0001162893-08-000003.txt : 20080617
<SEC-HEADER>0001162893-08-000003.hdr.sgml : 20080617
<ACCEPTANCE-DATETIME>20080616215137
ACCESSION NUMBER: 0001162893-08-000003
CONFORMED SUBMISSION TYPE: SC 13D
PUBLIC DOCUMENT COUNT: 2
FILED AS OF DATE: 20080617
DATE AS OF CHANGE: 20080616
SUBJECT COMPANY:
COMPANY DATA:
COMPANY CONFORMED NAME: GENERAL EMPLOYMENT ENTERPRISES INC
CENTRAL INDEX KEY: 0000040570
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EMPLOYMENT AGENCIES [7361]
IRS NUMBER: 366097429
STATE OF INCORPORATION: IL
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: SC 13D
SEC ACT: 1934 Act
SEC FILE NUMBER: 005-40677
FILM NUMBER: 08901859
BUSINESS ADDRESS:
STREET 1: ONE TOWER LANE
STREET 2: SUITE 2200
CITY: OAKBROOK TERRACE
STATE: IL
ZIP: 60181
BUSINESS PHONE: 630-954-0400
MAIL ADDRESS:
STREET 1: ONE TOWER LANE
STREET 2: SUITE 2200
CITY: OAKBROOK TERRACE
STATE: IL
ZIP: 60181
FORMER COMPANY:
FORMER CONFORMED NAME: OSHEA CHARLES M CORP
DATE OF NAME CHANGE: 19670413
FILED BY:
COMPANY DATA:
COMPANY CONFORMED NAME: STABOSZ TIMOTHY J
CENTRAL INDEX KEY: 0001162893
FILING VALUES:
FORM TYPE: SC 13D
BUSINESS ADDRESS:
BUSINESS PHONE: 2193245087
MAIL ADDRESS:
STREET 1: 1307 MONROE STREET
CITY: LA PORTE
STATE: IN
ZIP: 46350
</SEC-HEADER>
<DOCUMENT>
<TYPE>SC 13D
<SEQUENCE>1
<FILENAME>job13d.txt
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
GENERAL EMPLOYMENT ENTERPRISES, INC.
-------------------------------------------------------------------------------
(Name of issuer)
COMMON STOCK
-------------------------------------------------------------------------------
(Title of class of securities)
369730106
--------------------------------------------------------
(CUSIP number)
TIMOTHY J. STABOSZ, 1307 MONROE STREET, LAPORTE, IN 46350 (219) 324-5087
-------------------------------------------------------------------------------
(Name, address and telephone number of person authorized to receive notices and
communications)
JUNE 6, 2008
--------------------------------------------------------
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box. [_]
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
CUSIP No. 369730106
- --------------------------------------------------------------------------------
1. Name of Reporting Person
TIMOTHY JOHN STABOSZ
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) [_]
NOT APPLICABLE (b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds (See Instructions) PF
- --------------------------------------------------------------------------------
5. Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization UNITED STATES
- --------------------------------------------------------------------------------
Number of (7) Sole Voting Power 276,831
Shares ____________________________________________
Beneficially (8) Shared Voting Power 0
Owned by ____________________________________________
Each (9) Sole Dispositive Power 276,831
Reporting ____________________________________________
Person With (10) Shared Dispositive Power 0
- --------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned 276,831
by each Reporting Person
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes [_]
Certain Shares
- --------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 5.4%
- --------------------------------------------------------------------------------
14. Type of Reporting Person (See Instructions) IN
- --------------------------------------------------------------------------------
ITEM 1. Security and Issuer
Common stock of General Employment Enterprises, Inc., One Tower Lane,
Suite 2200, Oakbrook Terrace, IL 60181.
ITEM 2. Identity and Background
Timothy Stabosz, of 1307 Monroe Street, LaPorte, IN 46350, a natural
person and United States citizen, is engaged as a private investor. He has not
been convicted in a criminal proceeding (excluding traffic violations or other
similar misdemeanors) in the last 5 years, and has not been a party to any
proceedings, or subject to any judgements or enjoinments, related to violations
of state or federal securities laws in his lifetime.
ITEM 3. Source and Amount of Funds or Other Consideration
Personal funds in the aggregate amount of $389,615.36 have been used to
effect the purchases. No part of the purchase price represents borrowed funds.
ITEM 4. Purpose of Transaction
As General Employment's (JOB) largest individual outside shareholder,
respondent has held shares in the company continuously for nearly 7 years.
