ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
and Executive Officers
The
names of our directors and executive officers and their ages, positions, and biographies as of December 29, 2018, are set forth
below. 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 directors and executive officers. The Board of Directors did not select any current director or executive officer
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, President and Chief Executive Officer
|
Director
Since:
|
1985
|
Age:
|
66
|
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:
|
66
|
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 Compensation Committee. 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 Executive 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 in 1984.
He is a Registered Professional Engineer. Mr. Gent serves on the Texas A&M University Electrical and Computer 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:
|
56
|
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 Nominating
& Corporate Governance Committee. 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:
|
70
|
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, retired, most recently served as President of
Petrolog Automation, Inc., an oil field service company providing well site automation and data collection, from August 2016 until
October 2017. He previously 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 until 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.
Name
of Nominee:
|
Kevin
M. Palma
|
Position:
|
Independent
Director
|
Director
Since:
|
2016
|
Age:
|
40
|
Present
positions and offices with the Company, principal occupations and other directorships during the past five years:
Mr.
Palma has served as a Director of the Company since June 2016, and is a member of the Audit and Compensation Committees. Mr. Palma
originally served as the Chief Financial Officer of B-29 Investments, LP, an energy private equity firm, since 2006 and has since
been promoted to Chief Operating Officer in December 2018, and as the Chief Financial Officer of B-29 Family Holdings, LLC, a
family office, since its inception in 2014 until December 2018. In his role within the private equity fund space, Mr. Palma focuses
on investment strategy, investment execution, and portfolio company management for both privately-held and publicly-traded companies.
Mr. Palma currently serves as director of Silver Creek Oil and Gas, LLC, an exploration and production company that operates wells
in the Arkoma and Texoma basins, and Klear Bit Technologies, LLC, a privately-held drilling bit designer and manufacturer. He
has previously served as a director of TEC Holdings, LLC, which was recently rebranded as AXIS Energy Services, LLC and is a privately-held
well servicing and pressure control company, and Crest Pumping Technologies, LLC, a privately-held oil and gas cementing company,
until its merger into Nine Energy Service, Inc. in June 2014. Furthermore, Mr. Palma has served in interim executive roles within
B-29’s portfolio companies, including the Chief Financial Officer of Select Energy Services, LLC and Crest Pumping Technologies,
LLC during their respective rapid growth phases of entering new geographic markets and expanding service line offerings. Prior
to his roles at B-29, Mr. Palma was a member of the energy investment banking team at Raymond James & Associates, focusing
on capital market raises and merger and acquisition activity. Mr. Palma is licensed as a Certified Public Accountant in the State
of Texas, and holds a Master of Business Administration from the Harvard Business School in addition to a Bachelor of Business
Administration and a Master of Public Administration from the University of Texas.
Qualifications
for Consideration:
The
Board selected Mr. Palma to serve as a director because his experience in identifying strategic growth trends in the energy industry,
evaluating and completing numerous acquisitions, and exhibiting an extensive knowledge of financial markets make him well qualified
to serve on ENGlobal’s board of directors.
Executive
Officer:
|
Mark
A. Hess
|
Position:
|
Chief
Financial Officer and Treasurer
|
Age:
|
60
|
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.
Executive
Officer:
|
R.
Bruce Williams
|
Position:
|
Senior
Vice President
|
Age:
|
66
|
Present
positions and offices with the Company, principal occupations during the past five years:
Mr.
Williams is currently serving as a Senior Vice President for ENGlobal’s Engineering and Construction segment. Mr. Williams
served as the Chief Operating Officer from December 2013 through March 2017 and the President of ENGlobal Government Services,
Inc. from September 2012 through March 2017. 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.
Executive
Officer:
|
Michael
Patton
|
Position:
|
Senior
Vice President
|
Age:
|
66
|
Present
positions and offices with the Company, principal occupations during the past five years:
Mr.
Patton rejoined ENGlobal Corporation as Senior Vice President in April 2016. Mr. Patton was also at ENGlobal from 1998 through
2010, when he held many positions, including Senior Vice President of Business Development, President of ENGlobal Government Services,
Inc., Senior Vice President and General Manager of ENGlobal’s Tulsa Office. In 2014 and 2015, Mr. Patton served as Senior
Vice President and General Manager of the Gulf Coast Regional offices for Saulsberry Industries and as their Senior Vice President
of Strategic Planning. Prior to joining Saulsberry Industries, Mr. Patton served as Senior Vice President and General Manager
of the Oil, Gas, and Chemical Division of CDI from 2011 through 2013. Mr. Patton graduated from the University of Oklahoma in
1975 with a Bachelor of Science in Electrical Engineering. Mr. Patton has been a Registered Professional Engineer since 1980.
He has held several positions within technical societies, including most recently the Rice Global Forum.
Executive
Officer:
|
John
Kratzert
|
Position:
|
Senior
Vice President
|
Age:
|
56
|
Present
positions and offices with the Company, principal occupations during the past five years:
John
Kratzert currently serves as Senior Vice President, and in this role is responsible for all of the Company’s government
related design, integration, fabrication and field support operations. Mr. Kratzert is also responsible for managing project execution
and business development in our Denver office. Mr. Kratzert has served as Senior Vice President of ENGlobal Government Services
and Senior Vice President of Automation. Mr. Kratzert joined ENGlobal as a Program Manager and then General Manager of ENGlobal
Government Services in November of 2012. Prior to joining ENGlobal, Mr. Kratzert served as the Technical Director for Physical
and Electronic Security Programs (BAE Systems), Principle Systems Engineer (SAIC) and Division Manager (MANDEX). Mr. Kratzert
is a retired Marine Corps Officer and has over 33 years of experience leading domestic and international organizations. Mr. Kratzert
holds a Bachelor of Science degree in Biology from The Citadel, Military College of South Carolina and a Master of Science degree
in Management from Troy University.
