly come
before the meeting).
Q: What vote is required to approve each proposal?
A: Proposal One: The five persons receiving the highest number of "FOR" votes
at the Annual Meeting will be elected directors. A properly executed proxy
marked "WITHHELD" with respect to the election of one or more directors
will not be voted with respect to the director or directors indicated,
although it will be counted for purposes of determining whether there is a
quorum. Abstentions and broker non-votes will have no legal effect on the
election of directors.
Proposal Two: The affirmative vote of a majority of the votes cast in
person or by proxy at the Annual Meeting is required to approve the
amendment to the 1998 Incentive Plan.
Q: Can I vote on other matters?
A: The matters presented at an Annual Meeting are limited to those properly
presented by the Board and those properly presented by stockholders. We
have not received notice from any stockholder as to any matter to come
before the Annual Meeting other than as set forth herein. If any other
matter is presented at the Annual Meeting, your signed proxy gives Michael
L. Burrow and William A. Coskey, the proxy holders, authority to vote your
shares.
Q: How does the Board recommend I vote on the proposals?
A: Unless you give other instructions on your proxy card, Michael L. Burrow
and William A. Coskey, the proxy holders, will vote in accordance with the
recommendations of the Board. The Board recommends a vote FOR:
o the election of the nominated slate of directors; and
o the approval of an amendment to the Company's 1998 Incentive Plan
increasing the number of shares reserved for issuance thereunder from
2,200,000 to 2,650,000.
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by our Board of Directors, or if
no recommendation is given, in their own discretion.
5
Q: What is the deadline for stockholder proposals for next year's Annual
Meeting?
A: For a stockholder proposal to be considered for inclusion in ENGlobal's
proxy statement for the 2006 Annual Meeting, the written proposal must be
received by the Secretary of ENGlobal at our principal executive offices no
later than January 2, 2006. The proposal will need to comply with
Securities and Exchange Commission regulations under Rule 14a-8 of the
Securities Exchange Act of 1934 (the "Exchange Act") regarding the
inclusion of stockholder proposals in company-sponsored proxy materials.
If you intend to present a proposal at our 2006 Annual Meeting, but you do
not intend to have it included in our 2006 proxy statement, your proposal
must be delivered to the Secretary of ENGlobal no later than March 16,
2006. If the date of our 2006 Annual Meeting is more than 30 calendar days
before or after the date of our 2005 Annual Meeting, your proposal must be
delivered by the close of business on the tenth day following the day we
publicly announce the date of the 2006 Annual Meeting.
Q: Who can help answer my questions?
A: If you have any questions about the Annual Meeting, how to vote or revoke
your proxy, or if you need additional copies of this Proxy Statement or
voting materials, you should contact Natalie Hairston, Chief Governance
Officer and Corporate Secretary, 600 Century Plaza Drive, Suite 140,
Houston, Texas 77073, (281) 821-3200.
Q: How can I receive future stockholder communications electronically?
A: If you received your annual meeting materials by mail, we encourage you to
conserve natural resources, as well as significantly reduce your company's
printing and mailing costs, by signing up to receive your stockholder
communications via e-mail. With electronic delivery, we will notify you via
e-mail as soon as the annual report and the proxy statement are available
on the Internet, and you can easily submit your stockholder votes online.
Electronic delivery can also help reduce the number of bulky documents in
your personal files and eliminate duplicate mailings. To sign up for
electronic delivery, follow the instructions on your proxy card.
Q: How do I get copies of the exhibits filed with ENGlobal's Form 10-K?
A: A copy of ENGlobal's Annual Report for 2004, which contains ENGlobal's Form
10-K and consolidated financial statements, is being delivered to you with
this Proxy Statement. ENGlobal will provide to any stockholder as of the
record date, who so specifically requests in writing, copies of the
exhibits filed with ENGlobal's Form 10-K for a reasonable fee. Requests for
such copies should be directed to Corporate Secretary, ENGlobal
Corporation, 600 Century Plaza Drive, Suite 140, Houston, Texas 77073. In
addition, copies of all exhibits filed electronically by ENGlobal may be
reviewed and printed from the SEC's website at: www.sec.gov.
6
PROPOSAL ONE:
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, you and the other stockholders will elect five
individuals to serve as directors until the next annual meeting of stockholders
to be held in 2006, until their successors are duly elected or appointed or
until their death, resignation, or removal. Each of the nominees is currently a
member of the Board.
The individuals named as proxies will vote the enclosed proxy for the
election of all nominees, unless you direct them to withhold your votes. If any
nominee becomes unable to serve as a director before the Annual Meeting, an
event that is not presently anticipated, discretionary authority may be
exercised by the persons named as proxies to vote for substitute nominees
proposed by the Board.
There are no arrangements or understandings between ENGlobal and any person
pursuant to which such person has been elected as director.
The nominees for director, each of whom has consented to serve, if elected,
are as follows:
Director
Name of Nominee Since Age Principal Occupation During the Last 5 Years
--------------- ----- --- --------------------------------------------
Michael L. Burrow, P.E. 2001 57 Mr. Burrow has served as Chairman of the Board, Chief
Chairman and Chief Executive Officer, and director of the Company since
Executive Officer ENGlobal (f/k/a IDS Engineering, Inc.) merged with
Petrocon (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 on the boards of
Partnership of Southeast Texas and Texas Workforce
Commission.
William A. Coskey, P.E. 1994 52 Mr. Coskey serves as President and Director of ENGlobal.
President Mr. Coskey founded ENGlobal in 1985 and, until the
Merger in December 2001, served as Chairman of the
Board, Chief Executive Officer and President of the
Company. 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.
7
Director
Name of Nominee Since Age Principal Occupation During the Last 5 Years
--------------- ----- --- --------------------------------------------
David W. Gent, P.E. 1994 52 Mr. Gent has served as a Director of ENGlobal since June
1994, is Chairman of the Nominating and Corporate
Governance Committee and is a member of the Audit and
Compensation Committees. Since 1991, Mr. Gent has held
various positions for Bray International, Inc., an
industrial flow control manufacturer located in Houston,
Texas. He is currently serving as Vice President of Bray
International and is responsible for overseeing
worldwide production, engineering, information services,
and quality control. Mr. Gent, an honors graduate,
received a Bachelor of Science in Electrical Engineering
from Texas A&M University in 1975 and an MBA from
Houston Baptist University. He is a Registered
Professional Engineer and a senior member of the
Instrument Society of America. Mr. Gent serves on the
Texas A&M University Electrical Engineering Department
Advisory Council, chairs the Bray International, Inc.
401(k) committee and is the Bray representative on
various councils including the Open DeviceNet Vendors
Association and American Water Works Association. He
also holds several patents in the field of industrial
flow controls.
Randall B. Hale 2001 42 Mr. Hale has served as a Director of ENGlobal since the
Merger in December 2001, is Chairman of the Audit
Committee and a member of the Compensation and
Nominating and Corporate Governance Committees. Mr. Hale
was appointed Chairman of ConGlobal Industries, Inc., a
provider of container and chassis depot services, in
September 2004. Prior to joining ConGlobal, Mr. Hale was
the President and Chief Executive Officer of Container
Care International, Inc., a depot services company.
Previously, Mr. Hale was a Vice President of Equus
Capital Management Corporation, a manager of private
equity investment funds ("Equus"), from November 1992 to
February 2003, and a Director of Equus from February
1996 to February 2003. Mr. Hale received a BBA in
Business Administration from Texas A&M University in
1985 and is a certified public accountant.
David C. Roussel 2001 55 Mr. Roussel has served as a Director of the Company
since the Merger in December 2001, is Chairman of the
Compensation Committee and a member of the Audit and
Nominating and Corporate Governance Committees. Since
April 2002, Mr. Roussel has been a management consultant
with Randall & Dewey, Inc., a leading mergers and
acquisitions advisor in the global oil and gas
industries. Randall & Dewey, Inc. is a division of
Jefferies Group Inc, a global investment bank and
institutional securities firm. From 1998 to 2002, Mr.
Roussel's primary occupation was independent business
consultant. Mr. Roussel was an officer, director and
sole stockholder 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.
8
Recommendation of the Board
The Board recommends that stockholders vote FOR each of the nominees to
serve as directors of ENGlobal.
Executive Officers
Set forth below is a brief description of the business experience of all
executive officers of ENGlobal Corporation. The biographies of Messrs. Burrow
and Coskey, Chairman and Chief Executive Officer and President, respectively,
are listed above.
Name of Executive Officer Position Age Principal Occupation During the Last 5 Years
------------------------- -------- --- --------------------------------------------
Robert W. Raiford Chief Financial 59 Mr. Raiford has served Chief Financial Officer and
Officer and Treasurer of ENGlobal since the Merger in December
Treasurer 2001. Prior to joining ENGlobal, Mr. Raiford held
numerous officer positions at Petrocon and served as a
director of various Petrocon subsidiaries. Mr. Raiford
received an MBA in 1974 and a BBA in Business Management
in 1968 from Lamar University.