Despite respondent's diligent efforts to, in a measured fashion, compel the
board to address concerns regarding 1) the structure of the CEO's employment
agreement...most notably, the annual compensation amount, term, and severance
arrangement, 2) the need to eliminate the "poison pill," which only serves to
undermine shareholder value and entrench management, 3) the need to reevaluate
the fundamental strategic positioning of the company, and 4) the need to address
shareholder value generally, including a potential sale of the company...the
board has failed to act. The fact that the company's common stock is currently
trading at a discount to the company's cash per share (and has, at other times
in the past) indicates to respondent that 1) the marketplace does not believe
management will be successful in creating value with JOB as a going concern, and
2) the board has damaged the faith and trust of the investment community that
the company is truly being operated for the public shareholders, because of what
respondent sees as a fundamentally compromised relationship between the
corporation, and its CEO.
The CEO pay package of $543,000 per year is outrageously excessive for an
$18 million in annual revenues employment agency. This is especially true,
considering when one adds up the CEO compensation over the past 12 years
(1996-2007), and compares it to the company's aggregate net income over the same
period (a time, it must be pointed out, which included the "dotcom" boom years),
it is astonishing to realize that the CEO has been paid nearly as much as the
company's bottom line net income ($5.8 million in total compensation vs. $6.1
million in net income)! Furthermore, that aggregate net income, divided by the
current share base, only represents 10 cents per share in annualized EPS, over
the 12 year time period. How does such marginal performance, over the long
term, justify such an exorbitant pay package? After being public for 40 years
(with the same family "in charge" dating back to 1964), why is General
Employment only at $18 million in annual revenues, and why are revenues down 55%
from their 2000 peak? (The current Chairman and CEO, Herbert Imhoff Jr., became
President and COO of the company starting in 1997, and took over as CEO in
2001.)
The key problem is that the CEO's employment contract with JOB represents a
de facto lifetime employment agreement. It consists almost entirely of "up
front" cash compensation, and so there is no incentive to perform. The "3 year
rolling" nature of the agreement means that any attempt on the part of the board
to hire a MORE EFFECTIVE manager at a LOWER cost will trigger an avalanche of
severance payments that will devour the bulk of the company's cash hoard. The
same is true if the board were to seek to sell the company. As a result, the
company has operated dysfunctionally at the board level (perhaps somewhat less
so recently, with the appointment of a new independent director in 2006). In
short, respondent believes that the company as a truly independent entity, and
its public shareholders, are under duress, because the CEO has the company "over
a barrel."
The company needs to restructure the pay of the CEO (and all top
executives) to be in line with companies of similar size and
profitability....$125,000-175,000 in cash compensation per year, plus incentive
pay for performance. (If the company makes $2.5 million in net income, as it
did in the peak "dotcom" years, THEN the CEO is entitled to make $543,000.) The
3 year nature of the employment agreement needs to be rewritten, so that the
agreement actually EXPIRES, so that the CEO can realize that if he doesn't
perform, there will be potential consequences. This will prevent the lack of
accountability, complacency, and entrenchment inherent in the current
arrangement. The company needs to put in place a compensation package for
executives such that they make money WITH shareholders, not off of them...and
certainly not irrespective of them.
The company's shareholder rights plan ("poison pill") limits the ability of
a would be acquiror to "speak directly" to the company's shareholders, and "go
over the head" of the board and management. If a would be acquiror wants to
pursue the company (onerous severance requirements notwithstanding), it should
be the right of all the shareholders to decide whether or not that offer is
fair, without the possibility of other considerations that have little to do
with shareholder value getting in the way (i.e. the possibility that it may not
be easy for the current CEO to find another job where he can make $543,000).
When a highly credible shareholder attending the 2006 annual meeting reports
that a verbal offer of $3 was made for the company by another attendee, and he
heard the CEO respond that that price was "too low," one wonders, 2 years later,
why the stock is trading below $1, when one would presume that an outsized
majority of current shareholders would be very happy indeed if the company were
sold, today, for $3. Removing the "poison pill" empowers the majority (outside)
shareholders, and increases the possibility of someone stepping up and making an
offer for the company. Respondent is convinced that, with the pill in place,
the impression in the M&A space is that it is generally understood that General
Employment is "not for sale." That is WRONG...and, based upon long term
underperformance, and overcompansation, it is time for the board to start to
send a DIFFERENT impression, and reflect the will of JOB's broader shareholder
base.
