UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the fiscal year ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from _______________ to
________________
Commission File Number: 1-5707
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Name of small business issuer in its charter)
Illinois 36-6097429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Tower Lane, Suite 2100, Oakbrook Terrace, IL 60181
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (630) 954-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Names of each exchange on which registered
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No __
Check if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the most recent fiscal year were $36,734,000.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of October 30, 1998 was
$20,805,000. At that date, there were 4,423,566 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the General Employment Enterprises, Inc. Proxy
Statement for the 1999 annual meeting of shareholders are
incorporated by reference into Part III of this Form 10-KSB.
Transitional small business disclosure format: Yes ___ No X
PART I
Item 1. Description of Business
General
General Employment Enterprises, Inc. (the "Company") was
incorporated in the State of Illinois in 1962 and is the
successor to employment offices doing business since 1893. In
1987 the Company established Triad Personnel Services, Inc., a
wholly-owned subsidiary, incorporated in the State of Illinois.
The principal executive office of the Company is located at One
Tower Lane, Suite 2100, Oakbrook Terrace, Illinois.
Services Provided
The Company provides professional staffing services in the areas
of information technology, engineering and accounting.
The Company's placement services division places employment
candidates into regular, full-time jobs with client-employers.
The Company charges a fee for successful placements that is based
on a percentage of the applicant's projected annual salary.
The Company's contract services division places its professional
employees on temporary assignments, under contracts with client
companies. Contract workers are employees of the Company,
typically working at the client location and at the direction of
client personnel for periods of three months to one year. Fees
for these services are billed on an hourly basis.
Management believes that the combination of these two services
provides a strong marketing opportunity, because it offers
customers a variety of staffing alternatives that includes
regular full-time staffing, temporary staffing and a "try before
you buy" approach to hiring. In fiscal 1998, the Company derived
approximately 68% of its revenues from placement services and 32%
from contract services.
Marketing and Recruiting
The Company markets its services using the trade names General
Employment, Omni One, Business Management Personnel and Triad
Personnel Services. As of September 30, 1998, it operated 47
branch offices located in downtown or suburban areas of major
U.S. cities in 16 states. Thirty-nine of the offices are full-
service branches, providing both placement and contract services,
and eight of the offices specialize in contract services only.
The offices were concentrated in California (11), Illinois (9),
Arizona (4), Texas (4), and Indiana (3), with two offices each in
Florida, Georgia, Massachusetts, Ohio, and Pennsylvania, and one
office each in Colorado, Michigan, Nevada, New York, North
Carolina and Tennessee.
The Company markets its services to prospective clients primarily
through telephone marketing by its employment consultants and
through mailing of employment bulletins listing candidates
available for placement and contract employees available for
assignment.
Prospective employment candidates are recruited through telephone
contact by the Company's employment consultants and through
newspaper advertising. The Company uses a proprietary computer
program to assist with tracking applicants and matching them with
job openings. The Company screens and interviews all applicants
who are presented to its clients.
No single client accounts for more than 2% of the Company's
revenues.
Competition
The placement staffing industry is characterized by a large
number of highly competitive sole-proprietorship operations. The
contract staffing industry is highly competitive and consists of
local, regional and national competitors.
Because the Company focuses its attention on professional
staffing positions, particularly in the highly specialized
information technology field, it competes by providing services
that are dedicated to quality. This is done by providing highly
qualified candidates who are well matched for the position, by
responding quickly to client requests, and by establishing
offices in convenient locations. As an added service, the
Company provides careful reference checking and scrutiny of
candidates' work experience and optional background checks.
Pricing is considered to be secondary to quality of service as a
competitive factor.
Geographic diversity helps the Company to balance local or
regional business cycles. Multiple offices in the Atlanta,
Boston, Chicago, Columbus, Dallas, Indianapolis, Los Angeles,
Philadelphia, Phoenix and San Francisco markets help to provide
better client services through convenient office locations and
the sharing of assignments.
Regulation
Employment agency service companies are regulated by three of the
states in which the Company operates. Licenses are issued on a
year-to-year basis. As of September 30, 1998, the Company held
current licenses for all of the offices that were required to
have them.
Employees
As of September 30, 1998, the Company had approximately 300
regular employees and 175 contract service employees.
Item 2. Description of Properties
The Company's policy is to lease commercial office space for all
of its offices. The Company's headquarters are located in a
modern 31-story building in Oakbrook Terrace, Illinois. The
Company leases 12,900 square feet of space at this location,
under a lease that will expire in January 2006.
The Company's staffing offices are located in downtown
metropolitan and suburban business centers in 16 states.
Generally, the Company enters into six-month leases for new
locations, using shared office facilities whenever possible.
Established offices are operated from leased space ranging from
1,000 to 2,000 square feet, generally for periods of one to five
years, with cancellation clauses after certain periods of
occupancy. Management believes that existing facilities are
adequate for the Company's current needs and that suitable lease
space will be available to accommodate the Company's expansion
plans in the foreseeable future.
The Company owns most of the furniture, computers and office
equipment at its headquarters and branch offices. All of it is
considered to be in good condition, except that furniture in some
of the branch offices is old and considered to be in poor
condition. All property is adequately covered by insurance.
Additional lease information is set forth in "Lease Obligations"
in the notes to consolidated financial statements.
Item 3. Legal Proceedings
As of September 30, 1998, there were no material legal
proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the 1998 fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Information regarding this item is contained in the Company's
financial statements presented in this report.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Corporate Strategies and Economic Factors
The Company provides placement and contract staffing services for
business and industry, specializing in the placement of
professional information technology, engineering and accounting
personnel. For the year ended September 30, 1998, the Company
derived approximately 68% of its revenues from placement services
and 32% of its revenues from contract services. As of September
30, 1998, the Company operated 47 offices located in major
metropolitan and business centers in 16 states.
The demand for the Company's services has been strong in recent
years. For the five fiscal years ended September 30, 1998, the
Company's average annual rate of revenue growth was 28%.
Management believes that this growth is attributable to three
factors. First, the Company specializes in the fast-growing
information technology field. Second, the Company's services
fill a growing need in the workplace for contract temporary
staffing. And third, the Company offers its clients the
alternative of either temporary or full-time staffing assistance.
The Company's business is affected by the U.S. economy and
national hiring levels. The last three years were characterized
by relatively low, but stable, economic growth and historically
low levels of unemployment. These economic conditions have
contributed to the strong demand for the Company's services.
The Company's business is based primarily on providing
information technology professionals to its clients in business
and industry. Accordingly, the Company's results of operations
are substantially dependent on developments in the information
technology industry in the United States. The high demand for
these professionals in recent years has had a favorable impact on
the Company's results of operations, particularly affecting the
number of contract hours billed and the average placement fees,
which are based on applicant salary levels. The Company's
business is also significantly affected by its ability to obtain
qualified information technology candidates. In recent years,
the availability of such professionals has not kept pace with the
demand, and the Company believes that this condition has been a
factor that limited the growth in the number of placements.
Management believes that the strong demand for information
technology professionals in the United States will continue for
the foreseeable future.
To accommodate the demand for its services, the Company opened
six new branch offices during fiscal 1996, nine new offices
during fiscal 1997 and nine additional branch offices during
fiscal 1998. The Company plans to open another six new branch
offices during fiscal 1999. Generally, the Company enters into
short-term leases for new locations, initially using shared
office facilities whenever possible; this approach minimizes
costs during the start-up period.
Fiscal 1998 Results of Operations
Fiscal 1998 was a record year for the Company, establishing all-
time highs for net revenues and net income. For the year ended
September 30, 1998, consolidated revenues were $36,734,000, up
$7,393,000 (25%) from $29,341,000 the prior year. Placement
service revenues increased $4,605,000 (22%), due to a 3% increase
in the number of placements and a 17% higher average placement
fee. Contract service revenues increased $2,788,000 (32%)
primarily due to a 25% increase in billable hours and a 4% higher
average hourly billing rate.