Michael M. Patton, P.E. Senior Vice 52 Mr. Patton joined ENGlobal through one of its
President, subsidiaries in 1999, and was appointed Senior Vice
Business President of Business Development of ENGlobal in 2002.
Development Mr. Patton has served as President of the Western
Division of ENGlobal Engineering, Inc. since November
2004 and as the Sponsor for ENGlobal Design Group, Inc.
since January 2004. Mr. Patton is a Registered
Professional Engineer and earned a Bachelor of Science
degree in Electrical Engineering from University of
Oklahoma in 1975.
Remuneration of Directors
Under the Company's 1998 Incentive Plan, directors who are not employed by
the Company, Messrs. Gent, Hale, and Roussel, ("Non-employee Directors") are
eligible to receive non-statutory stock options. In 2004, in recognition of the
services provided by its Board of Directors, each Non-employee Director received
options to acquire 20,000 shares of the Company's Common Stock at an exercise
price equal to fair market value of the underlying Common Stock on the date of
the grant. Beginning in June 2005, Non-employee Directors will receive options
to purchase 50,000 shares of the Company's common stock for their Board service
under the same terms. Stock options awarded to Non-employee 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.
Since 2003, the Company's Non-employee Directors have each been granted options
to acquire shares of the Company's Common Stock in recognition of their service
as members of the Board of Directors. Each Non-employee Director received stock
options as represented by the table below:
Board Date Date Fully Amount Exercise Expiration
Service Granted Vested of Options Price Date
------- ------- ------ ---------- ----- ----
2002-2003 April 1, 2003 April 1, 2003 20,000 $1.87 April 1, 2013
2003-2004 June 6, 2003 June 6, 2004 20,000 $2.32 June 6, 2013
2004-2005 June 17, 2004 June 17, 2005 20,000 $1.81 June 17, 2014
In March 2003, ENGlobal implemented a standard compensation arrangement for
its Non-employee Directors, including providing a retainer in the amount of
$16,000 per year, payable on a quarterly basis. In December 2004, the
Compensation Committee recommended that, over the next two years, the Company
9
increase the retainers to the three Non-employee Directors and retain the
Chairman of the Audit Committee at a slightly higher rate, due to the extensive
time and effort required of that position. Accordingly, ENGlobal increased the
retainer for each independent director to $24,000 a year and approved a retainer
of $26,000 a year for the Audit Committee Chairman, effective January 1, 2005.
The payments will continue to be payable on a quarterly basis. The Company
continues to reimburse its Non-employee Directors for out-of-pocket expenses
incurred to attend Board and committee meetings. Non-employee directors of the
Company do not receive additional compensation for each Board meeting attended,
nor do they receive additional compensation for each committee meeting attended.
MEETINGS OF THE BOARD AND ITS COMMITTEES
Board Meetings
During 2004, ENGlobal held seven Board meetings. The Board has several
committees, including the Audit Committee, the Compensation Committee, and the
Nominating and Corporate Governance Committee. Each director attended at least
75% of all Board and applicable Committee meetings. Directors are encouraged to
attend Annual Meetings of ENGlobal stockholders. All of the directors attended
the last Annual Meeting of stockholders, except Messrs. Gent and Hale.
Audit Committee
The Audit Committee assists the Board in fulfilling its responsibilities
for general oversight of the integrity of ENGlobal's financial statements,
ENGlobal's compliance with legal and regulatory requirements, the independent
auditors' qualifications and independence, the performance of ENGlobal's
internal audit function and independent auditors, and risk assessment and risk
management. Among other matters, the Audit Committee (1) prepares the Audit
Committee report for inclusion in the annual proxy statement; (2) annually
reviews the Audit Committee charter and the Audit Committee's performance; (3)
appoints, evaluates and determines the compensation of ENGlobal's independent
auditors; (4) reviews and approves the scope of the annual audit, the audit fee
and the financial statements; (5) reviews ENGlobal's disclosure controls and
procedures, internal controls, information security policies, internal audit
function, and corporate policies with respect to financial information and
earnings guidance; (6) oversees investigations into complaints concerning
financial matters; and (7) reviews other risks that may have a significant
impact on ENGlobal's financial statements. The Audit Committee works closely
with management as well as ENGlobal's independent auditors. The Audit Committee
has the authority to obtain advice and assistance from, and receive appropriate
funding from ENGlobal for, outside legal, accounting or other advisors as the
Audit Committee deems necessary to carry out its duties.
The Audit Committee works closely with management as well as our
independent auditors. The Audit Committee has the authority to obtain advice and
assistance from, and receive appropriate funding from us for, outside legal,
accounting or other advisors as the Audit Committee deems necessary to carry out
its duties.
Our Board of Directors has adopted an Audit Committee Charter meeting
applicable standards of the SEC and AMEX. During fiscal year 2004, members of
the Audit Committee included Messrs. Hale (Chairman), Gent, and Roussel, all of
whom qualify as "independent directors" as defined by the AMEX listing standards
and SEC rules as currently in effect. The Board of Directors has determined that
Mr. Hale is qualified as an Audit Committee "financial expert" under Item 401(h)
of Regulation S-K under the Exchange Act, and has the requisite accounting or
related financial expertise required by applicable AMEX rules. The Audit
Committee met on four occasions in 2004.
10
A copy of our Audit Committee Charter is available on the "Investor
Relations" section of our website at www.englobal.com.
Compensation Committee
The Compensation Committee recommends cash and non-cash compensation for
ENGlobal's Chief Executive Officer, President and Chief Financial Officer to the
full Board and reviews and recommends stock options for award by ENGlobal to its
directors, officers, employees, and consultants. The Compensation Committee is
also responsible for developing ENGlobal's executive compensation program. The
Compensation Committee operates pursuant to a written charter, a copy of which
is available on the "Investor Relations" section of our website. The
Compensation Committee monitors and grants awards according to ENGlobal's
executive compensation program and administers ENGlobal's 1998 Incentive Plan
and ENGlobal's 2004 Employee Stock Purchase Plan. No changes were made to
compensation of the Company's executive officers in 2004. Employment agreements
have been entered into with a number of its executive officers. See "Executive
Compensation - Employment Agreements." During fiscal year 2004, members of the
Compensation Committee, which met on five occasions, included Messrs. Roussel
(Chairman), Gent, and Hale, all of whom qualify as "independent" directors under
applicable AMEX and SEC rules.
The Nominating and Corporate Governance Committee
The Board established the Nominating and Corporate Governance Committee in
November 2002 to provide oversight on the broad range of issues surrounding the
composition and operation of the Board, including identifying individuals
qualified to become board members, recommending to the Board director nominees
for the next Annual Meeting, and recommending to the Board and overseeing the
implementation of corporate governance guidelines. The Nominating and Corporate
Governance Committee also provides assistance to the Board in the areas of
committee membership selection, evaluation of the effectiveness of the Board and
management, and ongoing consideration of developments in corporate governance
practices. The Nominating and Corporate Governance Committee operates pursuant
to a written charter, a copy of which is available on the "Investor Relations"
section of our website. The Nominating and Corporate Governance Committee's goal
is to assure that the composition, practices, and operation of the Board
contribute to value creation for and effective representation of ENGlobal's
stockholders. During 2004, the Nominating and Corporate Governance Committee
consisted of Messrs. Gent (Chairman), Hale, and Roussel and met on one occasion.
The Board has determined that each of the members of the Nominating and
Corporate Governance Committees is "independent" under applicable AMEX and SEC
rules.
CORPORATE GOVERNANCE
We believe that good corporate governance helps to ensure that the Company
is managed for the long-term benefit of our stockholders. During the past year,
we continued to review our corporate governance policies and practices, the new
and proposed corporate governance rules and regulations of the SEC and the
listing standards of AMEX, the stock exchange on which our shares of Common
Stock are traded.
Based on this review, we reviewed our Audit Committee and Compensation
Committee charters and Corporate Code of Conduct and other policies and
procedures required by applicable law or AMEX listing standards. You can access
and print these documents from the "Investor Relations" section of our website
at www.englobal.com or you can request copies at no cost by writing us at
ENGlobal Corporation 600 Century Plaza Drive, Suite 140, Houston, TX 77073,
Attention: Investor Relations.
11
Corporate Code of Conduct
The Company has adopted a Corporate Code of Conduct that applies to all of
the Company's directors, officers and employees in accordance with AMEX. The
purpose and role of this code is to focus our directors and employees on areas
of ethical risk, provide guidance to help them recognize and deal with ethical
issues, provide mechanisms to report unethical or unlawful conduct and to help
enhance and formalize our culture of integrity, honesty and accountability. The
Company will post on the "Investor Relations" section of its website at
www.englobal.com any amendments to this code, as well as any waivers of any
provision of this code made for the benefit of the Company's senior executive
officers or directors.
