UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934: For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934: For the transition period from to
Commission file number 1-16025
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2134871
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
317 Madison Avenue New York, NY 10017
(Address of Principal Executive Offices and Zip Code)
Registrant's Telephone Number: (212) 672-6501
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $0.0001 American Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant based of the last sale price on June 28, 2002
is $787,000. The number of shares outstanding of each of the registrant's
classes of common stock as of March 31, 2003, was 13,914,627.
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K of Headway Corporate
Resources, Inc., for the year ended December 31, 2002, is filed to present the
information required by Part III of Form 10-K, including Item 10. Directors and
Executive Officers of the Registrant, Item 11. Executive Compensation, Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, and Item 13. Certain Relationships and Related
Transactions. Further, Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K, is amended solely to add certain exhibits.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part III
10. Directors and Executive Officers of the Registrant 3
11. Executive Compensation 4
12. Security Ownership of Certain Beneficial Owners and Management and 9
Related Stockholder Matters
13. Certain Relationships and Related Transactions 11
Part IV
15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 15
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that
are subject to certain risks, uncertainties or assumptions and may be affected
by certain other factors, including but not limited to the specific factors
discussed in Part II, Item 5 under "Market for Registrant's Common Equity and
Related Stockholder Matters", "Liquidity and Capital Resources", and "Factors
Which May Impact Future Results and Financial Condition". In some cases, you can
identify forward-looking statements by terminology such as "may," "should,"
"could," "expects," "plans," "projected," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continues," or the negative of these
terms or other comparable terminology. In addition, except for historical facts,
all information provided in Part II, Item 7A, under "Quantitative and
Qualitative Disclosures About Market Risk" should be considered forward-looking
statements. Should one or more of these risks, uncertainties or other factors
materialize, or should underlying assumptions prove incorrect, actual results,
performance or achievements of Headway may vary materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Forward-looking statements are based on beliefs and assumptions of
Headway's management and on information currently available to such management.
Forward-looking statements speak only as of the date they are made, and Headway
undertakes no obligation to update publicly any of them in light of new
information or future events. Undue reliance should not be placed on such
forward-looking statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance.
2
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors and Officers
The following table sets forth the names, ages, and positions with Headway
for each of the directors and officers of Headway. The Board of Directors is
divided into three classes, and only one class of directors is elected at each
annual meeting of stockholders. The table indicates the class of which each
director is a member and the year in which his term expires based on the class.
Name Age Positions (1) Term Ends
Barry S. Roseman 49 President, Chief Executive Class 1
Officer and Director 2005
Ehud D. Laska 53 Director Class 2
2004
Richard B. Salomon 55 Director Class 3
2003
Jamie Schwartz 35 Executive Vice President, Chief N/A
Operating Officer of HCSS
and Secretary
Philicia G. Levinson 39 Senior Vice President, Chief Financial N/A
Officer and Treasurer
-------------------------------------------
(1) All executive officers are elected by the Board and hold office until the
next Annual Meeting of stockholders and until their successors are elected and
qualify.
The following is information on the business experience of each director
and officer.
Barry S. Roseman oversees all operations of Headway and its subsidiaries.
He joined Headway as its Senior Executive Vice President and Chief Operating
Officer in January 1992, and became President in September 1996. In 2002, he
assumed the responsibilities of the Chief Executive Officer. He is currently a
director and executive officer of each of Headway's subsidiary corporations. For
nine years prior to 1992, Mr. Roseman was employed at FCB/Leber Katz Partners,
Inc., a division of True North Communications, Inc., in various positions; most
recently as Senior Vice President Director of Agency Operations.
Ehud D. Laska was appointed a director of Headway in August 1993. He is the
Chairman and CEO of Investment & Benefit Services, Inc., a national pension
administration company. He was the Chairman of Coleman and Company Securities,
Inc., a member firm of the National Association of Securities Dealers, Inc.
until October 2002. Mr. Laska was also a founding partner and President of
InterBank Capital Group, LLC. Through these firms, Mr. Laska specializes in
building up companies through same industry consolidation and acquisitions.
3
Richard B. Salomon became a director of Headway in June 1995. He has been
engaged in the private practice of law for the past five years, during which
period he has been a partner in the law firm of Salans, counsel to Headway. Mr.
Salomon's practice is primarily in the areas of real estate and corporate law.
He currently serves as a director of Tweedy Browne Fund, Inc., a mutual fund
based in New York City.