Total 1998 operating expenses of $32,024,000 were $6,463,000
(25%) greater than the $25,561,000 in 1997. The direct costs of
contract services increased $1,685,000 (29%) over 1997. The
gross profit on contract services was $4,121,000 this year, a
$1,103,000 (37%) increase compared with $3,018,000 last year, and
the gross profit margin was 35.5% this year compared with 34.2%
last year. Consistent with staffing industry practices, the
direct costs of contract services are considered to be the wages
and the related payroll taxes and benefits of contract workers.
Selling expenses for 1998 increased $3,110,000 (25%) from last
year. In line with the consolidated revenue growth, commission
expense and related payroll costs increased 25%, and recruitment
advertising expenses increased 27% for the year. General and
administrative expenses in 1998 increased $1,668,000 (22%) from
1997. This was largely associated with the effects of opening
new branch offices during the last two fiscal years. Branch
office salaries and wages increased 40% for the year, while
administrative compensation was up 8%. Occupancy costs increased
26% and all other general and administrative expenses increased
18%.
As a result, the Company had income from operations of
$4,710,000, which was a $930,000 (25%) increase from $3,780,000
in the prior year. Since the increase in operating expenses was
in proportion to the revenue growth, the Company's operating
profit margin remained about the same as last year - 12.8% in
1998 compared with 12.9% in 1997.
Interest income was $440,000 for the year, compared with $281,000
last year. The $159,000 (57%) increase was due to higher
investable funds.
The Company had pretax income of $5,150,000 for the year, which
was an increase of $1,089,000 (27%) from $4,061,000 last year.
The effective income tax rate was 40.0%, about the same as the
39.9% last year.
After taxes, net income was $3,090,000 for the year ended
September 30, 1998, which was a $649,000 (27%) improvement
compared with net income of $2,441,000 last year. Diluted net
income per share was $ .67 this year, compared with $.55 last
year.
Fiscal 1997 Results of Operations
For the year ended September 30, 1997, consolidated revenues were
$29,341,000, up $6,100,000 (26%) from $23,241,000 the prior year.
Placement service revenues increased $4,185,000 (26%), due to a
5% increase in the number of placements and a 21% higher average
placement fee. Contract service revenues increased $1,915,000
(28%) primarily due to an 11% increase in billable hours and a
15% higher average hourly billing rate.
Total 1997 operating expenses of $25,561,000 were $4,859,000
(23%) greater than the $20,702,000 in 1996. The direct costs of
contract services increased $1,257,000 (28%) over 1996. The
gross profit on contract services was $3,018,000 this year, a
$658,000 (28%) increase compared with $2,360,000 last year, and
the gross profit margin was 34.2% in 1997, the same as for 1996.
Selling expenses for 1997 increased $2,386,000 (25%) from the
prior year. In line with the revenue growth, commission expense
and related payroll costs increased 24%, and recruitment
advertising expense increased 25% for the year.
General and administrative expenses increased $1,216,000 (19%)
from 1996. This was largely associated with the effects of
opening new branch offices during the two-year period. Branch
office salaries and wages increased 18% for the year, while
administrative compensation was up 7%. Occupancy costs increased
25% and all other general and administrative expenses increased
44%.
As a result, the Company had income from operations of
$3,780,000, which was a $1,241,000 (49%) increase from $2,539,000
in the prior year. Since the increase in operating expenses was
less than the revenue growth, the Company's operating profit
margin improved to 12.9% in 1997, compared with 10.9% in 1996.
Interest income was $281,000 for the year, compared with $172,000
the prior year. The $109,000 (63%) increase was due to higher
investable funds.
The Company had pretax income of $4,061,000 for the year, which
was an increase of $1,350,000 (50%) from $2,711,000 the prior
year. The effective income tax rate was 39.9%, up slightly from
39.5% the prior year.
Net income was $2,441,000 for the year ended September 30, 1997,
which was an $800,000 (49%) improvement compared with net income
of $1,641,000 the prior year. Diluted net income per share was $
.55 in 1997, compared with $ .38 in 1996.
Financial Condition
During the year ended September 30, 1998, the Company's cash and
short-term investments increased by $2,712,000 to a balance of
$10,459,000. Net cash provided by operating activities was
$3,206,000 for the year. Net income provided $3,090,000, while
other operating activities required $116,000. The Company used
$593,000 during the year for investments in property and
equipment and other assets. Exercises of stock options provided
the Company with $300,000, while the payment of a cash dividend
required $201,000.
The Company's net working capital was $9,261,000 as of September
30, 1998, compared with $6,419,000 at September 30, 1997, and
shareholders' equity was $10,335,000 at September 30, 1998,
compared with $7,149,000 last September.
To accommodate expansion plans and to upgrade existing offices,
the Company plans to spend approximately $1,000,000 during fiscal
1999 for the acquisition of computer equipment and office
furniture and equipment. However, as of September 30, 1998,
there were no contractual commitments to do so. All of its
facilities are leased, and information about future minimum lease
payments is presented in the notes to consolidated financial
statements.
As of September 30, 1998, the Company had no debt outstanding,
and it had a $1,000,000 line of credit available for working
capital purposes. Management believes that existing resources
are adequate to meet the Company's anticipated operating needs.
Year 2000 Issues
Issues surrounding the year 2000 are the result of older computer
programs being written using two digits rather than four digits
to define a year. As a result, date-sensitive computer software
or hardware containing this defect could be susceptible to
miscalculations or system failures if not corrected or replaced.
As of October 1998, all of the Company's internal software and
computer hardware were fully compliant with the year 2000, and
the Company does not anticipate any difficulty in processing
transactions or conducting business in the next millennium.
The Company is in the process of identifying what effect, if any,
that the year 2000 will have on the operations of third parties
that could materially affect the operations of the Company.
Management is in the process of identifying potentially
significant third parties, and expects to complete an assessment
of their readiness by September 1999. The potential effect on
the Company of non-compliance by third parties is not determinable at
this time. However, due to the service nature of the Company's
business, management believes that it would be able to readily
find alternate suppliers in the unlikely event that existing
providers might fail.
Forward Looking Statements
As a matter of policy, the Company does not provide forecasts of
future financial performance. However, the Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained in
press announcements, reports to shareholders and filings with the
Securities and Exchange Commission. All statements which address
expectations about future operating performance and cash flows,
future events and business developments, and future economic
conditions are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. This
includes statements relating to business expansion plans,
expectations about revenue and earnings growth, and general
statements of optimism about the future. These statements are
based on management's then-current expectations and assumptions.
Actual outcomes could differ significantly. The Company and its
representatives do not assume any obligation to provide updated
information.
Some of the factors that could affect the Company's future
performance include, but are not limited to, general business
conditions, the demand for the Company's services, competitive
market pressures, and the ability of the Company to attract and
retain qualified personnel for regular full-time placement and
contract project assignments. The Company's internal expansion
growth plan for opening new branch offices is contingent upon the
Company's ability to identify, hire and train candidates for new
branch management assignments.
Item 7. Financial Statements
The Company's financial statements are presented in this report.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There have been no changes in or disagreements with the Company's
independent accountants during the two most recent fiscal years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Information concerning directors of the registrant is set forth
in the registrant's Proxy Statement for the annual meeting of
shareholders under the caption "Election of Directors" and is
incorporated herein by reference.
The executive officers and key employees of the Company, and
their ages as of September 30, 1998, were as follows:
Name Age Position
Herbert F. Imhoff 72 Chairman of the Board and Chief
Executive Officer
Herbert F. Imhoff, Jr. 48 President and Chief Operating Officer
Gregory Chrisos 42 Vice President - Triad Personnel
Services, Inc.
