ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS
The names of our directors and their ages, positions, and biographies
as of December 26, 2015, are set forth below. There are no family relationships among any of our directors. The Board of Directors
did not select any current director pursuant to any arrangement or understanding between a current director and any other person.
Name of Nominee:
|
William A. Coskey, P.E.
|
Position:
|
Chairman of the Board and Chief Executive Officer
|
Director Since:
|
1985
|
Age:
|
63
|
Present positions and offices with the Company, principal occupations
and other directorships during the past five years:
Mr. Coskey founded ENGlobal in 1985 and
has served in various positions, including service as Chairman of the Board since June 2005 and as President and Chief Executive
Officer since August 2012. From April 2007 until May 2010, he served as Chief Executive Officer. Prior to that, he served
as Chairman of the Board, Chief Executive Officer and President from 1985 until 2001, Chief Operating Officer from 2001 to 2003,
and 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. He served on the Texas A&M University Electrical
Engineering Department Advisory Council from 1999 to 2014, and from 2006 until 2014, he served as Chairman of the Council. Mr. Coskey
received the 2014 Outstanding Alumni Honor Award from the Texas A&M University College of Engineering. In 2014, Mr. Coskey
was also appointed to the Texas A&M College of Engineering Advisory Council.
Qualifications for Consideration:
The Board selected Mr. Coskey to serve
as a director because it believes that, as the founder of ENGlobal, he provides a unique perspective to the Board. He was responsible
for ENGlobal’s initial public offering in 1994, listing on the American Stock Exchange in 1998, and listing on the NASDAQ
Stock Market in 2007. In June 2009, he was awarded the Ernst & Young Entrepreneur Of The Year® in the Energy Services
category for the Houston & Gulf Coast Area. The Board believes Mr. Coskey’s industry knowledge and business experiences
give him invaluable insights into the Company’s challenges, opportunities and operations.
Name of Nominee:
|
David W. Gent, P.E.
|
Position:
|
Lead Independent Director
|
Director Since:
|
1994
|
Age:
|
63
|
Present positions and offices with the Company, principal occupations
and other directorships during the past five years:
Mr. Gent has served as a director of ENGlobal
since June 1994, is Chairman of the Nominating & Corporate Governance Committee and is a member of the Audit and Compensation
Committees. Mr. Gent has served as the Company’s Lead Independent Director since 2002. Since 2011, Mr. Gent has
served as the Chairman of SofTest Designs Corporation, an automation and test systems company that he founded in 1980. From 1991
through 2011, Mr. Gent held various positions for Bray International, Inc., an industrial flow control manufacturer. From
2005 to 2011, Mr. Gent served as Senior Vice President of Bray International and was 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 a Master of Business Administration 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 and he holds several patents in the field of industrial flow
controls.
Qualifications for Consideration:
The Board selected Mr. Gent to serve as
a director, and as Lead Independent Director, because it believes he possesses valuable engineering expertise, including extensive
experience managing multinational engineering, research and development, information technology, and manufacturing operations,
including domestic and international operations obtained through start-ups and acquisition. He provides the perspective of a leader
with experience in global operations and strategy who has faced and effectively dealt with economic and governance issues.
Name of Nominee:
|
Randall B. Hale
|
Position:
|
Independent Director
|
Director Since:
|
2001
|
Age:
|
53
|
Present positions and offices with the Company, principal occupations
and other directorships during the past five years:
Mr. Hale has served as a director of ENGlobal
since December 2001, and is Chairman of the Audit Committee and a member of the Compensation and Nominating & Corporate
Governance Committees. Mr. Hale is the founder of Rock Hill Capital Group, LLC, an investment management firm, and serves
as its Managing Director. Mr. Hale is responsible for managing all aspects of the investment activities of the firm, including
capital raising, deal sourcing and investment management of portfolio companies. Prior to founding Rock Hill, he served as an Executive
Vice President and a Director of Equus Capital Management Corporation, investment advisor to several private equity funds, from
November 1992 to November 2002. Prior to joining Equus, Mr. Hale served in an audit, consulting and advisory capacity
with a public accounting firm in Houston, Texas. In September 2004, he co-founded ConGlobal Industries, Inc., a provider of
intermodal services to the shipping industry, and served as its Executive Chairman until its sale in December 2013. ConGlobal
was formed in September 2004 to facilitate the merger of Container-Care International, Inc., an intermodal services company,
with Global Intermodal Systems, Inc. Prior to the merger, Mr. Hale served as the President and Chief Executive Officer of
Container-Care from February 2003 to September 2004. Mr. Hale serves on several private company boards. He is the past
President and Director of the Houston Private Equity Association and is an active member of the Association for Corporate Growth.
