SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HEADWAY CORPORATE RESOURCES, INC.
(Name of Registrant as Specified in Its Charter)
Commission File Number: 1-16025
Not Applicable
(Name of Persons Filing Proxy Statement If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:____________
2) Aggregate number of securities to which transaction applies:_______________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): ______________________________
4) Proposed maximum aggregate value of transaction:___________________________
5) Total fee paid:___________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:______________________________________
2) Form, Schedule or Registration Statement No.:______________________________
3) Filing Party:________________________________________
4) Date Filed:__________________________________________
HEADWAY CORPORATE RESOURCES, INC.
317 Madison Avenue, 3rd Floor
New York, New York 10017
June 10, 2002
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of stockholders of
Headway Corporate Resources, Inc., to be held at 3:30 P.M., Eastern Time on July
15, 2002. The Annual Meeting will be held at 850 Third Avenue, 11th Floor, in
New York City, New York.
I believe that the Annual Meeting provides an excellent opportunity for
stockholders to become better acquainted with Headway and its directors and
officers. I hope you will be able to attend the meeting.
Whether or not you plan to attend, the prompt execution and return of your
proxy card will assure that your shares are represented at the meeting.
Sincerely,
Gary S. Goldstein
Chairman of the Board
and Chief Executive Officer
HEADWAY CORPORATE RESOURCES, INC.
NOTICE OF ANNUAL MEETING
PROXY STATEMENT
July 15, 2002
The Annual Meeting of the Stockholders of Headway Corporate Resources,
Inc., a Delaware corporation, will be held at 3:30 p.m., on July 15, 2002, at
850 Third Avenue, 11th Floors in New York City, New York. The Board of Directors
of Headway is soliciting the enclosed proxy for use at the Annual Meeting and at
any adjournment thereof.
The purpose of the Annual Meeting is to propose and vote on the following
items:
(1) Election of Gary S. Goldstein and Barry S. Roseman as Class 1
Directors of Headway to serve for a term of three years and until
their successors are duly elected and qualified;
(2) A proposal to amend Headway's Certificate of Incorporation to increase
the number of authorized shares of common stock, par value $0.0001, to
80,000,000;
(3) Ratification of the appointment of Ernst & Young LLP as independent
auditors of Headway for 2002; and
(4) All other business as may properly come before the Annual Meeting or
any adjournments thereof.
Please sign your name exactly as it appears on the proxy. If you receive
more than one proxy because of shares registered in different names or
addresses, you must complete and return each proxy in order to vote all shares
that you hold.
All proxies will be voted as specified. In the absence of specific
instructions, your proxy will be voted FOR proposals (1), (2) and (3). Proxies
will be voted in the discretion of the proxy holder on any other business coming
before the Annual Meeting, including any stockholder proposal or other matter
not included in this proxy statement of which Headway did not receive notice
prior to January 16, 2002.
You may revoke your proxy by delivering a written notice of revocation to
the Corporate Secretary of Headway at any time prior to the Annual Meeting, by
executing a later-dated proxy with respect to the same shares, or by attending
the Annual Meeting and voting in person.
Proxies will be solicited primarily by mail, but may also be solicited by
telephone, facsimile, or oral communication by officers or regular employees.
Officers and employees will receive no additional compensation for soliciting
proxies. All costs of soliciting proxies will be borne by Headway.
This Proxy Statement serves as notice of the Annual Meeting, a description
of the proposals to be addressed at the Annual Meeting, and a source of
information on Headway and its management. The approximate mailing date of the
Proxy Statement and Proxy to stockholders is June 10, 2002.
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Outstanding Shares and Voting Rights
Record Date. Stockholders of record at the close of business on May 31,
2002, are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
Shares Outstanding. As of May 31, 2002, a total of 13,914,627 shares of
Headway's common stock were outstanding and entitled to vote at the Annual
Meeting. As of the Record Date, Headway had one class of preferred stock
outstanding, Series G Convertible Preferred Stock, which is not entitled to vote
on any of the matters to be voted upon by stockholders at the Annual Meeting.
Voting Rights and Procedures. Each outstanding share of common stock is
entitled to one vote on all matters submitted to a vote of stockholders.
