UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 or
( ) 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 0-25837
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
--------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2681268
-------- ----------
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification Number)
233 South Wacker Drive-Suite 4200
Chicago, Illinois
60606-6303
-------------------
(Address of Principal Executive Offices)
(312) 496-1200
-------------------
(Registrant's Telephone Number, Including Area Code)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares outstanding of the Company's common stock as of May 10,
2002 was 18,091,403.
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and
December 31, 2001 1
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 2002 and 2001 3
Unaudited Consolidated Statement of Stockholders' Equity and
Comprehensive Income (Loss) for the three months ended March 31,
2002 4
Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 5
Unaudited Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II. OTHER INFORMATION 19
SIGNATURE 20
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, December 31,
2002 2001
----------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 68,550 $108,732
Accounts receivable, net of allowance for doubtful
accounts 69,785 54,241
Other receivables 3,012 5,870
Prepaid expenses 10,001 11,445
Income taxes recoverable 13,420 22,958
Deferred income taxes, net 36,528 36,605
-------- --------
Total current assets 201,296 239,851
-------- --------
Non-current assets:
Property and equipment, net 45,205 54,364
Assets designated for pension plans 16,191 16,624
Investments 15,009 14,836
Other assets 11,494 14,637
Income taxes recoverable 10,665 -
Deferred income taxes, net 6,995 7,089
Goodwill, net 51,027 51,110
Other intangibles, net 12,005 12,595
-------- --------
Total non-current assets 168,591 171,255
-------- --------
Total assets $369,887 $411,106
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
1
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, December 31,
2002 2001
----------- ------------
(unaudited)
Current liabilities:
Current maturities of long-term debt $ 1,950 $ 2,480
Accounts payable 11,878 13,391
Accrued expenses:
Salaries and employee benefits 68,199 101,341
Other 36,047 29,970
-------- --------
Total current liabilities 118,074 147,182
-------- --------
Non-current liabilities:
Long-term debt, less current maturities 1,905 1,959
Retirement and pension plans 20,128 19,092
Non-current portion of special charges 17,156 13,282
-------- --------
Total non-current liabilities 39,189 34,333
-------- --------
Total liabilities 157,263 181,515
-------- --------
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued at March 31,
2002 and December 31, 2001. - -
Common stock, $.01 par value, 100,000,000 shares
authorized, of which 18,091,800 and 18,040,779
shares were issued and outstanding at March 31,
2002 and December 31, 2001, respectively. 195 195
Treasury stock at cost, 1,439,532 and 1,435,500
shares at March 31, 2002 and December 31, 2001,
respectively. (27,540) (27,459)
Additional paid in capital 261,508 258,699
Retained earnings (accumulated deficit) (3,800) 13,935
Cumulative foreign currency translation adjustment (7,105) (5,881)
Unrealized gain on available-for-sale investments,
net of tax 5 9
Deferred compensation (10,639) (9,907)
-------- --------
Total stockholders' equity 212,624 229,591
-------- --------
Total liabilities and stockholders' equity $369,887 $411,106
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
2
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
--------------------
2002 2001
-------- --------
Revenue $ 91,723 $139,268
-------- --------
Operating expenses:
Salaries and employee benefits 68,897 87,090
General and administrative expenses 27,813 44,329
Special charges 23,169 -
-------- --------
Total operating expenses 119,879 131,419
-------- --------
Operating income (loss) (28,156) 7,849
-------- --------
Non-operating income (expense):
Interest income 528 2,061
Interest expense (51) (41)
Realized gains on investments - 254
Net unrealized gain (loss) on derivative instruments 143 (1,475)
Other, net 251 (162)
-------- --------
Net non-operating income 871 637
-------- --------
Income (loss) before income taxes and cumulative effect
of accounting change (27,285) 8,486
Provision for (benefit from) income taxes (9,550) 3,649
-------- --------
Net income (loss) before cumulative effect of accounting
change (17,735) 4,837
Cumulative effect of accounting change, net of tax - 4,494
-------- --------
Net income (loss) $(17,735) $ 9,331
======== ========
Basic earnings (loss) per common share:
Income (loss) before cumulative effect of accounting
change $ (0.98) $ 0.25
Cumulative effect of accounting change - 0.23
-------- --------
Total basic earnings (loss) per common share $ (0.98) $ 0.48
======== ========
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect of accounting
change $ (0.98) $ 0.24
Cumulative effect of accounting change - 0.22
-------- --------
Total diluted earnings (loss) per common share $ (0.98) $ 0.45
======== ========
Weighted average common shares outstanding:
Basic 18,050 19,374
Diluted 18,050 20,571
The accompanying notes are an integral part
of these consolidated financial statements.
3
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Other
Compre-
Common Stock Additional hensive Deferred
--------------- Treasury Paid-in Retained Income Compen-
Shares Amount Stock Capital Earnings (Loss) sation Total
------ ------ -------- ---------- -------- ------- -------- --------
Balance as of December 31, 2001 18,041 $195 $(27,459) $258,699 $13,935 $(5,872) $ (9,907) $229,591
Net loss - - - - (17,735) - - (17,735)
Other comprehensive loss:
Unrealized loss on available-for-sale - - - - - (4) - (4)
investments, (pretax $6)
Foreign currency translation adjustment - - - - - (1,224) - (1,224)
---- -------- -------- ------- ------- ------- --------
Total comprehensive loss - - - - (17,735) (1,228) - (18,963)
---- -------- -------- -------- ------- ------- --------
Treasury and common stock transactions:
Issuance of common stock 50 - - 914 - - - 914
Exercise of stock options 5 - - 70 - - - 70
Purchases of treasury stock (4) - (81) - - - - (81)
Issuance of restricted stock units - - - 1,825 - - (1,825) -
Amortization of deferred compensation - - - - - - 1,093 1,093
------ ---- -------- -------- ------- ------- -------- --------
Balance as of March 31, 2002 18,092 $195 $(27,540) $261,508 $(3,800) $(7,100) $(10,639) $212,624
====== ==== ======== ======== ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
----------------------
2002 2001
--------- --------
Cash flows from operating activities:
Net income (loss) $(17,735) $ 9,331
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 3,854 4,933
Gain on sale of equity securities, net - (254)
Deferred income taxes (155) (1,075)
Unrealized (gain) loss on derivative instruments (143) 1,475
Cumulative effect of accounting change, net of tax - (4,494)
Stock-based compensation expense, net 2,006 635
Special charges 23,169 -
Cash paid for special charges (7,029) -
Changes in assets and liabilities:
Trade and other receivables (14,665) 3,106
Accounts payable (1,398) 3,976
Accrued expenses (28,036) (53,839)
Income taxes recoverable, current 9,667 (2,012)
Income taxes recoverable, non-current (10,665) -
Other, net 4,260 (4,363)
-------- --------
Net cash used in operating activities (36,870) (42,581)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,637) (4,291)
Proceeds from sales of equity securities, net - 254
Other, net 69 925
-------- --------
Net cash used in investing activities (1,568) (3,112)
-------- --------
Cash flows from financing activities:
Payments of long-term debt (693) -
Proceeds from stock options exercised 70 25
Purchases of treasury stock (81) -
-------- --------
Net cash provided by (used in) financing activities (704) 25
-------- --------
Effect of foreign currency exchange rates on cash
and cash equivalents (1,040) (2,707)
-------- --------
Net decrease in cash and cash equivalents (40,182) (48,375)
Cash and cash equivalents:
Beginning of period 108,732 184,836
-------- --------
End of period $ 68,550 $136,461
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
5
Heidrick & Struggles International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(all tables in thousands, except per share figures)
(unaudited)
1. Interim Financial Data
The accompanying unaudited consolidated financial statements of Heidrick &
Struggles International, Inc. and Subsidiaries (the "Company"), included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses. Actual results could differ from those estimates. In the opinion
of management, the statements reflect all adjustments, which are of a normal
recurring nature, necessary to present fairly the Company's financial position,
results of operations, stockholders' equity and cash flows. Certain prior year
amounts have been reclassified to conform to the 2002 classifications. These
financial statements and notes are to be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report to Shareholders on Form 10-K for the year ended December 31, 2001,
as filed with the Securities and Exchange Commission on March 29, 2002.
2. Derivative Instruments
The Company receives warrants for equity securities in its client
companies, in addition to its cash fee, for services rendered on some searches.
Some of the warrants meet the definition of a derivative instrument under
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and its subsequent amendments.
Upon adoption of SFAS No. 133 on January 1, 2001, subsequent changes in the fair
value of the derivatives are recorded in earnings. Each quarter's earnings are
affected by the fluctuations in the fair value of these derivative instruments.
The Company recognized a net unrealized gain of $143,000 and a net unrealized
loss of $1.5 million in earnings, net of consultants' bonuses and administrative
and other costs, during the three months ended March 31, 2002 and 2001,
respectively.
3. Cumulative Effect of Change in Accounting Principle
As a result of the adoption of SFAS No. 133 on January 1, 2001, the Company
recorded, as a cumulative effect of accounting change, a transition adjustment
to income of $4.5 million, net of consultants' bonuses, administrative and other
costs, and taxes (See Note 2).
4. Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." Under the new rule, goodwill and
intangible assets that have indefinite useful lives are no longer amortized.