Mr. Hale received a Bachelor in Business Administration from Texas A&M University in 1985 and is a certified public accountant.
Qualifications for Consideration:
The Board selected Mr. Hale to serve as
a director because it believes he possesses valuable financial expertise, including extensive experience with capital markets transactions
and investments in both public and private companies. Mr. Hale’s CPA background assists ENGlobal with financial and
accounting issues and is invaluable to our Board’s discussions of the Company’s capital and liquidity needs. ENGlobal
also benefits from Mr. Hale’s entrepreneurial experience and his service as a director and chairman on several private
company boards.
Name of Nominee:
|
David C. Roussel
|
Position:
|
Independent Director
|
Director Since:
|
2001
|
Age:
|
67
|
Present positions and offices with the Company, principal occupations
and other directorships during the past five years:
Mr. Roussel has served as a Director of
the Company since December 2001, and is Chairman of the Compensation Committee and a member of the Audit and Nominating &
Corporate Governance Committees. Mr. Roussel, who retired in 2014, worked for Jefferies Energy Investment Banking, a leading
mergers and acquisitions advisor in the global oil and gas industry, or its predecessor companies from 2003 to 2014 and served
as a Senior Vice President responsible for managing acquisition and divestiture projects on behalf of clients. Jefferies Energy
Investment Banking is a division of Jefferies & Company, Inc., a global investment bank and institutional securities firm.
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.
Qualifications for Consideration:
The Board selected Mr. Roussel to serve
as a director because it believes he possesses valuable engineering experience, including a sound background in the energy industry,
business operations and business development practices. Mr. Roussel’s experience in senior and general management roles
helps the Board address the challenges the Company faces with respect to development of its growth strategy, mergers and acquisitions,
and joint venture formation. ENGlobal also benefits from Mr. Roussel’s ability to address diverse matters that come
before the Board.
EXECUTIVE OFFICERS
The names of our executive officers and their
ages, positions, and biographies as of December 26, 2015, are set forth below, except for Mr. Coskey, whose information
is listed above. Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no
family relationships among any of our executive officers.
Named Executive Officer:
|
Mark A. Hess
|
Position:
|
Chief Financial Officer and Treasurer
|
Age:
|
57
|
Present positions and offices with the Company, principal occupations
during the past five years:
Mr. Hess has served as Chief Financial
Officer of ENGlobal Corporation since September 2012 and served as interim Chief Financial Officer from June 2012 to
September 2012. Mr. Hess previously served as the Company’s Corporate Controller from July 2011 until June 2012.
Prior to joining ENGlobal, Mr. Hess served as Vice President and Chief Accounting Officer of Geokinetics, Inc., a seismic
data service company, from April 2008 to April 2010. From November 2004 to April 2008, he served as Director of
Finance for CGGVeritas, a seismic data service company. Mr. Hess is a CPA, holds a Bachelor of Business Administration in
Accounting from the University of Houston and is an active member of Financial Executives International.
