UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a - 101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Check the appropriate box:

þ	Preliminary Proxy Statement

¨	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨	Definitive Proxy Statement

¨	Definitive Additional Materials

¨	Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

GENERAL EMPLOYMENT ENTERPRISES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ	No fee required.

¨	Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1)	Title of each class of securities to which transaction applies:

(2)	Aggregate number of securities to which transaction applies:

(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)	Proposed maximum aggregate value of transaction:

(5)	Total fee paid:

¨	Fee paid previously with preliminary materials.

¨	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)	Amount Previously Paid:

(2)	Form, Schedule or Registration Statement No.:

(3)	Filing Party:

(4)	Date Filed:

 

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GENERAL EMPLOYMENT ENTERPRISES, INC.

One Tower Lane, Suite 2200, Oakbrook Terrace

Illinois 60181

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on September 9, 2013

 

To the Stockholders of General Employment Enterprises, Inc.:

 

Notice is hereby given that the Annual Meeting of Stockholders of General Employment Enterprises, Inc. will be held on September 9, 2013, at _____ a.m., Eastern Daylight Time (EDT), at __________, located at __________, for the following purposes as more fully described in the proxy statement:

 

·	To elect four (4) members of our Board of Directors;

·	To ratify the appointment of Friedman LLP as our independent registered public accounting firm for 2013;

·	To approve our 2013 Incentive Stock Plan;

·	To approve an amendment to our Articles of Incorporation to increase our authorized common stock from 50 million shares to 200 million shares and to increase our authorized preferred stock from 1 million shares to 20 million shares;

·	To approve an amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions from at least two-thirds of the votes of the shares entitled to vote to at least a majority of the votes of the shares entitled to vote;

·

To approve amendments to our Articles of Incorporation to (1) eliminate the designation of Series A Junior Participating Preferred Shares; (2) to clarify that our stockholders are not entitled to cumulative voting rights or preemptive rights; (3) to clarify that our officers and directors are entitled to indemnification to the fullest extent permitted by applicable law; and (4) to limit certain personal liability of our directors; and

·	To consider such other business as may properly come before the annual meeting or any adjournment or postponement of the annual meeting.

 

Only stockholders of record as of the close of business on August 21, 2013, the record date, are entitled to receive notice of, and to vote at, the annual meeting or any adjournment or postponement of the annual meeting.

Please note that, if you plan to attend the annual meeting in person, you will need to register in advance and receive an admission card to be admitted. Please follow the instructions on page ___ of the proxy statement.

 

Your vote is important. Whether or not you plan to attend the annual meeting in person, it is important that your shares be represented. We ask that you vote your shares as soon as possible.

 

BY ORDER OF THE BOARD,

Michael K. Schroering

Chairman of the Board and

Chief Executive Officer

Oakbrook Terrace, Illinois

__________, 2013

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TABLE OF CONTENTS

Important Notice Regarding the Availability of Proxy Materials for the Annual

Meeting of Stockholders to be held on September 9, 2013

 

This Proxy Statement and our Annual Report on Form 10-K for the Year Ended September 30, 2012, and the

Quarterly Report on Form 10-Q for the Three Months Ended March 31, 2013.

are available at __________.

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GENERAL EMPLOYMENT ENTERPRISES, INC.

One Tower Lane, Suite 2200

Oakbrook Terrace, Illinois 60181

PROXY STATEMENT

 

This proxy statement sets forth information relating to the solicitation of proxies by the Board of Directors of General Employment Enterprises, Inc. (the “Company”) in connection with the Company’s 2013 annual meeting of stockholders or any adjournment or postponement of the annual meeting. The annual meeting will take place on September 9, 2013 at __________, located at __________, at _____ a.m., Eastern Daylight Time.

 

This proxy statement and form of proxy were first sent on or about August 22, 2013, to our stockholders of record as of the close of business on August 21, 2013, the record date.

 

QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING

 

What is the purpose of the annual meeting?

 

Our 2013 annual meeting will be held for the following purposes:

 

·	To elect four (4) members of our Board of Directors (Proposal 1);

·	To ratify the appointment of Friedman LLP as our independent registered public accounting firm for 2013 (Proposal 2);

·	To approve our 2013 Incentive Stock Plan (Proposal 3);

·	To approve an amendment to our Articles of Incorporation to increase our authorized common stock from 50 million shares to 200 million shares and to increase our authorized preferred stock from 1 million shares to 20 million shares (Proposal 4);

·	To approve an amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions from at least two-thirds of the votes of the shares entitled to vote to at least a majority of the votes of the shares entitled to vote (Proposal 5);

·

To approve amendments to our Articles of Incorporation to (1) eliminate the designation of Series A Junior Participating Preferred Shares; (2) to clarify that our stockholders are not entitled to cumulative voting rights or preemptive rights; (3) to clarify that our officers and directors are entitled to indemnification to the fullest extent permitted by applicable law; and (4) to limit certain personal liability of our directors (Proposal 6); and

·	To consider such other business as may properly come before the annual meeting or any adjournment or postponement of the annual meeting.

In addition, senior management of the Company and representatives of our outside auditor, Friedman LLP, will be available to respond to your questions.

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Who can vote at the annual meeting?

 

You can vote at the annual meeting if, as of the close of business on August 21, 2013, the record date, you were a holder of record of the Company’s common stock. As of the record date, there were issued and outstanding _____ shares of common stock, each of which is entitled to one vote on each matter to come before the annual meeting.

 

How many shares must be present to conduct business at the annual meeting?

 

A quorum is necessary to hold a valid meeting of stockholders. For each of the proposals to be presented at the annual meeting, the holders of shares of our common stock outstanding on August 21, 2013, the record date, representing _____ votes must be present at the annual meeting, in person or by proxy. If you vote – including by Internet, telephone or proxy card – your shares voted will be counted towards the quorum for the annual meeting. Abstentions and broker non-votes are counted as present for the purpose of determining a quorum.

How do I vote?

 

Registered Stockholders. If you are a registered stockholder (i.e., you hold your shares in your own name through our transfer agent, Continental Stock Transfer & Trust Co., referred to herein as “Continental”), you may vote by proxy via the Internet, by telephone, or by mail by following the instructions provided on the proxy card. Stockholders of record who attend the annual meeting may vote in person by obtaining a ballot from the inspector of elections.

 

Beneficial Owners. If you are a beneficial owner of shares (i.e., your shares are held in the name of a brokerage firm, bank or a trustee), you may vote by proxy by following the instructions provided in the vote instruction form or other materials provided to you by the brokerage firm, bank, or other nominee that holds your shares. To vote in person at the annual meeting, you must obtain a legal proxy from the brokerage firm, bank or other nominee that holds your shares.

 

Will my shares be voted if I do not provide voting instructions?

 

If you are a stockholder of record and you properly sign, date and return a proxy card, but do not indicate how you wish to vote with respect to a particular nominee or proposal, then your shares will be voted FOR the election of the four nominees for director named in “Proposal 1—Election of Directors,” FOR “Proposal 2—Ratification of the Appointment of Friedman LLP as Our Independent Registered Public Accounting Firm for 2013,” FOR “Proposal 3 — Approval of 2013 Incentive Stock Plan,” FOR “Proposal 4 – Approval of an amendment to our Articles of Incorporation to increase our authorized stock,” FOR “Proposal 5 - Approval of an amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions,” and FOR “Proposal 6 - Approval of amendments to our Articles of Incorporation to eliminate a series of preferred stock, to clarify that stockholders do not have cumulative voting or preemptive rights, to provide that officers and directors are entitled to indemnification to the full extent permitted by applicable law, and to limit certain personal liability of our directors.

Under the rules of NYSE MKT, LLC (“NYSE MKT”), brokerage firms have the authority to vote shares held for a beneficial owner on “routine” matters. Accordingly, if your shares are held of record by a brokerage firm and you do not provide the firm specific voting instructions, that firm will have the authority to vote your shares only with respect to the “Proposal 2—Ratification of the Appointment of Friedman LLP as Our Independent Registered Public Accounting Firm for 2013,” but your shares will not be voted and will be considered broker non-votes with respect to all other proposals described in this proxy statement. We urge you to provide voting instructions so that your shares will be voted.

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Can I change my vote after I have voted?

 

Yes, you may revoke your proxy and change your vote at any time before the final vote at the annual meeting. You may change your vote by voting again on a later date on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the annual meeting will be counted), signing and returning a new proxy card with a later date, or attending the annual meeting and voting in person. However, your attendance at the annual meeting will not automatically revoke any prior proxy unless you vote again at the annual meeting or specifically request in writing that your prior proxy be revoked.

 

What is the deadline to vote?

 

If you hold shares as the stockholder of record, your vote by proxy must be received before the polls close at the annual meeting. If you are the beneficial owner of shares, please follow the voting instructions provided by your broker, trustee or other nominee.

 

What vote is required to elect directors or take other action at the annual meeting?

 

•

Proposal 1: Election of Four (4) Directors. The election of the four (4) director nominees named in this proxy statement requires the affirmative vote of shares of common stock representing a plurality of the votes cast on the proposal at the annual meeting. This means that the four nominees will be elected if they receive more affirmative votes than any other person. You may not accumulate your votes for the election of directors.

•

Proposal 2: Ratification of the Appointment of Friedman LLP as Our Independent Registered Public Accounting Firm for 2013. Ratification of the appointment of Friedman LLP as our independent registered public accounting firm for the year ending September 30, 2013 requires the affirmative vote of shares of common stock representing a majority of votes cast on the proposal at the annual meeting.

•	Proposal 3: Approval of 2013 Incentive Stock Plan. Approval of our 2013 Incentive Stock Plan requires the affirmative vote of shares of common stock representing a majority of votes cast on the proposal at the annual meeting.

•

Proposal 4: Approval of an Amendment to our Articles of Incorporation to Increase our Authorized Stock. Approval of an amendment to our Articles of Incorporation to increase our authorized stock requires the affirmative vote of shares of common stock representing at least two-thirds of the Company’s issued and outstanding common stock.

•

Proposal 5: Approval of an Amendment to our Articles of Incorporation to Reduce the Stockholder Vote Required to Approve Certain Actions. Approval of an amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions requires the affirmative vote of shares of common stock representing at least two-thirds of the Company’s issued and outstanding common stock.

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Proposal 6: Approval of Amendments to our Articles of Incorporation to Eliminate a Series of Preferred Stock, to Clarify that Stockholders Do Not Have Cumulative Voting or Preemptive Rights, to Provide that Officers and Directors Are Entitled to Indemnification to the Full Extent Permitted by Applicable Law, and to Limit Certain Personal Liability of Our Directors. Approval of amendments to our Articles of Incorporation to eliminate a series of preferred stock, to clarify that stockholders do not have cumulative voting or preemptive rights, to provide that officers and directors are entitled to indemnification to the full extent permitted by applicable law, and to limit certain personal liability of our directors requires the affirmative vote of shares of common stock representing at least two-thirds of the Company’s issued and outstanding common stock.

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In general, other business properly brought before the annual meeting requires the affirmative vote of shares of common stock representing a majority of votes cast on such matter at the annual meeting.

 

How does the Board recommend that I vote?

 

Our Board recommends that you vote your shares “FOR” each director nominee named in this proxy statement, “FOR” ratification of Friedman LLP as our independent registered public accounting firm, “FOR” approval of our 2013 Incentive Stock Plan, and “FOR” approval of an amendment to our Articles of Incorporation to increase our authorized stock, “FOR” approval of an amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions, and “FOR” approval of amendments to our Articles of Incorporation to eliminate a series of preferred stock, to clarify that stockholders do not have cumulative voting or preemptive rights, to provide that officers and directors are entitled to indemnification to the full extent permitted by applicable law, and to limit certain personal liability of our directors.