Respondent believes that, based upon the company's history of profitability
(albeit marginal), shareholder value can best be realized by putting the company
up for sale, after the current (respondent believes temporary) decline in
financial results has passed. A would be acquiror would look at General
Employment as an opportunity to eliminate perhaps $1-2 million in annualized
expenses. As a result, the company is worth more to a 3rd party, than as a
independent public entity. This is especially true with the company's
relatively small size, the increased cost of being a public company in recent
years (i.e. Sarbanes-Oxley), the thinly traded nature of the company's shares,
and the fact that management has a long term track record of failing to grow the
company. The question is: Despite being a PUBLIC company, will General
Employment continue to inappropriately be operated as an outsized annuity for a
CEO who wrongly views himself as "entitled"...or will the board do what a
majority of the shareholders want, and seek to realize value for ALL the
shareholders, even if it conflicts with the personal interest of the CEO?
Respondent has, up to this point, had discussions with management and board
members of General Employment, and intends to continue to communicate actively,
regularly, and substantively (including, as appropriate, with the news media)
regarding the necessity of implementing the imperatives discussed here, and how
that implementation directly correlates to the board's fulfilling its moral and
ethical duty as a fiduciary.
Respondent has acquired the shares for investment purposes, as he believes
the stock is undervalued in the marketplace, and that value can readily be
"unlocked," should the necessary initiatives be taken. Respondent may, from
time to time and at any time, acquire additional shares in the open market or
otherwise, and reserves the right to dispose of any or all of his shares in the
open market or otherwise, at any time and from time to time.
Other than as set forth above in this Item 4 and the exhibit referenced in
Item 7 below, the respondent has no plans or proposals which relate to, or could
result in, any other matters referred to in subsections (a) through (j) of Item
4 of Schedule 13D.
ITEM 5. Interest in Securities of the Issuer
As of the close of business on June 13, 2008, respondent has sole voting
and dispositive power over 276,831 shares of General Employment Enterprises,
Inc.'s common stock. According to the the company's latest 10-Q filing, as of
March 31, 2008, there were 5,165,265 common shares outstanding. Respondent is
thus deemed to own 5.4% of the company's common stock. Transactions effected by
the respondent in the 60 days prior to the June 6, 2008 "trigger" date, through
June 13, 2008, were performed in ordinary brokerage transactions, and are
indicated as follows:
04/24/08 sold 900 shares @ $1.31
04/24/08 sold 1600 shares @ $1.30
04/30/08 bought 1501 shares @ $1.02
05/01/08 bought 3499 shares @ $1.02
05/01/08 bought 5000 shares @ $1.01
05/05/08 bought 1200 shares @ $1.01
05/16/08 bought 2500 shares @ $1.02
06/06/08 bought 5000 shares @ $ .87
06/06/08 bought 2500 shares @ $ .85
06/06/08 bought 2900 shares @ $ .83
06/09/08 bought 2500 shares @ $ .81
06/09/08 bought 5000 shares @ $ .76
06/12/08 bought 2500 shares @ $ .79
ITEM 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer
Not Applicable
ITEM 7. Material to be Filed as Exhibits
Exhibit 1:
Letter dated April 17, 2008 to the Board of Directors of General Employment.
(As of June 13th, the board has not responded, in writing, to the letter.)
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date 06/16/08
Signature Timothy J. Stabosz
Name/Title Timothy J. Stabosz, Private Investor
273:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1
<SEQUENCE>2
<FILENAME>job1.txt
<DESCRIPTION>LETTER TO GENERAL EMPLOYMENT BOARD OF DIRECTORS DATED 4/17/08
<TEXT>
Timothy J. Stabosz
1307 Monroe Street
LaPorte, IN 46350
Nancy Frohnmaier
Corporate Secretary
General Employment Enterprises
One Tower Lane--Suite 2200
Oakbrook Terrace, IL 60181
April 17, 2008
To the General Employment Board of Directors:
As, by all accounts, General Employment's 3rd largest shareholder (holding
4.7%), I appreciated the chance to meet with you several weeks ago at the
annual meeting, and wanted to follow up regarding my concerns about our
company.
By way of a bit of personal history, I am not a "quick buck artist"; I am a
seasoned, disciplined, and patient value investor. I have owned shares in
General Employment CONTINUOUSLY since December of 2001, or well over 6 years.
Unfortunately, despite having the fortitude to purchase a considerable number of
shares in the 40-50 cent range back in 2002, with my current average cost basis
of $1.50, the reward to me as an investor, at current prices, has been slim to
nil.
Why is this? I feel I have been "loyal" to the firm, but I don't feel the
firm has been "loyal" to its broader shareholder base. We must remember, first
and foremost, that JOB is a public entity, has a responsibility to view itself
as such, and that it is the solemn task of each board member to seek to fulfill
the mandate implicit in that. As I see it, there are 2 fundamental problems
with General Employment that are absolutely imperative for the board to address:
1) The company is too small, at its current revenue base, to justify being
public and/or independent, and
2) The top executive salary consumes too large a percent of the profit
potential of the business, which inherently undermines the credibility of
General Employment as a public entity, breeds cynicism on Wall Street, severely
limits your potential shareholder base, and depresses the stock price.