Rather, these assets are subject to, at a minimum, an annual assessment for
impairment by applying a fair-value based test. Intangible assets that have
finite useful lives continue to be amortized over their useful lives.
6
Heidrick & Struggles International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company adopted SFAS No. 142 on January 1, 2002. A fair-value based
test was performed and indicated that the fair-value of each reporting unit
exceeded its carrying amount. As a result, no impairment charge was necessary.
Intangible assets continue to be amortized over their estimated useful lives and
have been segregated on a separate line in the Consolidated Balance Sheet. As of
January 1, 2002, the Company no longer amortizes goodwill. Operating results
excluding goodwill amortization are as follows:
Three Months Ended
March 31,
-------------------
2002 2001
-------- -------
Reported net income (loss) $(17,735) $ 9,331
Addback: Goodwill amortization, net of tax - 320
-------- -------
Adjusted net income (loss) $(17,735) $ 9,651
======== =======
Basic earnings (loss) per common share:
Reported net income (loss) $ (0.98) $ 0.48
Goodwill amortization - 0.02
-------- -------
Adjusted net income (loss) $ (0.98) $ 0.50
======== =======
Diluted earnings (loss) per common share:
Reported net income (loss) $ (0.98) $ 0.45
Goodwill amortization - 0.02
-------- -------
Adjusted net income (loss) $ (0.98) $ 0.47
======== =======
The following tables provide the carrying amount of amortizable intangible
assets and the related accumulated amortization at March 31, 2002, the aggregate
amortization expense for the three months ended March 31, 2002 and estimated
amortization expense for each of the next five years.
March 31, 2002
------------------------------------
Gross Net
Carrying Accumulated Carrying
Amortizable Intangible Assets: Amount Amortization Amount
----------------------------------------- -------- ------------ --------
Client relationships $ 13,275 $ (2,408) $ 10,867
Other intangibles 2,370 (1,232) 1,138
-------- -------- --------
Total $ 15,645 $ (3,640) $ 12,005
======== ======== ========
Aggregate Amortization Expense:
-----------------------------------------
For the three months ended March 31, 2002 $ 538
Estimated Amortization Expense:
-----------------------------------------
For the year ending December 31, 2003 $ 1,677
For the year ending December 31, 2004 1,426
For the year ending December 31, 2005 1,193
For the year ending December 31, 2006 1,009
For the year ending December 31, 2007 940
7
Heidrick & Struggles International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Changes in the carrying amount of goodwill for the three months ended March
31, 2002 are as follows:
North
America Europe Asia Pacific Total
------- ------- ------------ -------
Balance at December 31, 2001 $18,362 $31,645 $ 1,103 $51,110
Currency effect - (79) (4) (83)
------- ------- ------- -------
Balance at March 31, 2002 $18,362 $31,566 $ 1,099 $51,027
======= ======= ======= =======
5. Basic and Diluted Earnings Per Share
Basic earnings per common share is computed by dividing net income by the
weighted average common shares outstanding for the period. Diluted earnings per
common share reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted. At March 31,
2002, there were 811 dilutive common shares that were not included in the
computation of the diluted loss per common share because the effect of their
inclusion would be antidilutive.
The following is a reconciliation of the shares used in the computation of
basic and diluted earnings (loss) per common share.
Three Months Ended
March 31,
----------------------
2002 2001
-------- -------
Basic earnings (loss) per common share:
Income (loss) available to common stockholders $(17,735) $ 9,331
Weighted average common shares outstanding 18,050 19,374
Basic earnings (loss) per common share $ (0.98) $ 0.48
Diluted earnings (loss) per common share:
Income (loss) available to common stockholders $(17,735) $ 9,331
Weighted average common shares outstanding 18,050 19,374
Dilutive common shares - 1,197
-------- -------
Weighted average diluted common shares outstanding 18,050 20,571
======== =======
Diluted earnings (loss) per common share $ (0.98) $ 0.45
8
Heidrick & Struggles International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Segment Information
The Company operates its Executive Search and complementary services in
four geographic regions: North America which includes the United States (except
Miami) and Canada; Latin America which includes Mexico and the rest of Latin
America, as well as Miami, which serves as the gateway office to the region;
Europe (which includes the Middle East); and Asia Pacific.
As of January 1, 2002 the Company completed the integration of
LeadersOnline, the Company's mid-level management recruiting service into the
Executive Search business. As a result, the Company no longer reports
LeadersOnline as a separate segment. As LeadersOnline was all North America
based, the revenue and operating income has been included as part of the North
America region. Also, in conjunction with the adoption of SFAS No. 142 on
January 1, 2002, all goodwill and intangible assets have been assigned to the
appropriate reporting unit. Goodwill previously included as part of the
corporate identifiable assets has been assigned to the Europe region. Prior
period segment disclosures were revised to reflect these changes.
Three Months Ended
March 31,
----------------------
2002 2001
-------- --------
Revenue:
North America $ 49,835 $ 75,306
Latin America 2,896 4,335
Europe 33,428 51,744
Asia Pacific 5,564 7,883
-------- --------
Total $ 91,723 $139,268
======== ========
Operating Income (Loss):
North America $ 3,002 $ 5,602
Latin America (353) (217)
Europe (957) 9,436
Asia Pacific 659 734
-------- --------
Total Regions 2,351 15,555
Corporate (7,338) (7,706)
-------- --------
Operating income (loss) before special charges (4,987) 7,849
Special charges (23,169) -
-------- --------
Total $(28,156) $ 7,849
======== ========
As of As of
March 31, December 31,
2002 2001
--------- ------------
Identifiable Assets:
North America $ 85,997 $ 90,202
Latin America 7,379 8,506
Europe 151,947 159,995
Asia Pacific 21,082 21,346
-------- --------
Total Regions 266,405 280,049
Corporate 103,482 131,057
-------- -------
Total $369,887 $411,106
======== ========
9
Heidrick & Struggles International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Special Charges
In June 2001 and October 2001, we announced company-wide cost reduction
initiatives to better align costs with the expected revenue levels. Through
December 31, 2001, we incurred $53.2 million of special charges related to
reductions in headcount and the consolidation and closing of offices. During the
2002 first quarter, we incurred an additional $23.2 million of special charges
related to these announced initiatives.
The actions which occurred during the 2002 first quarter, affected 166
employees, including 51 executive search and management search consultants and
115 search support and corporate staff. Over two -thirds of the layoffs were in
North America, 20% were in Europe and the remainder were in Latin America and
Asia Pacific.
The 2002 first quarter special charges include severance and other
employee-related costs of $10.4 million. In addition, the special charges
include $12.8 million related to the consolidation and closing of offices. By
segment, the special charges for the three months ended March 31, 2002 are as
follows: North America $13.3 million, Latin America $0.1 million, Europe $7.0
million, Asia Pacific $0.3 million and Corporate $2.5 million.
In the Consolidated Statements of Operations, the charges have been
segregated on a separate line titled, "Special charges." For segment reporting,
the special charges have been segregated and therefore do not impact the
quarter-to-quarter comparisons. The special charges for severance and office
closings were recorded in accordance with Emerging Issue Task Force No. 94-3 and
Staff Accounting Bulletin No. 100.
The table below outlines the special charges incurred in 2001 and for the
three months ended March 31, 2002 along with related cash payments and non-cash
charges.
Severance
and Other
Employee- Other
Related Office Cash
Costs Closings Charges Total
--------- -------- ------- --------
Total special charges incurred in 2001 $ 23,740 $28,067 $ 1,423 $ 53,230
Cash payments (18,759) (877) (1,156) (20,792)
Non-cash charges - (3,908) - (3,908)
-------- ------- ------- --------
Special charges unpaid as of December 31, 2001 4,981 23,282 267 28,530
Total special charges incurred in 2002 10,373 12,796 - 23,169
Cash payments (3,712) (3,050) (267) (7,029)
Non-cash charges (2,282) (5,686) - (7,968)
------- ------- ------- --------
Special charges unpaid as of March 31, 2002 $ 9,360 $27,342 $ - $ 36,702
======= ======= ======= ========
8. Recently Issued Financial Accounting Standards
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." This statement establishes a number of
rules for the recognition, measurement and display of long-lived assets which
are impaired and either held for sale or for continuing use within the business.
In addition, the statement broadly expands the definition of a discontinued
operation to individual reporting units or asset groupings for which
identifiable cash flows exist. The recognition of discontinued operations will
become more common as a result of these new guidelines. The Company adopted SFAS
No. 144 on January 1, 2002. We do not anticipate that adoption of SFAS No. 144
will have a material impact on our financial condition or results of operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations as well as other sections of this Quarterly Report on Form 10-Q
contain forward-looking statements. The forward-looking statements are based on
current expectations, estimates, forecasts and projections about the industry in
which we operate and management's beliefs and assumptions. Forward-looking
statements may be identified by the use of words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions. Forward-looking statements are not guarantees of future performance
and involve certain known and unknown risks, uncertainties and assumptions that
are difficult to predict. Actual outcomes and results may differ materially from
what is expressed, forecasted or implied in the forward-looking statements.
