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, 2001
[ ] 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 StocExchange
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $0.0001
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 ]
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 March 28, 2002,
is $0.30. The number of shares outstanding of each of the registrant's classes
of common stock as of March 31, 2002, was 10,914,627.
DOCUMENTS INCORPORATED BY REFERENCE
This Amendment No. 1 to the Annual Report on Form 10-K of Headway Corporate
Resources, Inc., for the year ended December 31, 2001, 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 Item13.
Certain Relationships and Related Transactions. Further, Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K, is amended solely to add
certain exhibits. Incorporated herein by this reference is the 2001 Form 10-K
containing Items 1 through 10 of Form 10-K filed with the Securities and
Exchange Commission on April 19, 2002.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part III
10. Directors and Executive Officers of the Registrant 3
11. Executive Compensation 5
12. Security Ownership of Certain Beneficial Owners and Management 11
13. Certain Relationships and Related Transactions 13
Part IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 16
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 table on the following page 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
Gary S. Goldstein 47 Chairman, Chief Executive Class 1
Officer and Director 2002
Barry S. Roseman 48 President, Chief Operating Class 1
Officer and Treasurer, 2002
Director
G. Chris Andersen 63 Director Class 3
2003
E. Garrett Bewkes, III 51 Director Class 2
2004
Ehud D. Laska 52 Director Class 2
2004
Richard B. Salomon 54 Director Class 3
2003
Jamie Schwartz 34 Executive Vice President, N/A
Chief Operating Officer
of HCSS and Secretary
Philicia G. Levinson 38 Senior Vice President, N/A
Chief Financial Officer
- -------------------------------------------
(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.
Gary S. Goldstein has served in a number of executive positions with
Headway and its predecessors over the past fifteen years, including, Chairman,
President, and Chief Executive Officer. He is currently a director and executive
officer of each of Headway's subsidiary corporations. Mr. Goldstein has
extensive experience in human resource recruitment within all areas of the
financial services industry. Prior to entering the recruitment industry, Mr.
Goldstein was on the audit and consulting staffs of Arthur Andersen & Co., in
New York. Mr. Goldstein is an active member of the Young Presidents'
Organization, Inc., and serves on its Metro Division Board of Directors. He is
3
also an active member of The Brookings Council of the Brookings Institution, The
Presidents Association of the American Management Association, and is listed in
Who's Who in Finance and Industry.
Barry S. Roseman oversees all operation 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. 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.
G. Chris Andersen became a director of Headway in June 1995. He is one of
the founders of Andersen, Weinroth & Co., L.P., a merchant banking firm, which
commenced operations in January 1996. For over five years prior to 1996, Mr.
Andersen served as the Vice Chairman of PaineWebber Incorporated. Mr. Andersen
also serves as a director of two other public companies, TEREX Corporation and
Millennium Cell.
E. Garrett Bewkes, III, became a director of Headway in March 1998 pursuant
to the terms of the new financing obtained by Headway in that month. From
November 1995 to the present he has served as a Managing Member of GarMark
Associates L.L.C. He was a member of the Management Committee of Investcorp
International, Inc., from March 1994 to November 1995, where he headed the North
American Investment Group. Mr. Bewkes was with Bear Stearns and Co. Inc. for
nine years prior to March 1994, most recently as Vice Chairman and Co-Head of
Investment Banking.
Ehud D. Laska was appointed a director of Headway in August 1993. He is the
Chairman of Coleman and Company Securities, Inc., a member firm of the National
Association of Securities Dealers, Inc. Mr. Laska is 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. From August 1994 to February 1996, Mr. Laska served as a managing
director at the investment banking firm of Continuum Capital, Inc. While serving
as a Managing Director with Tallwood Associates, Inc., a boutique investment
banking firm, from May 1992 to August 1994, Mr. Laska founded the Private Equity
Finance Group, which merged with Continuum Capital, Inc. in August 1994.
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 Hertzfeld Heilbronn
Christy & Viener, 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,
4
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 table on the following page 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, 2001, 2000, and 1999, 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 $100,000 (collectively, the "Named
Executive Officers").
Annual Compensation
----------------------------------------------------
Other Annual
Name and Principal Position Year Salary ($) Commission ($) Bonus ($) Compensation
Gary S. Goldstein 2001 650,000 1,730,040 (1) -- 74,227
Chairman, Chief 2000 650,000 462,425 (1) -- 64,752
Executive Officer 1999 327,375 -- 468,250 62,489
Barry S. Roseman 2001 350,000 -- 150,000 27,458
President, Chief 2000 350,000 -- 50,000 25,390
Operating Officer 1999 252,375 -- 135,000 23,390
Jamie Schwartz 2001 243,333 -- 25,000 --
Executive Vice President, 2000 210,000 -- 35,000 --
Chief Operating Officer 1999 120,000 -- 87,500 --
of HCSS
(1) Represents commissions on personal search revenue.