Jamie Schwartz was appointed Chief Operating Officer of Headway Corporate
Staffing Services and Secretary in June 2000. Prior to this, he served as the
National Vice President of Headway Corporate Staffing Services. He was hired by
Irene Cohen Temps in December 1993, which was acquired by Headway Corporate
Resources in December 1996 as Director of Technology. He has a BA in Economics
from the University of Rochester and his MBA in Operations and Finance from the
William E. Simon Graduate School of Business Administration.
Philicia G. Levinson rejoined Headway as its Senior Vice President, Chief
Financial Officer in October 2001. She originally joined the Company in December
1992 where she held a variety of positions until she was appointed Chief
Financial Officer in 1999. From 1999 to 2001, she was Senior Vice President,
Chief Financial Officer of dreamlife, inc., an online company focusing on
personal and professional improvement. Ms. Levinson received an MBA from Harvard
Business School and a BA from the University of Virginia.
Section 16(a) Filing Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
Directors of Headway and persons who own more than ten percent of a registered
class of Headway's equity securities to file reports of ownership and changes in
their ownership on Forms 3, 4, and 5 with the Securities and Exchange
Commission, and forward copies of such filings to Headway. Based on the copies
of filings received by Headway, during the most recent fiscal year the
directors, officers, and beneficial owners of more than ten percent of the
equity securities of Headway registered pursuant to Section 12 of the Exchange
Act have filed on a timely basis all required Forms 3, 4, and 5 and any
amendments thereto.
Item 11. Executive Compensation
Annual Compensation
The following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to Headway for the prior
fiscal years ended December 31, 2002, 2001 and 2000, of those persons who were
either (i) the chief executive officer of Headway during the last completed
fiscal year or (ii) one of the other four most highly compensated executive
officers of Headway as of the end of the last completed fiscal year whose annual
salary and bonuses exceeded $100,000 (collectively, the "Named Executive
Officers").
4
Annual Compensation
__________________________________________________
Other Annual
Name and Principal Position Year Salary ($) Commission ($) Bonus ($) Compensation
Gary S. Goldstein 2002 650,000 228,073 (1) 291,320 15,209
Chairman, Chief 2001 650,000 1,730,040 (1) -- 74,227
Executive Officer 2000 650,000 462,425 (1) -- 64,752
Barry S. Roseman 2002 387,500 -- 218,750 12,000
President, Chief 2001 350,000 -- 150,000 27,458
Operating Officer 2000 350,000 -- 50,000 25,390
Jamie Schwartz 2002 250,000 -- 10,000 --
Executive Vice President, Chief 2001 243,333 -- 25,000 --
Operating Officer of HCSS 2000 210,000 -- 35,000 --
Philicia G. Levinson 2002 200,000 -- 35,000 --
Senior Vice President, Chief 2001 50,000 -- 15,000 --
Financial Officer and Treasurer 2000 -- -- -- --
(1) Represents commissions on personal search revenue.
Long Term Compensation
_________________________________________________
Securities
Restricted Underlying LTIP All Other
Name and Principal Position Year Stock Awards Options/SARs Payouts Compensation
($) (#) ($) (1)
Gary S. Goldstein 2002 -- -- -- --
Chairman, Chief 2001 -- -- -- --
Executive Officer 2000 -- -- -- --
Barry S. Roseman 2002 -- -- -- --
President, Chief 2001 -- -- -- --
Operating Officer 2000 -- -- -- --
Jamie Schwartz 2002 -- -- -- 12,500
Executive Vice President, Chief 2001 -- -- -- 25,000
Operating Officer of HCSS 2000 -- 25,000 -- 25,000
Philicia G. Levinson 2002 -- -- -- --
Senior Vice President, Chief 2001 -- -- -- --
Financial Officer and Treasurer 2000 -- -- -- --
(1) Represents a three year deferred compensation program, in which Mr.
Schwartz is a participant. The three years ended during 2002. As a result,
Mr. Schwartz received a payout of $75,000 during the year 2002.
5
Employment and Other Arrangements
The incentive compensation arrangements for Messrs. Goldstein and Roseman
adopted by the Board in 2000 expired at the end of 2001. The year 2002 was a
transition year for Headway and its management due to the impact of unfavorable
economic conditions and the possibility that Headway might exit the executive
search business, which occurred early in 2003. Accordingly, in the Board's view
it was not prudent to adopt a new compensation plan during this period of
transition. During 2002 the Board approved a monthly retention bonus for $31,250
for Mr. Roseman and retention bonuses totaling $291,320 for Mr. Goldstein in
order to induce them to remain with Headway. In March 2003 Headway exited the
executive search segment of its business through a sale of its Whitney
subsidiaries to a group led by Gary Goldstein. In connection with the
transaction, Mr. Goldstein resigned his positions as an Executive Officer and
member of the Board of Directors of Headway and its remaining subsidiaries. As a
result of Mr. Goldstein's departure, Mr. Roseman assumed additional
responsibilities at Headway. Mr. Roseman's salary was increased to $400,000 from
$350,000 in light of his increased level of responsibility. The Board is now in
the process of evaluating prospective compensation plans and expects to enter
into an employment agreement with Mr. Roseman during the year 2003. In the
interim, Mr. Roseman will continue to receive a monthly retention bonus of
$31,250 in addition to his salary.