Factors that may affect the outcome of the forward-looking statements include,
among other things, our ability to attract and retain qualified executive search
consultants; a continuing economic downturn in the United States or a material
economic downturn in Europe or elsewhere, or social or political instability in
overseas markets; price competition; bad debt write-offs far in excess of
allowances for doubtful accounts; losses in our venture capital investments; an
inability to achieve the planned cost savings from our cost reduction
initiatives; and delays in the development and/or implementation of new
technology and systems. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
General
Heidrick & Struggles International, Inc. is a premier provider of
executive-level search and leadership consulting services. We help our clients
build leadership teams by facilitating the recruitment, development and
retention of their executive and mid-level management positions. We also provide
other human capital management services, including management assessment and
placement of interim executive management.
On February 26, 1999, Heidrick & Struggles, Inc., which operated primarily
in North America, Latin America and Asia Pacific, merged with and into Heidrick
& Struggles International, Inc. ("HSI"), which operated in Europe, (the
"Merger"). The resulting company was named Heidrick & Struggles International,
Inc. In addition to the Merger, our results of operations reflect the operations
of several entities acquired in 1999, 2000 and 2001, accounted for using the
purchase method. The results of these acquired companies are included in the
consolidated financial statements beginning with the date of acquisition. These
acquisitions did not have a material effect on the consolidated financial
statements. In addition, in 1999, we merged with one entity and accounted for
this merger using the pooling of interests method.
During 1999 and 2000, the executive search industry experienced a dramatic
increase in demand for its services in all markets based on increased
competition for executive talent, the need for executives with diverse and
global leadership skills, and the proliferation of Internet and e-commerce
businesses. Our rate of growth in revenue during this period exceeded both the
industry trend and our historical average because of the need for management at
start-up companies, the creation of new e-commerce positions at more established
companies and the growth in the financial services industry. We responded to
these trends by increasing the number of consultants and the number of offices
from which we served our clients. In 2000, we added more than 100 consultants,
including consultants experienced in executive search and employees from other
disciplines who were new to the search profession.
The United States economy began to slowdown early in 2001, especially in
the financial services and technology sectors, followed by a slowdown in other
geographic markets, created an environment where these trends began to reverse.
Commencing in June 2001, when we anticipated a reduction in revenue compared to
2000, we took steps to reduce our cost base by reducing our workforce while
retaining capacity to meet additional demand when the economy recovers. In
October 2001, we announced further reductions in our workforce and consolidated
or eliminated office space.
The actions related to these announcements were completed during the 2002
first quarter. We do not anticipate any additional special charges for the
foreseeable future.
11
We operate our Executive Search and complementary services in four
geographic regions: North America which includes the United States (except
Miami) and Canada; Latin America which includes Mexico and the rest of Latin
America, as well as Miami, which serves as our gateway office to the region;
Europe (which includes the Middle East); and Asia Pacific. As of January 1, 2002
we completed the integration of LeadersOnline (now called Management Search),
our mid-level management recruiting service, into our Executive Search business.
As a result, we no longer report LeadersOnline as a separate segment.
Results of Operations
The following table summarizes, for the periods indicated, the results of
our operations as a percentage of revenue:
Three Months Ended
March 31,
------------------
2002 2001
----- -----
Revenue 100.0% 100.0%
----- -----
Operating expenses:
Salaries and employee benefits 75.1 62.5
General and administrative expenses 30.3 31.8
Special charges 25.3 -
----- -----
Total operating expenses 130.7 94.4
----- -----
Operating income (loss) (30.7) 5.6
----- -----
Non-operating income (expense):
Interest income 0.6 1.5
Interest expense (0.1) -
Realized gains on investments - 0.2
Net unrealized gain (loss) on derivative instruments 0.2 (1.1)
Other, net 0.3 (0.1)
----- -----
Net non-operating income 0.9 0.5
----- -----
Income (loss) before income taxes and cumulative effect
of accounting change (29.7) 6.1
Provision for (benefit from) income taxes (10.4) 2.6
----- -----
Net income (loss) before cumulative effect of accounting change (19.3) 3.5
Cumulative effect of accounting change, net of tax - 3.2
----- -----
Net income (loss) (19.3)% 6.7%
----- -----
- ----------
Note: Tables may not equal the sum of individual line items due to rounding.
12
The following table sets forth, for the periods indicated, our revenue
and operating income (loss) by segment. As a result of the integration of
LeadersOnline into our Executive Search business, we no longer report our
mid-level management recruiting service as a separate segment. As LeadersOnline
was all North America based, the revenue and operating income has been included
as part of the North America region. Prior period segment disclosures were
revised to reflect these changes.
Three Months Ended
March 31,
----------------------
2002 2001
-------- --------
Revenue:
North America $ 49,835 $ 75,306
Latin America 2,896 4,335
Europe 33,428 51,744
Asia Pacific 5,564 7,883
-------- --------
Total $ 91,723 $139,268
======== ========
Operating Income (Loss):
North America $ 3,002 $ 5,602
Latin America (353) (217)
Europe (957) 9,436
Asia Pacific 659 734
-------- --------
Total Regions 2,351 15,555
Corporate (7,338) (7,706)
-------- --------
Operating income (loss) before special charges (4,987) 7,849
Special charges (23,169) -
-------- --------
Total $(28,156) $ 7,849
======== ========
Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31,
2001
Revenue. Our consolidated revenue decreased $47.6 million, or 34.1%, to
$91.7 million for the three months ended March 31, 2002 from $139.3 million for
the three months ended March 31, 2001. Excluding the effect of foreign currency
translation into the U.S. dollar, revenue would have declined by 32%. The
decline was due to decreased demand for our executive search services across
most industries and disciplines, especially the Technology, Financial Services,
and Industrial practice groups. We believe this decrease reflects the impact of
the recent global economic slowdown.
The number of confirmed executive searches decreased 34% from the first
quarter of 2001. The average fee per search declined approximately 4%.
Revenue in North America was $49.8 million for the three months ended March
31, 2002, a decrease of $25.5 million, or 33.8%, from $75.3 million for the
three months ended March 31, 2001. Almost all of the practices produced lower
revenue in the first quarter compared to last year. In Latin America, 2002 first
quarter revenue was $2.9 million, a decrease of $1.4 million, or 33.2%, from
$4.3 million in the 2001 first quarter. Most of the practices reported declines,
although the Industrial practice reported an increase. Revenue in Europe was
$33.4 million for the 2002 first quarter, a decrease of $18.3 million, or 35.4%,
from $51.7 million in the 2001 first quarter. Excluding the impact of foreign
currency translation into the U.S. dollar, revenue declined by 32% on a local
currency basis compared to the comparable quarter in 2001. All practice groups
experienced declines compared to the 2001 first quarter. In Asia Pacific,
revenue was $5.6 million in the 2002 first quarter, a decrease of $2.3 million,
or 29.4%, from $7.9 million in the 2001 first quarter. Excluding the impact of
foreign currency translation into the U.S. dollar, revenue decreased 26% on a
local currency basis over the comparable quarter in 2001. Most practice groups
experienced a decrease in revenue.
13
Salaries and employee benefits. Our consolidated salaries and employee
benefits decreased $18.2 million, or 20.9%, to $68.9 million for the three
months ended March 31, 2002 from $87.1 million for the three months ended March
31, 2001. The decrease in dollar terms was primarily attributed to lower fixed
costs as a result of the elimination of more than 600 people from our workforce
since the 2001 first quarter and lower performance-based compensation reflective
of the lower revenue levels. As a percentage of revenue, salaries and employee
benefits increased to 75.1% in the 2002 first quarter from 62.5% in the 2001
first quarter. The 2001 first quarter included approximately $13.0 million of
expense reductions, primarily related to performance-based compensation, which
drove down the salaries and benefits as a percent of revenue.
General and administrative expenses. Our consolidated general and
administrative expenses decreased $16.5 million, or 37.3%, to $27.8 million for
the three months ended March 31, 2002 from $44.3 million for the three months
ended March 31, 2001 due primarily to lower fixed costs resulting from office
consolidations, reduced spending on discretionary items such as marketing,
internal meetings and non-client related travel, and lower bad debt expense. As
a percentage of revenue, general and administrative expenses declined to 30.3%
in the 2002 first quarter from 31.8% in the 2001 first quarter.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," goodwill and those intangible
assets that have indefinite useful lives are no longer amortized. We adopted
SFAS No. 142 on January 1, 2002 and, as a result, no goodwill amortization was
recorded for the three months ended March 31, 2002. For the three months ended
March 31, 2001, general and administrative expenses include $0.6 million of
goodwill amortization.
Special charges. In June 2001 and October 2001, we announced company-wide
cost reduction initiatives to better align costs with the expected revenue
levels. Through December 31, 2001, we incurred $53.2 million of special charges
related to reductions in headcount and the consolidation and closing of offices.
During the 2002 first quarter, we incurred an additional $23.2 million of
special charges related to these announced initiatives. The actions which
occurred during the 2002 first quarter, affected 166 people, including 51
executive search and management search consultants. The remainder was search and
corporate support staff. Over two -thirds of the layoffs were in North America,
20% were in Europe, and the rest were in Latin America and Asia Pacific. The
layoffs impacted virtually all practice groups.