Named Executive Officer:
|
R. Bruce Williams
|
Position:
|
Chief Operating Officer
|
Age:
|
63
|
Present positions and offices with the Company, principal occupations
during the past five years:
Mr. Williams was appointed the Chief Operating
Officer in December 2013 and the President of ENGlobal Government Services, Inc. in September 2012. He served as Senior
Vice President, Midwest/Southwest Operations of ENGlobal’s Engineering and Construction segment from September 2012
to September 2013. He initially joined ENGlobal in 2004, and from November 2010 until September 2012, he served in various
roles at ENGlobal, including General Manager of the Tulsa Office, Vice President of Midwest and Southwest Operations, Senior Project
Manager of Engineering/ Projects, and acting General Manager of ENGlobal Government Services, Inc. Prior to joining ENGlobal, Mr. Williams
served as Vice President – Engineering for U.S. Transcarbon LLC, a petroleum coke gasification project developer, from April 2008
until October 2010. In total, he has over 35 years of domestic and international experience in engineering and project management,
including several project management positions of increasing responsibility in the U.S., Middle East, Papua New Guinea, Asia, Mexico
and Brazil. Mr. Williams has an undergraduate degree in Chemistry from the University of Northern Iowa, with post graduate
studies in Environmental Management from the University of Houston and MBA studies at Incarnate Word University.
Named Executive Officer:
|
J. Michael Harrison
|
Position:
|
Senior Vice President, Business Development
|
Age:
|
58
|
Present positions and offices with the Company, principal occupations during the past
five years:
Mr. Harrison was appointed Senior Vice
President of Business Development in September 2013, and previously served in various Business Development/Operational capacities
since joining the Company in 2009. He has over 25 years of Business Development experience in the engineering and construction
industries. Mr. Harrison was previously Vice President, Business Development for Commonwealth Engineering and Construction,
LLC, an engineering and construction firm, from 2006 to 2009. Prior to his tenure at Commonwealth, Mr. Harrison worked for
Jacobs, an engineering and construction firm, from 1996 to 2005 in progressively higher levels of Business Development responsibility.
Mr. Harrison has served on the Board of the Rice University Global Engineering & Construction Forum since 2010 and was
appointed its Annual Conference Chair in 2012 and 2013. He has a BBA from Stephen F. Austin State University and has since received
continuing technical education at the University of Oklahoma.
Named Executive Officer:
|
Tami L. Walker
|
Position:
|
General Counsel, Vice President, and Secretary
|
Age:
|
51
|
Present positions and offices with the Company, principal occupations during the past
five years:
Ms. Walker joined the Company in 2011 and was
appointed General Counsel, Vice President and Secretary in April 2014, previously serving as Corporate Vice President and
General Counsel. Ms. Walker has more than 25 years of legal experience in various industries including oil and gas, transportation,
telecommunications and wind power generation. Most recently, from 2008 to 2011, Ms. Walker served as General Counsel-Development
for E.ON Climate & Renewables North America. Ms. Walker also served as Vice President and Associate General Counsel for
Level 3 Communications and its predecessor Broadwing Communications from 2005 to 2007 and as Sr. Corporate Counsel from 1999-2005.
Ms. Walker holds BS in Accounting from Southwestern Oklahoma State University and a JD from the University of Texas.
Section 16(a) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, executive officers and persons
holding more than 10% of our common stock must report their initial ownership of our common stock and any changes in that ownership
to the Securities and Exchange Commission. The SEC has designated specific due dates for such reports and ENGlobal must identify
in this Amended Form 10-K those persons who did not file such reports when due.
Based solely upon a review of Forms 3 and 4 and any amendments thereto
furnished to ENGlobal during our fiscal year ended December 26, 2015, and Forms 5 and any amendments thereto furnished to ENGlobal
with respect to the same fiscal year, we believe that our directors, officers, and greater than 10% beneficial owners timely filed
all required Section 16 reports.
Audit Committee
During the fiscal year ended December 26, 2015, the Audit Committee
consisted of Randall B. Hale (Chairperson), David W. Gent, and David C. Roussel. The duties and responsibilities of the Audit Committee
are to oversee:
|
·
|
the quality and integrity of our financial statements;
|
|
·
|
our compliance with legal and regulatory requirements; and
|
|
·
|
our independent auditors’ qualifications, independence and performance.
|
In addition, the Audit Committee annually reviews
our disclosures regarding deficiencies, if any, in the design or operation of our internal controls.
The Board has determined that Mr. Hale is qualified
as an audit committee financial expert under the SEC’s rules and regulations. In addition, the Board has determined that
each member of the Audit Committee has the requisite accounting and related financial management expertise under NASDAQ rules.