The Company also has a Code of Ethics applicable to the CEO and certain
senior financial officers of the Company that complies with Item 406 of
Regulation S-K of the Securities Exchange Act of 1934 and with applicable NASDAQ
rules. The Company intends to report waivers of the Code of Ethics granted to
the CEO or certain senior financial officers to the SEC.
Director Independence
The Board has determined that no director has a relationship, which in the
opinion of the Board, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director and that all directors,
except Messrs. Burrow and Coskey, meet the criteria for independence under the
AMEX listing standards. The Board has also determined that the members of each
of its committees, including the Audit Committee, meet the criteria for
membership applicable to each committee under the AMEX listing standards and
applicable SEC rules and regulations.
Executive Sessions; Lead Director
In 2004, the Company held one executive session of its non-management
directors. Any non-management director can request that an executive session be
scheduled. In 2004, Mr. Gent was re-elected as the Company's Lead Non-employee
Director.
Consideration of Director Nominees
Stockholder Nominees
The independent directors will carefully consider all qualified director
candidates, whether such candidates are recommended by a stockholder or
otherwise. Any stockholders wishing to recommend a director candidate for the
2006 Annual Meeting of Stockholders should submit their nomination before
January 2, 2006 to ENGlobal Corporation, 600 Century Plaza Drive, Suite 140,
Houston, TX 77073, Attention: Corporate Secretary. Nominations should include
the following information in order to facilitate the independent directors'
review and consideration:
o The name, telephone number and address of the recommending
stockholder;
o The name, age, business address and residence of the director
candidate;
o The principal occupation or employment of the director candidate for
the past five years;
o A description of the director candidate's qualifications to serve as a
director, including financial expertise and why the candidate
qualifies or does not qualify as "independent" under the AMEX listing
standards;
o The number of shares of the Company's Common Stock beneficially owned
by the director candidate, if any;
12
o A description of any arrangements or understandings between the
recommending stockholder and the director candidate, if any, or any
other person pursuant to which the recommending stockholder is making
the recommendation; and
o Whether or not the recommending stockholder and the director candidate
consent to being named in the Company's proxy statement with respect
to disclosures regarding the nomination process.
No candidate for election to our Board has been recommended within the
preceding year by a beneficial owner of 5% or more of our Common Stock.
Director Qualifications
The Nominating and Corporate Governance Committee establishes criteria for
selecting new members of the Board. The Board as a whole should reflect a range
of skills, knowledge and experience in areas of importance to the Company.
Directors must be committed to upholding the highest standards of personal and
professional integrity and to representing the interests of all stockholders,
not particular stockholder constituencies. The Nominating and Corporate
Governance Committee places no specific restrictions on the number of terms
directors may serve or other boards on which a director may sit, but directors
must possess sufficient time and energy to carry out their duties effectively. A
majority of directors must be "independent" under the AMEX listing standards. No
director will qualify as "independent" unless the Board affirmatively determines
that the director has no material relationship with the Company (either directly
or as a partner, stockholder or officer of an organization that has a
relationship with the Company). In determining whether a director is
independent, the Board will broadly consider all relevant facts and
circumstances.
Identifying and Evaluating Nominees for Directors
The Nominating and Corporate Governance Committee utilizes a variety of
methods for identifying and evaluating nominees for director. The Nominating and
Corporate Governance Committee regularly assesses the appropriate size of the
Board, and whether any vacancies on the Board are expected due to retirement or
otherwise. If vacancies are anticipated, or otherwise arise, the Nominating and
Corporate Governance Committee considers various potential candidates for
director. Candidates may come to the attention of the Nominating and Corporate
Governance Committee through current Board members, stockholders or other
persons. These candidates are evaluated at regular or special meetings of the
Nominating and Corporate Governance Committee, and may be considered at any
point during the year. As described above, the Nominating and Corporate
Governance Committee considers properly submitted stockholder nominations for
candidates for the Board. In evaluating nominations, the Nominating and
Governance Committee seeks to achieve a balance of knowledge, experience and
capability on the Board.
Communications with the Board
Stockholders may communicate with the Board, Board committees, Non-employee
Directors as a group and individual directors by submitting their communications
in writing to ENGlobal Corporation, 600 Century Plaza Drive, Suite 140, Houston,
TX 77073, Attention: Corporate Secretary. Any communication must contain:
o a representation that the stockholder is a holder of record of our
capital stock;
o the name and address, as they appear on our books, of the stockholder
sending such communication; and
o the number of shares of our capital stock that are beneficially owned
by such stockholder.
13
ENGlobal's Corporate Secretary will distribute such communications to the
intended recipient upon receipt, unless such communication is unduly hostile,
threatening, illegal or similarly inappropriate, in which case the Corporate
Secretary has the authority to discard the communication or to take appropriate
legal action regarding such communication.
REPORT OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
The information contained in this Report of the Audit Committee shall not
be deemed to be "soliciting material" or to be "filed" or incorporated by
reference in future filings with the 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.
In accordance with its written charter, which was approved in its current
form by the Board of Directors on March 25, 2004, the Audit Committee assists
the Board in, among other things, oversight of our financial reporting process,
including the effectiveness of our internal accounting and financial controls
and procedures, and controls over the accounting, auditing, and financial
reporting practices. A copy of the Audit Committee charter was filed with our
Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and is
available on our website at www.englobal.com.
Our Board of Directors has determined that all three members of the
Committee are independent based upon the standards adopted by the Board, which
incorporate the independence requirements under applicable laws, rules and
regulations.
Management is responsible for the financial reporting process, the
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, the system of
internal controls, and procedures designed to insure compliance with accounting
standards and applicable laws and regulations. Our independent auditors are
responsible for auditing the financial statements. The Audit Committee's
responsibility is to monitor and review these processes and procedures. The
members of the Audit Committee are not professionally engaged in the practice of
accounting or auditing and we are not professionals in those fields. The Audit
Committee relies, without independent verification, on the information provided
to us and on the representations made by management that the financial
statements have been prepared with integrity and objectivity and on the
representations of management and the opinion of the independent auditors that
such financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America.
During fiscal 2004, the Audit Committee had five meetings. The Audit
Committee's regular meetings were conducted so as to encourage communication
among the members of the Audit Committee, management, the internal auditors, and
our independent auditors, Hein & Associates, LLP. Among other things, the Audit
Committee discussed with our internal and independent auditors the overall scope
and plans for their respective audits. The Audit Committee separately met with
each of the internal and independent auditors, with and without management, to
discuss the results of their examinations and their observations and
recommendations regarding our internal controls. The Audit Committee also
discussed with our independent auditors all matters required by generally
accepted auditing standards, including those described in Statement on Auditing
Standards No. 61, as amended, "Communication with Audit Committees."
The Audit Committee reviewed and discussed our audited consolidated
financial statements as of and for the year ended December 31, 2004 with
management, the internal auditors, and our independent auditors. Management's
discussions with the Audit Committee included a review of critical accounting
policies.
14
The Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between us and our auditors that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees." The Audit
Committee discussed with the auditors any relationships that may have an impact
on their objectivity and independence and satisfied itself as to the auditors'
independence. The Audit Committee has reviewed and approved the amount of fees
paid to Hein & Associates for audit and non-audit services. The Audit Committee
concluded that the provision of services by Hein & Associates is compatible with
the maintenance of Hein & Associates' independence.
At all of its meetings during 2004, the Audit Committee met with members of
senior management and the independent auditors to review the certifications
provided by the Chief Executive Officer and Chief Financial Officer under the
Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC and the overall
certification process. At these meetings, company officers reviewed each of the
Sarbanes-Oxley certification requirements concerning internal control over
financial reporting and any fraud, whether or not material, involving management
or other employees with a significant role in internal control over financial
reporting.
Based on the above-mentioned review and discussions with management, the
internal auditors, and the independent auditors, and subject to the limitations
on our role and responsibilities described above and in the Audit Committee
Charter, the Audit Committee recommended to the Board of Directors that our
audited consolidated financial statements be included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2004, for filing with the SEC.
Audit Committee of the Board of Directors,
Randall B. Hale, Chairman
David W. Gent, P.E.
David C. Roussel
March 22, 2005
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The information contained in this Compensation Committee Report shall not
be deemed to be "soliciting material" or to be "filed" or incorporated by
reference in future filings with the 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 of the Board determined the compensation of the
Chief Executive Officer, President, and Chief Financial Officer for the years in
question. The Compensation Committee has furnished the following report on
executive compensation in connection with the Annual Meeting:
Compensation Philosophy
As members of the Compensation Committee, it is our duty to administer the
executive compensation program for ENGlobal. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of ENGlobal, evaluating the performance of such executive officers in
meeting such goals and making recommendations to the Board with regard to
executive compensation. ENGlobal's compensation philosophy is to ensure that
executive compensation be directly linked to continuous improvements in
15
corporate performance, achievement of specific operational, financial and
strategic objectives, and increases in stockholder value. The Compensation
Committee regularly reviews the compensation packages of ENGlobal's executive
officers, taking into account factors which it considers relevant, such as
business conditions within and outside the industry, ENGlobal's financial
performance, the market composition for executives of similar background and
experience, and the performance of the executive officer under consideration.