Approximately $15.2 million of the $23.2 million of special charges
incurred in the 2002 first quarter represents cash charges. We do not anticipate
incurring additional special charges beyond the 2002 first quarter.
14
Operating income (loss). The following table summarizes our consolidated
operating income (loss) for the quarters ended March 31, 2002 and 2001,
respectively:
Three Months Ended Increase
March 31, (decrease) in
------------------ operating
Consolidated operating income (loss) 2002 2001 income
------------------------------------ ---- ---- -------------
(In millions)
Total regions $ 2.4 $ 15.6 $ (13.2)
Corporate (7.3) (7.7) 0.4
------- ------- -------
Operating income (loss) before special charges (5.0) 7.8 (12.8)
Special charges (23.2) - (23.2)
------- ------- -------
Consolidated operating income (loss) $ (28.2) $ 7.8 $ (36.0)
======= ======= =======
----------
Note: Tables may not equal the sum of individual line items due to
rounding.
Our operating loss was $28.2 million for the three months ended March 31,
2002, a decrease of $36.0 million from $7.8 million of operating income for the
three months ended March 31, 2001. All regions experienced a decline in
operating income when compared to the three months ended March 31, 2001. This
was primarily driven by a $47.6 million decline in revenue compared to the 2001
first quarter.
In North America, operating income decreased $2.6 million, or 46.4%, to
$3.0 million for the three months ended March 31, 2002 from $5.6 million for the
three months ended March 31, 2001. The decline in North America's revenue of
$25.5 million was offset by lower levels of fixed salary and benefit expenses,
and lower general and administrative expenses, primarily bad debt expense. In
Latin America, our operating loss was $0.4 million for the three months ended
March 31, 2002, compared to an operating loss of $0.2 million for the three
months ended March 31, 2001. The decline in Latin America's revenue of $1.4
million was primarily offset by lower salary and benefit expenses. In Europe,
our operating loss was $1.0 million for the three months ended March 31, 2002, a
decrease of $10.4 million compared to operating income of $9.4 million for the
three months ended March 31, 2001. The decline in Europe's revenue of $18.3
million was partially offset by lower salary and benefit expenses. Cost savings
in most general and administrative expense categories were offset by an increase
in bad debt expense, as in the three months ended March 31, 2001, Europe's
operating income had benefited from a reduction in its allowance for doubtful
accounts. In Asia Pacific, our operating income for the three months ended March
31, 2002 was $0.7 million, essentially unchanged compared to the three months
ended March 31, 2001. The decline in Asia Pacific's revenue of $2.3 million was
offset by lower salary and benefit expenses, primarily performance-based
compensation. Corporate expenses declined $0.4 million, or 4.8%, to $7.3 million
for the three months ended March 31, 2002 from $7.7 million for the three months
ended March 31, 2001 as lower discretionary spending, reduced costs associated
with corporate staffing, and the elimination of goodwill amortization were
partially offset by an increase in systems-related spending.
15
Net non-operating income (expense). Our net non-operating income was $0.9
million for the three months ended March 31, 2002, compared to $0.6 million for
the three months ended March 31, 2001. The following table presents the
components of our net non-operating income (expense) for the three months ended
March 31, 2002 and 2001, respectively:
Increase
Three Months Ended (decrease)
March 31, in net
------------------ non-operating
Consolidated net non-operating income (expense) 2002 2001 income
----------------------------------------------- ---- ---- -------------
(In millions)
Interest income $ 0.5 $ 2.1 $ (1.5)
Interest expense (0.1) - -
Realized gains on investments - 0.3 (0.3)
Net unealized gain (loss) on derivative instruments 0.1 (1.5) 1.6
Other, net 0.3 (0.2) 0.4
------- ------- -------
Consolidated net non-operating income $ 0.9 $ 0.6 $ 0.2
======= ======= =======
----------
Note: Tables may not equal the sum of individual line items due to
rounding.
Interest income declined by $1.5 million, reflecting lower cash balances
available for investment and lower yields on invested balances.
During the three months ended March 31, 2001, we recognized $0.3 million of
realized gains, net of consultants' bonuses and administrative and other costs,
from the sale of equity obtained as part of our warrant program. No realized
gains were recognized during the three months ended March 31, 2002.
In accordance with SFAS No. 133, we recognized during the three months
ended March 31, 2002, an unrealized gain, net of consultants' bonuses and
administrative and other costs, of $0.1 million. During the comparable period in
2001, we recognized an unrealized loss of $1.5 million, net of consultants'
bonuses and administrative and other costs. (See Note 2 in the Notes to
Consolidated Financial Statements).
Cumulative effect of change in accounting principle. On January 1, 2001 we
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and its subsequent amendments. As a result, we recorded as a
cumulative effect of change in accounting principle, a transition adjustment to
income of $4.5 million, net of consultants' bonuses, administrative and other
costs, and taxes. (See Note 3 in the Notes to Consolidated Financial
Statements).
On January 1, 2002, we adopted SFAS No. 142. As a result of the adoption,
we will no longer recognize approximately $2.5 million of goodwill amortization
in 2002. No impairment charge was recorded upon adoption of SFAS No. 142.
Income taxes. For the three months ended March 31, 2002 and 2001, the
effective tax rate was 35% and 43%, respectively. During the three months ended
March 31, 2002, we had a pretax loss of $27.3 million compared to income before
taxes and cumulative effect of the accounting change of $8.5 million for the
three months ended March 31, 2001. We may not receive a benefit on the losses in
certain jurisdictions, thus reducing the effective tax rate.
16
Liquidity and Capital Resources
General. We continually evaluate our liquidity requirements, capital needs
and availability of capital resources based on our operating needs.
Historically, we have financed our operations with cash on hand and funds
generated by operations, together with the net proceeds of our initial public
offering in April 1999 and follow-on public offering in February 2000.
We believe that the remainder of the net proceeds from our common stock
offerings, together with funds expected to be generated from operations and
funds available under our line of credit will be sufficient to finance our
operations for the foreseeable future, as well as to finance the cash payments
associated with our special charges. We historically have paid a portion of our
bonuses in December and the remainder in March. Employee bonuses are accrued
throughout the year and are based on our performance and the performance of the
individual employee. Our ability to undertake acquisitions may depend, in part,
on access to additional funds.
We do not have material off-balance sheet arrangements including special
purpose entities, trading activities of non-exchange traded contracts, or
transactions with related parties except as relates to our investment in Silicon
Valley Internet Capital (See Note 9 in the Notes to Consolidated Financial
Statements included in our Annual Report to Shareholders on Form 10-K for the
year ended December 31, 2001, as filed with the Securities and Exchange
Commission on March 29, 2002).
Line of credit. In December 2001 we replaced our existing $40.0 million
revolving credit facility which expired on December 31, 2001, with a new $50.0
million revolving credit facility. The new facility will expire on December 28,
2004. There were no borrowings outstanding under either line of credit at March
31, 2002 or December 31, 2001.
Under the new facility, as amended on March 25, 2002, we may borrow U.S.
dollars, euros, or other major currencies, as agreed with the banks. Borrowings
under this facility bear interest at the existing ABR (Alternate Base Rate) or
LIBOR, plus a margin as determined by certain tests of our financial condition.
The new facility has certain financial covenants we must meet relating to
consolidated EBITDA (defined as earnings before interest, taxes, depreciation
and amortization, and designated special charges), fixed charges (defined as the
ratio of EBITDA to interest and capital expenditures), leverage (defined as the
ratio of total indebtedness to EBITDA), tangible net worth, working capital and
capital expenditures. In addition, the new facility restricts our ability to pay
dividends, make acquisitions and incur additional debt. At March 31, 2002 and
December 31, 2001 we were in compliance with these financial covenants, and no
event of default existed.
Cash and cash equivalents. Cash and cash equivalents at March 31, 2002 and
2001 amounted to $68.6 million and $136.5 million, respectively. The amount of
cash and cash equivalents at December 31, 2001 was $108.7 million.
Cash provided by (used in) operations. For the three months ended March 31,
2002, cash used in operating activities was $36.8 million, reflecting the
payment of bonuses in March 2002, payments related to our special charges and
our net loss, offset by the refund of approximately $10 million of estimated
income taxes paid during 2001.
For the three months ended March 31, 2001, cash used in operating
activities was $42.6 million, due primarily to the payment of the remaining
bonuses related to the year 2000.
Cash provided by (used in) investing activities. Cash used in investing
activities was $1.6 million for the three months ended March 31, 2002 and $3.1
million for the three months ended March 31, 2001. This decrease between the
periods was primarily due to a lower level of investments in office furniture
and fixtures, leasehold improvements, and computer equipment. Capital
expenditures were $1.6 million and $4.3 million for the three months ended March
31, 2002 and 2001, respectively.
During the three months ended March 31, 2001, the amount of cash received
from the sale of equity securities received as part of our warrant program was
$0.3 million. No gains were recognized from the sale of equity securities during
the three months ended March 31, 2002.
17
Cash provided by (used in) financing activities. Cash used in financing
activities for the three months ended March 31, 2002 was $0.7 million, resulting
primarily from payments on debt related to acquisitions.