Defined Contribution Plan
At January 1, 1998, Headway implemented a 401(k) retirement plan covering
substantially all employees. The plan does not require matching contributions by
Headway, and Headway made no contributions to the plan for 2002. Benefits
payable to an employee under the plan are determined solely on the basis of the
employee's contributions. Prior to 1998, Headway had four qualified 401(k)
contribution plans for its employees. Under one plan, Headway was required to
make matching contributions up to 25% of the amount contributed by the
employees. Employees are fully vested on their contributions when made, and are
fully vested on employer contributions after five years of service.
Stock Options
In 1999 the Board of Directors and stockholders approved Headway's Amended
1993 Incentive Plan. The purpose of the Plan is to provide directors, officers,
employees, and consultants with additional incentives by increasing their
ownership interests in the Company. Directors, officers, and other employees of
the Company and its subsidiaries are eligible to participate in the Plan. In
addition, awards may be granted to consultants providing valuable services to
the Company. Awards under the Plan are granted by the Executive Compensation
Committee of the Board and may include incentive stock options, non-qualified
stock options, stock appreciation rights, stock units, restricted stock,
restricted stock units, performance shares, performance units, or cash awards.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31,
2002. No outstanding options held by the Named Executive Officers were exercised
in 2002.
6
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Name and Principal Position Options at FY End (#) at FY End ($) (1)
Exercisable/Unexercisable Exercisable/Unexercisable
Gary S. Goldstein
Chairman, Chief 355,000/-0- -0-/-0-
Executive Officer
Barry S. Roseman
President, Chief 150,000/-0- -0-/-0-
Operating Officer
Jamie Schwartz
Executive Vice President, 15,000/50,000 -0-/-0-
Chief Operating Officer of HCSS
Philicia G. Levinson
Senior Vice President, Chief -0-/-0- -0-/-0-
Financial Officer and Treasuer
------------------------------------------
(1) This value is determined on the basis of the difference between the fair
market value of the securities underlying the options and the exercise price at
fiscal year end. The fair market value of Headway's common stock at fiscal year
end was $0.06, which is the last sale price on December 31, 2002.
Report of the Executive Compensation Committee of the Board Of Directors On
Executive Compensation for Fiscal Year 2002
The Executive Compensation Committee (the "Committee") of Headway's Board
of Directors sets the salaries and other compensation of Headway's executive
officers, including the Chairman and Chief Executive Officer and other Named
Executive Officers. Compensation for these executive officers consists mainly of
the following items:
o Salaries, which are intended to be competitive, are not performance-based,
as are the annual and long-term elements.
o Annual incentive awards are based on Headway performance versus standards
adopted early in the year, which may include subjective factors. No annual
incentive awards were granted for the fiscal year ending December 31, 2002.
o Long-term incentive awards consist of stock options and performance unit
awards. This plan expired as of the end of 2001. No new plan was
established in 2002.
o Commissions: Because of his position as a recruiter for Whitney, Gary S.
Goldstein receives commissions on his personal search revenue.
Mr. Goldstein's search revenue commission rate is as follows:
7
Revenue Commission
0-$500,000 10%
$500-000-$1,000,000 20%
Greater than $1,000,000 25%
Mr. Goldstein received $228,073 in commissions in fiscal year 2002.
o Retention incentives: On April 1, 2002, in connection with the amendment of
the Company's Senior Credit Facility, the Board offered retention
incentives to Messrs Goldstein and Roseman in order to induce them to stay
with the Company. In 2002 Mr. Goldstein received $291,320 in retention
bonuses and Mr. Roseman received retention bonuses totaling $218,750.
Chief Executive Officer Compensation: Mr. Goldstein's salary was $650,000
per annum. This was set by the Committee effective January 1, 2000.
Chief Operating Officer Compensation: Effective April 1, 2002 the Committee
set Mr. Roseman's salary at $400,000 per annum. This represents a $50,000
increase from his salary in effect since 2000. In connection with the sale of
the Whitney subsidiaries (see below), Mr. Roseman has taken on additional
responsibilities at Headway. This salary adjustment was necessary in light of
his increased level of responsibility.
