Exhibit 10.1
ENGLOBAL CORPORATION
INCENTIVE BONUS PLAN
SECTION I
PURPOSE
ENGlobal Corporation, a Nevada corporation (the "Corporation"), hereby
adopts this Incentive Bonus Plan (this "Plan"), effective as of July 1, 2009, to
promote and advance the interests of the Corporation and its stockholders by
enabling the Corporation and its Affiliates to attract, retain and reward
certain valued employees (the "Participants").
SECTION II
DEFINITIONS
Capitalized terms in the Plan shall have the following meanings:
1. "Achievement Percentages" means the Threshold Percentage, the Target
Percentage and the High Performance Percentage.
2. "Affiliate" means any company controlled by, controlling or under common
control with the Corporation.
3. "Base Salary" means 50% of the Participant's annual salary at the
beginning of the Performance Period without inclusion of earn-outs, bonuses
granted outside of this Plan, stock options or other equity incentives, or any
other forms of compensation.
4. "Bonus" means an amount awarded to an individual Participant and payable
by the Corporation, subject to the terms and conditions of this Plan.
5. "Bonus Measures" means the Metrics Hurdles and Metrics Weighting
applicable to any particular Participant or group of Participants.
6. "Calculation Statement" means the information provided in writing to any
Participant or group of Participants setting forth, for each Performance Period,
the Bonus Measures and Achievement Percentages applicable to that Participant,
in the form of Appendix A.
7. "Change of Control" means (i) a sale of substantially all of the assets
of the Corporation to a person or entity that is not an Affiliate of the
Corporation; (ii) any sale in a single transaction or in a series of related and
substantially similar contemporaneous transactions of the issued and outstanding
securities of the Corporation representing 50% or more of the total number of
shares of the Corporation then outstanding to any person or entity that is not
an Affiliate of the selling stockholders; or (iii) any merger, consolidation or
reorganization of the Corporation with or into one or more entities that are not
Affiliates of the Corporation, as a result of which less than 50% of the
outstanding voting securities, partnership interests or membership interests of
the surviving or resulting entity are owned by the holders of the Corporation's
securities (or their Affiliates) immediately prior to such merger, consolidation
or reorganization. Notwithstanding anything to the contrary provided herein, the
issuance of securities by the Corporation in an acquisition by the Corporation
or by any of its Affiliates of another business shall not constitute a Change of
Control.
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8. "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations under the Code.
9. "Committee" means the Compensation Committee of the Board of Directors.
The Committee shall be comprised of not less than the number of directors
required to satisfy the requirements of Code Section 162(m), the Securities Act
of 1933, and the rules and regulations of NASDAQ or any exchange on which the
Corporation's shares may be traded. In addition, the Committee shall be composed
solely of "outside directors" within the meaning of Code Section 162(m).
10. "High Performance Percentage" means the percentage utilized in the
calculation of a Participant's Bonus if the high performance Metrics Hurdles set
forth in the applicable Calculation Statement are met.
11. "Maximum Percentage" means the percentage of a Participant's Base
Salary payable to the Participant as Bonus if all of the High Performance
Metrics Hurdles set forth in the applicable Calculation Statement are met.
12. "Metrics" means the criteria against which the Committee decides to
measure performance. As of the Effective Date, the Metrics are:
A. Consolidated Earnings Per Share - Consolidated Earnings per Share
shall be determined in accordance with the reviewed or, if available, the
audited consolidated financial statements for the applicable Performance Period.
B. Segment Profit Contribution ("Contribution") - Earnings of a
Segment after depreciation, amortization, and allocation of bonuses under this
Plan, but before corporate overhead, interest and taxes, determined in
accordance with the reviewed or, if available, the audited consolidated
financial statements for the applicable Performance Period. Contribution may
also be calculated and utilized as a Metric for business units within a Segment.
Contribution will not apply as a Metric for Participants serving in general
corporate functions not associated with a particular Segment.