On March 16, 2001, we announced that our Board of Directors had authorized
management to repurchase up to two million shares of our common stock over the
subsequent two years. During the three months ended March 31, 2002 we
repurchased 4,032 shares of common stock. During the three months ended March
31, 2001, we repurchased 25,000 shares of our common stock for which the cash
settlement occurred in April 2001.
Significant Accounting Policies
The preparation of our consolidated financial statements requires
management to make certain estimates and assumptions required under generally
accepted accounting principles which may differ from the actual results. The
more significant areas requiring management estimates include revenue
recognition, accruals for compensation and employee benefits, allowance for
doubtful accounts, allowance for deferred tax assets and investment valuations.
See Note 1 in the Notes to Consolidated Financial Statements included in our
Annual Report to Shareholders on Form 10-K for the year ended December 31, 2001,
as filed with the Securities and Exchange Commission on March 29, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Derivative Instruments. We receive warrants for equity securities in our
client companies, in addition to our cash fee, for services rendered on some
searches. Some of the warrants meet the definition of a derivative instrument
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and its subsequent amendments. Upon adoption of SFAS No. 133 on
January 1, 2001, subsequent changes in the fair value of the derivatives are
recorded in earnings. Each quarter's earnings are affected by the fluctuations
in the fair value of these derivative instruments. We had no other derivative
instruments at March 31, 2002.
Currency Market Risk. With our operations primarily in North America, Latin
America, Europe, and Asia Pacific we conduct business using various currencies.
Revenue earned in each country is generally matched with the associated expenses
incurred, thereby reducing currency risk to earnings. However, because certain
assets and liabilities are denominated in currencies other than the U.S. dollar,
changes in currency rates may cause fluctuations in the valuation of such assets
and liabilities. For financial information by geographic region, see Note 6 in
the Notes to Consolidated Financial Statements. Historically, we have not
experienced significant gains or losses on transactions involving U.S. dollars
and other currencies. As the local currency of our subsidiaries has been
designated as the functional currency, we are affected by the effect of
translating the foreign currency financial statements into U.S. dollars.
Euro Conversion. On January 1, 1999, the currency exchange rates of twelve
countries (Germany, France, the Netherlands, Austria, Italy, Spain, Finland,
Ireland, Belgium, Portugal, Greece, and Luxembourg) were fixed among one another
and each country adopted the euro as its currency. The euro bills and coinage
were introduced on January 1, 2002. In conjunction with the conversion process
to the euro, we took steps to convert our information technology systems to
handle the new currency, and prepared for maintaining accounting, tax, and other
business records in the new currency. Currently, the introduction and use of the
euro has not had a material effect on our consolidated financial condition, cash
flows, or results of operations.
18
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we have been involved in litigation that is incidental to
our business. We currently are not a party to any litigation, the adverse
resolution of which, in management's opinion, would be likely to have a material
adverse effect on our business, financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
------- -----------
3.01 Form of Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to Exhibit 3.02 of this
Registrant's Registration Statement on Form S-4 (File No.
333-61023))
3.02 Form of Amended and Restated By-laws of the Registrant
(Incorporated by reference to Exhibit 3.03 of this Registrant's
Registration Statement on Form S-4 (File No. 333-61023))
10.13 Employment Agreement dated January 1, 2002 between
Heidrick & Struggles, Inc. and David C. Anderson
10.14 Employment Agreement dated March 20, 2002 between Heidrick &
Struggles, Inc. and Kevin J. Smith
10.15 Amendment to Employment Agreement dated April 2, 2002 between
Heidrick & Struggles, Inc. and Stephanie W. Abramson
(B) Reports on Form 8-K
On April 17, 2002, we filed a report under Item 4 on Form 8-K concerning a
Change in the Registrant's Certifying Accountant from Arthur Andersen LLP
to KPMG LLP.
19
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: May 15, 2002.
Heidrick & Struggles International, Inc.
(Registrant)
By: /s/ Kevin J. Smith
-------------------
Kevin J. Smith
Chief Financial Officer and Treasurer
20
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
AGREEMENT, dated this 1st day of January, 2002 (the "Agreement"),
between Heidrick & Struggles, Inc., a Delaware corporation, and any successor
(the "Employer") and David C. Anderson (the "Employee"). The parties hereby
agree, as follows:
1. Employment. The Employer shall employ the Employee as President and
----------
Chief Operating Officer and the Employee hereby accepts such position and agrees
to serve the Employer in such capacity during the employment period fixed by
Section 3 hereof (the "Employment Period"). The Employee shall report to the
Chief Executive Officer of the Employer (the "Board"). The Employee's duties and
responsibilities shall be such duties and responsibilities as are consistent
with the position of President and Chief Operating Officer of the Employer. The
Employee shall devote substantially all of his business time and attention to
the performance of his duties and responsibilities hereunder.
2. Compensation.
------------
(a) Annual Base Salary. The Employer shall pay the Employee,
------------------
pursuant to the Employer's normal and customary payroll procedures, a base
salary of $600,000 per annum (the "Annual Base Salary").
(b) Annual Bonus. In addition to the Annual Base Salary, during
------------
the Employment Period, the Employee may receive an annual bonus (the "Annual
Bonus"), based on the achievement of performance objectives, which shall be
determined by the Compensation Committee of the Board.
(c) Incentive Compensation. Commencing in January 2002, the
-----------------------
Employee shall participate in the Employer's Annual Bonus Plan, Performance
Share Plan, Management Stock Option Plan, Change in Control Severance Plan,
Deferred Compensation Plan and the Severance Plan (such Plans being hereinafter
referred to collectively as the "Incentive Compensation Plans").
(d) Benefit Plans. In addition, during the Employment Period
--------------
(i) the Employee shall be entitled to participate in all other savings and
retirement plans, practices, policies and programs of the Employer which are
made available generally to other employees of the Employer; provided, however,
that the Employee shall be entitled to participate in bonus, incentive
compensation or stock-based plans and programs only to the extent determined by
the Compensation Committee of the Board. The Employee and/or the Employee's
family, as the
case may be, shall be eligible for participation in, and shall receive all
benefits under, all welfare benefit plans, practices, policies and programs
provided by the Employer (including, without limitation, vacation, medical,
prescription, dental, disability, life insurance, group life insurance,
accidental death and travel accident insurance plans and programs, together the
"Benefit Plans") which are made available generally to other employees of the
Employer.
3. Employment Period.
-----------------
The Employment Period shall commence on January 1, 2002 (the
"Effective Date") and shall end on the day preceding the third anniversary of
the Effective Date. Notwithstanding the foregoing, the Employee's employment
hereunder may be terminated during the Employment Period upon the earliest to
occur of the following events:
(a) Death. The Employee's employment hereunder shall terminate
-----
immediately upon his death.
(b) Disability. The Employer may terminate the Employee's
----------
employment hereunder for "Disability," which shall mean (i) a physical or mental
incapacity of the Employee which entitles the Employee to benefits under the
long-term disability plan applicable to the Employee and maintained by the
Employer; or (ii) in the event that no such long-term disability plan is
maintained by the Employer, the Employee has been unable to perform his duties
hereunder for a period of 180 days within any twelve-month period as a result of
the Employee's incapacity due to physical or mental illness.
(c) Cause. The Employer may terminate the Employee's employment
-----
hereunder for Cause. For purposes of this Agreement, the term "Cause" shall mean
(i) fraud, or the embezzlement or misappropriation of funds or property of the
Employer or any of its affiliates by you, the conviction of, or the entrance of
a plea of guilty or nolo contendere by Employee, to a felony, or a crime
involving moral turpitude; (ii) neglect, misconduct or willful malfeasance which
is materially injurious to the Employer or any of its affiliates; or (iii)
willful failure or refusal to perform your duties, or a willful, material breach
of contract. If, subsequent to the Employee's termination of services hereunder
for other than Cause, it is discovered that the Employee's services could have
been terminated for Cause, the Employee's services shall, at the election of the
Employer, be deemed to have been terminated for Cause retroactively to the date
the events giving rise to Cause occurred.
(d) Good Reason. The Employee may terminate his employment
-----------
hereunder for Good Reason (and such termination shall be treated as if it were a
termination by the Employer without Cause, and not a voluntary termination by
the Employee). "Good Reason," shall mean the occurrence of any of the following
events during the Employment Period:
(i) The assignment to the Employee of any duties materially
inconsistent with, or the reduction of powers,
responsibilities or functions associated with, the
- 2 -
Employee's positions and status with the Employer, or any
removal of the Employee from, or any failure to reelect
the Employee to, membership on the Board and President and
Chief Operating Officer with the Employer, except in
connection with the termination of the Employee's
employment by the Employer for Cause or on account of
Disability pursuant to the terms of this Agreement;
(ii) A reduction by the Employer of the Annual Base Salary
except in connection with the termination of the
Employee's employment by the Employer for Cause or on
account of Disability pursuant to the terms of this
Agreement;
(iii) The failure by the Employer to pay the Employee any
portion of his current compensation, or any portion of his
compensation deferred under any plan, agreement or
arrangement of or with the Employer within seven (7) days
of the date such compensation is due; or
(iv) The requirement by the Employer that the Employee relocate
his primary residence to a city other than Dallas, Texas.
Notwithstanding the foregoing, an isolated and inadvertent action
taken in good faith and which is remedied by the Employer within 30 days after
receipt of written notice thereof given by the Employee shall not constitute
Good Reason.