Nancy C. Frohnmaier 54 Vice President and Corporate Secretary
Marilyn L. White 48 Vice President, Permanent Placement
Operations
Kent M. Yauch 51 Chief Financial Officer and Treasurer
Herbert F. Imhoff has been Chairman of the Board since 1968 and
was named Chief Executive Officer in 1997. He served as
President from 1964 until 1997. Herbert F. Imhoff, Jr. was named
President and Chief Operating Officer in 1997 and had previously
been Executive Vice President since 1986. He also has served as
the Company's general counsel since 1982. Gregory Chrisos was
named Vice President of Triad in 1996 and prior to that served as
branch manager of the Company's Woburn, Massachusetts office
since 1990. Nancy C. Frohnmaier has been Vice President since
1995 and Corporate Secretary since 1985. Marilyn L. White was
elected Vice President, Permanent Placement Operations in 1996;
prior to that she served in numerous management capacities,
including General Manager of the Company's placement services
division. Kent M. Yauch has been Treasurer of the Company since
1991 and was named Chief Financial Officer in 1996.
Herbert F. Imhoff, Jr. is the son of Herbert F. Imhoff.
Information concerning compliance with Section 16(a) of the
Exchange Act is set forth in the registrant's Proxy Statement for
the annual meeting of shareholders under the caption "Compliance
with Section 16(a) of the Exchange Act" and is incorporated
herein by reference.
Item 10. Executive Compensation
Information concerning executive compensation is set forth in the
registrant's Proxy Statement for the annual meeting of
shareholders under the caption "Compensation of Executive
Officers" and is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain beneficial
owners and management is set forth in the registrant's Proxy
Statement for the annual meeting of shareholders under the
caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
There have been no reportable transactions during the last two
fiscal years.
PART IV
Item 13. Exhibits and Reports on Form 8-K
Reference is made to "Exhibit Index" for a list of exhibits filed
as a part of this report.
There were no reports filed on Form 8-K during the quarter ended
September 30, 1998.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
General Employment Enterprises, Inc.
Oakbrook Terrace, Illinois
We have audited the accompanying consolidated balance sheets of
General Employment Enterprises, Inc. and subsidiary as of
September 30, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of General Employment Enterprises, Inc. and
subsidiary at September 30, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 9, 1998
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30
(In Thousands) 1998 1997
ASSETS
Current assets:
Cash and short-term investments $10,459 $ 7,747
Accounts receivable, less allowances
(1998--$565;1997--$466) 3,639 3,412
Total current assets 14,098 11,159
Property and equipment:
Furniture, fixtures and equipment 3,089 2,911
Accumulated depreciation (2,391) (2,325)
Net property and equipment 698 586
Deferred income taxes 274 234
Other assets 562 344
Total assets $15,632 $12,323
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 478 $ 467
Accrued compensation and payroll taxes 4,041 3,939
Accrued income taxes 221 255
Other current liabilities 97 80
Total current liabilities 4,837 4,741
Long-term obligations 460 433
Shareholders' equity:
Common stock, no-par value; authorized --
20,000 shares; issued and outstanding --
4,424 shares in 1998 and
3,987 shares in 1997 44 40
Capital in excess of stated value of shares 4,576 4,280
Retained earnings 5,715 2,829
Total shareholders' equity 10,335 7,149
Total liabilities and shareholders' equity $15,632 $12,323
See notes to consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF INCOME
Year Ended September 30
(In Thousands, Except Per Share) 1998 1997 1996
Net revenues:
Placement services $25,129 $20,524 $16,339
Contract services 11,605 8,817 6,902
Net revenues 36,734 29,341 23,241
Operating expenses:
Direct costs of contract services 7,484 5,799 4,542
Selling 15,318 12,208 9,822
General and administrative 9,222 7,554 6,338
Total operating expenses 32,024 25,561 20,702
Income from operations 4,710 3,780 2,539
Interest income 440 281 172
Income before income taxes 5,150 4,061 2,711
Provision for income taxes 2,060 1,620 1,070
Net income $ 3,090 $ 2,441 $ 1,641
Net income per share:
Basic $ .70 $ .56 $ .39
Diluted $ .67 $ .55 $ .38
Average number of shares:
Basic 4,418 4,376 4,240
Diluted 4,623 4,444 4,282
See notes to consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30
(In Thousands) 1998 1997 1996
Operating activities:
Net income $ 3,090 $2,441 $1,641
Depreciation expense 247 194 141
Other noncurrent items -- 5 16
Accounts receivable (227) (666) (886)
Accrued compensation and payroll taxes 102 429 1,341
Accrued income taxes (34) (146) 174
Other current liabilities 28 58 46
Net cash provided by operating
activities 3,206 2,315 2,473
Investing activities:
Acquisition of property and equipment (332) (387) (160)
Other noncurrent items (261) (151) (103)
Increase in short-term investments (1,400) (4,059) (500)
Net cash used by investing
activities (1,993) (4,597) (763)
Financing activities:
Exercises of stock options 300 65 739
Cash dividend declared (201) (159) (110)
Net cash provided (used) by
financing activities 99 (94) 629
Increase (decrease)in cash and
cash equivalents 1,312 (2,376) 2,339
Cash and cash equivalents at beginning
of year 3,188 5,564 3,225
Cash and cash equivalents at end of year 4,500 3,188 5,564
Short-term investments at end of year 5,959 4,559 500
Cash and short-term investments $10,459 $7,747 $6,064
See notes to consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended September 30
(In Thousands) 1998 1997 1996
Common shares outstanding:
Number at beginning of year 3,987 2,652 2,196
Stock dividend declared 402 1,329 346
Exercises of stock options 35 6 110
Number at end of year 4,424 3,987 2,652
Common stock:
Balance at beginning of year $ 40 $ 27 $ 22
Stock dividend declared 4 13 4
Exercises of stock options -- -- 1
Balance at end of year $ 44 $ 40 $ 27
Capital in excess of stated value:
Balance at beginning of year $4,280 $4,228 $3,494
Stock dividend declared (4) (13) (4)
Exercises of stock options 300 65 738
Balance at end of year $4,576 $4,280 $4,228
Retained earnings:
Balance at beginning of year $2,829 $ 551 $ (973)
Net income 3,090 2,441 1,641
Cash dividend declared (201) (159) (110)
Stock dividend declared (3) (4) (7)
Balance at end of year $5,715 $2,829 $ 551
See notes to consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
General Employment Enterprises, Inc. (the "Company") and its
wholly-owned subsidiary, Triad Personnel Services, Inc., are
engaged in providing staffing services through a network of
branch offices located in major metropolitan areas throughout the
United States. The Company specializes in providing information
technology and other professionals to client-employers on either
a regular or contract basis.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and
transactions of the Company and its wholly-owned subsidiary. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Estimates and Assumptions
Preparing financial statements in accordance with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported.
Management believes that its estimates are reasonable and proper,
however, actual results could ultimately differ from those
estimates.
Revenues from Services
Placement fees are recognized as income at the time applicants
accept employment. Provision is made for estimated losses in
realization, principally due to applicants not remaining in
employment for a guarantee period. Contract service revenues are
recognized when work is performed.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
Net Income Per Share
In calendar year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Under the
new pronouncement, companies are required to report basic and
diluted earnings per share. The Company's basic net income per
share is based on the average number of common shares
outstanding. Diluted net income per share is based on the average
number of common shares and dilutive stock option shares
outstanding. All per share amounts have been restated to conform
with the new pronouncement.
Cash and Short-term Investments
Highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents. The
Company classifies its cash equivalents and short-term
investments as held-to-maturity securities, which are recorded at
amortized cost.
Property and Equipment
Furniture, fixtures and equipment are stated at cost. The
Company provides for depreciation on a straight-line basis over
estimated useful lives of two to ten years.
Deferred Rent
Under the terms of certain office leases, the Company makes no
rent payments or reduced rent payments during the initial portion
of the lease periods. In these cases, the Company recognizes
rent expense ratably over the life of the lease, and the excess
of rent expense over rent payments during these initial periods
is recorded as a liability on the balance sheet.
Stock Options
The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, there is no compensation
expense to the Company when stock options are granted at prices
equal to the fair market value at the date of grant. Proceeds on
exercises of stock options and the associated income tax benefits
are credited to shareholders' equity when received.