How will the persons named as proxies vote?

 

If you complete and submit a proxy, the persons named as proxies will follow your instructions. If you submit a proxy but do not provide instructions, or if your instructions are unclear, the persons named as proxies will vote as recommended by our Board or, if no recommendation is given, in their own discretion.

 

Where can I find the results of the voting?

 

We intend to announce preliminary voting results at the annual meeting and will publish final results through a Current Report on Form 8-K to be filed with the Securities and Exchange Commission (“SEC”) within four (4) business days after the annual meeting. The Current Report on Form 8-K will be available on the Internet at our website, www.generalemployment.com.

 

Do I need a ticket to attend the annual meeting?

 

Yes, you will need an admission card to enter the annual meeting. You may request tickets by providing the name under which you hold shares of record or, if your shares are held in the name of a bank, broker or other holder of record, the evidence of your beneficial ownership of the shares, the number of tickets you are requesting and your contact information. You can submit your request in the following ways:

 

•	by sending an e-mail to __________; or

•	by calling us toll-free at (___) __________.

 

Stockholders also must present a form of personal photo identification in order to be admitted to the annual meeting.

Who will pay for the cost of soliciting proxies?

 

We will pay for the cost of soliciting proxies. Our directors, officers and other employees, without additional compensation, may solicit proxies personally, in writing, by telephone, by email or otherwise. As is customary, we will reimburse brokerage firms, fiduciaries, voting trustees, and other nominees for forwarding our proxy materials to each beneficial owner of common stock held of record by them.

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What is “householding” and how does it affect me?

 

In accordance with notices to many stockholders who hold their shares through a bank, broker or other holder of record (a “street-name stockholder”) and share a single address, only one copy of our proxy statement and included periodic reports to stockholders is being delivered to that address unless contrary instructions from any stockholder at that address were received. This practice, known as “householding,” is intended to reduce our printing and postage costs. However, any such street-name stockholder residing at the same address who wishes to receive a separate copy of this proxy statement and annual report may request a copy by contacting the bank, broker or other holder of record, or by sending a written request to: General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, attn.: Secretary or by contacting our Secretary by telephone at (___) __________. The voting instruction form sent to a street-name stockholder should provide information on how to request (1) householding of future Company materials or (2) separate materials if only one set of documents is being sent to a household. A stockholder who would like to make one of these requests should contact us as indicated above.

 

BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

 

Directors

 

Our Board currently consists of four members, as set forth in the table below. Our Board consists of an experienced group of business leaders, with experience in corporate governance, corporate finance, capital markets, insurance, employee benefits, real estate, and the practice of law. Our directors have a strong owner orientation -approximately 71% of the voting power of our capital stock is held by our directors or entities or persons related to our directors (as of August ___, 2013).

 

 

We have set forth below information regarding each of our directors, including the experience, qualifications, attributes or skills that led the Board to conclude that such person should serve as a director. Our Nominating Committee and our Board believe that the experience, qualifications, attributes and skills of our directors provide us with the ability to address our evolving needs and represent the best interests of our stockholders.

 

Michael K, Schroering – Chief Executive Officer, Chairman of the Board

 

Mr. Schroering joined the Company as a director in November 2012 and become the Chairman of the Board and Chief Executive Officer in December 2012. Prior to joining the Company, he served as President of The Schroering Company which he founded in 1993. The Schroering Company is a Louisville-based commercial real estate firm specializing in consulting services, site procurement, owner and tenant representation for the sale/leasing of office and industrial space. Other companies under his leadership have been active in real estate development through GlobalPort United, LLC which owns interest in several million square feet of big box warehouse space. Mr. Schroering received a B.A. in Business Administration in Finance and Management from Loyola University (1979) and went to the University of Louisville School of law (1979 – 1981).

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Edward Hunter – Director

 

Mr. Hunter joined the Company in October 2012 as a Director.  Mr. Hunter has practiced as an international business lawyer and litigator for more than 35 years, in both private practice and as in-house counsel. Most recently, he practiced with the business-focused firm of Robinson & Robinson, LLP, from 2002 to 2010, and since then with his own law office in Laguna Hills, California. Within the past five years, he served as a director of En Pointe Technologies, Inc. (formerly NASDAQ-CM: (now privately held)) (2003-2009) and of International Stem Cell Corporation (OTC: ISCO) (2007-2009), where he also served as Chairman of the respective Compensation Committees and as a member of their Audit Committees. From 2006 to 2009, he served on the board of Ovex Technologies (Pvt.) Ltd. of Lahore, Pakistan, chaired its Compensation Committee, and served on its Audit Committee. He previously served on the registrant’s Board of Directors from February 2009 to July 2009. He has been designated a “financial expert” within the meaning of the Sarbanes-Oxley Act of 2002 (“SOX”) and has experience implementing internal control and other procedures to comply with SOX requirements.  In addition to legal training and experience as an attorney, Mr. Hunter has completed the Corporate Directors Certification Program at the UCLA Anderson Graduate School of Management and the certification procedures of the National Association of Corporate Directors. As chair of three previous Compensation Committees, he led each company’s compliance with Regulation S-K (nonfinancial disclosures) and the evolving new rules and standards for executive compensation.

 

Thomas C. Williams – Director

 

Mr. Williams has served as a director of the Company since July 2009. Since 2005, Mr. Williams has served as acting Vice Chairman of Capital Management of Bermuda (previously Travelers of Bermuda), a company providing pension benefits for expatriates who have worked outside the U.S. and accrued benefits towards their retirement which are not covered by their domestic pension plans. Mr. Williams served as the Chief Executive Officer of Innova Insurance Ltd., a Bermuda based insurer, which provides extension risk to the Capital Markets on life insurance related assets from 2005 to 2009 when it was acquired.  The Company believes that Mr. Williams is qualified to sit on the board of directors because of his significant management experience.

 

Dennis W. Baker – Director

 

Mr. Baker has served as a director of the Company since 2000. From April 1975 to April 2006, Mr. Baker held various positions with CF Industries Holdings, Inc., a fertilizer manufacturing and distribution company, and most recently served as Treasurer from March 1988 to April 2007, when he retired. During this time, he also held the following titles at CF Industries Holdings, Inc.: Assistant Treasurer, Director of Financial Planning and Budgeting, Manager of Financial Planning, Manager of Budgets and Capital Expenditure Control, Capital Expenditure Control Analyst and Financial Analyst. On May 1, 2011, Mr. Baker was elected to the Board of Directors of CIS World, Inc. Mr. Baker is Chairman of the Audit Committee and is a member of the Compensation and Nominating Committees. The Company believes that Mr. Baker is qualified to sit on the board of directors because of his extensive management experience.

 

Role of the Board and Board Structure

 

Our business and affairs are managed under the direction of our Board, which is the Company’s ultimate decision-making body, except with respect to those matters reserved to our stockholders. Our Board’s primary responsibility is to seek to maximize long-term stockholder value. Our Board establishes our overall corporate policies, selects and evaluates our senior management team, which is charged with the conduct of our business, monitors the performance of the Company and management, and provides advice and counsel to management. In fulfilling the Board’s responsibilities, directors have full access to our management, internal and external auditors and outside advisors.

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The positions of Chairman of the Board and Chief Executive Officer are both currently held by Mr. Schroering. Our Board has not appointed a lead director. Our Board believes that this leadership model is currently appropriate in light of the following factors: our directors are stockholder-oriented and focused on the best interests of our stockholders due to their ownership of our securities; our independent directors meet regularly, and at least annually, in executive sessions without management present; the dual roles enable decisive leadership and ensure clear accountability; and our Board believes the dual roles function well for the Company based on our current strategy and ownership structure.

 

Our Board held eight meetings during 2012. In 2012, each person serving as a director attended at least 75% of the total number of meetings of our Board and any Board committee on which he served.

Our directors are expected to attend the annual meeting. Any director who is unable to attend the annual meeting is expected to notify the Chairman of the Board in advance of the annual meeting. Each person who was then serving as a director attended the 2012 annual meeting of stockholders.

 

Board Risk Oversight

 

Management of the risks that we face in the conduct of our business is primarily the responsibility of our senior management team. However, our Board provides overall risk oversight with a focus on the most significant risks facing the Company. Our senior management team periodically reviews with our Board any significant risks facing the Company. Our Board has delegated responsibility for the oversight of specific risks to the committees of the Board as follows:

 

•

Audit Committee. The Audit Committee oversees the policies that govern the process by which our exposure to risk is assessed and managed by management. In that role, the Audit Committee discusses with our management major financial risk exposures and the steps that management has taken to monitor and control these exposures. The Audit Committee also is responsible for reviewing risks arising from related party transactions involving the Company and overseeing our code of ethics.

•	Compensation Committee. The Compensation Committee monitors the risks associated with our compensation philosophy and programs.

•	Nominating Committee. The Nominating Committee oversees risks related to our governance structure and processes.

Our board has assessed the risks that could arise from our employee compensation policies and does not believe that such policies are reasonably likely to have a materially adverse effect on the Company.

Committees of the Board and Committee Membership

 

Our Board has established three separately designated standing committees to assist our Board in discharging its responsibilities: the Audit Committee, the Compensation Committee, and the Nominating Committee. Our Board may eliminate or create additional committees as it deems appropriate. The charters for our Board committees are in compliance with applicable SEC rules and the NYSE MKT Listed Company Manual. These charters are not available on our website, but were attached to the following documents filed with the SEC:  Audit Committee Charter - proxy statement filed January 27, 2012; Compensation Committee Charter – Proxy statement filed January 28, 2010; Nominating Committee Charter – proxy statement filed January 21, 2011. You may obtain a printed copy of any of these charters by sending a request to: General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, attn.: Secretary.

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Each committee of our Board is composed entirely of independent directors within all applicable standards (as further discussed below). Our Board’s general policy is to review and approve committee assignments annually. The Nominating Committee is responsible, after consultation with our Chairman of the Board and Chief Executive Officer and consideration of appropriate member qualifications, to recommend to our Board for approval all committee assignments, including designations of the chairs. Each committee is also authorized to retain its own outside counsel and other advisors as it desires.

The following table sets forth the current membership of each of our Board’s committees.

 

 

A brief summary of the committees’ responsibilities follows:

 

Nominating Committee

 

The functions of the Nominating Committee are to assist the Board in identifying, interviewing and recommending to the Board qualified candidates to fill positions on the board.  The Nominating Committee met two times during 2012.

 

The Company does not have a policy regarding the consideration of diversity, however defined, in identifying nominees for director. Instead, in evaluating candidates to serve on the Company’s Board, consideration is given to the level of experience, financial literacy and business acumen of the candidate. In addition, qualified candidates for director are those who, in the judgment of the Nominating Committee, have significant decision-making responsibility, with business, legal or academic experience. The Nominating Committee will consider recommendations for board candidates that are received from various sources, including directors and officers of the Company, other business associates and stockholders, and all candidates will be considered on an equal basis, regardless of source.

 

The Nominating Committee is presently composed of three non-employee directors: Thomas C. Williams (Chairman), Dennis W. Baker, and Edward Hunter.