Code of Business Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics that
applies to all of the Company’s directors, officers and employees in accordance with NASDAQ rules. The purpose and role of
this code is to focus our officers, directors, and employees on areas of ethical risk, provide guidance to help them recognize
and deal with ethical issues, provide mechanisms to report unethical or unlawful conduct, and help enhance and formalize our culture
of integrity, honesty and accountability. We have posted this Code of Business Conduct and Ethics on the “Investor Relations”
section of our website at www.englobal.com.
The Company also has a Code of Ethics applicable to the Chief Executive
Officer and certain senior financial officers of the Company that complies with Item 406 of Regulation S-K of the Exchange Act
and with applicable NASDAQ rules. We have posted this Code of Ethics on the “Investor Relations” section of our website
at www.englobal.com.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information regarding compensation
earned during the last two fiscal years by our Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer (the
“named executive officers”).
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
(1)
($)
|
Non-Equity Incentive Plan
(2)
|
All Other
Compensation
(3)
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
Mr. Coskey ~ President & Chief Executive Officer
|
2015
|
49,442
|
|
|
|
|
49,442
|
|
2014
|
48,704
|
|
|
|
|
48,704
|
|
|
|
|
|
|
|
|
Mr. Hess ~ Chief Financial Officer & Treasurer
(4)
|
2015
|
216,299
|
31,176
|
108,540
|
86,520
|
4,072
|
446,607
|
|
2014
|
216,299
|
21,630
|
96,000
|
|
3,787
|
337,716
|
|
|
|
|
|
|
|
|
Mr. Williams ~ Chief Operating Officer
(5)
|
2015
|
236,912
|
30,801
|
108,540
|
87,653
|
4,112
|
468,018
|
|
2014
|
236,912
|
23,690
|
96,000
|
|
4,393
|
360,995
|
(1)
|
|
This column shows the grant date fair value of equity awards computed in accordance
with stock-based compensation accounting rules (FASB ASC Topic 718). Values for awards subject to performance conditions are computed
based upon the probable outcome of the performance condition as of the grant date. For a description of certain assumptions made
in the valuation of stock awards, see Note 9 to the Company’s audited consolidated financial statements, included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2015, as filed with the SEC on March 3,
2016. (2) The Non-Equity Incentive Plan includes amounts awarded pursuant to the Company’s Short
Term Incentive Plan. Metrics are set annually and are contingent on the Company reaching certain levels of Net Operating Income.
|
(3)
|
|
All Other Compensation includes 401(k) matching contributions. Does
not include perquisites or personal benefits if the aggregate amount less than $10,000. Does not include medical, dental,
life, short and long term disability or paid time off benefits which were available to all employees.
|
(4)
|
|
In 2015, Mr. Hess received a discretionary bonus
of $31,176 to cover payroll taxes on the share issuances.
|
(5)
|
|
In 2015, Mr. Williams received a discretionary
bonus of $30,801 to cover payroll taxes on the share issuances.
|
Outstanding Equity Awards at Fiscal Year End 2015
The following table sets forth information as of December 26,
2015, regarding outstanding equity awards held by the named executive officers. On December 24, 2015, the closing
price on NASDAQ for the Company’s common stock was $0.99 per share.
|
Restricted Stock Awards
|
Name
|
Number of
Shares That
Have Not
Vested
|
Market Value of
Shares of Stock
That Have Not
Vested
|
Equity Incentive
Plan Awards:
Number of Unearned
Shares That Have
Not Vested
|
Equity Incentive Plan
Awards: Market Value
of Unearned Shares
That Have Not Vested
|
|
|
|
|
|
Mr. Coskey
|
--
|
--
|
--
|
--
|
Mr. Hess
(1)
|
85,875
|
$85,016
|
--
|
--
|
Mr. Williams
(2)
|
72,375
|
71,651
|
--
|
--
|
|
(1)
|
|
Includes shares that were granted under the ENGlobal
Corporation 2009 Equity Incentive Plan (the “Plan”) on January 8, 2014, with 25% of the shares vested on the date
of grant and the remainder of the shares vesting 25% over a three-year period beginning January 8, 2014, leaving 25% of the shares
unvested. Includes shares that were granted under the Plan on February 9, 2015, which vest over a four year period
with the first vesting on February 9, 2016, leaving 75% of the shares unvested. Includes shares that were granted under
the Plan on March 1, 2016, which vest over a four year period with the first vesting occurring on March 1, 2017, with
100% of the grant unvested.