(e) Without Cause. The Employer may terminate the Employee's
-------------
employment hereunder without Cause.
(f) Without Good Reason. The Employee may terminate his employment
-------------------
hereunder without Good Reason, provided that the Employee provides the Employer
with notice of his intent to terminate his employment without Good Reason at
least six (6) months in advance of the Date of Termination; provided, however,
that the Employer may treat such notice as a resignation and accept it prior to
the expiration of six (6) months at the Employer's sole discretion.
4. Expense Reimbursement. During the Employment Period, the Employer
---------------------
shall reimburse the Employee for all reasonable business expenses upon the
presentation of statements of such expenses in accordance with the Employer's
policies and procedures now in force or as such policies and procedures may be
modified with respect to all employees of the Employer. The Employer shall pay
or reimburse the Employee for business class travel and accommodation
- 3 -
expenses for his spouse at times the Employee is required to be away from home
for up to four round trips per year.
5. Termination Payments.
--------------------
A. In the event of termination of the Employee's employment during
the Employment Period:
(i) by the Employer without Cause (pursuant to Section 3(e));
(ii) by the Employee for Good Reason (pursuant to Section 3(d));
or
(iii) on the day prior to the third anniversary of the Effective
Date (and not prior thereto) and no renewal of the
Employment Period has taken place as of such date by
amendment of this Agreement or pursuant to a new agreement
between the Employer and the Employee
then, the Employee shall be entitled to the following payments:
(a) Annual Base Salary through the Date of Termination (to the
extent not paid) within 10 days following the Date of
Termination;
(b) Earned but unpaid Annual Bonus in respect of the year ended
prior to the Date of Termination;
(c) A pro rata portion of his target Annual Bonus based upon the
number of months worked in the year in which the Date of
Termination occurs;
(c) Severance pay pursuant to the Severance Plan;
(d) Amounts under the terms of Benefits Plans in which he is a
participant under the terms thereof; and
(e) Unreimbursed expenses under Section 4 of this Agreement.
B. The Employee shall not be entitled to any further payments or
benefits under this Agreement in respect of any termination of the Employee's
employment during the Employment Period by the Employer without Cause (pursuant
to Section 3(e)) or by the Employee for Good Reason (pursuant to Section 3(d))
or for expiration without renewal (pursuant to this Section 5A(iii)). The
payments and benefits provided in this Section 5A (a) (b) and (c) are subject to
and conditioned upon the Employee's compliance with the restrictive covenants
provided in Section 7 and shall be subject to and conditioned upon the Employee
executing a valid general release and waiver, waiving all claims the Employee
may have against the Employer, its successors, assigns, affiliates, employees,
officers and directors.
- 4 -
C. If the Employee's employment is terminated during the Employment
Period by the Employer for Cause, by the Employee without Good Reason, or as a
result of the Employee's death or Disability pursuant to Sections 3(c), 3(f),
3(a) and 3(b), respectively, the Employer shall pay the amounts referred to in
Section 5A(a) and 5A(b) to the Employee (or the Employee's estate or legal
representative in the event of the Employee's death) within thirty (30) days
following the Date of Termination and the Employee shall not be entitled to any
further payments or benefits under this Agreement.
6. Non-Exclusivity of Rights. Any vested benefits and other amounts
-------------------------
that the Employee is otherwise entitled to receive under any Incentive
Compensation Plans or Benefit Plans or other employee benefit plan, policy,
practice or program of the Employer shall be payable in accordance with such
Incentive Compensation Plan or Benefit Plan or other employee benefit plan,
policy, practice or program as the case may be, except as explicitly modified by
this Agreement.
7. Confidentiality of Information; Duty of Non-Disclosure;
-------------------------------------------------------
Non-Competition; Non-Solicitation.
- ---------------------------------
(a) Confidential Information; Duty of Non-Disclosure. The
------------------------------------------------
Employee's employment under this Agreement necessarily involves his access to
and understanding of certain trade secrets and confidential information
pertaining to the business of the Employer and its affiliates. During the
Employment Period and thereafter, he will not, directly or indirectly, without
the prior written consent of the Employer, disclose or use for the benefit of
any person, corporation or other entity, or for himself any and all files, trade
secrets or other confidential information concerning the internal affairs of the
Employer or its affiliates, including, but not limited to, information
pertaining to its clients, services, products, earnings, finances, operations,
methods or other activities; provided, however, that the foregoing shall not
apply to information which is of public record or is generally known, disclosed
or available to the general public or the industry generally (other than as a
result of the Employee's breach of this Section 7(a)). Notwithstanding the
foregoing, the Employee may disclose such information as is required by law
during any legal proceeding or to the Employee's personal representatives and
professional advisers and, with respect to such personal representatives and
professional advisers, the Employee shall inform them of his obligations
hereunder and take all reasonable steps to ensure that such professional
advisers do not disclose the existence or substance thereof. Further, the
Employee shall not, directly or indirectly, remove or retain, without the
express prior written consent of the Employer, and upon termination of
employment for any reason shall return to the Employer, any records, computer
disks, computer printouts, business plans or any copies or reproductions
thereof, or any information or instruments derived therefrom, arising out of or
relating to the business of the Employer and its affiliates or obtained as a
result of his employment.
(b) Non-Competition. During the Employment Period and for a
---------------
period of six (6) months after the termination of the Employee's employment with
the Employer, the Employee
- 5 -
shall not work for or provide services to a principal competitor of the
Employer and its affiliates in a substantially similar function as the Employee
held with the Employer during the two-year period prior to the Employee's
termination of employment with the Employer.
(c) Non-Solicitation. During the Employment Period and for a
----------------
period of one (1) year after the termination of the Employee's employment with
the Employer, the Employee shall not: (i) work on the account of any client of
the Employer and its affiliates with whom such Employee had a direct
relationship or as to which the Employee had a significant supervisory
responsibility or otherwise was significantly involved at any time during the
two (2) years prior to such termination; (ii) hire, solicit for hire, or assist
any other person in soliciting or hiring any employment candidate with whom the
Employee has had contact while at the Employer during the two (2) years prior to
such termination; or (iii) directly or indirectly solicit or hire, or assist any
other person in soliciting or hiring, any employee of the Employer and its
affiliates (as of the Employee's termination of employment) or any person who,
as of such date, was in the process of being recruited by the Employer and its
affiliates, or induce any such employee to terminate his or her employment with
the Employer and its affiliates
(d) Remedies. The parties hereto hereby agree that it is
--------
impossible to measure in money the damages which will accrue to the Employer by
reason of a failure by the Employee to perform any of his obligations under this
Section 7 and the Employee acknowledges that such obligations are a material
condition to the Employer's decision to enter into this Agreement. Accordingly,
if the Employer institutes any action or proceeding to enforce the provisions
hereof, to the extent permitted by applicable law, the Employee hereby waives
the claim or defense that the Employer has an adequate remedy at law, and the
Employee shall not urge in any such action or proceeding the defense that any
such remedy exists at law. The restrictive covenants in this Section 7 are in
addition to any rights the Employer may have in law or at equity or under any
other agreement. In the event that a court of competent jurisdiction finds the
Employee to be in violation of the provisions of Sections 7(b) or 7(c), the
non-competition and/or non-solicitation period shall be extended by the period
of time during which such court found the Employee to have been in such
violation. The foregoing shall not prejudice the Employer's right to require the
Employee to account for and pay over to the Employer any profit obtained by the
Employee as a result of any transaction constituting a breach of this Section 7.
(e) Survival of Covenants. This Section 7 shall survive the
---------------------
termination of the Employment Period.
8. Arbitration. This Agreement contains our entire understanding and
-----------
Employee and Chief Legal Officer of the Employer. The Employee specifically
acknowledges that no promises or commitments have been made to him that are not
set forth in this Agreement.
Any controversy or claim arising out of or relating to this
Agreement or for the breach thereof, or Employee's employment, including without
limitation any statutory claims (for example, claims for discrimination
including but not limited to discrimination based on race, sex, sexual
orientation, religion, national origin, age, marital status,
- 6 -
handicap or disability; and claims relating to leaves of absence mandated by
state or federal law), breach of any contract or covenant (express or implied),
tort claims, violation of public policy or any other alleged violation of
statutory, contractual or common law rights (and including claims against
officers, directors, employees or agents of the Employer) if not otherwise
settled between the parties, shall be conclusively settled by arbitration to be
held in New York, New York, in accordance with the American Arbitration
Association's Employment Dispute Resolution Rules (the "Rules"). Arbitration
shall be the parties' exclusive remedy for any such controversies, claims or
breaches. The parties agree they shall not seek any award for punitive damages
for any claims they may have under this Agreement. The parties also consent to
personal jurisdiction in New York, New York with respect to such arbitration.
The award resulting from such arbitration shall be final and binding upon both
parties. Judgment upon said award may be entered in any court having
jurisdiction.
Employee and the Employer hereby waive the right to pursue any
claims, including but not limited to employment termination - related claims,
through civil litigation outside the arbitration procedures of this provision,
unless otherwise required by law. Employee and the Employer each have the right
to be represented by counsel with respect to arbitration of any dispute pursuant
to this paragraph. The arbitrator shall be selected by agreement between the
parties, but if they do not agree on the selection of an arbitrator within 30
days after the date of the request for arbitration, the arbitrator shall be
selected pursuant to the Rules.