As far as #1 goes, growth (organically or through acquisition) would
normally be a viable strategy to address this, but let's face it: General
Employment has not evidenced an ability to grow over the long run. The company
has been public since 1967, and yet, does achieving $20 million in annual
revenues, after 40 years, really represent success as a growth vehicle?
Granted, the company did earn a healthy 50+ cents annually, for several years in
the late '90's, but that was, by any reasonable account, a once-in-a-lifetime
situation owing to the "dot-com bubble." Since then, revenues have declined
over 60%...and have not recovered. Are we supposed to be satisfied that, at the
recent peak of the current economic cycle, with unemployment bottoming out at
4.5%, JOB basically earned 15-20 cents per share (untaxed) for each of the last
3 years running? I think not.
In point of fact, if the company's net income is averaged out over a long
period of time (including peaks and troughs), returns to shareholders have been
abysmal. For the 12 years 1996-2007 (which, mind you, includes ALL the years of
the "dotcom bubble"), the company earned $6.1 million in aggregate "bottom-line"
net income. That is roughly $500,000 a year. If you divide that by the 5
million shares currently outstanding...THAT IS A MERE 10 CENTS IN AVERAGE EPS
for each of the last 12 years.
With this all in mind, it seems unrealistic for management to suggest (as it
did at the annual meeting) that focusing on "growth in temp" is going to
"magically" get the company to the kind of revenue level it needs in order to
more adequately cover fixed costs, and earn a respectable return on shareowners'
investment. Why should public shareholders, or the board, give the company
another 2, 3, 5, or whatever, years to execute a strategy that, in all honesty,
is NOT going to succeed? Why should we suffer more ongoing underperformance,
when there are other options that would allow long-term investors to be
compensated? Why is the board ignoring these options? With the stock at $1.35
as I write, how do you think your broader base of shareholders would feel about
a $3-4 buyout of the company, if such is to be had? I'll tell you how they
would feel, in one word: RELIEVED. Ask yourself: Wouldn't you rather that
your "charges" feel relieved and grateful...rather than cynical and resentful?
The other issue, mentioned in point #2 above, is that the top executive's
annual salary package is simply UNTENABLE for a $20 million in sales company.
At $543,000, it consumes nearly 3% of the company's annual revenues, which is
equal to the entire net profit margin of the typical larger staffing firms
(Manpower, Kelly, Spherion, etc.) in a good year! It is not only outside the
realm of what is reasonable for similar size staffing firms (based upon sales or
market cap); it is outside the realm of what is reasonable for similar size
firms in almost ANY industry. In fact, if you take the amount of the salary
package for the company's top executive, for each of the last 12 years, and
aggregate it, the total amounts to $5.8 million. Astonishingly, this amount is
nearly equal to the company's aforementioned aggregate net income over these
same years ($6.1 million)! Ask yourself: Is it fair or appropriate for the top
executive in the corporation to have been paid an amount over the last 12 years
that is nearly equal to the company's net income??!
If the board insists on maintaining General Employment as a going concern,
what is required at this time is a total restructuring of executive pay
packages, with a dramatically greater emphasis on incentive-based pay. A good
way to start would be a top executive salary in the $125-175K range, with annual
bonuses for achieving returns on equity above, say, 12%. There are other ways
to structure this, of course (including a greater emphasis on options, a
"blended" bonus that relates to sales growth and ROE, or a bonus based upon
achievement of certain pre-tax income "tiers")...but I'll leave it up to the
board to analyze all the combinations and permutations. Suffice it to say, if
ALL upper-management pay packages were restructured on this basis, at least
shareholder and management interests would FINALLY be aligned, such that,
should management decide to pursue a growth strategy instead of a shorter-term
"maximization of shareholder value" strategy, if they should fail, they will
rightfully have to "pay the price," along with the (long-suffering) public
shareholders.
It's deeply troubling to me that, as things stand now, the company's public
shareholders are put at an inherent disadvantage, and the board is, implicitly
and explicitly, endorsing a business model that makes it essentially IMPOSSIBLE
for shareholders in the company to earn a decent return on their investment.