The Board is currently reviewing Mr. Roseman's compensation arrangements
and is in the process of determining an appropriate package. The Board
anticipates that Headway will enter into an employment agreement with Mr.
Roseman upon completion of this process. In the interim, Mr. Roseman will
continue to receive a monthly retention bonus of $31,250.
Subsequent Events: In March 2003, Headway exited the executive search
segment of its business through a sale of its Whitney subsidiaries to a group
led by Gary Goldstein. In connection with the transaction, Mr. Goldstein
resigned his positions as an Executive Officer and member of the Board of
Directors of Headway.
Section 162(m) of the Internal Revenue Code: This section of the Internal
Revenue Code (the "Code") limits Headway to a deduction for federal income tax
purposes of no more than $1,000,000 of compensation paid to any name executive
officer in a taxable year. Compensation above $1,000,000 may be deducted if it
is a "performance-based compensation" within the meaning of the Code. The
shareholders approved, at its 1999 shareholders meeting, performance based
compensation.
Conclusion: The Committee will continue to monitor the annual and long-term
compensation of the named executive officers making it contingent on Headway's
performance, linking realization of rewards closely to increases in financial
performance and shareholder value. Headway is committed to this philosophy of
pay for performance, recognizing the competitive market for talented executives
and the volatility of Headway's business may result in highly variable
compensation for the period.
Members of the Compensation Committee
Ehud D. Laska, Chair
8
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Principal Stockholders
The following table sets forth as of April 24, 2003, the number and
percentage of the outstanding shares of Common Stock that, according to the
information supplied to Headway, were beneficially owned by each person who, to
the knowledge of Headway, is the beneficial owner of more than 5% of the
outstanding Common Stock. Except as otherwise indicated, the persons named in
the table have sole voting and dispositive power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Amount and Nature of
Beneficial Ownership
--------------------
Common Options, Warrants Percent of
Shares And Rights (1) Class (2)
Gary S. Goldstein 1,877,005 355,000 15.6%
850 Third Avenue
New York, NY 10022
GarMark Partners, L.P. (3) 2,000,001 15,941,115 60.1%
1325 Avenue of the Americas
26th Floor
New York, NY 10019
Moore Macro Fund, L.P. (4) 749,970 5,966,665 33.8%
c/o Moore Capital
1251 Avenue of the Americas,
53rd Floor
New York, NY 10020
Banc of America Securities, LLC (5) 250,029 1,989,880 14.1%
9 West 57th Street
New York, NY 10019
FSC Corporation (6) -0- 859,433 5.8%
Fleet Bank, N.A.
Managed Assets Division
777 Main Street
Hartford, CT 06115
(1) These figures represent options and warrants that are vested or will vest
within 60 days from the date as of which information is presented in the table.
(2) These figures represent the percentage of ownership of the named individuals
assuming each of them alone has exercised his or her options, warrants, or
conversion rights.
(3) GarMark Partners, L.P., is the holder of Series G Convertible Preferred
Stock of Headway, which is convertible to 15,911,107 shares of Common Stock. E
Garrett Bewkes, III, and Mark Solow are the Managing Members of GarMark
Associates L.L.C., the general partner of GarMark Partners, L.P., and,
therefore, these persons may be deemed to have shared voting and investment
control with respect to such shares. Until recently, Mr. Bewkes served as a
non-employee director of Headway, for which he was entitled to receive annually
5,000 options to purchase Common Stock. Mr. Bewkes elected to have all such
options issued to GarMark Partners, L.P., so the figure in the table includes
the options. Mr. Bewkes resigned from the Board of Directors in March 2003.
9
(4) Moore Macro Fund, L.P. is the holder of Series G Convertible Preferred Stock
of Headway, which is convertible to 5,966,665 shares of Common Stock. Moore
Macro Fund, L.P. also holds 749,970 shares of Common Stock.
(5) Banc of America Securities, LLC, is the holder of Series G Convertible
Preferred Stock of Headway, which is convertible to 1,989,880 shares of Common
Stock. Banc of America Securities, LLC also holds 250,029 shares of Common
Stock.
(6) These figures represent warrants to purchase Common Stock that were granted
in connection with the amendment of the Company's Senior Credit Facility
completed on April 18, 2002.
Management
The following table sets forth as of April 24, 2003 the number and
percentage of the outstanding shares of Common Stock which, according to the
information supplied to Headway, were beneficially owned by (i) each person who
is currently a director or executive officer of Headway, and (ii) all current
directors and executive officers of Headway as a group. Except as otherwise
indicated, the persons named in the table have sole voting and dispositive power
with respect to all shares beneficially owned, subject to community property
laws where applicable.