5
Long Term Compensation
----------------------------------------------------
Securities
Restricted Underlying LTIP All Other
Name and Principal Position Year Stock Awards Options/SARs Payouts Compensation
($) (#) ($) (2)
Gary S. Goldstein 2001 -- -- -- --
Chairman, Chief 2000 -- -- -- --
Executive Officer 1999 593,750 (1) -- 350,000 --
Barry S. Roseman 2001 -- -- -- --
President, Chief 2000 -- -- -- --
Operating Officer 1999 -- -- 200,000 --
Jamie Schwartz 2001 -- -- -- 25,000
Executive Vice President, Chief 2000 -- 25,000 -- 25,000
Operating Officer of HCSS 1999 -- 25,000 -- 12,500
(1) Represents a restricted stock award of 125,000 shares of common stock
approved in July 1999. The restrictions will lapse on the earlier of the date
that the market price for the common stock of Headway achieves certain
performance criteria or July 1, 2006.
(2) Represents a three year deferred compensation program.
Employment and Other Arrangements
In August 2000, Headway implemented new base and annual incentive
compensation arrangements for Messrs. Goldstein and Roseman on the
recommendation of the Executive Compensation Committee, which were implemented
retroactive to January 1, 2000. The long-term incentive plan implemented in 1999
did not change. The base salary of Mr. Goldstein increased to $650,000 and Mr.
Roseman's salary increased to $350,000. The new annual incentive plan for
Messrs. Goldstein and Roseman will pay to them annually up to $350,000 each
based upon earnings per share performance against the budget. Additionally,
because of his position as a recruiter for Headway's subsidiary, Whitney
Partners, L.L.C., Gary S. Goldstein receives commissions on his personal search
revenue. The new long-term incentive plan implemented in 1999 for the same
individuals is a four-year plan with interim phasing. The first payment was in
2000 for 1998-1999 performance (two years). The second payment was scheduled to
be made in 2001 for 1998-2000 performance (three years). This is followed by a
payment scheduled to be made in 2002 for 1998-2001 performance (four years). All
three plans use 1997 as the base year. These are performance unit plans with
each unit in the described plans worth $1. Payment is predicated on Headway's
performance versus a peer group of companies in terms of earnings per share and
stock price. Thus, while the annual plan is based on absolute performance, the
long-term plan is based on Headway's performance relative to its peer group.
Messrs. Goldstein and Roseman may receive additional bonus or stock incentive
compensation from time to time as determined by the Board of Directors on the
recommendation of the Executive Compensation Committee.
6
Headway maintains key-man life insurance on Gary S. Goldstein in the amount
of $5,893,000, Barry S. Roseman in the amount of $1,868,000, and on the lives of
three other employees in the amount of $2,228,000. All policies are owned by
Headway, and Headway is the named beneficiary.
Defined Contribution Plan
At January 1, 1998, Headway implemented a 401(k) retirement plan covering
substantially all employees. The plan does not require matching contributions by
Headway, and Headway made no contributions to the plan for 2001. Benefits
payable to an employee under the plan are determined solely on the basis of the
employee's contributions. Prior to 1998, Headway had four qualified 401(k)
contribution plans for its employees. Under one plan, Headway was required to
make matching contributions up to 25% of the amount contributed by the
employees. Employees are fully vested on their contributions when made, and are
fully vested on employer contributions after five years of service.
Stock Options
In 1999 the Board of Directors and stockholders approved Headway's Amended
1993 Incentive Plan. The purpose of the Plan is to provide directors, officers,
employees, and consultants with additional incentives by increasing their
ownership interests in the Company. Directors, officers, and other employees of
the Company and its subsidiaries are eligible to participate in the Plan. In
addition, awards may be granted to consultants providing valuable services to
the Company. Awards under the Plan are granted by the Executive Compensation
Committee of the Board and may include incentive stock options, non-qualified
stock options, stock appreciation rights, stock units, restricted stock,
restricted stock units, performance shares, performance units, or cash awards.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31,
2001. No outstanding options held by the Named Executive Officers were exercised
in 2001.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Name and Principal Options at FY End ($) (1)
Position at FY End (#)
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 resident, 15,000/50,000 -0-/-0-
Chief Operating Officer
of HCSS
- ------------------------------------------
7
(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 $0.37, which is the last sale price on December 31, 2001.