 

Audit Committee

 

The Audit Committee is primarily concerned with the effectiveness of the Company’s accounting policies and practices, its financial reporting and its internal accounting controls. In addition, the Audit Committee reviews and approves the scope of the annual audit of the Company’s books, reviews the findings and recommendations of the independent registered public accounting firm at the completion of their audit, and approves annual audit fees and the selection of an auditing firm. The Audit Committee met four times during fiscal 2012.

 

The Audit Committee is presently composed of three non-employee directors: Dennis W. Baker (Chairman), Edward Hunter and Thomas C. Williams. The Board has determined that Mr. Baker, Mr. Hunter and Mr. Williams are all considered an “audit committee financial expert” as defined by rules of the SEC.  The Board has determined that each audit committee financial expert meets the additional independence criteria required under the listing standards of the NYSE MKT and Rule 10A-3 of the Exchange Act.

 

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Compensation Committee

 

The Compensation Committee has the sole responsibility for approving and evaluating the officer compensation plans, policies and programs. It may not delegate this authority. It meets as often as necessary to carry out its responsibilities. The Compensation Committee has the authority to retain compensation consultants, but has not done so. The Compensation Committee met three times during fiscal 2012.

 

In the past, the Compensation Committee has met each September to consider the compensation of the Company’s executive officers, including the establishment of base salaries and performance targets for the succeeding year, and the consideration of stock option awards. Management provides the Compensation Committee with such information as may be requested by the Compensation Committee, which in the past has included historical compensation information of the executive officers, tally sheets, internal pay equity statistics, and market survey data. Under the guidelines of the NYSE MKT, the Chief Executive Officer may not be present during the Compensation Committee’s deliberations regarding his compensation. If requested by the committee, the Chief Executive Officer may provide recommendations regarding the compensation of the other officers.

The Compensation Committee also has the responsibility to make recommendations to the Board regarding the compensation of directors.

 

The Compensation Committee is presently composed of three non-employee directors: Edward Hunter (Chairman), Dennis W. Baker, and Thomas C. Williams.

 

Director Compensation

 

Under the Company’s standard compensation arrangements each non-employee director receives a monthly retainer of $2,000 with the exception of Mr. Baker who receives $2,500 per month. Directors do not receive any additional compensation for attendance at meetings of the Board or its committees. Employees of the Company do not receive any additional compensation for service on the Board.

 

The following table sets forth information concerning the compensation of all persons who served as a director of the Company at any time during fiscal 2012.

 

2012 Director Compensation Table ⁽¹⁾

 

(1)	Compensation for Mr. Schroering, who is also a named executive officer of the Company, is disclosed in this proxy statement under the heading “Executive Compensation – Compensation Tables.”

(2)

The aggregate number of outstanding option awards at the end of fiscal 2012 were as follows for each of the non-employee directors: Mr. Baker – 330,000; Mr. Imhoff, Jr. – 315,000; Mr. Wardell – 315,000; Mr. Williams – 315,000.  Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.   The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 16 - Stock Option Plans” in the notes to consolidated financial statements in the Company’s Annual Report for fiscal 2012 accompanying this proxy statement.

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(3)	Options granted were included in compensation above as Herbert F. Imhoff, Jr. was also an employee. Herbert F. Imhoff, Jr. has since retired from all positions for the Company.

The compensation of our directors is subject to the approval of our Board, which is based, in part, on the review and recommendation of the Compensation Committee.

Corporate Code of Ethics

 

We have a Code of Ethics that applies to all directors and employees, including our senior management team. The Code of Ethics is designed to deter wrongdoing, to promote the honest and ethical conduct of all employees and to promote compliance with applicable governmental laws, rules and regulations. We intend to satisfy the disclosure requirements under applicable SEC rules relating to amendments to the Code of Ethics or waivers from any provision thereof applicable to our principal executive officer, our principal financial officer and principal accounting officer by posting such information on our website pursuant to SEC rules.

Our Code of Ethics was attached as an exhibit to our Form 10-K filed with the SEC on March 29, 2013. In addition, you may obtain a printed copy of the Code of Ethics, without charge, by sending a request to: General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, attn.: Secretary.

 

Director Independence

 

Our Board is responsible to make independence determinations annually with the assistance of the Nominating Committee. Such independence determinations are made by reference to the independence standard under the definition of “independent director” under the NYSE MKT Listed Company Manual. Our Board has affirmatively determined that each person who served as a director during any part of 2012, except Mr. Schroering, our Chairman of the Board and Chief Executive Officer, satisfies the independence standards under the NYSE MKT Listed Company Manual.

 

In addition to the independence standards provided in the NYSE MKT Listed Company Manual, our Board has determined that each director who serves on our Audit Committee satisfies standards established by the SEC providing that, in order to qualify as “independent” for the purposes of membership on that committee, members of audit committees may not (1) accept directly or indirectly any consulting, advisory or other compensatory fee from the Company other than their director compensation or (2) be an affiliated person of the Company or any of its subsidiaries. The Board has also determined that each member of the Compensation Committee satisfies the newly-adopted NYSE MKT standards for independence of Compensation Committee members, which became effective on July 1, 2013.

 

Director Selection Process

 

As provided in its charter, the Nominating Committee is responsible to recommend to our Board all nominees for election to the Board, including nominees for re-election to the Board, in each case after consultation with the Chairman of the Board. The Nominating Committee considers, among other things, the level of experience, financial literacy and business acumen of the candidate. In addition, qualified candidates for director are those who, in the judgment of the Nominating Committee, have significant decision-making responsibility, with business, legal or academic experience, and other disciplines relevant to the Company’s businesses, the nominee’s ownership interest in the Company, and willingness and ability to devote adequate time to Board duties, all in the context of the needs of the Board at that point in time and with the objective of ensuring diversity in the background, experience, and viewpoints of Board members.

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The Nominating Committee may identify potential nominees for election to our Board from a variety of sources, including recommendations from current directors and officers, recommendations from our stockholders or any other source the committee deems appropriate.

 

Our stockholders can nominate candidates for election as director by following the procedures set forth in our Bylaws, which are summarized below. We did not receive any director nominees from our stockholders for the annual meeting.

 

Our Bylaws provide that any stockholder entitled to vote in the election of directors generally may make nominations for the election of directors to be held at an annual meeting, provided that such stockholder has given actual written notice of his intent to make such nomination or nominations to the Secretary of the Company not less than ninety days nor more than one hundred twenty days prior to the anniversary date of the immediately preceding annual meeting.  In accordance with the Company’s Bylaws, submissions must include: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings involving any two or more of the stockholders, each such candidate and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder or relating to the Company or its securities or to such candidate's service as a director if elected; (d) such other information regarding such candidate proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the candidate been nominated, or intended to be nominated, by the Board; and (e) the consent of each candidate to serve as a director of the Company.  The submission must also include: (i) the number of shares beneficially owned by the stockholder; (ii) the name, address and contact information of the candidate being recommended; and (iii) a description of the qualifications and business experience of the candidate.

Any stockholder who wishes to nominate a potential director candidate must follow the specific requirements set forth in our Bylaws, a copy of which may be obtained by sending a request to: General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, attn.: Secretary.

 

Stockholder Communication with the Board

 

Stockholders and parties interested in communicating with our Board, any Board committee, any individual director or any group of directors (such as our independent directors) should send written correspondence to: Board of Directors, General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, Attn.: Secretary.  Please note that we will not forward communications that are spam, junk mail and mass mailings, resumes and other forms of job inquiries, surveys, business solicitations or advertisements.

 

 

As more specifically provided in our Bylaws, no business may be brought before an annual meeting of our stockholders unless it is specified in the notice of the annual meeting or is otherwise brought before the annual meeting by or at the direction of our Board or by a stockholder entitled to vote who has delivered proper notice to us not less than ninety days or more than one hundred twenty days prior to the date of the meeting. Detailed information for submitting stockholder proposals or nominations of director candidates will be provided upon written request to: General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, attn.: Secretary.

 

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The foregoing requirements are separate from the SEC’s requirements that a stockholder must meet in order to have a stockholder proposal included in our proxy statement for the 2014 annual meeting of stockholders. Stockholders interested in submitting a proposal for inclusion in our proxy materials for the 2014 annual meeting may do so by following the procedures set forth in Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). To be eligible for inclusion in such proxy materials pursuant to such rule, stockholder proposals must be received by our Secretary not later than __________, 2013.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

On August 31, 2011, the Company entered into an asset purchase agreement (the “Ashley Purchase Agreement”) with Ashley Ellis, an Illinois limited liability company, and Brad A. Imhoff for the purchase of certain assets of Ashley Ellis, including customer lists, comprising Ashley Ellis’ services business. Ashley Ellis’ services business was operated from offices in Illinois, Texas and Georgia and provided services related to the recruitment and placement of technical personnel. The Ashley Purchase Agreement was deemed effective on September 1, 2011.  Brad A. Imhoff is the brother of Herbert F. Imhoff, Jr., a former director and the former President of the Company.  Effective January 31, 2013, Herbert Imhoff, Jr. retired from all positions with the Company. Brad A. Imhoff and Ashley Ellis, an entity of which Brad A. Imhoff was the sole member and Chief Executive Officer, were parties to the transaction. As consideration for the assets, the Company paid Ashley Ellis $200,000 on the date of closing and paid Ashley Ellis an additional $200,000 within six months of closing. The Company also issued to Ashley Ellis 1,250,000 restricted shares of the Company’s common stock. As the sole member of Ashley Ellis, Brad A. Imhoff had an interest in the foregoing consideration received by Ashley Ellis.  In connection with the transactions contemplated by the Ashley Purchase Agreement, on August 31, 2011, the Company and Ashley Ellis entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Ashley Ellis was granted certain piggyback registration rights with respect to the shares to be issued to Ashley Ellis under the Ashley Purchase Agreement. The Registration Rights Agreement contains certain indemnification provisions for the benefit of the Company and Ashley Ellis and other customary provisions.

In conjunction with the acquisition of DMCC and RFFG of Cleveland in December 2011, BMP, an Ohio corporation and a wholly-owned subsidiary of the Company, entered into a management service agreement (the “Management Agreement”) with RFFG effective November 1, 2010.   Thomas J. Bean, a 10% stockholder of the Company at the time (prior to receipt of common shares issued in this transaction), was the manager of RFFG.  Pursuant to the Management Agreement, BMP agreed to provide services to RFFG to operate its day-to-day business, including services related to accounting, sales, finance, workers’ compensation, benefits, physical locations, information technologies and employees.  The Management Agreement provided that additional services may be added if BMP and RFFG mutually agree to the cost to be charged by BMP for such services and as long as BMP has the resources to provide such services. In consideration of the services provided under the Management Agreement, RFFG agreed to pay BMP monthly fees that approximate 6% of its gross revenues on an annual basis.  For the year ended September 30, 2011, the Company recorded approximately $838,000 of revenue related to this agreement.  As of September 30, 2011, BMP has $225,000 of management fee receivable. Due to an unresolved issue with the Ohio Bureau of Workers Compensation, RFFG ceased operations as of July 15, 2011, and, as a result, the Management Agreement was effectively terminated.  As a result, the Company recorded a loss on impairment of intangible assets of $1,126,000 (as discussed further in Note 9), offset by income of $1,276,000 for the reduction of an associated earn-out liability.   There was approximately $140,000 unpaid related to this Management Agreement, which was offset against amounts owed related to certain earn-out payments provided under the original Asset Purchase Agreement.  In April 2013 the Company entered into an agreement with DMCC, RFFG, and Triad Personnel Services, Inc. amending that certain asset purchase agreement between the parties dated October 29, 2010 (the “APA”), under which the Company agreed to pay DMCC and RFFG additional cash consideration of between $550,000 and $650,000 depending on certain payment schedules and to issue to DMCC and RFFG 1,100,000 shares of Company common stock, which at the time was value at approximately $320,000.  The payments were made in full satisfaction of amounts owed by the Company to the parties under the APA.