This cannot, and should not, go on. The current compensation policy is damaging
to the FAITH of your shareholder base, as it represents a "ball and chain" on
the company's achieving its long run potential. Candidly, the Street implicitly
questions who the company is being operated for. That question is NATURAL in
the minds of anyone who reads the proxy...and it's incredibly damaging to
investor trust, of the company, and of the board. As I said before, in this
context, by any honest measure, the company would be better off sold, or taken
private.
I understand full well, and appreciate, the storied family name that has
guided this company over many years, and the proud 100 year history of an
independent General Employment. As a lover of history, I appreciate the
importance of "institutional memory" and tradition in building a corporate
culture and espirit de corps. However, I also know that a publicly traded
corporation exists for a reason, and I must say, with no disrespect intended,
that that reason has been not only woefully neglected, but appears to have been
outright abandoned, by the boar A company cannot operate based upon a
"glorious past"; it must operate for all the shareholders, based upon what is,
and what can be.
Thusly, I call on you to rededicate yourself to your entrustment, as board
members, with single-minded focus, determination, and zeal. It's time for a
sober and clear-headed evaluation of the strategic direction of General
Employment...the viability of the current strategy, and the need for CHANGE. It
is also necessary to evaluate compensation policy across the entire executive
ranks...the fundamental fairness of the current policy, and the need for CHANGE.
Faith on Wall Street, the PE multiple, depth of the shareholder base, and
shareholder value, will be significantly increased, over the long run, if
unaffiliated public investors can feel that the company is operating with the
INTENT of the public shareholders in mind. Right now, rightly or wrongly, with
the current strategic direction and executive compensation policy, the company
has no credibility representing itself as a bona-fide public entity to the
Street. To a JOB "loyalist" like me, that fact is unacceptable, disturbing, and
maddeningly frustrating...AND SHOULD BE LIKEWISE TO THE BOARD...as our company's
potential as an investment vehicle is being, frankly, wasted.
When the company's largest shareholder (whose SEC filings reveal purchases
of stock at upwards of $3 apiece) writes a letter to management, seeking to
increase his position to 15%, and agrees to vote the additional "above 10%"
shares as the rest of the shareholders do, and the board declines, I find that
troubling. I especially find that troubling when we have total insider open
market purchases in JOB over the last 5 years that amount to a mere 2540 shares
by Mr. Baker...and 6000 shares by (now former director) Mr. Lizzadro. The low
inside ownership generally (with the exception of Mr. Imhoff), and the fact that
the company is currently selling for little more than cash value without ANY
insider buying, de facto shows the value the board places on JOB as an OPERATING
entity, intended to generate returns.
Why should the company's largest shareholder get "punished" for being
willing to pay up to $3 for the stock, and be precluded from "averaging down,"
when it drops to $1.35? Why would the board decline to advance something that
will further shareholder value, by getting more of the company's stock into
(seemingly) "tight hands"? Does the poison pill honestly exist to prevent an
unfair and "coercive" takeover offer...or to entrench management? This is a
serious question. Please take the time to ask yourself what the outsized
majority of your shareholders WANT. If it is a sale of the company, for a
multiple of perhaps 2-3x the current stock price, then why doesn't the board
pursue that? If a would be acquiror perceives value, because he would be able
to eliminate, say, $1-2 million worth of SG&A, and have that drop right to the
bottom line, why should your public shareholders continue to have to be saddled
paying "nose-bleed level" executive salaries, for underperformance? Again, I
must ask: Is this company truly being operated for the public shareholders??
I am going to close this letter by asking you to consider this letter to be,
above all, a MORAL APPEAL to you, as fiduciaries. PLEASE don't let the public
shareholder base down any longer. We're counting on you to make the necessary
changes, in order that, for once, the greatest good will accrue to all. In
meeting the board for the first time, I came away with the distinct impression
that it is a group of good and conscientous people that want to do the right
thing. Know that there are a number of people in the public sphere that EXPECT
you to act, and have every RIGHT to expect you to act. I have informally made
contact with a number of them...1, 2, and 3% shareholders. I believe I can also
say, with confidence, that they represent a significant majority of General
Employment's shareholders. DON'T EVER FORGET THAT...as you consider the actions
that need to be taken.
The family that has operated this entity for the last generation has ALREADY
gotten its reward; it is time for the REST of us (the broad swath of public
shareholders) to get ours...to be rewarded for OUR loyalty to General
Employment...and for the board to aggressively pursue this righteous and
appropriate imperative.
Thank you for your time, attention, and consideration. I look forward to
following up with you, individually, and collectively, to advance the cause of
maximizing shareholder value for ALL General Employment shareholders, and to
discuss the contents of this letter with you.
Respectfully,
Timothy J. Stabosz
217:
</TEXT>
</DOCUMENT>
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