The particular elements of ENGlobal's compensation programs for executive
officers are described below.
Compensation Structure
The base compensation for the Named Executive Officers is intended to be
competitive with that paid in comparable situated industries, taking into
account the scope of responsibilities. The goals of the Compensation Committee
in establishing ENGlobal's executive compensation program are:
o to compensate the executive officers of ENGlobal fairly for their
contributions to ENGlobal's short, medium and long-term performance;
and
o to allow ENGlobal to attract, motivate and retain the management
personnel necessary to ENGlobal's success by providing an executive
compensation program comparable to that offered by companies with
which ENGlobal competes for management personnel.
The elements of ENGlobal's executive compensation program are annual base
salaries, annual bonuses and equity incentives. The Compensation Committee bases
its decisions on the scope of the executive's responsibilities, a subjective
evaluation of the executive's performance and the length of time the executive
has been in the position.
The base salary level for each officer is determined by taking into account
individual experience, individual performance, individual potential, cost of
living consideration and specific issues particular to ENGlobal. Base salary
level for executive officers of other publicly owned, similar sized engineering
companies are taken into consideration in setting an appropriate base salary for
the executive officers of ENGlobal. The base level established for each
executive officer is considered by the Compensation Committee to be competitive
and reasonable.
The Compensation Committee monitors the base salary levels and the various
incentives of the executive officers of ENGlobal to ensure that overall
compensation is consistent with ENGlobal's objectives and remains competitive
within the area of ENGlobal's operations. In setting the goals and measuring an
executive's performance against those goals, ENGlobal considers the performance
of (i) its competitors, (ii) its acquisitions, and (iii) the executives who
manage those acquisitions, as well as general economic and market conditions.
None of the factors included in ENGlobal's strategic and business goals are
assigned a specific weight. Instead, the Compensation Committee recognizes that
the relative importance of these factors may change in order to adapt ENGlobal's
operations to specific business challenges and to reflect changing economic and
marketplace conditions.
Incentive Compensation
The annual compensation of the executive officers of ENGlobal consists of a
base salary and an annual bonus. The annual bonus awarded to the executive
officers pursuant to the Company's Executive Level Incentive Plan is based on
the financial performance of the company. The Company contributes $100,000 to
the bonus pool if the Company's earnings per share equals or exceeds earnings
per share in the immediately preceding calendar year. An additional amount,
based on a pre-determined calculation, will be added to the bonus pool if the
Company's earnings per share is more than 20% higher than earnings per share in
16
the immediately preceding calendar year. The amount of the annual bonus is
divided 40%, 30%, and 30% among the CEO, President, and Chief Financial Officer,
respectively. The maximum allowable bonus is equal to the executive's annual
salary. A copy of the Executive Level Incentive Plan was previously filed with
the Securities and Exchange Commission as Exhibit 10.1 to the Company's Form 8-K
dated December 21, 2004.
Stock Option Plan
Stock options are the primary source of long-term incentive compensation
for the executive officers and directors of ENGlobal. Each of the executive
officers and directors of ENGlobal are eligible to participate in the 1998
Incentive Plan. As of December 31, 2004, there were 1,577,184 options
outstanding under the 1998 Incentive Plan, 410,108 of which are held by
executive officers of ENGlobal. During 2004, 140,000 stock options were granted
to executive officers.
Compensation of the Chief Executive Officer
In reviewing the 2004 compensation of Mr. Burrow, the Chief Executive
Officer of ENGlobal, the Compensation Committee undertook the same evaluation
set forth above with respect to all executive officers. In addition, the
Compensation Committee reviewed Mr. Burrow's compensation history, executive
compensation survey data and comparative performance information. Upon
recommendation by the Compensation Committee, the Board of Directors of ENGlobal
set Mr. Burrow's salary for 2004 at $240,000, effective January 1, 2004. In
addition, in recognition of both Mr. Burrow's and ENGlobal's performance in 2004
and based on the criteria discussed above with respect to incentive
compensation, the Compensation Committee recommended and the Board of Directors
approved a bonus of $2,245 for Mr. Burrow for 2004. The Compensation Committee
believes that Mr. Burrow's total compensation is reasonable and competitive
based on comparative performance information and the overall performance of
ENGlobal.
Executive Compensation Deductibility
ENGlobal intends that amounts paid under ENGlobal's compensation plans
generally will be deductible compensation expenses. The Compensation Committee
does not currently anticipate that the amount of compensation paid to executive
officers will exceed the amounts specified as deductible according to Section
162(m) of the Internal Revenue Code of 1986, as amended, (the "Tax Code")..
Compensation Committee Interlocks and Insider Participation
No executive officer or director of ENGlobal serves as an executive
officer, director, or member of a compensation committee of any other entity,
for which an executive officer, director, or member of such entity is a member
of the Board or the Compensation Committee of the Board. There are no other
interlocks.
Compensation Committee of the Board of Directors,
David C. Roussel, Chairman
David W. Gent
Randall B. Hale
March 22, 2005
17
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to Mr. Burrow, the
Company's Chief Executive Officer, and the only other executive officers of the
Company whose aggregate cash compensation exceeded $100,000 (the "Named
Executive Officers") during the three years ended December 31, 2004.
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options/SARs Compensation
Principal Position Year ($) ($)(1) ($)(2) (#)(3) ($)(4)
------------------ ---- --- ------ ------ ------ ------
Michael L. Burrow, P.E. 2004 239,713 22,245 9,000 100,000 4,356
Chairman of the Board and 2003 231,616 11,540 9,000 -- --
Chief Executive Officer 2002 239,941 9,490 8,250 -- --
William A. Coskey, P.E. 2004 186,461 16,730 9,000 -- 3,137
President and Director 2003 180,474 8,895 9,278 -- 4,443
2002 185,007 7,315 9,000 -- 3,391
Robert W. Raiford 2004 166,110 16,590 9,000 190,000 2,167
Chief Financial Officer and 2003 171,249 2,605 2,717 -- --
Treasurer 2002 170,296 6,722 8,250 -- --
Michael M. Patton, P.E. (5) 2004 149,868 11,773 9,000 40,000 3,457
Senior Vice President - 2003 134,896 6,732 9,515 -- 4,338
Business Development 2002 137,264 8,853 8,942 100,000 4,652
----------
(1) Consists of bonuses paid pursuant to the Incentive Bonus Plan, described in
"Incentive Bonus Plan" below.
(2) Consists of automobile allowance.
(3) Consists of Alliance option grants.
(4) Consists of matching contribution made on behalf of the Named Executive
Officer pursuant to the ENGlobal Corporation 401(k) plan, described in
"401(k) Plans" below. Some of these amounts were inadvertently omitted from
proxy statements filed in previous years.
(5) Mr. Patton was appointed an Executive Officer of the Company in 2002. Prior
to 2002, Mr. Patton served as an officer of an ENGlobal subsidiary.
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value
Number of % of Total at Assumed Annual Rates of
Securities Options/SARs Exercise Stock Price Appreciation
Underlying Granted to of Base for Option Term (1)
Options/SARs Employees in Price -------------------------
Name Granted (#) Fiscal Year ($/Sh) Expiration Date 5% ($) 10% ($)
---- ----------- ----------- ------ --------------- ------ -------
Michael L. Burrow...... 100,000 26% $ 2.05 March 25, 2014 $ 128,923 $ 326,717
William A. Coskey...... -- -- -- -- -- --
Robert W. Raiford(2)... -- -- -- -- -- --
Michael M. Patton...... 40,000 10% $ 2.05 March 25, 2014 $ 51,569 $ 130,687
----------
(1) These columns represent hypothetical future values of the stock obtainable
upon exercise of the options net of the option's exercise price, assuming
that the market price of the Company's common stock appreciates at a five
and ten percent compound annual rate over the ten year term of the options.
The five and ten percent rates of stock price appreciation are presented as
examples pursuant to the proxy rules and do not necessarily reflect
management's assessment of the Company's future stock performance.
(2) Does not include 190,000 Alliance stock options issued to Mr. Raiford on
April 16, 2004.
18
Aggregated Option Exercises and Year-End Option Value Table
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 AMEX on
December 31, 2004 ($3.10 per share). During 2004, the Company made a grant of
100,000 stock options to Mr. Burrow, and a grant of 40,000 stock options to Mr.
Patton. No Named Executive Officer exercised options during 2004.