C. Safety - The Total Recordable Incidents per 200,000 hours worked
("TRIR") (as defined by the United States Department of Labor's Occupational
Health and Safety Administration) during the applicable Performance Period. Any
lost time or days away from work cases that occur within a Segment or its
business unit will result in that Segment or business unit failing to meet the
threshold level for Safety for the Performance Period. Any fatality that occurs
within the Corporation and its Affiliates will result in all Participants
failing to meet the threshold level for Safety for the Performance Period.
D. Days Sales Outstanding ("DSO") - The number of days within which
the Corporation as a whole (the aggregate of all of the Segments), or the
applicable Segment or business unit collects amounts due for work performed on
average, whether or not the customer has received an invoice, as computed by the
Corporation in accordance with its standard accounting practice. Month ending
DSOs for the six months of each Performance Period will be mathematically
averaged to arrive at the DSO value to be utilized in the Bonus calculation.
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The Corporation may add, delete or modify the Metrics at any time as to any
future Performance Period.
13. "Metrics Hurdles" means the assigned threshold, target and high
performance criteria that correspond with each Metric against which performance
is measured.
14. "Metrics Weighting" means the percentage allocation of a Participant's
potential Bonus among Metrics (e.g., Net Income, Safety, etc.).
15. "Payout" means the actual payment of a Bonus earned by a Participant.
16. "Performance Period" means the period from January 1 of each year to
June 30 of that year, and the period from July 1 of each year to December 31 of
that year, or any other period specified by the Committee during which the
Metrics are to be measured.
17. "Required Payment Date" means the date on which a Payout is required to
be made, as provided in Section IV.8.B.
18. "Segment" means one of the four operating segments designated by the
Corporation for financial and SEC reporting purposes, as modified from time to
time by the Corporation.
19. "Senior Management Team" means the Chief Executive Officer, the Chief
Operating Officer, if any, the Chief Financial Officer, the Chief Governance
Officer, any Segment President, and any Senior Vice-President of the
Corporation.
20. "Target Percentage" means the percentage utilized in the calculation of
a Participant's Bonus if the target Metrics Hurdles set forth in the applicable
Calculation Statement are met.
21. "Threshold Percentage" means the percentage utilized in the calculation
of a Participant's Bonus if the threshold Metrics Hurdles set forth in the
applicable Calculation Statement are met.
SECTION III
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, and except as expressly provided in a particular Calculation
Statement, the Committee shall have exclusive authority to interpret the Plan,
to adopt, amend and rescind rules and regulations relating to the Plan and to
make all other determinations that the Committee believes are necessary or
advisable in connection with the administration of the Plan. The determinations
of the Committee pursuant to this authority shall be conclusive.
SECTION IV
OPERATION OF INCENTIVE PLAN
1. Determination of Bonus Measures. Prior to the beginning of each
Performance Period (except for the first Performance Period), or as soon after
the beginning of the Performance Period as practical:
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A. The Committee shall determine the Bonus Measures applicable to the
Corporation's Chief Executive Officer, Chief Financial Officer, and Chief
Operating Officer, if any. The Committee may not delegate this task. Bonuses to
the Chief Executive Officer, the Chief Financial Officer and any other "covered
employees" as defined in Section 162(m) of the Code, shall comply with the
requirements of Section 162(m) for the payments to be deductible.
B. The Chief Executive Officer, or his designee, shall determine the
Bonus Measures for each other Participant.
2. Bonus Calculation Formula. Subject to Section IV.6.A, each Bonus shall
be calculated as follows: (i) For each Metric, the Metrics Hurdles shall be
applied to the actual performance of the Corporation to determine the level of
achievement; (ii) the Achievement Percentage for each Metric shall be multiplied
by the applicable Metrics Weighting percentage, with the resulting weighted
achievement for all Metrics then totalled; and (iii) the amount determined in
(ii) shall be multiplied by the Maximum Percentage for the applicable
Participant's Bonus. The percentage amount so calculated shall be multiplied by
the Participant's Base Salary for the Performance Period to determine the total
amount of the Bonus for the Participant. A sample calculation is attached as
Appendix B.