Headway's Bylaws and Delaware law require the presence, in person or by proxy,
of a majority of the outstanding shares entitled to vote to constitute a quorum
to convene the Annual Meeting. Shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee
which are represented at the meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular proposal) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum.
Stockholder Proposals for the 2003 Annual Meeting. If you want to submit a
proposal for possible inclusion in Headway's 2003 Proxy Statement, our Corporate
Secretary must receive it on or before February 12, 2003. If you submit a
proposal, it may be omitted from our 2003 Proxy Statement if it does not meet
certain requirements.
You may present a proposal at the 2003 Annual Meeting without including the
proposal in the 2003 Proxy Statement. However, if we do not receive notice of
this proposal on or before April 28, 2003, any proxy returned to Headway
conferring discretionary authority to vote may be voted at the proxy holder's
discretion on the proposal.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Headway's Certificate of Incorporation and Bylaws provide that the Board is
divided into three classes designated as Class 1, Class 2 and Class 3, which are
as equal in number as possible. The Directors in each Class serve for a term
ending on the date of the third annual meeting following the meeting at which
the Directors of that Class are elected. At the 2002 Annual Meeting, Directors
of Class 1, consisting of two persons, are up for election to serve until the
annual meeting of stockholders in the year 2005.
The Board of Directors has nominated for election as the Class 1 Directors
Gary S. Goldstein and Barry S. Roseman, who currently serve in those positions.
Set forth below under the caption "DIRECTORS AND EXECUTIVE OFFICERS", is
information on the age, presently held positions with Headway, principal
occupation now and for the past five years, other directorships in public
companies, and tenure of service with Headway as a Director for each of the
nominees.
Vote and Recommendation
Each Director is elected by vote of a plurality of the shares of voting
stock present and voted, in person or by proxy, at the Annual Meeting. Votes
that are withheld will be excluded from the vote and will have no effect on the
election of directors. Brokers who hold shares in street name for customers may
have the authority to vote at their discretion on the election of directors when
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they have not received instructions from beneficial owners. If no direction is
indicated on the proxy, the shares represented by the proxy will be voted for
the election of the nominees named above. Although it is anticipated that each
nominee will be able to serve as a director, should any nominee become
unavailable to serve, the proxies will be voted for such other person or persons
as may be designated by Headway's Board of Directors.
The Board Recommends a Vote "FOR" The Nominees
PROPOSAL TO INCREASE NUMBER OF AUTHORIZED COMMON SHARES
(PROPOSAL NO. 2)
Headway's Certificate of Incorporation at present authorizes the issuance
of 20,000,000 shares of common stock and 5,000,000 shares of preferred stock.
For the reasons set forth below, the Board of Directors adopted a resolution to
amend the Certificate of Incorporation to increase the number of authorized
common shares to 80,000,000, subject to stockholder approval. No change will be
made in the authorized preferred stock.
In August 2001 and again in April 2002, Headway restructured its
outstanding debt and preferred stock. These restructurings are described in more
detail below under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
As a result of the restructurings, we issued warrants to purchase a total of
5,455,522 shares of common stock and now have outstanding 1,000 shares of Series
G Convertible Preferred Stock that are convertible at the election of the
holders to 21,622,000 shares of common stock. Since Headway has only 20,000,000
authorized shares of common stock and there are 12,761,408 shares of common
stock outstanding and reserved for issuance under other outstanding options,
Headway agreed as part of the restructurings to submit to the stockholders a
proposal to amend the Certificate of Incorporation to increase the number of
authorized common shares to 80,000,000. In connection therewith, certain
stockholders, including some of our directors and officers, entered into a
voting agreement whereby they agreed to vote a total of 3,569,962 shares of
common stock for the proposed increase in authorized shares. In addition,
pursuant to the terms of the restructuring, the holders of the Senior
Subordinated Debt and Series G Convertible Preferred Stock agreed to exercise,
prior to the Record Date, warrants to purchase 3,000,000 shares of common stock,
and to vote such shares in favor of the proposal. Accordingly, stockholders
owning approximately 47.2 percent of the common shares that are expected to be
eligible to vote at the Annual Meeting have agreed to vote in favor of the
proposed increase in authorized shares.