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 29,
2018, 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, except that Mr. Palma was late
filing a Form 3 in connection with being elected a director in June 2016.
Audit
Committee
During
the fiscal year ended December 29, 2018, the Audit Committee consisted of Randall B. Hale (Chairperson), Kevin M. Palma, 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 Senior Vice President (the “named executive officers”).
Name and Principal Position
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($)
(4)
|
|
|
Stock
Awards
(1)
($)
|
|
|
Non-Equity Incentive Plan Compensation
(2)
|
|
|
All Other Compensation
(3)
($)
|
|
|
Total
($)
|
|
Mr. Coskey ~
|
|
|
2018
|
|
|
|
49,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,422
|
|
President & Chief Executive Officer
|
|
|
2017
|
|
|
|
49,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Hess ~
|
|
|
2018
|
|
|
|
216,299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,159
|
|
|
|
220,458
|
|
Chief Financial Officer & Treasurer
|
|
|
2017
|
|
|
|
216,299
|
|
|
|
21,535
|
|
|
|
83,000
|
|
|
|
-
|
|
|
|
4,003
|
|
|
|
324,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Williams ~
|
|
|
2018
|
|
|
|
236,912
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,098
|
|
|
|
240,010
|
|
Senior Vice President
|
|
|
2017
|
|
|
|
236,912
|
|
|
|
16,211
|
|
|
|
71,700
|
|
|
|
-
|
|
|
|
3,090
|
|
|
|
327,913
|
|
|
(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 8 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 29, 2018, as filed with the SEC on March 28, 2019.
|
|
(2)
|
The
Non-Equity Incentive Plan includes amounts awarded pursuant to the Company’s Short Term Incentive Plan. Metrics are
set annually and are generally 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 is 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)
|
Bonus
includes a discretionary bonus to cover payroll taxes on the issuances of shares of restricted stock.
|
Outstanding
Equity Awards at Fiscal Year End 2018
The
following table sets forth information as of December 29, 2018 regarding outstanding equity awards held by the named executive
officers. On December 28, 2018, the closing price on NASDAQ for the Company’s common stock was $0.68 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)
|
|
|
60,375
|
|
|
$
|
41,055
|
|
|
|
—
|
|
|
|
—
|
|
Mr. Williams
(2)
|
|
|
46,125
|
|
|
$
|
31,365
|
|
|
|
—
|
|
|
|
—
|
|
(1)
|
Includes
10,125 shares that were granted under the 2009 Equity Incentive Plan (the “Plan”) on February 9, 2015, which vested
on February 9, 2019. Includes 20,250 shares that were granted under the Plan on March 1, 2016, which vested 10,125 shares
on March 1, 2019 and vest 10,125 shares on March 1, 2020. Includes 30,000 shares that were granted under the Plan on August
10, 2017, which vest 10,000 shares on each of August 10, 2019, August 10, 2020 and August 10, 2021.
|
|
|
(2)
|
Includes
10,125 shares that were granted under the Plan on February 9, 2015, which vested on February 9, 2019. Includes 13,500 shares
that were granted under the Plan on March 1, 2016, which vested 6,750 shares on March 1, 2019, and vest 6,750 shares on March
1, 2020. Includes 22,500 shares that were granted under the Plan on August 10, 2017, which vest 7,500 shares on each of August
10, 2019, August 10, 2020 and August 10, 2021.
|
Employment
Agreements; Termination and Change-in-Control Arrangements
As
of December 29, 2018, 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 that 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 executives and their 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 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
principal objectives of our director compensation programs are to: (i) compensate for time spent on the Company’s behalf,
and (ii) 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
Historically,
our non-employee directors received a cash retainer as compensation for their service to the Company, and our Chairman of the
Audit Committee also received an additional cash retainer as compensation for such service. Our non-employee directors are also
eligible for reimbursement of travel and other miscellaneous expenses associated with attendance at Board and Committee meetings.
However, due to the losses that the Company incurred during 2016 and 2017, the Compensation Committee recommended and the Board
approved that cash retainer fees be suspended effective October 1, 2017 and reviewed for reinstatement on a quarterly basis. At
this time, cash retainer fees have not been reinstated.
Restricted
Stock Grants
Under
the Plan, non-employee directors are eligible to receive equity grants. Our non-employee directors typically receive the equity
grants in June concurrent with the annual shareholder’s meeting. On June 15, 2017, in recognition of the services provided
by its Board for the 2017-2018 service term, our non-employee directors, Messrs. Gent, Hale and Roussel, each received 42,735
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 $1.17 per share. One quarter of the shares vested on September 30, 2017. Due to the losses that the Company incurred
in 2016 and 2017, the Compensation Committee recommended and the Board approved the suspension of the vesting provisions of these
restricted shares to be extended indefinitely; therefore, the remaining future vestings are not determined at this time and will
be revisited on a quarterly basis for reinstatement.
The
Company did not issue restricted shares to its non-employee directors in June 2018. The equity grant component of director compensation
is reviewed for reinstatement on a quarterly basis. Any unvested shares will be forfeited as of the date the non-employee director
ceases to qualify as an independent director.
Mr.
Palma does not receive any compensation from the Company for his service as a director, but is eligible for reimbursement of travel
and other miscellaneous expenses associated with attendance at Board and Committee meetings.