3. Restatement of Financial Statements. If the Corporation awards a Bonus
based on financial statements that are later restated, the amount of the Bonus
shall be adjusted to reflect the restated financial statements, and the
Corporation shall pay (on the applicable Payout Dates) any additional Payout
owing to the Participant based on the restated financial statements, or, if
applicable, the Participant shall refund any overpayment of Payouts that the
Participant received from the Corporation.
4. Maximum Bonus Payable.
A. Unless otherwise determined by the Committee, the maximum aggregate
annual Bonuses payable under this Plan cannot exceed 15% of consolidated pre-tax
net income, after consideration of the Bonus expense. However, the Committee
may, in its sole discretion, establish a different maximum amount of aggregate
Bonuses to be awarded under this Plan. In addition, the Committee may establish
a maximum amount to be awarded to any group of Participants. The Committee's
determination may be expressed either as a percentage of a financial measure, an
absolute dollar amount, or in any other manner.
B. Unless otherwise provided in a particular Calculation Statement, no
Participant may be granted a Bonus:
(i) For all members of the Senior Management Team, an amount that
does not exceed 75% of their respective Base Salary; and
(ii) For all other Participants, an amount within the range of
10% to 60% of their respective Base Salary.
C. Calculation Statement. The Corporation shall provide each
Participant with a copy of a Calculation Statement applicable to that
Participant and, in the case of a Participant's first participation in this
Plan, a copy of this Plan. Except to the extent the information is required by
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law to be disclosed, or as necessitated by Section IV.1.B, no Participant shall
be entitled to review the Calculation Statement applicable to any other
Participant.
D. Modification of Bonus Measures. The Committee and the Chief
Executive Officer, as applicable, may add, delete or amend the Bonus Measures
that it is responsible for establishing, but no addition, deletion or amendment
shall be effective as to a past Performance Period or the then-current
Performance Period.
5. Establishment of New Incentive Plans. The Committee may, in its sole
discretion, and after consulting with management of the Corporation, establish
new incentive plans for the Chief Executive Officer and the Chief Financial
Officer and, with the consent of the Committee, the Chief Executive Officer may
establish new incentive plans for any other Participants.
6. No Guarantee of Payment.
A. Notwithstanding anything in this Plan to the contrary, this Plan
does not constitute an inducement or consideration for the employment of any
Participant, nor is it a contract between the Corporation or any Affiliate, and
any Participant. Unless expressly provided otherwise in a Calculation Statement,
the fact that an individual is a Participant does not guarantee that he will
receive a Bonus. The Corporation may determine that, even if Bonus Measures are
met, for reasons related to a particular Participant's individual performance,
the Participant should not be entitled to all or any part of his Bonus. If such
a determination is made, the Corporation must give the Participant written
notice of any such determination within 30 days following the last day of the
applicable Performance Period.
B. Unless otherwise determined by the Committee, no Payout shall be
made to a Participant unless the Participant is employed on a regular, full-time
basis on the Required Payment Date. However, if the Participant dies or becomes
disabled prior to the end of a Performance Period, the Corporation may, in the
sole discretion of the Committee, pay the Participant or his estate, on the
Required Payment Date, an amount equal to the product of (x) the Bonus that the
Committee determines that the Participant would have earned for the applicable
Performance Period had the Participant continued in the employ of the
Corporation for the entire Performance Period, and (y) a fraction, the numerator
of which is the number of days elapsed from the commencement of the applicable
Performance Period through the Participant's termination of employment by death
or disability, and the denominator of which is the total number of days in the
applicable Performance Period.
