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ENGLOBAL CORPORATION
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ENGlobal Corporation
April 28, 2006
Dear Stockholder:
I am pleased to invite you to the Annual Meeting of Stockholders of
ENGlobal Corporation. The meeting will be held at the Wyndham Greenspoint Hotel,
12400 Greenspoint Drive, Houston, Texas on Thursday, June 1, 2006 at 10:00 a.m.,
local time.
At the meeting, you and the other stockholders will be asked to vote on the
following:
o the election of five Directors to the Board of Directors of ENGlobal;
o the amendment to the Restated Articles of Incorporation of ENGlobal
Corporation to eliminate the Series A Preferred Stock and all
references as to its rights and privileges, and to authorize 2,000,000
shares of Preferred Stock, $0.001 par value, with the Board of
Directors' authority to determine the designations, preferences,
limitations, restrictions, and other rights relating to such shares
and to approve the issuance of such shares without further approval by
stockholders; and
o 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, 2005.
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 28, 2006.
We hope you can join us on June 1, 2006. 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/ William A. Coskey, P.E.
William A. Coskey, P.E.
Chairman of the Board
ENGlobal Corporation
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Time and Date 10:00 a.m., local time, on Thursday, June 1, 2006
Place Wyndham Greenspoint Hotel
12400 Greenspoint Drive
Houston, Texas
Items of Business (1) To elect five Directors to the Board of Directors of
ENGlobal (the Board of Directors recommends a vote FOR
this proposal);
(2) To vote on a proposal to amend to the Restated Articles
of Incorporation of ENGlobal Corporation to eliminate
the Series A Preferred Stock and all references as to
its rights and privileges, and to authorize 2,000,000
shares of Preferred Stock, $0.001 par value, with the
Board of Directors' authority to determine the
designations, preferences, limitations, restrictions,
and other rights relating to such shares and to approve
the issuance of such shares without further approval by
stockholders (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 Any action on the items of business described above may be
Postponements 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 10, 2006.
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 10, 2006 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 10, 2006, 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 28, 2006.
i
ENGlobal Corporation
2006 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
-----------------
Page
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS.......................................i
QUESTIONS AND ANSWERS..........................................................3
PROPOSAL ONE: ELECTION OF DIRECTORS...........................................7
Nominees..............................................................7
Recommendation of the Board...........................................8
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........................................14
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS.......................14
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.......................15
Compensation Philosophy..............................................16
Compensation Structure...............................................16
Incentive Compensation...............................................17
Stock Option Plan....................................................17
Compensation of the Chief Executive Officer..........................17
Executive Compensation Deductibility.................................17
Compensation Committee Interlocks and Insider Participation..........18
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: AMENDMENT TO ARTICLES OF INCORPORATION.........................26
OTHER MATTERS.................................................................29
STOCKHOLDER PROPOSALS FOR 2006................................................29
ADDITIONAL INFORMATION........................................................30
APPROVAL OF THE BOARD OF DIRECTORS............................................30
APPENDIX A: AUDIT COMMITTEE CHARTER..........................................A-1
APPENDIX B: PROPOSED PREFFERED STOCK AMENDMENT...............................B-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 2006 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;
o A proposal to amend the Restated Articles of Incorporation of ENGlobal
Corporation to eliminate the Series A Preferred Stock and all
references as to its rights and privileges, and to authorize 2,000,000
shares of Preferred Stock, $0.001 par value, with the Board of
Directors' authority to determine the designations, preferences,
limitations, restrictions, and other rights relating to such shares
and to approve the issuance of such shares without further approval by
stockholders; and
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 10, 2006, 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 27,005,158 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 completing 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.
3
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.
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, P.E. and William A. Coskey, P.E. the proxy
holders, will vote your shares:
o FOR the election of each of the nominees for Director;
o FOR the amendment to the Restated Articles of Incorporation of
ENGlobal Corporation to eliminate the Series A Preferred Stock and all
references as to its rights and privileges, and to authorize 2,000,000
shares of Preferred Stock, $0.001 par value, with the Board of
Directors' authority to determine the designations, preferences,
limitations, restrictions, and other rights relating to such shares
and to approve the issuance of such shares without further approval by
stockholders; 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
4
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.
Q: What constitutes a quorum?
A: On the record date, ENGlobal had 27,005,158 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 13,502,580 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 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 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 Articles of Incorporation.
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, P.E. and William A. Coskey, P.E., 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,
P.E. and William A. Coskey, P.E., the proxy holders, will vote in
accordance with the recommendations of the Board. The Board recommends a
vote FOR:
5
o the election of the nominated slate of Directors; and
o the amendment to the Restated Articles of Incorporation of ENGlobal
Corporation to eliminate the Series A Preferred Stock and all
references as to its rights and privileges, and to authorize 2,000,000
shares of Preferred Stock, $0.001 par value, with the Board of
Directors' authority to determine the designations, preferences,
limitations, restrictions, and other rights relating to such shares
and to approve the issuance of such shares without further approval by
stockholders.
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.
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 2007 Annual Meeting, the written proposal must be
received by the Secretary of ENGlobal at our principal executive offices no
later than December 29, 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 2007 Annual Meeting, but you do
not intend to have it included in our 2007 proxy statement, your proposal
must be delivered to the Secretary of ENGlobal no later than March 1, 2007.
If the date of our 2007 Annual Meeting is more than 30 calendar days before
or after the date of our 2006 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 2007 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, 654 N. Sam Houston Parkway E., Suite 400,
Houston, Texas 77060-5914, (281) 878-1000.
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 2005, 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, 654 N. Sam Houston Parkway E., Suite 400, Houston, Texas
77060-5914. 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
--------------- ----- --- --------------------------------------------
William A. Coskey, P.E. 1994 53 Mr. Coskey has served as Chairman of the Board since June 2005. He
Chairman of the Board founded ENGlobal in 1985 and, until December 2001, served as Chairman of
the Board, Chief Executive Officer and President of the Company. From
2001 to 2003, he served as Chief Operating Officer and held the position
of President from 2001 to June 2005. Mr. Coskey, an honors graduate,
received a Bachelor of Science in Electrical Engineering from Texas A&M
University in 1975 and is a Registered Professional Engineer. Mr. Coskey
has served on the Texas A&M University Electrical Engineering Department
Advisory Council since 1999.
Michael L. Burrow, P.E. 2001 58 Mr. Burrow has served as President and Chief Executive Officer and
President and Chief Director of the Company since June 2005. From December 2001 to June
Executive Officer 2005, he served as Chairman and Chief Executive Officer. Mr. Burrow
co-founded Petrocon, Inc. in 1977 and founded Petrocon Engineering, Inc.
("Petrocon") in 1988. From the formation of Petrocon until December
2001, 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, NSPE and TSPE where he was selected as the "2005
Engineer of the Year" for the Sabine Chapter. He serves as a Director on
the Partnership of Southeast Texas, Beaumont Chamber of Commerce
(Advisory Director), Texas Hazardous Waste Research Council and Texas
Workforce Development Boards.
7
Director
Name of Nominee Since Age Principal Occupation During the Last 5 Years
--------------- ----- --- --------------------------------------------
David W. Gent, P.E. 1994 53 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. Mr. Gent has served as
the Company's lead Independent Director since 2002. Since 1991, Mr. Gent
has held various positions for Bray International, Inc., an industrial
flow control manufacturer located in Houston, Texas. Since 2005, Mr.