By approving an increase in our authorized common shares, our creditors and
holders of the Series G Convertible Preferred Stock will have the ability to
exercise their purchase and conversion rights and, if all such rights were
exercised, the result would be to concentrate voting control of Headway in the
hands of those creditors and holders.
However, the Board of Directors believes that amending the Certificate of
Incorporation to permit the Board to issue up to 80,000,000 shares of common
stock will provide Headway with much-needed flexibility to satisfy its future
financing requirements. The Board does not propose to issue common stock for any
such financing purposes at the present time. Nevertheless, the Board of
Directors believes that the proposed increase is desirable so that, as the need
may arise, Headway will have more financial flexibility and be able to issue
shares of common stock, without the expense and delay of a special stockholders'
meeting, in connection with future equity financings, acquisitions, management
incentive and employee benefit plans, and for other corporate purposes.
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Authorized but unissued shares of common stock may be issued at such times,
for such purpose and for such consideration as the Board of Directors may
determine to be appropriate without further authority from the stockholders,
except as otherwise required by applicable corporate law.
Although the Board of Directors has no present intention of doing so,
Headway's authorized but unissued common stock or preferred stock could be
issued in one or more transactions, which would make more difficult or costly,
and less likely, a takeover of Headway. Issuing additional shares of stock would
also have the effect of diluting the stock ownership of persons seeking to
obtain control of Headway. Moreover, certain companies have issued rights to
purchase their common stock, with such rights having terms designed to encourage
in certain potential acquisitions negotiation with the company's board of
directors. The authorized but unissued shares of common stock or preferred stock
would be available for use in connection with the issuance of such rights.
Vote and Recommendation
Approval of the amendment to increase the authorized common shares requires
the affirmative vote of the holders of a majority of the issued and outstanding
shares of common stock. Abstentions as to this Proposal 2 will be treated as
votes against Proposal 2. Broker non-votes, however, will be treated as unvoted
for purposes of determining approval of Proposal 2 and will not be counted as
votes for or against Proposal 2. Properly executed, unrevoked Proxies will be
voted FOR Proposal 2 unless a vote against Proposal 2 or abstention is
specifically indicated in the Proxy.
The Board of Directors Recommends a Vote "For" the Amendment.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 3)
The accounting firm of Ernst & Young LLP ("Ernst & Young") has been
approved by the Board, upon recommendation by the Audit Committee, to serve as
independent auditors of Headway for 2002, subject to approval by the
stockholders by an affirmative vote of a majority of the outstanding shares of
Headway's common stock represented at the Annual Meeting. Ernst & Young served
as independent auditors of Headway since 1996. Headway has been advised that
neither Ernst & Young nor any of its members or associates has any relationship
with Headway or any of its affiliates, except in the firm's capacity as
Headway's independent auditors.
Headway is not required to submit selection of our independent accountants
to a vote of stockholders for approval. We do so as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit Committee
and Board of Directors will reconsider whether to retain Ernst & Young, and may
retain the firm or another without submitting the matter the stockholders. Even
if the selection is ratified, the Audit Committee and the Board of Directors
may, in their discretion, direct the appointment of different independent
accountants at any time during the year if they determine that such change is in
the best interest of Headway and its stockholders.
During 2001, Ernst & Young audited Headway's consolidated financial
statements, reviewed financial information in filings with the Securities and
Exchange Commission, and provided tax services. Fees for services rendered in
2001 by Ernst & Young are as follows:
Audit Fees $363,269
Audit Related Services 137,600
All Other Fees (substantially tax preparation) 228,820
--------
Total $729,689
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Representatives of Ernst & Young will be present at the Annual Meeting of
Stockholders. They will be afforded an opportunity to make a statement if they
desire, and will be available to respond to appropriate questions from
stockholders.
Vote and Recommendation
The proposal to ratify the selection of Ernst & Young to serve as
independent auditors of Headway for 2002 must be approved by the affirmative
vote of a majority of the shares of voting stock present and voted on the
proposal, in person or by proxy, at the Annual Meeting. Abstentions will have
the effect of a negative vote on the proposal. If no direction is indicated on
the proxy, the shares represented by the proxy will be voted FOR the proposal.
Broker non-votes as to the proposal will not affect the outcome of the vote on
the proposal.