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 2004 December 31, 2004(1)
------------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
--------------------- ------------------------------- ---------------------------
Michael L. Burrow..... 114,042 60,000 $ 72,050 $ 63,000
William A. Coskey..... -- -- -- --
Robert W. Raiford..... 220,027 16,039 $ 30,940 --
Michael M. Patton..... 60,000 24,000 $ 53,800 $ 25,200
----------
(1) Year-end value is determined by subtracting the exercise price from the
fair market value of $3.10 per share (the closing price for our Common
Stock as reported by AMEX on December 31, 2004) and multiplying the
remainder by the number of underlying shares of Common Stock.
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 has entered into employment agreements with the Named Executive
Officers and with certain other officers of the Company or its subsidiaries. The
employment agreements are for three or four-year terms which expire between
December 2004 and June 2007 unless extended by the Company pursuant to certain
terms in the agreement. In October 2004, the Company extended certain agreements
for an additional one-year period. 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, and
restricted stock awards as the Board of Directors may, in its discretion,
approve. At December 31, 2004, the aggregate commitment for future salaries
under employment agreements between the Company and the Named Executive
Officers, excluding bonuses, was approximately $3 million.
Some agreements also provide for 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 are generally maintained by the Company on behalf of the executive 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, 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.
19
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 (but not on the expiration of those agreements), 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 Named Executive Officers 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.
1998 Incentive Plan
The Company's 1998 Incentive Plan provides for the grant to employees,
including officers of ENGlobal, of 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 Company is authorized to issue a total of 2,200,000 shares of
Common Stock under the 1998 Incentive Plan. As of December 31, 2004, 1,577,184
of the 2,200,000 authorized options had been issued and remained outstanding
under the Plan. For additional information regarding the 1998 Incentive Plan,
see "Proposal Two: Approval to Amend the Company's 1998 Incentive Plan, Summary
of the 1998 Incentive Plan."
In connection with the Merger, certain former Petrocon shareholders (the
"Significant PEI Shareholders") entered into an Indemnification Escrow
Agreement, a Voting Agreement, a Significant PEI Shareholders Voting Agreement,
and an Option Escrow Agreement ("the 2001 Agreements"). ENGlobal management
determined that, due to the cost and complexity associated with administering
the 2001 Agreements, it was in the best interest of the Corporation and its
stockholders to terminate the Agreements. As of September 28, 2004, ENGlobal and
the Significant PEI Shareholders entered into a Termination Agreement
terminating the 2001 Agreements (the "Termination Agreement"). A copy of the
Termination Agreement was previously filed with the Securities and Exchange
Commission as Exhibit 99.1 to the Company's Form 8-K dated September 30, 2004.
401(k) Plans
In December 2003, the Company terminated the Industrial Data Systems 401(k)
Plan and permitted all employees to participate in the ENGlobal Corporation
401(k) Plan (formerly called the Petrocon Engineering, Inc. 401(k) Plan). The
Company is in the process of finalizing that action by making filings with the
IRS and believes that these actions will be completed without any material
liability to the Company.
For eligible employees, the Company makes mandatory matching contributions
to the ENGlobal Corporation 401(k) Plan equal to 50% of employee contributions
up to 4% of employee compensation, as defined. Other discretionary contributions
made by the Company are determined by the Board of Directors. The employees may
elect to make contributions pursuant to a salary reduction agreement upon
meeting age and length-of-service requirements. The Company made contributions
of approximately $222,000, $144,000, and $172,000 for the years ended December
31, 2004, 2003, and 2002, respectively.
20
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
was restricted to regular full time employees of ENGlobal or its subsidiaries.
Participation in the plan was determined at the discretion of the CEO and
President of ENGlobal, and subject to Audit Committee approval. The addition of,
or removal of, participants to the plan required the joint consent of both the
CEO and President of ENGlobal.
An incentive bonus pool was calculated quarterly following the completion
of the review or audit of ENGlobal's financial results. The incentive bonus pool
available for distribution was calculated in two parts: (1) 15% of ENGlobal's
consolidated net profit before tax, less accrued dividends on preferred shares
("ENGlobal Profit") that exceeded 2% of consolidated total revenue, added to,
(2) 5% of ENGlobal profit that exceeded 4% of consolidated total revenue. Any
cumulative losses in ENGlobal profit in prior quarters were subtracted from
ENGlobal profit for the current quarter before performing the above calculation.
Incentive bonuses under the plan were paid only to those employees who were
employed on a regular full time basis on the last day of each calendar quarter.
Each participant's share of the incentive bonus pool was 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
disqualified an individual from receiving currently payable incentive bonus
amounts or any future payments under the plan.
In December 2004, the Incentive Bonus Plan was replaced with the Key
Manager and Executive Level Incentive Plans, described below.
Key Manager and Executive Level Incentive Plan
On December 16, 2004, the Company's Board of Directors adopted the ENGlobal
Corporation Key Manager Incentive Plan and the ENGlobal Corporation Executive
Level Incentive Plan. The Key Manager Incentive Plan, which replaced the
Incentive Bonus Plan described above, was established to provide certain key
management personnel (other than the Company's Chief Executive Officer, Chief
Financial Officer, and President) with cash bonuses as a reward for performance
above the ordinary standards compensated by base salary. The amount of bonus
paid to participants will be based on evaluations provided by immediate managers
and the Company's Chief Executive Officer. The Executive Level Incentive Plan
was established to provide participating executive and senior officers with cash
bonuses based on the Company's performance as evidenced by annual earnings per
share. Copies of the Key Manager Incentive Plan and Executive Level Incentive
Plan approved by the Board of Directors were previously filed with the
Securities and Exchange Commission as Exhibits 10.1 and 10.2, respectively, to
the Company's Form 8-K dated December 21, 2004.
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.
21
The Company leases approximately 14,000 square feet of office space in
Beaumont, Texas with an expiration date of June, 2005 from a joint venture owned
one-third by each of: (1) ENGlobal Engineering, Inc., (2) Michael L. Burrow, the
Company's Chief Executive Officer, and (3) a stockholder of the Company who owns
less than 1% of the Company's stock. We believe that this lease is at a
commercially reasonable rental rate.
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS,
NOMINEES, AND EXECUTIVE OFFICERS
The following table sets forth information regarding beneficial ownership
of our Common Stock based on 23,500,842 shares outstanding as of April 15, 2005,
with respect to (1) our directors, (2) the Named Executive Officers, (3) each
person who is known by ENGlobal to own beneficially more than 5% of our Common
Stock, and (4) all directors, nominees, and executive officers of ENGlobal as a
group. The address for all directors and executive officers of ENGlobal is 600
Century Plaza Drive, Suite 140, Houston, Texas 77073.
Amount and Nature Percent of
of Beneficial Common
Name of Beneficial Owner Position Ownership (1) Stock (1)
------------------------------------ -------------------------------- ------------------ ----------
Greater than 5% stockholders:
-----------------------------
Alliance 2000, Ltd................ -- 9,500,000(2) 39.33%
c/o 600 Century Plaza Drive
Suite 140
Houston, TX 77073-6033
Directors and Named Executive Officers:
---------------------------------------
Michael L. Burrow................. Chairman of the Board and Chief 1,742,930(3) 7.20%
Executive Officer
William A. Coskey................. President and Director 9,530,100(4) 39.46%
David W. Gent..................... Director 78,746(5) *
Randall B. Hale................... Director 40,000(6) *
David C. Roussel.................. Director 40,000(7) *
Robert W. Raiford................. Treasurer and Chief Financial 422,673(8) 1.73%
Officer
Michael M. Patton................. Senior Vice President - Business 41,000(9) *
Development
All current directors, nominees,
and named executive officers as a
group (seven persons)............. -- 11,895,449 49.31%
----------
* Represents less than 1% of the shares of Common Stock outstanding.
(1) Beneficial ownership of Common Stock has been determined for this purpose
in accordance with Rule 13d-3 under the Exchange Act, under which a person
is deemed to be the beneficial owner of securities if such person has or
shares voting power or investment power with respect to such securities,
has the right to acquire beneficial ownership within 60 days, or acquires
such securities with the purpose or effect of changing or influencing the
control of ENGlobal.
22
(2) Alliance 2000, Ltd. ("Alliance") is a Texas limited partnership for which
Mr. Coskey is a general partner. Of these shares, 2,600,000 are held
subject to an Option Pool Agreement pursuant to which options have been
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.
(3) In accordance with Rule 13d-3(d)(1)(i)(A), includes 1,688,888 shares of
Common Stock held by a family limited partnership, options held by Mr.
Burrow to acquire 14,042 shares of Common Stock at $0.96 per share, and
options to acquire 40,000 shares of Common Stock at $2.05 per share. Does
not include options to acquire 60,000 shares of Common Stock at $2.05 per
share none of which are exercisable within 60 days. Also does not include
options to acquire 300,000 shares of Common Stock at exercise prices
ranging from $0.75 to $1.25 per share which become vested and are
exercisable only under certain conditions set forth in the Option Pool
Agreement between the Company and Alliance.
(4) In accordance with Rule 13d-3(d)(1)(i)(A), includes 9,500,000 shares of
Common Stock held in the name of Alliance, for which Mr. Coskey is a
general partner. Also includes 100 shares of Common Stock owned by Mr.