Gent has served as Senior Vice President of Bray International and is
responsible for overseeing worldwide engineering, information services,
and training. Mr. Gent, an honors graduate, received a Bachelor of
Science in Electrical Engineering from Texas A&M University in 1975 and
an MBA from Houston Baptist University. He is a Registered Professional
Engineer and a senior member of the Instrument Society of America. Mr.
Gent serves on the Texas A&M University Electrical Engineering
Department Advisory Council, chairs the Bray International, Inc. 401(k)
committee and is the Bray representative on various councils including
the Open DeviceNet Vendors Association and American Water Works
Association. He also holds several patents in the field of industrial
flow controls.
Randall B. Hale 2001 43 Mr. Hale has served as a Director of ENGlobal since 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. From February 2003 to
September 2004, 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 56 Mr. Roussel has served as a Director of the Company since December 2001,
is Chairman of the Compensation Committee and a member of the Audit and
Nominating and Corporate Governance Committees. Mr. Roussel is a Vice
President with 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 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 a member of
the Executive and Ad Hoc Committees of the Board of Directors of the Gas
Processors Association.
Recommendation of the Board
The Board recommends that stockholders vote FOR each of the nominees to
serve as Directors of ENGlobal.
8
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 President and Chief Executive Officer, respectively,
are listed above.
Name of Executive Officer Position Age Principal Occupation During the Last 5 Years
------------------------- -------- --- --------------------------------------------
Robert W. Raiford Chief Financial 60 Mr. Raiford has served as Chief Financial Officer and Treasurer of
Officer and ENGlobal since December 2001. Mr. Raiford joined Petrocon in 1979
Treasurer and prior to joining ENGlobal, he served as Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of
Petrocon and served as a director and Secretary of various Petrocon
subsidiaries. Mr. Raiford received an MBA in 1974 and a BBA in
Business Management in 1968 from Lamar University.
Michael M. Patton, P.E. Senior Vice 53 Mr. Patton joined ENGlobal in 1999, and was appointed Senior Vice
President, President of Business Development of ENGlobal in 2002. From November
Business 2004 to January 2006, Mr. Patton served as President of the Western
Development Division of ENGlobal Engineering, Inc. and has been the sponsor for
ENGlobal Technical Services, Inc. (formerly 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
In December 2004, Compensation Committee recommended that, over the next
two years, the Company implement a standard compensation arrangement for its
independent Directors, Messrs. Gent, Hale, and Roussel, ("Non-employee
Directors"). In 2005, the Non-employee Directors received a retainer in the
amount of $24,000 per year to Messrs. Gent and Roussel and $26,000 per year to
Mr. Hale, as the Audit Committee Chairman, both payable on a quarterly basis. In
2006, the retainers provided to the Non-employee Directors will increase to
$32,000 per year to Messrs. Gent and Roussel and $36,000 per year to Mr. Hale,
both payable on a quarterly basis. The Company believes the payments are
necessary to retain the three Non-employee Directors and compensate the Chairman
of the Audit Committee at a slightly higher rate, due to the extensive time and
effort required of that position. 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.
Under the Company's 1998 Incentive Plan, Non-employee Directors are
eligible to receive non-statutory stock options. In 2005, in recognition of the
services provided by its Board of Directors, each Non-employee Director received
options to acquire 50,000 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. 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. For years of
service from 2002 to present, each Non-employee Director has received stock
options as represented by the following table:
9
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
2005-2006 June 16, 2005 June 16, 2006 50,000 $3.75 June 16, 2015
Likewise, Messrs. Gent, Hale and Roussel will each receive 50,000 stock
options, with a quarterly vesting schedule, for their service to the Company
during 2006-2007. The shares will be granted on June 1, 2006, will fully vest on
June 1, 2007, and will expire on June 1, 2016.
MEETINGS OF THE BOARD AND ITS COMMITTEES
Board Meetings
During 2005, ENGlobal held eight 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 Annual Meeting of stockholders held on June 16, 2005.
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 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 the outside legal,
accounting and other advisors that 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 2005, 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 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 five occasions in 2005.
10
A copy of our Audit Committee Charter is attached as Appendix A and
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.
Prior to its termination on December 31, 2005, the Compensation Committee also
monitored our Employee Stock Purchase Plan. Employment agreements have been
entered into with a number of our executive officers. See "Executive
Compensation - Employment Agreements." During fiscal year 2005, 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 2005, 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 Committee 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.
In June 2005, the Board of Directors separated the roles of Chairman and
Chief Executive Officer at its Annual Organizational Board Meeting, held after
the 2005 Annual Meeting of Stockholders. The Board unanimously appointed William
A. Coskey, P.E. as Chairman of the Board. Michael L. Burrow, P.E. continues to
serve as Chief Executive Officer and assumed the position of President from Mr.
11
Coskey. Mr. Coskey assumed the role of Chairman from Mr. Burrow and retained his
merger and acquisition responsibilities, as well as his other current duties
within the Company. The decision to separate the roles of Chairman and Chief
Executive Officer is part of our ongoing efforts to follow best practices in
corporate governance.
In 2005, we reviewed our Audit Committee and Compensation Committee
Charters, 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 654 N. Sam Houston Parkway E., Suite 400, Houston, TX 77060-5914,
Attention: Investor Relations.
Corporate Code of Conduct
The Company has adopted a Corporate Code of Conduct that applies to all of
the Company's Directors, officers and employees in accordance with AMEX. The
purpose and role of this code is to focus our officers, Directors, and employees
on areas of ethical risk, provide guidance to help them recognize and deal with
ethical issues, provide mechanisms to report unethical or unlawful conduct, and
help enhance and formalize our culture of integrity, honesty and accountability.
For the purpose of satisfying the disclosure requirement under Item 5.05 of Form
8-K, we will post on the "Investor Relations" section of our 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 AMEX
rules. As discussed above, we will disclose on our website waivers of or
amendments to 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 his 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 2005, the Company held one executive session of its Non-employee
Directors. Any non-management Director can request that an executive session be
scheduled. Mr. Gent has served as the Company's lead independent Director since
2004, and was re-elected in 2005.
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
2007 Annual Meeting of Stockholders should submit their nomination before
December 29, 2006 to ENGlobal Corporation, 654 N. Sam Houston Parkway E., Suite
400, Houston, TX 77060-5914, Attention: Corporate Secretary. Nominations should
include the following information in order to facilitate the independent
Directors' review and consideration:
12
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;
o A description of any arrangements or understandings between the
recommending stockholder and the Director candidate, if any, or any
other person for whom the recommending stockholder is making the
recommendation; and
o Whether or not the recommending stockholder and the Director candidate
consent to being named in the Company's proxy statement with respect
to disclosures regarding the nomination process.
No candidate for election to our Board has been recommended within the
preceding year by a beneficial owner of 5% or more of our Common Stock.