Amount and Nature of
Beneficial Ownership
--------------------
Common Options, Percent of
Shares Warrants Class (2)
And Rights (1)
Barry S. Roseman 383,629 150,000 3.8%
317 Madison Avenue
New York, NY 10017
Ehud D. Laska 79,580 25,000 0.8%
Interbank Capital Group
630 Fifth Avenue
New York, NY 10111
Richard B. Salomon 49,965 25,000 0.5%
Salans
620 Fifth Avenue
New York, NY 10020
Jamie Schwartz -0- 15,000 0.1%
317 Madison Avenue
New York, NY 10017
Philicia G. Levinson 66,621 -0- 0.5%
317 Madison Avenue
New York, NY 10017
All Executive officers and 579,795 215,000 5.6%
Directors as a Group
(5 Persons)
--------------------------------------------
10
(1) These figures represent options and warrants that are vested or will vest
within 60 days from the date as of which information is presented in the table.
(2) These figures represent the percentage of ownership of the named individuals
assuming each of them alone has exercised his or her options, warrants, or
conversion rights, and percentage ownership of all officers and directors of a
group assuming all such purchase or conversion rights held by such individuals
are exercised.
Equity Compensation Plans
The following table summarizes information, as of December 31, 2002,
relating to equity compensation plans of the Company pursuant to which grants of
options, restricted stock units or other rights to acquire shares may be granted
from time to time.
Equity Compensation Plan Information
----------------------------------------------------------------------------------------------
Number of Number of securities
securities to be Weighted-average remaining available for
issued upon exercise price of future issuance under
Plan category exercise of outstanding equity compensation plans
outstanding options, warrants (excluding securities
options, warrants and rights reflected in column (a))
and rights (b) (c)
(a)
----------------------------------------------------------------------------------------------
Equity compensation plans 1,636,281 $4.14 1,604,719
approved by security
holders (1)
----------------------------------------------------------------------------------------------
Equity compensation plans -- -- --
not approved by security
holders
----------------------------------------------------------------------------------------------
(1) This plan is the Company's Amended 1993 Stock Incentive Plan.
Item 13. Certain Relationships and Related Transactions
In March 1998, Headway obtained $105 million of financing consisting of $75
million in senior debt, $20 million of equity financing and $10 million of
senior subordinated debt.
The debt included a Senior Facility, which is now $72 million plus
outstanding letters of credit for $1,687,000, under which Bank of America, N.A.
(the successor to NationsBank, National Association) is a lender and acts as
agent for a group of participating lenders (the "Senior Lenders"). The Senior
Lenders include Fleet National Bank.
The Senior Subordinated Debt was issued under an indenture to GarMark
Partners, L.P. ("GarMark"), Moore Global Investments, Ltd. ("Moore"), Banc of
America Securities, LLC ("BOA"), and Remington Investment Strategies, L.P.
("Remington"). Furthermore, GarMark, Moore, BOA, and Remington provided $20
million of equity financing through the purchase of 1,000 shares of Series F
Convertible Preferred Stock of Headway ("Series F Stock"). GarMark, Moore, BOA,
and Remington, purchased 666.67, 205, 83.33 and 45 shares of the Series F Stock,
respectively. E. Garrett Bewkes, III, who served as a director of Headway from
March 1998 to March 2003, is a Managing Member of GarMark Associates L.L.C., the
general partner of GarMark.
As of June 30, 2001, Headway failed to comply with certain financial ratio
covenants in the Senior Facility and Senior Subordinated Debt. As a result, Bank
of America, as agent for the Senior Lenders issued a notice of payment blockage
to prevent Headway from paying interest on the Senior Subordinated Debt. In June
2001, the board of directors determined not to declare a dividend on Headway's
outstanding Series F Stock, believing that it was not in the interest of Headway
11
to declare a dividend until the covenant defaults under the Senior Facility and
Senior Subordinated Debt were resolved.
In August 2001, Headway amended the Senior Facility and obtained a waiver
of the financial ratio defaults. Concurrently, Headway amended the terms of the
Senior Subordinated Debt and exchanged all 1,000 shares of outstanding Series F
Stock for an equal number of shares of Series G Convertible Preferred Stock (the
"Series G Stock"). As a negotiated element of the transaction, we also issued to
the holders of the Series G Stock:
o Warrants to purchase an aggregate of 1,000,000 shares of our common stock
at an exercise price of $1.10 per share that expire on the later of
September 7, 2006 and the date on which all principal, premiums and
interest on the Senior Subordinated Debt has been paid in full and all of
the Preferred Stock has been redeemed or converted (the "First Series G
Warrants");
o Warrants to purchase an additional 1,150,000 shares at an exercise price of
$0.01 per share exercisable from January 2, 2002, through the later of
January 2, 2007 and the date on which all principal, premiums and interest
on the Senior Subordinated Debt has been paid in full and all of the
Preferred Stock has been redeemed or converted (the "Second Series G
Warrants"); and,
o Warrants to purchase an additional 850,000 shares at an exercise price of
$3.05 per shares exercisable from January 2, 2002, through the later of
January 2, 2007 and the date on which all principal, premiums and interest
on the Senior Subordinated Debt has been paid in full and all of the
Preferred Stock has been redeemed or converted (the "Third Series G
Warrants").