Coskey purchased on June 16, 1998, at the time ENGlobal became listed with
the American Stock Exchange ("AMEX"); and 30,000 shares of Common Stock
held in the name of Mr. Coskey for his children. Mr. Coskey has a pecuniary
interest in the shares beneficially owned by Alliance and has shared voting
power and investment power over such shares and, thus, may be deemed to
beneficially own such shares.
(5) In accordance with Rule 13d-3(d)(1)(i)(A), includes options held by Mr.
Gent to acquire 30,000 shares of Common Stock at $1.25 per share, options
to acquire 8,746 shares of Common Stock at $1.00 per share, options to
acquire 20,000 shares of Common Stock at $1.87 per share, and options to
acquire 20,000 shares of Common Stock at $2.32 per share. Does not include
options to acquire 20,000 shares of Common Stock at $1.81 per share, or
options to acquire 1,254 shares of Common Stock at $1.00 per share, none of
which are exercisable within 60 days.
(6) In accordance with Rule 13d-3(d)(1)(i)(A), includes options held by Mr.
Hale to acquire 20,000 shares of Common Stock at $1.87 per share and
options to acquire 20,000 shares of Common Stock at $2.32 per share. Does
not include options to acquire 20,000 shares of Common Stock at $1.81 per
share, none of which are exercisable within 60 days.
(7) In accordance with Rule 13d-3(d)(1)(i)(A), includes options held by Mr.
Roussel to acquire 20,000 shares of Common Stock at $1.87 per share and
options to acquire 20,000 shares of Common Stock at $2.32 per share. Does
not include options to acquire 20,000 shares of Common Stock at $1.81 per
share, none of which are exercisable within 60 days.
(8) In accordance with Rule 13d-3(d)(1)(i)(A), includes 202,646 shares of
Common Stock held by Mr. Raiford. Also includes options held by Mr. Raiford
to acquire 14,458 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 144,334 shares of Common Stock at $6.24 per share. Does not include
options to acquire 16,039 shares of Common Stock at $6.24 per share, none
of which are exercisable within 60 days. Does not include options to
acquire 420,000 shares of Common Stock at exercise prices ranging from
$0.75 to $1.25 per share, which become vested and are exercisable only upon
certain conditions related to the Option Pool Agreement between the Company
and Alliance.
(9) In accordance with Rule 13d-3(d)(1)(i)(A), includes 5,000 shares of Common
Stock held in trust for the benefit of Mr. Patton. Also includes options
held by Mr. Patton to acquire 20,000 shares of Common Stock at $1.25 per
share and options to acquire 16, 000 shares of Common Stock at $2.05 per
share. Does not include options to acquire 24,000 shares of Common Stock at
$2.05 per share, none of which are exercisable within 60 days. Also does
not include 200,000 shares of Common Stock at exercise prices ranging from
$0.75 to $1.25 per share, which become vested and are exercisable only upon
certain conditions related to the Option Pool Agreement between the Company
and Alliance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, executive officers and persons
holding more than 10% of Common Stock must report their initial ownership of
Common Stock and any changes in that ownership to the SEC. The SEC has
designated specific due dates for such reports and ENGlobal must identify in
this Proxy Statement those persons who did not file such reports when due.
Based solely upon a review of Forms 3 and 4 and any amendments furnished to
ENGlobal during our fiscal year ended December 31, 2004, and Forms 5 and any
amendments furnished to ENGlobal with respect to the same fiscal year, we
believe that our directors, officers, and greater than 10% beneficial owners
complied with all applicable Section 16 filing requirements, except that Messrs.
Gent, Roussel and Hale made one late filing on Form 4 covering the grant of
stock options to them on June 17, 2004.
23
STOCK PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
The following line graph compares the total returns (assuming reinvestment
of dividends) of our Common Stock, the AMEX US Index and the S&P 600 SmallCap
Index for the five-year period ended December 31, 2004. This comparison assumes
the investment of $100 on December 31, 1998 and the reinvestment of all
dividends.
[GRAPHIC OMITTED]
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
ENGLOBAL 100.00 57.14 82.29 136.00 225.14 354.29
S&P 600 SMALL CAP INDEX 100.00 111.02 117.39 99.41 136.72 166.24
AMEX US INDEX 100.00 92.76 86.34 70.57 95.52 110.38
PRINCIPAL AUDITOR FEES AND SERVICES
The Audit Committee has appointed Hein & Associates, LLP as ENGlobal's
independent auditors for the fiscal year ending December 31, 2005.
Representatives of Hein & Associates are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
The following table shows the fees paid or accrued by ENGlobal for the
audit and other services provided by Hein & Associates for fiscal 2004 and 2003.
2004 2003
-------- --------
Audit Fees $125,432 $114,500
Audit-Related Fees -- --
Tax Fees 65,487 61,023
All Other Fees 20,803 9,384
-------- --------
Total $211,722 $184,907
======== ========
As defined by the SEC, (i) "audit fees" are fees for professional services
rendered by the company's principal accountant for the audit of the company's
annual financial statements and review of financial statements included in the
company's Form 10-Q, or for services that are normally provided by the
24
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years; (ii) "audit-related fees" are fees for assurance and
related services by the company's principal accountant that are reasonably
related to the performance of the audit or review of the company's financial
statements and are not reported under "audit fees;" (iii) "tax fees" are fees
for professional services rendered by the company's principal accountant for tax
compliance, tax advice, and tax planning; and (iv) "all other fees" are fees for
products and services provided by the company's principal accountant, other than
the services reported under "audit fees," "audit-related fees," and "tax fees."
Under applicable SEC rules, the Audit Committee is required to pre-approve
the audit and non-audit services performed by the independent auditors in order
to ensure that they do not impair the auditors' independence from ENGlobal. The
SEC's rules specify the types of non-audit services that an independent auditor
may not provide to its audit client and establish the Audit Committee's
responsibility for administration of the engagement of the independent auditors.
Consistent with the SEC's rules, the Audit Committee Charter requires that
the Audit Committee review and pre-approve all audit services and permitted
non-audit services provided by the independent auditors to ENGlobal or any of
its subsidiaries, except that the Audit Committee Chairman can approve up to
$25,000 in any year. The Audit Committee may delegate pre-approval authority to
a member of the Audit Committee and if it does, the decisions of that member
must be presented to the full Audit Committee at its next scheduled meeting.
25
PROPOSAL TWO:
APPROVAL TO AMEND THE COMPANY'S 1998 INCENTIVE PLAN
Background
On March 24, 2005, the Board of Directors approved, subject to stockholder
approval, an amendment to the Company's 1998 Incentive Plan (the "Plan") to
increase the number of shares reserved for issuance under the Plan from
2,200,000 to 2,650,000 in order to enhance the ability of ENGlobal to compensate
its Non-employee Directors and to attract employees of outstanding ability.
1,200,000 shares were reserved for issuance under the Plan as originally
approved by the stockholders of the Company on June 8, 1998. Our stockholders
have previously authorized amendments to the Plan to increase the number of
shares reserved for issuance thereunder from 1,200,000 to 1,400,000 and from
1,400,000 to 2,200,000 in December 2001 and June 2003, respectively. As of
December 31, 2004, 1,577,184 shares of common stock have been purchased or
options with respect thereto have been granted under the Plan, leaving 308,999
available to issue. Options to purchase an additional 150,000 shares will be
issued on June 16, 2005 as recompense to our independent directors for service
on the Company's Board of Directors for the 2005-2006 term. As a result, unless
the amount reserved for issuance under the Plan is increased, the Plan will soon
run out of options to use as incentive to attract, motivate, and retain
employees and directors who are critical to the success of the Company.
Therefore, the Company is asking you to approve an increase in the number
of shares reserved for issuance under the Plan from 2,200,000 to 2,650,000 in
order to allow the future issuance of options to its directors and current and
potential employees. The Company believes stock option awards encourage
achievement of superior results by providing participants with an opportunity to
acquire a proprietary interest in ENGlobal and additional incentive to work for
its continued success. Except for the increase in shares reserved for issuance,
approval of the proposed amendment will not result in any other change to the
terms of the Plan.
Recommendation of the Board
The board recommends that stockholders vote FOR the approval of the
amendment to the Company's 1998 Incentive Plan to increase the number of shares
reserved for issuance thereunder from 2,200,000 to 2,650,000.
Summary of the 1998 Incentive Plan
The following is a brief summary of the material features of the Plan. As
discussed above, except for the increase in shares reserved for issuance,
approval of the proposed amendment will not result in any other change to the
terms of the Plan.
Shares Subject to the Plan
--------------------------
The Company is authorized to issue a total of 2,200,000 shares of Common
Stock under the Plan. If the proposed amendment is adopted by our stockholders,
the number of shares authorized for issuance under the Plan will be increased to
2,650,000. As of December 31, 2004, options to purchase 1,577,184 shares had
been issued and remained outstanding under the Plan.