The Board of Directors Recommends a Vote "For" Ratification of the Appointment
of Ernst & Young LLP.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Principal Stockholders
The following table sets forth as of May 31, 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 percent 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.
Shares
Beneficially Percent
Owned of Class (1)
Gary S. Goldstein (2) 2,232,005 19.8%
850 Third Avenue
New York, NY 10022
G. Chris Andersen (2) 694,165 6.3%
1330 Avenue of the Americas
New York, NY 10019
GarMark Partners, L.P. (3) 16,444,678 60.1%
1325 Avenue of the Americas
26th Floor
New York, NY 10019
Moore Global Investments, Ltd.(4) 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
Table continues on next page.
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Banc of America Securities, LLC (5) 2,051,971 15.8%
9 West 57th Street
New York, NY 10019
Bank of America, N.A. (6) 613,881 5.3%
Bank of America Agency Services
901 Main Street
Dallas, TX 75202
FSC Corporation (6) 859,433 7.3%
Fleet Bank, N.A.
Managed Assets Division
777 Main Street
Hartford, CT 06115
(1) These figures represent the percentage of ownership of the named persons
assuming each of them alone has exercised his or her options, warrants, or
conversion rights, without including in the denominator used to calculate the
percentages the expected exercise of warrants to purchase 3,000,000 shares of
common stock (which holders of Senior Subordinated Debt and Series G Convertible
Preferred Stock have agreed to exercise prior to the Record Date), except to the
extent that such warrants are beneficially owned by the person for whom such
calculation is made. See the discussion under the caption "PROPOSAL TO INCREASE
NUMBER OF AUTHORIZED SHARES (Proposal 2)", above.
(2) The figures for Mr. Goldstein include options to purchase 355,000 shares at
exercise prices ranging from $2.75 to $4.13, and for Mr. Anderson include
options to purchase 25,000 shares at exercise prices ranging from $0.60 to
$5.62, all of which are vested. The figure for Mr. Andersen also includes
137,594 shares held by the G. Chris Andersen Family Foundation, of which Mr.
Andersen is a trustee.
(3) 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 approval. GarMark
Partner, L.P. also holds warrants convertible into 2,000,001 shares of common
stock, and has agreed to exercise such warrants prior to the Record Date and
vote in favor of the proposal to increase the authorized common shares of
Headway. 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. 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.
(4) 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, which it agreed to exercise prior to the Record
Date and vote in favor of the proposal to increase the authorized common shares
of Headway. 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, which it has agreed to
exercise prior to the Record Date and vote in favor of the proposal to increase
the authorized common shares of Headway. 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.
(5) 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
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250,029 shares of common stock, which it has agreed to exercise prior to the
Record Date and vote in favor of the proposal to increase the authorized common
shares of Headway.
(6) These figures represent warrants to purchase common stock that were granted
in connection with the amendment of Headway's Senior Credit Facility completed
on April 17, 2002.
Management
The table on the following page sets forth as of May 31, 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.
Shares
Beneficially Percent of
Owned Class (1)
Gary S. Goldstein (2) 2,232,005 19.8%
Barry S. Roseman (2) 533,629 4.8%
E. Garrett Bewkes, III (2) 16,444,678 60.1%
Ehud D. Laska (2) 104,580 1.0%
Richard B. Salomon (2) 74,965 0.7%
Jamie Schwartz (2) 15,000 0.1%
Philicia G. Levinson 66,621 0.6%
All Executive officers and 19,471,478 69.7%
Directors as a Group (8 Persons)
(1) 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 without including in the denominator used to calculate the
percentages the expected exercise of warrants to purchase 3,000,000 shares of
common stock (which holders of Senior Subordinated Debt and Series G Convertible
Preferred Stock have agreed to exercise prior to the Record Date), except to the
extent that such warrants are beneficially owned by the individual for whom such
calculation is made. See the discussion under the caption "PROPOSAL TO INCREASE
NUMBER OF AUTHORIZED SHARES (Proposal 2)", above.