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In November 2009, the Company discovered that it did not receive the proceeds from a bank for a $2,300,000 certificate of deposit that was scheduled to mature in October 2009. Although the Company made a formal inquiry of the bank, it did not receive an adequate explanation for the bank’s non-performance related to the deposit. In December 2009, the Company entered into an agreement to assign its interests in the certificate of deposit, without recourse and the Company was reimbursed for the face value of the deposit.  At that time, management believed the certificate of deposit was purchased by an unrelated third party that had other business interests with the bank.  New information was brought to management’s attention in October 2012 and it now believes Thomas J. Bean was involved and that others, who may or may not have been related to the Company may also have been involved in the transaction.

The Company contracted with Norco Accounting & Consulting Inc. (“Norco”) to provide accounting and consulting services.  Norco charged approximately $63,000 for consulting services and approximately $13,000 in related expense during the quarter ended March 31, 2013.  Norco is 50% owned by Mr. Norstrud, who joined the Company as its CFO on March 29, 2013.  The Company has not engaged Norco since hiring Mr. Norstrud.

 

Under its charter, the Audit Committee of our Board is responsible to review and approve or ratify any transaction between the Company and a related person that is required to be disclosed under the rules and regulations of the SEC. Our management is responsible for bringing any such transaction to the attention of the Audit Committee. In approving or rejecting any such transaction, the Audit Committee considers the relevant facts and circumstances, including the material terms of the transaction, risks, benefits, costs, availability of other comparable services or products and, if applicable, the impact on a director’s independence.

 

CHANGE IN CONTROL

 

On January 3, 2012, each of Trinity HR Services, LLC, a Delaware limited  liability company (“Trinity Services”), Trinity HR, LLC, a Kentucky limited liability company (“Trinity HR”), Brandon Simmons, Jeff Moody and J. Sherman Henderson III (collectively, the “Trinity Group”) filed Schedule 13D’s (the “Schedule 13D Filings”) with the SEC disclosing that each of Messrs. Simmons, Moody and Henderson, as co-managers of Trinity Services and Trinity HR, may be deemed to beneficially own, in the aggregate, 12,825,281 shares of Company common stock, or approximately 59.1% of the issued and outstanding common stock based on the number of shares outstanding as of September 30, 2011, constituting a change of control for the Company.

According to the Schedule 13D Filings, Gregory L. Skaggs, the sole member of PSQ, LLC, a Kentucky limited liability company (“PSQ”), which owned 9,325,281 shares of Company common stock, or approximately 43% of the issued and outstanding common stock (the “PSQ Shares”), had sold his entire membership interest in PSQ to Trinity Services, effective as of December 12, 2011.  The PSQ Shares were purchased by Trinity Services for $500,000, payable in monthly installments through seller financing from Mr. Skaggs and approximately $45,000 of short term borrowings from Derby Capital, LLC, an affiliate of Messrs. Henderson and Moody.  Trinity Services pledged the PSQ Shares to Mr. Skaggs as collateral for payment of the balance of the purchase price.

 

The Schedule 13D Filings also disclosed that Trinity HR had acquired 3,500,000 shares of Company common stock (the “RFFG Shares” and, together with the PSQ Shares, the “Shares”) or approximately 16.1% of the issued and outstanding common stock, from RFFG, LLC (“RFFG”), a wholly owned subsidiary of Trinity HR, on December 21, 2011, as a distribution from RFFG.  Trinity HR acquired RFFG from WTS Acquisition LLC on September 8, 2011.  RFFG previously obtained beneficial ownership of the RFFG Shares in early September 2011, as a prospective purchase price payment from the Company to RFFG in connection with the sale by RFFG to the Company of a portion of RFFG’s business on December 30, 2010.

 

On August 28, 2012, Brandon Simmons filed an Amendment No. 1 to Schedule 13D (the “Trinity 13D Filing”) with the SEC disclosing that on August 21, 2012, (i) Trinity Services sold 9,325,281 shares (the “Services Shares”) of common stock to LEED HR (owned and controlled by Mr. Schroering) and (ii) Trinity HR sold 2,974,719 shares (the “HR Shares” and, together with the Services Shares, the “Transferred Shares”) of Company common stock to LEED (collectively, the “Trinity Transfer”).  As a result of the Trinity Transfer, LEED acquired an aggregate of 12,300,000 shares of Company common stock, or approximately 57% of the issued and outstanding common stock based on the number of shares outstanding as of August 13, 2012, constituting a change of control for the Company.

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According to the Trinity 13D Filing and the exhibits attached thereto, the Services Shares were purchased by LEED for a purchase price of $2,274,000, payable as follows: (i) $37,900 in cash at closing, (ii) $721,000 within 45 days thereof, and (iii) the balance by delivery of a promissory note.  As additional consideration, LEED also agreed to promptly pay Trinity Services, 40% of any proceeds in excess of $4,662,641 received by LEED from (x) the sale of the first 2,974,719 Transferred Shares either sold by LEED or subject to a “Deemed Sale” (defined as shares deemed to be sold if, after the third anniversary date from August 21, 2012, the market price of the Transferred Shares exceeds $0.50, subject to certain exclusions), and (y) all dividends or distributions made by the Company.  Under the promissory note, LEED is required to pay to Trinity Services, $1,515,100 plus interest accrued at an annual rate of 1%, not later than January 21, 2014.  LEED is also required to pay Trinity Services under the promissory note, ½ of the net proceeds of any sales of the Transferred Shares yielding aggregate proceeds to LEED in excess of $250,000 in any twelve-month period.

 

According to the Trinity 13D Filing and the exhibits attached thereto, the HR Shares were purchased by LEED for a purchase price of $726,000, payable as follows: (i) $12,100 in cash at closing, (ii) $229,000 within 45 days thereof, and (iii) the balance by delivery of a promissory note.  As additional consideration, LEED also agreed to promptly pay Trinity HR, 40% of any proceeds in excess of $1,487,359.50 received by LEED from (x) the sale of the first 2,974,719 Transferred Shares either sold by LEED or subject to a Deemed Sale (as defined above), and (y) all dividends or distributions made by the Company.  Under the promissory note, LEED is required to pay to Trinity HR, $484,900 plus interest accrued at an annual rate of 1%, not later than January 21, 2014.  LEED is also required to pay Trinity HR under the promissory note, ½ of the net proceeds of any sales of the Transferred Shares yielding aggregate proceeds to LEED in excess of $250,000 in any twelve-month period.

 

On August 24, 2012, the Company was informed of the transfer of 3,357,410 shares of Company common stock, constituting approximately 15.5% of the issued and outstanding common stock, from Big Red Investment Partnership, Ltd. to LEED, pursuant to a privately negotiated transaction (the “Big Red Transfer”).  As a result of the Trinity Transfer and the Big Red Transfer, LEED may be deemed to beneficially own 15,657,410 shares of Company common stock, constituting approximately 70.4% of the issued and outstanding common stock.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information concerning the beneficial ownership of our voting securities as of August ___, 2013 by (i) each person who is known by us, based solely on a review of public filings, to be the beneficial owner of more than 5% of any class of our outstanding voting securities, (ii) each director, (iii) each executive officer named in the Summary Compensation Table and (iv) all executive officers and directors as a group.

 

Under applicable SEC rules, a person is deemed to be the “beneficial owner” of a voting security if such person has (or shares) either investment power or voting power over such security or has (or shares) the right to acquire such security within 60 days by any of a number of means, including upon the exercise of options or warrants or the conversion of convertible securities. A beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by the beneficial owner, but not those held by any other person, and which are exercisable or convertible within 60 days, have been exercised or converted.

 

Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all voting securities shown as being owned by them. Unless otherwise indicated, the address of each beneficial owner in the table below is care of General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181.

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* Represents less than 1%.

 

(1)	Based on 22,799,675 shares issued and outstanding as of August ___, 2013.

(2)

Based on the Schedule 13D filed on September 13, 2013 and the Schedule 13D/A filed on September 21, 2012, by each of LEED HR, LLC a Kentucky limited liability company, and Mr. Schroering, which disclosed that LEED HR, LLC owns directly 15,824,410 shares of common stock.  Mr. Schroering owns directly 199,334 shares of common stock.  Mr. Schroering is the sole manager of LEED HR, LLC.  By virtue of this relationship, Mr. Schroering may be deemed to beneficially own, the  15,824,410 shares of common stock owned directly by LEED HR, LLC.

(3)	Represents (i) 52,800 shares of common stock owned, and (ii) 321,000 shares issuable upon the exercise of stock options that are currently exercisable.

(4)	Represents 306,000 shares issuable upon the exercise of stock options that are currently exercisable.

(5)	Represents (i) 1,250,000 shares of common stock held directly by Ashley Ellis LLC, of which Mr. Imhoff is the sole member and Chief Executive Officer , (ii) 1,150 shares of common stock directly owned and (iii) 1,150 shares of common stock owned by Mr. Imhoff’s daughter, Lisa Imhoff.

(6)	Mrs. Imhoff is married to Mr. Brad Imhoff and may be deemed to beneficially own the shares beneficially owned by him.   Mrs. Imhoff disclaims beneficial ownership of such shares except to the extent of her pecuniary interest therein.

(7)	Mr. Norstrud joined the Company effective March 28, 2013.

(8)	Mr. Hunter joined the Company effective October 2, 2012.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE MKT. Officers, directors and greater than ten-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that during 2012, our officers, directors and greater than ten-percent beneficial owners complied with all applicable Section 16(a) filing requirements, except as follows:

 

·	Michael Schroering was late in filing his initial Form 3 dated September 21, 2012, reflecting the acquisition of 199,334 shares of Company common stock directly and 15,842,410 shares of Company common stock indirectly through LEED HR, LLC on August 16, 2012.

·	LEED HR, LLC was late in filing its initial Form 3 dated September 14, 2012, reflecting the acquisition of 15,842,410 shares of Company common stock on August 16, 2012.

 

EXECUTIVE COMPENSATION

 

Non-Director Executive Officers

 

In addition to Mr. Schroering, our Chairman and Chief Executive Officer, whose bio is set forth under “Board of Directors and Corporate Governance – Directors” above, we employ the following executive officers as of June 30, 2013:

 

 (1)  Mr. Norstrud was hired in March 2013.

 

Andrew J. Norstrud – Chief Financial Officer, Treasurer

 

Mr. Norstrud joined General Employment Enterprises in March 2013.  Prior to joining the Company, Mr. Norstrud was a consultant with Norco Accounting and Consulting from October 2011 until March 2013.  From October 2005 to October 2011, Mr. Norstrud served as the Chief Financial Officer for Jagged Peak.  Prior to his role at Jagged Peak, Mr. Norstrud was the Chief Financial Officer of Segmentz, Inc., and played an instrumental role in the company achieving its strategic goals by pursuing and attaining growth initiatives, building a financial team, completing and integrating strategic acquisitions and implementing the structure required of public companies.  Previously, Mr. Norstrud worked for Grant Thornton LLP and PricewaterhouseCoopers LLP and has extensive experience with young, rapid growth public companies.  Mr. Norstrud earned a BA in Business and Accounting from Western State College and a Master of Accounting with a systems emphasis from the University of Florida.  He is a Florida licensed Certified Public Accountant.