Administration of the Plan
--------------------------
The Board of Directors has delegated 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.
26
Eligibility and Limitations
---------------------------
The Plan provides that awards may be granted to employees, consultants and
directors of ENGlobal and its majority-owned subsidiaries. The Plan provides for
the grant of incentive stock options, non-statutory stock options, stock
appreciation rights and restricted stock. 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 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.
Exercise Price of Options
-------------------------
All incentive stock options granted under the 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.
Term and Vesting of Options
---------------------------
Options granted under the 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 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 Stock
----------------
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. The Company has never awarded grants of restricted
Common Stock under the Plan.
Stock Appreciation Rights
-------------------------
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 (1) the fair market value of a share of ENGlobal
Common Stock as of the date of exercise, minus the fair market value of a share
of ENGlobal Common Stock as of the date the stock appreciation right was
granted, multiplied by (2) 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 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.
The Company has never awarded stock appreciation rights under the Plan.
27
Certain Corporate Transactions
------------------------------
In the event of certain changes in ENGlobal's capitalization, including 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 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 anyone or more of the following actions: (1) 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; (2) grant each of the restrictions on any restricted Common
Stock; (3) 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
anyone or more of the outstanding incentive awards upon such terms and
provisions as the board of directors or its designated committee deems
desirable; or (4) redeem in whole or in part anyone 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.
28
Certain Federal Income Tax Consequences of the Plan
The following is a brief summary of certain tax consequences relating to
the Plan. This summary does not intend to describe all of the tax considerations
that may be relevant to the options that may be issued under the Plan and does
not describe any tax consequences arising under the laws of any state, locality
or taxing jurisdiction other than the United States.
Incentive Stock Options.
No taxable income is realized by a participant and no tax deduction is
available to the Company upon either the grant or exercise of an incentive stock
option. If a participant holds the shares acquired upon the exercise of an
incentive stock option for more than one year after the issuance of the shares
and more than two years after the date of the grant of the incentive stock
option (the "ISO Holding Period"), the difference between the exercise price and
the amount realized upon the sale of the shares will be treated as a long-term
capital gain or loss and no deduction will be available to the Company. If the
shares are transferred before the expiration of the ISO Holding Period, the
participant will realize ordinary income and the Company will be entitled to a
deduction on the portion of the gain, if any, equal to the difference between
the incentive stock option exercise price and the fair market value of the
shares on the date of exercise or, if less, the difference between the amount
realized on the disposition and the adjusted basis of the stock; provided,
however, that the deduction will not be allowed if such amount exceeds an
applicable deduction limitation and does not satisfy an exception to such
deduction limitation. Any further gain or loss from an arm's-length sale or
exchange will be taxable as a long-term or short-term capital gain or loss,
depending upon the holding period before disposition. Certain special rules
apply if an incentive stock option is exercised by tendering stock.
The difference between the incentive stock option exercise price and the
fair market value, at the time of exercise, of the Common Stock acquired upon
the exercise of an incentive stock option may give rise to alternative minimum
taxable income subject to an alternative minimum tax. Special rules also may
apply in certain cases where there are subsequent sales of shares in
disqualifying dispositions and to determine the basis of the stock for purposes
of computing alternative minimum taxable income on subsequent sale of the
shares.
Non-Qualified Stock Options.
No taxable income generally is realized by the participant upon the grant
of a non-qualified stock option, and no deduction generally is then available to
the Company. Upon exercise of a non-qualified stock option, the excess of the
fair market value of the shares on the date of exercise over the exercise price
will be taxable to the participant as ordinary income. Such amount will also be
deductible by the Company unless such amount exceeds an applicable deduction
limitation and does not satisfy an exception to such deduction limitation. The
tax basis of shares acquired by the participant will be the fair market value on
the date of exercise. When a participant disposes of shares acquired upon
exercise of a non-qualified stock option, any amount realized in excess of the
fair market value of the shares on the date of exercise generally will be
treated as a capital gain and will be long-term or short-term, depending on the
holding period of the shares. The holding period commences upon exercise of the
non-qualified stock option. If the amount received is less than such fair market
value, the loss will be treated as a long-term or short-term capital loss,
depending on the holding period of the shares. The exercise of a non-qualified
stock option will not trigger the alternative minimum tax consequences
applicable to incentive stock options.
29
Stock Appreciation Rights.
No taxable income will be realized by a participant upon the grant of a
stock appreciation right and no deduction will be available to the Company. Upon
the exercise of the stock appreciation right, the participant will realize
taxable income equal to the cash or the fair market value (on the date of
exercise) of the shares, or both, received, and the Company will be entitled to
a deduction unless such amount exceeds an applicable deduction limitation and
does not satisfy an exception to the deduction limitation. The tax basis in any
shares received will be the fair market value on the date of exercise and, if
shares received are held for more than one year, the participant will realize
long-term capital gain or loss upon disposition.
Restricted Stock.
Unless a participant otherwise elects to be taxed upon receipt of shares of
restricted stock under the Plan, the participant must include in his or her
taxable income the difference between the fair market value of the shares and
the amount paid, if any, for the shares, as of the first date the participant's
interest in the shares is no longer subject to a substantial risk of forfeiture
or such shares become transferable. A participant's rights in restricted stock
awarded under the Plan are subject to a substantial risk of forfeiture if the
rights to full enjoyment of the shares are conditioned, directly or indirectly,
upon the future performance of substantial services by the participant. Where
shares of restricted stock received under the Plan are subject to a substantial
risk of forfeiture, the participant can elect to report the difference between
the fair market value of the shares on the date of receipt and the amount paid,
if any, for the stock as ordinary income in the year of receipt. To be
effective, the election must be filed with the Internal Revenue Service (the
"IRS") within 30 days after the date the shares are transferred to the
participant. The Company is entitled to a Federal income tax deduction equal in
amount to the amount includable as compensation in the gross income of the
participant, unless such amount exceeds an applicable deduction limitation and
does not satisfy an exception to such deduction limitation. The amount of
taxable gain arising from a participant's sale of shares of restricted stock
acquired pursuant to the Plan is equal to the excess of the amount realized on
such sale over the sum of the amount paid, if any, for the stock and the
compensation element included by the participant in taxable income. For stock
held more than one year, the participant will realize long-term capital gain or
loss upon disposition.
Nonqualified Deferred Compensation.
The American Jobs Creation Act of 2004 added Section 409A of the Tax Code,
generally effective January 1, 2005. The IRS has so far issued only limited
guidance on its interpretation of this new law. Section 409A applies to certain
nonqualified deferred compensation plans which includes many arrangements that
defer compensation to a succeeding year. It prescribes strict rules for the
timing of payments under these deferred compensation arrangements. There are
significant detriments placed on the individual employee, including the
acceleration of the employee's recognition of income and an additional 20% tax,
if the deferred compensation arrangement does not meet the requirements of
Section 409A, or, if the employee fails to comply with strict rules under
Section 409A regarding elections to defer income under the arrangement. However,
Section 409A does not affect the company's ability to deduct deferred
compensation and does not impose any new taxes on the Company. Section 409A does
impose additional income tax withholding requirements on the Company.
Section 409A does not apply to incentive stock options, non-qualified stock
options (that are not discounted) and restricted stock (provided there is no
deferral of income beyond the vesting date and the vesting dates may not occur
earlier than as described under Section 409A). Section 409A also does not cover
stock appreciation rights if the stock appreciation rights are issued by a
public company on its traded stock, the exercise price is never less than the
fair market value of the underlying stock on the date of grant, the rights are
settled in such stock and no features defer the recognition of income beyond the
exercise date.
30
Pending further IRS and other administrative and judicial guidance, the
full impact and requirements of Section 409A remain unclear. Nevertheless, the
preliminary guidance issued by the IRS indicates that awards under the Plan
(except incentive stock option awards) could be subject to Section 409A.
However, it is the intention of the Company that no awards under the Plan be
subject to Section 409A unless the Company specifically determines otherwise.
The Company intends to further review the Plan and awards under the Plan and may
adopt such additional amendments as it determines appropriate in light of the
current and any additional guidance under Section 409A.
Changes in Control.
If an award under the Plan is accelerated as a result of a change of
control, all or a portion of the value of the award at that time may be a
parachute payment under Section 280G of the Tax Code. Section 280G applies to
"parachute payments" which generally means payments in the nature of
compensation made upon a change of control the present value of which equal or
exceed three times the recipient's average compensation for the five preceding
tax years. If applicable, the Company will not be permitted to claim a
deduction, and the recipient will be subject to a 20% excise tax under Section
4999, with respect to the "excess parachute payment" amount. The "excess
parachute payment" amount generally is the portion of a parachute payment that
exceeds such recipient's average compensation for the preceding five years. The
excess parachute payment amount is reduced by the portion of the payment that is
shown to be reasonable compensation rendered either before or after the change
of control. Section 280G generally applies only to employees or other
individuals who perform services for the Company, if within the twelve month
period preceding the change of control, the recipient was an officer of the
Company, a shareholder owning more than 1% of the stock of the Company or a
member of a group consisting of the lesser of the highest paid 1% of the
employees of the company or the highest paid 250 employees of the Company.