7. Compliance with Applicable Law. Bonuses shall be subject to applicable
federal, state and local law. Without limitation, the Corporation shall withhold
all amounts required to be withheld by foreign, federal or state laws, as well
as all amounts withheld in accordance with the Corporation's payroll practices.
8. Mode and Timing of Payment.
A. Unless otherwise specifically provided in a Calculation Statement,
Bonuses shall be paid in cash.
B. Payouts shall be made on the following dates, each of which is a
Required Payment Date:
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(i) For Performance Periods ending June 30, Payouts shall be made
in two equal installments, the first of which shall be made in the first week of
October in that year and the second of which shall be made in the first week of
January in the following year. For illustrative purposes, a Payout for the
Performance Period ending on June 30, 2009 shall be paid in two equal
installments, one of which shall be in the first week of October 2009, and the
other one of which shall be in the first week of January 2010.
(ii) For Performance Periods ending December 31, Payouts shall be
made in two equal installments, the first of which shall be made in the first
week of March of the following year, and the second of which shall be made in
the first week of July of the following year. For illustrative purposes, Payouts
for the period ending December 31, 2009 shall be paid in two equal installments,
one of which shall be in the first week of March 2010, and the other one of
which shall be in the first week of July 2010.
C. Notwithstanding Sections 8.B(i) and 8.B(ii), (i) if it is
administratively impractical to make a Payout by the Required Payment Date and
such impracticability was not foreseeable at the time the Participant obtained a
legally binding right to the Payout, the Payout may be made following the
Required Payment Date but must be made as soon as administratively practical;
and (ii) if making the Payout by the Required Payment Date would jeopardize the
ability of the Corporation to continue as a going concern, the Payout may be
made after the Required Payment Date as long as it is made as soon as it would
not have such effect. If the provisions of this Section IV.8.C are applicable,
but the Corporation can make a partial payment in compliance with these
provisions, it may do so as long as the payment is made pro rata as to Payouts
then due to all Participants.
SECTION V
CHANGE OF CONTROL
Unless otherwise determined by the Committee prior to a Change of Control,
if a Change of Control occurs, the following provisions shall be applicable:
1. The then-current Performance Period will terminate immediately prior to
the Change of Control and the total Bonuses payable will be the amount payable
assuming attainment for the applicable Participant of the Maximum Metrics
Hurdles, multiplied by a fraction, the numerator of which is the number of days
that have elapsed during the Performance Period up to and including the date on
which the Change of Control occurs, and the denominator of which is the total
number of days in the Performance Period.
2. Except for the payment provisions set forth in Sections IV.8.B and V.1,
this Plan and each Calculation Statement will automatically terminate on a
Change of Control unless expressly determined otherwise by the Committee in its
sole discretion.
SECTION VI
APPLICABILITY OF CODE SECTION 409A
If any compensation or benefits provided by this Plan may result in the
application of Section 409A of the Code, the Committee may, in its sole
discretion, with respect to any Participant: (A) modify this Plan in the least
restrictive manner necessary in order to exclude such compensation from the
definition of "deferred compensation" within the meaning of Section 409A or in
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order to comply with the provisions of Section 409A, other applicable provisions
of the Code, and any rules, regulations or other regulatory guidance issued
under such provisions and with as little diminution in the value of the Bonuses
to the Participants as practical; (B) elect to pay an amount in addition to the
amount otherwise due, to cover excise taxes that may be due under Section 409A;
or (C) make one or more of the Payouts as provided by this Plan, without
modification.
SECTION VII
GENERAL PROVISIONS
1. No Third Party Beneficiaries. The establishment of this Plan shall not
confer upon any Participant any legal or equitable right against the Corporation
or any Affiliate, except as expressly provided in this Plan. There are no third
party beneficiaries to this Plan.
2. Employee at Will. Unless a Participant has a written agreement signed by
a duly authorized officer of the Corporation or its Affiliates providing
otherwise, the Participant is an employee at-will and either he or the
Corporation may terminate his employment with or without notice and with or
without cause at any time.