Reclassification
In fiscal 1998 the Company began reporting the direct costs of
contract services and selling expenses separately on the
consolidated statement of income, and certain branch office
operating costs were reclassified as general and administrative
expenses. Amounts for prior years have been reclassified to
conform with the 1998 presentation.
Cash and Short-term Investments
The Company's primary objective for its investment portfolio is
to provide maximum protection of principal and high liquidity.
By investing in high-quality securities having relatively short
maturity periods, the Company reduces its exposure to the risks
associated with interest rate fluctuations. Investments in
securities of corporate issuers are rated A2 and P2 or better. A
summary of cash and short-term investments as of September 30 is
as follows:
(In Thousands) 1998 1997
Cash $ 618 $ 596
Certificates of deposit 1,400 2,100
U.S. federal agency notes 2,000 2,000
Commercial paper 3,474 2,470
Corporate notes 2,967 581
Total cash and short-term investments $10,459 $7,747
As of September 30, 1998, all short-term investments had
maturities of two years or less. Unrealized gains and losses
were not significant.
Income Taxes
The components of the provision for income taxes are as follows:
(In Thousands) 1998 1997 1996
Current tax provision $2,100 $1,675 $ 990
Deferred tax provision (credit) (40) (55) 80
Provision for income taxes $2,060 $1,620 $1,070
The differences between income taxes calculated at the 34%
statutory U.S. federal income tax rate and the Company's
provision for income taxes are as follows:
(In Thousands) 1998 1997 1996
Income tax at statutory federal tax
rate $1,751 $1,381 $ 922
State income taxes, less federal
benefit 271 205 125
Other 38 34 23
Provision for income taxes $2,060 $1,620 $1,070
The net asset balance of deferred income taxes as of September 30
related to the following temporary differences:
(In Thousands) 1998 1997
Retirement benefits $141 $138
Accrued vacation 118 92
Other 15 4
Deferred income taxes $274 $234
The Company made income tax payments of $2,040,000 in 1998,
$1,795,000 in 1997 and $431,000 in 1996.
The income tax benefit resulting from exercises of stock options
reduced income taxes payable and increased shareholders' equity
by $94,000 in 1998, $26,000 in 1997 and $385,000 in 1996.
Line of Credit
The Company has a loan agreement with a bank, renewable annually,
that makes a $1,000,000 line of credit available to the Company
for working capital purposes. Under the terms of the agreement,
borrowings would be secured by accounts receivable and would bear
interest at the prime rate. There were no borrowings outstanding
under the line of credit as of September 30, 1998 and 1997.
Lease Obligations
The Company leases space for all of its branch offices, which are
located either in downtown or suburban metropolitan business
centers, and space for its corporate headquarters. The branch
offices are generally leased over periods from six months to five
years. Certain lease agreements provide for increased rental
payments contingent upon future increases in real estate taxes,
building maintenance costs and the cost of living index.
In February 1996, the Company entered into a new, 10-year lease
agreement covering its corporate headquarters office space. The
previous lease was scheduled to expire in November 1997. As a
result, the Company wrote off a deferred rent liability
associated with the previous lease and recorded a $144,000 credit
to rent expense.
Rent expense was $1,515,000 in 1998, $1,247,000 in 1997 and
$933,000 in 1996. As of September 30, 1998, future minimum lease payments
(including deferred rent payments) under lease agreements having
initial terms in excess of one year were: 1999 - $1,141,000, 2000
- - $1,000,000, 2001 - $743,000, 2002 - $615,000, 2003 - $551,000
and beyond 2003 - $1,051,000.
Retirement Benefits
The Company has a 401(k) retirement plan in which all full-time
employees may participate after one year of service. Under the
plan, eligible participants may contribute a portion of their
earnings to a trust, and the Company makes matching
contributions, subject to certain limitations. The Company also
has agreements with an officer and a retiree to provide defined
benefits at the individual's retirement, death, or termination.
The Company's accumulated obligation under these defined benefit
arrangements was $400,000 as of September 30, 1998 and $410,000
as of September 30, 1997, all of which was vested. These
benefits are unfunded, and the Company has recorded a liability
for the present value of the obligations at a discount rate of
7.00% in 1998 and at 7.25% in 1997. The total cost of both
retirement plans was $141,000 in 1998, $101,000 in 1997 and
$84,000 in 1996.
Preferred Stock
As of September 30, 1998 there were 100,000 shares of preferred
stock authorized, including 50,000 shares that were designated as
Series A Junior Participating Preferred Stock. The Series A
shares are reserved for issuance pursuant to the Company's share
purchase rights plan. None of the preferred shares have been
issued.
Common Stock
The Company declared a 10% stock dividend payable on October 30,
1998, a 3-for-2 stock split payable on October 31, 1997 and a 15%
stock dividend payable on November 1, 1996. All per-share
amounts have been restated to reflect these actions.
The Company declared cash dividends of $0.05 per common share on
November 17, 1997, $0.04 per common share on November 18, 1996
and $0.03 per common share on November 21, 1995.
Stock Options
Under the Company's 1997 Stock Option Plan, 413,000 shares of
common stock were authorized for issuance. Each existing non-
employee member of the Board of Directors was automatically
granted a nonstatutory option to purchase 25,000 shares. The
Stock Option Committee of the Board of Directors has the
authority to grant incentive or nonstatutory options to officers
and employees of the Company. The option prices, vesting
conditions and exercise periods (up to ten years) are to be
determined by the committee at the date of grant.
A summary of stock options is as follows:
(In Thousands, Except Per Share) 1998 1997 1996
Number of shares outstanding:
Beginning of year 446 64 193
Granted 78 392 81
Exercised (38) (10) (210)
Terminated (4) -- --
End of year 482 446 64
Number of shares exercisable
at end of year 320 264 43
Number of shares available for grant
at end of year 62 136 116
Weighted average option prices per share:
Granted during the year $6.91 $6.98 $3.61
Exercised during the year 5.45 3.61 1.68
Outstanding at end of year 6.54 6.39 2.35
Exercisable at end of year 5.78 5.88 1.72
With respect to the options outstanding as of September 30, 1998,
there were options on 40,000 shares at exercise prices ranging
from $0.90 per share to $3.61 per share having a weighted average
exercise price of $1.61 per share and a weighted average
remaining contractual life of four years, all of which were
exercisable; there were options on 384,000 shares at exercise
prices ranging from $5.91 per share to $6.79 per share having a
weighted average exercise price of $6.43 per share and a weighted
average remaining contractual life of nine years, 280,000 of
which were exercisable; and there were options on 58,000 shares
at an exercise price of $10.68 and having a remaining contractual
life of nine years, none of which were exercisable.
The issuance of stock options under the Company's plan does not
result in any present or future cash outlay by the Company.
Moreover, the Company benefits financially through the receipt of
cash proceeds and income tax benefits when the options are
exercised. In accordance with generally accepted accounting
principles, there was no compensation expense resulting from the
issuance of stock options because the option exercise prices were
equal to the market prices of the underlying stock on the dates
of grant.
However, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," requires companies to
calculate a hypothetical value of stock options on their dates of
grant. The Company has calculated the following weighted average
option values using the assumptions indicated and the Black-
Scholes option pricing model:
1998 1997 1996
Weighted average estimated fair value
per share of stock options granted $3.14 $3.15 $1.98
Expected option life (years) 3.00 3.25 3.40
Stock price volatility factor .64 .62 .60
Risk-free interest rate 5.3% 5.9% 5.9%
Dividend yield 0.5% 0.5% --
Assuming that stock options granted during 1998, 1997 and 1996
were valued using these assumptions and the values were reflected
as compensation expense over their vesting periods, the Company's
pro forma net income would have been $2,821,000 ($0.62 per share)
in 1998, $1,866,000 ($0.44 per share) in 1997 and $1,571,000
($0.37 per share) in 1996. These pro forma effects are not
indicative of future periods.