(2) The figures include for: Mr. Goldstein, vested options to purchase 355,000
shares at exercise prices ranging from $2.75 to $4.13; Mr. Roseman, vested
options to purchase 150,000 shares at exercise prices ranging from $2.50 to
$3.00; Mr. Laska, vested options to purchase 25,000 shares at exercise prices
ranging from $0.60 to $5.62; Mr. Salomon, vested options to purchase 25,000
shares at exercise prices ranging from $0.60 to $5.62; and Mr. Schwartz, vested
options to purchase 15,000 shares at exercise prices ranging from $4.06 to
$6.00. The figure for Mr. Bewkes includes the shares of GarMark Partners, L.P.,
because of the relationships described in Note (3) to the table for Principal
Stockholders. See Note (3) to the table for Principal Stockholders for a
description of the shares beneficially owned by Garmark Partners, L.P.
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DIRECTORS AND EXECUTIVE OFFICERS
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
Gary S. Goldstein (2) 47 Chairman, Chief Executive Class 1
Officer and Director 2002
Barry S. Roseman (2) 49 President, Chief Operating Class 1
Officer, Director 2002
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 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.
(2) Gary S. Goldstein and Barry S. Roseman are members of Class 1 of the Board
of Directors, and have been nominated by the Board for re-election at the Annual
Meeting. See "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS", above.
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
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 operations of Headway and its subsidiaries.
He joined Headway as its Senior Executive Vice President and Chief Operating
8
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.
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 Headway 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.
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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.
Board Meetings and Committees/Compensation
In 2001 the Board of Directors had five committees. The Executive
Compensation Committee considers salary and benefit matters for the executive
officers and key personnel of Headway. The members of the Executive Compensation
Committee in 2001 were G. Chris Andersen, E. Garrett Bewkes, III, and Ehud D.
Laska. The Finance Committee assists the Board in areas of financing proposals,
budgeting, and acquisitions. Members of the Finance Committee in 2001 included
Gary S. Goldstein, Barry S. Roseman, G. Chris Andersen, E. Garrett Bewkes, III,
and Ehud D. Laska. The Audit Committee is responsible for financial reporting
matters, internal controls, and compliance with financial polices of Headway,
and meets with Headway's auditors when appropriate. The members of the Audit
Committee in 2001 were Richard B. Salomon, E. Garrett Bewkes, III, and G. Chris
Andersen. The Governance Committee makes recommendations to the Board regarding
appropriate governance policies and practices, as well as Board and committee
membership candidates. Members of the Governance Committee in 2001 included
Richard B. Salomon, Ehud Laska and E. Garrett Bewkes, III. The fifth committee,
the Special Committee, was established in November of 2001 in connection with
the restructuring of the Company's bank debt and other outstanding securities of
the Company. The Special Committee is composed solely of Directors who have no
financial interest in any transaction contemplated by the Company. Members of
the Special Committee in 2001 were Richard B. Salomon and Ehud Laska. On May 23,
2002, G. Chris Andersen tendered his resignation as a Director of Headway.
The Board of Directors met 18 times during the past fiscal year. All
directors attended at least 75% of the meetings of the Board of Directors. The
Executive Compensation Committee met once in 2001, and all director members of
the committee attended the meeting. The Finance Committee met once during 2001
and all director members attended the meeting. The Audit Committee met two times
during 2001 and all director members attended the meeting. The Governance
Committee did not meet in 2001. The Special Committee met seven times in 2001
and all director members attended the meetings.
Non-employee directors receive annual compensation of $25,000. In September
of each year, non-employee directors receive options to purchase 5,000 shares of
Headway's common stock exercisable over a period of ten years at an exercise
price equal to the fair market value of Headway's common stock on the date of
issuance. Non-employee directors also receive at the time they are first elected
or appointed to the Board of Directors options to purchase 10,000 shares of
Headway's common stock exercisable over a period of ten years at an exercise
price equal to the fair market value of Headway's common stock on the date of
issuance. Members of the Special Committee receive compensation of $10,000 each
per month while the Committee actively functions.
10
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors assists the Board in
fulfilling its oversight responsibilities with respect to the external reporting
process and the adequacy of Headway's internal financial controls. The Audit
Committee is comprised of three members who are "independent directors" as
defined in Section 121.A of the AMEX Listing Standards, Policies and
Requirements. Specific responsibilities of the Audit Committee are set forth in
the Audit Committee Charter adopted by the Board.