Compensation Policies and Procedures

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Overview

 

Our executive officer compensation programs are administered by the Compensation Committee of our Board (referred to as the “Committee” in this section). The primary purposes of the Committee are, among other things: (i) to assist our Board in fulfilling its responsibilities relating to the compensation of the Chief Executive Officer and the other executive officers of the Company, (ii) to oversee the administration of the Company’s compensation plans, in particular its incentive compensation and equity-based plans, and (iii) to review and make recommendations to our Board concerning director compensation.

 

For the fiscal year ended September 30, 2012, our “named executive officers” or “NEOs” were: Mr. Salvatore J. Zizza (Chief Executive Officer and Chairman of the Board until December 26, 2012); Herbert F. Imhoff, Jr. (President until January 31, 2013); Brad Imhoff (Chief Operating Officer and President of Professional Staffing Division until July 15, 2013); Katy Imhoff (Vice President of Operations and Vice President of Professional Staffing Division until July 15, 2013) and Jarett Misch (Chief Financial Officer and Treasurer until his termination on February 22, 2013).

 

Philosophy and Objectives of Our Executive Compensation Program

 

Our philosophy on executive compensation is to align the interests of our executive management with the interests of our stockholders and to ensure that the total compensation paid to our executive officers is reasonable and competitive. The three key objectives of our executive compensation program are:

 

•	Align executive compensation with stockholder value. Within our overall compensation strategy, we utilize long-term equity-based compensation and annual cash incentives to align financial interests and objectives of our NEOs with those of our stockholders.

•

Attract, retain and motivate high-performing executive talent.  We operate in a competitive employment environment and exceptional executive talent is essential to achieving our growth goals. The compensation offered to our NEOs is designed to attract and motivate the NEOs to maximize our performance and deliver on our long-term strategy.

•	Link pay to performance.  Our compensation program is designed to provide a strong correlation between the performance of the NEOs and the compensation they receive. We accomplish this linkage by including compensation elements that reward our NEOs based on their overall performance.

 

2011 Say on Pay Vote

 

In 2011, we sought an advisory vote from our stockholders regarding our executive compensation program. More than 98% of votes cast supported the program. The Committee considers the results of the advisory vote as it completes its annual review of the pay program and the compensation packages provided to our NEOs. The Committee will continue to consider the outcome of our triennial say-on-pay votes and our stockholder views when making future compensation decisions for the NEOs.

 

Process for Determining Executive Compensation

 

The total compensation package for each of our NEOs reflects assessments of individual responsibilities, contributions to corporate performance and overall company success in reaching strategic goals.

Role of Compensation Committee

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Pursuant to its charter, the Committee is responsible for administering the Company’s executive compensation program in a manner consistent with our compensation philosophy. The Committee is tasked with setting performance goals for NEOs and reviewing all other compensation and benefits for NEOs on an ongoing basis. The Committee acts independently, but works closely with our Board and the senior leadership team in making many of its decisions.

 

During 2012, the Committee was comprised entirely of non-employee directors, none of whom has at any time been an officer or employee of the Company. Further, our Board has determined that each member of the Committee is: (i) “independent” as defined under the newly-adopted NYSE MKT standards for independence of Compensation Committee members under the NYSE MKT Listed Company Manual, which became effective on July 1, 2013, (ii) a non-employee director for purposes of Rule 16b-3 of the Exchange Act, and (iii) an outside director for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Role of Management

 

Executive management and the Committee work together to establish, review and evaluate compensation packages and policies. Executive management provides input into the design of our pay program and, in particular, Mr. Schroering provides recommendations as to proposed compensation actions with respect to our executive team, other than with respect to his own compensation. However, the Committee carefully and independently reviews the recommendations of management, without members of management present, before making its final determination. We believe such a process ensures that our executive compensation program effectively aligns with our compensation philosophy.

 

Other Compensation-Related Items

 

Employment Agreements

 

We generally enter into an employment agreements with each of our NEOs at, or shortly after, the time of engagement. We believe that it is in the best interests of the Company to enter into multi-year employment agreements with our executive officers, because the agreements provide an incentive for long-term retention, while still allowing the Committee to exercise discretion in designing incentive compensation programs. The material compensation-related terms of these agreements are discussed in the tables that follow and the narratives related thereto.

 

Equity Ownership Requirements

 

We believe that maintaining equity ownership in the Company will help align our NEOs’ interests with the interests of our stockholders. Accordingly, we have structured the equity grants to our NEOs to promote ownership in the Company by adopting a multi-year vesting schedule. The Company does not presently have a stock ownership policy that is applicable to our NEOs, but the Committee may adopt such a policy in the future.

 

Conclusion

 

The Committee believes that our compensation programs appropriately reward executive performance and align the interests of our NEOs and key employees with the long-term interests of our stockholders, while also enabling the Company to attract and retain talented executives. The Committee will continue to evolve and administer our compensation program in a manner that the Committee believes will be in the best interests of our stockholders.

 

Compensation Tables

Summary Compensation Table

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The following table summarizes all compensation awarded to, earned by or paid to all individuals serving as the Company’s principal executive officer, its two most highly compensated executive officers other than the principal executive officer, and up to two additional individuals who were serving as executive officers at the end of the last completed fiscal year, for each of the last two completed fiscal years.

 

(1)

Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012.  Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.   In connection with Mr. Zizza’s retirement, the Board agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested from one year to eighteen months from the date of his retirement on December 26, 2012.

(2)	As of December 26, 2012, Mr. Zizza retired from all positions with the Company.

(3)	As of August 31, 2011, Herbert F. Imhoff, Jr. no longer served as Chief Operating Officer of the Company.  Effective January 31, 2013, Mr. Herbert Imhoff, Jr. retired from all positions with the Company.

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(4)	On August 31, 2011, Mr. Brad Imhoff was appointed Chief Operating Officer and President of the Professional Staffing Division.  Mr. Imhoff’s employment with the Company terminated at the expiration of his employment agreement on July 15, 2013.

(5)	On August 31, 2011, Mrs. Imhoff was appointed Vice President and Vice President of Operations of the Professional Staffing Division.  Mrs. Imhoff’s employment with the Company terminated at the expiration of her employment agreement on July 15, 2013.

(6)	Mr. Misch was appointed Chief Financial Officer and Treasurer of the Company effective January 3, 2012.  On February 22, 2013, Mr. Misch resigned from all positions with the Company.

(7)

The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 15 - Stock Option Plans” in the notes to consolidated financial statements contained elsewhere herein. All stock options awarded to the NEOs during fiscal 2012 were at option prices that were equal to the market price on the date of grant, had vesting dates two years or less after the date of grant, and had expiration dates ten years after the date of grant.  Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.  There were no stock options awarded in fiscal 2011.

 

Employment, Consulting, and Change in Control Agreements

 

Salvatore J. Zizza: On September 7, 2011, the Company and Salvatore J. Zizza, then the Company’s Chairman and Chief Executive Officer, entered into an employment agreement (the “Zizza Employment Agreement”) and a change of control agreement (the “Zizza Change of Control Agreement”), each dated as of September 1, 2011. The Zizza Employment Agreement provides for a two-year term ending on September 1, 2013, unless Mr. Zizza’s employment is earlier terminated by either party in accordance with the provisions thereof. Mr. Zizza is to receive a base salary at the rate of $120,000 per year, subject to increase in the discretion of the Board of the Company. Mr. Zizza will also receive a life insurance policy with coverage equal to two times his base salary and a disability income insurance policy with coverage equal to 50% of his base salary. Mr. Zizza will be entitled to receive equity compensation on the same terms and conditions as other executives and members of the Board of the Company. In the event that Mr. Zizza’s employment is terminated (other than as a result of Mr. Zizza’s death or disability) either (i) by the Company for a reason other than Cause or (ii) by Mr. Zizza for Good Reason (each as defined in the Zizza Employment Agreement), Mr. Zizza will continue to receive his base salary and other benefits provided under the Zizza Employment Agreement for the remainder of the term of the Zizza Employment Agreement.

 

The term of the Zizza Change of Control Agreement commenced on September 1, 2011, and will terminate on the earlier of (i) two years following the date of execution; (ii) termination of Mr. Zizza’s employment; or (iii) the execution of a written agreement between the Company and Mr. Zizza terminating the Zizza Change of Control Agreement. Under the Zizza Change of Control Agreement, in the event that the Company terminates Mr. Zizza’s employment without Cause or Mr. Zizza resigns with Good Reason after a Change of Control (each as defined in the Zizza Change of Control Agreement), Mr. Zizza will receive, subject to his execution of a separation agreement and release of claims in a form reasonably satisfactory to the Company, (a) a lump sum payment equal to all unpaid compensation remaining from the day of separation to the end of the term of the Zizza Employment Agreement; (b) continuation of health insurance benefits for six months following his separation from service; (c) reimbursement for the premiums associated with COBRA for 18 months following the six-month continuation of health insurance period; and (d) the same percentage of Company-paid group-term life insurance benefits as were provided to Mr. Zizza and his family under plans of the Company as of the Change of Control for a total of twenty-four months following the year in which Mr. Zizza separates from service.

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On December 26, 2012, Mr. Zizza informed the Board that he was retiring from all positions with the Company, effective immediately.  Under the terms of the Zizza Employment Agreement, Mr. Zizza will continue to receive his base salary of $10,000 per month through August 31, 2013.  Additionally, the Board agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested and outstanding as of December 26, 2012, from one year to eighteen months from the date of his retirement.  As of December 26, 2012, Mr. Zizza had options to purchase 300,000 shares of the Company’s common stock vested and outstanding.

 

Brad A. Imhoff: On June 26, 2013, the Company and Brad Imhoff entered into an Amended and Restated Employment Agreement (the “Brad Imhoff Employment Agreement”).  The Brad Imhoff Employment Agreement replaced that certain employment agreement entered into on August 31, 2011, and that certain change of control agreement entered into on August 31, 2011.  Under the Brad Imhoff Employment Agreement Mr. Imhoff served as the Company’s Chief Operating Officer and President of the Professional Staffing Division until July 15, 2013, at which point the term of the agreement expired.  Upon the expiration of the term of the agreement, Mr. Imhoff became obligated to provide certain transitional services at the request of the Company at $100 per hour, and became entitled to continue to receive his salary and benefits until September 15, 2013, and to receipt of a one-time payment of $12,500 on October 15, 2013.

 

Katy M. Imhoff: On June 26, 2013, the Company and Katy Imhoff entered into an Amended and Restated Employment Agreement (the “Katy Imhoff Employment Agreement”).  The Katy Imhoff Employment Agreement replaced that certain employment agreement entered into on August 31, 2011, and that certain change of control agreement entered into on August 31, 2011.  Under the Katy Imhoff Employment Agreement Mrs. Imhoff served as the Company’s Vice President Operations and Vice President of the Professional Staffing Division until July 15, 2013, at which point the term of the agreement expired.  Upon the expiration of the term of the agreement, Mrs. Imhoff became obligated to provide certain transitional services at the request of the Company at $100 per hour, and became entitled to continue to receive her salary and benefits until September 15, 2013, and to receipt of a one-time payment of $12,500 on October 15, 2013.