Share Purchase Rights Plan
The Company adopted a share purchase rights plan in 1990 and
declared a dividend of one Preferred Share Purchase Right
("Right") on each outstanding common share. Each Right may be
exercised to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock (the economic equivalent of
one common share) at an exercise price of $12 (which may be
adjusted under certain circumstances). The Rights become
exercisable (and separate from the common shares) when specified
events occur, including the acquisition after December 31, 1989
of 5% or more of the outstanding common shares by a person or
group ("Acquiring Person") that then owns 10% or more of the
outstanding common shares. Upon the occurrence of such an
acquisition (other than pursuant to a tender offer for all of the
outstanding common shares at a price and on other terms deemed
fair and in the best interests of the Company and its
shareholders by a majority of the continuing directors) or if the
Company is acquired in a merger or other business combination
transaction, each Right will entitle the holder (other than an
Acquiring Person) to purchase at the current exercise price,
stock of the Company or the acquiring company having a market
value of twice the exercise price. Each Right is nonvoting,
expires on February 22, 2000 and may be redeemed by the Company
at a price of $ .01 under certain circumstances.
Employment Contracts
The Company has agreements with two of its officers and a
separate plan covering branch managers and key corporate
employees that would become effective if the employment of any of
these officers or employees should terminate under certain
conditions following a change in control of the Company. Under
these circumstances, the Company would be obligated to make lump
sum payments to the two officers equal to two times their annual
salary, to make lump sum payments to covered employees ranging
from $20,000 to $50,000, and to provide continued benefits under
the Company's welfare plans for two years.
Quarterly Data (Unaudited)
Financial and stock market data for each of the quarters of the
Company's last two fiscal years are summarized below:
First Second Third Fourth
(In Thousands, Except Quarter Quarter Quarter Quarter
Per Share)
Fiscal 1998:
Net revenues $9,478 $8,841 $9,136 $9,279
Operating expenses 8,190 7,737 8,088 8,009
Income from operations 1,288 1,104 1,048 1,270
Interest income 99 99 112 130
Income before income taxes 1,387 1,203 1,160 1,400
Provision for income taxes 555 480 460 565
Net income $ 832 $ 723 $ 700 $ 835
Net income per share:
Basic $ .19 $ .16 $ .16 $ .19
Diluted .18 .16 .15 .19
Market prices per share:
High 19.09 17.39 13.41 9.77
Low 9.55 8.98 7.95 4.89
Close 17.05 10.68 8.52 6.36
Fiscal 1997:
Net revenues $5,904 $7,326 $7,472 $8,639
Operating expenses 5,269 6,257 6,508 7,527
Income from operations 635 1,069 964 1,112
Interest income 69 56 70 86
Income before income taxes 704 1,125 1,034 1,198
Provision for income taxes 280 450 415 475
Net income $ 424 $ 675 $ 619 $ 723
Net income per share:
Basic $ .10 $ .15 $ .14 $ .17
Diluted .10 .15 .14 .16
Market prices per share:
High 8.11 6.59 7.88 11.78
Low 4.70 5.30 5.38 7.12
Close 5.30 5.34 7.12 10.68
The Company's common stock is traded on the American Stock
Exchange under the trading symbol JOB. There were 985 holders of
record as of October 16, 1998.
EXHIBIT INDEX
No. Description of Exhibit
3(a) Articles of Incorporation and amendments thereto.
Incorporated by reference from Exhibit 3 to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996, File No. 1-5707.
3(b) By-Laws, as amended September 22, 1997.
10(a) Amended and Restated Defined Benefit Deferred Compensation
and Salary Continuation Agreement with Herbert F. Imhoff.
Incorporated by reference from Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, File No. 1-5707.
10(b) Employment contract with Herbert F. Imhoff.
Incorporated by reference from Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1981, File No. 1-5707.
10(c) Senior Executive Agreement with Herbert F. Imhoff
dated May 22, 1990. Incorporated by reference from Exhibit
10(e) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990, File No. 1-5707.
10(d) Senior Executive Agreement with Herbert F. Imhoff,
Jr. dated May 22, 1990. Incorporated by reference from
Exhibit 10(f) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, File No. 1-5707.
10(e) Key Manager Plan, adopted May 22, 1990.
Incorporated by reference from Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30 1990, File No. 1-5707.
10(f) Rights Agreement with The First National Bank of Chicago as
Rights Agent, dated as of February 12, 1990. Incorporated
by reference from Exhibit (1) of Registration on Form 8-A
dated February 19, 1990.
10(g) Settlement Agreement with Leonard Chavin dated as of
September 27, 1991. Incorporated by reference from Exhibit
10(j) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, File No. 1-5707.
10(h) First Amendment to Rights Agreement with The First National
Bank of Chicago as Rights Agent, dated as of September 27,
1991. Incorporated by reference from Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1991, File No. 1-5707.
10(i) Agreement with Sheldon Brottman dated October 3, 1991.
Incorporated by reference from Exhibit 10(l) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1991, File No. 1-5707.
10(j) General Employment Enterprises, Inc. Stock
Option Plan. Incorporated by reference from Exhibit 4.1 to
the Registrant's Form S-8 Registration Statement dated March
3, 1992, Registration No. 33-46124.
10(k) Agreement with Leonard and Marlene Chavin dated as of
October 1, 1993. Incorporated by reference from Exhibit
10(m) to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended September 30,1993, File No. 1-5707.
10(l) General Employment Enterprises, Inc. 1995
Stock Option Plan. Incorporated by reference from Exhibit
4.1 to the Registrant's Form S-8 Registration Statement
dated April 25, 1995, Registration No. 33-91550.
10(m) Resolution of the Board of Directors, adopted November 17,
1997, establishing a Senior Executive Bonus Pool for fiscal
1998. Incorporated by reference from Exhibit 10 of the
Registrant's Quarterly Report on Form 10-QSB for the quarter
ended December 31, 1997, File No. 1-5707.
10(n) General Employment Enterprises, Inc. 1997 Stock Option Plan.
10(o) Resolution of the Board of Directors adopted September 28,
1998, amending the General Employment Enterprises, Inc. 1997
Stock Option Plan.
23 Consent of Independent Auditors.
27 Financial Data Schedule for the year ended September 30, 1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: December 9, 1998 By: /s/ Herbert F. Imhoff
Herbert F. Imhoff
Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: December 9, 1998 By: /s/ Herbert F. Imhoff
Herbert F. Imhoff
Chairman of the Board and
Chief Executive Officer
Principal executive officer
Date: December 9, 1998 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
President and Chief Operating Officer
and Director
Date: December 9, 1998 By: /s/ Kent M. Yauch
Kent M. Yauch
Chief Financial Officer and Treasurer
Principal financial and accounting officer
Date: December 9, 1998 By: /s/ Sheldon Brottman
Sheldon Brottman, Director
Date: December 5, 1998 By: /s/ Leonard Chavin
Leonard Chavin, Director
Date: December 4, 1998 By: /s/ Delain G. Danehey
Delain G. Danehey, Director
Date: December 7, 1998 By: /s/ Walter T. Kerwin, Jr.
Walter T. Kerwin, Jr., Director
Date: December 7, 1998 By: /s/ Howard S. Wilcox
Howard S. Wilcox, Director
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-91550, No. 33-46124 and No. 333-
25129) pertaining to the General Employment Enterprises, Inc.
Stock Option Plans of our report dated November 9, 1998, with
respect to the consolidated financial statements of General
Employment Enterprises, Inc. and subsidiary included in the
Annual Report (Form 10-KSB) for the year ended September 30,
1998.
/s/ Ernst & Young LLP
Chicago, Illinois
December 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,459
<SECURITIES> 0
<RECEIVABLES> 4,204
<ALLOWANCES> 565
<INVENTORY> 0
<CURRENT-ASSETS> 14,098
<PP&E> 3,089
<DEPRECIATION> 2,391
<TOTAL-ASSETS> 15,632
<CURRENT-LIABILITIES> 4,837
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 10,291
<TOTAL-LIABILITY-AND-EQUITY> 15,632
<SALES> 0
<TOTAL-REVENUES> 36,734
<CGS> 0
<TOTAL-COSTS> 7,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,150
<INCOME-TAX> 2,060
<INCOME-CONTINUING> 3,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,090
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.67
</TABLE>
9
Exhibit 10(n)
GENERAL EMPLOYMENT ENTERPRISES, INC.