Management is responsible for Headway's internal controls and the financial
reporting process. Ernst & Young, our independent accounting firm, is
responsible for performing an independent audit of Headway's consolidated
financial statements in accordance with generally accepted auditing standards
and expressing an opinion on the financial statements. The Audit Committee's
responsibility is to monitor these processes through review and discussion with
management and representatives of Ernst & Young.
The Committee has discussed with Ernst & Young the overall scope and plans
for the independent audit. Management represented to the Audit Committee that
Headway's consolidated financial statements were prepared in accordance with
generally accepted accounting principles. Discussions about the audited
financial statements included Ernst & Young's judgments about the quality and
acceptability of the accounting principles, the reasonableness of significant
judgments and the accuracy and adequacy of disclosures in the financial
statements. The Audit Committee also discussed with the auditors other matters
required by Statement on Auditing Standards No. 61, Communications with Audit
Committees, as amended by SAS No. 90, Audit Committee Communications.
Ernst & Young provided to the Audit Committee the written disclosures
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees. The Audit Committee discussed Ernst & Young's
independence with management and representatives of Ernst & Young, and has
satisfied itself as to the independence of Ernst & Young.
Based on the Audit Committee's discussions with management and
representatives of Ernst & Young and the Audit Committee's review of the
representations of management and the report of Ernst & Young, the Audit
Committee recommended to the Board that the audited consolidated financial
statements be included in Headway's Annual Report on Form 10-K for the year
ended December 31, 2001, filed with the Securities and Exchange Commission.
Members of the Audit Committee
Richard B. Salomon
E. Garrett Bewkes, III
G. Chris Andersen
EXECUTIVE COMPENSATION
Annual Compensation
The following tables set 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
11
officers of Headway as of the end of the last completed fiscal year whose annual
salary and bonuses exceeded $100,000 (collectively, the "Named Executive
Officers").
Annual Compensation
--------------------------------------------------
Name and Principal Other Annual
Position Year Salary ($) 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 2000 210,000 -- 35,000 --
President, Chief 1999 120,000 -- 87,500 --
Operating Officer of HCSS
(1) Represents commissions on personal search revenue.
Long Term Compensation
-------------------------------------------------
Securities
Name and Principal Restricted Underlying LTIP All Other
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 2000 -- 25,000 -- 25,000
President, Chief 1999 -- 25,000 -- 12,500
Operating Officer of
HCSS
(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
12
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 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.
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 $2,228,000. All policies are owned by
Headway, and Headway is the named beneficiary.
Defined Contribution Plan
On January 1, 1998, Headway implemented a 401(k) retirement plan covering
substantially all employees. The plan does not require matching contributions by
Headway, and Headway made no contributions to the plan for 2001. Benefits
payable to an employee under the plan are determined solely on the basis of the
employee's contributions. Prior to 1998, Headway had four qualified 401(k)
contribution plans for its employees. Under one plan, Headway was required to
make matching contributions up to 25% of the amount contributed by the
employees. Employees are fully vested on their contributions when made, and are
fully vested on employer contributions after five years of service.
Stock Options
In 1999 the Board of Directors and stockholders approved Headway's Amended
1993 Incentive Plan. The purpose of the Plan is to provide directors, officers,
employees, and consultants with additional incentives by increasing their
ownership interests in Headway. Directors, officers, and other employees of
Headway and its subsidiaries are eligible to participate in the Plan. In
addition, awards may be granted to consultants providing valuable services to
Headway. Awards under the Plan are granted by the Executive Compensation
Committee of the Board and may include incentive stock options, non-qualified
stock options, stock appreciation rights, stock units, restricted stock,
restricted stock units, performance shares, performance units, or cash awards.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31,
2001. No outstanding options held by the Named Executive Officers were exercised
in 2001.
13
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Name and Principal Options at FY End (#) at FY End ($) (1)
Position 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
(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 Headway.
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.
14
Actual EPS as a percentage of Budget: Bonus:
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%
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.
15
Subsequent Event: As disclosed in Headway'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 Headway and to align
their compensation incentives with the interests of the shareholders and
creditors of Headway, have been held among representatives of Headway'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 Headway 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 Headway in one or more liquidity transactions such as sales of
assets, merger or sale of the entire company, or refinancing of Headway'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 Headway's senior management, and no assurance can be given that
Headway 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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Executive Compensation Committee are listed above. The
committee is composed solely of non-employee directors.