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 will consider various potential candidates for
Director. Candidates may come to the attention of the Nominating and Corporate
Governance Committee through current Board members, stockholders or other
persons. These candidates will be evaluated at regular or special meetings of
the Nominating and Corporate Governance Committee, and may be considered at any
point during the year. As described above, the Nominating and Corporate
Governance Committee will consider properly submitted stockholder nominations
for candidates for the Board. In evaluating nominations, the Nominating and
Governance Committee seeks to achieve a balance of knowledge, experience and
capability on the Board.
13
Communications with the Board
Stockholders may communicate with the Board, Board committees, Non-employee
Directors as a group and individual Directors by submitting their communications
in writing to ENGlobal Corporation, 654 N. Sam Houston Parkway E., Suite 400,
Houston, TX 77060-5914, Attention: Corporate Secretary. Any communication must
contain:
o a representation that the stockholder is a holder of record of our
capital stock;
o the name and address, as they appear on our books, of the stockholder
sending the communication; and
o the number of shares of our capital stock that are beneficially owned
by such stockholder.
ENGlobal's Corporate Secretary will distribute such communications to the
intended recipient upon receipt, unless the communication is unduly hostile,
threatening, illegal or similarly inappropriate, in which case the Corporate
Secretary has the authority to discard the communication or to take appropriate
legal action regarding the communication.
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 28, 2006, 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 is attached as
Appendix A and is available on our website at www.englobal.com.
Our Board of Directors has determined that all three members of the
Committee are independent based upon the standards adopted by the Board, which
incorporate the independence requirements under applicable laws, rules and
regulations.
Management is responsible for the financial reporting process, the
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, our system of
internal controls, and procedures designed to 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.
14
During fiscal 2005, 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, 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, 2005 with
management and our independent auditors. Management's discussions with the Audit
Committee included a review of critical accounting policies.
The Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between us and our auditors that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees." The Audit
Committee discussed with the auditors any relationships that may have an impact
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 2005, 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, 2005, 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 28, 2006
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.
15
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 the executive officers in
meeting their 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
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 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 considerations 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.
16
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. In 2005, the Company contributed
$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 the immediately preceding calendar year. The amount of the annual bonus
is divided 40%, 30%, and 30% among the President and CEO, Chairman and Chief
Financial Officer, respectively. The maximum allowable bonus is equal to the
executive's annual salary. Effective January 1, 2006, the Board of Directors'
increased the maximum allowable incentive bonus to one and a half times 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, 2005, there were 1,488,904 options
outstanding under the 1998 Incentive Plan, 410,108 of which are held by
executive officers of ENGlobal. In addition, 509,260 options were available for
issuance under the 1998 Incentive Plan as of December 31, 2005. During 2005, no
stock options were granted by the Company to the executive officers. However,
certain executive officers received options to purchase Company common stock
from Alliance 2000, Ltd. ("Alliance"), a Texas limited partnership. See Footnote
2 under "Beneficial Ownership of Certain Stockholders, Directors, Nominees, and
Executive Officers" for additional information regarding Alliance.
Compensation of the Chief Executive Officer
In reviewing the 2005 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 at $275,000 per annum, effective January 1, 2005. In
addition, in recognition of both Mr. Burrow's and ENGlobal's performance in 2005
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 $275,000 for Mr. Burrow. 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").
17
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 28, 2006
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 $100,000 (the "Named
Executive Officers") during the three years ended December 31, 2005.
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options/SARs Compensation
Principal Position Year ($) ($)(1) ($)(2) (#)(3) ($)(4)
------------------ ---- --- ------ ------ ------ ------
William A. Coskey, P.E. 2005 210,000 225,000 9,000 -- 10,650
Chairman of the Board 2004 186,461 16,730 9,000 -- 3,137
2003 180,474 8,895 9,278 -- 4,443
Michael L. Burrow, P.E. 2005 275,000 295,000 9,000 65,000 11,016
President and Chief 2004 239,713 22,245 9,000 100,000 4,356
Executive Officer and 2003 231,616 11,540 9,000 -- --
Director
Robert W. Raiford 2005 210,000 225,000 9,000 65,000 8,540
Chief Financial Officer and 2004 166,110 16,590 9,000 190,000 2,167
Treasurer 2003 171,249 2,605 2,717 -- --
Michael M. Patton, P.E. 2005 174,922 65,000 9,000 100,000 10,704
Senior Vice President - 2004 149,868 11,773 9,000 40,000 3,457
Business Development 2003 134,896 6,732 9,515 -- 4,338
----------
(1) Consists of bonuses paid for services rendered in 2004 pursuant to the
Incentive Bonus Plan, described in "Incentive Bonus Plan" below, and
bonuses paid for services rendered in 2005 pursuant to the Executive Level
Incentive Plan, described in "Key Manager and Executive Level Incentive
Plans" below.
(2) Consists of automobile allowance.
(3) Consists of 140,000 grants made pursuant to the ENGlobal Corporation 1998
Incentive Plan, described in "1998 Incentive Plan" below, and 420,000
grants made by Alliance.
(4) Consists of health care benefits and matching contribution made on behalf
of the Named Executive Officer pursuant to the ENGlobal Corporation 401(k)
plan, described in "401(k) Plans" below.
Option/SAR Grants in Last Fiscal Year
The Company made no grants of stock options to the Named Executive Officers
during fiscal 2005 and no Named Executive Officer exercised options during
fiscal 2005.
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 30, 2005 ($8.40 per share).
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 2005 December 31, 2005(1)
------------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
William A. Coskey, P.E..... -- -- -- --
Michael L. Burrow, P.E..... 74,042 40,000 $485,472 $254,000
Robert W. Raiford.......... 236,066 -- $707,486 --
Michael M. Patton.......... 44,000 16,000 $295,400 $101,600
----------
(1) Year-end value is determined by subtracting the exercise price from the
fair market value of $8.40 per share (the closing price for our Common
Stock as reported by AMEX on December 30, 2005) 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 officers of the
Company or its subsidiaries. The employment agreements are for three or
four-year terms unless extended by the Company pursuant to certain terms in the
agreements. In October 2004, the Company extended certain agreements for an
additional one-year period, and in December 2005, the Company began to actively
renegotiate certain agreements with key executives. 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, in each case clarifying what is granted per
the agreement and what is subject to approval at the Board of Directors'
discretion. At December 21, 2005, employment agreements between the Company and
the Named Executive Officers expired. As of December 31, 2005, these agreements
had not been renewed, but continue to be negotiated. The Named Executive
Officers have agreed to continue their employment with the Company without
employment agreements.
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.
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 2,650,000 shares of
Common Stock under the 1998 Incentive Plan. As of December 31, 2005, 1,488,904
of the 2,650,000 authorized options were issued and remained outstanding under
the Plan, with 509,260 options available for issuance under the 1998 Incentive
Plan as of December 31, 2005.
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 the fiscal year 2005, the Company makes mandatory matching
contributions to the ENGlobal Corporation 401(k) Plan equal to 50% of regular
employee contributions up to 4% of employee compensation, and all other
employees are matched at 25% of employee contributions up to 4% of compensation,
as defined in the 401(k) Plan. 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
$401,000, $222,000, and $144,000, for the years ended December 31, 2005, 2004,
and 2003, respectively.
Effective April 1, 2006, the Company increased its matching contributions
to the ENGlobal Corporation 401(k) Plan to 50% of regular employee contributions
up to 6% of employee compensation, and for all other employees, to 33.33% of
employee contributions up to 6% of compensation, as defined in the 401(k) Plan.