|
(2)
|
|
Includes shares that were granted under the Plan on
January 8, 2014, with 25% of the shares vested on the date of grant and the remainder of the shares vesting 25% over a three-year
period beginning January 8, 2014, leaving 25% of the shares unvested. Includes shares that were granted under the Plan
on February 9, 2015, which vest over a four year period with the first vesting on February 9, 2016, leaving 75% of the shares
unvested. Includes shares that were granted under the Plan on March 1, 2016, which vest over a four year period
with the first vesting occurring on March 1, 2017, with 100% of the grant unvested.
|
Employment Agreements; Termination and Change-in-Control
Arrangements
As of December 26,
2015, Messrs. Coskey and Hess were each a party to a written employment agreement (the “Employment Agreements”) with
ENGlobal. The Employment Agreements provide for an annual base salary, subject to discretionary increases by the Board, and other
compensation in the form of cash bonuses, incentive compensation, stock options, stock appreciation rights, and restricted stock
awards. Additionally, the executives receive health, life, and other insurance benefits in accordance with the terms of the Company’s
benefit plans, and the Company provides management level support services and reimbursement for specified business expenses.
The Employment Agreements
provide for severance payments and benefits in the case of termination of employment. If employment ends because of death, the
Company will pay any accrued but unpaid salary, additional compensation, and other benefits earned up to that date. In the case
of a physical or mental disability that prevents the executive from performing his services under the Employment Agreement for
a period of six months in the case of Mr. Coskey, and three months, in the case of Mr. Hess, the Company may terminate
the executive’s employment. If the Company terminates an executive’s employment in such cases of disability, the Employment
Agreements provide that the Company will continue to pay the executive his full salary and benefits for the six months following
the date of termination (the “Initial Severance Period”). At the Company’s option, severance payments consisting
of 50% of the monthly amount of the base salary for Mr. Coskey, and in the case of Mr. Hess, 100% of the monthly amount
of his base salary, and full benefits may be extended for an additional six-month period following the Initial Severance Period.
If the Company terminates
an executive’s employment for “cause,” as defined in the Employment Agreements, the Company will pay any accrued
but unpaid salary, additional compensation, and other benefits earned up to the effective date of termination. If the Company terminates
an executive’s employment without “cause,” the Employment Agreement provides that the Company will continue to
pay the executive his full salary and benefits for the Initial Severance Period. At the Company’s option, severance payments
consisting of 50% of the monthly amount of the base salary for Mr. Coskey, and in the case of Mr. Hess, 100% of the monthly
amount of his base salary, and full benefits may be extended for an additional six-month period following the Initial Severance
Period.
The Employment Agreements
include a covenant not to compete following termination of employment for a period of up to one year as well as confidentiality
provisions as are customary in nature and scope, for such agreements.
The terms of the Employment
Agreements were set through the course of arms-length negotiations with the executives. As part of these negotiations, the Compensation
Committee analyzed the terms of the same or similar arrangements for comparable executives employed by some of the companies in
our peer group. The Compensation Committee used this approach in setting the amounts payable and the triggering events under the
Employment Agreements. The Employment Agreements’ termination of employment provisions were entered into in order to address
competitive concerns by providing the executives with a fixed amount of compensation that would offset the potential risk of foregoing
other opportunities. At the time of entering into the Employment Agreements, the Compensation Committee considered ENGlobal’s
aggregate potential obligations in the context of retaining the executive and his expected compensation.
Executive Perquisites
Our use of perquisites
as a component of compensation is limited and largely based on historical practices and policies of our Company. These perquisites
and other benefits are provided to assure competitiveness and provide an additional retention incentive for these named executives.