 

Herbert F. Imhoff, Jr.: In connection with the completion of the sale of shares of common stock to PSQ on July 1, 2009, Mr. Imhoff, Jr. resigned from his positions as Chairman of the Board and Chief Executive Officer of the Company and his employment agreement with the Company was replaced by a new consulting agreement. Under the consulting agreement, dated as of June 22, 2009, the Company became obligated to pay an annual consulting fee of $180,000 over a five-year period and to issue 500,000 shares of common stock to Mr. Imhoff, Jr. in exchange for his service to the Company.  On January 31, 2013, Mr. Imhoff, Jr., informed the Board that he was retiring from all positions with the Company, effectively immediately.   Mr. Imhoff Jr. will continue to receive monthly payments of $15,000 through June 30, 2014 as well as medical benefits provided by the Company.  Additionally, under the terms of his stock option agreements, he will have one year to exercise his stock options that are vested and outstanding as of January 31, 2013.  As of January 31, 2013, Mr. Imhoff, Jr., had options to purchase 315,000 shares of the Company’s common stock vested and outstanding.

 

All Other Compensation

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(1)

Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.  In connection with Mr. Zizza’s retirement, the Board agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested from one year to eighteen months from the date of his retirement on December 26, 2012.

(2)	Includes amounts paid by the employee for health insurance premiums that were reimbursed by the Company.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The following table summarizes equity awards granted to NEOs and Directors that were outstanding as of September 30, 2012:

 

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(1)	The options vest at the rate of 3,000 every year beginning on September 30, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.

(2)	Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012.  Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.

(3)	Charles W. B. Wardell resigned as of September 4, 2012

 

Retirement Benefits

 

The Company does not maintain a tax-qualified defined benefit retirement plan for any of its executive officers or employees. The Company has a 401(k) retirement plan in which all full-time employees may participate after one year of service.

 

Potential Payments upon Termination of Employment or Change in Control

 

The Company does not presently have any agreements that require us to provide compensation to the NEOs in the event of certain terminations of their employment or if the Company experiences a change in control.

 

AUDIT-RELATED MATTERS

 

General

 

In fulfilling its oversight role, our Audit Committee met and held discussions, both together and separately, with the Company’s management and Friedman. Management advised the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee reviewed and discussed the consolidated financial statements and key accounting and reporting issues with management and Friedman, both together and separately, in advance of the public release of operating results and filing of annual or quarterly reports with the SEC. The Audit Committee discussed with Friedman matters deemed significant by Friedman, including those matters required to be discussed pursuant to Statement of Auditing Standards No. 61, Communication with Audit Committees, as amended, and reviewed a letter from Friedman disclosing such matters.

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Friedman also provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the outside auditors’ communications with the Audit Committee concerning independence, and we discussed with Friedman matters relating to their independence.

 

Based on our review with management and Friedman of the Company’s audited consolidated financial statements and Friedman’s report on such financial statements, and based on the discussions and written disclosures described above and our business judgment, the Audit Committee recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012.

 

 Statement Regarding Change of Independent Registered Public Accounting Firms

 

On November 26, 2012, the Audit Committee of our Board approved the dismissal of BDO USA LLP (“BDO”) as our independent registered public accounting firm. BDO’s reports on our consolidated financial statements for the years ended September 30, 2011 and 2010 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During our two most recent fiscal years and the subsequent interim period preceding BDO’s dismissal, there were: (i) no “disagreements” (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K) with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused it to make reference to the subject matter of the disagreements in its reports on our consolidated financial statements; and (ii) no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

 

In connection with the audit of the Company’s financial statements for the fiscal year ended September 30, 2012 (the “2012 Audit”), on October 12, 2012, BDO notified the Company of its need to expand the scope of the procedures to be performed as part of the 2012 Audit, to ascertain the extent of the Company’s business and financial affiliation with Wilbur A. Huff following the indictment of Mr. Huff for various conspiracies and fraudulent schemes.  On October 18, 2012, BDO set out a work plan for such extended audit procedures (the “Work Plan”), which consisted of two phases.  The first phase of the Work Plan had estimated fees of $150,000, without any limit or guarantee.  BDO could not estimate the fees for phase II of the Work Plan.  Through multiple communications, the Company’s Audit Committee expressed its disagreement to BDO regarding the necessity and scope of the extended audit procedures.  After being unable to agree upon the extent of the 2012 Audit, the Company’s Audit Committee informed BDO, on November 26, 2012, that it was terminating the services of BDO due to (i) the open ended nature of fees which may be imposed by BDO for the two phase Work Plan, (ii) the open ended time frame for the completion of both phases of the Work Plan, and (iii) the uncertainty of BDO’s conclusion following the completion of the Work Plan.

 

As required by SEC rules, we previously disclosed this information on a Current Report on Form 8-K filed with the SEC on November 30, 2012 (the “Form 8-K”). We provided BDO with a copy of the Form 8-K prior to its filing with the SEC and requested BDO to furnish to us a letter addressed to the SEC stating that it agrees with the statements made above. A copy of BDO’s letter dated November 30, 2012, is attached as an exhibit to the Form 8‑K.

 

On November 29, 2012, the Audit Committee approved the engagement of Friedman as our independent registered public accounting firm for the fiscal years ended September 30, 2012, and to perform audits of our financial statements for the years ended September 30, 2012 and 2011.

 

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During our two most recent fiscal years and the subsequent interim period preceding Friedman’s engagement, neither we nor anyone on our behalf consulted Friedman regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and no written report or oral advice was provided to us that Friedman concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” or “reportable event” (as such terms are defined in Item 304(a)(1)(iv) of Regulation S-K and Item 304(a)(1)(v), respectively).

 

 

The following table presents fees billed by Friedman and BDO for professional services rendered for the audit of the Company’s financial statements and other services for the fiscal years ended September 30, 2012 and 2011:

 

(1)	Friedman, LLP performed an audit of the Company’s financial statements for the years ended, September 30, 2012 and September 30, 2011.

(2)	BDO USA, LLP charged the Company $50,000 for services for the year ended September 30, 2012, however did not complete the audit due to a dispute related to the audit fees required to complete the audit.

 

“Audit fees” relate to services for the audit of the Company’s consolidated financial statements for the fiscal year and for reviews of the interim consolidated financial statements included in the Company’s quarterly reports filed with the SEC.

 

“Audit-related fees” relate to services that are reasonably related to the audit of the Company’s consolidated financial statements and are not included in “audit fees.” These services include audits of the Company’s 401(k) retirement plan, the acquisition of certain assets of On-Site Services, Inc. and consultations on certain accounting matters.

 

“Tax Fees” relate to fees billed for professional services rendered by Friedman in connection with tax compliance. There were no such fees for 2012 or 2011.

 

“All other fees” relate to fees for all other services or products provided that are not covered by the categories above, and specifically relates to fees for services rendered in connection with the subpoena issued to the Company by the SEC on February 14, 2011.

 

Policy Regarding Pre-Approval of Services Provided by the Outside Auditors

 

The Audit Committee’s charter requires review and pre-approval by the Audit Committee of all audit services provided by our outside auditors and, subject to the de minimis exception under applicable SEC rules, all permissible non-audit services provided by our outside auditors. The Audit Committee reviews the fees billed for all services provided on a quarterly basis, and it pre-approves additional services if necessary.  As required by Section 10A of the Exchange Act, the Audit Committee pre-approved all audit and non-audit services provided by our outside auditors during fiscal 2011 and 2012, and the fees paid for such services.

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PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING

PROPOSAL 1:  ELECTION OF DIRECTORS

 

Upon the recommendation of the Nominating Committee of the Board, our Board has nominated for re-election at the annual meeting each of Mr. Schroering, Mr. Hunter, Mr. Williams, and Mr. Baker, each to stand for re-election for a new term expiring at the 2014 annual meeting of stockholders or until their successors are duly elected and qualified. Each of the nominees is currently serving as a member of our Board.

 

In the event any nominee is unable or declines to serve as a director at the time of the annual meeting, the proxies voting for their election will be voted for any nominee who shall be designated by the Board to fill the vacancy. As of the date of this proxy statement, we are not aware that either nominee is unable or will decline to serve as a director if elected.

 

Required Vote

 

The affirmative vote of shares of our common stock representing a plurality of the votes cast is required to elect Mr. Schroering, Mr. Hunter, Mr. Williams, and Mr. Baker as directors of the Company.

 

Recommendation

 

Our Board unanimously recommends a vote “FOR” the election of each of Mr. Schroering, Mr. Hunter, Mr. Williams, and Mr. Baker to our Board.

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PROPOSAL 2:  RATIFICATION OF THE APPOINTMENT OF FRIEDMAN LLP

 

AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2013

 

The Audit Committee of our Board has appointed Friedman LLP to serve as our independent registered public accounting firm for the year ending September 30, 2013. Friedman has served in this capacity since November 29, 2012.

 

We are asking our stockholders to ratify the appointment of Friedman as our independent registered public accounting firm. Although ratification is not required by our Bylaws or otherwise, our Board is submitting the appointment of Friedman to our stockholders for ratification as a matter of good corporate governance. If our stockholders fail to ratify the appointment of Friedman, the Audit Committee will consider whether it is appropriate and advisable to appoint another independent registered public accounting firm. Even if our stockholders ratify the appointment of Friedman, the Audit Committee in its discretion may appoint a different registered public accounting firm at any time if it determines that such a change would be in the best interests of the Company and our stockholders.

 

Representatives of Friedman are expected to be present at the annual meeting and will have an opportunity to make a statement and to respond to appropriate questions.

 

Required Vote

 

The affirmative vote of shares of our common stock representing a majority of votes cast thereon at the annual meeting or any adjournment or postponement thereof is required to approve Proposal 2.

 

Recommendation

 

Our Board unanimously recommends a vote “FOR” the ratification of the appointment of Friedman as our independent registered public accounting firm for the year ending September 30, 2013.

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PROPOSAL 3:  APPROVAL OF 2013 INCENTIVE STOCK PLAN

 

The Board has approved, and has recommended that the stockholders approve, our 2013 Incentive Stock Plan.  Stockholder approval is required under the NYSE MKT Listed Company Manual in order for the Company to be able to issue Awards under the Plan to the Company’s directors, officers, employees, and consultants.

 

Summary of 2013 Incentive Stock Plan

 

Introduction

 

This Summary of the Plan (the “Summary”) is intended to briefly describe some of the most important provisions of the 2013 Incentive Stock Plan (the “Plan”) and to generally outline the tax consequences which may be associated with the Award (defined herein) of Options (defined herein) and Restricted Stock (defined herein) under the Plan.

 

This Summary does not contain all of the details and specific terms of the Plan document, nor does it contain the details and terms of each Award Agreement for Options or Restricted Stock (an “Award Agreement”) under the Plan to specific persons.  This Summary was written to cover only normal circumstances and conditions relating to the Plan and the Awards granted pursuant to the Plan.  If there is any conflict between what is described in this Summary and the language in the Plan document or any Award Agreement, a copy of which is attached hereto as Exhibit A, the Plan document and Award Agreement will control.

 

General Plan Information

 

Purpose

 

The Plan was adopted by the Board and became effective on __________, 2013.  The purpose of the Plan is to provide additional incentives to select persons who can make, are making, and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons, and to encourage and reward such contributions, by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant of (1) Options or (2) Restricted Stock (collectively, an “Award”).  Such persons receiving an Award under the Plan are hereinafter referred to as “Participants.”

 

Administration

 

The Plan is administered by the Compensation Committee or such other committee as is appointed by the Board pursuant to the Plan (“Committee”).  The Committee has full authority to administer and interpret the provisions of the Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an Award made under the Plan, as described below.  All decisions by the Committee regarding the Plan are final and conclusive.