3. Governing Law; Venue. This Plan and all disputes related to this Plan
shall be governed by the laws of the State of Texas without regard to principles
of conflicts or choice of law which direct the application of the laws of a
different state. Venue for any dispute relating to this Plan shall be
exclusively in Harris County, Texas.
4. Waiver of Jury Trial and of Certain Damages. EACH PARTICIPANT WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY
KIND ARISING OUT OF OR RELATED TO THIS PLAN. NEITHER THE CORPORATION NOR ANY
PARTICIPANT SHALL BE ENTITLED TO CONSEQUENTIAL OR PUNITIVE DAMAGES OR ANY OTHER
ENTITLEMENT FROM THE OTHER.
5. Severability. This Plan is intended to comply in all aspects with
applicable laws and regulations. If any provision of this Plan is held by final
judgment of a court of competent jurisdiction to be invalid, illegal or
unenforceable, the invalid, illegal or unenforceable provision shall be severed
from the remainder of this Plan, and the remainder of this Plan shall be
enforced. In addition, the invalid, illegal or unenforceable provision shall be
deemed to be automatically modified, and, as so modified, shall be included in
this Plan, the modification being made to the minimum extent necessary to render
the provision valid, legal and enforceable. Notwithstanding the foregoing,
however, if the severed or modified provision concerns all or a portion of the
essential consideration to be delivered under this Plan by one party to the
other, the remaining provisions of this Plan shall also be modified to the
extent necessary to equitably adjust the parties' respective rights and
obligations hereunder.
6. Unsecured Plan. This Plan is an unfunded and unsecured compensation
arrangement. It is not governed by the Employee's Retirement and Income Security
Act of 1974. Neither this Plan nor any Calculation Statement or Bonus shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Corporation and a Participant or any other
person. To the extent that any person acquires a right to receive a Bonus under
this Plan, that right shall be no greater than the right of any unsecured
general creditor of the Corporation.
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7. No Assignment of Rights Under Plan. Until paid to a Participant, neither
Bonuses nor any contingent or actual right, if any, to receive a Payout may be
assigned, transferred or hypothecated without the prior written consent of the
Committee, in its sole discretion. Any attempt by a Participant to assign his
Bonus or his rights under this Plan without the prior written consent of the
Committee shall be void ab initio.
8. Modification or Termination of Plan. Unless otherwise expressly provided
in a specific Calculation Statement, the Committee may, without the consent of
any Participant, modify or terminate this Plan as to any future Performance
Period. Any such action may be taken without the approval of the Corporation's
stockholders unless stockholder approval is required by applicable law or the
rules of any stock exchange on which the Corporation's shares are traded.
Termination or modification of this Plan shall not apply to the then-current
Performance Period, and all Payouts from Bonuses earned during the then-current
Performance Period shall continue to be subject to the terms of this Plan,
notwithstanding its modification or termination.
9. No Waiver. No term or provision of this Plan may be waived unless the
waiver is in writing and signed by the party against whom it is sought to be
enforced. No failure on the part of any party to exercise and no delay in
exercising, any right, power, or remedy under this Plan shall operate as a
waiver, nor shall any single or partial exercise of any right under this Plan
preclude any other or further exercise of that right or the exercise of any
other right.
10. Construction. Whenever used in this Plan, the singular number will
include the plural, and the plural number will include the singular, and
pronouns in the masculine, feminine, or neuter gender will include each other
gender, as the identity of the antecedent may require. Headings are used for
convenience only, and are not to be given substantive effect. All references to
section numbers are references to sections of this Plan, unless otherwise
specifically indicated. The Appendices are incorporated in this Plan as if set
forth herein in full. The provisions of this Plan shall not be construed
strictly against the Corporation, but shall be interpreted in accordance with
its intention, as determined by the Committee.