Benefits to be Received by Directors and Executive Officers
-----------------------------------------------------------
It is not possible to determine the aggregate number of options to purchase
shares of our common stock that will be awarded under the Plan to any particular
individuals in the future. During the 2004 fiscal year, options to purchase
140,000 shares in the aggregate were issued to our executive officers, and
options to acquire 60,000 shares in the aggregate were issued to our
Non-employee Directors. Beginning in June 2005, Non-employee Directors will each
receive annually options to purchase 50,000 shares for their Board service.
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.
31
STOCKHOLDER PROPOSALS FOR 2006
The 2006 annual meeting of stockholders is expected to be held in June
2006. The Company must receive by January 2, 2006 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,
Suite 140, Houston, Texas 77073-6033, Attention: Corporate Secretary, prior to
the specified deadline.
SEC rules and regulations provide that if the date of the Company's 2006
Annual Meeting is advanced or delayed more than 30 days from the date of the
2005 Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2006 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 2006 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 2006 Annual Meeting will be advanced or delayed by
more than 30 days from the date of the 2005 Annual Meeting.
ADDITIONAL INFORMATION
A copy of the Company's 2004 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 www.englobal.com.
Requests and inquiries should be addressed to: Investor Relations, 600 Century
Plaza Drive, Suite 140, Houston, Texas 77073-6033, (281) 821-3200.
APPROVAL OF THE BOARD OF DIRECTORS
The contents of this Proxy Statement have been approved by the Board of
Directors, and the Board of Directors has authorized the mailing of this Proxy
Statement to the stockholders of the Company.
By Order of the Board of Directors,
/s/ Natalie S. Hairston
Natalie S. Hairston
Chief Governance Officer and
Corporate Secretary
Houston, Texas
April 29, 2005
32
Appendix A
----------
AMENDMENT TO THE ENGLOBAL CORPORATION
1998 INCENTIVE PLAN
ENGlobal Corporation, a Nevada corporation (the "Company"), having reserved
the right under Section 11 of the ENGlobal Corporation 1998 Incentive Plan (the
"Plan"), to amend the Plan, does hereby amend Section 2 of the Plan, effective
as of June 16, 2005, to read in its entirety as follows:
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Section 2.2 and
Section 9, the aggregate number of shares of Stock that may be issued or
transferred pursuant to Awards under the Plan shall be 2,650,000.
2.2 Limitation of Shares. For purposes of the limitations specified in
Section 2.1, the following principles shall apply:
(a) the following shall count against and decrease the number of
shares of Stock that may be issued for purposes of Section 2.1: (i) shares
of Stock subject to outstanding Options, outstanding shares of Restricted
Stock, and shares subject to outstanding Stock Appreciation Rights granted
independent of Options (based on a good faith estimate by the Corporation
or the Committee of the maximum number of shares for which the Stock
Appreciation Right may be settled (assuming payment in full in shares of
Stock)), and (ii) in the case of Options granted in tandem with Stock
Appreciation Rights, the greater of the number of shares of Stock that
would be counted if one or the other alone was outstanding (determined as
described in clause (i) above);
(b) the following shall be added back to the number of shares of Stock
that may be issued for purposes of Section 2. 1: (i) shares of Stock with
respect to which Options, Stock Appreciation Rights granted independent of
Options, or Restricted Stock Awards expire, are cancelled, or otherwise
terminate without being exercised, converted, or vested, as applicable, and
(ii) in the case of Options granted in tandem with Stock Appreciation
Rights, shares of Stock as to which an Option has been surrendered in
connection with the exercise of a related ("tandem") Stock Appreciation
Right, to .the, extent the number surrendered exceeds the number issued
upon exercise of the Stock Appreciation Right; provided that, in any case,
the holder of such Awards did not receive any dividends or other benefits
of ownership with respect to the underlying shares being added back, other
than voting rights and the accumulation (but not payment) of dividends of
Stock;
(c) shares of Stock subject to Stock Appreciation Rights granted
independent of Options (calculated as provided in clause (a) above) that
are exercised and paid in cash shall be added back to the number of shares
of Stock that may be issued for purposes of Section 2. 1, provided that the
Holder of such Stock Appreciation Right did not receive any dividends or
other benefits of ownership, other than voting rights and the accumulation
(but not payment) of dividends, of the shares of Stock subject to the Stock
Appreciation Right;
(d) shares of Stock that are transferred by a Holder of an Award (or
withheld by the Corporation) as full or partial payment to the Corporation
of the purchase price of shares of Stock subject to an Option or the
Corporation's or any Subsidiary's tax withholding obligations shall not be
added back to the number of shares of Stock that may be issued for purposes
of Section 2.1 and shall not again be subject to Awards; and
A-1
(e) if the number of shares of Stock counted against the number of
shares that may be issued for purposes of Section 2.1 is based upon an
estimate made by the Corporation or the Committee as provided in clause (a)
above and the actual number of shares of Stock issued pursuant to the
applicable Award is greater or less than the estimated number, then, upon
such issuance, the number of shares of Stock that may be issued pursuant to
Section 2. 1 shall be further reduced by the excess issuance or increased
by the shortfall, as applicable.
Notwithstanding the provisions of this Section 2.2, no Stock shall be treated as
issuable under the Plan to Eligible Individuals subject to Section 16 of the
Exchange Act if otherwise prohibited from issuance under Rule 16b-3.
2.3 Description of Shares. The shares to be delivered under the Plan shall
be made available from (a) authorized but unissued shares of Stock, (b) Stock
held in the treasury of the Corporation, or (c) previously issued shares of
Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.4 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock available for issuance pursuant to the exercise of Awards.
The Company also does hereby append Section 13 to the Plan, effective as of
June 16, 2005, to read in its entirety as follows:
"13. Effectiveness. The Plan was approved by stockholders on June 8, 1998,
and subsequently amended by stockholders effective December 20, 2001, an
amendment effective June 6, 2002, amended by stockholders effective June 5,
2003, and amended by stockholders effective June 16, 2005."
IN WITNESS WHEREOF, this Amendment has been executed effective as of June 16,
2005.
ENGLOBAL CORPORATION
/s/ William A. Coskey, P.E.
William A. Coskey, P.E.
President
A-2
ENGlobal Corporation
600 CENTURY PLAZA DRIVE
SUITE 140
HOUSTON, TX 77073
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the
day before the cut-off date or meeting date. Have
your proxy card in hand when you access the web
site and follow the instructions to obtain your
records and to create an electronic voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER
COMMUNICATIONS
If you would like to reduce the costs incurred by
ENGlobal Corporation in mailing proxy materials,
you can consent to receiving all future proxy
statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign
up for electronic delivery, please follow the
instructions above to vote using the Internet and,
when prompted, indicate that you agree to receive
or access shareholder communications
electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you call
and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it
in the postagepaid envelope we have provided or
return it to ENGlobal Corporation, c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: ENGBL1 KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
--------------------------------------------------------------------------------------------------------------
1. Election of directors.
a. Michael L. Burrow For Withhold For All To withhold authority to vote for any
b. William A. Coskey All All Except individual nominee(s), mark "FOR ALL
c. David W. Gent EXCEPT" and write the nominee's letter
d. Randall B. Hale [ ] [ ] [ ] on the line below.
e. David C. Roussel ______________________________________
For Against Abstain
2. Approval to amend the ENGlobal Corporation 1998 Incentive Plan. [ ] [ ] [ ]
Please sign exactly as name appears hereon and date. If the shares are jointly
held, each holder should sign. When signing as an attorney, executor,
administrator, trustee, or as an officer signing for a corporation, please give
full title under signature.
Yes No
Please indicate if you plan to attend this meeting [ ] [ ]
HOUSEHOLDING ELECTION - Please indicate if you
consent to receive certain future investor
communications in a single package per household [ ] [ ]
_________________________________________ ________________________________
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PROXY CARD
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Michael L. Burrow and William A. Coskey,
either of them, jointly and severally, with power of substitution, to represent
and to vote as designated all shares of Common Stock which the undersigned would
be entitled to vote at the Annual Meeting of Stockholders of ENGlobal
Corporation, to be held June 16, 2005 at The Greenspoint Club, 16925 Northchase
Drive, 5th Floor, Houston, Texas 77060, at 10:00 a.m., Central Daylight Time, or
any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES TO ENGLOBAL'S BOARD OF DIRECTORS AND FOR THE
APPROVAL TO AMEND THE COMPANY'S 1998 INCENTIVE PLAN.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the accompanying Proxy Statement.
(PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE)
--------------------------------------------------------------------------------