In the event of any arbitration hereunder, the parties agree each
shall bear its or his own attorneys' fees and costs associated with or arising
from such arbitration or other proceeding.
9. Miscellaneous.
-------------
(a) Notices. Any notice to be given hereunder shall be given in
-------
writing. Notice shall be deemed to be given when delivered by hand, or three (3)
days after being mailed, postage prepaid, registered with return receipt
requested, addressed as follows.
If to the Employer:
Heidrick & Struggles, Inc.
245 Park Avenue, Suite 4300
New York, New York 10167-0152
Attention: Chief Legal Officer
If to the Employee:
David C. Anderson
10048 Hollow Way
Dallas, Texas 75229
- 7 -
or to such other address as any party hereto may designate by notice to the
others, and shall be deemed to have been given upon receipt.
(b) Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties hereto with respect to the Employee's employment.
This Agreement expressly supersedes the Agreement, dated May 28, 1992 as amended
January 30, 2001, between the Employer and the Employee and shall be of no
further force and effect.
(c) Modification or Amendment; Waiver. This Agreement may be
---------------------------------
amended only by an instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is sought. The
failure of any party hereto at any time to require the performance by any other
party hereto of any provision hereof shall in no way affect the full right to
require such performance at any time thereafter, nor shall the waiver by any
party hereto of a breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of such provision or a waiver of the provision itself
or a waiver of any other provision of this Agreement.
(d) Successors. This Agreement is binding on and is for the benefit
----------
of the parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this Agreement nor any
right or obligation hereunder may be assigned by the Employer or by the
Employee.
(e) Severability. Each provision hereof is severable from this
------------
Agreement, and if one or more provisions hereof are declared invalid, the
remaining provisions shall nevertheless remain in full force and effect. If any
provision of this Agreement or portion thereof is so broad, in scope or duration
or otherwise, as to be unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
(f) Tax Withholding. The Employer may withhold from any amounts
---------------
payable to the Employee hereunder all federal, state, city or other taxes that
the Employer may reasonably determine are required to be withheld pursuant to
any applicable law or regulation.
(g) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of NEW YORK, without
reference to its principles of conflicts of law.
(h) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
(i) Headings. The headings in this Agreement are inserted for
--------
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof.
- 8 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Heidrick & Struggles, Inc.
/s/ Stephanie W. Abramson
By:_______________________________________
Name: Stephanie W. Abramson
Title: Chief Legal Officer, Secretary
/s/ David C. Anderson
__________________________________________
David C. Anderson
- 9 -
EXHIBIT 10.14
[Letterhead of Heidrick & Struggles International, Inc.]
March 20, 2002
PERSONAL & CONFIDENTIAL
- -----------------------
Mr. Kevin J. Smith
6 Clubside Court
Burr Ridge, Illinois 60521
Dear Kevin:
On behalf of Heidrick & Struggles, Inc., I am pleased to confirm the
terms of your employment to you.
Title. You will serve as Chief Financial Officer reporting
- -----
to the Chief Executive Officer of Heidrick & Struggles International,
Inc. (the "Company"). You will also have the internal title of
Senior Partner. You will be a member of the Global Operating
Committee ("GOC") or its equivalent. Initially you will be located
in the Company's corporate offices in Chicago.
Base Salary. Your base salary is $430,000 annually, subject
- -----------
to review on a 24-month basis.
Target Bonus. Your target bonus for 2002 is 100% of base
- ------------
salary to be paid when bonuses are paid to executive officers in
March of 2003. Your target bonus will be guaranteed to the extent of
50% for 2002. Bonuses (other than the guaranteed portion of your 2002
bonus) are discretionary and are not earned until approved by the
Compensation Committee and/or the Board of Directors of the Company
and subject to the provisions of the Change in Control Severance Plan
and the paragraphs below relating to termination without Cause
including resignation for Good Reason, will be payable only if you
are in the Company's employ on the regular bonus payment date.
Incentive Compensation and Other Plans. You will be eligible
- --------------------------------------
to participate in the incentive and other executive compensation
plans applicable to members of GOC and executive officers, including,
without limitation, the performance share plan, the annual bonus plan
and the management stock option plan which have been provided to you.
You shall also be eligible to participate in the Change In Control
Severance Plan in Tier One. In addition, you will be covered by the
Company's Severance Plan in the tier for Top Management, provided (i)
the terms "Cause" and "Good Reason" shall have the meanings
defined below and any resignation by you for Good Reason shall be
deemed a termination by the Company without Cause under the
Mr. Kevin J. Smith
March 20, 2002
Page 2
Severance Plan and (ii) any reduction in your base salary or bonus
opportunity that constitutes Good Reason shall be disregarded in
determining the severance payment due to you.
Sign-On Arrangements.
- --------------------
Options. You will receive a stock option grant to purchase
-------
10,000 shares of Heidrick & Struggles International, Inc.
common stock within 60 days of the date you commenced
employment. The options will be granted at the closing price
of the common stock as reported on NASDAQ on the trading day
preceding such date, will vest 100% on the first anniversary
of the date of grant, and will have a ten-year term.
Cash Payment. Within 30 days following the date of this
------------
Agreement the Company will lend to you $250,000 to be
evidenced by a non-interest bearing promissory note (the
"Note") payable on March 20, 2005, except that, if you
cease to be in the Company's employ, then subject to the next
succeeding paragraphs, the entire principal balance of the
Note then outstanding shall, without demand or notice of any
kind, be and become due and payable within 30 days of the
termination of your employment.
If you are in the Company's employ, the Note will be forgiven
in the principal amount of $83,333 on each of March 20, 2003,
2004 and 2005. The income arising from the loan forgiveness
will be subject to personal income tax withholding. The
Company is authorized to deduct the amounts required to be
withheld from your cash bonus; if the bonus amount is less
than the withholding, you will, within 10 days, reimburse the
Company for withholding payments made to the extent not
covered by your bonus. The Company will reimburse you on a
grossed-up basis for any income tax arising out of the
interest-free nature of the loan.
In addition, the Note will be forgiven in full at any time if
the Company has terminated your employment without Cause or
if you have resigned for Good Reason).
The term "Good Reason" shall mean (i) a diminution of
the amount of your base salary or target bonus or benefits
or level of eligibility for stock options or other
incentive programs unless such diminution is consistent
with other employees at your level; (ii) the elimination
of your position or a diminution of responsibilities
associated with your position or (iii) a change in the
location of your principal place of employment more than
50 miles in radius from its initial location without your
approval.
The term "Cause" shall mean (a) fraud, or the
embezzlement or misappropriation of funds or property of
the Company or any of its affiliates by you, the
conviction of, or the entrance of a plea of
Mr. Kevin J. Smith
March 20, 2002
Page 3
guilty or nolo contendere by you, to a felony, or a crime
---- ----------
involving moral turpitude; (b) neglect, misconduct or
willful malfeasance which is materially injurious to the
Company or any of its affiliates; or (c) willful failure or
refusal to perform your duties, or a willful, material
breach of contract.
Benefits. You will be eligible to participate in the Company's
- --------
benefit programs and will receive a detailed guide shortly after your
starting date. The Company's benefit programs include group health
and life/AD&D insurance, long-term disability, short-term disability
salary continuation, time-off benefits (vacation, paid holidays, paid
sick time), the Flexible Spending Account and the Heidrick &
Struggles, Inc. 401(k) Profit-Sharing and Retirement Plan. The
Company's benefit programs, bonus programs and polices are reviewed
from time to time by Company management and may be modified, amended,
or terminated at any time.
Expenses. The Company's Physical Examinations Policy will apply to
- --------
you effective immediately upon your employment commencement date. The
Financial Planning Program for Senior Partners will also apply to
you. The Company will reimburse you for all of your business expenses
in accordance with its policies. You will also be entitled to
reimbursement of up to $5,000 per year for the cost of initiation
fees, monthly dues and expenses incurred in connection with club
memberships.
Confidentiality. Your employment with the Company under this
- ---------------
Agreement necessarily involves your access to and understanding of
certain trade secrets and confidential information pertaining to the
business of the Company and its affiliates. During the term of your
employment with the Company and thereafter, you will not, directly or
indirectly, without the prior written consent of the Company,
disclose or use for the benefit of any person, corporation or other
entity, or for yourself any and all files, trade secrets or other
confidential information concerning the internal affairs of the
Company and its affiliates, including, but not limited to, information
pertaining to its clients, services, products, earnings, finances,
operations, methods or other activities, provided, however, that the
foregoing shall not apply to information which is of public record or
is generally known, disclosed or available to the general public or
the industry generally (other than as a result of your breach of this
covenant). Notwithstanding the foregoing, you may disclose such
information as is required by law during any legal proceeding or to
your personal representatives and professional advisers and, with
respect to such personal representatives and professional advisers,
you shall inform them of your obligations hereunder and take all
reasonable steps to ensure that such professional advisers do not
disclose the existence or substance thereof. Further, you shall not,
directly or indirectly, remove or retain, and upon termination of
employment for any reason you shall return to the Company, any
records, computer disks, computer printouts, business plans or any
copies or reproductions thereof, or any information or instruments
derived therefrom, arising out of or relating to the business of the
Company and its affiliates or obtained as a result of your employment
by the Company.
