Fall and Winter News and Events 2012

Rev. 4.6

ENGlobal Reaches Forbearance Agreement With Lender

HOUSTON, Oct. 1, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (Nasdaq:ENG), a leading provider of energy-related project delivery solutions, announced today that it has reached a forbearance agreement with its lender under the Company's senior secured revolving credit facility with respect to existing events of default and anticipated events of default. The forbearance agreement allows the Company time to hire a consultant and develop a turnaround plan by October 15, 2012. ENGlobal has hired a consultant and intends to work with them to develop a plan to restore the Company's compliance with the credit facility. The forbearance agreement extends through October 31, 2012.

Opinion 1/10

Again, you can really see who is in power, the lenders - PNC. Do they think ENG can restructure on their own? Nope.

Here is a Houston Business Journal article that is short and interesting. Apparently, they are unaware of the sale of Field Solutions:

http://www.bizjournals.com/houston/blog/drilling-down/2012/10/eng-gets-two-more-weeks-for-turnaround.html?ana=yfcpc

Take a look at the SEC filing and you will see quite a bit more information including the covenants broken. Moreover, there is one sentence that is quite different from the news release with an added keyword I will underline: "The Consultant is to be retained to provide a turnaround or exit plan, in form and substance satisfactory to Agent, by October 15, 2012 (or such later date as may be permitted by Agent in its sole discretion) and services as are reasonably necessary to facilitate Borrowers' ability to operate in compliance with the terms of the Credit Agreement."

You can see the filing here:

http://sec.gov/Archives/edgar/data/933738/000117184312003507/document.htm



ENGlobal Enters Agreement to Sell Its Field Solutions Segment

HOUSTON, Sept. 10, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation, a leading provider of energy-related project delivery solutions, announced today that a subsidiary has entered into a definitive agreement to sell substantially all of the assets of its Field Solutions segment to Steele & Company, LP based in Tyler, Texas. ENGlobal's Field Solutions segment includes its Right of Way and Inspection divisions, primarily serving pipeline and electric power operating companies. The purchase price will be approximately $15 million, consisting of approximately $10 million in cash at closing to ENGlobal and a $5 million promissory note payable to ENGlobal over four years. In addition, the definitive agreement provides for a purchase price adjustment based on the net working capital of the business as of closing.

Once the transaction is finalized, Mr. David Sinclair, Executive Vice President of the Field Solutions segment, will become President of the newly formed entity, Steele Land & Inspection. LLC. Mr. Sinclair has over 30 years of Right of Way and land management experience in both domestic and international assignments for the pipeline industry.

"The sale of the Field Solutions segment is important to ENGlobal and serves as a win-win for all parties," said William A. Coskey, P.E., ENGlobal's Chairman and Chief Executive Officer. "Brandon Steele and his team possess a rich heritage and successful operating history in our industry. Both our valued Field Solutions clients as well as personnel in this group are going to be served by a strong, vibrant and honorable organization. Finally, for ENGlobal and our shareholders, this transaction is expected to be a positive step - both in terms of financial liquidity and for our strategic engineering and automation focus going forward."

"The acquisition of ENGlobal's Land and Inspection divisions is a solid strategic fit and allows us to undertake a variety of energy infrastructure projects across the United States," said Brandon Steele, Steele & Company's Chairman of the Board. "In addition, the continuity of the management team will enable us to continue operations with very little disruption. We are confident that the combined portfolio under the Steele name will be well positioned to capitalize on meaningful opportunities in the growing energy marketplace."

The transaction is subject to certain closing conditions, including approval of ENGlobal's lenders. Proceeds provided by the transaction would be used to repay borrowings under ENGlobal's credit facility.

Opinion 9/13

First, I'd like to say that Steele and Company, LP is a fine company. Field Services is lucky to have them as a new parent and Brandon Steele as a great CEO. David Sinclair's leadership and the group will do well there.

I have been watching the stock making new lows after ENGlobal’s Field Services segment has been sold. It does not look like the market has viewed the sale as beneficial and possibly a negative indicator. Let’s examine the sale and look at some facts. Second, let's review the final statement in the news portion of the 8K:

“The transaction is subject to certain closing conditions, including approval of ENGlobal's lenders. Proceeds provided by the transaction would be used to repay borrowings under ENGlobal's credit facility.”

Well you can really see who is in power, the lenders - PNC. Additionally, you can see where the cash is going, into the Credit Facility. This simply allows ENG to borrow more, at a percentage, to operate. We will revisit this later.

It appears this just a way to monetize AR off the Balance Sheet. The sale price is approximate 2.5 times average monthly revenue for FS which could also equal AR and Unbilled at 70-75 days sales outstanding. PNC may be forcing ENG to handle the liquidation too. As far as the FS employees being "served by strong, vibrant, and honorable organization", this will at least be a switch for those FS employees!

ENG loses 22% of their revenue and as a percent of revenue the most profitable segment in their portfolio. The sale is probably the only option within the company that could bring anything in a sale and with the $5 million note ENG discounted its AR by 30%. If the CEO got 60% of all AR he could pay off his debt but not sure he could fund operations going forward. All this appears to be is quick short-term option to pay down debt.

The cash value, if it were used for such represents about 18 days of payroll. The cash will help in one way only, it will be used to pay off debt, increasing the base formula of the CF to borrow more money while an additional percentage of borrowing debt is added. Revisiting this topic again from above, will it help? Sure short-term. But in the long-term it does not help if you don’t make money. You can't pay any debt back if you continue to lose money. Moreover, hemorrhaging valuable employees on a continual basis will only hasten the inevitable.

Comments are welcome.

• 9/10 New 5-year intraday low on ENG stock, $0.64.
• 9/11 New 5-year intraday low on ENG stock, $0.61. New 5-year closing low on ENG stock, $0.64, volume 68K shares.
• 9/13 New 5-year closing low on ENG stock, $0.62, volume 177K shares.
• 9/18 New 5-year intraday low on ENG stock, $0.60.
• 9/19 New 5-year closing low on ENG stock, $0.59.
• 9/20 New 5-year intraday low on ENG stock, and new 5-year closing low on ENG stock, $0.51, volume 174K shares.
• 9/21 New 5-year intraday low on ENG stock, $0.50.
• 10/3 ENG files Delisting Notice 8K from the NASDAQ with the SEC. 180 days timeout. :(
• 10/9 New 5-year intraday low on ENG stock, and new 5-year closing low on ENG stock, $0.45, volume 81K shares.
• 10/10 New 5-year intraday low on ENG stock, $0.32. New 5-year closing low on ENG stock, $0.33, volume 369K shares. It looks as though somebody is expecting a bad event.
• The heads of Engineering, HR and Business Development have left ENGlobal.
• 3Q Earnings are delayed - NT 10Q filed 11/13 (see post).