 

The Plan permits the Committee to grant one or more of the following Awards:

 

Options

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Under the Plan, the Committee may grant options (the “Options”) to purchase shares of Company common stock (the “Shares”).  Options granted under the Plan shall be classified for income tax purposes as either (a) “Incentive Stock Options” within the meaning of Section 422(b) of the Internal Revenue Code of 1986 as amended (the “Code”) or (b) “Nonqualified Stock Options.”  Nonqualified Stock Options are options that do not satisfy the requirements of Incentive Stock Options as defined by Section 422(b) of the Code (due to a “disqualified disposition” or pursuant to the terms of the Award Agreement).  Generally, the income tax treatment of Incentive Stock Options differs from the income tax treatment of Nonqualified Stock Options.  The intended nature of Options (that is, incentive or nonqualified) will be specified in each Award Agreement.

Restricted Stock.

 

Under the Plan, the Committee may grant stock to a Participant subject to the satisfaction of vesting conditions, restrictions on transfer, repurchase rights or other limitations imposed by the Plan and/or contained in the Participant’s Award Agreement (“Restricted Stock”).  If the Participant does not satisfy one or more of these conditions or restrictions, he must return the stock.  Prior to satisfying the vesting conditions, the Participant does not own the Restricted Stock and does not enjoy the rights of a stockholder.

 

Securities Offered

 

The maximum number of Shares that may be granted under the Plan is 10,000,000.  This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.

 

The specific terms of each Award to a Participant under the Plan are set forth in an Award Agreement between the Participant and the Company.

 

Eligibility to Participate

 

Every employee, officer, director, consultant or other service provider of the Company (or any Affiliate of the Company) is eligible to participate in the Plan.  The Committee shall select, among such individuals, those persons to whom an Award is to be granted, considering such factors as it deems relevant.

 

The Committee, in its discretion, may make an Award to a Participant, even though options, restricted stock or other benefits were previously granted to such Participant by the Company or under another plan of the Company.  The Plan does not confer any right to an individual to continue in the employ of the Company or to continue to provide services to the Company.

 

Discretion of the Committee

 

The Committee, in its discretion, determines (i) the individuals to whom Award are to be granted, (ii) the time or times at which Awards are to be granted, (iii) the price at which Awards may be exercised, (iv) the exercise period of Awards, (v) the time or times when Awards will become vested and exercisable, and (vi) all other terms and conditions of Awards.

 

A grant of an Award is effective only after the Participant signs the Award Agreement provided by the Committee and returns it to the Company. The Award Agreement will describe all of the terms of the Award, as determined by the Committee.

 

Code Section 409A

 

In order to avoid complex requirements and restrictions (and a potential 20% tax on Option holders) that are imposed by Code Section 409A, all Options (designated as “Nonqualified Stock Options”) issued under the Plan will have an exercise price at or above the current, fair market value of the underlying Shares at the time the Option is granted.

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Exercise and Vesting

 

Awards shall become exercisable and/or vested in accordance with a schedule determined by the Committee and set forth in each Award Agreement.  An Award Agreement shall state, with respect to all or designated portions of the Shares subject thereto, the time at which, the conditions upon which, or the installments in which the Award shall become vested.  The Committee may establish requirements for exercisability or vesting based on (i) periods of employment or rendering of services, (ii) the satisfaction of performance criteria with respect to the Company or the Participant (or both), or (iii) both periods of employment or rendering of services and satisfaction of performance criteria.

The Committee may substitute an effective date identified in the particular Award Agreement in place of the Award Date for use with the foregoing vesting schedule or with any other vesting schedule set forth in such Award Agreement.

 

In the case of any Award which, at the Award Date, is granted with provisions for vesting at a later date or in installments, whether by determination of the Committee or by operation of the preceding paragraph, two-thirds of the Committee may thereafter, at any time and in its sole discretion, waive or modify such vesting requirements with respect to such Award, in whole or in part, and accelerate the vesting condition of all or a portion of the Award.

 

The specific terms of each grant of an Award to a Participant under the Plan are set forth in the Award Agreement between the Participant and the Company.

 

Amendment and Termination

 

The Board may amend or terminate the Plan, at any time, without obtaining approval from the Company’s stockholders (unless required by law or other agreement). Termination of the Plan, other than upon dissolution of the Company, will not affect the rights of any Participant, except to the extent provided in the Award Agreement with such Participant or as otherwise set forth in the Plan.

 

Securities Law Restrictions

 

The Company may impose restrictions on Shares received by a Participant under the Plan as the Company deems advisable to comply with applicable securities laws and regulations including, the Securities Act of 1933 (as amended from time to time), the requirements of any stock exchange upon which the Company’s common stock is listed, and any state securities laws applicable to the Company’s common stock.

 

If a registration statement is not in effect with respect to Shares issuable under the Plan, the Company may require a Participant to represent, in writing, that the Shares received by the Participant are being acquired for investment and not with a view to distribution and to agree that such Shares will not be disposed of by the Participant except pursuant to an effective registration statement.

Tax Consequences

 

This Summary briefly summarizes the basic federal rules (but not any state or local rules), as in effect as of the date of this Summary, relating to the tax consequences which may be associated with an awards under the Plan.  Such tax law rules, as set forth in the Code, as amended, are complex and contain conditions and exceptions that are not included in this Summary.

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Each Participant should consider consulting with his or her personal, professional tax advisor concerning the particular tax consequences that result in connection with the Participant’s receipt of an Award.  Further, it is advisable for a Participant to obtain such consultation each time an Award is received, when the Award become vested, and at the time Shares are disposed.  A Participant is liable and responsible, and the Company is not liable or responsible, in any way, for any and all tax consequences to the Participant relating to or resulting from an Award of Shares.

 

Options

 

Tax Consequences on Grant of Options

 

There should be no income tax consequences to a Participant at the time the Option is granted regardless of whether the option is an Incentive Stock Option or a Nonqualified Stock Option.

Tax Consequences on Exercise.

 

Nonqualified Stock Options. The difference between the value of the stock at the time of exercise and the value of the stock at the time of grant less any amount, if any, paid for the stock (the “bargain element”) is taxable to the Participant as additional compensation (not capital gain) in the year of exercise.  The Participant must pay income tax (as well as social security and Medicare taxes) on the “bargain element” as compensation income, even though the Participant did not receive any cash at that time and may not have sold the stock.

 

Incentive Stock Options.  A Participant who exercises an Incentive Stock Option does not have to recognize any income for federal tax purposes when he exercises an Incentive Stock Option, provided he does not dispose of the underlying shares until the later of 2 years from the date of grant or 1 year from the date of exercise.  If the Participant violates this rule, there is a “disqualifying disposition,” and the Participant has to recognize income equal to the amount by which the sales price of the Shares exceeds the exercise price.  However, even absent a disqualifying disposition, for alternative minimum tax (“AMT”) purposes, the Participant has to recognize the bargain element as income at the time the Option is exercised and, as a result, may be subject to AMT and an immediate tax liability.

Tax Consequences of Sale of Acquired Shares

 

Nonqualified Stock Options.  If a Participant exercises an Option, the Participant will have capital gain or loss (which may be long-term or short-term) when he ultimately sells the shares, based on the difference between the amount received in the sale and the Participant’s basis.  For this purpose, “basis” is the amount paid for the Shares, increased by the amount that was treated as compensation income when the Participant exercised the Option (i.e., the exercise price plus the bargain element at the time of exercise).

 

Incentive Stock Options.  Assuming that there is no “disqualifying disposition,” the Participant will have held the shares for more than 1 year and therefore will be entitled to long-­term capital gains treatment (or, potentially will realize a long-term capital loss) based upon the variance between the amount for which the stock is sold and the amount that was paid to exercise the underlying option.

 

Shares acquired by exercising an Option may be subject to repurchase rights in favor of the Company under certain circumstances and also may be subject to various restrictions on selling or transferring the Shares to anyone else.

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As noted, each Participant should carefully consider the potential tax consequences that will result from any Option exercise.  It must be emphasized that the application of the tax laws, particularly the application of the AMT to Incentive Stock Options can be extremely complicated.

 

Restricted Stock

 

Tax Consequences Grant of Vested Shares

 

If a Participant receives an Award of vested Shares, the Participant must report compensation income for the year in which the Participant receives the Award.  The amount of income is the fair market value of the Shares at the time of receipt.

 

When a Participant who has received an Award of vested Shares sells such Shares, the Participant is treated as if the Participant bought the Shares on the Award date, for an amount equal to the amount of compensation income the Participant reported relating to receipt of the Award.  This amount is the Participant’s “basis” in the Shares.

If the Participant sells such Shares after holding the Shares for 1 year or less, the Participant will have short-term capital gain or loss on the sale, measured by the Participant’s basis in the Shares.  If the Participant sells such Shares after holding the Shares for more than 1 year, the Participant will have long-term capital gain or loss, measured by the Participant’s basis in the Shares.

Tax Consequences - Grant of Non-Vested Shares

 

If a Participant receives an Award of non-vested Shares, the Participant has a choice of two different tax regimes - the general rule and the Section 83(b) election rule.

 

The General Rule.  Under the general rule, a Participant does not report any income relating to the grant of non-vested Shares. The Participant will report compensation income for the year in which the Shares vest (i.e. forfeiture and/or transfer restrictions lapse).  The amount of income will be the fair market value of the Shares on the date the Shares become vested.  Thus, if the value of the Shares increases from the Award date to the date the Shares become vested, the Participant will report such increased value as compensation income when the Shares vest. Further, under the general rule, a sale of such Shares after the Shares become vested will result in capital gain or loss. The Participant’s gain or loss will be long-term if the Participant held the Shares for more than 1 year after the vesting date.  Otherwise, the gain or loss will be short-term.  The Participant’s basis will be the amount of compensation income the Participant reported at the time the Shares became vested. Finally, considering the general rule, if the Participant does not become vested and forfeits the grant of Shares, the Participant does not report any compensation income or capital gain or loss, relating to the Participant’s Award of Shares.

 

Section 83(b) Election Rule.  By filing a Section 83(b) election, a Participant may change the tax consequences that otherwise apply under the general rule discussed above.  A Participant makes a Section 83(b) election by filing a notice with the Internal Revenue Service (“IRS”) within 30 days of the receipt of non-vested Shares pursuant to an Award under the Plan.  Upon a valid Section 83(b) election, a Participant is treated as if the Shares under the Award were vested when received, with the following tax consequences:

 

(i)            The Participant reports compensation income at the time of receipt of the Shares, equal to the fair market value of the Shares at that time.

(ii)            The Participant does not report any income, gain, or loss, at the time the Shares become vested.

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(iii)            On a sale of the Shares, the Participant’s gain or loss will be capital gain (if the applicable holding period has been satisfied).  The Participant’s holding period is measured from the Award date (not the vested date) to determine long-term or short-term capital gain or loss.  The Participant’s basis is the amount of compensation income the Participant reported relating to the receipt of the Award.

(iv)            If the Participant does not become vested and forfeits the Award of Shares, the Participant will not be entitled to any deduction relative to the compensation income the Participant reported at the time of making the Section 83(b) election.

 

Required Vote

 

The affirmative vote of shares of our common stock representing a majority of votes cast thereon at the annual meeting or any adjournment or postponement thereof is required to approve Proposal 3.