1997 STOCK OPTION PLAN
Section 1. Purpose.
The purpose of the General Employment Enterprises, Inc. 1997
Stock Option Plan (the "Plan") is to benefit General Employment
Enterprises, Inc. (the "Company") and its Subsidiaries (as
defined in Section 2) by recognizing the contributions made to
the Company by officers and other key employees (including
members of the Board of Directors of the Company ("the
Directors") who are also employees) of the Company and its
Subsidiaries, to provide such persons with additional incentive
to devote themselves to the future success of the Company, and to
improve the ability of the Company to attract, retain and
motivate individuals, by providing such persons with a favorable
opportunity to acquire or increase their proprietary interest in
the Company. In addition, the Plan is intended as an additional
incentive to members of the Board of Directors of the Company who
are not employees of the Company ("Non-Employee Directors") to
serve on the Board of Directors of the Company (the "Board") and
to devote themselves to the future success of the Company by
providing them with a favorable opportunity to acquire or
increase their proprietary interest in the Company through
receipt of options to acquire common stock of the Company.
The Company may grant stock options that constitute
"incentive stock options" ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or stock options which do not constitute ISO ("NSOs")
(ISOs and NSOs being hereinafter collectively referred to as
"Options").
Section 2. Eligibility.
Non-Employee Directors shall participate in the Plan only in
accordance with the provisions of Section 5.2 of the Plan. The
Committee (as defined in Section 3) shall initially, and from
time to time thereafter, select those officers and other key
employees (including Directors of the Company who are also
employees) (collectively referred to herein as "Key Employees")
of the Company or any other entity of which the Company is the
direct or indirect beneficial owner of not less than fifty
percent (50%) of all issued and outstanding equity interests
("Subsidiaries"), to participate in the Plan on the basis of the
special importance of their services in the management,
development and operations of the Company or its Subsidiaries
(each such Key Employee receiving Options granted under the Plan
is referred to herein as an "Optionee").
Section 3. Administration.
3.1. The Committee. The Plan shall be administered by the
Stock Option Committee (the "Committee") of the Board of
Directors of the Company (the "Board"). The Committee shall be
comprised of two (2) or more members of the Board who are "non-
employee directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934.
3.2. Authority of the Committee. No person, other than
members of the Committee, shall have any authority concerning
decisions regarding the Plan. Subject to the express provisions
of this Plan, the Committee shall have sole discretion concerning
all matters relating to the Plan and Options granted hereunder.
The Committee, in its sole discretion, shall determine the Key
Employees of the Company and its Subsidiaries to whom, and the
time or times at which Options will be granted, the number of
shares to be subject to each Option, the expiration date of each
Option, the time or times within which the Option may be
exercised, the cancellation of the Option (with the consent of
the holder thereof) and the other terms and conditions of the
grant of the Option. The terms and conditions of the Options
need not be the same with respect to each Optionee or with
respect to each Option.
The Committee may, subject to the provisions of the Plan,
establish such rules and regulations as it deems necessary or
advisable for the proper administration of the Plan, and may make
determinations and may take such other action in connection with
or in relation to the Plan as it deems necessary or advisable.
Each determination or other action made or taken pursuant to the
Plan, including interpretation of the Plan and the specific terms
and conditions of the Options granted hereunder by the Committee
shall be final and conclusive for all purposes and upon all
persons including, but without limitation, the Company, its
Subsidiaries, the Committee, the Board, officers and the affected
employees of the Company and/or its Subsidiaries and their
respective successors in interest.
No member of the Committee shall, in the absence of bad
faith, be liable for any act or omission with respect to service
on the Committee. Service on the Committee shall constitute
service as a Director of the Company so that members of the
Committee shall be entitled to indemnification pursuant to the
Company's Certificate of Incorporation and By-Laws.
Section 4. Shares of Common Stock Subject to Plan.
4.1. The total number of shares of common stock, no par
value, of the Company (the "Common Stock"), that may be issued
and sold under the Plan within the Applicable Period (as defined
below) shall be 250,000. For purposes of the preceding sentence,
Applicable Period shall be the ten-year period commencing on
February 24, 1997 and ending on February 24, 2007. The
aforementioned total number of shares of Common Stock shall be
adjusted in accordance with the provisions of Section 4.2 hereof.
Notwithstanding the foregoing, the total number of shares of
Common Stock that may be subject to ISOs under the Plan shall be
250,000 shares of Common Stock, adjusted in accordance with the
provisions of Section 4.2 hereof. Any shares of Common Stock
subject to issuance upon exercise of Options but which are not
issued because of a surrender (other than pursuant to Sections
7.2 or 7.3 of the Plan), forfeiture, expiration, termination or
cancellation of any such Option, to the extent consistent with
applicable law, rules and regulations, shall once again be
available for issuance pursuant to subsequent Options.
4.2. The number of shares of Common Stock subject to the
Plan and to Options granted under the plan shall be adjusted as
follows: (a) in the event that the number of outstanding shares
of Common Stock is changed by any stock dividend, stock split or
combination of shares, the number of shares subject to the Plan
and to Options previously granted thereunder shall be
proportionately adjusted; (b) in the event of any merger,
consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted on an
equitable basis as determined by the Board, in its sole
discretion, for each share of Common Stock then subject to the
Plan and for each share of Common Stock then subject to an Option
granted under the Plan, the number and kind of shares of stock,
other securities, cash or other property to which the holders of
Common Stock of the Company are entitled pursuant to the
transaction; and (c) in the event of any other change in the
capitalization of the Company, the Committee, in its sole
discretion, shall provide for an equitable adjustment in the
number of shares of Common Stock then subject to the Plan and to
each share of Common Stock then subject to an Option granted
under the Plan. In the event of any such adjustment, the
exercise price per share shall be proportionately adjusted.
Section 5. Grants of Options.
5.1. Grants of Options to Key Employees. Subject to the
terms of the Plan, the Committee may from time to time grant
Options, which may be ISOs or NSOs, to Key Employees of the
Company or any of its Subsidiaries. Unless otherwise expressly
provided at the time of the grant, Options granted under the Plan
to Key Employees will be ISOs.
5.2. Grants of Options to Non-Employee Directors. All
grants of Options to Non-Employee Directors shall be automatic
and non-discretionary. Each individual who is a Non-Employee
Director on the effective date of the Plan shall be granted
automatically a NSO to purchase 15,000 shares of Common Stock on
the effective date of the Plan. Each individual who becomes a
Non-Employee Director (other than a Non-Employee Director who was
previously an employee Director) after the effective date of the
Plan shall be granted automatically a NSO to purchase 15,000
shares of Common stock on the date he or she becomes a Non-
Employee Director.
5.3. Option Agreement. Each Option shall be evidenced by a
written Option Agreement specifying the type of Option granted,
the Option exercise price, the terms for payment of the exercise
price, the expiration date of the Option, the number of shares of
Common Stock to be subject to each Option and such other terms
and conditions established by the Committee, in its sole
discretion, not inconsistent with the Plan.
5.4. Expiration. Except to the extent otherwise provided
in or pursuant to Section 6, each Option shall expire, and all
rights to purchase shares of Common Stock shall expire, on the
tenth anniversary of the date on which the Option was granted.
5.5. Exercise Period. Except to the extent otherwise
provided in or pursuant to Section 6, or in the proviso to this
sentence, Options shall become exercisable pursuant to the
following schedule: with respect to one-fifth of the total
number of shares of Common Stock subject to Option on the date
twelve months after the date of its grant and with respect to an
additional one-fifth of the total number of shares of Common
Stock subject to the Option at the end of each twelve-month
period thereafter during the succeeding four years; provided,
however, that the Committee, in its sole discretion, shall have
the authority to shorten or lengthen the exercise schedule with
respect to any or all Options, or any part thereof, granted under
the Plan.