The First Series G Warrants, Second Series G Warrants, and Third Series G
Warrants are collectively referred to as the "Series G Warrants".
Under the amendments to the Senior Subordinated Debt, Headway obtained
waivers of the financial covenant and interest payment defaults, agreed to an
increase in the note interest rate to 20 percent retroactive to July 1, 2001, if
all interest accrued at April 1, 2002, was not paid in full as of that date,
modified certain financial covenants, and agreed to negotiate for the payment of
alternative consideration if all accrued payment obligations at April 1, 2002,
were not paid as of that date, which, unless Headway and the holders thereof
otherwise agreed, was to include a decrease in the exercise price of all Series
G Warrants to $0.01 per share. Headway did not make any of the required interest
or dividend payments.
The Series G Stock issued to the former holders of the Series F Stock was
convertible to common stock of Headway at a conversion price of $5.58 per share;
provided, that the conversion price would decrease to $2.75 per share if all
accrued interest on the Senior Subordinated Debt and accrued dividends on the
Series G Stock was not paid in full as of January 2, 2002, and would decrease
further to $1.00 per share if such interest and dividends was not paid in full
as of April 1, 2002. Headway did not make any of the required interest or
dividend payments, so the conversion price is now $1.00 per share.
The Series G Stock is senior to the common stock with respect to payment of
dividends and distributions in liquidation. Holders of the Series G Stock are
entitled to receive dividends payable quarterly equal to 7.5 percent of the
liquidation preference value of the Series G Stock, which is $20,000 per share
or a total of $20 million; provided, that the dividend rate would increased to
nine percent if all accrued dividends on the Series G Stock were not paid in
full on January 2, 2002, and increase further to 10 percent if all such
12
dividends were not paid in full as of April 1, 2002. Headway did not make the
required interest or dividend payments, so the dividend rate is now 10 percent.
No dividends or distributions may be made with respect to the common stock
unless all dividend payments on the Series G Stock are current. Holders of
Headway's Series G Stock have the right to elect one member of the board of
directors and elect one-third of the board of directors so long as a default in
dividend payments exists and is continuing.
On April 17, 2002, Headway further amended and restated the Senior Facility
and obtained a waiver of the financial ratio defaults, as well as an extension
of the maturity date to June 30, 2003. Among other things, this amendment
required us to issue warrants to the Senior Lenders to purchase an aggregate of
2,455,522 shares of our common stock at an exercise price of $0.25 per share
exercisable through at least April 30, 2007, including warrants to purchase
859,433 shares issued to FSC Corporation, the designee of Fleet National Bank.
The holders of the warrants have the right to demand on four occasions that
Headway register for resale under the Securities Act of 1933 the shares of
common stock issuable under the warrants, all at Headway's expense. Furthermore,
the holders have unlimited piggy-back registration rights.
Concurrently, but effective as of March 31, 2002, Headway amended the terms
of the Senior Subordinated Debt. As a negotiated element of the transaction, the
exercise prices of the First Series G Warrants and the Third Series G Warrants
was changed to $0.25 per share. All of the Series G Warrants were exercised in
May 2002. Under the amendments to the Senior Subordinated Debt, Headway obtained
waivers of the financial covenant and interest payment defaults, modified
certain financial covenants, as well as continued deferral of interest and
dividend payments through a date that is no later than June 30, 2003. As part of
this transaction, the holders of the Senior Subordinated Debt agreed to the
elimination of the requirement to pay five percent of additional interest on the
Senior Subordinated Debt, which was to take effect retroactively as of July 1,
2001.
In December 2002, the Company further amended the Senior Credit Facility
and obtained a waiver of compliance with certain financial covenants, which the
Company had failed as of that date. The amendment provided a waiver and reduced
the amount of the monthly cash interest payment through March 31, 2003. Although
the Company was in compliance with the Amendment as of December 31, 2002, the
waiver expired on March 31, 2003 causing the Company to be in default of the
Senior Credit Facility. The existence of events of default under the Senior
Credit Facility creates cross-defaults under the Indenture for the Senior
Subordinated Notes and the Certificate of Designation for the Preferred Stock.