Non-Solicitation/Non-Competition. During the term of your employment
- --------------------------------
with the Company and for a period of six-months after the termination
of your employment with the Company, you shall not (i) become an
employee of or consultant to any principal competitor of the Company
in substantially the same function as your employment with the Company
or its affiliates in the twelve-months prior to termination of your
employment or (ii) directly or indirectly solicit or
Mr. Kevin J. Smith
March 20, 2002
Page 4
hire, or assist any other person in soliciting or hiring, any
employee of the Company or its affiliates (as of your termination of
employment with the Company) or any person who, as of such date, was
in the process of being recruited by the Company or its affiliates,
or induce any such employee to terminate his or her employment with
the Company or its affiliates.
Other Legal Matters.
- -------------------
You will be an "employee at will" unless or until you and
the Company otherwise agree in writing. The purpose of this
arrangement is to permit either of us to terminate employment
and compensation at any time with or without Cause or Good
Reason, except for such period of notice as may be expressly
provided in writing under written Company employment policies
in effect at the time of such termination. Your initial and
continuing employment will be subject to your having the
ability to work legally in the United States.
You have advised the Company that your execution and
performance of the terms of this Agreement do not and will
not violate any other agreement binding on you or the rights
of any third parties and you understand that in the event
this advice is not accurate the Company will not have any
obligation to you under this Agreement.
This letter agreement contains our entire understanding and
can be amended only in writing and signed by you and the
Chief Executive Officer. You specifically acknowledge that no
promises or commitments have been made to you that are not
set forth in this letter.
Any controversy or claim arising out of or relating to this
agreement or for the breach thereof, or your employment,
including without limitation any statutory claims (for
example, claims for discrimination including but not limited
to discrimination based on race, sex, sexual orientation,
religion, national origin, age, marital status, handicap or
disability; and claims relating to leaves of absence mandated
by state or federal law), breach of any contract or covenant
(express or implied), tort claims, violation of public policy
or any other alleged violation of statutory, contractual or
common law rights (and including claims against the Company's
officers, directors, employees or agents) if not otherwise
settled between the parties, shall be conclusively settled by
arbitration to be held in New York, New York, in accordance
with the American Arbitration Association's Employment
Dispute Resolution Rules (the "Rules"). Arbitration shall
be the parties' exclusive remedy for any such controversies,
claims or breaches. The parties agree they shall not seek any
award for punitive damages for any claims they may have under
this Agreement. The parties also consent to personal
jurisdiction in New York, New York with respect to such
arbitration. The award resulting from such arbitration shall
be final and binding upon both parties. Judgment upon said
award may be entered in any court having jurisdiction.
Mr. Kevin J. Smith
March 20, 2002
Page 5
You and the Company hereby waive the right to pursue any
claims, including but not limited to employment
termination - related claims, through civil litigation outside
the arbitration procedures of this provision, unless otherwise
required by law. You and the Company each have the right to
be represented by counsel with respect to arbitration of any
dispute pursuant to this paragraph. The arbitrator shall be
selected by agreement between the parties, but if they do not
agree on the selection of an arbitrator within 30 days after
the date of the request for arbitration, the arbitrator shall
be selected pursuant to the Rules.
In the event of any arbitration hereunder, the parties agree
each shall bear its or his own attorneys' fees and costs
associated with or arising from such arbitration or other
proceeding.
Yours sincerely,
/s/ Stephanie W. Abramson
Stephanie W. Abramson
Chief Legal Officer
I hereby accept the terms and conditions of employment as outlined
above:
/s/ Kevin J. Smith 4-4-02
- -------------------- ------
Kevin J. Smith Date
EXHIBIT 10.15
[Letterhead of Heidrick & Struggles, Inc.]
April 2, 2002
Stephanie W. Abramson
101 Central Park West
New York, New York 10023
Dear Stephanie:
On behalf of Heidrick & Struggles, Inc. (the "Company"), I am
writing to confirm amendments to the terms of your employment which
were set forth in the letter, dated December 28, 2000, addressed to
you (the "December 28 Agreement"). Terms not expressly defined
herein shall have the meanings ascribed to them in the December 28
Agreement.
1. Resignation for "Good Reason." Based upon changes in the Company's needs
and resources, as of January 1, 2002, the Company has eliminated the job of
Chief Corporate Development Officer, thereby diminishing substantially your
responsibilities. You and the Company have agreed that this action by the
Company constitutes "Good Reason" under the December 28 Agreement and
therefore you are entitled to resign for "Good Reason" as of the date of
such actions pursuant to the terms of the December 28 Agreement.
2. Severance Amount: Pursuant to the terms of the December 28 Agreement, the
Company is obligated to pay to you as soon as administratively feasible
after the date you resign for Good Reason in a lump sum an amount equal to
one year of base salary ($550,000) and one year of target bonus ($550,000)
(the "Severance Amount").
3. Loan Forgiveness: Pursuant to the terms of the December 28 Agreement, at
the time you resign for Good Reason, the entire principal amount of the
Note ($925,000) evidencing a non-interest bearing loan made to you by the
Company is to be forgiven in full.
4. Employment continuation period: The Company confirms that you do not have
an obligation to continue in its employ and that you are entitled to
terminate your employment for Good Reason and to collect the Severance
Amount and have the principal amount of the Note forgiven. However, the
Company has requested that, as an accommodation to it, you agree to be
employed on a full-time basis through June 30, 2002 (the period between
January 1, 2002 and June 30, 2002 hereinafter referred to as the
"Employment Continuation Period"). You have agreed to be employed during
the Employment Continuation Period pursuant to the following conditions:
5. (a) Title: You shall continue to have the titles "Chief Legal Officer,"
"Chief Corporate Development Officer" and "Corporate Secretary" and shall
continue to be a member of the Global Operating Committee and to attend the
meetings thereof. You shall continue to have your place of employment in
New York City and to have the support of an executive assistant.
(b) Base salary: Your base salary will continue at the rate of $550,000 per
annum and will be payable in accordance with the Company's usual payroll
practices.
(c) Bonus compensation: The Company hereby guarantees that it will pay you
a bonus amount with respect to the Employment Continuation Period equal to
the product of (x) $550,000 and (y) a fraction the numerator of which is
the number of months you have worked in 2002 and the denominator of which
is 12 (the "Guaranteed Bonus").
(d) Benefits: You will continue to participate in the benefits provided to
senior management generally and to receive the other benefits set forth in
the December 28 Agreement.
(e) Change in Control Severance Plan: You will continue to be a participant
in the Company's Change in Control Severance Plan in Tier One until the
earlier of June 30, 2002, and the date on which you cease to be employed by
the Company. You hereby waive the provisions of the December 28 Agreement
relating to the consequences of termination of your employment in
connection with a Change in Control.
(f) Severance Pay, Guaranteed Bonus, and Note forgiveness: You agree to
defer collection of the Severance Amount, the Guaranteed Bonus and
forgiveness of the Note until the earlier of June 30, 2002, and the date on
which you cease to be employed by the Company. Accordingly, the Company
will pay to you on the earlier of June 30, 2002, and the date of
termination of your employment all base salary earned but not yet paid, the
Severance Amount and the Guaranteed Bonus and will forgive the principal
amount of the Note on such date.
(g) Termination of employment during the Employment Continuation Period:
You shall have the right to resign, and the Company shall have the right to
terminate your employment, for any reason during the Employment
Continuation Period. If the Company terminates your employment other than
for Cause, you resign for Good Reason, or your employment ceases as a
result of your death or permanent disability, in each case prior to June
30, 2002, in addition to its obligations hereunder with respect to the
Severance Amount and the Note, the Company will pay you (1) base salary
through June 30, 2002, and (2) the Guaranteed Bonus calculated as if your
employment terminated on June 30, 2002. If you should resign voluntarily
from employment other than for Good Reason prior to June 30, 2002, in
addition to its obligations hereunder with respect to the Severance Amount
and the Note, the Company will pay you (1) base salary through the date of
termination; and (2) the Guaranteed Bonus calculated as if the date of
termination of employment were April 30, 2002. If the Company terminates
your employment for Cause prior to June 30, 2002, in addition to its
obligations hereunder with respect to the Severance Amount and the Note,
the Company will pay you (1) base salary through the date of termination,
and (2) the Guaranteed Bonus calculated based on the date of termination.
6. Other provisions of the December 28 Agreement to continue: Unless modified
hereby, the other provisions of the December 28 Agreement (including the
Company's reimbursement of dues for two club memberships) shall continue in
effect during the Employment Continuation Period until the date your
employment terminates.
7. Announcements: Any announcement by the Company regarding the termination of
your employment with the Company, the December 28 Agreement or this letter
agreement shall be subject to your review and agreement with the Company.
Very truly yours,
/s/ Piers Marmion
- ---------------------------------------------------
Piers Marmion, Chairman and Chief Executive Officer
Accepted and Agreed:
/s/ Stephanie W. Abramson
- -------------------------
Stephanie W. Abramson
Date: April 12, 2002