5.6. Required Terms and Conditions of ISOs. Each ISO
granted to a Key Employee shall be in such form and subject to
such restrictions and other terms and conditions as the Committee
may determine, in its sole discretion, at the time of grant,
subject to the general provisions of the Plan, the applicable
Option Agreement, and the following specific rules:
(a) Except as provided in Section 5.6(d), the per
share exercise price of each ISO shall be the Fair Market
Value of the shares of Common Stock on the date such ISO is
granted.
(b) The aggregate Fair Market Value (determined with
respect to each ISO at the time such Option is granted) of
the shares of Common Stock with respect to which ISOs are
exercisable for the first time by an individual during any
calendar year (under all incentive stock option plans of the
Company and its parent and subsidiary corporations) shall
not exceed $100,000. If the aggregate Fair Market Value
(determined at the time of grant) of the Common Stock
subject to an Option that first becomes exercisable in any
calendar year exceeds the limitation of this Section 5.6(b),
so much of the Option that does not exceed the applicable
dollar limit shall be an ISO and the remainder shall be a
NSO; but in all other respects, the original Option
Agreement shall remain in full force and effect.
(c) As used in this Section 5, the words "parent" and
"subsidiary" shall have the meanings given to them in
Section 424(e) and 424(f) of the Code.
(d) Notwithstanding anything herein to the contrary,
if an ISO is granted to an individual who owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of
its parent or subsidiary corporations, within the meaning of
Section 422(b)(6) of the Code: (i) the purchase price of
each share of Common Stock subject to the ISO shall be not
less than one hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the date the ISO is granted;
and (ii) the ISO shall expire and all rights to purchase
shares thereunder shall cease no later than the fifth
anniversary of the date the ISO was granted.
(e) No ISOs may be granted under the Plan after
February 24, 2007.
5.7. Required Terms and Conditions of NSOs. Each NSO
granted shall be in such form and subject to such restrictions
and other terms and conditions as the Committee may determine, in
its sole discretion, at the time of grant, subject to the general
provisions of the Plan, the applicable Option Agreement, and the
following specific rule: in no event may the exercise price be
less than the par value of the shares of Common Stock subject to
such NSO.
Section 6. Effect of Termination.
6.1. Key Employee Termination Generally. Except as
provided in Sections 6.2, 6.3 and 11, or by the Committee in its
sole discretion, any Option shall terminate on the date of the
Key Employee's termination of employment with the Company and its
Subsidiaries: (i) for Good Cause (as defined in the Option
Agreement); or (ii) voluntarily, for any other reason other than
retirement, death, or disability. A Key Employee's transfer of
employment from the Company to a Subsidiary, or from a Subsidiary
to the Company, or from a Subsidiary to another Subsidiary, shall
not constitute a termination of employment for purposes of the
Plan. Options granted under the Plan shall not be affected by
any change of duties in connection with the employment of the Key
Employee or by leave of absence authorized by the Company or a
Subsidiary.
6.2. Death and Disability. In the event of an Optionee's
death or Disability (as defined below) during employment or
service with the Company or any of its Subsidiaries, all Options
held by the Optionee shall become fully exercisable on such date
of death or Disability. Each of the Options held by such an
Optionee shall expire on the earlier of: (a) the first
anniversary of the date of the Optionee's death or Disability;
and (b) the date that such Option expires in accordance with its
terms. For purposes of this Section 6.2, "Disability" shall mean
the inability of an individual to engage in any substantial
gainful activity by reason of any medical determinable physical
or mental impairment which is expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months. The Committee, in
its sole discretion, shall determine the date of any Disability.
6.3. Retirement of Key Employees. In the event the
employment of a Key Employee with the Company and/or its
Subsidiaries shall be terminated by reason of Employee
Retirement, all Options held by the Key Employee shall become
fully exercisable. Each of the Options held by such a Key
Employee shall expire on the earlier of: (i) the first
anniversary of the date of the Employee Retirement; and (ii) the
date that such Option expires in accordance with its terms. For
purposes of this Section 6.3, "Employee Retirement" shall mean
retirement of a Key Employee after attaining age 55. In the
event the employment of a Key Employee with the Company and/or
its Subsidiaries shall be terminated by reason of a retirement
that is not an Employee Retirement as herein defined, the
Committee may, in its sole discretion, determine that the
exercisability and exercise periods set forth in this Section
6.3(a) shall be applicable to Options held by such Key Employee.
Notwithstanding the foregoing, in the event the employment of a
Key Employee who is also a Director of the Company is terminated
by reason of Employee Retirement, all Options held by the Key
Employee shall become fully exercisable, but each of the Options
held by such a Key Employee shall expire on the earlier of: (i)
the first anniversary of the date of the Key Employee's
termination of service on the Board for any reason; and (ii) the
date that such Option expires in accordance with its terms.
6.4. Retirement of Non-Employee Directors. In the event
the service of a Non-Employee Director on the Board shall be
terminated by reason of the retirement of such Non-Employee
Director of the Company in accordance with the Company's
retirement policy for Directors, any Option or Options granted to
such Non-Employee Director shall continue to vest and remain
exercisable pursuant to Section 5, in the same manner and to the
same extent as if such Director had continued his or her service
on the Board during such period.
Section 7. Exercise of Options.
7.1. Notice. A person entitled to exercise an Option may
do so by delivery of a written notice to that effect specifying
the number of shares of Common Stock with respect to which the
Option is being exercised and any other information the Committee
may prescribe. The notice shall be accompanied by payment as
described in Section 7.2. The notice of exercise shall be
accompanied by the Optionee's copy of the writing or writings
evidencing the grant of the Option. All notices or requests
provided for herein shall be delivered to the Secretary of the
Company.
7.2.Exercise Price. Except as otherwise provided in the
Plan or in any Option Agreement, the Optionee shall pay the
purchase price of the shares of Common Stock upon exercise of any
Option: (a) in cash; (b) in cash received from a broker-dealer to
whom the Optionee has submitted and exercise notice consisting of
a fully endorsed Option (however, in the case of an Optionee
subject to Section 16 of the 1934 Act, this payment option shall
only be available to the extent such insider complies with
Regulation T issued by the Federal Reserve Board); (c) by
delivering shares of Common Stock having an aggregate Fair Market
Value on the date of exercise equal to the Option exercise price;
(d) by directing the Company to withhold such number of shares of
Common Stock otherwise issuable upon exercise of such Option
having an aggregate Fair Market Value on the date of exercise
equal to the Option exercise price; (e) in the case of a Key
Employee, by such other medium of payment as the Committee, in
its discretion, shall authorize at the time of grant; or (f) by
any combination of (a), (b), (c), (d) and (e). In the case of an
election pursuant to (a) or (b) above, cash shall mean cash or a
check issued by a federally insured bank or savings and loan, and
made payable to the Company. In the case of payment pursuant to
(b), (c) or (d) above, the Optionee's election must be made on or
prior to the date of exercise and shall be irrevocable. In lieu
of a separate election governing each exercise of an Option, an
Optionee may file a blanket election with the Committee which
shall govern all future exercises of Options until revoked by the
Optionee. The Company shall issue, in the name of the Optionee,
stock certificates representing the total number of shares of
Common Stock issuable pursuant to the exercise of any Option as
soon as reasonably practicable after such exercise, provided that
any shares of Common Stock purchased by an Optionee through a
broker-dealer pursuant to clause (b) above shall be delivered to
such broker-dealer in accordance with 12 C.F.R 220.3(e)(4) or
other applicable provision of law.
7.3. Taxes Generally. At the time of the exercise of any
Option, as a condition of the exercise of such Option, the
Company may require the Optionee to pay the Company an amount
equal to the amount of the tax the Company or any Subsidiary may
be require to withhold to obtain a deduction for federal and
state income tax purposes as a result of the exercise of such
Option by the Optionee or to comply with applicable law.