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 and
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. 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 Plans
The Company's Board of Directors adopted the ENGlobal Corporation Key
Manager Incentive Plan and the ENGlobal Corporation Executive Level Incentive
Plan in December 2004. The Key Manager Incentive Plan was established to provide
certain key management personnel (other than the executives eligible for the
Executive Level Incentive Plan) with cash bonuses as a reward for performance
above the ordinary standards compensated by base salary. The amount of bonus
paid to participants is based on evaluations provided by immediate managers and
the Company's Chief Executive Officer. The Executive Level Incentive Plan was
established to provide financial incentives to certain executive and senior
officers 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 are on file 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. The Company's
Audit Committee is responsible for the review and assessment of all related
party transactions.
21
Until September 2005, the Company leased approximately 14,000 square feet
of office space in Beaumont, Texas ("Executive II") from a joint venture owned
one-third by each of: (1) ENGlobal Engineering, Inc., (2) Michael L. Burrow, the
Company's President and Chief Executive Officer, and (3) a stockholder of the
Company who owns less than 1% of the Company's stock. Upon its review of
comparable lease rates in the area, the Committee believed that this lease is at
a commercially reasonable rental rate. In September 2005, Hurricane Rita
destroyed a significant portion of the Executive II building in Beaumont, Texas.
Shortly thereafter, the insurance company deemed the building inhabitable and a
decision is pending as to whether the building will be demolished or rebuilt.
The Company has not paid rental expenses under this lease since September 2005.
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 27,005,158 shares outstanding as of March 24, 2006,
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 654
N. Sam Houston Parkway E., Suite 400, Houston, Texas 77060-5914.
Amount and Nature Percent of
of Beneficial Common Stock
Name of Beneficial Owner Position Ownership (1) (1)
-------------------------------------- ------------------------- ----------------- ------------
Greater than 5% stockholders:
-----------------------------
Alliance 2000, Ltd................ -- 8,839,286(2) 32.73%
c/o 654 N. Sam Houston Pkwy. E.
Suite 400
Houston, TX 77060-5914
Tontine Capital Partners, L.P. -- 2,619,400(3) 9.70%
Tontine Capital Management, L.L.C.
Jeffrey L. Gendell
55 Railroad Avenue, 3rd Floor
Greenwich, CT 06830
Directors and Named Executive Officers:
---------------------------------------
William A. Coskey, P.E............ Chairman of the Board 8,869,386(4) 32.84%
Michael L. Burrow, P.E............ President, Chief Executive 1,342,930(5) 4.96%
Officer, and Director
David W. Gent, P.E................ Director 100,000(6) *
Randall B. Hale................... Director 60,000(7) *
David C. Roussel.................. Director 60,000(8) *
Robert W. Raiford................. Treasurer and Chief 236,066(9) *
Financial Officer
Michael M. Patton................. Senior Vice President - 49,000(10) *
Business Development
All current Directors, nominees, and
named executive officers as a group
(seven persons)................... -- 10,717,382 38.86%
22
----------
* Represents less than 1% of the shares of Common Stock outstanding.
(1) Beneficial ownership of Common Stock has been determined for this purpose
in accordance with Rule 13d-3 under the Exchange Act, under which a person
is deemed to be the beneficial owner of securities if such person has or
shares voting power or investment power with respect to such securities,
has the right to acquire beneficial ownership within 60 days, or acquires
such securities with the purpose or effect of changing or influencing the
control of ENGlobal.
(2) Alliance 2000, Ltd. ("Alliance") is a Texas limited partnership. 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. BHC Management Corporation, a Texas Corporation, became
general partner of Alliance in the first quarter of 2006. Mr. Coskey and
his wife are officers and each own 50% of the stock of this corporation.
(3) Does not include shares owned directly by officers and stockholders of
Tontine Management LLC ("Tontine") with respect to which Tontine and its
officers disclaim beneficial ownership. Officers and stockholders of
Tontine may be deemed to beneficially own shares of the Common Stock
reported to be beneficially owned directly by Tontine.
(4) In accordance with Rule 13d-3(d)(1)(i)(A), includes 8,869,386 shares of
Common Stock held in the name of Alliance, for which BHC Management
Corporation is the general partner, as described in Footnote 2 above. 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; 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 1,268,888 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 60,000 shares of Common Stock at $2.05 per share. Does
not include options to acquire 40,000 shares of Common Stock at $2.05 per
share none of which are exercisable within 60 days. Also does not include
options to acquire 365,000 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.
(6) 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 10,000 shares of Common Stock at $1.00 per share, options to
acquire 20,000 shares of Common Stock at $1.87 per share, options to
acquire 20,000 shares of Common Stock at $2.32 per share and options to
acquire 20,000 shares of Common Stock at $1.81 per share. Does not include
options to acquire 50,000 shares of Common Stock at $3.75 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.
Hale to acquire 20,000 shares of Common Stock at $1.87 per share options to
acquire 20,000 shares of Common Stock at $2.32 per share and options to
acquire 20,000 shares of Common Stock at $1.81 pre share. Does not include
options to acquire 50,000 shares of Common Stock at $3.75 per share, none
of which are exercisable within 60 days.
(8) 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 options
to acquire 20,000 shares of Common Stock at $2.32 per share and to acquire
20,000 shares of Common Stock at $1.81 per share. Does not include options
to acquire 50,000 shares of Common Stock at $3.75 per share, none of which
are exercisable within 60 days.
(9) In accordance with Rule 13d-3(d)(1)(i)(A), 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 160,373 shares of Common Stock at $6.24 per share. Does
not include options to acquire 485,000 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.
(10) 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 24,000 shares of Common Stock at $2.05 per
share. Does not include options to acquire 16,000 shares of Common Stock at
$2.05 per share, none of which are exercisable within 60 days. Also does
not include 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 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.
23
Based solely upon a review of Forms 3 and 4 and any amendments furnished to
ENGlobal during our fiscal year ended December 31, 2005, 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 for the
following: (1) on December 13, 2005, Mr. Raiford filed a Form 4 representing 22
sales totaling 154,462 shares between the prices of $6.27 and $6.59 from
December 6, 2005 to December 9, 2005; and (2) on December 27, 2005, Mr. Raiford
filed a Form 4 representing 20 sales totaling 32,419 shares between the prices
of $6.50 and $7.34 from December 9, 2005 to December 15, 2005.
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, 2005. This comparison assumes
the investment of $100 on December 31, 1999 and the reinvestment of all
dividends.
[GRAPHIC OMITTED]
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
ENGLOBAL 100.00 57.14 82.29 136.00 225.14 354.29
S&P 600 SMALL CAP INDEX 100.00 105.73 89.54 123.15 149.73 159.69
AMEX US INDEX 100.00 93.08 76.08 102.98 119.00 128.76
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, 2006.
Representatives of Hein & Associates are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
The following table shows the fees paid or accrued by ENGlobal for the
audit and other services provided by Hein & Associates for fiscal 2005 and 2004.