Report of the Executive Compensation Committee of the Board Of Directors On
Executive Compensation for Fiscal Year 2001
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
three 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. The
Committee awarded Mr. Roseman $150,000 in subjective annual incentive
compensation for FY 2001. Mr. Goldstein was awarded a 5% special commission
increase ($300,000) on revenue received from one transaction. This was
awarded for extraordinary effort on behalf of the Company.
o Long term incentive awards consist of stock options and performance unit
awards. Based on the plan as described below, Mr. Roseman was entitled to
receive a Long term incentive award of $50,000 for FY 2001, however, no
Long term incentives were awarded or paid. No stock options were granted to
any executive officers during FY 2001.
The Committee put in place a new annual incentive plan and continued the
long-term incentive plan adopted by the committee in 1999 for the Chairman/Chief
Executive Officer and President/Chief Operating Officer. The annual incentive
plan pays up to $350,000 to each executive based upon earnings per share
performance versus the budget. Additionally, because of his position as a
recruiter for Whitney, Gary S. Goldstein receives commissions on his personal
search revenue. The bonus percentages are shown in the following table.
Actual EPS as a Bonus:
percentage of Budget:
75% $0
80% $70,000
85% $140,000
90% $210,000
95% $280,000
100% $350,000
Mr. Goldstein's search revenue commission rate is as follows:
Revenue Commission
- ------- ----------
0-$500,000 10%
$500-000-$1,000,000 20%
Greater than $1,000,000 25%
8
The long-term incentive plan for the Chief Executive Officer and Chief
Operating Officer is a four-year plan with interim phasing. The first payment
was in 2000 for 1998-1999 performance (two years). The second payment was
scheduled to be made in 2001 for 1998-2000 performance (three years). This is
followed by a payment scheduled to be made in 2002 for 1998-2001 performance
(four years). All three plans use 1997 as the base year. These are performance
unit plans with each unit in the described plans worth $1. Payment is predicated
on Headway's performance versus a peer group of companies in terms of earnings
per share and stock price. Thus, while the annual plan is based on absolute
performance, the long-term plan is based on Headway's performance relative to
its peer group. Threshold, target and maximums are shown below.
Gary S. Goldstein Barry S. Roseman
Chairman, CEO President, COO
Maximum
1998-1999 $350,000 $200,000
1998-2000 525,000 300,000
1998-2001 700,000 400,000
Target
1998-1999 $150,000 $100,000
1998-2000 225,000 150,000
1998-2001 300,000 200,000
Threshold
1998-1999 $50,000 $25,000
1998-2000 75,000 38,000
1998-2001 100,000 50,000
Chief Executive Officer Compensation: The Committee set Mr. Goldstein's
salary at $650,000 per annum effective January 1, 2000, this represents a
$297,625 increase from his salary in effect since July 1, 1999. It was believed
this adjustment was necessary based on competitive data.
Chief Operating Officer Compensation: The Committee set Mr. Roseman's
salary at $350,000 per annum effective January 1, 2000, this represents a
$97,625 increase from his salary in effect since 1994. It was believed this
adjustment was necessary based on competitive data.
Subsequent Event: As disclosed in the Company's Annual Report on Form 10-K,
discussions regarding the employment arrangements that will likely be required
to induce the management team to commit to remain with the Company and to align
their compensation incentives with the interests of the shareholders and
creditors of the Company, have been held among representatives of the Company's
Board of Directors, senior management as well as representatives of the senior
debt holders and certain of the holders of the senior subordinated debt and the
Preferred Stock. While no definitive agreement has been reached, it is expected
that such employment arrangements would include base salaries and bonuses
consistent with current levels, retention bonuses, and customary non-competition
and non-solicitation provisions. In addition, it is expected that the Company
would establish a new "Management Incentive Plan" ("MIP"). Under the MIP, the
management group would receive, as incentive compensation, amounts based on the
total realized by the Company in one or more liquidity transactions such as
sales of assets, merger or sale of the entire company, or refinancing of the
9
Company's indebtedness: 10% between $40 and $75 million; 20% between $75 and
$107.5 million; and, 30% above $107.5 million. The MIP would be in lieu of any
other long-term incentive compensation plans. There are currently no employment
agreements with the Company's senior management, and no assurance can be given
that the Company and the executives will enter into such arrangements.
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
G. Chris Andersen
E. Garrett Bewkes, III
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Stockholders
The following table sets forth as of April 24, 2002, 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.