7.4. Payment of Taxes. At any time when an Optionee is
required to pay an amount required to be withheld under
applicable income tax or other laws in connection with the
exercise of an Option, the Optionee may satisfy this obligation
in whole or in part by: (a) directing the Company to withhold
such number of shares of Common Stock otherwise issuable upon
exercise of such Option having an aggregate Fair Market Value on
the date of exercise equal to the amount of tax required to be
withheld; or (b) delivering shares of Common Stock of the Company
having an aggregate Fair Market Value equal to the amount
required to be withheld. In the case of payment of taxes
pursuant to (a) or (b) above, the Optionee's election must be
made on or prior to the date of exercise and shall be
irrevocable. The Committee may disapprove any election or
delivery or may suspend or terminate the right to make elections
or deliveries. In lieu of a separate election governing each
exercise of an Option, an Optionee may file a blanket election
with the Committee which shall govern all future exercises of
Options until revoked by the Optionee.
Section 8. Transferability of Options.
No Option granted pursuant to the Plan shall be transferable
otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by
the Code. Notwithstanding the preceding sentence, an Optionee,
at any time prior to his death, may assign all or any portion of
an Option granted to him (other than an ISO) to (i) his spouse or
lineal descendant, (ii) the trustee of a trust for the primary
benefit of his spouse or lineal descendant, (iii) a partnership
of which his spouse and lineal descendants are the only partners,
or (iv) a tax exempt organization as described in Code Section
501 (c)(3). In such event, the spouse, lineal descendant,
trustee, partnership or tax exempt organization will be entitled
to all of the rights of the Optionee with respect to the assigned
portion of such Option, and such portion of the Option will
continue to be subject to all of the terms, conditions and
restrictions applicable to the Option, as set forth herein and in
the related Option Agreement immediately prior to the effective
date of the assignment. Any such assignment will be permitted
only if: (i) the Optionee does not receive any consideration
therefore; and (ii) the assignment is expressly permitted by the
applicable Agreement as approved by the Committee. Any such
assignment shall be evidenced by an appropriate written document
executed by the Optionee, and a copy thereof shall be delivered
to the Company on or prior to the effective date of the
assignment.
Section 9. Rights as Shareholder.
An Optionee or a transferee of an Optionee pursuant to
Section 8 shall have no rights as a shareholder with respect to
any Common Stock covered by an Option or receivable upon the
exercise of an Option until the Optionee or transferee shall have
become the holder of record of such Common Stock, and no
adjustments shall be made for dividends in cash or other property
or other distributions or rights in respect to such Common Stock
for which the record date is prior to the date on which the
Optionee shall have in fact become the holder of record of the
shares of Common Stock acquired pursuant to the Option.
Section 10. Change in Control.
10.1 Effect of Change in Control. Notwithstanding any of
the provisions of the Plan or any Option Agreement evidencing
Options granted hereunder, upon a Change in Control of the
Company (as defined in Section 10.2) all outstanding Options
shall become fully exercisable and all restrictions thereon shall
terminate in order that Optionees may fully realize the benefits
thereunder. Further, in addition to the Committee's authority
set forth in Section 3, the Committee, as constituted before such
Change in Control, is authorized, and has sole discretion, as to
any Option, either at the time such Option is granted hereunder
or any time thereafter, to take any one or more of the following
actions: (a) provide for the purchase of any such Option, upon
the Optionee's request, for an amount of cash equal to the
difference between the exercise price and the then Fair Market
Value of the Common Stock covered thereby had such Option been
currently exercisable; (b) make such adjustment to any such
Option then outstanding as the Committee deems appropriate to
reflect such Change in Control; and (c) cause any such Option
then outstanding to be assumed, by the acquiring or surviving
corporation, after such Change in Control.
10.2. Definition of Change in Control. A "Change in
Control of the Company" is deemed to occur upon:
(a) The receipt by the Company of a Schedule 13D or
other statement filed under Section 13(d) of the 1934 Act,
indicating that any entity, person, or group has acquired
beneficial ownership, as that term is defined in Rule 13d-3
under the 1934 Act, of more than 30% of the outstanding
capital stock of the Company entitled to vote for the
election of directors ("voting stock");
(b) The commencement by an entity, person, or group
(other than the Company or a Subsidiary) of a tender offer
or an exchange offer for more than 20% of the outstanding
voting stock of the Company;
(c) The effective time of: (i) a merger or
consolidation of the Company with one or more other
corporations as a result of which the holders of the
outstanding voting stock of the Company immediately prior to
such merger or consolidation hold less than 80% of the
voting stock of the surviving or resulting corporation; or
(ii) a transfer of substantially all of the property of the
Company other than to an entity of which the Company owns at
least 80% of the voting stock; or
(d) The election to the Board, without the
recommendation or approval of the incumbent Board, of the
lesser of: (i) three directors or (ii) directors
constituting a majority of the number of directors of the
Company then in office.
Section 11. Postponement of Exercise.
The Committee may postpone any exercise of an Option for
such time as the Committee in its sole discretion may deem
necessary in order to permit the Company: (a) to effect, amend or
maintain any necessary registration of the Plan or the shares of
Common Stock issuable upon the exercise of an Option under the
Securities Act of 1933, as amended, or the securities laws of any
applicable jurisdiction; (b) to permit any action to be taken in
order to (i) list such shares of Common Stock on a stock exchange
if shares of Common Stock are then listed on such exchange or
(ii) comply with restrictions or regulations incident to the
maintenance of a public market for its shares of Common Stock,
including any rules or regulations of any stock exchange on which
the shares of Common Stock are listed; or (c) to determine that
such shares of Common Stock and the Plan are exempt from such
registration or that no action of the kind referred to in (b)(ii)
above needs to be taken; and the Company shall not be obligated
by virtue of any terms and conditions of any Option or any
provision of the Plan to recognize the exercise of an Option or
to sell or issue shares of Common Stock in violation of the
Securities Act of 1933 or the law of any government having
jurisdiction thereof. Any such postponement shall not extend the
term of an Option and neither the Company nor its directors or
officers shall have any obligation or liability to an Optionee,
to the Optionee's successor or to any other person with respect
to any shares of Common Stock as to which the Option shall lapse
because of such postponement.
Section 12. Termination or Amendment of Plan.
The Board or the Committee may terminate, suspend, or amend
the Plan, in whole or in part, from time to time, without the
approval of the shareholders of the Company to the extent allowed
by law.
The Committee may correct any defect or supply an omission
or reconcile any inconsistency in the Plan or in any Option
granted hereunder in the manner and to the extent it shall deem
desirable, in its sole discretion, to effectuate the Plan.
No amendment or termination of the Plan shall in any manner
affect any Option theretofore granted without the consent of the
Optionee, except that the Committee may amend the Plan in a
manner that does affect Options theretofore granted upon a
finding by the Committee that such amendment is in the best
interest of holders of outstanding Options affected thereby.
Section 13. Effective Date.
The Plan has been adopted and authorized by the Board of
Directors for submission to the shareholders of the Company. If
the Plan is approved by the affirmative vote of a majority of the
shares of the voting stock entitled to be voted by the holders of
stock represented at a duly held shareholders' meeting, it shall
be deemed to have become effective as of such date, February 24,
1997.
Exhibit 10(o)
RESOLUTION OF THE BOARD OF DIRECTORS
ADOPTED SEPTEMBER 28,1998
RESOLVED, that Section 5.2 of the 1997 General
Employment Enterprises, Inc. Stock Option Plan be
amended as follows, so that said section in its
entirety will now read:
"5.2. Grants of Options to Non-Employee
Directors. All grants of Options to Non-Employee
Directors shall be automatic and non-discretionary.
Each individual who is a Non-Employee Director on the
effective date of the Plan shall be granted
automatically a NSO to purchase 15,000 shares of Common
Stock on the effective date of the Plan. Each
individual who becomes a Non-Employee Director (other
than a Non-Employee Director who was previously an
employee Director) after the effective date of the Plan
shall be granted automatically a NSO to purchase 5,000
shares of Common stock on the date he or she becomes a
Non-Employee Director."