24
2005 2004
-------- --------
Audit Fees $184,971 $125,432
Audit-Related Fees -- --
Tax Fees 81,346 76,882
All Other Fees 13,757 18,012
-------- --------
Total $280,074 $220,326
======== ========
As defined by the SEC, (i) "audit fees" are fees for professional services
rendered by the company's principal accountant for the audit of the company's
annual financial statements and review of financial statements included in the
company's Form 10-Q, or for services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years; (ii) "audit-related fees" are fees for assurance and
related services by the company's principal accountant that are reasonably
related to the performance of the audit or review of the company's financial
statements and are not reported under "audit fees;" (iii) "tax fees" are fees
for professional services rendered by the company's principal accountant for tax
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, except for the ability to designate a portion
of this responsibility as described below, the full Audit Committee is required
to pre-approve the audit and non-audit services performed by the independent
auditors in order to ensure that they do not impair the auditors' independence
from ENGlobal. The Audit Committee may delegate pre-approval authority to a
member of the Audit Committee and if it does, the decisions of that member must
be presented to the full Audit Committee at its next scheduled meeting. The
SEC's rules specify the types of non-audit services that an independent auditor
may not provide to its audit client and establish the Audit Committee's
responsibility for administration of the engagement of the independent auditors.
Consistent with the SEC's rules, the Audit Committee Charter requires that
the Audit Committee review and pre-approve all audit services and permitted
non-audit services provided by the independent auditors to ENGlobal or any of
its subsidiaries, except that the Audit Committee Chairman has the right to
approve up to $25,000 of services in any year.
25
PROPOSAL TWO:
AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
On March 28, 2006, the Board of Directors adopted a resolution unanimously
approving, and recommending to the Company's stockholders for their approval, an
amendment to our Restated Articles of Incorporation ("Articles") to amend the
existing Article Fourth, which provides for 5,000,000 shares of Series A
Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock").
The proposal eliminates all references to Series A Preferred Stock. The new
Article Fourth provides our Board of Directors the ability to authorize, from
time to time, the issuance of shares, and to determine the designations,
preferences, limitations and relative or other rights, with "blank check"
authority vested in the Board of Directors (the "Preferred Stock Amendment").
The following discussion is qualified in its entirety by reference to the text
of the proposed Preferred Stock Amendment attached to this Proxy Statement as
Appendix B.
The Articles currently authorize the issuance of 5,000,000 shares of Series
A Preferred Stock, none of which are outstanding. We issued the Series A
Preferred Stock in connection with a merger transaction in 2001, and the shares
that were issued and outstanding were converted into shares of our Common Stock
in August 2003. In conjunction with the elimination of the Series A Preferred
Stock, Exhibit A, Certificate of Designation, Preferences and Rights of the
Terms of the Series A Preferred Stock, to the Articles will be deleted.
General
The new Article Fourth authorizes a new class of capital stock of the
Company, consisting of 2,000,000 shares of Preferred Stock, par value $0.001 per
share (the "Preferred Stock"). If the Preferred Stock Amendment is approved by
the Company's stockholders, the Board of Directors will have the authority to
approve the issuance of all or any shares of the Preferred Stock in one or more
series, to determine the number of shares constituting any series and to
determine any voting powers, conversion rights, dividend rights, and other
designations, preferences, limitations, restrictions and rights relating to such
shares without any further action by the stockholders. The designations,
preferences, limitations, restrictions and rights of any series of Preferred
Stock designated by the Board of Directors will be set forth in an amendment to
the Amended and Restated Articles of Incorporation ("Amended Articles") filed in
accordance with Nevada law.
Blank Check Authority
The Preferred Stock is referred to as a "blank check" because the Board of
Directors, in their discretion, will be authorized to provide for the issuance
of all or any shares of the stock in one or more classes or series, specifying
the terms of the shares, subject to the limitations of Nevada law. The Board of
Directors would make a determination as to whether to approve the terms and
issuance of any shares of Preferred Stock based on its judgment as to the best
interests of the Company and its stockholders. See "Terms of Possible Preferred
Stock Issuances" below.
Reason for the Authorization of "Blank Check" Preferred Stock. The reason for
authorizing blank check Preferred Stock is to provide the Company with the
flexibility in connection with its future growth. Although the Company presently
has no intentions of issuing shares of Preferred Stock, opportunities may arise
that require the Board to act quickly, such as businesses becoming available for
acquisition or favorable market conditions for the sale of a particular type of
Preferred Stock. The Board believes that the authorization to issue Preferred
Stock is advisable in order to enhance the Company's ability to respond to these
and similar opportunities.
26
Possible Events Triggering Issuances of Preferred Stock
The Board of Directors believes the authorization of the Preferred Stock is
advisable and in the best interests of the Company and its stockholders in order
to facilitate the Company's ability, if and when necessary, to pursue corporate
opportunities, including, but not limited to:
o mergers; o financing transactions;
o acquisitions of assets and businesses; o joint ventures;
o raising capital; o strategic alliances; and
o paying stock dividends on equity to be o other corporate purposes.
issued in the future (instead of paying
interest on debt);
If the Proposal is approved, the Board of Directors will have the ability
to issue Preferred Stock without the delay and expenses inherent in holding a
special stockholders' meeting each time an opportunity requiring the issuance of
shares of Preferred Stock may arise. We believe that this could permit the
Company to react more quickly to corporate business opportunities should they
become available.
Terms of Future Preferred Stock Issuances
While the Company may consider issuing Preferred Stock in the future, the
Company has no immediate plans, arrangements, commitments or understandings with
any person to effect issuance of any of the Preferred Stock that would be
authorized by the proposed Preferred Stock Amendment, and it is possible that
the Company will never issue any Preferred Stock. Therefore, the specific terms
of any Preferred Stock subject to this proposal or the specific instances of its
future issuance cannot be stated.
However, it is likely that the terms and conditions of any Preferred Stock,
as designated in the Amended Articles, would include preferences and rights
superior to those of the holders of Common Stock. Such terms might include, (1)
special voting rights, (2) special conversion rights, and (3) redemption or
other rights which may, among other things, provide the holders of Preferred
Stock with, (i) a disproportionate share of earnings distributed by way of
dividends or of the proceeds of a sale or liquidation of the Company, and (ii)
disproportionate rights of approval, compared to those of the holders of Common
Stock, with respect to certain kinds of transactions.
The authority of the Board with respect to each class or series will
include, without limitation, the right to determine:
1. Redemption price or prices and timing;
2. Dividend rates (which may be cumulative or non-cumulative),
conditions, and timing, as well as preferences in relation to the
dividends payable on any other class or series;
3. Rights upon the dissolution, or upon any distribution of the assets,
of the Company;
4. Conversion or exchange rights, including the price or prices and rates
of conversion or exchange and adjustments;
5. Limitations on the issuance of additional shares of such class or
series, or shares of any other class or series of Preferred Stock;
6. Voting rights; and
7. Other preferences, powers, qualifications, rights and privileges, all
as the Board of Directors may deem advisable and as are not
inconsistent with law and the provisions of the Amended Articles.
27
Notwithstanding the above actions, the exact terms of the class or series
of Preferred Stock will be determined by the Board of Directors at the time of
issuance without further action by the stockholders, as permitted by Nevada law,
except as may be required for a particular transaction by applicable law or
regulation, including, but not limited to, Securities and Exchange Commission
rules or regulations or the listing regulations of the American Stock Exchange.