Upon the occurrence and during the continuation of an event of default under the
Certificate of Designations, holders of the Preferred Stock may require
redemption of the Preferred Stock by the Company.
The Senior Credit Facility expires on June 30, 2003, with all outstanding
amounts then due. The Company is currently in negotiations with its Senior
Lenders and the holders of its Senior Subordinated Notes and Preferred Stock
(collectively, the "Senior Creditors") to further amend the Senior Credit
Facility, Indenture and Certificate of Designations, which would include a
waiver and an extended maturity date as well as modified financial covenants
that would give the Company greater flexibility to operate. The Company is also
currently in negotiations with the Senior Creditors concerning a possible
restructuring of the Company's outstanding debt and equity. Any such
restructuring would likely involve a significant reduction in the Company's
debt, new debt and equity financing and a significant dilution in the percentage
of the outstanding common stock held by the Company's current common
stockholders. No assurances can be given that any restructuring will be
accomplished or as to the terms thereof. If such waivers and amendments or
restructuring is not achieved and the Senior Creditors exercise their rights and
remedies as a result of the pending events of default or upon the maturity of
13
the Senior Credit Facility on June 30, 2003, the Company would not have
sufficient liquidity to meet its obligations, and may need to file for
bankruptcy pursuant to chapter 11 of the Bankruptcy Code.
Each of the Senior Facility, Senior Subordinated Debt, and Series G Stock
contain covenants that require the lenders and equity owners to approve certain
corporate transactions and activities, including, acquisitions in excess of
specified limits, sales of substantial assets or subsidiaries, implementing
additional debt facilities in excess of specified limits, sales of Headway
securities in certain circumstances, amending Headway's charter documents,
effecting or permitting a sale of Headway, issuing stock options and similar
incentive arrangements involving Headway's securities, and other matters. The
existence of these rights could inhibit the ability of Headway to effect or
participate in transactions acceptable to Headway, but not the lenders or
holders of the Series G Stock, or the ability of stockholders to participate in
a transaction in which they might otherwise receive a premium for their shares
over the then-current market price.
On March 13, 2003, Headway Corporate Resources, Inc. exited the executive
search segment of its business through a sale of its Whitney subsidiaries. All
of Headway's interest in the Whitney subsidiaries were sold to Whitney Group,
LLC, a New York limited liability company (the Whitney Group"). Gary S.
Goldstein, who had resigned his positions as an officer and director of Headway
and its subsidiaries, is an officer and principal owner of membership interest
in the Whitney Group.
In consideration for the sale, the Whitney Group (i) issued to the Company
a 15 percent membership interest in the Whitney Group (subject to adjustment in
certain circumstances), (ii) issued a promissory note in the principal amount of
$2,000,000, and (iii) is obligated to pay an earnout equal to five percent of
Whitney Group's gross revenues, as defined, during a five-year period commencing
January 1, 2003. The note bears interest at the Prime Lending Rate as in effect
from time to time, plus two percent per annum. Interest is payable quarterly and
the full principal amount of the note is payable in January 2005. The Whitney
Group may, at its election, prepay and terminate the promissory note and earnout
obligation through a lump sum payment of $5,000,000 less the actual amount of
principal previously paid on the promissory note and earnout payments. The
Whitney Group is obligated to prepay the promissory note and earnout obligation
on the foregoing terms if one or more specified events occur prior to January 1,
2006, that constitute a change in control or ownership of the Whitney Group. The
Company has estimated the fair market value of the promissory note at $1,400,000
and the 15% equity interest at $45,000. This transaction will be recorded in the
2003 financial statements and is not expected to result in a material gain or
loss on the Company's results of operations.
14
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits
Copies of the following documents are included as exhibits to this report
pursuant to Item 601 of Regulation S-K.