Our Compensation Committee endeavors to adhere to a high level of propriety in managing executive benefits and perquisites. We
do not own a plane and do not provide any personal aircraft use for executives.
Other Compensation
From time to time, we make available to employees
and executives certain other fringe benefits. We may provide club memberships, tickets to sporting or cultural events, tickets
to community events, etc. To the extent that such items are taxable to the individual, they are considered to be part of the individual’s
compensation package.
Compensation of Directors
The following table discloses cash and equity
awards and other compensation earned, paid or awarded, as the case may be, to each of the Company’s non-employee directors
during the fiscal year ended December 26, 2015.
Name
|
Fees Earned or Paid in Cash
($)
(1)
|
Stock Awards ($)
(2)
|
Option Awards ($)
(3)
|
All Other Compensation
($)
|
Total
|
|
|
|
|
|
|
Mr. Hale
|
$34,000
|
$50,000
|
--
|
--
|
$84,000
|
Mr. Gent
|
$30,000
|
$50,000
|
--
|
--
|
$80,000
|
Mr. Roussel
|
$30,000
|
$50,000
|
--
|
--
|
$80,000
|
(1)
|
|
Amount paid in cash to non-employee directors for director
compensation earned for their 2015-2016 Board service.
|
(2)
|
|
This column shows the grant date fair value of equity awards computed in accordance
with stock-based compensation accounting rules (FASB ASC Topic 718). Values for awards subject to performance conditions are computed
based upon the probable outcome of the performance condition as of the grant date. For a description of certain assumptions made
in the valuation of stock awards, see Note 9 to the Company’s audited consolidated financial statements, included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2015, as filed with the SEC on March 3,
2016. Represents 35,971 shares of restricted stock at a fair market value per share price of $1.81 granted to each director on
June 19, 2015, as described below under “Restricted Stock Grants.” As of December 26, 2015, Messrs. Hale,
Gent and Roussel each had a total of 26,982 shares of restricted stock that were unvested.
|
(3)
|
|
As of December 26, 2015, Messrs. Hale, Gent and Roussel each had a total of 100,000
stock options outstanding.
|
The principal objectives of our director compensation
programs are to: (i) compensate for time spent on the Company’s behalf, (ii) ensure similar compensation standards
at companies of comparable size, industry and complexity, and (iii) align the compensation programs with long-term value to
the Company’s shareholders. We attempt to accomplish these objectives in an economical manner through a combination of reasonable
director retainer fees and equity incentive grants to the directors.
Retainer Fees
Beginning in the 2015-2016 service year, our
non-employee directors, Messrs. Gent, Hale and Roussel, received an annual cash retainer of $30,000 as compensation for their service
to the Company and are also eligible for reimbursement of travel and other miscellaneous expenses associated with attendance at
Board and Committee meetings. Mr. Hale received an additional $4,000 for his service as Audit Committee Chairman.
The Board considers the director compensation
programs to be in conformity with industry standards and to be reasonable by comparison to directors’ compensation at the
comparable companies that we used for our evaluation of executive compensation.
Restricted Stock Grants
Under the ENGlobal Corporation 2009 Equity Incentive
Plan, non-employee directors are eligible to receive equity grants. On June 18, 2015, in recognition of the services provided
by its Board for the 2015-2016 service term, our non-employee directors, Messrs. Gent, Hale and Roussel, each received 35,971 restricted
shares of the Company’s common stock, valued at $50,000 based on the fair market value of the shares on the date of grant,
or $1.81 per share. One quarter of the shares vested on September 30, 2015, one quarter vested on December 31, 2015,
one quarter vested on March 31, 2016, and the remaining 25% of the shares will vest on the earlier of the Company’s