16
PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return*
Headway Corporate Resources, Inc., Russell 2000, and the Staffing Industry Index
1997 to 2001
[GRAPH OMITTED]
* Cumulative Total Return assumes an initial investment of $100. No dividends
were paid by Headway during the five-year period, so no assumption is made with
respect to reinvestment.
Cumulative Total Return* 1997 1998 1999 2000 2001
Headway Corporate Resources, Inc. 94 132 95 30 8
Russell 2000 121 116 139 133 135
Staffing Industry Index 102 92 80 16 18
The Staffing Industry Index includes: CDI Corporation, Spherion
Corporation, Kelly Services, Inc., Labor Ready, Inc., Manpower Inc., MPS Group,
Inc., On Assignment, Inc., Personnel Group of America Inc., RemedyTemp, Inc.,
Robert Half International Inc., Kforce, Inc., SOS Staffing Services, Inc., and
Edgewater Technology, Inc.
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,
17
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
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
18
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
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
19
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. See the discussion under the caption "PROPOSAL TO INCREASE NUMBER OF
AUTHORIZED SHARES (Proposal 2)", above. 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 in favor of the proposed amendment. In addition, pursuant
to the terms of the restructuring, the holders of the Senior Subordinated Debt
and Series G Convertible Preferred Stock agreed to exercise, prior to the Record
Date, warrants to purchase 3,000,000 shares of common stock, and to vote such
shares in favor of the proposal. Accordingly, stockholders owning approximately
47.2 percent of the common shares that are expected to be eligible to vote at
the Annual Meeting have agreed to vote in favor of the proposed increase in
authorized shares.
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.
20
FORM 10-K
Upon written request, Headway will provide to stockholders, without charge,
a copy of Headway's annual report on Form 10-K for the year ended December 31,
2001, as filed with the Securities and Exchange Commission. Requests should be
directed to Barry S. Roseman, President, Headway Corporate Resources, Inc., 317
Madison Avenue, 3rd Floor, New York, NY 10017.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of Headway
knows of no other matters that may come before the Annual Meeting. However, if
any matters other than those referred to herein should be presented properly for
consideration and action at the Annual Meeting, or any adjournment or
postponement thereof, the proxies will be voted with respect thereto in
accordance with the best judgment and in the discretion of the proxy holders.
Please sign the enclosed proxy and return it in the enclosed return
envelope.
Dated: June 10, 2002
21
[Form of Proxy]
HEADWAY CORPORATE RESOURCES, INC.
317 MADISON Avenue, 3RD Floor
New York, New York 10017
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary S. Goldstein and Barry S. Roseman as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares of
Common Stock of Headway Corporate Resources, Inc. (the "Company") held of record
by the undersigned on May 31, 2002, at the Annual Meeting of Stockholders to be
held on July 15, 2002, and at any adjournment or postponement thereof.
Proposal No. 1 The election of each of the following persons as Class 1
directors of the Company
(1) Gary S. Goldstein (2) Barry S. Roseman
|_| For all nominees
|_| Withhold all nominees
|_| Withhold authority to vote for any individual nominee.
Write number(s) of nominee(s)_______
Proposal No. 2 Amend Headway's Certificate of Incorporation to increase the
number of authorized shares of common stock, par value $0.0001,
to 80,000,000
|_| For |_| Against |_| Abstain
Proposal No. 3 Ratification of the appointment of Ernst & Young LLP as
independent auditors
|_| For |_| Against |_| Abstain
Note The proxies are authorized to vote in accordance with their judgment on any
matters other than those referred to herein that are properly presented for
consideration and action at the Annual Meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given, this proxy will be
voted for Proposal No.'s 1, 2 and 3.
All other proxies heretofore given by the undersigned to vote shares of stock of
the Company, which the undersigned would be entitled to vote if personally
present at the Annual Meeting or any adjournment or postponement thereof, are
hereby expressly revoked.
Dated:__________________________, 2002
______________________________________
______________________________________
Please sign it exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation or
partnership, please sign in full corporate or partnership name by an authorized
officer or person.
Please mark, sign, date and promptly return the proxy card using the enclosed
envelope. If your address is incorrectly shown, please print changes.
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