 

Recommendation

 

Our Board unanimously recommends a vote “FOR” approval of the 2013 Incentive Stock Plan.

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PROPOSAL 4:  APPROVAL OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE OUR AUTHORIZED STOCK

The Board has approved, and has recommended that the stockholders approve, an amendment to our Articles of Incorporation to increase our authorized stock.  We propose increasing the number of shares of common stock the Company is authorized to issue from 50 million shares to 200 million shares, and increasing the number of shares of preferred stock the Company is authorized to issue from 1 million shares to 20 million shares.  The amendment would authorize the Board, from time to time, to issue shares of preferred stock in one or more series, with each such series to have such relative rights, powers, preferences, limitations and restrictions as shall be stated in a resolution of the Board providing for the issuance thereof.

 

Purpose of Increasing Authorized Stock

The purpose of increasing the authorized number of shares of Company common stock and preferred stock is to provide the Company with sufficient stock capacity to allow the flexibility for future equity financings to raise funds to support the intended growth of the Company’s business, including through strategic acquisitions.

Effect of Proposal

If this Proposal is approved, there will be a sufficient number of shares of Company common stock and preferred stock to provide adequate financing flexibility to support our plan to grow the Company’s business for the foreseeable future. We do not currently have any material commitments which would require the issuance of additional shares of Company common stock.

The Board of Directors does not believe that an increase in the number of authorized shares of Company common stock and preferred stock, without more, will have a significant impact on the market price of our common stock. The availability of significant authorized but unissued shares of Company common stock and preferred stock will however give the Company the flexibility to issue additional equity and create dilution without further approval of stockholders. The Board believes, however, that this additional flexibility is warranted, as it would facilitate execution of future financings and strategic acquisitions and thereby facilitate the growth of the Company’s business.

Required Vote

 

The affirmative vote of shares of our common stock representing at least two-thirds of the Company’s issued and outstanding common stock is required to approve Proposal 4.

 

Recommendation

 

Our Board unanimously recommends a vote “FOR” approval of the amendment to our Articles of Incorporation to increase our authorized stock.

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PROPOSAL 5:  APPROVAL OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO REDUCE THE STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN ACTIONS 

The Board has approved, and has recommended that the stockholders approve, an amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions.

Summary of Proposal

 

Several sections of the IBCA provide that the Company must obtain a supermajority approval of stockholders prior to taking certain actions.  This Proposal affects the following such sections in the following manner:

*  IBCA Section 10.20 – Amendment of Articles of Incorporation by Directors and Shareholders.  This section requires that most amendments to the Company’s Articles of Incorporation be approved by the stockholders by the affirmative vote of at least two-thirds of the votes of the shares entitled to vote on such amendment, unless any class or series of shares is entitled to vote as a class in respect thereof, in which event the proposed amendment shall be adopted upon receiving the affirmative votes of at least two-thirds of the votes of the shares of each class or series of shares entitled to vote as a class in respect thereof and of the total votes of the shares entitled to vote on such amendment.  If this Proposal is approved, the stockholder approval requirements of IBCA Section 10.20 will be replaced with the following required stockholder approval -  the affirmative vote of at least a majority of the votes of the shares entitled to vote on such amendment, unless any class or series of shares is entitled to vote as a class in respect thereof, in which event the proposed amendment shall be adopted upon receiving the affirmative votes of at least a majority of the votes of the shares of each class or series of shares entitled to vote as a class in respect thereof and of the total votes of the shares entitled to vote on such amendment.

*  IBCA Section 11.20(a) – Approval by Shareholders.  This section requires stockholder approval of certain plans of merger, consolidation, or share exchange.  The approval required is the affirmative vote of at least two-thirds of the votes of the shares entitled to vote on such plan, unless any class or series of shares is entitled to vote as a class in respect thereof, in which event the proposed plan shall be adopted upon receiving the affirmative votes of at least two-thirds of the votes of the shares of each class or series of shares entitled to vote as a class in respect thereof and of the total votes of the shares entitled to vote on such plan.  If this Proposal is approved, the stockholder approval requirements of IBCA Section 11.20(a) will be replaced with the following required stockholder approval -  the affirmative vote of at least a majority of the votes of the shares entitled to vote on such plan, unless any class or series of shares is entitled to vote as a class in respect thereof, in which event the proposed plan shall be adopted upon receiving the affirmative votes of at least a majority of the votes of the shares of each class or series of shares entitled to vote as a class in respect thereof and of the total votes of the shares entitled to vote on such plan.  

*   IBCA Section 11.60 – Sale, Lease or Exchange of Assets, Other than in Usual and Regular Course of Business.  This section requires stockholder approval of any sale, lease, exchange or other disposition of all, or substantially all, the property and assets of a corporation, if not made in the usual and regular course of its business.  The approval required is the affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote on such matter unless any class or series of shares is entitled to vote as a class in respect thereof, in which event such authorization shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of each class or series of shares entitled to vote as a class on such matter, and the total outstanding shares entitled to vote on such matter.  If this Proposal is approved, the stockholder approval requirements of IBCA Section 11.60 will be replaced with the following required stockholder approval -  the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such matter unless any class or series of shares is entitled to vote as a class in respect thereof, in which event such authorization shall require the affirmative vote of the holders of at least a majority of the outstanding shares of each class or series of shares entitled to vote as a class on such matter, and the total outstanding shares entitled to vote on such matter.

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*   IBCA Section 12.15(c) – Voluntary Dissolution by Vote of Shareholders.  This section authorizes the stockholders to approve the voluntary dissolution of a corporation.  The approval required is the affirmative votes of at least two-thirds of the votes of the shares entitled to vote on dissolution, unless any class of shares is entitled to vote as a class in respect thereof, in which event the resolution shall require for its adoption the affirmative votes of at least two-thirds of the votes of the shares of each class of shares entitled to vote as a class in respect thereof and of the total votes of the shares entitled to vote on such amendment.  If this Proposal is approved, the stockholder approval requirements of IBCA Section 12.15(c) will be replaced with the following required stockholder approval -  the affirmative votes of at least a majority of the votes of the shares entitled to vote on dissolution, unless any class of shares is entitled to vote as a class in respect thereof, in which event the resolution shall require for its adoption the affirmative votes of at least a majority of the votes of the shares of each class of shares entitled to vote as a class in respect thereof and of the total votes of the shares entitled to vote on such amendment.  

Effect of the Proposal

If this Proposal is approved, the stockholder approval requirements under IBCA Sections 10.20, 11.20(a), 11.60, and 12.15(c) will be changed from at least two-thirds of the votes of the shares entitled to vote on such actions to at least a majority of the votes of the shares entitled to vote on such actions.  The Board believes the simple majority standard of stockholder approval is more appropriate and is the standard for publicly traded corporations.

This Proposal does not change the stockholder approval requirements of any section of the IBCA except as expressly set forth above.

It should be noted that the Company’s current officers and director beneficially own approximately 71.4% of the Company’s issued and outstanding voting shares.  Therefore, reducing the stockholder approval standard from a supermajority standard to a simple majority standard would continue to enable to Company’s current officers and directors, in certain circumstances, to approve actions that are presented to the Company’s stockholders for approval.

Required Vote

 

The affirmative vote of shares of our common stock representing at least two-thirds of the Company’s issued and outstanding common stock is required to approve Proposal 5.

 

Recommendation

 

Our Board unanimously recommends a vote “FOR” approval of the amendment to our Articles of Incorporation to reduce the stockholder vote required to approve certain actions.

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PROPOSAL 6:  APPROVAL OF AMENDMENTS TO OUR ARTICLES OF INCORPORATION TO ELIMINATE A SERIES OF PREFERRED STOCK, TO CLARIFY THAT OUR STOCKHOLDERS ARE NOT ENTITLED TO CUMULATIVE VOTING OR PREEMPTIVE RIGHTS, TO PROVIDE THAT OUR OFFICERS AND DIRECTORS ARE ENTITLED TO INDEMNIFICATION TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW, AND TO LIMIT CERTAIN PERSONAL LIABILITY OF OUR DIRECTORS

The Board has approved, and has recommended that the stockholders approve, amendments to our Articles of Incorporation to (1) eliminate the designation of Series A Junior Participating Preferred Shares; (2) to clarify that our stockholders are not entitled to cumulative voting rights or preemptive rights; (3) to provide that our officers and directors are entitled to indemnification to the fullest extent permitted by applicable law; and (4) to limit certain personal liability of our directors,

Elimination of Designation of Preferred Stock

 

If this Proposal is approved, our Articles of Incorporation will be amended to cancel and eliminate a designation of Series A Junior Participating Preferred Shares adopted by the Company’s Board on February 12, 1990.  No shares of Series A Junior Participating Preferred are presently issued and outstanding, and the Company has no intent to issue any such shares at any time  in the future.

 

Rights of Stockholders

 

If this Proposal is approved, our Articles of Incorporation will be amended to clarify that stockholders of the Company are not entitled to cumulative voting in connection with the election of directors to the Board, and are not entitled to preemptive rights to acquire any additional securities that may be issued by the Company in the future.

 

Indemnification

 

If this Proposal is approved, our Articles of Incorporation will be amended to provide that the Company’s officers and directors shall be indemnified by the Company in connection with any actual or threatened action or proceeding arising out of their service to the Company  or to another organization at the Company’s request and shall be paid expenses incurred in defending any such proceeding in advance of its final disposition to the fullest extent permitted by law.

 

Director Liability

 

If this Proposal is approved, our Articles of Incorporation will be amended to provide that no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director provided, however, the foregoing does not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 8.65 of the IBCA, or (iv) for any transaction from which the director derived an improper personal benefit.

 

Amendment of Bylaws

 

In the event the Company’s stockholders approve Proposal 6, the Board will adopt amended Bylaws conforming with the provisions of this Proposal.

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Required Vote

 

The affirmative vote of shares of our common stock representing at least two-thirds of the Company’s issued and outstanding common stock is required to approve Proposal 6.

 

Recommendation

 

Our Board unanimously recommends a vote “FOR” approval of the amendments to our Articles of Incorporation to eliminate a series of preferred stock, to clarify that stockholders do not have cumulative voting or preemptive rights, to provide that officers and directors are entitled to indemnification to the full extent permitted by applicable law, and to limit certain personal liability of our directors.

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OTHER MATTERS

 

We do not expect that any matter other than the foregoing proposals will be brought before the annual meeting. If, however, such a matter is properly presented at the annual meeting or any adjournment or postponement of the annual meeting, the persons appointed as proxies will vote as recommended by our Board or, if no recommendation is given, in accordance with their judgment.

 

AVAILABILITY OF ANNUAL REPORT AND PROXY STATEMENT

 

If you would like to receive a copy of our Annual Report on Form 10-K for the year ended September 30, 2012, our Quarterly Report on Form 10-Q of the three months ended March 31, 2013, or this proxy statement, please contact us at: General Employment Enterprises, Inc., One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois 60181, attn.: Secretary or by telephone at (___) ___-___, and we will send a copy to you without charge.

 

A Note about Our Website

 

Although we include references to our website (www.generalemployment.com) throughout this proxy statement, information that is included on our website is not incorporated by reference into, and is not a part of, this proxy statement. Our website address is included as an inactive textual reference only.

 

We use our website as one means of disclosing material non-public information and for complying with our disclosure obligations under the SEC’s Regulation FD. Such disclosures typically will be included within the Investors Relations section of our website. Accordingly, investors should monitor such section of our website, in addition to following our press releases, SEC filings and public conference calls and web

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