2016 Annual Meeting of Shareholders or June 30, 2016.
The Company anticipates that in June 2016,
our non-employee directors, with the exception of our director nominee, Kevin M. Palma, will each receive restricted shares of
the Company’s common stock valued at approximately $50,000 on the date of grant as compensation for their service to the
Company during 2016-2017. We anticipate that the shares will be granted on June 16, 2016, and will vest over one year with
25% vesting on each of September 30, 2016, December 31, 2016, March 31, 2017, and the remaining 25% of the shares
vesting on the earlier of the Company’s 2017 Annual Meeting of Shareholders or June 30, 2017. Any unvested shares will
be forfeited as of the date the non-employee director ceases to qualify as an independent director. Mr. Palma will not receive
any compensation from the Company for his service as a director, but will be eligible for reimbursement of travel and other miscellaneous
expenses associated with attendance at Board and Committee meetings.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Director Independence
Our Board of Directors considers the independence of each of the
directors under the listing standards of The NASDAQ Stock Market. Among other things, the Board considers current or previous employment
relationships as well as material transactions or relationships between ENGlobal or its subsidiaries and the directors, members
of their immediate families, or entities in which the directors have a significant interest, including the transactions described
in the section entitled “Certain Relationships and Related Party Transactions” in this Amended Form 10-K. The
purpose of this review is to determine whether any relationships or transactions exist or have occurred that are inconsistent with
a determination that the director is independent.
The NASDAQ independence standards include a series of objective
tests, such as that the director is not an employee of ENGlobal and has not engaged in various types of business dealings with
ENGlobal, to determine whether there are any relationships that would interfere with the exercise of independent judgment in carrying
out the responsibilities of the director. To be considered independent, the Board must affirmatively determine that the director
has no material relationship with ENGlobal.
Under the above standards, the Board has determined that no non-employee
director has a relationship which, in the opinion of the Board, would interfere with the exercise of his independent judgment in
carrying out the responsibilities of a director, and that all directors, except Mr. Coskey, meet the criteria for independence
under NASDAQ rules. The Board has also determined that the members of each of its committees, including the Audit Committee, meet
the criteria for membership applicable to each committee under the NASDAQ listing standards and applicable SEC rules and regulations.
Certain Relationships and Related Transactions
The Board has adopted a policy requiring that all transactions between
the Company and its officers, directors, principal shareholders 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 Board. Pursuant to such policy, the Company’s Audit Committee is responsible for the review and assessment
of all related party transactions.
The Board has determined that no related party transactions existed during fiscal 2015.
ITEM 14. Independent Registered Public Accounting Firm
Services
Hein & Associates LLP was appointed as the Company’s independent
auditors on December 20, 2013 and has audited the Company’s 2015 and 2014 consolidated financial statements. During
2014 and 2015, Hein & Associates LLP did not audit the Company’s internal control over financial reporting because the
Company is a “smaller reporting company” as defined under the rules of the Exchange Act. The Audit Committee has determined
that the audit-related services provided by Hein & Associates LLP are compatible with maintaining its independence in the conduct
of its auditing functions pursuant to the auditor independence rules of the SEC. No non-audit services were provided by Hein &
Associates LLP in 2015 or 2014.
The following table shows the fees paid or accrued
by ENGlobal for the audit and other services provided by Hein & Associates LLP for fiscal years 2015 and 2014.
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
|
176,020
|
|
|
|
170,500
|
|
Audit-Related Fees
|
|
|
40,000
|
|
|
|
--
|
|
Tax Fees
|
|
|
--
|
|
|
|
--
|
|
All Other Fees
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
216,270
|
|
|
|
170,500
|
|
As defined by the SEC, (i) “audit fees”
are fees for professional services rendered by the Company’s independent registered public accounting firm for the audit
of the Company’s annual financial statements and review of financial statements included in the Company’s Quarterly
Reports on 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 independent registered public accounting firm 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 independent registered public accounting firm for tax compliance,
tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by the Company’s
independent registered public accounting firm, other than the services reported under “audit fees,” “audit-related
fees,” and “tax fees.”
Pre-Approval Policy
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 registered public accounting firm 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 registered public
accounting firm.
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 registered public accounting firm to ENGlobal or any of its subsidiaries, except that the Audit Committee
Chairman has the right to approve up to $25,000 of services in any year. During 2015, all fees were pre-approved by the Audit Committee.