10
Amount and Nature of
Beneficial Ownership
--------------------
Common Options, Warrants Percent
Shares And Rights (1) of Class (2)
Gary S. Goldstein 1,877,005 355,000 19.8%
850 Third Avenue
New York, NY 10022
G. Chris Andersen (3) 669,165 25,000 6.4%
1330 Avenue of the Americas
New York, NY 10019
GarMark Partners, L.P. (4) -0- 16,444,678 60.1%
1325 Avenue of the Americas
26th Floor
New York, NY 10019
Moore Global Investments, Ltd.(5) -0- 6,155,367 36.1%
Remington Investment Strategies, L.P.
c/o Moore Capital
1251 Avenue of the Americas,
53rd Floor
New York, NY 10020
Banc of America Securities, LLC (6) -0- 2,051,971 15.8%
9 West 57th Street
New York, NY 10019
Bank of America, N.A. (7) -0- 613,881 5.3%
Bank of America Agency Services
901 Main Street
Dallas, TX 75202
FSC Corporation (7) -0- 859,433 7.3%
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) The figure for Mr. Andersen includes 137,594 shares held by the G. Chris
Andersen Family Foundation, of which Mr. Andersen is a trustee.
(4) GarMark Partners, L.P., is the holder of Series G Convertible Preferred
Stock of Headway, which is convertible to 14,414,677 shares of Common Stock,
although its ability to convert its shares of Series G Convertible Preferred
Stock to Common Stock is contingent upon an increase in Headway's authorized
number of common shares, which requires common stockholder aproval. GarMark
Partner, L.P. also holds warrants convertible into 2,000,001 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,
11
therefore, these persons may be deemed to have shared voting and investment
control with respect to such shares. Mr. Bewkes serves as a non-employee
director of Headway, for which he is entitled to receive annually 5,000 options
to purchase Common Stock. Mr. Bewkes has elected to have all such options issued
to GarMark Partners, L.P., so the figure in the table includes the options.
(5) Moore Capital Management, Inc. ("MCM"), is the discretionary investment
manager of Moore Global Investments, Ltd., a Bahamian corporation ("MGI"). MGI
is the holder of Series G Convertible Preferred Stock of Headway, which is
convertible to 4,432,427 shares of Common Stock, and warrants to purchase
614,970 shares of Common Stock. Moore Capital Advisors, LLC ("MCA"), is the
discretionary investment manager and general partner of Remington Investment
Strategies, L.P., a Delaware limited partnership ("RIS"). RIS is the holder of
Series G Convertible Preferred Stock of Headway, which is convertible to 972,970
shares of Common Stock, and warrants to purchase 135,000 shares of Common Stock.
Louis M. Bacon is the Chairman and Chief Executive Officer, director, and
controlling equity owner of both MCM and MCA. Accordingly, Mr. Bacon and MCM,
and Mr. Bacon and MCA may be deemed to have shared voting and investment control
with respect to the shares held by MGI and RIS.
(6) Banc of America Securities, LLC, is the holder of Series G Convertible
Preferred Stock of Headway, which is convertible to 1,801,942 shares of Common
Stock. Banc of America Securities, LLC also holds warrants convertible into
250,029 shares of Common Stock.
(7) 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 table on the following page sets forth as of April 24, 2002 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 of Headway, (ii) each Named Executive Officer (as
defined below), and (iii) 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.
12
Amount and Nature of
Beneficial Ownership
------------------------
Common Options, Percent of
Shares Warrants Class (2)
And Rights (1)
Gary S. Goldstein 1,877,005 355,000 19.8%
Barry S. Roseman 383,629 150,000 4.8%
G. Chris Andersen 669,165 25,000 6.3%
E. Garrett Bewkes, III (3) -0- 16,444,678 60.1%
Ehud D. Laska 79,580 25,000 1.0%
Richard B. Salomon 49,965 25,000 0.7%
Jamie Schwartz -0- 15,000 0.1%
Philicia G. Levinson 66,621 -0- 0.6%
All Executive officers and 3,125,965 17,039,678 72.1%
Directors as a Group (8 Persons)
- --------------------------------------------
(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.
(3) The figure for options, warrants and rights includes the shares of GarMark
Partners, L.P., because of the relationships described in Note (4) to the table
for Principal Stockholders. See Note (4) to the table for Principal Stockholders
for a description of the shares beneficially owned by GarMark Partners, L.P.