Possible Anti-Takeover Effects of the Proposal
The authorization of "blank check" Preferred Stock may operate to provide
anti-takeover protection for the Company. Subject to its fiduciary duties, in
the event of a proposed merger, tender offer or other attempt to gain control of
the Company that the Board of Directors does not believe is in the best
interests of the Company or its shareholders, the Board will have the ability to
quickly issue shares of Preferred Stock with certain rights, preferences and
limitations that make the proposed takeover attempt more difficult to complete.
We have not proposed the blank check authority with the intention of using the
Preferred Stock for anti-takeover purposes, although we could theoretically use
the Preferred Stock to make it more difficult or to discourage an attempt to
acquire control of the Company. The Preferred Stock Amendment is not being
proposed as a means of preventing or dissuading a change in control or takeover
of the Company, but it may have the effect of discouraging a challenge for
control or making it less likely that such a challenge, if attempted, would be
successful. Proposal Two is not in response to any attempt to acquire control of
the Company, nor is the Company aware of any such attempt.
The authorization to issue Preferred Stock may also benefit present
management. A potential acquiror may be discouraged from attempting a takeover
because the Board possesses the authority, when consistent with its fiduciary
duties to issue Preferred Stock. Thus, management may be able to retain its
position more easily. The Board, however, does not intend to issue any Preferred
Stock except on terms that the Board of Directors deems to be in the best
interest of the Company and its shareholders. Proposal Two is not an effort by
management of the Company to make it more difficult to replace incumbent
management.
Blank check Preferred Stock may also be used, subject to applicable
fiduciary duties, in connection with anti-takeover measures, such as (i) a
stockholder rights plan, also known as a "poison pill" plan, or (ii) the
issuance to purchasers supporting the Board of Directors in opposing a specific
takeover proposal, which could delay or prevent a change of control of the
Company by increasing the number of outstanding shares entitled to vote and by
increasing the number of votes required to approve a change of control of the
Company. Proposal Two is not part of a plan by the Company to adopt a series of
anti-takeover measures, nor does the Company have any present intention of
proposing the adoption of anti-takeover measures in the future.
Possible Adverse Effects of the Proposal
The issuance of Preferred Stock may have certain adverse effects upon our
current holders of Common Stock. The issuance of Preferred Stock with
disproportionately high voting rights generally or with respect to particular
matters will adversely affect the voting power of holders of Common Stock.
Further, a class or series of Preferred Stock convertible into or redeemable for
Common Stock may be issued by the Board of Directors. The issuance of Common
Stock upon the right to convert the Preferred Stock will increase the number of
shares of Common Stock outstanding when calculated on a fully diluted basis,
diluting the percentage ownership of existing shareholders. The issuance of
Common Stock upon a conversion may also dilute book value per share and/or
earnings per share. Holders of our stock will not have pre-emptive rights with
respect to the Preferred Stock or Common Stock issued upon the conversion of
shares of Preferred Stock. Finally, shares of Preferred Stock generally have
preferences over Common Stock with respect to dividend rights and distributions
in the event of liquidation. As a result, holders of our Common Stock may not
receive any dividends or distributions in the event of liquidation until
satisfaction of any dividend or liquidation preference granted to holders of
Preferred Stock.
28
The Board of Directors does not believe that the approval of this proposal
will have an anti-takeover effect and that the financial flexibility afforded by
the Preferred Stock Amendment outweighs any potential disadvantages.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote and represented at the annual meeting is
required for the adoption of the Amended Articles. If approved, Proposal Two
will become effective upon the filing of the Amended Articles with the Secretary
of State of Nevada and acceptance thereof, which is expected to occur as soon as
practicable following the Annual Meeting of Stockholders.
Recommendation of the Board
The Board recommends that stockholders vote FOR the amendment to the
Restated Articles of Incorporation.
OTHER MATTERS
To the best of the knowledge, information and belief of the Directors,
there are no other matters which are to be acted upon at the Annual Meeting. If
such matters arise, the form of proxy provides that discretionary authority is
conferred on the designated persons in the enclosed form of proxy to vote with
respect to such matters.
The Company has received no notice of any other items to be submitted for
consideration at the meeting and, except for reports of operations and
activities by management, which are for informational purposes only and require
no approval or disapproval, and consideration of the minutes of the preceding
annual meeting for approval, which may involve technical corrections to the text
where actions taken were incorrectly recorded, but which require no action of
approval or disapproval of the subject matter, management neither knows of nor
contemplates any other business that will be presented for action by the
stockholders at the meeting. If any further business is properly presented at
the meeting, the persons named as proxies will act in their discretion on behalf
of the stockholders they represent.
STOCKHOLDER PROPOSALS FOR 2006
The 2007 annual meeting of stockholders is expected to be held in June
2007. The Company must receive by December 30, 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, 654 N. Sam Houston
Parkway E., Suite 400, Houston, Texas 77060-5914, Attention: Corporate
Secretary, prior to the specified deadline.
SEC rules and regulations provide that if the date of the Company's 2007
Annual Meeting is advanced or delayed more than 30 days from the date of the
2006 Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2007 Annual Meeting must be received by the Company within a
reasonable time before the Company begins to print and mail the proxy materials
29
for the 2007 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 2007 Annual Meeting will be advanced or delayed by
more than 30 days from the date of the 2006 Annual Meeting.
ADDITIONAL INFORMATION
A copy of the Company's 2005 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, 654 N. Sam
Houston Parkway E., Suite 400, Houston, Texas 77060-5914, (281) 878-1000.
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 28, 2006
30
Appendix A
----------
ENGLOBAL CORPORATION
AUDIT COMMITTEE CHARTER
General
The Committee's purpose is to oversee the accounting and financial
reporting processes of the Corporation and the audits of the financial
statements of the Corporation. The Committee shall oversee the audit efforts of
the Corporation's independent accountants and any internal auditors employed by
the Corporation and, in that regard, shall take such actions as it may deem
necessary to satisfy itself that the Corporation's auditors are independent of
management. It is the objective of the Committee to maintain free and open means
of communications among the Board, the independent accountants, any internal
auditors employed by the Corporation, and the financial and senior management of
the Corporation.
Composition
The Audit Committee shall consist of three or more Directors as determined
by the Board, each of whom is determined by the Board to be "independent" under
Section 10A(m)(3) of the Securities Exchange Act of 1934, the rules of the
American Stock Exchange, and the rules and regulations of the SEC.
All members of the Committee shall be financially literate at the time of
their election to the Committee or shall become financially literate within a
reasonable period of time after their appointment to the Committee. "Financial
literacy" shall be determined by the Board in the exercise of its business
judgment, and shall include a working familiarity with basic finance and
accounting practices. At a minimum, all members of the Committee must be able to
read and understand fundamental financial statements, including the
Corporation's balance sheet, income statement, and cash flow statement or become
able to do so within a reasonable period of time after his or her appointment to
the Committee. At least one member of the Committee must be a financial expert
as such term is defined by the SEC. Committee members, are encouraged to enhance
their understanding of finance and accounting by participating in educational
programs conducted by the Corporation or an outside consultant or firm.