Exhibit No. Title of Document Location
3.1 Certificate of Incorporation (1) Ex. No. 1
3.2 By-Laws (1) Ex. No. 2
3.3 By-Law Amendments (2) Ex. No. 5
4.1 Series F Preferred Stock Designation (2) Ex. No. 4
4.6 Securities Purchase Agreement dated March 19, 1998 (2) Ex. No. 6
4.7 Registration Rights Agreement dated March 19, 1998 (2) Ex. No. 7
4.8 Indenture dated March 19, 1998 (2) Ex. No. 8
4.9 Fourth Supplemental Indenture, dated as of August 24, Ex. No. 4.1
2001 (3)
4.10 Limited Waiver and Amendment dated as of August 24, Ex. No. 4.3
2001 (3)
4.11 Form of Senior Subordinated Note (2) Ex. No. 9
4.12 Guaranty Agreement dated March 19, 1998 (2) Ex. No. 10
4.13 Credit Agreement dated March 19, 1998, including Ex. No. 11
Exhibit A - Commitment Percentage, and
Exhibit F - Form of Revolving Note (2)
4.14 Seventh Amendment and Limited Waiver to Credit Ex. No. 4.2
Agreement dated as of August 24, 2001, to the
Credit Agreement dated as of March 19, 1998 (3)
4.15 Guaranty Agreement dated March 19, 1998 (2) Ex. No. 12
4.16 Security Agreement dated March 19, 1998 (2) Ex. No. 13
4.17 Pledge Agreement dated March 19, 1998 (2) Ex. No. 14
4.18 LC Account Agreement dated March 19, 1998 (2) Ex. No. 15
4.19 Intellectual Property Security Agreement dated March Ex. No. 16
19, 1998 (2)
15
4.20 Amended and Restated Indenture dated April 18, 2002 (4) Ex. No. 4.8
4.21 Amended and Restated Credit Agreement dated April 17, Ex. No. 4.10
2002 (4)
10.1 Purchase Agreement between Headway Corporate Ex. No. 10.1
Resources, Inc., and Whitney Group, LLC dated
March 7, 2003 (5)
21.1 Subsidiaries of Headway (6) Ex. No. 16
99.1 Certification of the Chief Executive Officer pursuant This Filing
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer pursuant This Filing
to Section 906 of the Sarbanes-Oxley Act of 2002
(1) These exhibits are included in Headway's annual report on Form 10-KSB, for
the fiscal year ended December 31, 1996, and filed with the Securities and
Exchange Commission on March 27, 1997, and are incorporated herein by this
reference. The reference under the column "Location" is to the exhibit number in
the report on Form 10-KSB.
(2) These exhibits are included in Headway's current report on Form 8-K, dated
March 19, 1998, and filed with the Commission on April 3, 1998, and are
incorporated herein by this reference. The reference under the column "Location"
is to the exhibit number in the report on Form 8-K.
(3) These exhibits are included in Headway's quarterly report on Form 10-Q, for
the quarter ended September 30, 2001, and filed with the Securities and Exchange
Commission on November 14, 2001, and are incorporated herein by this reference.
The reference under the column "Location" is to the exhibit number in the report
on Form 10-Q.
(4) These exhibits are included in Headway's annual report on Form 10-K/A for
the fiscal year ended December 31, 2001, and filed with the Securities and
Exchange Commission on April 30, 2002, and is incorporated herein by this
reference. The reference under the column "Location" is to the exhibit number in
the report on Form 10-K.
(5) This exhibit is included in Headway's current report on Form 8-K dated March
13, 2003, and filed with the Securities and Exchange Commission on March 28,
2003, and is incorporated herein by this reference. The reference under the
column "Location" is to the exhibit number in the report on Form 8-K.
(6) This exhibit is included in Headway's annual report on Form 10-K for the
fiscal year ended December 31, 2000, and filed with the Securities and Exchange
Commission on March 30, 2001, and is incorporated herein by this reference. The
reference under the column "Location" is to the exhibit number in the report on
Form 10-K.
16
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Headway Corporate Resources, Inc.
Date: April 29, 2003 By: /s/ Barry S. Rosman
--------------------------------------
Barry S. Roseman, President and Chief
Executive Officer
Date: April 29, 2003 By: /s/ Philicia G. Levinson
--------------------------------------
Philicia G. Levinson, Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: April 29, 2003 /s/ Barry S. Rosman
-------------------
Barry S. Roseman, Director, President
and Chief Executive Officer
Dated: April 29, 2003 /s/ Ehud D. Laska
-----------------
Ehud D. Laska, Director
Dated: April 29, 2003 /s/ Richard B. Salomon
----------------------
Richard B. Salomon, Director
Dated: April 29, 2003 /s/ Philicia G. Levinson
------------------------
Philicia G. Levinson, Chief Financial Officer
(Principal Financial and Accounting Officer)
17
CERTIFICATION
I, Barry S. Roseman, certify that:
1. I have reviewed this annual report on Form 10-K of Headway Corporate
Resources, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 29, 2003 By: /s/ Barry S. Rosman
--------------------------------
Barry S. Roseman, President and
Chief Executive Officer
18
CERTIFICATION
I, Philicia G. Levinson, certify that:
1. I have reviewed this annual report on Form 10-K of Headway Corporate
Resources, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 29, 2003 By: /s/ Philicia G. Levinson
--------------------------------------
Philicia G. Levinson, Chief Financial
Officer
19