Item 13. Certain Relationships and Related Transactions
In March 1998, Headway obtained $105 million of financing consisting of $85
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,
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and Remington, purchased 666.67, 205, 83.33 and 45 shares of the Series F Stock,
respectively. E Garrett Bewkes, III, a director of Headway, 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
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. This amendment increased the margin for base
rate loans and the letter of credit fee, added a default interest rate payable
upon the occurrence of an event of default, required a partial pay down of the
loan balance with Headway's cash balance over $8 million, terminated the
obligation of the Senior Lenders to make further advances under the facility,
modified certain financial covenants, and required Headway to negotiate an
extended payment schedule for approximately $2.3 million of earn out payments
due for prior acquisitions. 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
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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
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.
As of December 31, 2001, Headway failed to comply with certain financial
ratio covenants in the Senior Facility and Senior Subordinated Debt. 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. This amendment further increased the margin for
base rate loans and the letter of credit fee, required a partial pay down of the
loan balance with Headway's cash balance over $8 million or if the accounts
receivable balance falls below certain thresholds, modified certain financial
covenants, and 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 613,881 shares issued to Bank of America and 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. 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
15
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.
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.
Headway currently has 20,000,000 shares of common stock authorized, which
are not enough shares to cover all the stock that could be issued under the
instruments described above. Consequently, Headway agreed to submit to its
stockholders by July 15, 2002, a proposal to amend its certificate of
incorporation to increase the number of authorized shares of common stock to
80,000,000. Certain stockholders of Headway, including among others, Gary S.
Goldstein, Barry S. Roseman, G. Chris Andersen, Ehud D. Laska, and Richard B.
Salomon, entered into a voting agreement with the lenders and holders of the
Series G Stock that commits them to vote 3,569,962 shares of common stock, or
approximately 32.7 percent of the outstanding shares of common stock, in favor
of the amendment.
Headway agreed to pay to the Senior Lenders under the Senior Facility a
waiver and amendment fee in the aggregate amount of $618,750, of which $368,750
was paid in August 2001, and the balance of $250,000 was due April 1, 2002. Such
balance was paid on April 17, 2002, as part of the amendment to the Senior
Facility. In connection with the amendment to the Senior Facility in April 2002,
Headway also agreed to pay the Senior Lenders a deferred restructuring fee of
approximately $2.2 million, which is payable on the maturity date and may be
reduced or waived if certain conditions are met. An additional restructuring fee
of $368,434 was paid to the Senior Lenders on April 17, 2002. In connection with
the Second Limited Waiver, Headway agreed to pay to the holders of the Senior
Subordinated Debt and Series G Stock a restructuring fee of approximately
$175,000, which is payable on or before June 30, 2003.
Part IV
Item 14. 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)
3.2 By-Laws (1)
3.3 By-Law Amendments (2)
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4.1 Series F Preferred Stock Designation (2)
4.2 Series G Preferred Stock Designation This Filing
4.3 Form of Warrants issued September 7, 2001, exercisable This Filing
for an aggregate of 1,000,000 shares
4.4 Form of Warrants issued September 7, 2001, exercisable This Filing
for an aggregate of 1,150,000 shares
4.5 Form of Warrants issued September 7, 2001, exercisable This Filing
for an aggregate of 850,000 shares
4.6 Securities Purchase Agreement dated March 19, 1998 (2)
4.7 Registration Rights Agreement dated March 19, 1998 (2)
4.8 Amended and Restated Indenture dated April 18, 2002 This Filing
4.9 Amended and Restated Credit Agreement dated April 17, This Filing
2002, With Exhibits, Except Exhibit I (Exhibit 4.13
below) and Exhibit H (Exhibit 4.11 below)
4.10 Voting Agreement dated April 17, 2002 This Filing
4.11 Form of Warrant issued April 17, 2002, to Senior This Filing
Lenders
4.12 Registration Rights Agreement dated April 17, 2002 This Filing
4.13 Second Limited Waiver dated April 17, 2002 This Filing
21.1 Subsidiaries of Headway (3)
99.1 Form 10-KSB for the year ended December 31, 2001 This Filing
(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) 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.
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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, 2002 By: /s/ Barry S. Roseman, President
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, 2002 /s/ Gary S. Goldstein, Principal Executive Officer
and Director
Dated: April 29, 2002 /s/ Barry S. Roseman, President and Director
Dated: April 29, 2002 /s/ Philicia G. Levinson, Senior Vice President
and Chief Financial Officer
Dated: April 29, 2002 /s/ G. Chris Andersen, Director
Dated: April 29, 2002 /s/ E. Garrett Bewkes, III, Director
Dated: April 29, 2002 /s/ Ehud D. Laska, Director
Dated: April 29, 2002 /s/ Richard B. Salomon, Director
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