The members of the Committee are to be elected by the Board upon the
recommendation of the Nominating/Corporate Governance Committee and shall serve
until their successors are duly elected and qualified. Unless a Chair is elected
by the full Board upon the recommendation of the Nominating/Corporate Governance
Committee, the members of the Committee may designate a Chair by majority vote
of the full Committee membership. The Chair will chair all regular sessions of
the Audit Committee and set the agenda for Audit Committee Meetings.
Meetings
The Committee shall hold regular meetings as may be necessary, but no less
than once per quarter, and special meetings as may be called by the Chairman of
the Committee. As part of its job to foster open communication, the Committee
should meet regularly with each of management, the principal internal auditor of
the Corporation, and the independent accountants in separate executive sessions
to discuss any matters that the Committee or either of these groups believe
should be discussed privately. In addition, the Committee or its Chair should
meet with the independent accountants and management quarterly to review the
Corporation's financial statements.
The presence in person or by telephone of a majority of the Committee's
members shall constitute a quorum for any meeting of the Committee. All actions
of the Committee will require the vote of a majority of its members present at a
meeting of the Committee at which a quorum is present.
The Committee Chairman should consult with management in the process of
establishing agendas for Committee meetings.
The Committee shall maintain and submit to the Board copies of minutes of
each meeting of the Committee, and each written consent to action taken without
a meeting, reflecting the actions so authorized or taken by the Committee since
the preceding meeting of the Board. A copy of the minutes of each meeting shall
be placed in the Corporation's minute book.
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Relationship with Independent Accountants
The Committee shall be directly responsible, in its capacity as a committee
of the Board, for the appointment, compensation, retention and oversight of the
outside auditing firm. In this regard, the Audit Committee shall have the sole
authority to (A) appoint and retain, (B) determine the funding for, and (C) when
appropriate, terminate, the outside auditing firm, which shall report directly
to the Committee. The Committee will be responsible for resolving any disputes
between the independent accountants and the Corporation's management.
Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
------------------------
1. Review and assess the adequacy of this Charter at least annually, and
otherwise as conditions dictate.
2. Review the results of the year-end audit of the Corporation, including (as
applicable):
o the audit report, the published financial statements, the management
representation letter, the "Memorandum Regarding Accounting Procedures
and Internal Control" or similar memorandum prepared by the
Corporation's independent auditors, any other pertinent reports and
management's responses concerning such memorandum;
o the qualitative judgments of the independent auditors about the
appropriateness, not just the acceptability, of accounting principle
and financial disclosure practices used or proposed to be adopted by
the Corporation and, particularly, about the degree of aggressiveness
or conservatism of its accounting principles and underlying estimates;
o the methods used to account for significant unusual transactions;
o the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
o management's process for formulating sensitive accounting estimates
and the reasonableness of these estimates;
o significant recorded and unrecorded audit adjustments;
o any material accounting issues among management, members of the
Corporation's internal auditing department and the independent
auditors; and
o other matters required to be communicated to the Committee under
generally accepted auditing standards, as amended, by the independent
auditors.
3. Review with financial management and the independent accountants the
Corporation's filings with the Securities and Exchange Commission on Form
10-Q and Form 10-K prior to their filing or prior to the release of
earnings. The Chair of the Committee may represent the entire Committee for
purposes of this review.
4. Review with management and the Corporation's independent auditors such
accounting policies (and changes therein) of the Corporation, including any
financial reporting issues which could have a material impact on the
Corporation's financial statements, as are deemed appropriate for review by
the Committee prior to any interim or year-end filings with the SEC or
other regulatory body.
A-2
Independent Accountants
-----------------------
5. Approve in advance all audit, review or attest engagements required under
the securities laws to be provided by the outside auditing firm, including
fees and terms.
6. Establish policies and procedures for the engagement of the outside
auditing firm to provide permissible non-audit services, which shall
require pre-approval by the Committee (other than with respect to de
minimis exceptions described in Section 10A(i)(1)(B) of the Exchange Act
that are approved by the Audit Committee prior to the completion of the
audit). Ensure that approval of non-audit services are disclosed to
investors in periodic reports required by Section 13(a) of the Exchange
Act.
7. The authority to grant pre-approval of audit and non-audit services may be
delegated to one or more designated members of the Committee who are
independent Directors. Any such delegation shall be presented to the full
Audit Committee at its next scheduled meeting.
8. Review, at least annually, a report by the outside auditor describing (i)
the firm's internal quality-control procedures, (ii) any material issues
raised by the most recent internal quality-control review, or peer review,
of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the last five years, respecting one or
more independent audits carried out by the firm, and any steps taken to
deal with any such issues, and (iii) all relationships between the
independent auditor and the Corporation.
9. In connection with the report review described in the previous paragraph,
review and evaluate the lead partner of the outside auditor and present to
the Board Committee conclusions with respect to the qualifications and
performance of the outside auditing firm.
10. Consider, at least annually, the independence of the outside auditing firm,
including whether the outside auditing firm's performance of permissible
non-audit services is compatible with the auditor's independence; obtain
and review the report by the outside auditing firm describing any
relationships between the outside auditing firm and the Corporation
referred to in paragraph four above or any relationships between the
outside auditing firm and the Corporation or any other relationships that
may adversely affect the independence of the auditor; discuss with the
outside auditing firm any disclosed relationship or services that may
impact the objectivity and independence of the auditor; and present to the
Board the Committee's conclusions with respect to the independence of the
outside auditing firm.
11. Ensure rotation of the audit partners as required by law.
12. Establish policies for the hiring of employees and former employees of the
outside auditing firm.
Financial Reporting Processes
-----------------------------
13. Review the adequacy and effectiveness of the organization's disclosure
controls and procedures and management reports thereon.
14. Review disclosures made to the Committee by the Corporation's Chief
Executive Officer and Chief Financial Officer during their certification
process for the Form 10-K and 10-Q about any significant deficiencies in
the design or operation of internal controls or material weaknesses therein
and any fraud involving management or other employees who have a
significant role in the Corporation's internal controls.
15. Consider the independent accountant's judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
16. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants or management.
A-3
17. Establish regular and separate reporting to the Committee by each of
management and the independent accountants regarding any significant
judgments made in management's preparation of the financial statements and
the view of each as to appropriateness of such judgments.
18. Following completion of the annual audit, review separately with each of
management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information.
19. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial statements.
20. Review with the independent accountants and management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Committee, have been implemented.
21. Discuss and review earnings press releases, including the type and
presentation of information to be included in earnings press releases, in
particular the use of "pro forma" or "adjusted" non-GAAP information.
22. Review with management and the independent auditors any reportable
conditions and material weaknesses affecting internal control.
23. Receive periodic reports from the Corporation's independent auditors and
management of the Corporation to assess the impact on the Corporation of
significant accounting or financial reporting developments proposed by the
Financial Accounting Standards Board or the SEC or other regulatory body,
or any other significant accounting or financial reporting related matters
that may have a bearing on the Corporation.
24. Prepare a report annually which states, among other things, whether:
o the Committee has reviewed and discussed with management and
independent auditors the audited financial statements to be included
in the Corporation's Annual Report on Form 10-K;
o the Committee has discussed with the Corporation's independent
auditors the matters that the auditors are required to discuss with
the Committee by Statements on Auditing Standard No. 61, (as it may be
modified or supplemented) and SEC rules;
o the Committee has determined that the Corporation's outside auditors
are "independent" under SEC and American Stock Exchange rules; and
o based on the review and discussions described in subsections (i), (ii)
and (iii) above, the Committee has recommended to the Board that the
audited financial statements be included in the Corporation's Annual
Report on Form 10-K for the last fiscal year for filing with the SEC.