11. Supersedure. This Plan supersedes all of the currently effective bonus
plans of the Corporation unless the Corporation has delivered written notice to
the contrary to the person entitled to benefits under such other bonus plans.
However, this Plan does not supersede any other agreements between the
Corporation and any Participant, including, without limitation, any stock option
or other equity compensation agreements, and the portions of any agreements
relating to protection of the Corporation's confidential and proprietary
information, non-competition, non-disparagement or non-solicitation.
Adopted by the Compensation Committee of ENGlobal Corporation as of July 1,
2009.
ENGLOBAL CORPORATION
COMPENSATION COMMITTEE
By: /s/ David C. Roussel
------------------------------
David C. Roussel, Chairman
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APPENDIX A
----------
FORM OF CALCULATION STATEMENT
Segment/Corporate Function:
Performance Period: July 1, 2009 - December 31, 2009
Participant:
Maximum Percentage %
Bonus Measures for the Performance Period:
Metrics Hurdles
- --------------------------------------------------------------------------------------------------------
Metric Weighting Threshold Target High Performance
- --------------------------------------------------------------------------------------------------------
1. Consolidated Earnings Per Share 25% $ $ $
per share per share per share
- --------------------------------------------------------------------------------------------------------
2. Segment Contribution 40% $ $ $
- --------------------------------------------------------------------------------------------------------
3. Segment Safety (TRIR) w/No Segment 10% <0.4 <0.3 <0.2
Lost Time Recordables
- --------------------------------------------------------------------------------------------------------
4. Segment Average DSO 25% 65 days 60 days 55 days
(Days Sales Outstanding)
- --------------------------------------------------------------------------------------------------------
Achievement Percentages:
Threshold Percentage: 60%
Target Percentage: 80%
High Performance Percentage: 100%
Approved:
- -------------------------------
- ----------------------,--------
APPENDIX A
APPENDIX B
----------
John Smith is an Operational Vice President in the Engineering Segment and not a
member of the Senior Management Team. John Smith's Maximum Percentage Bonus is
30%. The following Bonus Measures for the Performance Period have been
established for calculation of his Bonus:
Metrics Hurdles
- ----------------------------------------------------------------------------------------
High
Metric Weighting Threshold Target Performance
- ----------------------------------------------------------------------------------------
1. Consolidated Earnings Per Share 25% $0.15 $0.20 $0.25
per share per share per share
- ----------------------------------------------------------------------------------------
2. Segment Contribution 40% $4.0M $4.5M $5.0M
- ----------------------------------------------------------------------------------------
3. Segment Safety (TRIR) 10% <0.4 <0.3 <0.2
- ----------------------------------------------------------------------------------------
4. Segment Average DSO 25% 65 days 60 days 55 days
(Days Sales Outstanding)
- ----------------------------------------------------------------------------------------
The following Achievement Percentages have been established for calculation of
his Bonus:
Threshold Percentage: 60%
Target Percentage: 80%
High Performance Percentage: 100%
John's business Segment and the Corporation have performed as follows:
Metric Actual Performance Level of Achievement
- --------------------- ------------------ --------------------
Consolidated EPS $0.21 Target
Segment Contribution $4,600,000 Target
Segment Safety (TRIR) 0.15 High Performance
Segment Average DSO 73 days Below Threshold
Mr. Smith's Bonus calculation as a percent of his Base Salary is as follows:
Metric Weighted
Weighting Achievement Achieved
Metric Percentage Percentage Percentages Totals
------ ---------- ---------- ----------- ------
Consolidated Net Income 25% X 80% = 20%
Segment Contribution 40% X 80% = 32%
Segment Safety (TRIR) 10% X 100% = 10%
Segment Average DSO 25% X 0% = 0%
A. Percent of Maximum Bonus Achieved 62.0%
B. Participant's Maximum Bonus 30.0%
Bonus percent of Base Salary (A x B) 18.6%
APPENDIX B