Ethical and Legal Compliance
----------------------------
25. Establish, review and update periodically a Code of Conduct that applies to
the Corporation's employees and Directors and ensure that management has
established a system to enforce this Code. The Code must be publicly
available and waivers for executive officers and Directors granted and
disclosed in accordance with applicable law.
26. Review with the Corporation's counsel, any legal matter that could have a
significant impact on the Corporation's financial statements.
27. Meet annually with the general counsel, and outside counsel when
appropriate, to review legal and regulatory matters, including any matters
that may have a material impact on the financial statements of the
Corporation.
A-4
28. Review and approve, if the duty is not delegated to a comparable body of
the Board, all related party transactions in accordance with the
regulations of the American Stock Exchange and other applicable law.
29. Obtain from the independent auditors any information pursuant to Section
10A of the Securities Exchange Act of 1934.
30. Establish procedures for the receipt, retention and treatment of complaints
received by the Corporation regarding accounting, internal accounting
controls or auditing matters, including procedures for confidential,
anonymous submission of concerns by employees regarding accounting and
auditing matters.
31. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
Outside Advisors
----------------
The Audit Committee shall have the authority to retain such outside
counsel, accountants, experts and other advisors as it determines appropriate to
assist the Audit Committee in the performance of its duties. The Audit Committee
shall have sole authority to approve related fees and retention terms.
With respect to the duties and responsibilities listed above, the Committee
should:
o Report regularly to the Board on its activities, as appropriate;
o Exercise reasonable diligence in gathering and considering all
material information;
o Understand and weigh alternative courses of conduct that may be
available;
o Focus on weighing the benefit versus harm to the Corporation and its
stockholders when considering alternative recommendations or courses
of action;
o If the Committee deems it appropriate, secure independent expert
advice and understand the expert's findings and the basis for such
findings, including retaining independent counsel, accountants or
others to assist the Committee in fulfilling its duties and
responsibilities; and
o Provide management, the Corporation's independent auditors, and any
internal auditors employed by the Corporation with appropriate
opportunities to meet privately with the Committee.
* * *
While the Committee has the duties and responsibilities set forth in this
charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. These are the responsibilities of management and the outside
auditor.
Adopted by Resolution of the Board of Directors
March 28, 2006
A-5
Appendix B
----------
PROPOSED NEW ARTICLE FOURTH TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
("PREFERRED STOCK AMENDMENT")
If Proposal Two is approved by stockholders of the Company, Article Fourth of
the Company's Restated Articles of Incorporation would be amended and restated
as follows:
"FOURTH. The corporation is authorized to issue two classes of stock, common
stock and preferred stock:
(A) Authorized Capital Stock. The aggregate number of shares which the
corporation shall have the authority to issue is 77,000,000 shares, of which
75,000,000 shares shall be Common Stock, par value $0.001 per share (the "Common
Stock"), and 2,000,000 shares shall be Preferred Stock, par value $0.001 per
share (the " Preferred Stock"). All shares of Common Stock will be identical and
will entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of the Preferred Stock.
(B) Preferred Stock.
(1) Issuances. The Board of Directors is expressly authorized to provide
for the issuance of all or any shares of the undesignated Preferred Stock in one
or more series, each with such designations, preferences, powers, rights,
privileges, qualifications, limitations or restrictions as shall be stated in
the resolution or resolutions adopted by the Board of Directors to create such
series. Except as may otherwise be provided in these Articles, as amended from
time to time, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes. For
each series, the Board of Directors shall determine, by resolution or
resolutions adopted prior to the issuance of any shares thereof, the
designations, preferences, limitations and relative or other rights thereof,
including but not limited to the following relative rights and preferences, as
to which there may be variations among different series:
o The rate and manner of payment of dividends, if any;
o Whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
o The amount payable upon shares in the event of liquidation,
dissolution or other winding-up of the Corporation;
o Sinking fund provisions, if any, for the redemption or purchase of
shares;
o The terms and conditions, if any, on which shares may be converted or
exchanged;
o Voting rights, if any; and
o Any other rights and preferences of such shares, to the full extent
now or hereafter permitted by the laws of the State of Nevada.
(2) Authority of the Board of Directors. The Board of Directors shall have
the authority to determine the number of shares that will comprise each series.
Prior to the issuance of any shares of a series, but after adoption by the Board
of Directors of the resolution establishing such series, the appropriate
officers of the Corporation shall file such documents with the State of Nevada.
Articles of Amendment setting forth such matters will be filed in accordance
with Section 390(2) of Chapter 78 of the Nevada Revised Statutes or any
successor provision thereto. Notwithstanding the forgoing, before the issuance
of any shares of any class or series of which the number, preferences,
limitations or relative rights are set forth in Articles of Amendment filed in
accordance with Section 390(2) of Chapter 78 of the Nevada Revised Statutes or
any successor provision thereto, the Board of Directors may amend or rescind any
terms applicable to such class or series in accordance with the procedures set
forth in Section 390(1) of Chapter 78 of the Nevada Revised Statutes or any
successor provision thereto."
B-1
ENGlobal Corporation
PROXY CARD
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Michael L. Burrow, P.E. and William A.
Coskey, P.E., either of them, jointly and severally, with full power of
substitution, to represent and to vote as designated all shares of Common Stock
which the undersigned would be entitled to vote at the Annual Meeting of
Stockholders of ENGlobal Corporation, to be held at Wyndham Greenspoint Hotel,
12400 Greenspoint Drive, Houston, Texas on Thursday, June 1, 2006 at 10:00 a.m.,
local time, or any adjournment thereof.
1. Election of Directors.
a. William A. Coskey, P.E. d. Randall B. Hale
b. Michael L. Burrow, P.E. e. David C. Roussel
c. David W. Gent, P.E.
|_| FOR |_| AGAINST |_| ABSTAIN
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH OR OTHERWISE STRIKE THE NOMINEE'S NAME.
2. The amendment to the Restated Articles of Incorporation of ENGlobal
Corporation to eliminate the Series A Preferred Stock and all references as
to its rights and privileges, and to authorize 2,000,000 shares of
Preferred Stock, $0.001 par value, with the Board of Directors' authority
to determine the designations, preferences, limitations, restrictions, and
other rights relating to such shares and to approve the issuance of such
shares without further approval by stockholders.
|_| FOR |_| AGAINST |_| ABSTAIN
|_| If you plan to attend the Annual Meeting, please check here.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES TO ENGLOBAL'S BOARD OF DIRECTORS AND FOR THE
APPROVAL TO AMEND ENGLOBAL'S ARTICLES OF INCORPORATION.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the accompanying Proxy Statement.
Please sign exactly as your name appears hereon and date. If the shares are
jointly held, each holder should sign. When signing as an attorney, executor,
administrator, trustee, or as an officer signing for a corporation, please give
full title under signature.
____________________________________ Date: _______________
____________________________________ Date: _______________
Signatures of Stockholder(s)
(PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE)