Attached files

file filename
EX-21 - EX-21 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv21.htm
EX-1.1 - EX-1.1 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv1w1.htm
EX-2.1 - EX-2.1 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv2w1.htm
EX-99.4 - EX-99.4 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv99w4.htm
EX-10.3 - EX-10.3 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv10w3.htm
EX-10.4 - EX-10.4 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv10w4.htm
EX-23.2 - EX-23.2 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv23w2.htm
EX-10.2 - EX-10.2 - CTPARTNERS EXECUTIVE SEARCH INC.l40449eexv10w2.htm
Table of Contents

 
Registration No. 333-169224
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Amendment No. 3
to
 
Form S-1
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
CTPARTNERS EXECUTIVE SEARCH LLC
[to be known as CTPartners Executive Search Inc.]
(Exact name of registrant as specified in its charter)
 
 
 
 
         
Delaware   7361   52-2402079
(State of incorporation)   (Primary Standard Industrial
Classification Code Number)
  (IRS Employer
Identification No.)
 
 
 
 
1166 Avenue of the Americas
3rd Floor
New York, NY 10036
Phone: (212) 588-3500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
 
 
Brian M. Sullivan
Chief Executive Officer
CTPartners Executive Search Inc.
1166 Avenue of the Americas
3rd Floor
New York, NY 10036
Phone: (212) 588-3500
Fax: (212) 688-5754
(Name, address, including zip code, and telephone number, including are code, of agent for service)
 
With a copy to:
 
Howard Groedel, Esq.
Ulmer & Berne LLP
1660 West 2nd Street, Suite 1100
Cleveland, OH 44113-1448
Phone: (216) 583-7000
Fax: (216) 583-7001
 
Approximate Date of Commencement of Proposed Sale to the Public:  As soon as practicable after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”), check the following box:  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
         (Do not check if a smaller reporting company)    
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement on Form S-1 shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED NOVEMBER 16, 2010
 
PROSPECTUS
 
2,307,692 Shares
 
(CTPARTNERS EXECUTIVE SEARCH INC LOGO)
 
CTPartners Executive Search Inc.
 
Common Stock
 
This is an initial public offering of shares of common stock of CTPartners Executive Search Inc.
 
CTPartners is offering 1,869,220 of the shares to be sold in this offering. The selling stockholders identified in this prospectus are offering an additional 438,472 shares. CTPartners will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
 
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $12.00 and $14.00. We have applied to list our common stock on the NYSE Amex Equities stock exchange under the symbol “CTP”.
 
See “Risk Factors” beginning on page 8 to read about factors you should consider before buying shares of our common stock.
 
 
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
 
                 
    Per Share   Total
 
Initial public offering price
  $           $        
Underwriting discount
  $       $    
Proceeds, before expenses, to CTPartners
  $       $    
Proceeds, before expenses, to the selling stockholders
  $       $  
 
To the extent that the underwriters sell more than 2,307,692 shares of common stock, the underwriters have the option to purchase up to an additional 346,154 shares from us at the initial public offering price less the underwriting discount.
 
William Blair & Company C.L. King & Associates
 
The date of this prospectus is          , 2010.
 


 

 
TABLE OF CONTENTS
 
         
    Page
 
    1  
    5  
    8  
    17  
    18  
    18  
    19  
    20  
    20  
    22  
    23  
    35  
    45  
    49  
    55  
    57  
    58  
    62  
    64  
    68  
    68  
    68  
    69  
    F-1  
 EX-1.1
 EX-2.1
 EX-10.2
 EX-10.3
 EX-10.4
 EX-21
 EX-23.2
 EX-99.4
 
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.


ii


Table of Contents

 
SUMMARY
 
This summary highlights certain information appearing elsewhere in this prospectus and in the documents we incorporate by reference. After you read this summary, you should read and consider carefully the more detailed information and financial statements and related notes that we include in and/or incorporate by reference into this prospectus, especially the section entitled “Risk Factors.” If you invest in our shares, you are assuming a high degree of risk.
 
Business Summary
 
We are a leading global retained executive search firm. We believe that with 21 global offices, over 300 search professionals and staff, and a significant revenue base, we are able to compete effectively with other global retained executive search firms. We help our clients build stronger leadership teams by facilitating the recruitment and hiring of senior executives, officers and board members. Our retained executive search services focus on successfully making placements for our clients in a timely manner. We provide these services through 15 offices in the Americas, Europe and Asia Pacific, as well as through a licensing arrangement with six associated offices in Latin America (we refer to such offices as “our associated offices in Latin America”). In 2009, we were engaged to perform 962 searches, including 667 performed directly by us and 295 performed by our associated offices in Latin America, and we generated net revenue of $73.9 million and operating income of $5.7 million. Included in our 2009 net revenue is $250,650 in license fees from our associated offices in Latin America.
 
Our organizational structure is designed to provide high quality, industry-focused executive search services to our clients worldwide. Our executive search consultants are dedicated to specific industry verticals and are leading experts in their given sectors. We believe that industry specialization enables us to better understand our clients’ cultures, operations, business strategies and industries. Our five largest industry practice groups are financial services, professional services, life sciences, technology/media/telecom and consumer/industrial.
 
We have a diverse group of clients located throughout the world and in a variety of industries. From January 1, 2005 through September 30, 2010, we performed more than 4,400 searches for over 1,400 clients, including some of the leading Fortune 1000, FTSE 100, DAX and CAC 40 companies, private equity and venture capital firms and their portfolio companies. No single client accounted for more than 5% of our revenue in 2009, 2008 or 2007.
 
We believe that we are the only global retained executive search firm to track and publish the key quality metrics that drive success in our business, and to have these metrics examined by an independent registered public accounting firm. These include (i) placement success rate; (ii) average days to placement; and (iii) stick rate (which we define as the percentage of candidates placed at a client that remain in the same, similar or elevated position over the measurement period). In 2009, our placement success rate was 78% and our average days to placement was 124. For candidates placed from January 1, 2008 to June 30, 2009 (the most recent period for which our results have been examined by our independent registered public accounting firm), our stick rate was 90%. We believe that this performance significantly exceeds the performance of our major competitors.
 
We use a proprietary search process, SearchSigma, and proprietary technology and communication tools, ClientNet®, to successfully execute our retained searches. SearchSigma was developed based on analyzing three years of detailed client surveys. In our analysis, we identified the common criteria and timetables our clients expect from a successful search. Based upon our findings, we structured SearchSigma as a workflow process with six distinct segments and milestones — at 48 hours, 7 days, 14 days, 40 days, 75 days and 100 days — designed to complete a successful placement within 100 days of our engagement. SearchSigma also enables our executive search consultants and clients to actively monitor the status of each search and make adjustments to the search process as necessary.
 
We believe that a high level of communication and process transparency with our clients is very important to their level of satisfaction and to the ultimate success of our searches. The cornerstone of our


1


Table of Contents

client communication is our proprietary system, ClientNet®. Through ClientNet®, our clients can access password-protected information over the internet to check the status of their search engagements. Another important element of our transparency and accountability is the audit that we offer to conduct at the 40-day milestone. This key process step is executed by one of our executive search consultants who is not otherwise involved in the particular search. This executive search consultant contacts the client to assess the progress of the search and to gather client feedback along with any suggested refinements to the process.
 
Our Industry
 
The executive search business is highly fragmented, consisting of several large global firms and several thousand smaller firms that are generally focused on a specific geographic region or on a specific vertical sector. We believe that there are a number of positive trends that are contributing to the growth of the executive search industry:
 
  •  Increasing Competition for Talent. Corporate governance reforms, increased public scrutiny of board members and the “baby boom” generation retiring from the workforce are contributing to an increase in competition among companies for executive level talent.
 
  •  Corporate Governance Reforms. The significant influence of large institutional shareholders, rise in shareholder activism and turbulent market conditions have led to an increased focus on director qualifications and independence and best practices in the leadership selection process.
 
  •  Globalization. As businesses increasingly compete on a global scale, their need for senior executives with specific skills in various parts of the world also increases.
 
  •  Greater Need for Diverse Management and Directors. Many companies seek to augment their senior leadership with professionals that provide unique or differentiated skills and backgrounds.
 
Many organizations lack the internal skills necessary to address these issues and identify, assess and recruit the best senior executives in this environment. As a result, we believe organizations will increasingly rely on executive search firms to fill positions and meet critical objectives.
 
Our Key Competitive Strengths
 
We believe our key competitive strengths are:
 
  •  Intense Focus on the Timely and Successful Completion of Searches. Our performance-based business philosophy and incentive compensation structure is designed to focus our executive search consultants and other employees on successfully making the placements for which we are retained within our stated goal of 100 days from our engagement.
 
  •  Highly Disciplined, Milestone-Driven Approach to Executing Searches. We rigorously and consistently apply a detailed workflow process, which we call SearchSigma, with six distinct segments and milestones — at 48 hours, 7 days, 14 days, 40 days, 75 days and 100 days — that enhances our ability to successfully and expeditiously identify and place candidates for our clients.
 
  •  An Industry Leader in Utilizing Key Performance Metrics to Manage Our Business. We actively track and publish the performance metrics (placement percentage, days to placement and stick rate) which are critically important to clients, and we have these results examined by an independent registered public accounting firm. We believe our clients value having such data and that the availability of this data enhances our ability to both satisfy clients and win new engagements.
 
  •  High Level of Transparency and Accountability with Clients. Through ClientNet®, our proprietary client communication system, and the audit that we offer to conduct at the 40 day milestone for each search, our clients have the ability to actively monitor and participate in their search engagements.


2


Table of Contents

 
  •  Global Firm with Deep Domain Expertise. With 21 offices in 13 countries throughout Asia, Europe, North America and South America and deep domain expertise in specific industry verticals, we serve our clients’ global businesses and talent needs and are well positioned to identify and qualify relevant candidates.
 
  •  Organization and Incentives Structured to Drive Collaboration and Best Outcome for the Client. Our compensation structure and one-firm culture motivates our executive search consultants to source the team they believe is best-suited for each situation and are driven to deliver results for the client. We believe this creates a strong team culture, with all members of the team aligned around the goal of quickly making a successful placement.
 
Our Growth Strategy
 
Our goal is to strengthen our position as a leading provider of retained executive search services through the following strategies:
 
  •  Continue to Increase our Penetration of Existing Clients. Over the past three years, approximately 70% of our retained executive search engagements came from clients who had previously used our services, many of which are large, global companies that are continually seeking to add talented senior executives to their management teams. We have a significant opportunity to continue to expand our relationships these clients.
 
  •  Continue to Deepen Expertise in Targeted Industry Practices. We intend to maintain our model of offering deep industry domain expertise to our clients by continuing to add talented executive search consultants to all of our practice areas.
 
  •  Expand Global Presence. Driven by the locations of both clients and recruiting talent, we intend to open additional offices around the world, expanding our global footprint and enhancing our market presence and our execution capabilities.
 
  •  Make Strategic Targeted Hires and Acquisitions. We intend to continue to hire new executive search consultants as demand for our services continues to grow and as we identify talent in the marketplace.
 
  •  Expand Board Placement and Advisory Practice. We expect that increased corporate governance regulation and an increased focus on board member qualifications and accountability will drive meaningful growth and demand for board advisory services. We also expect that this practice will be a driver of our core executive search business as we gain access to new clients at the board level.
 
Risks That We Face
 
Our business is subject to numerous risks, as discussed more fully in the section entitled “Risk Factors” immediately following this prospectus summary. If we cannot attract and retain qualified executive search consultants, our business, financial condition and results of operation would suffer. To the extent our clients delay or reduce hiring senior executives due to an economic downturn or economic uncertainty our results of operations will be adversely affected. If we lose the services of one or more members of our senior management team or if we fail to limit departing executive search consultants from moving business and other executive search consultants to another employer, our business could be negatively impacted. Demand for our services could decline if we fail to maintain our professional reputation and brand name.
 
Our Corporate Information
 
We were incorporated on April 4, 1980 as Christian and Timbers, Inc. In 2003, Christian and Timbers, Inc. contributed all of its assets to a newly formed Delaware limited liability company, Christian & Timbers LLC. In 2007, we changed our name to CTPartners Executive Search LLC. Prior to the effectiveness of the registration statement of which this prospectus is a part, we will convert from a Delaware limited liability company to a “C” corporation organized under the laws of the state of Delaware.


3


Table of Contents

 
Our principal executive offices are located at 1166 Avenue of the Americas, 3rd Floor, New York, New York 10036 and our telephone number is (212) 588-3500. Our corporate website address is www.ctnet.com. We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it part of this prospectus. For convenience in this prospectus, “CTPartners,” “we,” “us,” and “our” refer to CTPartners Executive Search, Inc. and its subsidiaries, taken as a whole, unless otherwise noted.
 
The Offering
 
Common stock offered by us
1,869,220 shares
 
Common stock offered by the selling stockholders
438,472 shares
 
Common stock to be outstanding after this offering
6,830,769 shares
 
Proposed NYSE Amex Equities trading symbol
CTP
 
Use of proceeds
We estimate that we will receive proceeds of approximately $22.2 million from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming the shares are offered at $13.00 per share, which is the midpoint of the estimated offering price range shown on the front cover page of this prospectus. We expect to use the net proceeds from this offering to pay approximately $4.5 million to cash out the value of performance units granted to certain of our executive search consultants, to pay approximately $4.3 million in tax costs resulting from our conversion from a limited liability company to a “C” corporation, to prepay in full a promissory note, with an outstanding principal balance of approximately $1.9 million, issued by the Company to the former chief executive officer of the Company and his family trust, to prepay approximately $1.6 million in certain convertible promissory notes with certain executive search consultants, to hire executive search consultants and for general corporate purposes. See “Use of Proceeds” on page 18. We will not receive any proceeds from the sale of shares by the selling stockholders.
 
Dividend policy
We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to declare or pay any cash dividends on our common stock in the foreseeable future.
 
Risk factors
An investment in our common stock involves a high degree of risk. You should read and consider the information set forth under the heading “Risk Factors” beginning on page 8 and all other information included in this prospectus before deciding to invest in our common stock.
 
The number of shares of our common stock that will be outstanding after this offering is based upon the number of shares of common stock outstanding as of the date of this prospectus, and does not include (i) 1,000,000 shares of common stock that are reserved for future grants, awards or sale under our 2010 equity incentive plan or (ii) up to 250,830 shares of common stock that will be issued upon the vesting (108,784 shares of common stock will vest in 2011, 103,946 shares of common stock will vest in 2012 and 38,100 shares of common stock will vest in 2013) of certain grants made in connection with the employment of certain executive search consultants.
 
Unless otherwise indicated, the information in this prospectus reflects and assumes no exercise by the underwriters of their option to purchase additional shares of common stock from us to cover over-allotments.


4


Table of Contents

 
SUMMARY CONSOLIDATED FINANCIAL DATA
 
The following tables set forth our summary consolidated statement of income for each of the fiscal years ended December 31, 2007, 2008 and 2009, and for the nine months ended September 30, 2009 and 2010, and our summary consolidated balance sheet data as of September 30, 2010. The summary consolidated statement of income data for fiscal years 2007, 2008 and 2009 are derived from our audited, consolidated, financial statements included elsewhere in this prospectus. The summary consolidated statement of income data for the nine months ended September 30, 2009 and 2010, and our summary consolidated balance sheet data as of September 30, 2010, have been derived from our unaudited financial statements included elsewhere in this prospectus, and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such data. Our historical results do not necessarily indicate results that may be expected for any future period. You should read these tables along with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
Summary Consolidated Statement of Income Data:
 
                                         
          Nine Months
 
    Year Ended December 31,     Ended September 30,  
    2007     2008     2009     2009     2010  
                      (Unaudited)  
 
Revenue:
                                       
Net revenue
  $ 116,628,010     $ 105,715,730     $ 73,860,740     $ 50,571,384     $ 86,010,878  
Reimbursable expenses
    4,304,209       4,994,766       2,727,182       1,966,539       2,806,587  
                                         
Total revenue
  $ 120,932,219     $ 110,710,496     $ 76,587,922     $ 52,537,923     $ 88,817,465  
Operating Expenses:
                                       
Compensation and benefits
  $ 87,650,465     $ 82,640,507     $ 48,571,747     $ 33,886,938     $ 62,440,526  
General and administrative
    26,182,635       23,027,095       19,412,165       13,417,296       16,409,122  
Reimbursable expenses
    4,777,021       5,117,286       2,942,669       2,081,188       2,926,547  
                                         
Total operating expenses
  $ 118,610,121     $ 110,784,888     $ 70,926,581     $ 49,385,422     $ 81,776,195  
                                         
Operating income (loss)
  $ 2,322,098     $ (74,392 )   $ 5,661,341     $ 3,152,501     $ 7,041,270  
Net interest expense
    687,521       596,385       409,034       276,909       197,843  
                                         
                                         
Income (loss) before income taxes
  $ 1,634,577     $ (670,777 )   $ 5,252,307     $ 2,875,592     $ 6,843,427  
Income tax expense
    308,485       537,389       463,698       491,502       45,916  
                                         
Net income (loss)
  $ 1,326,092     $ (1,208,166 )   $ 4,788,609     $ 2,384,090     $ 6,797,511  
                                         


5


Table of Contents

Summary Consolidated Balance Sheet Data:
 
The pro forma balance sheet data as of September 30, 2010 gives effect to (i) the consummation of the corporate conversion, (ii) the sale by us of 1,869,220 shares of our common stock at an assumed initial public offering price of $13.00 per share, the midpoint of the range set forth on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the use of the estimated net proceeds therefrom, as described in “Use of Proceeds.”
 
                 
    As of September 30, 2010  
    Actual     Pro Forma  
    (Unaudited)  
 
Cash
  $ 13,600,540       23,909,540  
Total assets
    46,825,829       55,921,829  
Long-term liabilities
    6,955,172       2,622,311  
Total liabilities
    41,499,133       34,885,273  
Redeemable member units
    54,923,448        
Members’/shareholders’ equity (deficit)
    (49,596,752 )     21,036,556  
 
Other Data:
 
                                         
          Nine Months
 
    Year Ended December 31,     Ended September 30,  
    2007     2008     2009     2009     2010  
                      (Unaudited)  
 
Adjusted EBITDA
  $ 4,420,200     $ 2,187,868     $ 7,732,265     $ 4,648,182     $ 8,871,659  
Capital expenditures
  $ 2,822,500     $ 679,749     $ 129,692     $ 66,668     $ 540,551  
Number of new search assignments
    981       889       667       471       796  
Number of executive search consultants (as of period end)
    77       81       77       78       88  
Average revenue per executive search
  $ 117,600     $ 110,100     $ 103,500     $ 101,800     $ 101,100  
 
Non-GAAP Financial Measure:
 
Management defines Adjusted EBITDA as net income (loss) plus income tax expense, net interest expense, depreciation and amortization expense and non-cash equity-based compensation expense. We exclude non-cash equity-based compensation expense because the timing and amount of such compensation is closely correlated to the hiring of executive search consultants which varies significantly over time and, therefore, is not indicative of operating performance and reduces the comparative value of Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to generally accepted accounting principles (“GAAP”) net income or net cash provided by operating activities. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income and net cash provided by operating activities. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Since Adjusted EBITDA may be defined differently by other companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. We believe, however, that the presentation of Adjusted EBITDA in this prospectus provides information useful to investors in assessing our financial condition and results of operations.
 
Management uses Adjusted EBITDA to:
 
  •  compare our operating performance with other publicly traded entities in our industry, without regard to capital structure, historical cost basis or financing methods; and


6


Table of Contents

 
  •  compare our operating performance in different periods on a consistent basis by excluding decisions made in prior periods that relate to the structure or financing of our business.
 
The following table presents a reconciliation of the GAAP financial measures of net income to the non-GAAP financial measure of Adjusted EBITDA, on a pro forma basis:
 
                                         
          Nine Months
 
    Year Ended December 31,     Ended September 30,  
    2007     2008     2009     2009     2010  
                      (Unaudited)  
 
Net income (loss)
  $ 1,326,092     $ (1,208,166 )   $ 4,788,609     $ 2,384,090     $ 6,797,511  
Income tax expense
    308,485       537,389       463,698       491,502       45,916  
Net interest expense
    687,521       596,385       409,034       276,909       197,843  
Depreciation and amortization
    964,397       1,190,947       1,243,554       967,884       862,414  
Non-cash equity-based compensation expense
    1,133,705       1,071,313       827,370       527,797       967,975  
                                         
Adjusted EBITDA
  $ 4,420,200     $ 2,187,868     $ 7,732,265     $ 4,648,182     $ 8,871,659  
                                         


7


Table of Contents

 
RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider and evaluate the risks and uncertainties described below before making an investment decision. The occurrence of any of the following risks and uncertainties could harm our business, financial condition, results of operations or growth prospects. As a result, the trading price of our common stock could decline, and you could lose all or part of your investment.
 
Risks Related to Our Business
 
Our inability to attract and retain qualified executive search consultants would adversely affect our business financial condition and results of operations.
 
Our success depends upon our ability to attract and retain executive search consultants who possess the skills and experience necessary to fulfill our clients’ needs. In addition, our ability to grow the Company is dependent on increasing our overall number of qualified executive search consultants. Our ability to hire and retain qualified executive search consultants could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors, modifications of our compensation philosophy or competitor hiring programs. If we cannot attract, hire and retain qualified executive search consultants, our business, financial condition and results of operations would be adversely affected.
 
A significant or prolonged economic downturn would have a material adverse effect on our results of operations.
 
Our results of operations are affected by the level of business activity of our clients, which in turn is affected by general economic conditions and the level of economic activity in the industries and markets that they serve. On an aggregate basis, our clients may be less likely to hire as many senior executives during economic downturns and periods of economic uncertainty. To the extent our clients delay or reduce hiring senior executives due to an economic downturn or economic uncertainty, our results of operations will be adversely affected, as evidenced by our results of operations for 2008 and 2009. During the recent economic downturn our net revenues significantly decreased from $116.6 million in 2007 to $73.9 million in 2009. A continued economic downturn or period of economic uncertainty and a decline in the level of business activity of our clients would have a material adverse effect on our business, financial condition and results of operations.
 
Global economic developments and conditions in the geographic regions and industries from which we derive a significant portion of our revenue could negatively affect our business, financial condition and results of operations.
 
Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions and industries in which we operate. The concentration of our business in certain geographic regions and/or industries exacerbates this risk. For example, over 40% of our net revenue in 2009 was derived from providing our services to the financial services industry. When conditions in the global economy, including the credit markets, deteriorate, or economic activity slows, companies may hire fewer permanent employees and some companies, as a cost-saving measure, may choose to rely on their own human resources departments rather than third-party search firms to find talent. Certain of the geographic regions and industries in which we operate have recently deteriorated significantly and may remain depressed for the foreseeable future. As evidenced by our net revenue results for 2008 and 2009, our business was directly and negatively affected by the global economic downturn. If the national or global economy or credit market conditions in general deteriorate, or the demand for our services in a significant industry decreases, our cash flows, business, financial condition and results of operations would be adversely affected.


8


Table of Contents

We depend substantially on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, our business would be adversely affected.
 
Our continued growth and success depend in large part on the managerial and leadership skills of our senior management team, particularly Brian M. Sullivan, our chief executive officer, and David C. Nocifora, our chief operating and chief financial officer. We rely on our senior management team to market our business, manage our globally dispersed business operations and hire and retain qualified executive search consultants. The success of our growth efforts depends on significant management attention to integration and coordination. The loss of the services of either member of our senior management team would have a material adverse effect on our business, financial condition and results of operations. We have no reason to believe that we will lose the services of either of these individuals in the foreseeable future; however, we currently have no effective replacement for either of these individuals due to their experience, reputation in the industry and significant role in our operations.
 
If we are unable to prevent our executive search consultants from taking our clients or our executive search consultants with them to a competitor our business, financial condition and results of operations could suffer.
 
Our success depends upon our ability to develop and maintain strong, long-term relationships with our clients. Although we work on building these relationships between our firm and our clients, in many cases, one or two executive search consultants have primary responsibility for a client relationship. Additionally, a limited number of executive search consultants have primary responsibility for a disproportionate share of our business. In 2009, for example, our top three executive search consultants had primary responsibility for generating business equal to approximately 12% of our net revenues, and our top 10 executive search consultants had primary responsibility for generating business equal to approximately 28% of our net revenues.
 
Since we do not enter into non-competition agreements with our executive search consultants, our executive search consultants are not contractually prohibited from leaving or joining one of our competitors and some of our clients could choose to use the services of that competitor instead of us. We may also lose clients if the departing executive search consultant has widespread name recognition or a reputation as a specialist in executing searches in a specific industry or management function. Although our employment contracts prohibit former executive search consultants from soliciting any of our employees for a period of one year, we may lose additional executive search consultants if they choose to join the departing executive search consultant at another executive search firm. If we fail to limit departing executive search consultants from moving business or recruiting our executive search consultants to a competitor, our business, financial condition and results of operations could be adversely affected.
 
If we are unable to maintain our professional reputation and brand name our business would be adversely affected.
 
We depend on our overall professional reputation and brand name recognition to secure new engagements and hire qualified executive search consultants. In 2007, we changed our brand from Christian & Timbers to CTPartners. While we believe we have established our brand in the market, a number of our competitors have more established and better name recognition than us. Our success also depends on the individual reputations of our executive search consultants. We obtain many of our new engagements from existing clients or from referrals by those clients. A client who is dissatisfied with our work can adversely affect our ability to secure new engagements. If our reputation is negatively affected, including poor performance or our brand awareness does not continue to increase, we may experience difficulties in competing successfully for both new engagements and qualified executive search consultants. Failure to maintain our professional reputation and brand name could have a material adverse effect on our business, financial condition and results of operations.


9


Table of Contents

Because existing clients may restrict us from recruiting their employees we may be unable, or be perceived by prospective clients as being unable, to fill existing or prospective executive search assignments, and prospective clients may not engage us, impeding our growth.
 
Clients frequently require us to refrain from recruiting certain of their employees when conducting executive searches on behalf of other clients. These restrictions generally remain in effect for no more than one year following the commencement of an engagement. However, the specific duration and scope of the off-limits arrangements depend on the length of the client relationship, the frequency with which the client engages us to perform searches and the potential for future business with the client. If a prospective client believes that we are overly restricted by these off-limits arrangements from recruiting the employees of our existing clients, these prospective clients may not engage us to perform their executive searches, and as a result, our business, financial condition and results of operations could be adversely affected.
 
We face aggressive competition and if we are unable to compete effectively, it would have a material adverse affect on our business, financial condition and results of operations.
 
The global executive search industry is extremely competitive and highly fragmented. We compete with other large global executive search firms and smaller specialty firms. Some of our competitors possess greater financial and other resources, greater name recognition and longer operating histories than we do in particular markets or practice areas. Additionally, specialty firms can focus on regional or functional markets or on particular industries. To the extent our competitors are better capitalized and have access to greater financial and other resources, these competitors may be better positioned to attract executive search consultants, expand their business and weather any economic downturns. There are limited barriers to entry into the search industry and new search firms continue to enter the market. Many executive search firms that have a smaller client base may be subject to fewer off-limits arrangements. In addition, our clients or prospective clients may decide to perform executive searches using in-house personnel. Finally, competitors sometimes reduce their fees in order to attract clients and increase market share. Because we typically do not discount our fees, we may experience some loss of net revenue. We may not be able to continue to compete effectively with existing or potential competitors. Our inability to meet these competitive challenges would have a material adverse effect on our business, financial condition and results of operations.
 
We rely heavily on information management systems and any interruptions or loss of key client data could adversely affect our business.
 
Our success depends upon our ability to store, retrieve, process and manage substantial amounts of information. To achieve our goals, we must continue to improve, upgrade and invest in our information management systems. We may be unable to license, design and implement, in a cost-effective and timely manner, improved information systems that allow us to compete effectively. In addition, business process reengineering efforts may result in a change in software platforms and programs. In addition to the cost of licensing, designing and implementing new information systems, such efforts may present transitional problems. Finally, although our data center is maintained at a third-party location, if we experience any interruptions or loss in our information processing capabilities or loss of key client data, our business, financial condition and results of operations could be adversely affected.
 
We face the risk of liability in the services we perform and significant uninsured liabilities could have a material adverse affect on our business, financial condition and results of operations.
 
We are exposed to potential claims with respect to the executive search process. A client could assert a claim for violations of off-limits arrangements, breaches of confidentiality agreements or professional malpractice. In addition, candidates and client employees could assert claims against us. Possible claims include failure to maintain the confidentiality of the candidate’s employment search or for discrimination or other violations of employment laws or professional malpractice. In various countries, we are subject to data protection laws impacting the processing of candidate information. We maintain professional liability insurance in amounts and coverage that we believe are adequate, however, we cannot guarantee that our insurance will


10


Table of Contents

cover all claims or that coverage will always be available or sufficient. Significant uninsured liabilities could have a material adverse effect on our business, financial condition and results of operations.
 
Our inability to successfully integrate executive search consultants may have an adverse effect on our business.
 
Much of our net revenue growth since 2004 is due to adding additional executive search consultants in different geographic locations. We expect to continue to grow by, among other things, selectively adding executive search consultants. We may not, however, be able to identify appropriate executive search consultants, consummate such additions on satisfactory terms or integrate the acquired practices effectively and profitably into our existing operations. Our future success will depend in part on our ability to complete the integration of executive search consultants successfully into our operations. Failure to successfully integrate recently hired executive search consultants and complementary practices may adversely affect our profitability by creating operating inefficiencies that could increase operating expenses as a percentage of net revenues and reduce operating income. Further, the clients of recently hired executive search consultants may choose not to move their business to us.
 
We may not be able to manage effectively our expanding operations, which may impede our growth and/or negatively impact our performance.
 
Since 2004, we have experienced a period of rapid growth. This places a significant strain on our managerial and operational resources. Our number of employees grew from 88 as of December 31, 2004 to 319 as of September 30, 2010, mainly as a result of adding executive search consultants and staff supporting such executive search consultants. To accommodate our future expected growth, we may need to implement new or upgraded operating and financial systems, procedures and controls throughout many different locations. These efforts may not be successful. Additionally, opening new office locations may strain our financial and management resources. Our failure to expand and integrate these systems, procedures and office locations efficiently could cause our expenses to increase disproportionately and our net revenues to decline or grow more slowly than expected, which could have a material adverse effect on our business, financial condition and results of operations.
 
Our multinational operations may be adversely affected by economic, social, political and legal risks.
 
We generate substantial net revenue outside the United States. We offer our services through seven locations outside the U.S. (excluding our associated offices in Latin America). We are exposed to the risk of changes in economic, social, political and legal conditions inherent in international operations, which could have a significant impact on our business, financial condition and results of operations. In particular, we conduct business in countries where the legal systems, local laws and trade practices are unsettled and evolving. Commercial laws in these countries are sometimes vague, arbitrary and inconsistently applied. Under these circumstances, it is difficult for us to determine at all times the exact requirements of such local laws. If we fail to comply with local laws, our business, financial condition and results of operations could suffer. In addition, the global nature of our operations poses challenges to our management as well as our financial and accounting systems. Failure to meet these challenges could have a material adverse effect on our business, financial condition and results of operations.
 
A significant currency fluctuation between the U.S. dollar and other currencies could adversely impact our operating income.
 
With operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. In 2009, 37% of our fee revenue was generated outside of North America. As we typically transact business in the local currency, our profitability may be impacted by the translation of foreign currency financial statements into U.S. dollars. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have a material adverse effect on our profitability and our business, financial condition and results of operations.


11


Table of Contents

The failure to timely align our cost structure with net revenue could have a material adverse affect on our business, financial condition and results of operations.
 
We must ensure that our costs and workforce continue to be in proportion to demand for our services. In particular, local laws in some of the countries we operate in make it more difficult and time consuming to appropriately adjust staffing levels. Failure to timely align our cost structure and headcount with net revenue could have a material adverse effect on our business, financial condition and results of operations.
 
Our inability to access credit, or if we are only able to do so at significantly higher costs, could limit our ability to grow and harm our business, financial condition and results of operations.
 
In the current economic environment, banks may strictly enforce the terms of our credit agreement. Although we are currently in compliance with the financial covenants of our revolving credit facility, a further deterioration of economic conditions may negatively impact our business resulting in our failure to comply with these covenants in the future, which could limit our ability to borrow funds under our revolving credit facility. We may not be able to secure alternative financing or may only be able to do so at significantly higher costs, and this could harm our business, financial condition and results of operations.
 
Risks Related to this Offering and Ownership of Our Common Stock
 
There is no established trading market for our common stock, and the market price of our common stock may be highly volatile or may decline regardless of our operating performance.
 
There has been no public market for our common stock prior to this offering. If you purchase shares of our common stock in this offering, you will pay a price that was not established in the public trading markets. The initial public offering price for our shares will be determined through negotiations among the underwriters, the selling stockholders and us. This initial public offering price may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell your shares above the initial public offering price, and you may suffer a loss on your investment. In addition, an active trading market for our common stock following this offering may not develop or, if developed, may not be sustained. An inactive market may also impair our ability to raise capital to continue to fund operations by selling common stock and may impair our ability to acquire other companies or assets by using our common stock as consideration.
 
Broad market and industry factors also may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause wide fluctuations in our stock price may include, among other things:
 
  •  general economic conditions;
 
  •  actual or anticipated variations in our financial condition and operating results;
 
  •  overall conditions or trends in our industry;
 
  •  addition or loss of significant clients;
 
  •  changes in the market valuations of companies perceived by investors to be comparable to us;
 
  •  announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;
 
  •  announcements of lawsuits filed against us;
 
  •  additions or departures of key personnel;
 
  •  changes in the estimates of our operating results or changes in recommendations by any securities or industry analysts that elect to follow our common stock; and
 
  •  sales of our common stock by us or our stockholders, including sales by our directors and officers.


12


Table of Contents

 
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. These fluctuations may be even more pronounced in the trading market for our common stock immediately following this offering. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. We may be the target of this type of litigation in the future. Securities litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources, whether or not we are successful in such litigation.
 
Requirements associated with being a public company will increase our costs, as well as divert company resources and management’s attention, and affect our ability to attract and retain qualified board members and executive officers.
 
Prior to this offering, we have not been subject to the reporting requirements of the Securities Exchange Act of 1934 or the other rules and regulations of the SEC or any securities exchange relating to public companies. We will comply with Section 404(a) (management’s report on financial reporting) under the Sarbanes-Oxley Act for the year ending December 31, 2011. To comply with this statute, we will be required to document and test our internal control procedures. During such process, we may discover areas of our internal controls that need further attention and improvement. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and our failure to maintain that adequacy, or any inability to produce accurate financial statements on a timely basis as a result, could increase our operating costs, harm our ability to run our business and cause us to fail to meet our reporting obligations. Our failure to have adequate internal controls could undermine investor confidence, which could adversely affect our stock price. Furthermore, failure to comply with Section 404 could potentially subject us to sanctions or investigations by the SEC, the NYSE Amex Equities stock exchange or other regulatory bodies.
 
We are working with our legal, independent accounting and financial advisors to identify those areas in which changes or enhancements should be made to our financial and management control systems to manage our growth and obligations as a public company. Some such areas include corporate governance, corporate control, internal audit, disclosure controls and procedures, and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, the expenses that will be required in order to prepare adequately for becoming a public company could be material.
 
In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and our executive team.
 
Our principal stockholders may exert substantial influence over us and may exercise their control in a manner adverse to your interests.
 
Upon completion of this offering and assuming no exercise of an option to purchase additional shares by the underwriters, our senior management and executive search consultants will own an aggregate of 4,523,077 shares, or 66.2% of our outstanding common stock. More specifically, seven members of our senior management and executive search consultants will own, collectively, 3,311,974 shares, or 48.5%, of our outstanding common stock. Because a limited number of persons may exert substantial influence over us, transactions could be difficult or impossible to complete without the support of those persons. It is possible that these persons will exercise control over us in a manner adverse to your interests. For more information


13


Table of Contents

regarding ownership of our outstanding stock, see the section of this prospectus entitled “Principal and Selling Stockholders.”
 
Future sales of our common stock may cause our stock price to decline.
 
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline. These sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate. Upon completion of this offering, we will have 6,830,769 shares of common stock outstanding. Of these outstanding shares, all of the shares of our common stock sold in this offering will be freely tradable in the public market, except for any shares held by our affiliates as defined in Rule 144 of the Securities Act.
 
We, each of our directors and executive officers and substantially all of our existing equityholders, including the selling stockholders, have agreed, for a period of 180 days after the date of this prospectus, not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of common stock or any securities convertible into or exchangeable or exercisable for common stock or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of common stock or any securities convertible into or exchangeable for any shares of common stock, without prior written consent of William Blair & Company, L.L.C., other than shares of common stock issued in this offering, under our 2010 equity incentive plan or upon exercise of stock options granted pursuant to our 2010 equity incentive plan.
 
Additionally, our directors, executive officers and substantially all of our existing equityholders, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to sell any shares of our common stock or securities convertible into, or exercisable, or exchangeable for, shares of our common stock, without the prior written consent of William Blair & Company, L.L.C., except as follows:
 
  •  commencing on the first anniversary of the date of this prospectus, each such person may sell up to one-third of the shares of common stock held by such person as of the date of this prospectus;
 
  •  commencing on the second anniversary of the date of this prospectus, each such person may sell up to two-thirds of the shares of common stock held by such person as of the date of this prospectus; and
 
  •  commencing on the third anniversary of the date of this prospectus, each such person may sell one hundred percent of the shares of common stock held by such person as of the date of this prospectus.
 
After the expiration of the lock-up agreements, up to 4,523,077 restricted securities may be sold into the public market in the future without registration under the Securities Act to the extent permitted under Rule 144. Of these restricted securities, 1,507,692 shares will be available for sale on the first anniversary of the date of this prospectus, 1,507,692 shares will be available for sale on the second anniversary of the date of this prospectus and 1,507,693 shares will be available for sale on the third anniversary of the date of this prospectus, in each case subject to volume or other limits under Rule 144.
 
Furthermore, 1,000,000 shares are available for grant under our 2010 equity incentive plan following the closing of this offering, and, if issued or granted, will become eligible for sale in the public market once permitted by provisions of various vesting agreements, lock-up agreements and Rule 144, as applicable. We intend to file a registration statement on Form S-8 under the Securities Act to register 1,000,000 shares of our common stock for issuance under our 2010 equity incentive plan. Additionally, up to 250,830 shares of common stock will be issued upon the vesting (108,784 shares of common stock will vest in 2011, 103,946 shares of common stock will vest in 2012 and 38,100 shares of common stock will vest in 2013) of certain grants made in connection with the employment of certain executive search consultants. For additional information, see the section of this prospectus entitled “Shares Eligible for Future Sale.” If these additional shares of common stock are, or if it is perceived that they will be, sold in the public market, the trading price of our common stock could decline.


14


Table of Contents

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock, or if our operating results do not meet their expectations, our stock price and trading volume could decline.
 
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these reports or analysts. If any of the analysts who cover our company downgrades our stock, or if our operating results do not meet the analysts’ expectations, our stock price could decline. Moreover, if any of these analysts ceases coverage of our company or fails to publish regular reports on our business, we could lose visibility in the financial markets, which in turn could cause our stock price and trading volume to decline.
 
We currently do not intend to pay dividends on our common stock and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
 
We currently do not expect to declare or pay dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used in the operation and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors. In addition, our ability to pay dividends on our common stock is currently limited by the covenants of our credit facility and may be further restricted by the terms of any future debt or preferred securities. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for our common stock.
 
You will experience immediate and substantial dilution in the book value of your common stock as a result of this offering.
 
The initial public offering price of our common stock is considerably more than the net tangible book value per share of common stock after this offering and our corporate conversion. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their equity. Investors purchasing common stock in this offering will incur immediate dilution of $9.92 share of common stock, based on the assumed initial public offering price of $13.00 per share, which is the midpoint of the price range listed on the front cover page of this prospectus. For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus entitled “Dilution.”
 
Our management will have broad discretion over the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.
 
Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on their judgment regarding the application of these proceeds. Our management might not apply our net proceeds of this offering in ways that increase the value of your investment. We expect to use the net proceeds from this offering to cash out the value of performance units granted to certain of our executive search consultants, to pay the tax costs resulting from our conversion from a limited liability company to a “C” corporation, to prepay in full a promissory note issued by the Company to the former chief executive officer of the Company and his family trust, to prepay certain convertible promissory notes with certain executive search consultants, to hire executive search consultants and for general corporate purposes. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.


15


Table of Contents

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
 
Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include:
 
  •  a board of directors whose members can only be dismissed for cause;
 
  •  the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;
 
  •  the ability of the board of directors to alter our bylaws without obtaining stockholder approval;
 
  •  the prohibition on actions by written consent of our stockholders;
 
  •  the limitation on who may call a special meeting of stockholders;
 
  •  the establishment of advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings;
 
  •  the ability of our board of directors to issue preferred stock without stockholder approval, which would increase the number of outstanding shares and could thwart a takeover attempt; and
 
  •  the requirement of at least 75% of the outstanding common stock to amend any of the foregoing provisions.
 
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirors to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.


16


Table of Contents

 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains statements that do not directly or exclusively relate to historical facts. As a general matter, forward-looking statements reflect our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. We generally identify forward looking statements by terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of those words or other comparable words, but the absence of these words does not necessarily mean that a statement is not forward-looking.
 
Any forward-looking statements contained in this prospectus are based upon our historical performance, current plans, estimates, expectations and other factors we believe are appropriate under the circumstances. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements.
 
The following uncertainties and factors, among others (including the factors described in the section entitled “Risk Factors” in this prospectus), could affect our future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements:
 
  •  our expectations regarding our revenues, expenses and operations and our ability to sustain profitability;
 
  •  our ability to recruit and retain qualified executive search consultants to staff our operations appropriately;
 
  •  our ability to expand our customer base and relationships, especially given the off-limit arrangements we are required to enter into with certain of our clients;
 
  •  further declines in the global economy and our ability to execute successfully through business cycles;
 
  •  our anticipated cash needs;
 
  •  our anticipated growth strategies and sources of new revenues;
 
  •  unanticipated trends and challenges in our business and the markets in which we operate;
 
  •  social or political instability in markets where we operate;
 
  •  the impact of foreign currency exchange rate fluctuations;
 
  •  price competition;
 
  •  the ability to forecast, on a quarterly basis, variable compensation accruals that ultimately are determined based on the achievement of annual results;
 
  •  the mix of profit and loss by country;
 
  •  our ability to estimate accurately for purposes of preparing our consolidated financial statements; and
 
  •  our spending of the net proceeds from this offering.
 
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus.
 
Any forward-looking statement made by us in this prospectus speaks only as of the date on which it is made. Unless required by law, we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after the date of this prospectus.


17


Table of Contents

 
USE OF PROCEEDS
 
We estimate that we will receive net proceeds of approximately $22.2 million from the sale of shares of common stock in this offering at the assumed initial public offering price of $13.00 per share, the midpoint of the range set forth on the front cover of this prospectus, after deducting underwriting commissions and discounts of $1.7 million and estimated expenses of $400,000. We will not receive any proceeds from the sale of shares by the selling stockholders.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, the midpoint of the range set forth on the front cover of this prospectus, would increase (decrease) the net proceeds from this offering by $1.8 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
We plan to use the net proceeds of this offering as follows:
 
  •  approximately $4.5 million to cash out the value of performance units granted to certain of our executive search consultants;
 
  •  approximately $4.3 million to pay the tax costs resulting from our conversion from a limited liability company to a “C” corporation;
 
  •  approximately $1.9 million to prepay in full a promissory note issued by the Company in September 2004 to the former chief executive officer of the Company and his family trust in connection with the repurchase of equity by the Company (such note, with an outstanding principal balance of $1.8 million, accrues interest at a fixed rate of 5% per annum, has no stated maturity and provides for a minimum annual principal and interest payment of $300,000 and additional payments of up to a maximum of 1.5% of the Company’s prior calendar year net revenue if the Company meets certain operating performance benchmarks);
 
  •  approximately $1.6 million to prepay certain convertible promissory notes issued by the Company in June 2008 to certain of our executive search consultants (such notes, which are described in more detail under “Certain Relationships and Related Party Transactions,” pay interest, on a quarterly basis, at a fixed rate of 5% per annum and are due and payable on June 16, 2013);
 
  •  hiring executive search consultants; and
 
  •  for general corporate purposes.
 
Pending uses of the net proceeds from this offering, we intend to invest the remaining net proceeds in short-term, interest-bearing investment grade securities.
 
DIVIDEND POLICY
 
We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Our ability to pay cash dividends on our common stock is limited by covenants in our revolving credit facility and may be further restricted by the terms of any future debt or preferred securities.


18


Table of Contents

 
CAPITALIZATION
 
The following sets forth:
 
  •  our actual capitalization as of September 30, 2010; and
 
  •  our capitalization on a pro forma, as adjusted, basis to give effect to:
 
  •  our corporate conversion, pursuant to which each of our outstanding member units will convert into shares of common stock at a ratio of 1:5.269;
 
  •  the sale by us of 1,869,220 shares of our common stock at an assumed initial public offering price of $13.00 per share, the midpoint range set forth on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and
 
  •  the use of the estimated net proceeds therefrom, as described in “Use of Proceeds.”
 
You should read the following table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Certain Relationships and Related Party Transactions.”
 
                 
    September 30, 2010  
    Actual     Pro Forma  
    (Unaudited)  
 
Cash
  $ 13,600,540     $ 23,909,540  
                 
Debt:
               
Current portion of long-term debt
  $ 1,382,235     $ 281,235  
Long-term debt, less current maturities
    3,915,300       713,300  
                 
Total debt
  $ 5,297,536     $ 994,535  
                 
Redeemable member units
  $ 54,923,448     $  
                 
Members’/shareholders’ equity (deficit)
  $ (49,596,752 )   $ 21,036,556  
                 


19


Table of Contents

 
CORPORATE CONVERSION
 
Prior to the effectiveness of the registration statement of which this prospectus is a part, we will convert from a Delaware limited liability company to a “C” corporation organized under the laws of the State of Delaware. In order to consummate such a conversion, a certificate of conversion will be filed with the Department of State of the State of Delaware prior to the effectiveness of the registration statement, of which this prospectus is a part. In connection with this conversion, all of our outstanding member units will be automatically converted into shares of common stock at a ratio of 1:5.269.
 
DILUTION
 
Dilution is the amount by which the initial offering price paid by the purchasers of the common stock to be sold in this offering exceeds the net tangible book value per share of common stock after this offering and our corporate conversion. Our net tangible book value as of September 30, 2010 was $5.3 million, or $1.09 per share of common stock (for purposes of this calculation, we have assumed the conversion of our outstanding member units into shares of common stock at a ratio of 1:5.269). We have calculated this amount by:
 
  •  subtracting our total liabilities from our total tangible assets; and
 
  •  dividing the difference by the number of shares of our common stock outstanding.
 
After giving effect to the corporate conversion and to the sale of 1,869,220 shares of our common stock by us in this offering at the assumed public offering price of $13.00 per share, the midpoint of the price range set forth on the front cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering, our net tangible book value as of September 30, 2010 would have been $21,036,556 million, or $3.08 per share of our common stock. This amount represents an immediate increase in net tangible book value of $1.99 per share to existing stockholders and an immediate dilution of $9.92 per share to new investors. The following table illustrates this dilution per share giving effect to the corporate conversion that will be effective prior to the effectiveness of the registration statement, of which this prospectus is a part:
 
         
Initial public offering price per share
  $ 13.00  
Net tangible book value per share prior to this offering as of September 30, 2010
  $ 1.09  
Increase in net tangible book value per share attributable to new investors purchasing shares in this offering
  $ 1.99  
Net tangible book value per share after this offering
  $ 3.08  
Dilution in net tangible book value per share to new investors
  $ 9.92  
         
 
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the front cover page of this prospectus, would increase (decrease) our net tangible book value by $1.8 million, our net tangible book value per share after this offering by $0.26 per share, and the dilution to new investors in this offering by $0.74 per share, assuming the number of shares of common stock offered by us, as set forth on the front cover page of this prospectus, remains the same and after deducting the estimated underwriting commissions and discounts and offering expenses payable by us.
 
The following table summarizes, on an adjusted basis, as of September 30, 2010 and after giving effect to the corporate conversion and this offering, the differences between the existing stockholders and the new investors in this offering with respect to the number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting commissions and discounts and estimated offering expenses payable by us. The calculations, with respect to shares purchased by new investors


20


Table of Contents

in this offering, reflect an assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the front cover page of this prospectus.
 
                                         
                Average
 
    Shares Purchased     Total Consideration     Price  
    Number     Percentage     Amount     Percentage     Per Share  
 
Existing stockholders
    4,523,077       66.2 %   $ 11,200,000       27.2 %   $ 2.48  
New investors
    2,307,692       33.8       30,000,000       72.8       13.00  
                                         
Total
    6,830,769       100.0 %   $ 37,872,332       100.0 %        
                                         
 
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the front cover page of this prospectus, would increase (decrease) total consideration paid by new investors in this offering by $2.3 million and would increase (decrease) the percentage of total consideration paid by new investors by 1.4%, before deducting the estimated underwriting discounts and commissions and offering expenses payable by us in connection with this offering.
 
If the underwriters’ option to purchase additional shares is exercised in full, the percentage of our shares held by existing equity owners would decrease to approximately 63.0% and the percentage of our shares held by new stockholders would increase to approximately 37.0%.


21


Table of Contents

 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
The selected historical consolidated statement of operations data for the fiscal years ended December 31, 2007, 2008 and 2009, and balance sheet data as of December 31, 2007, 2008 and 2009, set forth below have been derived from our audited consolidated financial statements and notes thereto. Our audited consolidated financial statements have been audited by McGladrey & Pullen, LLP, an independent registered public accounting firm. The summary consolidated statement of operations data for the nine months ended September 30, 2009 and 2010, and our summary consolidated balance sheet data as of September 30, 2009 and 2010, have been derived from our unaudited financial statements included elsewhere in this prospectus, and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such data. The unaudited operations data for the nine month period ended September 30, 2010 is not necessarily indicative of the results that may be expected for the year ended December 31, 2010.
 
The selected historical consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s audited consolidated financial statements and the notes thereto.
 
                                         
        Nine Months Ended
    Year Ended December 31,   September 30,
    2007   2008   2009   2009   2010
                (Unaudited)
 
Consolidated Statement of Operations Data:
                                       
Net revenue
  $ 116,628,010     $ 105,715,730     $ 73,860,740     $ 50,571,384     $ 86,010,878  
Total revenue
    120,932,219       110,710,496       76,587,922       52,537,923       88,817,465  
Operating income (loss)
    2,322,098       (74,392 )     5,661,341       3,152,501       7,041,270  
Net income (loss)
  $ 1,326,092     $ (1,208,166 )   $ 4,788,609     $ 2,384,090     $ 6,797,511  
                                         
Balance Sheet Data:
                                       
Cash
  $ 2,401,133     $ 3,666,370     $ 5,093,700     $ 3,465,110     $ 13,600,540  
Accounts receivable, net
    16,520,569       10,659,319       15,351,547       15,040,306       24,398,253  
Total assets
    28,794,319       23,413,497       27,876,100       26,183,942       41,509,402  
                                         
Accrued compensation
    14,619,537       13,279,390       13,425,668       12,214,477       28,314,729  
Long-term liabilities
    7,689,418       8,946,758       7,326,138       6,669,359       6,955,172  
Total liabilities
    33,663,527       31,435,261       29,550,531       29,052,991       41,499,133  
                                         
Redeemable member units
    45,727,810       44,739,130       30,937,827       31,500,595       54,923,448  
                                         
Members’ equity (deficit)
  $ (50,597,017 )   $ (52,760,894 )   $ (32,612,258 )   $ (35,023,317 )   $ (49,596,752 )


22


Table of Contents

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Financial Data” and our financial statements and related notes appearing elsewhere in this prospectus. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this prospectus.
 
Overview
 
We are a leading provider of retained executive search services to clients on a global basis. We provide these services through 15 offices in the Americas, Europe and Asia Pacific, as well as through a licensing arrangement with six associated offices in Latin America. We help our clients build stronger leadership teams by facilitating the recruitment and hiring of “C-level” executives (chief executive officers, chief operating officers, chief financial officers, chief information officers and chief technology officers), other senior executives and board members. Our retained executive search services focus on successfully making placements for our clients in a timely manner.
 
We use a proprietary search process and proprietary technology and communication tools to successfully execute our retained searches. Also, we believe that we are the only global retained executive search firm to track and publish key quality metrics that drive success in our business, and to have these metrics examined by an independent registered public accounting firm. These include (i) placement success rate; (ii) average days to placement; and (iii) stick rate. In 2009, our placement success rate was 78% and our average days to placement was 124. For candidates placed from January 1, 2008 to June 30, 2009 (the most recent period for which our results have been examined by our independent registered public accounting firm auditor), our stick rate was 90%. For purposes of tracking our performance metrics, we include the performance of our associated offices in Latin America.
 
Our organizational structure is designed to provide high quality, industry-focused executive search services to our clients worldwide. Our partners are dedicated to specific industry verticals and are leading experts in their given sectors. Our support teams of researchers and associates are organized by industry practice group in various geographic locations. We believe that industry specialization enables us to better understand our clients’ cultures, operations, business strategies and industries. Executive search consultants in our industry practice groups bring an in-depth understanding of the market conditions and strategic and management issues faced by clients within their specific industry. Our five largest industry practice groups are financial services, professional services, life sciences, technology/media/telecom and consumer/industrial.
 
We leverage our industry specialization with local geographic knowledge and contacts to provide clients with comprehensive executive search services. We believe that our global presence enables us to more effectively serve our clients who have operations throughout the world. We have wholly-owned operations in eight U.S. cities and in seven non-U.S. locations. Our wholly-owned non-U.S. operations are in Canada, China, France, Hong Kong, Singapore, Switzerland and the United Kingdom. In addition to our wholly-owned operations, our associated offices in Latin America are located in Brazil, Chile, Colombia, Mexico, Peru and Venezuela. In 2009, we placed candidates in 301 U.S. searches and 409 non-U.S. searches, of which 186 were executed by our associated offices in Latin America.
 
We have a diverse group of clients located throughout the world in a variety of industries. From January 1, 2005 through September 30, 2010, we have performed more than 4,400 searches for over 1,400 clients, including some of the leading Fortune 1000, FTSE 100, DAX and CAC 40 companies as well as private equity and venture capital firms and their portfolio companies. No single client accounted for more than 5% of our revenue in 2007, 2008 or 2009.
 
As of September 30, 2010, we had 88 executive search consultants and 231 other employees and our associated offices in Latin America had 17 executive search consultants and 57 other employees. We have our


23


Table of Contents

headquarters in New York, New York and our corporate, administrative and research functions are located in our office in Cleveland, Ohio.
 
In 2009, we generated net revenue and operating income of $73.9 and $5.7 million, respectively. For financial reporting purposes, we do not consolidate the operations of our associated offices in Latin America. We include the license revenue we receive from our associated offices in Latin America as a component of net revenue. Included in our 2009 net revenue is $250,650 in license fees received from our associated offices in Latin America.
 
Impact of Our Initial Public Offering
 
The completion of this offering will have near and long-term effects on our results of operations. In the near term, we will incur a one-time tax cost of approximately $4.3 million in connection with our conversion from a limited liability company to a “C” corporation. Over the long-term, our results of operations will be affected by the recurring costs of being a public company, including changes in board and executive compensation, the costs of compliance with the Sarbanes-Oxley Act of 2002, the costs of complying with the rules and regulations of the SEC and NYSE Amex Equities stock exchange, and increased insurance, accounting, legal and investor relations costs. Additionally, as a result of our conversion to a “C” corporation, we will be taxed as a “C” corporation at the federal and state level. These costs are not reflected in our historical results.
 
Components of Our Statement of Operations
 
Revenue
 
Net Revenue. Our executive search services are provided on a retained basis. Net revenue is comprised of the following four components:
 
  •  Fee Revenue. The vast majority of our revenue for retained executive search and board advisory services is received as retainer fees (which we refer to as “fee revenue”). Our retainer fee is typically equal to 33% of the first year total cash compensation for the position being filled. Generally, our retainer fee is paid in three sequential monthly installments commencing in the month of our engagement by the client.
 
  •  Indirect Expenses Billed to Clients. For each engagement, we are paid a flat fee, generally $9,000, to cover certain costs associated with the search process. These costs include:
 
  •  research and research tools;
 
  •  legal, human resource and other outside services; and
 
  •  the development and maintenance of our proprietary database and communication systems.
 
  •  Supplemental Fees. We are paid supplemental fees in the following circumstances:
 
  •  Uptick: in the event that the actual total cash compensation paid to a placed candidate exceeds the estimated compensation on which our retained fees were based, we typically are paid, at the time of placement, an amount equal to 33% of the difference between the actual total cash compensation paid and the estimate; and
 
  •  Pick-Up: in the event that a client hires a candidate for a position other than the position identified in the original search assignment, we typically are paid 30% of the first year’s total cash compensation for the position filled.
 
  •  License Revenue. For services rendered by our associated offices in Latin America, we are paid a license fee equal to a percentage of the gross fees billed to clients. The license fee is 3% for the first year of affiliation and 6% thereafter.


24


Table of Contents

 
In addition to the components of our net revenue, we also track certain performance metrics that drive revenue. In the executive search industry, revenue in any given period is driven by:
 
  •  the number of search assignments;
 
  •  the number of executive search consultants;
 
  •  executive search consultant productivity, measured by average annualized net revenue per executive search consultant; and
 
  •  average revenue per executive search.
 
Since we are paid license fees by our associated offices in Latin America, and we do not employ the executive search consultants in those offices, we exclude our associated offices in Latin America in tracking the revenue drivers listed above. We believe that by excluding such results we get a better picture of what is driving core revenue.
 
Reimbursements and Reimbursed Expenses. We are generally reimbursed by our clients for the direct expenses associated with our search activity on their behalf. These direct expenses include travel, other out-of-pocket expenses and third-party costs, and we report such reimbursements as a separate component of total revenue. In addition, we record such direct expenses as a separate component of operating expenses when incurred. We manage our business on the basis of net revenue (before reimbursements and reimbursed expenses), since we believe that this is the most accurate reflection of our services.
 
Operating Expenses
 
Compensation and Benefits Expenses. We utilize a combination of base salary, revenue and volume bonuses and equity compensation to compensate our employees. Brief descriptions of each component are as follows:
 
  •  Base Salary. Each executive search consultant’s base salary is determined based upon his or her prior experience and history of revenue generation. Under the revenue and volume bonus plans described below, we deduct the base salary of each executive search consultant from any bonus paid.
 
  •  Revenue Bonus. Each executive search consultant is paid a tiered bonus based upon the amount of collected revenue that is credited to such consultant. The higher the revenue credited, the higher the percentage of such revenue that is paid to the executive search consultant as a bonus and thus accrued by us as an expense. As a result of this tiered bonus system, the mix of individual consultants’ performance levels can significantly affect the total amount of compensation expense we record. All collected fee revenue is credited to executive search consultants as follows: 20% to the originator, 30% to the executive search consultant or team of executive search consultants that contributed to converting a lead into a committed engagement and 50% to the executive search consultants that execute the search. Our revenue bonus is not discretionary and is not based upon total firm profitability.
 
  •  Volume Bonus. We pay a volume bonus to our executive search consultants based upon the total amount of collected revenue originated by an executive search consultant. Our volume bonus is not discretionary and is not based upon total firm profitability.
 
  •  Signing Bonus. We may pay a signing bonus as part of recruiting new executive search consultants to the Company.
 
  •  Equity Compensation. Following the completion of this offering, we may grant equity compensation to our executive officers and executive search consultants in order to:
 
  •  align our employees’ interest with those of our stockholders;
 
  •  facilitate ownership of our common stock by our executive officers and executive search consultants; and


25


Table of Contents

 
  •  attract and retain talent.
 
  •  Other Employee Compensation: We pay our associates, researchers and administrative and support staff based upon a combination of base salary, performance-based bonuses and discretionary bonuses.
 
General and Administrative Expenses. General and administrative expenses are comprised primarily of rent, depreciation, business development, professional fees, communications and IT, networking costs and insurance. Incremental increases in revenue do not necessarily result in proportional increases in general and administrative expenses.
 
Income Tax Expense. Prior to this offering, we were treated as a partnership for federal income tax purposes and, as a result, we did not incur any federal income tax expenses. Prior to the effectiveness of the registration statement of which this prospectus is a part, we will convert to a Delaware “C” corporation and our outstanding member units will be converted into shares of common stock. From and after such conversion, we will be taxed as a “C” corporation at the federal and state level.
 
Results of Operations
 
The following tables summarize, for the periods indicated, our results of operations:
 
                                         
                      Nine Month Period
 
    Year Ended December 31,     Ended September 30,  
    2007     2008     2009     2009     2010  
                      (Unaudited)  
 
Revenue:
                                       
Net revenue
  $ 116,628,010     $ 105,715,730     $ 73,860,740     $ 50,571,384     $ 86,010,878  
Reimbursable expenses
    4,304,209       4,994,766       2,727,182       1,966,539       2,806,587  
                                         
Total revenue
  $ 120,932,219     $ 110,710,496     $ 76,587,922     $ 52,537,923     $ 88,817,465  
                                         
Operating Expenses:
                                       
Compensation and benefits
  $ 87,650,465     $ 82,640,507     $ 48,571,747     $ 33,886,938     $ 62,440,526  
General and administrative
    26,182,635       23,027,095       19,412,165       13,417,296       16,409,122  
Reimbursable expenses
    4,777,021       5,117,286       2,942,669       2,081,188       2,926,547  
                                         
Total operating expenses
  $ 118,610,121     $ 110,784,888     $ 70,926,581     $ 49,385,422     $ 81,776,195  
Operating income (loss)
  $ 2,322,098     $ (74,392 )   $ 5,661,341     $ 3,152,501     $ 7,041,270  
Net interest expense
    687,521       596,385       409,034       276,909       197,843  
                                         
Income (loss) before income taxes
  $ 1,634,577     $ (670,777 )   $ 5,252,307     $ 2,875,592     $ 6,843,427  
Income tax expense
    308,485       537,389       463,698       491,502       45,916  
                                         
Net income (loss)
  $ 1,326,092     $ (1,208,166 )   $ 4,788,609     $ 2,384,090     $ 6,797,511  
                                         
 
Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
 
Net Revenue. Net revenue increased $35.4 million, or 70.1%, to $86.0 million in the first nine months of 2010 from $50.6 million in the first nine months of 2009. The increase in net revenue was the result of an increase in the number of search assignments on which we were engaged, an increase in the number of


26


Table of Contents

executive search consultants employed by us and an increase in our executive search consultant productivity, as set forth below (this data excludes the operations of our associated offices in Latin America):
 
                                 
    Nine Months Ended
      Percentage
    September 30,   Increase/
  Increase/
Performance Metrics
  2009   2010   (Decrease)   (Decrease)
 
Number of new search assignments
    471       796       325       69.0 %
Number of executive search consultants (as of period end)
    78       88       10       12.8  
Productivity, as measured by average annualized net revenue per executive search consultant
  $ 864,000     $ 1,303,000     $ 439,000       50.8  
Average revenue per executive search
  $ 101,800     $ 101,100     $ (700 )     (0.7 )
 
Compensation and Benefits Expenses. Compensation and employee benefits expense increased $28.5 million, or 84.3%, to $62.4 million in the first nine months of 2010 from $33.9 million in the first nine months of 2009. As a percentage of net revenue, compensation and benefits increased to 72.6% in the first nine months of 2010 from 67.0% in the first nine months of 2009. The increase in compensation and benefits expense was primarily the result of a $16.6 million increase in bonus compensation for executive search consultants in the first nine months of 2010, which was the direct result of higher consolidated net revenue in the first nine months of 2010 as compared to the first nine months of 2009. Additionally, in the first nine months of 2010 we (i) hired 62 new employees; (ii) incurred an expense of approximately $1.4 million in connection with grants and signing bonuses made to newly hired executive search consultants; (iii) incurred a $1.2 million non-cash expense in connection with our mandatorily redeemable membership units; (iv) incurred an expense of $1.1 million in connection with the revaluation of our performance unit plan; (v) incurred an expense for the full amount of salary and bonus owed to Brian M. Sullivan, our chief executive officer and David C. Nocifora. our chief operating and financial officer, which were voluntarily reduced in 2009, resulting in a $1.0 million incremental increase in compensation and benefits expenses; and (vi) removed temporary base salary reductions made in 2009. The following table summarizes compensation and benefits expenses as a percentage of net revenue for the periods shown:
 
                 
    Nine Months Ended
    September 30,
      2009       2010  
 
Compensation and benefits expenses as a percentage of net revenue
    67.0 %     72.6 %
 
General and Administrative Expenses. General and administrative expenses increased $3.0 million, or 22.3%, to $16.4 million in the first nine months of 2010 from $13.4 million in the first nine months of 2009. The increase primarily reflects an increase in spending for recruiting new employees, expenses associated with hiring temporary employees and increased marketing expenses that reflect an improvement in global economic conditions. Because our revenue increased more than our general and administrative expenses, general and administrative expenses as a percentage of net revenue declined to 19.1% in the first nine months of 2010 from 26.5% in the first nine months of 2009. The following table summarizes general and administrative expenses as a percentage of net revenue for the periods shown:
 
                 
    Nine Months Ended
    September 30,
      2009       2010  
 
General and administrative expenses as a percentage of net revenue
    26.5 %     19.1 %
 
Operating Income. Operating income increased $3.9 million to $7.0 million in the first nine months of 2010 from $3.2 million in the first nine months of 2009. As discussed above, the increase reflects the fact that our net revenues increased more than our expenses during the first nine months of 2010.
 
Net Interest Expense. Net interest expense decreased $79,066, or 28.6%, to $197,843 in the first nine months of 2010 from $276,909 in the first nine months of 2009. The decrease in net interest expense reflects a lower average outstanding balance under our revolving credit facility in the first nine months of 2010 as compared to the first nine months of 2009.


27


Table of Contents

 
Income Before Taxes and Income Tax Expense. In the first nine months of 2010, we reported income before taxes of $6.8 million and recorded income tax expense of $45,916, as compared to income before taxes of $2.9 million and income tax expense of $491,502 in the first nine months of 2009. The reduction in income tax expense was primarily due to changes in the effective state and local tax rates in the jurisdictions where the Company operates. In both periods we were not subject to federal income taxes because we were taxed as a partnership under federal tax law. Accordingly, no provision or liability for income taxes was recorded for federal income taxes in our consolidated financial statements since any income or loss was included in the tax returns of our members. The income tax expense recorded in the first nine months of 2010 and 2009 represents state and local taxes in those jurisdictions that do not recognize entities taxed as a partnership.
 
Prior to the effectiveness of the registration statement of which this prospectus is a part, we will convert from a Delaware limited liability company to a Delaware “C” corporation and each of our outstanding member units will be converted into shares of common stock. From and after such conversion, we will be taxed as a “C” corporation at the federal and state level. If we had been taxed as a “C” corporation in the first nine months of 2010 and 2009, and assuming a 40% effective tax rate, we would have reported additional income tax expense of approximately $2.7 million in the first nine months of 2010 and $1.2 million in the first nine months of 2009.
 
Fiscal Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31, 2008
 
Net Revenue. The deterioration in global economic conditions began to affect our business in the fourth quarter of 2008 and continued through most of 2009. As a result, our net revenue decreased $31.8 million, or 30.1%, to $73.9 million in 2009 from $105.7 million in 2008. The decrease in net revenue was the result of a decrease in the number of search assignments on which we were engaged, a reduction in the number of executive search consultants employed by us, a decrease in our executive search consultant productivity and a decrease in the average revenue per executive search, as set forth below (the results set forth below exclude the operations of our associated offices in Latin America):
 
                                 
    Year Ended December 31,       Percentage
Performance Metric
  2008   2009   (Decrease)   (Decrease)
 
Number of new search assignments
    889       667       (222 )     (24.9 )%
Number of executive search consultants (as of period end)
    81       77       (4 )     (4.9 )
Productivity, as measured by average annualized net revenue per executive search consultant
  $ 1,305,000     $ 959,000     $ (346,000 )     (26.5 )
Average revenue per executive search
  $ 110,100     $ 103,500     $ (6,600 )     (6.0 )
 
Compensation and Benefits Expenses. Compensation and employee benefits expense decreased $34.0 million, or 41.2%, to $48.6 million in 2009 from $82.6 million in 2008. The decrease in compensation and benefits expense was principally the result of a $20.0 million decrease in bonus compensation earned by our executive search consultants in 2009. Pursuant to the terms of our revenue and volume bonus plans, executive search consultant bonus compensation is directly tied to revenue and, therefore, 2009 executive search consultant bonus compensation was significantly lower than we would expect to pay in a normal operating environment. We decreased our base salary, payroll tax and benefit expense by $9.6 million, primarily related to workforce reductions and temporary base salary reductions for staff and executive management. Performance-based bonuses for our associates, researchers and administrative personnel also decreased by $1.6 million, primarily due to the reduced number of search assignments. Additionally, Brian M. Sullivan, our chief executive officer, and David C. Nocifora, our chief operating and chief financial officer, agreed to voluntarily reduce their base salaries and bonuses in 2009, resulting in a one-time cost savings of $1.4 million. Finally, we eliminated discretionary bonuses for non-revenue producing staff and executive management and reduced over-time expense. At December 31, 2009 we had 256 total employees, down 13.8%, compared to 297 total employees at December 31, 2008. Because we were able to reduce compensation and benefit expenses more than our revenue declined, compensation and benefit expenses as a percentage of


28


Table of Contents

net revenue declined to 65.8% in 2009 from 78.2% in 2008. The following table summarizes compensation and benefits expenses as a percentage of net revenue for the periods shown:
 
                 
    Year Ended December 31,
      2008       2009  
 
Compensation and benefits expenses as a percentage of net revenue
    78.2 %     65.8 %
 
General and Administrative Expenses. General and administrative expenses decreased $3.6 million, or 15.7%, to $19.4 million in 2009 from $23.0 million in 2008. The decrease primarily reflects savings associated with cost containment initiatives, including a reduction in business development expenses of $650,000, cancellation of television advertising, a cost savings of $400,000 and cancellation of the production of our internally produced magazine, a cost savings of $250,000. Because we were not able to reduce our general and administrative expenses in proportion with the decline in our net revenue, general and administrative expenses as a percentage of net revenue increased to 26.3% in 2009 from 21.8% in 2008. The following table summarizes general and administrative expenses as a percentage of net revenue for the periods shown:
 
                 
    Year Ended December 31,
      2008       2009  
 
General and administrative expenses as a percentage of net revenue
    21.8 %     26.3 %
 
Operating Income. Operating income increased $5.7 million to $5.6 million in 2009 from a loss of $(74,392) in 2008. The increase in operating income was primarily due to our ability to reduce our overall expenses more than our revenue declined.
 
Net Interest Expense. Net interest expense decreased $187,351, or 31.4%, to $409,034 in 2009 from $596,385 in 2008. The decrease in net interest expense primarily reflects a lower average outstanding balance under our revolving credit facility in 2009 as compared to 2008.
 
Income Before Taxes and Income Tax Expense. In 2009, we reported income before taxes of $5.3 million and recorded income tax expense of $463,698, as compared to 2008 when we reported a loss before taxes of $(670,777) and income tax expense of $537,389. In both 2009 and 2008, we were not subject to federal income taxes because we were taxed as a partnership under federal tax law. Accordingly, no provision or liability for income taxes was recorded for federal income taxes in our consolidated financial statements since any income or loss was included in the income tax returns of our members. The income tax expense recorded in 2009 and 2008 represents state and local taxes in those jurisdictions that do not recognize entities taxed as a partnership.
 
Prior to the effectiveness of the registration statement of which this prospectus is a part, we will convert from a Delaware limited liability company to a Delaware “C” corporation and each of our outstanding member units will be converted into shares of common stock. From and after such conversion, we will be taxed as a corporation at the federal and state level. If we had been taxed as a “C” corporation in 2009 and 2008 and assuming a 40% effective tax rate, we would have reported additional income tax expense of approximately $2.1 million in 2009 and a tax credit against income tax expense of approximately $268,000 in 2008.
 
Fiscal Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31, 2007
 
Net Revenue. Net revenue decreased $10.9 million, or 9.4%, to $105.7 million in 2008 from $116.6 million in 2007. The decrease in net revenue was the result of a decrease in the number of search assignments on which we were engaged, a decrease in our executive search consultant productivity and a


29


Table of Contents

decrease in the average revenue per executive search, as set forth below (the below results exclude the operations of our associated offices in Latin America):
 
                                 
    Year Ended
      Percentage
    December 31,   Increase/
  Increase
Performance Metric
  2007   2008   (Decrease)   (Decrease)
 
Number of new search assignments
    981       889       (92 )     (9.4 )%
Number of executive search consultants (as of period end)
    77       81       4       5.2  
Productivity, as measured by average annualized net revenue per executive search consultant
  $ 1,515,000     $ 1,305,000     $ (210,000 )     (13.9 )
Average revenue per executive search
  $ 117,600     $ 110,100     $ (7,500 )     (6.4 )
 
The decrease in our net revenue in 2008 was largely a function of a significant decline in our business in the fourth quarter of 2008, as the economy and hiring activity deteriorated rapidly. In the fourth quarter of 2008 our net revenue decreased $9.9 million, or 35.9%, as compared to the fourth quarter of 2007. Similarly, the number of search assignments on which we were engaged in the fourth quarter of 2008 declined by 65, or 29.0%, to 159 as compared to 224 in 2007.
 
Compensation and Benefits Expenses. Compensation and employee benefits expense decreased $5.0 million, or 5.7%, to $82.6 million in 2008 from $87.7 million in 2007. The decrease in compensation and employee benefits expense was primarily the result of a $7.1 million decrease in bonus compensation for executive search consultants in 2008, which was directly a result of lower consolidated net revenue in 2008 as compared to 2007, pursuant to our bonus plan. The decrease in bonus compensation paid to executive search consultants was partially offset by a $3.1 million increase in base salary expense as a result of hiring activity early in 2008 and severance-related expenses later in 2008. At December 31, 2008 we had 297 total employees, down 11.9% compared to 337 total employees at December 31, 2007. Because we were not able to reduce our compensation and employee benefit expense in proportion with the decline in our net revenue, compensation and employee benefit expense as a percentage of net revenue increased to 78.2% in 2008 from 75.2% in 2007. The following table summarizes compensation and benefits expenses as a percentage of net revenue for the periods shown:
 
                 
    Year Ended December 31,
      2007       2008  
 
Compensation and benefits expenses as a percentage of net revenue
    75.2 %     78.2 %
 
General and Administrative Expenses. General and administrative expenses decreased $3.2 million, or 12.2%, to $23.0 million in 2008 from $26.2 million in 2007. The decrease was primarily due to cost containment efforts related to a reduction in expenses associated with the recruitment of executive search consultants and other employees, a cost savings of approximately $1.0 million, a reduction in our expenses for professional fees and outsourcing, a cost savings of approximately $900,000, and the cancellation of our annual firm meeting, a cost savings of approximately $500,000. Because we were able to reduce our general and administrative expenses in proportion with the decline in our net revenue, general and administrative expenses as a percentage of net revenue decreased to 21.8% in 2008 from 22.4% in 2007. The following table summarizes general and administrative expenses as a percentage of net revenue for the periods shown:
 
                 
    Year Ended December 31,
      2007       2008  
 
General and administrative expenses as a percentage of net revenue
    22.4 %     21.8 %
 
Operating Income. Operating income decreased $2.4 million, or 104.3%, to a loss of $(74,392) in 2008 from $2.3 million in 2007. The decrease in consolidated operating income was primarily due to the sharp decline in net revenue in the fourth quarter of 2008.


30


Table of Contents

 
Net Interest Expense. Net interest expense decreased $91,136, or 13.3%, to $596,385 in 2008 from $687,521 in 2007. The decrease in net interest expense primarily reflects a lower average outstanding balance under our revolving credit facility in 2008 as compared to 2007.
 
Income Before Taxes and Income Tax Expense. In 2008, we reported a loss before taxes of $(670,777) and recorded income tax expense of $537,389, as compared to income before taxes of $1.6 million and a recorded income tax expense of $308,485 in 2007. In both 2008 and 2007, we were not subject to federal income taxes because we were taxed as a partnership under federal tax law. Accordingly, no provision or liability for income taxes was recorded for federal income taxes in our consolidated financial statements since any income or loss was included in the tax returns of our members. The income tax expense recorded in 2008 and 2007 represents state and local taxes in those jurisdictions that do not recognize entities taxed as a partnership.
 
Prior to the effectiveness of the registration statement of which this prospectus is a part, we will convert from a Delaware limited liability company to a Delaware “C” corporation and each of our outstanding member units will be converted into shares of common stock. From and after such conversion, we will be taxed as a “C” corporation at the federal and state level. If we had been taxed as a “C” corporation in 2008 and 2007 and assuming a 40% effective tax rate, we would have reported a credit against income tax expenses of approximately $268,000 in 2008 and additional income tax expense of approximately $653,000 in 2007.
 
Selected Quarterly Financial Data
 
The following table sets forth our selected unaudited quarterly consolidated financial data for fiscal 2008 and 2009 and for the first, second and third quarters of 2010. The information for each of these periods has been derived from our unaudited consolidated financial statements, which have been prepared on the same basis as the audited consolidated financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments necessary to fairly state our results of operations for the periods presented. These quarterly operating results are not necessarily indicative of our operating results for any future period.
 
                                                                                         
    Three Months Ended,  
    March 31,
    June 30,
    Sept. 30,
    Dec. 31,
    March 31,
    June 30,
    Sept. 30,
    Dec. 31,
    March 31,
    June 30,
    Sept. 30,
 
    2008     2008     2008     2008     2009     2009     2009     2009     2010     2010     2010  
 
Revenue:
                                                                                       
Net revenue
  $ 29,785,642     $ 29,880,404     $ 28,497,966     $ 17,551,718     $ 16,340,645     $ 14,549,295     $ 19,681,444     $ 23,289,356     $ 25,774,725     $ 29,804,993     $ 30,431,162  
Reimbursable expenses
    1,255,797       1,278,654       1,355,317       1,104,998       703,242       616,654       646,643       760,643       831,901       1,004,430       970,256  
                                                                                         
Total revenue
  $ 31,041,439     $ 31,159,058     $ 29,853,283     $ 18,656,716     $ 17,043,887     $ 15,165,949     $ 20,328,087     $ 24,049,999     $ 26,606,626     $ 30,809,423     $ 31,401,418  
Operating Expenses:
                                                                                       
Compensation and expenses
  $ 22,785,001     $ 22,524,579     $ 22,272,982     $ 15,057,945     $ 11,902,566     $ 9,764,192     $ 12,220,180     $ 14,684,809     $ 17,624,649     $ 21,653,528     $ 23,162,351  
General and administrative
    5,800,927       6,364,715       5,712,061       5,149,392       4,375,563       4,365,114       4,676,619       5,994,869       5,126,317       5,494,580       5,792,323  
Reimbursable expenses
    1,331,613       1,277,239       1,363,888       1,144,546       658,598       672,616       749,974       861,481       808,924       1,123,521       989,995  
                                                                                         
Total operating expenses
  $ 29,917,541     $ 30,166,533     $ 29,348,931     $ 21,351,883     $ 16,936,727     $ 14,801,922     $ 17,646,773     $ 21,541,159     $ 23,559,890     $ 28,271,629     $ 29,944,669  
Operating income (loss)
  $ 1,123,898     $ 992,525     $ 504,352     $ (2,695,167 )   $ 107,160     $ 364,027     $ 2,681,314     $ 2,508,840     $ 3,046,736     $ 2,537,794     $ 1,456,749  
Net interest expense
    168,991       145,805       153,705       127,884       97,640       90,512       88,757       132,125       80,793       59,816       57,235  
                                                                                         
Income (loss) before income taxes
  $ 954,907     $ 846,720     $ 350,647     $ (2,823,051 )   $ 9,520     $ 273,515     $ 2,592,557     $ 2,376,715     $ 2,965,943     $ 2,477,978     $ 1,399,514  
Income tax expense
    (77,591 )     (117,766 )     (82,083 )     (259,949 )     (161,679 )     (102,954 )     (226,869 )     27,804       (109,484 )     (111,332 )     174,900  
                                                                                         
Net income (loss)
  $ 877,316     $ 728,954     $ 268,564     $ (3,083,000 )   $ (152,159 )   $ 170,561     $ 2,365,688     $ 2,404,519     $ 2,856,459     $ 2,366,646     $ 1,574,414  
                                                                                         
 
Liquidity and Capital Resources
 
General. Our primary sources of liquidity are cash, cash flow from operations and borrowing availability under our revolving credit facility. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our existing cash


31


Table of Contents

balances together with the funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future.
 
The following table summarizes our cash flow for the periods shown:
 
                         
    Year Ended December 31,
    2007   2008   2009
 
Net cash provided by operating activities
  $ 1,154,866     $ 6,383,441     $ 89,281  
Net cash (used in) investing activities
    (2,822,500 )     (679,749 )     (129,692 )
Net cash provided by (used in) financing activities
    2,971,776       (3,124,536 )     1,207,493  
                         
Net increase in cash
  $ 1,304,142     $ 2,579,156     $ 1,167,082  
                         
 
Cash. Cash at December 31, 2009 was $5.1 million, as compared to $3.7 million at December 31, 2008 and $2.4 million at December 31, 2007.
 
Cash Flow from Operating Activities. In 2009, cash provided by operating activities was $89,281, principally reflecting net income of $4.8 million partially offset by decreases in accrued expenses and other assets and liabilities. Cash provided by operating activities was $6.4 million in 2008, principally reflecting a decrease in our accounts receivable and an increase in our accounts payable offset by our net loss; and $1.2 million in 2007, principally reflecting our net income.
 
Cash from Investing Activities. In 2009, cash used in investing activity was $129,692, mainly for capital expenditures, as compared to $679,749 in 2008 and $2.8 million in 2007, $2.0 million of which related to leasehold improvements resulting from our move of offices in New York in April 2007.
 
Cash from Financing Activities. In 2009, cash received from financing activity was $1.2 million, primarily as a result of borrowing against our credit facility offset by payments made on notes issued to repurchase units from former members of CTPartners Executive Search LLC. Cash used in financing activities in 2008 was $3.1 million primarily resulting from paying down our credit facility and repaying notes issued to repurchase units from former members of CTPartners Executive Search LLC, partially offset by the issuance of a convertible note to the members of CTPartners Executive Search LLC in the amount of $2.7 million. Cash from financing activities in 2007 was $3.0 million primarily as a result of increased borrowing on our credit facility and the receipt of proceeds from the issuance of member units, which was partially offset by our repurchase of units from former members of CTPartners Executive Search LLC.
 
  •  Lines of Credit: Since March 2004, we have had a committed revolving credit facility. Under our credit facility, we may borrow U.S. dollars at LIBOR plus 3.25%. A facility fee is charged even if no portion of the credit facility is used. Our credit facility expires on April 30, 2012. The borrowings outstanding under our credit facility were $4.6 million at December 31, 2009 and $2.7 million at December 31, 2008. As of November 3, 2010, we had $1.8 million outstanding under our credit facility and we had $8.2 million available to borrow. The facility is secured by substantially all of our assets, including certain accounts receivable balances. We are required to meet, and are currently in compliance with, certain financial condition covenants on a quarterly basis, including a maximum leverage ratio, minimum fixed charge ratio, minimum net worth and maximum capital expenditures. Our revolving credit facility restricts our ability to pay dividends.
 
  •  Convertible Note: On June 16, 2008, we entered into identical convertible promissory notes with certain of our executive search consultants of CTPartners Executive Search LLC, pursuant to which we raised $2.7 million. The notes, of which an aggregate of $2.5 million is currently outstanding, pay interest, on a quarterly basis, at a fixed rate of 5% per year and are due and payable on June 16, 2013. Upon conversion, each holder will receive a number of shares of common stock obtained by (i) dividing the amount to be converted by $50.41 (the agreed upon value, for purposes of converting the notes, of a member unit) and (ii) multiplying this number by 5.269 (the conversion ratio of which our member units will convert to shares of common stock).


32


Table of Contents

Off-Balance Sheet Arrangements. We do not have off-balance sheet arrangements, special purpose entities, trading activities or non-exchange traded contracts.
 
Contractual Obligations. The following table presents the Company’s known contractual obligations and commitments to make future payments under certain contractual obligations:
 
                                                         
    Payments due for the Years Ended December 31,  
Contractual Obligations:
  2010     2011     2012     2013     2014     Thereafter     Total  
(In millions)                                          
 
Convertible promissory notes
  $ 0.12     $ 0.12     $ 0.12     $ 2.57                 $ 2.93  
Line of credit
    4.68                                     4.68  
Notes payable — redemption of members’ units
    1.07       1.21       0.65       0.01       0.01             2.95  
Office space and equipment lease obligations
    8.50       6.40       5.90       5.50       5.30       9.60       41.20  
                                                         
Totals
  $ 14.37     $ 7.73     $ 6.67     $ 8.08     $ 5.31     $ 9.60     $ 51.76  
                                                         
 
Application of Critical Accounting Policies and Estimates
 
General. Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared using accounting principles generally accepted in the United States of America (GAAP). Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, in the notes to our consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.
 
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of our consolidated financial statements:
 
Revenue Recognition. Substantially all revenue is derived from fees for professional services related to executive search services. Revenue before reimbursements of direct expenses (“net revenue”) consists of: retainer fees; indirect expenses billed to clients; supplemental fees (fees contractually due to the Company if the actual compensation of the placed candidate exceeds the estimated compensation on which the retainer fee was based or the client hires other candidates presented by the Company for positions not related to the original search assignment); and license revenue. Since retainer fees and indirect expenses are generally not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which our services are performed. The period over which we recognize revenue may not directly correspond to the length of a search because revenue recognition is aligned with our assumptions regarding the provision of services during the engagement. These assumptions determine the timing of revenue recognition and profitability for the reported period. If these assumptions do not accurately reflect the period over which revenue is earned, revenue and profit could differ. We annually review our assumptions with regard to the establishment of the period over which our services are performed to ensure that our revenue recognition policy is in accordance with generally accepted accounting principles. Retainer fees and indirect expenses from executive search engagements are recognized over the expected period of performance in proportion to the estimated personnel time incurred to fulfill our obligations under the engagements. Any supplemental fees are recognized upon the occurrence of the event triggering the payment of a supplemental fee.


33


Table of Contents

Accounts Receivable and Allowances for Doubtful Accounts. Accounts receivable from our clients are recorded at the invoiced amounts and do not bear interest. Our invoices generally require payment upon receipt, and accounts greater than 90 days past due are considered delinquent. We determine an allowance for a delinquent account based upon an analysis of several factors, including the aging of the account, historical write-off experience and an analysis of the specific account. Actual collections of accounts receivable could differ from our estimates due to macro-economic conditions, changes in the executive search industry or a specific client’s financial condition.
 
Recently Adopted Financial Accounting Standards
 
In July 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (the “ASC”). The ASC has become the single source of non-governmental accounting principles generally accepted in the United States (“GAAP”) recognized by the FASB in the preparation of financial statements. The ASC does not supersede the rules or regulations of the Securities and Exchange Commission (“SEC”), therefore, the rules and interpretive releases of the SEC continue to be additional sources of GAAP for the Company. The Company adopted the ASC as of July 5, 2009. The ASC does not change GAAP and did not have an effect on the Company’s financial position, results of operations or cash flows.
 
The Financial Accounting Standards Board issued new guidance on accounting for uncertainty in income taxes. The Company adopted this new guidance for the year ended December 31, 2009. Management evaluated the Company’s tax position and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance.


34


Table of Contents

 
BUSINESS
 
Company Overview
 
We are a leading provider of retained executive search services to clients on a global basis. We provide these services through 15 offices in the Americas, Europe and Asia Pacific, as well as through our six associated offices in Latin America. We help our clients build stronger leadership teams by facilitating the recruitment and hiring of “C-level” executives, other senior executives and board members. Our retained executive search services focus on successfully making placements for our clients in a timely manner. We believe that we are the only global retained executive search firm to track and publish the key quality metrics that drive success in our business, and to have these metrics examined by an independent registered public accounting firm. These include: (i) placement success rate; (ii) average days to placement; and (iii) stick rate. In 2009, our placement success rate was 78% and our average days to placement was 124. For candidates placed from January 1, 2008 to June 30, 2009 (the most recent period for which our results have been examined by our independent auditor), our stick rate was 90%. For purposes of tracking our performance metrics, we include the performance of our associated offices in Latin America. We believe that this performance significantly exceeds the performance of our major competitors. We use a proprietary search process and proprietary technology and communication tools to successfully execute our retained searches. In 2009, we were engaged to perform 962 searches, including 667 performed directly by us and 295 performed by our associated offices in Latin America, and we generated net revenue and operating income of $73.9 and $5.7 million, respectively. Included in 2009 net revenue is $250,650 in license fees from our associated offices in Latin America.
 
We believe that our proven and proprietary retained executive search process, SearchSigma, differentiates us from our peers. SearchSigma was developed based on analyzing three years of detailed client surveys. In our analysis, we identified the common criteria and timetables our clients expect from a successful search. We then developed a proprietary search process to respond accordingly. Based on our findings, we structured SearchSigma as a workflow process with six distinct segments and milestones, at 48 hours, 7 days, 14 days, 40 days, 75 days and 100 days, designed to complete a successful placement within 100 days of our engagement. SearchSigma also enables our executive search consultants and our clients to actively monitor the status of each search and make adjustments to the search process as necessary. Our focus on the SearchSigma process enhances our ability to successfully and expeditiously identify and place candidates with our clients within our stated goal of 100 days from our engagement.
 
We believe that a high level of communication and process transparency with our clients is very important to their level of satisfaction and to the ultimate success of our searches. The cornerstone of our client communication is our proprietary system, ClientNet®. Through ClientNet®, our clients can access password-protected information over the internet to check the status of their search engagements. Another important element of our transparency and accountability is the audit that we offer to conduct at the 40-day milestone. This key process step is executed by one of our executive search consultants who is not otherwise involved a particular search. This executive search consultant contacts the client to assess the progress of the search and to gather client feedback along with any suggested refinements to the process. We have found the 40-day audit process to be very helpful in ensuring that a search is tracking as planned and that any necessary adjustments are made early in the process.
 
Our organizational structure is designed to provide high quality, industry-focused executive search services to our clients worldwide. Our executive search consultants are dedicated to specific industry verticals and are leading experts in their given sectors. Our support teams of researchers and associates are organized by industry practice group in various geographic locations. We believe that industry specialization enables us to better understand our clients’ cultures, operations, business strategies and industries. Executive search consultants in our industry practice groups bring an in-depth understanding of the market conditions and strategic and management issues faced by clients within their specific industry. Our five largest industry practice groups are financial services, professional services, life sciences, technology/media/telecom and consumer/industrial.
 
We have a diverse group of clients located throughout the world and in a variety of industries. From January 1, 2005 through September 30, 2010, we have performed more than 4,400 searches for over 1,400


35


Table of Contents

clients, including some of the leading Fortune 1000, FTSE 100, DAX and CAC 40 companies as well as private equity and venture capital firms and their portfolio companies. No single client accounted for more than 5% of our revenue in any of 2009, 2008 or 2007.
 
Historically, we have been successful in both adding new clients and generating repeat business from existing clients. We believe that our disciplined adherence to our proprietary search process has enabled us to develop a strong and loyal client base. Over the past three years, approximately 70% of our retained search engagements came from clients who had previously used our services. At the conclusion of each search, we solicit client feedback with a client satisfaction survey. Our surveys provide us with critical feedback to gauge client satisfaction as well as feedback that we utilize to continually evaluate and improve our processes and performance. In 2009, 169 clients completed client satisfaction surveys, and 96% of such surveys stated that the client planned to use our services in the future.
 
We believe that our global presence enables us to more effectively serve our clients who have operations throughout the world. We leverage our industry specialization with local geographic knowledge and contacts to provide clients with comprehensive executive search services. We have wholly-owned operations in eight U.S. cities and in seven non-U.S. locations. Our wholly-owned non-U.S. operations are in Canada, China, France, Hong Kong, Singapore, Switzerland and the United Kingdom. In addition to our wholly-owned operations, our associated offices in Latin America are located in Brazil, Chile, Colombia, Mexico, Peru and Venezuela. In 2009, we placed candidates in 301 U.S. searches and 409 non-U.S. searches, of which 186 were executed by our associated offices in Latin America.
 
As of September 30, 2010, we had 88 executive search consultants and 231 other employees, all of whom were full-time employers, and our associated offices in Latin America had 17 executive search consultants and 57 other employees. Our principal executive offices are located in New York, New York. Our corporate, administrative and research functions are located in our office in Cleveland, Ohio.
 
History
 
Our origins date back to 1980 when we were known as Christian & Timbers. We grew through the late 1990s with a primary focus on the technology sector. In 2004, Brian M. Sullivan joined the Company as our chief executive officer. Prior to joining us, Mr. Sullivan served as Vice Chairman of Heidrick & Struggles International, which he joined upon its acquisition of Sullivan & Company, the financial services-focused executive search firm he founded in 1988.
 
Mr. Sullivan and our other senior leaders embarked on a strategy to broaden our recruiting focus from the technology sector to include all major sectors and global regions. In 2007, we renamed the Company CTPartners Executive Search LLC to reflect the firm’s new and expanding identity. Since 2004, we have added approximately 66 net new executive search consultants and 165 other employees and opened eight new offices. Additionally, beginning in 2007, we have entered into licensing relationships with our associated offices in Latin America, expanding our global reach into Brazil, Chile, Colombia, Mexico, Peru and Venezuela. Our net revenue grew from $27.0 million in 2004 to $116.6 million in 2007, a compound annual growth rate of 70%. We believe our 2007 net revenue of $116.6 million is a good representation of our ability to scale the business. Due to the global economic crisis, our net revenue declined 9.4% in 2008 and 30.1% in 2009. Reflecting the improvement in the global economy and our continued market penetration, our net revenue grew 70.1% in the first nine months of 2010 compared to the first nine months of 2009.
 
Committed to delivering performance, quality and results, we believe that we are the first executive search firm to represent a competitive alternative to the large firms that have otherwise defined the search industry. We pride ourselves on being the leader in providing transparency and client accountability. This approach has defined our strategic initiatives and we believe is the cornerstone of our success.
 
Executive Search Industry Overview
 
The executive search business is highly fragmented, consisting of several large global firms and several thousand smaller firms that are generally focused on a specific geographic region or on a specific


36


Table of Contents

vertical sector. We believe our most direct competition comes from the following five global retained executive search firms: Egon Zehnder International, Heidrick & Struggles International (NASDAQ: HSII), Korn/Ferry International (NYSE: KFY), Russell Reynolds Associates, Inc. and Spencer Stuart.
 
Executive search firms are generally separated into two broad categories: retained search firms and contingency search firms. Retained search firms generally operate on an exclusive basis for a specific search and are compensated for their services regardless of whether they are successful in placing a candidate with the client. Retained executive search firms typically focus on “C-level” and other senior level executive and board of director positions, and the fee for such services is typically 33% of the first year total cash compensation for the position being filled. The fee for a retained executive search is typically paid in three installments. Contingency executive search firms are generally not hired on an exclusive basis and are only compensated upon placing a recommended candidate, and the fee for such services is typically 25% of the first year base salary of the position being filled.
 
We believe that there are a number of positive trends that are contributing to the growth of the executive search industry. Some of the more significant trends include:
 
Increasing Competition for Talent. We believe that there are two fundamental drivers behind the increasing competition for senior level executive and board talent. First, as the “baby boom” generation retires, there are fewer qualified candidates available for senior executive and board positions. Most organizations lack the internal skills necessary to identify, assess and recruit the best candidates in this environment. Second, corporate governance changes have reduced the number of boards on which any one individual can sit, both by the explicit adoption of policies implementing limits and by the increase in the amount of time that a director must spend fulfilling his/her obligations. Furthermore, the increased scrutiny that board members face has reduced the number of individuals willing to serve as a director of a public company. Thus, companies realize the need to search externally for executives to fill key functional or specialty areas.
 
Corporate Governance Reforms. We believe that companies have an increased focus on maintaining a high level of independence in their corporate governance processes. The significant influence of large institutional shareholders, rise in shareholder activism and turbulent market conditions have led to an increased focus on director qualifications and independence and best practices in the leadership selection process. Furthermore, public company boards are required to field independent directors that meet certain qualifications, such as financial expertise and risk management skills. As a result of these trends, we believe there is an increased need to hire external executive search professionals to ensure these key objectives are met by finding and placing suitable candidates.
 
Globalization. As businesses increasingly compete on a global scale, their need for senior executives with specific skills in various parts of the world also increases. Many companies do not have the ability to identify and recruit talent in diverse geographic locations. The process of identifying and evaluating strong candidates internationally can be time consuming and difficult due to language barriers and cultural differences, and as a result companies increasingly rely on executive search firms to help fill these critical positions.
 
Greater Need for Diverse Management and Directors. In response to a rapidly changing and competitive business environment and increasing regulatory requirements, many companies are seeking greater diversity of skills, background and perspective at the senior executive level. Many companies seek to augment their senior leadership with professionals who provide unique or differentiated skills and backgrounds. In most cases, global executive search firms are best positioned to help companies find these senior executives.
 
Our Key Competitive Strengths
 
We believe our key competitive strengths are:
 
Intense Focus on the Timely and Successful Completion of Searches. Our performance-based business philosophy and incentive compensation structure is designed to focus our executive search consultants and other employees on successfully making the placements for which we are retained within our stated goal of 100 days from engagement. We believe this is a very important factor in satisfying our clients. That in turn enables us to win follow-on business from these clients and further establish our reputation to win business


37


Table of Contents

from new clients. Because we consider client satisfaction to be the leading driver of new engagements, we place an intense focus on the execution and measurement of our search progress through our proprietary SearchSigma process. We determine our success based on how well we deliver for our clients more so than on how many engagements we receive. We believe that this differentiates us from most of our competition.
 
Highly Disciplined, Milestone-Driven Approach to Executing Searches. We rigorously and consistently apply a detailed, highly structured process, which we call SearchSigma, to each of our searches. SearchSigma is a proprietary process we developed based on analyzing three years of client surveys. Through this effort, we identified the common criteria and timetables our clients expect from a successful search. We then developed a proprietary search process to respond accordingly. Based on our findings, we structured SearchSigma as a workflow process with six distinct segments and milestones — at 48 hours, 7 days, 14 days, 40 days, 75 days and 100 days — designed to complete a successful placement within 100 days of our engagement. SearchSigma also enables our executive search consultants and our clients to actively monitor the status of each search and make adjustments to the search process as necessary. We believe that our SearchSigma process, which includes significant ongoing communication with our clients, enhances our ability to successfully and expeditiously identify and place candidates.
 
An Industry Leader in Utilizing Key Performance Metrics to Manage Our Business. We believe that the execution of an executive search can and should be measured. Because we know placement percentage, days to placement and stick-rate percentage are critically important to clients, we actively track and publish these factors. Furthermore, we have the calculation of these metrics examined by our independent registered public accounting firm, and we publish the data on our website. Placement percentage is the percentage of total retained executive searches that result in a placement. Our placement percentage for 2009 was 78%. Average days to placement is the average days from our engagement on a search project to the date of acceptance by the candidate. Our average days to placement in 2009 was 124 days. In calculating our average days to placement, we (i) include pick-ups, instances in which we identify a candidate for one position but the client hires that candidate for another position, resulting in a single day to placement, as well as instances in which the client changes the scope of the engagement after the engagement has begun, typically resulting in a longer search process and (ii) exclude hold periods, instances where an engagement is put on a formal hold as a result of client inactivity or at a client’s request. Lastly, stick rate is the percentage of candidates placed at a client that remain in the same, similar or elevated position over the measurement period. For candidates placed from January 1, 2008 to June 30, 2009 (the most recent period for which our results have been examined by our independent registered public accounting firm), our stick rate was 90%. For purposes of tracking and reporting these performance metrics, we include the performance of our associated offices in Latin America. We believe that we are the only firm in our industry to track and publish these metrics, and to have these metrics examined by an independent registered public accounting firm. We believe that our clients value having such data and that the availability of this data enhances our ability to both satisfy clients and win new engagements.
 
High Level of Transparency and Accountability with Clients. We believe that a high level of communication and process transparency with our clients is very important to our client’s level of satisfaction and to the ultimate success of our searches. The cornerstone of our client communication is our proprietary system, ClientNet®. Through ClientNet®, our clients can access password-protected information over the internet to check the status of their search engagements. ClientNet® provides an opportunity for clients to access information on candidates and communicate with the search team. This dynamic interface enables clients to follow and engage in the search process in a way not offered by any significant competitor.
 
Another important element of our transparency and accountability is the audit that we offer to conduct at the 40-day milestone for each search. This key step is executed by one of our executive search consultants who is not otherwise involved in the particular search. This executive search consultant contacts the client to assess the progress of the search and to gather client feedback. We believe the 40-day audit process is very helpful in ensuring that a search is tracking as planned and to make any necessary adjustments early in the process. Our chief executive officer reviews the results of every 40-day audit.


38


Table of Contents

Finally, at the conclusion of each search, we solicit client feedback with a client satisfaction survey. Our surveys provide us with critical feedback to gauge client satisfaction as well as feedback that we utilize to continually evaluate and improve our processes and performance.
 
Global Firm with Deep Domain Expertise. Our approach has been to build out deep domain expertise in specific industry verticals. This enables us to quickly understand our clients’ businesses and talent needs and identify relevant candidates. Furthermore, given our focus on retained executive search and the resulting contact network we have developed, we often have one-call access to the most qualified candidates. We are well positioned to serve clients throughout the world through 21 offices in 13 countries throughout Asia, Europe, North America and South America. Regardless of client or executive search consultant location, we field the most relevant team based on industry expertise.
 
Organization and Incentives Structured to Drive Collaboration and Best Outcome for the Client. We have deliberately developed and maintained a one-firm culture. Our compensation structure places a significant emphasis on being engaged and successfully executing searches. Our executive search consultants are motivated to source the team they believe is best-suited for each situation and are driven to deliver results for the client. The compensation of all members of each search team is affected by the successful placement of each search. We believe this creates a strong team culture, with all members of the team aligned around the goal of quickly making a successful placement.
 
Our Growth Strategy
 
Continue to Increase our Penetration of Existing Clients
 
Many of our clients are large, global companies that are continuously seeking to add talented senior executives to their management teams. We are focused on serving our clients’ needs in all of their geographic locations. Reflecting their high level of satisfaction with our performance, our clients have rewarded us with a high level of repeat business. Over the past three years, approximately 70% of our retained search engagements came from clients who had previously used our services. We intend to continue to focus on delivering for our clients, thereby giving us the opportunity to further expand our relationships with them.
 
Continue to Deepen Expertise in Targeted Industry Practices
 
We intend to maintain our model of offering deep industry domain expertise to our clients. Our core strengths are in financial services, professional services, life sciences, technology/media/telecom and consumer/industrial. We intend to continue to add talented executive search consultants to all of our practice areas. Because of our distinctive SearchSigma process, culture and compensation structure, we believe that we are able to attract high-performing executive search professionals.
 
Expand Global Presence
 
Our firm has significant geographic reach, having made placements in 38 countries in 2008 and 2009. Driven by the locations of both clients and recruiting talent, we intend to open additional offices around the world. We believe that we have a substantial opportunity to grow as we expand our global footprint, thereby enhancing our market presence and our execution capabilities. We have wholly-owned operations in eight U.S. cities, including our global headquarters in New York, New York. Our wholly-owned international operations are located in Canada, China, France, Hong Kong, Singapore, Switzerland and the United Kingdom. Additionally, we entered into a licensing relationship with our associated offices in Latin America, expanding our global reach into Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
 
Make Strategic Targeted Hires and Acquisitions
 
Our ability to attract and retain executive search consultants is the key to our success. For this reason, we are focused on maintaining a distinctive culture, a stimulating work environment and a compelling, performance-based compensation structure. We intend to continue to hire new executive search consultants as demand for our services continues to grow and as we identify talent in the marketplace. After completion of this offering, we plan to use our common stock as part of our compensation program to attract highly qualified


39


Table of Contents

executive search consultants. While we continue to focus on organic growth in revenue and profitability, we recognize the possibility of expansion opportunities through future acquisitions.
 
Expand Board Placement and Advisory Practice
 
In May 2009, we hired a team of seasoned board advisory professionals with a strong track record and extensive relationships. We expect that increased corporate governance regulation and an increased focus on board member qualifications and accountability will drive meaningful growth and demand for board advisory services. We intend to build out this service offering to meet rising demand. We also expect this practice will be a driver of our core executive search business as we gain access to new clients at the board level.
 
Our Services
 
Retained Executive Search
 
Our retained executive search services are used to fill executive level positions, such as chief executive officers, chief financial officers, chief operating officers, chief information officers and other senior executive officers, as well as board of directors’ positions. Our executive search consultants work closely with our clients to identify, assess and place qualified candidates. Our clients are primarily from five large industry verticals: financial services, professional services, life sciences, technology/media/telecom and consumer/industrial.
 
Our retained search engagements are typically led by executive search consultants with vertical market expertise and one-call access to the most sought-after talent in each market. Supporting our executive search consultants is a team of experienced recruiting associates and research professionals, many with decades of experience utilizing executive search industry best practices. We work closely with our clients to understand their business strategy and develop a profile of the ideal candidate. Once the position is defined, the research team identifies appropriate individuals through the use of our proprietary databases and other search media. In addition, the team consults with its established network of sources to help identify individuals with the right backgrounds and professional abilities. Leveraging our network of resources and research capabilities, we strive to develop an extensive list of potential candidates, who are then carefully screened through face-to-face meetings, phone interviews and/or video conferences. The client is then presented with a specified number of qualified candidates to interview. We conduct third-party reference checks throughout the process. Our executive search consultants actively participate in negotiations until a final offer is made and accepted. Throughout the process, we maintain ongoing communication with our client and actively involve them in the process.
 
In 2009, we utilized our proprietary SearchSigma process to identify and place 710 candidates, including 186 placements made by our associated offices in Latin America. Every aspect of our search process is oriented to achieving the desired outcome of placing the right individual at the right firm as swiftly and efficiently as possible. Based on a three-year analysis of client surveys, we have designed SearchSigma, a workflow process with six distinct segments and milestones, described in more detail as follows:
 
Milestone #1 — 48 Hours. During the first 48 hours, we develop a strategy that includes identification of the internal resources and personnel needed in the search, scoping the necessary geographic reach of the search, determination of the appropriate title of the position offered, creating a description of the ideal candidate and the identification of the top 20 source companies. Identifying the best internal team is largely based on industry expertise. Once the team is in place, the lead partner chooses the breadth of geographic reach based on title and description of position.
 
Milestone #2 — 7 Days. After seven days, we hold a kick-off meeting with the client at which we present our overarching search strategy, including our research and recruiting approach, as well as a detailed position description that embodies the required leadership characteristics. Clients receive a competitive analysis and an assessment of the market. With a two-way sharing of information, we begin the process by identifying the unique priorities, challenges, and opportunities that characterize a particular client’s search assignment.
 
Milestone #3 — 14 Days. After 14 days, we hold a follow-up meeting with the client to confirm our strategy, present industry research and provide our view on candidate backgrounds reviewed to date. At this


40


Table of Contents

point we will have typically identified two benchmark candidates and spoken with at least 20 potential candidates. The client is asked to approve our strategy at this milestone.
 
Over the next several weeks, the team consults with its established network of resources and searches proprietary databases containing profiles of approximately one million executives to assist in identifying individuals with the right background, cultural fit and abilities. An initial list of candidates is carefully screened through face-to-face meetings, phone interviews or video conferences.
 
Milestone #4 — 40 Days. After 40 days, we have conferred with at least 50% of the identified candidates, interviewed at least five prospects and presented at least three candidates to the client. At this time, we also offer to conduct our 40-day audit which provides us with the opportunity to course-correct our search strategy and target candidate profile, if necessary.
 
Milestone #5 — 75 Days. After 75 days, our team has conferred with approximately 90% of the identified candidates, the client has been presented with two qualified candidates, and we have secured two alternative qualified candidates should a final offer not be made or accepted.
 
Milestone #6 — 100 Days. At the 100-day mark, we have typically successfully identified and placed the client’s ideal candidate. At the conclusion of each search, we solicit client feedback with a client satisfaction survey. Our surveys provide us with critical feedback to gauge client satisfaction as well as feedback that we utilize to continually evaluate and improve our processes and performance. The survey findings are used to rank our executive search consultants which are then reviewed and posted internally and are considered in making decisions with regard to internal promotions, illustrating our commitment to exceeding the expectations of our clients.
 
Board Advisory
 
We approach our board advisory practice with the same rigor, discipline and processes as we apply to our executive search services. This includes utilizing an overarching search strategy, research, regular status reviews, mid-search audit and a methodology where candidates are identified from a formal search process. We are generally paid a flat fee for our board advisory services.
 
Our board advisory practice is designed to help boards evaluate the strength and diversity of their board as well as their overall effectiveness. Many boards are facing growing regulatory and shareholder pressure to increase their diversity, independence and expertise. Our in-depth assessments help to focus directors on these key priorities and to make them aware of issues that can impact effectiveness. Since establishing this practice in May 2009 through September 30, 2010, we have conducted eight board assessments.
 
To support our board placement and advisory practice, we established an advisory group comprised of 14 former chief executive officers and directors currently serving on multiple boards to provide us with insight and perspectives on board service, challenges, and best practices. Through this resource, we obtain independent opinions on candidates’ track records from our advisory group. We believe that our advisory group broadens our access to qualified individuals and ensures an optimal fit.
 
Our Industry-Focused Practice Areas
 
Our organizational structure is designed to provide high quality executive search services to our clients worldwide. Our team of executive search consultants is organized by industry practice group in various geographic locations. We believe that industry specialization enables us to better understand our clients’ cultures, operations, business strategies and industries and the respective markets for senior executive candidates. All of our executive search consultants perform searches for specific “C-level” and other senior executives. This includes chief financial officers, chief information officers, chief legal officers, chief marketing officers and chief human resources officers.
 
We operate our executive search business in five broad industry practice groups: financial services, professional services, life sciences, technology/media/telecom and consumer/industrial. Executive search


41


Table of Contents

consultants in our industry practice groups bring an in-depth understanding of the market conditions and strategic and management issues faced by clients within their specific industry. Additionally, our executive search consultants have established networks of sources which often provide one-call access to the most sought after talent. The relative sizes of these industry practice groups, as measured by the percentage of 2009 net revenue and the number of executive search consultants as of December 31, 2009, are as follows:
 
                 
        Number of
    Percentage of
  Executive Search
Industry Practice Group
  2009 Net Revenue   Consultants
 
Financial services
    43 %     32  
Professional services
    17       13  
Life sciences
    18       13  
Technology/media/telecom
    12       14  
Consumer/industrial
    10       5  
 
Within each broad industry practice group there are a number of industry subsectors. For example, within the financial services practice group our business is diversified among a number of industry subsectors, including asset and wealth management, capital markets, financial technology, hedge funds, investment banking, private equity, commercial banking and insurance. Executive search consultants from each of these industry practice groups are located across our various offices. We believe this operational structure provides our clients with superior services.
 
Executive search consultants often focus in one or more subsectors to provide clients with even deeper market intelligence and candidate knowledge specific to their industry. We have international teams that focus on the following subsectors:
 
  •  Association & Not-for-Profit
 
  •  Cleantech & Alternative Energy
 
  •  Commercial Banking
 
  •  Conservation
 
  •  Federal Consulting, Government Relations & Public Policy
 
  •  Financial Technology
 
  •  Global Security/Risk Management
 
  •  Inclusion
 
  •  Insurance
 
  •  Legal, Compliance, Regulatory & Governance
 
  •  Legal Services
 
  •  Real Estate
 
  •  Semiconductor
 
Our Executive Search Consultants and Other Employees
 
As of September 30, 2010, we had 319 full-time employees consisting of 88 executive search consultants, 75 associates, 32 researchers and 124 administrative and support staff, excluding the 74 individuals employed by our associated offices in Latin America. We believe the high caliber, extensive experience and motivation of our professionals are critical factors to our success. We utilize a combination of base salary, revenue and volume bonuses, discretionary bonuses and equity compensation to compensate our employees. The average age of our executive search consultants is 47 years.
 
Our associates and researchers support the efforts of our executive search consultants with candidate sourcing and identification by making initial contact with candidates and performing other search-related


42


Table of Contents

functions. We train our associates and researchers, as well as new executive search consultants, in the use of our proprietary retained executive search process and communication systems. Additionally, we periodically hold training and development programs for our associates and researchers. As a result of our strong development culture, we have made a significant number of internal promotions. Over the past five years, we have promoted 17 associates to executive search consultants. Promotion to executive search consultant is based on a variety of factors, including demonstrated superior execution and business development skills, the ability to identify solutions to complex issues, personal and professional ethics, a thorough understanding of the market and the ability to develop and build effective teams.
 
We believe we have been able to attract and retain some of the most productive executive search consultants. Over the past five years, we have hired 55 executive search consultants with previous search backgrounds and strong specialty expertise. We consider relations with our employees to be good.
 
Clients
 
We have a diverse group of clients located throughout the world in a variety of industries. From January 1, 2005 through September 30, 2010, we have performed more than 4,400 searches for over 1,400 clients, including some of the leading Fortune 1000, FTSE 100, DAX and CAC 40 companies as well as private equity and venture capital firms and their portfolio companies. No single client accounted for more than 5% of our revenue in 2009, 2008 or 2007.
 
Historically, we have been successful in both adding to our client base and generating repeat business from existing clients. We believe that our dedication to successfully completing our retained searches in a timely and structured manner has enabled us to develop a strong and loyal client base. This has resulted in highly recurring revenue from our existing clients. For example, over the past three years, approximately 70% of our engagements came from clients who had previously used our services. In 2009, we had 110 clients that retained us to perform more than one search for them.
 
Marketing
 
Our executive search consultants market our executive searches through targeted client calling, industry networking and various referral sources. These efforts are assisted by our proprietary databases which provide our executive search consultants with real-time information as to contacts made by their colleagues with particular referral sources, candidates and clients. In addition, we benefit from a significant number of referrals generated by our reputation for high quality service and successfully completing assignments, as well as repeat business resulting from our ongoing client relationships.
 
We publicize and build our brand awareness through interviews with the major business and trade publications and have periodically utilized television advertisements on syndicated media outlets such as CNBC. We regularly sponsor speeches and host presentations before industry and management groups. We regularly participate in relevant conferences and forums and leading roundtable discussions on topics of interest. For example, we host an Annual Institute on director and committee independence to help enhance the quality of board governance. Similarly, in 2010 we co-hosted the First Annual Board of Directors Institute in Human Resources. In addition, we periodically distribute publications to existing and potential clients highlighting emerging trends and noteworthy engagements.
 
Executive search firms frequently are required to refrain from recruiting employees of a client for a specified period of time, typically extending for one year from the initiation of the search assignment. We carefully manage these off-limits conditions by attempting to limit the scope of any such agreement.
 
Research and Information Management
 
Our research efforts are maximized through a centralized research effort based in our office in Cleveland, Ohio. We use our proprietary database and other available technology to conduct research focused on identifying targeted candidates based on client-specific requirements.


43


Table of Contents

Research is largely based on our robust, growing proprietary candidate database. Our database consists of approximately one million unique candidate profiles. The database connects pre-screened candidates to client information offering a concise opportunity for first round due diligence.
 
A significant value-added benefit of our database is driven by our dynamic client interface, ClientNet®, which enables clients to access candidate-specific details throughout their placement process. ClientNet® captures candidate-specific data over time thus ensuring continuous search momentum and providing an efficient process for our clients.
 
Competition
 
The executive search industry is highly competitive and fragmented. Based on revenue, we believe we are among the top twenty largest executive search firms in the world. Outside of the twenty largest players, the executive search industry is highly fragmented, primarily comprised of numerous regional boutiques and franchises. Our most direct competition comes from the larger executive search firms that compete on a global scale, including Egon Zehnder International, Heidrick & Struggles International (NASDAQ: HSII), Korn/Ferry International (NYSE: KFY), Russell Reynolds Associates, Inc. and Spencer Stuart. We primarily compete with these competitors based upon our relationships with the key decision-makers, as well as our reputation for offering a unique value proposition to our clients. In large part, the genesis of our differentiation is an intense focus on making timely, successful placements that match the needs of our clients. To ensure that we are meeting our clients as well as our expectations, we carefully track our placement rate, average days to placement and stick rate. Furthermore, our size and culture enable us to quickly adapt to current market conditions and demands.
 
Offices
 
Our principal executive offices are located in New York, New York, and our corporate, administrative and research functions are located in our office in Cleveland, Ohio. Our operations are based in the following locations:
 
         
U.S. Locations
 
Non-U.S. Locations
 
Associated Offices
 
Boston, MA
  Geneva, Switzerland   Bogota, Colombia
Chicago, IL
  Hong Kong   Caracas, Venezuela
Cleveland, OH
  London, United Kingdom   Lima, Peru
Columbia, MD
  Paris, France   Mexico City, Mexico
Miami, FL
  Shanghai, China   Santiago, Chile
New York, NY
  Singapore   Sao Paulo, Brazil
Redwood Shores, CA
  Toronto, Canada    
Washington, DC
       
 
All of our offices are leased. We do not own any real property.
 
Legal Proceedings
 
From time to time we are involved in litigation incidental to our business. We are currently not party to any litigation, the adverse resolution of which, in management’s opinion, would be likely to have an adverse effect on our business, financial condition or results of operations.


44


Table of Contents

 
MANAGEMENT
 
Executive Officers and Directors
 
The following table lists our executive officers and members of our board of managers as of September 30, 2010. In connection with this offering, we will convert from a Delaware limited liability company, managed under the direction of our board of managers, to a Delaware corporation managed under the direction of a board of directors. Accordingly, the following table also lists those individuals who have agreed to join our board of directors upon completion of this offering. Upon completion of this offering, we expect that our board of directors will consist of the following five identified individuals, four of whom will be independent directors. In the biographical paragraphs that follow, service with Christian & Timbers, LLC and CTPartners Executive Search, LLC is reflected as service with us. Other than as described below, there are no family relationships between our managers and executive officers or between our executive officers and the individuals who have agreed to join our board of directors upon completion of this offering.
 
             
Name
 
Age
 
Position
 
Brian M. Sullivan
    57     Chief Executive Officer, Manager and Director
David C. Nocifora
    51     Chief Operating Officer, Chief Financial Officer, Secretary and Manager
Scott M. Birnbaum
    50     Director*
Michael C. Feiner
    68     Director*
Thomas R. Testwuide, Sr. 
    65     Director*
Betsy L. Morgan 
    42     Director*
 
 
* This individual has agreed to join the board of directors upon completion of this offering.
 
Brian M. Sullivan has served as our chief executive officer since joining us in September 2004. Prior to joining us, Mr. Sullivan served as Vice Chairman of Heidrick & Struggles International, which he joined upon its acquisition of Sullivan & Company, the financial services industry search firm he founded in 1988. In 2008, Mr. Sullivan was named to BusinessWeek’s Top 50 List of the World’s Most Influential Headhunters. Mr. Sullivan received a B.S. degree from Lehigh University and a M.B.A. from Denver University. We believe Mr. Sullivan’s qualifications to serve on our board of directors include his knowledge of, and years of leadership with, the Company and the retained executive search industry.
 
David C. Nocifora has served as our chief financial officer since June 1994, and as our chief operating officer since 2003. Previously, Mr. Nocifora served as Division Controller for Jaite Packaging, a division of Sealright Co., Inc., and Accounting Manager for Tremco, a division of Goodrich Corporation. Mr. Nocifora is a Certified Public Accountant in the State of Ohio. He received his B.S. degree in Accounting from Ohio Northern University and a M.B.A. from Lake Erie College.
 
Scott M. Birnbaum has agreed to serve as a member of our board of directors upon completion of this offering. Since May 2010, Mr. Birnbaum has served as an Operating Executive for Kohlberg & Company, LLC, a leading U.S. private equity firm which specializes in acquiring middle market companies. Prior to joining Kohlberg & Company, LLC, Mr. Birnbaum was the President and Senior Managing Director of Ameriquest Capital Group, a leading private equity firm specializing in making investments in companies engaged in financial and business services, a firm he founded in 2002. Prior to founding Ameriquest Capital Group, Mr. Birnbaum was Senior Partner and Practice Leader of Mercer Management Consulting now known as Oliver Wyman, an international management consulting firm. We believe Mr. Birnbaum’s qualifications to serve on our board of directors include his extensive experience in the consulting industry and broad knowledge of the various financial and business models as well as his knowledge of the capital markets.
 
Michael C. Feiner has agreed to serve as a member of our board of directors upon completion of this offering. Mr. Feiner is the founder of Michael C. Feiner Consulting, Inc., a consulting firm specializing in advising companies on human capital strategies, organization development and leadership effectiveness. He has served as its President since the firm’s founding in 1996. Mr. Feiner also serves as a professor and the Sanford C. Bernstein & Co. Ethics Fellow for Columbia Business School where he has been teaching since


45


Table of Contents

2003. Mr. Feiner worked for Pepsi-Cola Company from 1975 to 1995. He served as Senior Vice President and Chief People Officer for Pepsi’s beverage operations worldwide from 1989 until his retirement in 1995. His book, The Feiner Points of Leadership: The 50 Basic Laws That Will Make People Want To Perform Better For You, was selected by the Toronto Globe and Mail as the Best Business Book of 2004. We believe Mr. Feiner’s qualifications to serve on our board of directors include his extensive experience related to human capital, organizational development and assessing management effectiveness.
 
Thomas R. Testwuide, Sr. has agreed to serve as a member of our board of directors upon completion of this offering. Since March 2010, Mr. Testwuide has served as the Chairman of the Board and Chief Executive Officer of Skana Aluminum Company, an aluminum products manufacturer in Manitowoc, Wisconsin. From February 2005 to May 2010, Mr. Testwuide served as Chairman of the Board and Chief Executive Officer of Plymouth Foam Incorporated, a leading manufacturer of rigid and soft foam products for building insulation and protective packaging applications. Since December 2001, he has served as Chairman of the Board of Torginol, Inc., a manufacturer of specialty coating products for seamless flooring systems and epoxy resin paints. Mr. Testwuide previously served as Chairman of the Board, Chief Executive Officer and President of Schreier Malt Company, a malt production company with operations in the United States, Canada and China, and which was awarded the Wisconsin Manufacturer of the Year Grand Award in 1994. We believe Mr. Testwuide’s qualifications to serve on our board of directors include his knowledge and experience gained from service on the boards of various private companies, and his leadership roles in managing several global businesses.
 
Betsy L. Morgan has agreed to serve as a member of our board of directors upon completion of this offering. Ms. Morgan currently serves on the National Advisory Board of The Poynter Institute, a school for journalists and journalism teachers based in St. Petersburg, Florida, the Strategic Advisory Board of The Journal Register Company, a leader in local news and information serving approximately 1,000 communities in ten states, and the Board of Directors of Vertical Acuity, an Atlanta-based digital media company. From October 2007 to June 2009, Ms. Morgan served as Chief Executive Officer of The Huffington Post, a leading news and opinion website. Prior to joining The Huffington Post, Ms. Morgan spent approximately 10 years in various positions at CBS, including serving as Senior Vice President for CBS Interactive and General Manager of CBSNews.com where she was in charge of the network’s 24-hour broadband, on-demand news service. In addition to her experience in the media and communications industry, Ms. Morgan spent several years in investment banking while working in the media and entertainment group of Schroders, a global asset management company. She received her BA in Political Science and Economics from Colby College and an MBA from the Harvard Business School. We believe Ms. Morgan’s qualifications to serve on our board of directors include her knowledge and experience gained from service on the boards of various private companies and her leadership roles in various businesses.
 
The Board of Directors
 
In connection with this offering, we will convert from a Delaware limited liability company to a “C” corporation organized under the laws of the State of Delaware. From and after our conversion, our certificate of incorporation and bylaws will provide that our business and affairs will be managed under the direction of a board of directors, which will consist of a number of directors to be fixed from time to time by a resolution of the board. Immediately following the completion of this offering, we expect that our board of directors will consist of five directors. Each of our directors will hold office until a successor has been elected and qualified or until his or her earlier death, resignation or removal.
 
Director Independence
 
Under our corporate governance principles, a majority of our board will consist of independent directors. An “independent” director is a director who meets the NYSE Amex definition of independence and other applicable independence standards under SEC guidelines as determined by our board of directors. For a director to be considered independent, our board of managers must determine that the director does not have any direct or indirect material relationships with the Company other than as a director or a shareholder. Our board of managers has determined that each of Messr. Birnbaum, Feiner and Testwuide and Ms. Morgan


46


Table of Contents

satisfy the independence criteria (including the enhanced criteria with respect to members of the Audit Committee) set forth in the applicable NYSE Amex listing standards and SEC rules.
 
Committees of the Board of Directors
 
Upon completion of this offering, our board of directors will establish an audit committee, a compensation committee and a nominating and corporate governance committee, and will adopt charters providing for the authority, powers and operation of each such committee. The composition of such committees will be determined at that time and directors will serve on these committees until their resignation or until otherwise determined by our board. The responsibilities of each committee are described below:
 
Audit Committee. Upon completion of this offering, we will have an audit committee that consists of three independent directors. Each member of the audit committee will be independent and at least one member will qualify as an “audit committee financial expert” as that term is defined by applicable SEC rules. Our audit committee’s responsibilities include:
 
  •  Appointing, approving the compensation of, and overseeing the work of our independent auditor;
 
  •  Evaluating the qualifications, performance and independence of our independent auditor;
 
  •  Reviewing the scope of our audit and approving all audit and non-audit services rendered by our independent auditor;
 
  •  Reviewing our annual and quarterly financial statements with our management and independent auditor;
 
  •  Reviewing the integrity and accuracy of our financial reporting processes;
 
  •  Reviewing our internal control policies and procedures;
 
  •  Reviewing and resolving any disagreements between our management and our independent auditor in connection with our financial reporting;
 
  •  Reviewing our policies, and discussing with management as appropriate, relating to financial risk assessment and financial risk management;
 
  •  Establishing procedures for receiving, retaining and treating the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
 
  •  Reviewing and approving all related party transactions involving us and our directors, executive officers or holders of more than five percent of our voting securities; and
 
  •  Preparing the audit committee report required by SEC rules.
 
Compensation Committee. Upon completion of this offering, we will have a compensation committee that will consist of three directors. Each member of the committee shall be independent, a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended. The compensation committee’s responsibilities include:
 
  •  Approving, overseeing, and evaluating the Company’s compensation policies and programs;
 
  •  Reviewing and approving the compensation of our executive officers, including our chief executive officer;
 
  •  Overseeing and administering our cash and equity incentive plans;
 
  •  Reviewing and making recommendations to our board of directors with respect to director compensation; and
 
  •  Preparing such reports on executive compensation that the SEC requires us to include in our annual proxy statement.


47


Table of Contents

 
Nominating and Corporate Governance Committee. Upon completion of this offering, we will have a nominating and corporate governance committee that will consist of three independent directors. This committee’s responsibilities will include:
 
  •  Identifying individuals qualified to become directors and committee members;
 
  •  Recommending to our board of directors the persons to be nominated for election as directors and to each of the board’s committees;
 
  •  Developing and recommending to the board corporate governance principles; and
 
  •  Overseeing the annual performance review of the board and its committees.
 
Compensation Committee Interlocks and Insider Participation
 
The members of our compensation committee will be appointed prior to the completion of this offering. No member of our compensation committee will have been an officer or employee of the Company during the last fiscal year.
 
During 2009 and the portion of 2010 prior to this offering, decisions regarding executive officer compensation were made by our full board of managers, which was comprised solely of employees of the Company, including Brian M. Sullivan, our chief executive officer, and David C. Nocifora, our chief operating and chief financial officer. All members of our board of managers participated in deliberations with regard to the determination of executive compensation except with regard to their own compensation. None of our executive officers currently serves, or in the past has served, as a member of the board of directors or the compensation committee of any entity that has one or more executive officers serving on our board of directors. Effective September 1, 2010, Messrs. Sullivan and Nocifora became the sole members of our board of managers.
 
Code of Ethics
 
Upon completion of this offering, we will adopt a code of ethics applicable to our directors, officers, employees, consultants and contractors. Our code of ethics will be available upon completion of this offering on our corporate website at www.ctnet.com. In addition, we intend to post on our website all disclosures that are required by law or the NYSE Amex Equities stock exchange listing standards concerning any amendments to, or any waivers from, any provision of this code.


48


Table of Contents

 
EXECUTIVE COMPENSATION
 
General
 
Our compensation programs are intended to enable us to attract, motivate, reward and retain the management and executive search consultants required to achieve our corporate objectives, and thereby increase stockholder value. Our compensation programs for executive search consultants and other professionals place a significant emphasis on the successful engagement and execution of searches. To accomplish our goals of incentivizing total company success and making placements for our clients, we utilize a combination of base salary, revenue and volume bonuses and equity-based compensation.
 
Prior to the effective date of this prospectus, our compensation decisions were made by the executive committee of CTPartners Executive Search LLC which consisted exclusively of senior-level employees. Upon the completion of this offering, we will have a compensation committee comprised of three independent directors. The compensation committee will be responsible for overseeing, administering and evaluating our executive compensation programs and policies. The recommendations of our chief executive officer will be solicited by the compensation committee with respect to compensation for our named executive officers other than the chief executive officer. To date, we have not paid any consultant to advise the Company regarding compensation matters, although the compensation committee may elect to do so in the future.
 
Our named executive officers are Brian M. Sullivan, our chief executive officer, and David C. Nocifora, our chief operating and chief financial officer.
 
Employment Agreements
 
Pursuant to their existing employment agreements, the base salaries for Messrs. Sullivan and Nocifora, for 2010 are $400,000 and $450,000 respectively. In addition to base salary, Mr. Sullivan is eligible to receive a bonus of up to $1,250,000 based on the operating performance of the Company for 2010, of which $450,000 has been paid to date. Mr. Nocifora is eligible to receive a bonus of up to $375,000 based on the operating performance of the Company for 2010, of which $225,000 has been paid to date. Based on the performance of the Company to date, we expect to pay each of Messrs. Sullivan and Nocifora the entire amount of their potential bonuses prior to the effective time of this offering. On September 1, 2010, we entered into new employment agreements with Mr. Sullivan and Mr. Nocifora, which will be effective upon the completion of this offering and will supercede their existing employment agreements. The material terms and conditions of the September 1 agreements are summarized below:
 
Brian M. Sullivan’s Employment Agreement. Its principal provisions include the following:
 
  •  The term of the agreement is three years;
 
  •  He shall serve as chief executive officer of the Company, and for so long as he serves as the highest-ranking officer of the Company, he is to be nominated by the Company’s corporate governance and nominating committee for re-election as a director;
 
  •  His annual base salary is $750,000;
 
  •  Based upon his achievement of performance measures determined by the compensation committee, he will be eligible to receive an annual cash incentive bonus determined by the compensation committee with a target annual bonus opportunity of between 75% and 150% of his annual base salary; and
 
  •  The compensation committee shall consider granting him an equity award under our 2010 equity incentive plan.
 
David C. Nocifora’s Employment Agreement. Its principal provisions include the following:
 
  •  The term of the agreement is three years;
 
  •  He shall serve as chief operating officer, chief financial officer and secretary of the Company;


49


Table of Contents

 
  •  His annual base salary is $500,000;
 
  •  Based upon his achievement of performance measures determined by the compensation committee, he will be eligible to receive an annual cash incentive bonus determined by the compensation committee with a target annual bonus opportunity of between 50% to 100% of his annual base salary; and
 
  •  The compensation committee shall consider granting him an equity award under our 2010 equity incentive plan.
 
The employment agreements for Messrs. Sullivan and Nocifora also provide for compensation in the event of termination of their employment due to death or disability, without cause, and by the executive for good reason, and upon a change of control. In general, these employment agreements contain the following termination-related provisions:
 
Termination Due to Death or Disability. Severance payments equal to any unpaid portion of the executive’s accrued base salary, any unpaid accrued bonus from prior years, and any other unpaid amounts and benefits to which the executive is entitled as of the termination under any of our compensation plans and programs.
 
Termination Without Cause or by the Executive for Good Reason. Severance payments equal to the executive’s base salary for 18 months plus an amount equal to a pro rata portion of the executive’s target cash bonus for the year in which such termination occurs, plus any unpaid bonus from prior years, and any other unpaid amounts and benefits to which the executive is entitled as of the termination under any of our compensation plans and programs.
 
Severance. Receipt of any severance and benefits upon termination without cause or for good reason is conditioned on the executive signing a release and waiver of claims in a form satisfactory to us.
 
Non-Competition. Our executive officers are also generally prohibited from disclosing confidential information and trade secrets, soliciting any employee, vendor or client for one year following termination of their employment and working with or for any competing companies during their employment and for one year thereafter, except if Messrs. Sullivan or Nocifora are terminated without cause or terminate for good reason.
 
Termination upon a Change of Control. Severance payments are payable upon termination beginning with the date six months prior to the Change of Control and ending two years after the Change of Control in an amount equal to the executive’s base salary for 18 months plus an amount equal to a pro rata portion of the executive’s target cash bonus amount for the year in which such termination occurs.
 
Change of Control. Occurs if (i) any person who was not a stockholder of the Company becomes the direct or indirect beneficial owner of 30% or more of our voting securities, (ii) there is a reorganization, merger, consolidation or a sale of substantially all of the assets of the Company which would result in our then current shareholders owning less than 50% of our voting securities; (iii) there is a change in the board of directors such that the individuals who then served on the board cease to constitute at least a majority of the board of directors; or (iv) we liquidate, dissolve or sell substantially all of our assets. In the event that any amount, right or benefit paid or payable to the executive under his employment agreement or any other plan, program or arrangement would constitute an “excess parachute payment” under Section 280G of the Code, subject to the excise tax imposed by Section 4999 of the Code, then the Company shall make a gross-up payment equal to any such excise tax, plus any taxes, interest or penalties arising from the receipt of the gross-up payment. In addition, in the event that any payments would cause the executive to incur a penalty tax under Section 409A of the Code, then the Company shall make a gross-up payment equal to any such penalty tax, plus any taxes, interest or penalties arising from the receipt of the gross-up payment.


50


Table of Contents

2010 Equity Incentive Plan
 
General
 
Set forth below is a summary of our 2010 equity incentive plan (the “2010 equity incentive plan”), which is qualified in its entirety by the specific language of the 2010 equity incentive plan, a copy of which is attached as an exhibit to the registration statement of which this prospectus is a part. The 2010 equity incentive plan will be in effect upon the completion of this offering.
 
The purpose of the 2010 equity incentive plan is to promote the interests of the Company and our stockholders by (i) attracting, retaining and motivating employees, non-employee directors and independent contractors (including prospective employees, non-employee directors and independent contractors), (ii) motivating such individuals to achieve long-term Company goals and to further align their interest with those of the Company’s stockholders by providing incentive compensation opportunities tied to the performance of the common stock of the Company and (iii) promoting increased ownership of our common stock by such individuals.
 
Summary of the 2010 Equity Incentive Plan
 
Types of Awards. The 2010 equity incentive plan provides for the grant of options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), nonqualified stock options, stock appreciation rights, restricted stock, restricted stock unit and performance stock unit awards, stock awards and other equity-based and equity-related awards.
 
Plan Administration. The 2010 equity incentive plan will be administered by the compensation committee of the board of directors or a subcommittee thereof, or such other committee our board of directors designates (the “Committee”). Subject to the terms of the 2010 equity incentive plan and applicable law, the Committee has discretion to administer the 2010 equity incentive plan, including, but not limited to, the authority to (i) grant awards, (ii) to determine the persons to whom awards are granted, (iii) determine the type of awards to be granted to a participant, (iv) determine the number of awards to be granted, the number of shares of our common stock or cash or other property to which an award may relate and the date of the awards, (v) determine the terms, conditions, restrictions and performance criteria relating to any awards, (vi) determine whether, to what extent, and under what circumstances awards may be settled, cancelled, forfeited, exchanged or surrendered, (vii) construe and interpret the 2010 equity incentive plan and any award, (viii) proscribe, amend and rescind rules and regulations with regard to the 2010 equity incentive plan, (ix) determine the terms and provisions of any agreement entered into in connection with an award, and (x) make any other determination deemed necessary or advisable for the administration of the 2010 equity incentive plan.
 
Stock Subject to the Plan. Subject to adjustment for changes in capitalization, the maximum aggregate number of shares of our common stock that may be delivered pursuant to awards granted under the 2010 equity incentive plan is 1,000,000 (the “Plan Share Limit”). Shares of our common stock that are issued in an award shall again become available for awards under the following circumstances:
 
  •  any shares subject to an award that remain unissued upon the cancellation, surrender, exchange or termination of such award without having been exercised or settled;
 
  •  any shares subject to an award that are retained by the Company as payment of the exercise price or tax withholding obligations with respect to an award;
 
  •  a number of shares equal to the number of previously owned shares of common stock surrendered to the Company as payment of the exercise price of an option or to satisfy tax withholding obligations with respect to an award;
 
  •  to the extent an award is paid or settled in cash, a number of shares with respect to such payment or settlement; and


51


Table of Contents

 
  •  in the event of the exercise of a stock appreciation right granted in relation to an option, a number of shares equal to the excess of the number of shares subject to the stock appreciation right over the number of shares delivered upon the exercise of the stock appreciation right.
 
Changes in Capitalization. In the event of any stock dividend or extraordinary dividend or other distribution is declared (whether in the form of cash, shares of common stock or other property), or there occurs any recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange or other similar corporate transaction or event, the Committee will make equitable adjustments and other substitutions to awards under the 2010 equity incentive plan in the manner it determines to be appropriate or desirable.
 
Source of Shares. Any shares issued under the 2010 equity incentive plan consist, in whole or in part, of authorized and unissued shares of common stock or of treasury shares.
 
Eligible Participants. Any employees of the Company (including officers of the Company, whether or not they are directors of the Company), independent contractors to the Company and non-employee directors of the Company are eligible to receive awards under the 2010 equity incentive plan.
 
Termination of Employment or Service. Unless otherwise determined by the Committee:
 
  •  in the event that the employment of a participant with the Company, or the service of a non-employee to the Company, terminates for any reason other than cause, death, disability or retirement, then:
 
  •  each vested award shall remain exercisable for 45 days; and
 
  •  each non-vested award shall terminate at the time of such termination.
 
  •  in the event that the employment of a participant with the Company, or the service of a non-employee to the Company, terminates as a result of death, disability or retirement, the treatment of each outstanding award shall be determined by the Committee in its sole discretion; and
 
  •  in the event that the employment of a participant with the Company, or the service of a non-employee to the Company, terminates for cause, then each outstanding award, whether or not exercisable, shall terminate as of the time of such termination.
 
Performance Based Compensation. The Committee may make awards hereunder to certain employees that are intended to qualify as performance-based compensation under Section 162(m) of the Code. The exercisability and/or payment of such awards may be subject to the achievement of performance goals and to certification of such achievement in writing by the Committee. Such performance goals shall be established in writing by the Committee not later than the time period prescribed under Section 162(m). All provisions of such Awards which are intended to qualify as performance-based compensation will be construed in a manner to so comply.
 
Amendment and Termination. Subject to (i) any applicable law or government regulation, (ii) any requirement that must be satisfied if the 2010 equity incentive plan were intended to be a stockholder approved plan for purposes of Section 162(m) of the Code and (iii) the rules of the NYSE Amex Equities stock exchange, our board of directors may, at any time, suspend or terminate the 2010 equity incentive plan or revise or amend it in any respect whatsoever without the approval of our stockholders, provided that stockholder approval shall be required to increase the Plan Share Limit.
 
Term. Unless earlier terminated by our board of directors, the right to grant awards under the 2010 equity incentive plan shall terminate on the day last preceding the tenth anniversary of the effectiveness of the 2010 equity incentive plan.
 
Performance Unit Plan
 
CTPartners Executive Search LLC had a performance unit plan which will be terminated prior to the effectiveness of the registration statement of which this prospectus is a part. The performance unit plan worked much like a stock appreciation rights plan, in that units were granted to participants with a value equal to the


52


Table of Contents

value of CTPartners Executive Search LLC’s member units at the date of grant and were cashed out at a price equal to the spread between the value of CTPartners Executive Search LLC’s member units at the time of exercise and their date of grant value. Therefore, the participant only received the increase in value from the date of grant to the date of exercise. We will use a portion of the proceeds of this offering to cash out the value of the performance units granted pursuant to this plan. In 2009, the named executive officers received the following grants of performance units:
 
                 
Name
  Number of Units   Grant Price
 
Brian M. Sullivan
    3,770     $ 35.00  
David C. Nocifora
    2,980     $ 35.00  
 
Retirement Plans
 
The Company sponsors a noncontributory defined benefit cash balance plan which covers our U.S. employees, including our named executive officers, who meet certain eligibility requirements. Participants’ accrued benefits are based on account balances which are maintained for each individual and are credited with additions equal to a percentage of compensation as defined in the plan. Participants’ balances are also credited with interest in accordance with the plan. The plan was frozen effective December 31, 2008 and no benefit accruals were made in 2009 nor will future benefit accruals be earned by participants.
 
The Company also sponsors a defined contribution plan whereby our U.S. employees, including our named executive officers, meeting the Plan’s eligibility requirements may elect to defer a portion of their compensation. The maximum allowable employee deferral is adjusted each year subject to certain limitations. The Company has no obligation to make any contributions to this plan. In addition, the Company also sponsors a qualified defined contribution discretionary profit sharing plan which covers U.S. employees meeting certain eligibility requirements. Neither Mr. Sullivan nor Mr. Nocifora received any benefits under either of these plans in 2009.
 
Perquisites and other Personal Benefits
 
We provide our executives with the same benefits that are provided to all employees generally, including medical, dental and vision benefits, group term life insurance, and participation in the Company’s global pension schemes.
 
Summary Compensation Table
 
The following table sets forth information with respect to our chief executive officer and chief operating and chief financial officer, the only two persons who were serving as executive officers of the Company at the end of our last fiscal year, ended December 31, 2009.
 
                                                                         
                            Nonqualified
       
                        Non-Equity
  Deferred
       
                Stock
  Option
  Incentive Plan
  Compensation
  All Other
   
Name and Principal
          Bonus
  Awards
  Awards
  Compensation
  Earnings
  Compensation
  Total
Position
  Year   Salary(1)   ($)   ($)(4)   ($)   ($)(2)   ($)   ($)   ($)
 
Brian M. Sullivan,
    2009     $ 282,500     $ 150,000(2 )   $ 0     $     $ 0     $       $     $ 432,500  
Chief Executive Officer
                                                                       
David C. Nocifora,
    2009     $ 282,500     $ 75,000(3 )   $ 0     $     $ 0     $     $     $ 357,500  
Chief Operating and Financial Officer and Secretary
                                                                       
 
 
(1) “Salary” includes contributions to our 401(k) Plan by each of the executive officers listed below for fiscal 2009, as follows:
 
         
Name
  2009
 
Brian M. Sullivan
  $ 22,000  
David C. Nocifora
  $ 14,125  


53


Table of Contents

 
(2) Mr. Sullivan was entitled to receive, pursuant to the terms of his then-effective employment agreement with the Company, a base salary of $400,000 and bonus of $1,100,000 in 2009, but voluntarily agreed to reduce his base salary to $282,500 and bonus to $150,000 for 2009 in connection with the Company’s cost-saving initiatives.
 
(3) Mr. Nocifora was entitled to receive, pursuant to the terms of his then-effective employment agreement with the Company, a base salary of $450,000 and bonus of $300,000 in 2009, but voluntarily agreed to reduce his base salary to $282,500 and bonus to $75,000 for 2009 in connection with the Company’s cost-saving initiatives.
 
(4) The amounts shown in this column reflect the fair value of performance units granted in 2009 at their respective grant dates. We describe the valuation assumptions used in measuring the fair value of these performance units in Note 6 of our audited consolidated financial statements included herein.
 
Outstanding Equity Awards at December 31, 2009
 
As of the period ended December 31, 2009, the following named executive officers had the following unvested performance units:
 
                                                                         
    Option Awards   Stock Awards
                                    Equity
                                    Incentive
                                Equity
  Plan
                                Incentive
  Awards:
                                Plan
  Market
        Equity
  Equity
              Market
  Awards:
  or Payout
        Incentive
  Incentive
              Value
  Number of
  Value of
        Plan
  Plan
              of
  Unearned
  Unearned
        Awards:
  Awards:
          Number of
  Shares of
  Shares,
  Shares,
        Number of
  Number of
          Shares or
  Units of
  Units or
  Units or
    Number of
  Securities
  Securities
          Units of
  Stock
  Other
  Other
    Securities
  Underlying
  Underlying
          Stock
  that
  Rights
  Rights
    Underlying
  Unexercised
  Unexercised
  Option
  Option
  that
  Have
  that have
  that
    Unexercised
  Unearned
  Unearned
  Exercise
  Expiration
  have not
  Not
  not
  have not
Name
  Options   Options   Options   Price   Date   Vested   Vested   Vested   Vested
 
Brian M. Sullivan
                                                            3,481 (1)(3)   $ 0  
David C. Nocifora
                                                            3,320 (2)(3)   $ 0  
 
 
(1) 967 of these performance units vest on December 31, 2010; 1,257 of these performance units vest on June 30, 2011; 1,257 of these performance units vest on June 30, 2012.
 
(2) 1,333 of these performance units vest on December 31, 2010; 993 of these performance units vest on June 30, 2011; 994 of these performance units vest on June 30, 2012.
 
(3) These performance units will be cashed out in connection with this offering. See “— Performance Unit Plan.”
 
Director Compensation
 
During fiscal 2009, none of the members of our board of managers received any compensation in his or her capacity as a member of the board of managers.
 
Prior to the completion of this offering, we intend to adopt a director compensation plan to compensate our directors who are not our employees. Under this policy, each such director will receive an annual retainer of $40,000 payable as follows: (i) $20,000 ($5,000 per quarter) in cash and (ii) $20,000 in restricted stock units granted under our 2010 equity incentive plan. The restricted stock units will vest on the first anniversary of their date of grant. If a director is not a member of our board of directors on the first anniversary of the grant, the restricted stock units will nonetheless vest on such anniversary date if the director’s termination was due to death, disability or ineligibility to stand for reelection. In addition, the chairman of each of the audit committee, the compensation committee and the nominating and corporate governance committee will receive an annual cash retainer of $10,000, $7,500 and $7,500, respectively, payable at the end of each quarter. Members of the audit committee, compensation committee and nominating and corporate governance committee will each receive $2,500, $1,000 and $1,000, respectively. We will reimburse the reasonable expenses our non-employee directors incur in connection with attending board and committee meetings.


54


Table of Contents

 
PRINCIPAL AND SELLING STOCKHOLDERS
 
The following table sets forth, as of November 14, 2010, information concerning the beneficial ownership of our common stock prior to this offering, after giving effect to the conversion of our outstanding member units to shares of common stock at a ratio of 1:5.269 and after giving effect to this offering by:
 
  •  each selling stockholder;
 
  •  each holder of more than 5% of our common stock;
 
  •  each of our named executive officers;
 
  •  each of our directors; and
 
  •  all of our directors and named executive officers as a group.
 
Beneficial ownership is determined in accordance with the rules of the SEC and thus represents voting or investment power with respect to our common stock. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned and subject to applicable community property laws. Shares of our common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of November 14, 2010 are deemed to be outstanding and to be beneficially owned by the persons holding the options or warrants for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
 
Beneficial ownership is based upon 941,690 of our member units outstanding as of November 14, 2010, and assumes the conversion of such units to shares of common stock at a ratio of 1:5.269. Unless otherwise noted, the address of each stockholder is c/o CTPartners Executive Search Inc., 1166 Avenue of the Americas, 3rd Floor, New York, NY 10036.
 
                                         
    Shares Beneficially
          Shares Being
    Shares Beneficially
       
    Owned Prior to this
          Offered In this
    Owned After this
       
Name of Beneficial Owner
  Offering(1)(2)     Percent     Offering     Offering     Percent  
 
Directors and Executive Officers:
                                       
Brian M. Sullivan(3)
    1,311,338       26.4 %     131,134       1,180,207       17.3 %
David C. Nocifora(4)
    262,279       5.3 %     26,228       236,051       3.5 %
Scott M. Birnbaum**
                             
Michael C. Feiner**
                             
Thomas R. Testwuide, Sr.**
                             
Betsy L. Morgan**
                             
All named directors and executive officers as a group (6 persons)
    1,573,617       31.7 %     157,362       1,416,225       20.8 %
5% or Greater Stockholders:
                                       
Adam Kohn
    722,132       14.6 %     72,214       649,918       9.5 %
Burke St. John(5)
    442,735       8.9 %     44,279       398,456       5.8 %
William Houchins
    377,065       7.6 %     37,709       339,356       5.0 %
Brendan Burnett
    303,255       6.1 %     30,327       272,928       4.0 %
Umesh Ramakrishnan
    261,178       5.3 %     26,117       235,061       3.4 %
Other Selling Stockholders:
                                       
JECOSP, LP
    32,287       *     3,230       29,057       *
Jeffrey E. Christian Family Trust
    64,580       1.3 %     6,460       58,120       *
Sylvain Dhenin
    66,044       1.3 %     6,607       59,437       *
Pete Metzger(6)
    67,551       1.4 %     6,755       60,796       *
Keith Macomber
    60,907       1.2 %     6,091       54,816       *
Dierdre Kenny(7)
    63,388       1.3 %     6,338       57,050       *
Diane Segalen
    55,506       1.1 %     5,553       49,953       *


55


Table of Contents

                                         
    Shares Beneficially
          Shares Being
    Shares Beneficially
       
    Owned Prior to this
          Offered In this
    Owned After this
       
Name of Beneficial Owner
  Offering(1)(2)     Percent     Offering     Offering     Percent  
 
Alex Eymieu
    44,784       *     4,478       40,306       *
Robert Voth
    33,931       *     3,393       30,538       *
Helga Long
    27,767       *     2,777       24,990       *
David Burton
    26,343       *     2,634       23,709       *
Florence Magne
    26,343       *     2,634       23,709       *
Ernest Brittingham
    18,124       *     1,812       16,312       *
Dennis Grant
    18,124       *     1,812       16,312       *
David Merwin
    18,124       *     1,812       6,312       *
Alain Leclerc
    14,921       *     1,491       13,430       *
Martin Mendelsohn
    14,921       *     1,491       13,430       *
Chris Seabourne
    5,269       *     527       4,742       *
John Higgins
    14,921       *     1,491       13,430       *
Kathryn Yap
    13,172       *     1,317       11,855       *
Dona Roche-Tarry
    6,148       *     616       5,532       *
Hamish Shaw
    6,148       *     616       5,532       *
Loran Kaminsky
    5,269       *     527       4,742       *
 
 
Less than 1%.
 
** This individual has agreed to join the board of directors upon completion of this offering.
 
(1) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of November 14, 2010 through the exercise of any option, warrant or other right. Unless otherwise indicated below, each person has sole voting power or investment power, or both, with respect to the shares shown as beneficially owned.
 
(2) Assumes conversion of each of our outstanding member units to shares of common stock at a ratio of 1:5.269.
 
(3) Includes (a) 1,224,746 shares of common stock held by Revenant, Inc., which is wholly-owned by Mr. Sullivan and (b) 51,417 shares of common stock issuable to Mr. Sullivan in connection with the conversion of his convertible promissory note with the Company described in greater detail under “Certain Relationships and Related Party Transactions.”
 
(4) Includes 2,352 shares of common stock issuable to Mr. Nocifora in connection with the conversion of his convertible promissory note with the Company described in greate detail under “Certain Relationships and Related Party Transactions.”
 
(5) Includes 388,936 shares of common stock held by LBS Inc., which is wholly-owned by Mr. St. John.
 
(6) Includes 2,352 shares of common stock issuable to Mr. Metzger in connection with the conversion of his convertible promissory note with the Company described in greater detail under “Certain Relationships and Related Party Transactions.”
 
(7) Includes 2,352 shares of common stock issuable to Ms. Kenny in connection with the conversion of her convertible promissory note with the Company described in greater detail under “Certain Relationships and Related Party Transactions.”

56


Table of Contents

 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
On June 16, 2008, we entered into identical convertible promissory notes with certain of our employees pursuant to which we raised an aggregate of $2.7 million including a note with Mr. Sullivan, our chief executive officer, in the amount of $1,000,000 and a note with Mr. Nocifora, our chief operating and chief financial officer, in the amount of $25,000. We have the right to prepay the notes at any time. The notes, of which an aggregate of $1.6 million is currently outstanding, pay interest, on a quarterly basis, at a fixed rate of 5% per annum and are due and payable on June 16, 2013. Prior to the effectiveness of the registration statement of which this prospectus is a part, we have entered into a note prepayment and conversion agreement with each holder pursuant to which each holder had the option to be repaid in full, to be repaid in part in cash and to convert the remaining balance of the note to shares of common stock or to convert the entire outstanding balance of the note to shares of common stock. We will use a portion of the proceeds of this offering to prepay any portion of the outstanding balance of the notes to holders electing to be repaid in cash. Upon conversion, each holder will receive a number of shares of common stock obtained by (i) dividing the amount to be converted by $50.41 (the agreed upon value, for purposes of converting the notes, of a member unit) and (ii) multiplying this number by 5.269 (the conversion ratio by which our member units will convert to shares of common stock). Pursuant to his note prepayment and conversion agreement with the Company, Mr. Sullivan will receive (i) a cash payment of $453,400 and (ii) 51,417 shares of common stock. Pursuant to his note prepayment and conversion agreement with the Company, Mr. Nocifora will receive 496 shares of common stock.
 
CTPartners Executive Search LLC had a performance unit plan which was terminated prior to the effectiveness of the registration statement of which this prospectus is a part. The performance unit plan worked much like a stock appreciation rights plan, in that units were granted to participants with a value equal to the value of CTPartners Executive Search LLC’s member units at the date of grant and were cashed out at a price equal to the spread between the value of CTPartners Executive Search LLC’s member units at the time of exercise and their date of grant value. Therefore, the participant only received the increase in value from the date of grant to the date of exercise. Mr. Sullivan, our chief executive officer, was granted a total of 7,670 units under the plan and Mr. Nocifora, our chief operating and chief financial officer, was granted a total of 7,980 units under this plan. We will use a portion of the proceeds of this offering to cash out the value of all performance units in accordance with the terms of the performance unit plan, which will include a payment of $195,341 to Mr. Sullivan and a payment of $184,766 to Mr. Nocifora.


57


Table of Contents

 
DESCRIPTION OF CAPITAL STOCK
 
The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our certificate of incorporation and bylaws to be in effect at the closing of this offering, which are filed as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of the Delaware General Corporation Law (“DGCL”).
 
General
 
Upon completion of this offering, our authorized capital stock will consist of 30,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share, the rights and preferences of which may be established from time to time by our board of directors.
 
As of November 14, 2010, we had (assuming the conversion of each of our outstanding member units to shares of common stock at a ratio of 1:5.269, issued and outstanding 4,961,549 shares of common stocks held by 57 holders of record. Additionally, up to 250,830 shares of common stock that will be issued upon the vesting (108,784 shares of common stock will vest in 2011, 103,946 shares of common stock will vest in 2012 and 38,100 shares of common stock will vest in 2013) of certain grants made in connection with the employment of certain executive search consultants.
 
The following description summarizes the terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our certificate of incorporation and bylaws, as in effect immediately following the closing of this offering, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.
 
Common Stock
 
Assuming the automatic conversion of all of our member units for our common stock immediately prior to the closing of this offering, there will be 6,830,769 shares of our common stock outstanding upon the closing of this offering. Additionally, up to 250,830 shares of common stock will be issued upon the vesting (108,784 shares of common stock will vest in 2011, 103,946 shares of common stock will vest in 2012 and 38,100 shares of common stock will vest in 2013) of certain grants made in connection with the employment of certain executive search consultants.
 
Holders of our common stock will be entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Holders of our common stock will not have any cumulative voting rights in the election of our directors. Except as required by law or our certificate of incorporation and bylaws, the vote of a majority of the shares represented in person or by proxy at any meeting at which a quorum is present will be sufficient for the transaction of any business at a meeting. Subject to preferences held by, or that may be granted to, any outstanding shares of preferred stock, holders of our common stock are entitled to receive ratably any dividends declared by our board of directors out of funds legally available for that purpose. Our common stock will have no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.
 
In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and non-assessable.
 
Preferred Stock
 
Our board of directors will be authorized, subject to any limitations prescribed by law, without stockholder approval, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock, in one or more series, each series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as our board of directors determines. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing


58


Table of Contents

desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. We currently have no shares of preferred stock outstanding and we have no present plans to issue any shares of preferred stock.
 
Anti-Takeover Effects of our Certificate of Incorporation and Bylaws
 
The provisions of Delaware law, our certificate of incorporation and our bylaws described below may have the effect of delaying, deferring or preventing another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.
 
Board Composition and Filling Vacancies. Our board of directors will be elected annually to serve until the next annual meeting of stockholders. Our certificate of incorporation provides that directors may be removed only for cause and then only by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. The limitations on removal of directors and treatment of vacancies has the effect of making it more difficult for stockholders to change the composition of our board of directors.
 
No Written Consent of Stockholders. Our certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our bylaws or removal of directors by our stockholders without holding a meeting of stockholders.
 
Meetings of Stockholders. Our certificate of incorporation and bylaws provide that only a majority of the members of our board of directors then in office and our Chairman of the Board and Chief Executive Officer may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
 
Advance Notice Requirements. Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the Company’s proxy statement for the preceding year. Our bylaws specify the requirements as to form and content of all stockholders’ notices. These requirements may preclude stockholders from bringing matters before the stockholders at an annual or special meeting.
 
Amendment to Certificate of Incorporation and Bylaws. As required by the Delaware General Corporation Law, any amendment of our certificate of incorporation must first be approved by a majority of our board of directors, and if required by law or our certificate of incorporation, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to the issuance of undesignated preferred stock, the amendment of our bylaws, removal of directors, stockholder action, and the amendment of our certificate of incorporation must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our bylaws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the bylaws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if our board


59


Table of Contents

of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.
 
Undesignated Preferred Stock. Our certificate of incorporation provides for 1,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.
 
Limitation of Liability and Indemnification Matters. Our certificate of incorporation and bylaws include provisions that limit the liability of our officers and directors for monetary damages for breach of their fiduciary duty as officers and directors, except for liability that cannot be eliminated under the DGCL. Any amendment or repeal of these provisions will require the affirmative vote of at least 75% of the outstanding shares entitled to vote on such amendment or repeal, and any such amendment or repeal shall be prospective only. Our certificate of incorporation and bylaws also provide that officers and directors will be indemnified to the fullest extent permitted under Delaware law, including against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.
 
Anti-takeover Effects of Section 203 of the Delaware General Corporation Law
 
Upon completion of this offering, we will be subject to the provisions of Section 203 of the DGCL. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the date that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section 203 of the DGCL, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
 
  •  before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
 
  •  upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least eighty-five percent (85%) of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder), shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or
 
  •  at or after the time the stockholder became interested, the business combination was approved by our board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
 
Section 203 of the DGCL defines a business combination to include:
 
  •  any merger or consolidation involving the corporation and the interested stockholder;


60


Table of Contents

 
  •  any sale, transfer, pledge or other disposition involving the interested stockholder of ten percent (10%) or more of the assets of the corporation;
 
  •  subject to exceptions, any transaction that results in the issuance of transfer by the corporation of any stock of the corporation to the interested stockholder;
 
  •  subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interest stockholder; and
 
  •  the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
 
In general, Section 203 of the DGCL defines an interested stockholder as any entity or person beneficially owing fifteen percent (15%) or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
 
A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
 
Listing
 
We have applied to have our common stock quoted on the NYSE Amex Equities stock exchange and have reserved the symbol “CTP.”
 
Transfer Agent and Registrar
 
The transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company.


61


Table of Contents

 
SHARES ELIGIBLE FOR FUTURE SALE
 
Prior to this offering, there has been no public market for our common stock, and we cannot predict what effect, if any, market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that substantial sales may occur, could materially and adversely affect the prevailing market price of our common stock and could impair our future ability to raise capital through the sale of our equity at a time and price we deem appropriate. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise capital in the future.
 
Sales of Restricted Shares
 
Upon completion of this offering, we will have 6,830,769 shares of common stock outstanding. Of these shares of common stock, the 2,307,692 shares of common stock being sold in this offering, plus any shares issued upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction under the Securities Act, except for any such shares which may be held or acquired by an “affiliate” of ours, as that term is defined in Rule 144 promulgated under the Securities Act, which shares will be subject to the volume limitations and other restrictions of Rule 144 described below. The remaining 4,523,077 shares of common stock held by our existing stockholders upon completion of this offering and up to 250,830 shares of common stock that will be issued upon vesting (108,784 shares of common stock will vest in 2011, 103,946 shares of common stock will vest in 2012 and 38,100 shares of common stock will vest in 2013) of certain grants made in connection with the employment of certain executive stock consultants will be “restricted securities,” as that phrase is defined in Rule 144, and may be resold only after registration under the Securities Act or pursuant to an exemption from such registration, including, among other things, the exemptions provided by Rule 144 of the Securities Act, which are summarized below. Taking into account the lock-up agreements described below and the provisions of Rule 144, additional shares of our common stock will be available for sale in the public market as follows:
 
  •  no shares of restricted securities will be available for immediate sale on the date of this prospectus; and
 
  •  up to 4,773,907 (including up to 250,830 shares of common stock which is subject to vesting) shares of our common stock will be available for sale after the expiration of the lock-agreements and pursuant to Rule 144.
 
Rule 144
 
The availability of Rule 144 will vary depending on whether shares of our common stock are restricted and whether they are held by an affiliate or a non-affiliate. For purposes of Rule 144, a non-affiliate is any person or entity that is not our affiliate at the time of the sale and has not been our affiliate during the preceding three months.
 
In general, under Rule 144, once we have been a reporting company subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, an affiliate who has beneficially owned shares of our restricted common stock for at least six months would be entitled to sell within any three-month period any number of shares that does not exceed the greater of:
 
  •  1% of the number of shares of common stock then outstanding, which will equal approximately 68,300 shares immediately after consummation of this offering; or
 
  •  the average weekly trading volume of our common stock on the open market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.


62


Table of Contents

 
In addition, any sales by our affiliates under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Our affiliates must comply with all the provisions of Rule 144 (other than the six-month holding period requirement) in order to sell shares of our common stock that are not restricted securities, such as shares acquired by our affiliates either in this offering or through purchases in the open market following this offering. An “affiliate” is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, an issuer.
 
Similarly, once we have been a reporting company for at least 90 days, a non-affiliate who has beneficially owned shares of our restricted common stock for at least six months would be entitled to sell those shares without complying with the volume limitation, manner of sale and notice provisions of Rule 144, provided that certain public information is available. Furthermore, a non-affiliate who has beneficially owned our shares of restricted common stock for at least one year will not be subject to any restrictions under Rule 144 with respect to such shares, regardless of how long we have been a reporting company.
 
We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the stockholder and other factors.
 
Lock-up Agreements
 
We, each of our directors and executive officers and substantially all of our existing equityholders, including the selling stockholders, have agreed, for a period of 180 days after the date of this prospectus, not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of common stock or any securities convertible into or exchangeable or exercisable for common stock or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of common stock or any securities convertible into or exchangeable for any shares of common stock, without prior written consent of William Blair & Company, L.L.C., other than shares of common stock issued in this offering, under our 2010 equity incentive plan or upon exercise of stock options granted pursuant to our 2010 equity incentive plan.
 
Additionally, our directors, executive officers and substantially all of our existing equityholders, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to sell any shares of our common stock or securities convertible into, or exercisable or exchangeable for, shares of our common stock, without the prior written consent of William Blair & Company, L.L.C., except as follows:
 
  •  commencing on the first anniversary of the date of this prospectus, each such person may sell up to one-third of the shares of common stock held by such person as of the date of this prospectus;
 
  •  commencing on the second anniversary of the date of this prospectus, each such person may sell up to two-thirds of the shares of common stock held by such person as of the date of this prospectus; and
 
  •  commencing on the third anniversary of the date of this prospectus, each such person may sell one hundred percent of the shares of common stock held by such person as of the date of this prospectus.
 
See “Underwriting.” William Blair & Company, L.L.C., in their discretion on behalf of the underwriters, may release any of the securities subject to these lock-up agreements at any time without notice.
 
Immediately following the consummation of this offering, stockholders subject to lock-up agreements will hold 4,523,077 shares of our common stock, representing about 66.2% of our outstanding shares of common stock after giving effect to this offering, or about 61.1% of our then outstanding shares of common stock if the underwriters’ option to purchase additional shares is exercised in full.


63


Table of Contents

 
UNDERWRITING
 
The underwriters named below have severally agreed, subject to the terms and conditions set forth in the underwriting agreement by and among the underwriters, the selling stockholders and us, to purchase from the selling stockholders and us the respective number of shares of common stock set forth opposite each underwriter’s name in the table below. William Blair & Company, L.L.C. is acting as the Sole Book-Running Lead Manager and C.L. King & Associates, Inc. is acting as Co-Manager for this offering.
 
         
    Number of
 
Underwriter
  Shares  
 
William Blair & Company, L.L.C. 
                
C.L. King & Associates, Inc. 
       
         
Total
       
         
 
This offering will be underwritten on a firm commitment basis. In the underwriting agreement, the underwriters have agreed, subject to the terms and conditions set forth therein, to purchase the shares of common stock being sold pursuant to this prospectus at a price per share equal to the public offering price less the underwriting discount specified on the cover page of this prospectus. According to the terms of the underwriting agreement, the underwriters either will purchase all of the shares or none of them. In the event of default by any underwriter, in certain circumstances, the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
 
The representative of the underwriters has advised us that the underwriters propose to offer the shares of common stock to the public initially at the public offering price set forth on the cover page of this prospectus and to selected dealers at such price less a concession of not more than $       per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $       per share to certain other dealers.
 
The underwriters will offer the shares subject to prior sale and subject to receipt and acceptance of the shares by the underwriters. The underwriters may reject any order to purchase shares in whole or in part. The underwriters expect that we and the selling stockholders will deliver the shares to the underwriters through the facilities of The Depository Trust Company in New York, New York on or about          , 2010. At that time, the underwriters will pay us and the selling stockholders for the shares in immediately available funds. After commencement of the public offering, the underwriters may change the public offering price and other selling terms.
 
We have granted the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to an aggregate of 346,154 additional shares of common stock at the same price per share to be paid by the underwriters for the other shares offered hereby solely for the purpose of covering over-allotments, if any. If the underwriters purchase any such additional shares pursuant to this option, each of the underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the table above. The underwriters may exercise the option only for the purpose of covering excess sales, if any, made in connection with the distribution of the shares of common stock offered hereby. The underwriters will offer any additional shares that they purchase on the terms described above.
 
The underwriters have reserved for sale in a directed share program, at the initial public offering price, up to [ * ] shares of common stock in this offering for our employees and other related persons. Purchases of the reserved shares would reduce the number of shares available for sale to the general public. The underwriters will offer any reserved shares which are not so purchased to the general public on the same terms as the others shares being sold in this offering.


64


Table of Contents

The following table summarizes the compensation to be paid by us and the selling stockholders to the underwriters. This information assumes either no exercise or full exercise by the underwriters of their over-allotment option:
 
                         
          Total  
    Per
    Without
    With
 
    Share     Over-Allotment     Over-Allotment  
 
Public offering price
  $           $           $        
Underwriting discounts and commissions paid by us
  $       $       $    
Underwriting discounts and commissions paid by the selling stockholders
  $       $       $    
Proceeds, before expenses, to us
  $       $       $    
Proceeds to selling stockholders
  $       $       $  
 
We will pay the offering expenses of the selling stockholders, except for the underwriting discounts and commissions associated with the shares of common stock sold by the selling stockholders. We estimate that our total expenses for this offering, excluding the underwriting discounts and commissions, will be approximately $      .
 
We, each of our directors and executive officers and substantially all of our existing equityholders, including the selling stockholders, have agreed, for a period of 180 days after the date of this prospectus, not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of common stock or any securities convertible into or exchangeable or exercisable for common stock or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of common stock or any securities convertible into or exchangeable for any shares of common stock, without prior written consent of William Blair & Company, L.L.C., other than shares of common stock issued in this offering, under our 2010 equity incentive plan or upon exercise of stock options granted pursuant to our 2010 equity incentive plan.
 
Additionally, our directors, executive officers and substantially all of our existing equityholders, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to sell any shares of our common stock or securities convertible into, or exercisable or exchangeable for, shares of our common stock, without the prior written consent of William Blair & Company, L.L.C., except as follows:
 
  •  commencing on the first anniversary of the date of this prospectus, each such person may sell up to one-third of the shares of common stock held by such person as of the date of this prospectus;
 
  •  commencing on the second anniversary of the date of this prospectus, each such person may sell up to two-thirds of the shares of common stock held by such person as of the date of this prospectus; and
 
  •  commencing on the third anniversary of the date of this prospectus, each such person may sell one hundred percent of the shares of common stock held by such person as of the date of this prospectus.
 
The 180-day lock-up period applicable to us will automatically be extended if (i) during the last 17 days of the lock-up period, we issue an earnings release or material news or a material event relating to us occurs, or (ii) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, then the lock-up period will automatically be extended and the restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or the occurrence of the material event, as applicable, unless William Blair & Company, L.L.C. waives, in writing, such extension. This extension will not apply if the publication of research reports by the underwriters during the period around the expiration of this lock-up period is no longer restricted by applicable law or regulation.


65


Table of Contents

Any shares of common stock purchased in the directed share program will not be subject to the lock-up period described above (although a director or executive officer could otherwise be subject to a lock-up agreement as a director or executive officer).
 
The agreement does not extend to transfers or dispositions (i) by gift or (ii) to any trust for the direct or indirect benefit of the stockholder or the immediate family of the stockholder; provided the donee, trustee, distributee or transferee, as the case may be, agrees to be bound by the foregoing restrictions for the duration of the lock-up periods.
 
We may grant options and issue common stock under existing stock option plans and issue shares in connection with any outstanding convertible securities or options during the lock-up periods.
 
In determining whether to consent to a transaction prohibited by these restrictions, William Blair & Company, L.L.C. will take into account various factors, including the length of time before the lock-up expires, the number of shares requested to be sold, the anticipated manner and timing of sale, the potential impact of the sale on the market for the common stock, the restrictions on publication of research reports that would be imposed by Financial Industry Regulatory Authority rules, market conditions generally, and the reason for the requested release.
 
The representative has informed us that the underwriters will not confirm, without client authorization, sales to their client accounts as to which they have discretionary authority. The representative has also informed us that the underwriters intend to deliver all copies of this prospectus via electronic means, via hand delivery or through mail or courier services. A prospectus in electronic format may be made available on Internet websites or through other online services maintained by the underwriters or their affiliates. Other than the prospectus in electronic format, the information on any underwriter’s or any of its affiliates’ websites and any information contained in any other website maintained by an underwriter or any of its affiliates is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.
 
In the underwriting agreement, we and the selling stockholders have made certain representations and warranties to the underwriters and have agreed to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect thereof.
 
In connection with this offering, the underwriters and other persons participating in this offering may engage in transactions which affect the market price of the common stock. These may include stabilizing and over-allotment transactions and purchases to cover syndicate short positions. Stabilizing transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock. An over-allotment, or short sale, involves selling more shares of common stock in this offering than are specified on the cover page of this prospectus, which results in a syndicate short position. The underwriters may cover this short position by purchasing common stock in the open market or by exercising all or part of their over-allotment option. If the underwriters sell more shares than they have the right to purchase from us pursuant to the underwriting agreement, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering. In addition, the representative may impose a penalty bid. This allows the representative to reclaim the selling concession allowed to an underwriter or selling group member if shares of common stock sold by such underwriter or selling group member in this offering are repurchased by the representative in stabilizing or syndicate short covering transactions. These transactions, which may be effected on the NYSE Amex Equities stock exchange or otherwise, may stabilize, maintain or otherwise affect the market price of the common stock and could cause the price to be higher than it would be without these transactions. The underwriters and other participants in this offering are not required to engage in any of these activities and may discontinue any of these activities at any time without notice. We and the underwriters make no representation or prediction as to whether the underwriters will engage in such transactions or choose to discontinue any transactions engaged in or as to the direction or magnitude of any effect that these transactions may have on the price of our common stock.


66


Table of Contents

Prior to this offering, there has been no public market for our common stock. Consequently, we, the selling stockholders and the representative of the underwriters have negotiated to determine the initial public offering price. We and they have considered current market conditions, our operating results in recent periods, the market capitalization of other companies in our industry and estimates of our potential.
 
We have applied to have our common stock approved for listing on the NYSE Amex Equities stock exchange and have reserved the symbol “CTP.”
 
In the ordinary course of business, some of the underwriters and their affiliates have provided, and may in the future provide, investment banking, commercial banking, and other services to us for which they have received, and may in the future receive, customary fees or other compensation.


67


Table of Contents

 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
In September 2009, the Company dismissed Grant Thornton LLP as the Company’s independent public accounting firm. Grant Thornton’s report on the consolidated financial statements of the Company for the year ended December 31, 2008 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the year ended December 31, 2008 and the subsequent period during 2009 prior to their dismissal, there were no (i) disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to Grant Thornton’s satisfaction, would have caused Grant Thornton to make reference thereto in its report on the consolidated financial statements of the Company or (ii) reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).
 
We have furnished Grant Thornton with a copy of the foregoing disclosure and requested that Grant Thornton furnish us with a letter addressed to the Securities and Exchange Commission stating whether Grant Thornton agrees with the statements made herein and, if not, stating the respects in which it does not agree. A copy of the letter will be filed as an exhibit to the registration statement of which this prospectus is a part.
 
In September 2009, the Company retained McGladrey & Pullen, LLP to be the Company’s independent registered public accounting firm. Our board of managers approved the dismissal of Grant Thornton and the retention of McGladrey & Pullen. Prior to engaging them, we did not consult with McGladrey & Pullen with regard to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered, and neither a written report nor oral advice was provided to the Company that McGladrey & Pullen concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue or (ii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
 
LEGAL MATTERS
 
The validity of the shares of common stock offered hereby will be passed upon by us by Ulmer & Berne LLP, Cleveland, Ohio. Certain legal matters in connection with this offering will be passed upon for the underwriters by McDermott Will & Emery LLP, Chicago, Illinois.
 
EXPERTS
 
The consolidated financial statements appearing in this prospectus and in the registration statement have been audited by McGladrey & Pullen, LLP, an independent registered public accounting firm, as stated in their report appearing elsewhere herein, and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.


68


Table of Contents

 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed a registration statement, of which this prospectus is a part, on Form S-1 with the SEC relating to this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and financials statements included with the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of actual contracts, agreements or other documents.
 
You may read and copy the registration statement, the related exhibits and other material we file with the SEC at the SEC’s Public Reference Room in Washington, D.C. at 100 F Street, N.E., Washington, D.C. 20549. You can also request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC also maintains an internet site that contains reports, proxy and information statement and other information regarding issuers that file with the SEC. The web site address is http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing to us at 1166 Avenue of the Americas, 3rd Floor, New York, NY 10036 or telephoning us at (212) 588-3500.
 
Upon the effectiveness of the registration statement, we will be subject to the information requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy and information statements and other information with the SEC. Such annual, quarterly and current reports, proxy and information statements and other information can be inspected and copied and the locations set forth above. We will report our financial statements on a year ended December 31. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent certified public accountants and with quarterly reports containing unaudited consolidated financial statements for each of the first three quarters of each fiscal year.


69


Table of Contents

 
INDEX TO FINANCIAL STATEMENTS

CTPartners Executive Search LLC and Subsidiaries
 
         
Audited Financial Statements
       
    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-7-F-23  
Unaudited Financial Statements
       
    F-24  
    F-25  
    F-26  
    F-27-F-33  


F-1


Table of Contents

 
 
To the Board of Managers
CTPartners Executive Search LLC and Subsidiaries
Cleveland, Ohio
 
We have audited the accompanying consolidated balance sheets of CTPartners Executive Search LLC and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, members’ equity (deficit) and cash flows for each of the years in the three year period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CTPartners Executive Search LLC and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
 
As described in Note 2 to the consolidated financial statements, effective January 1, 2007, the Company adopted certain provisions of the Financial Accounting Standards Board’s Accounting Standards Codification Topic No. 480, Distinguishing Liabilities from Equity, for the Company’s mandatorily redeemable units and adopted Accounting Standards Update No. 2009-04, Accounting for Redeemable Equity Instruments for the Company’s redeemable member units.
 
/s/  McGladrey & Pullen, LLP
 
Cleveland, Ohio
September 2, 2010


F-2


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
 
                 
    2009     2008  
 
Assets
               
Current Assets
               
Cash
  $ 5,093,700     $ 3,666,370  
Accounts receivable, net
    15,351,547       10,659,319  
Other receivables
    790,975       932,805  
Prepaid expenses
    1,671,510       2,098,893  
Other
    550,425       488,745  
                 
Total current assets
    23,458,157       17,846,132  
Leasehold Improvements and Equipment, net
    3,714,657       4,858,201  
Other Assets
    703,286       709,164  
                 
    $ 27,876,100     $ 23,413,497  
                 
Liabilities, Redeemable Member Units and Members’ Equity (Deficit)
               
Current Liabilities
               
Current portion of long-term debt
  $ 960,742     $ 762,293  
Line of credit
    4,660,027       2,711,716  
Accounts payable
    647,473       2,945,705  
Accrued compensation
    13,425,668       13,279,390  
Accrued business taxes
    1,115,697       1,056,344  
Accrued expenses
    1,414,786       1,733,055  
                 
Total current liabilities
    22,224,393       22,488,503  
Long-Term Liabilities
               
Long-term debt, less current maturities
    4,240,053       5,241,488  
Deferred rent
    1,697,122       1,888,558  
Pension liability
    569,005       684,941  
Mandatorily redeemable member units
    628,810       926,781  
Other
    191,148       204,990  
                 
Total long-term liabilities
    7,326,138       8,946,758  
Redeemable Member Units
    30,937,827       44,739,130  
Members’ Equity (Deficit)
    (32,612,258 )     (52,760,894 )
                 
    $ 27,876,100     $ 23,413,497  
                 
 
See Notes to Consolidated Financial Statements.


F-3


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
 
                         
    2009     2008     2007  
 
Net revenue
  $ 73,860,740     $ 105,715,730     $ 116,628,010  
Reimbursable expenses
    2,727,182       4,994,766       4,304,209  
                         
Total revenue
    76,587,922       110,710,496       120,932,219  
Operating Expenses
                       
Compensation and benefits
    48,571,747       82,640,507       87,650,465  
General and administrative
    19,412,165       23,027,095       26,182,635  
Reimbursable expenses
    2,942,669       5,117,286       4,777,021  
                         
      70,926,581       110,784,888       118,610,121  
                         
Operating income (loss)
    5,661,341       (74,392 )     2,322,098  
Financial Income (Expense)
                       
Interest expense
    (499,838 )     (708,171 )     (765,382 )
Interest income
    90,804       111,786       77,861  
                         
      (409,034 )     (596,385 )     (687,521 )
                         
Income (loss) before income taxes
    5,252,307       (670,777 )     1,634,577  
Income tax expense
    (463,698 )     (537,389 )     (308,485 )
                         
Net income (loss)
  $ 4,788,609     $ (1,208,166 )   $ 1,326,092  
                         
Basic and diluted income (loss) per weighted average member unit
                       
Class E units
  $ 6.54     $ 0.98     $ 4.55  
All other equity units
  $ 4.53     $ (2.01 )   $ 0.34  
Basic and diluted weighted average member units outstanding
                       
Class E units
    238,046       238,046       238,046  
All other equity units
    660,267       626,399       600,739  
 
See Notes to Consolidated Financial Statements.


F-4


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
 
                                         
                Notes
    Accumulated
    Total
 
                Receivable
    Other
    Members’
 
          Members’
    from Members’
    Comprehensive
    Equity
 
    Units     Equity (Deficit)     Purchase of Units     Income (Loss)     (Deficit)  
 
Balance, January 1, 2007
    931,567     $ (5,786,040 )   $ (1,352,433 )   $ (226,771 )   $ (7,365,244 )
Adoption of certain provisions of FASB ASC 480
          (702,534 )                 (702,534 )
Adoption of FASB ASU 2009-04
          (30,806,731 )                 (30,806,731 )
                                         
Balance as restated, January 1, 2007
    931,567       (37,295,305 )     (1,352,433 )     (226,771 )     (38,874,509 )
Comprehensive income (loss):
                                       
Net income
          1,326,092                   1,326,092  
Change due to cumulative translation adjustments
                      8,644       8,644  
Change in pension funding status
                      (153,741 )     (153,741 )
Other comprehensive loss
                      (17,659 )     (17,659 )
                                         
Comprehensive income
                            1,163,336  
Change in fair value of redeemable member units
          (14,921,079 )                 (14,921,079 )
Equity-based compensation
    33,167       1,133,705                   1,133,705  
Member units issued
    12,502       518,029       (518,029 )            
Member units redeemed
    (16,878 )     (292,897 )                 (292,897 )
Member payments received on notes receivable
                1,194,432             1,194,432  
                                         
Balance, December 31, 2007
    960,358       (49,531,455 )     (676,030 )     (389,527 )     (50,597,012 )
Comprehensive loss:
                                       
Net loss
          (1,208,166 )                 (1,208,166 )
Change due to cumulative translation adjustments
                      (1,572,336 )     (1,572,336 )
Change in pension funding status
                      (1,150,479 )     (1,150,479 )
Other comprehensive loss
                      (60,000 )     (60,000 )
                                         
Comprehensive loss
                            (3,990,981 )
Change in fair value of redeemable member units
          988,680                   988,680  
Equity-based compensation
    11,853       1,071,313                   1,071,313  
Member units redeemed
    (10,824 )     (252,291 )                 (252,291 )
Member distributions
          (711,582 )                 (711,582 )
Member payments received on notes receivable
                574,871             574,871  
Discount on convertible promissory notes
          156,108                   156,108  
                                         
Balance, December 31, 2008
    961,387       (49,487,393 )     (101,159 )     (3,172,342 )     (52,760,894 )
Comprehensive income (loss):
                                       
Net income
          4,788,609                   4,788,609  
Change due to cumulative translation adjustments
                      530,342       530,342  
Change in pension funding status
                      187,327       187,327  
Other comprehensive loss
                      (7,790 )     (7,790 )
Forgiveness of intercompany debt
          (171,877 )           171,877        
                                         
Comprehensive income
                            5,498,488  
Change in fair value of redeemable member units
          13,801,303                   13,801,303  
Equity-based compensation
    (77 )     827,370                   827,370  
Member units redeemed
    (16,387 )     (12,988 )                 (12,988 )
Member payments received on notes receivable
                34,463             34,463  
                                         
Balance, December 31, 2009
    944,923     $ (30,254,976 )   $ (66,696 )   $ (2,290,586 )   $ (32,612,258 )
                                         
 
See Notes to Consolidated Financial Statements.


F-5


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
 
                         
    2009     2008     2007  
 
Cash Flows From Operating Activities
                       
Net income (loss)
  $ 4,788,609     $ (1,208,166 )   $ 1,326,092  
Adjustments to reconcile net income (loss) to net cash provided by operating activities
                       
Depreciation and amortization
    1,243,554       1,190,947       964,397  
Loss on equipment disposals
    227,222       343,979        
Equity-based compensation
    827,370       1,071,313       1,133,705  
Amortization of discount on convertible promissory notes
    34,307       16,937        
Forgiveness of convertible promissory note
    (75,000 )            
Change in fair value of mandatorily redeemable member units
    (297,971 )     (58,662 )     282,908  
Changes in operating assets and liabilities:
                       
Accounts receivable
    (4,288,444 )     5,240,245       (2,614,485 )
Accrued compensation
    122,147       (812,656 )     2,641,355  
Accrued business taxes
    (59,353 )     303,362       (409,706 )
Accounts payables
    (2,322,945 )     2,084,920       (2,245,666 )
Accrued expenses
    (970,365 )     (76,047 )     2,009,441  
Deferred rent
    191,436       288,375       123,067  
Pension liability
    187,327       (1,150,479 )     (153,741 )
Prepaid expenses
    502,835       (649,968 )     (661,431 )
Other assets
    (21,459 )     (140,659 )     (1,241,070 )
                         
Net cash provided by operating activities
    89,281       6,383,441       1,154,866  
                         
Cash Flows From Investing Activities
                       
Purchase of leasehold improvements and equipment
    (129,692 )     (679,749 )     (2,822,500 )
                         
Cash Flows From Financing Activities
                       
Payments on notes payable — redemption of members’ units
    (370,169 )     (1,156,876 )     (1,253,331 )
Net proceeds (payments) on revolving credit facility
    1,948,311       (3,931,414 )     3,562,270  
Principal payments on note payable — bank
    (392,124 )     (270,244 )     (238,698 )
Redemption of member units
    (12,988 )     (252,291 )     (292,897 )
Payments received on members’ notes receivable
    34,463       574,871       1,194,432  
Proceeds from convertible promissory notes
          2,673,000        
Payments on convertible promissory notes
          (50,000 )      
Member distributions
          (711,582 )      
                         
Net cash provided by (used in) financing activities
    1,207,493       (3,124,536 )     2,971,776  
                         
Net increase in cash
    1,167,082       2,579,156       1,304,142  
Effect of foreign currency on cash
    260,248       (1,313,919 )     (5,803 )
Cash:
                       
Beginning
    3,666,370       2,401,133       1,102,794  
                         
Ending
  $ 5,093,700     $ 3,666,370     $ 2,401,133  
                         
Supplemental Disclosures of Cash Flow Information
                       
Cash paid during the year for:
                       
Interest
  $ 563,500     $ 645,671     $ 766,317  
                         
Income taxes
  $ 490,276     $ 489,188     $ 188,960  
                         
Supplemental Disclosure of Non Cash Financing Activities:
                       
Change in fair value of redeemable member units
  $ (13,801,303 )   $ (988,680 )   $ 14,921,079  
                         


F-6


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
 
Note 1.   Basis of Presentation and Significant Accounting Policies
 
Description of Business — CTPartners Executive Search LLC, along with its subsidiaries (collectively, CTPartners or the Company), is a retained executive search firm with domestic and international executive search capabilities. The Company operates in the Americas, Europe and Asia Pacific. The Company also has a licensing arrangement with its associated offices in Latin America.
 
Principles of Consolidation — The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of CTPartners Executive Search LLC and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Concentration of Risk — The Company maintains balances at financial institutions which may, at times, exceed amounts federally insured in the U.S. and foreign countries. No losses have been incurred on such deposits.
 
Revenue Recognition. Substantially all revenue is derived from fees for professional services related to executive search services. Revenue before reimbursements of direct expenses (“net revenue”) consists of: retainer fees; indirect expenses billed to clients; supplemental fees (fees contractually due to the Company if the actual compensation of the placed candidate exceeds the estimated compensation on which the retainer fee was based or the client hires other candidates presented by the Company for positions not related to the original search assignment); and license revenue. Retainer fees and indirect expenses from executive search engagements are recognized over the expected period of performance in proportion to the estimated personnel time incurred to fulfill our obligations under the engagements. Any supplemental fees are recognized upon the occurrence of the event triggering the payment of a supplemental fee.
 
Reimbursements — The Company incurs out-of-pocket expenses that are generally reimbursed by its clients, which are accounted for as revenue in its consolidated statements of operations.
 
Accounts Receivable — The Company extends unsecured credit to customers under normal trade agreements, which generally require payments within 30 days. Accounts greater than 90 days past due are considered delinquent. Accounts receivable are written off when deemed uncollectable.
 
The allowance for doubtful accounts is based upon management’s review of delinquent accounts and an assessment of the Company’s historical evidence of collections. The Company also provides a reserve for billing adjustments based upon historical experience. The allowance for doubtful accounts and billing adjustments amounted to $1,012,000 and $966,000 at December 31, 2009 and 2008, respectively.
 
Leasehold Improvements and Equipment — Depreciation is provided using the straight-line method over the useful life of equipment, or in the case of leasehold improvements, the shorter of the life of the improvement or the length of the lease as follows:
 
     
Leasehold improvements
  3-10 years
Office furniture, fixtures and equipment
  5-7 years
Computer equipment and software
  3-5 years
 
The Company periodically reviews the value of long-lived assets for impairment. There were no impairment write-downs for 2009, 2008, or 2007. Leasehold improvements and equipment are carried at cost less allowances for depreciation and amortization. Ordinary maintenance and repairs are charged against


F-7


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.   Basis of Presentation and Significant Accounting Policies (Continued)
 
earnings when incurred. Additions and major repairs are capitalized if they extend the useful life of the related asset.
 
Deferred Rent — The Company recognizes rent expense on the straight-line basis over the term of the lease. Deferred rent is recognized for the excess of rental expense over rental payments. The portion of deferred rent which will not be recognized into the statement of operations within one year is included as a long-term liability on the consolidated balance sheets at December 31, 2009 and 2008.
 
Mandatorily Redeemable Member Units and Redeemable Member Units — The Company’s member units are divided into various unit classes which contain similar economic and voting rights. Profits and losses are allocated according to the Amended and Restated Operating Agreement. As discussed in Note 2 to the consolidated financial statements, and effective January 1, 2007, the Company has adopted current accounting guidance in regards to accounting for certain financial instruments with characteristics of both liabilities and equity and for the classification and measurement of redeemable securities. This guidance requires companies with mandatorily redeemable features in their equity instruments to be classified separately from equity. The Company has recorded as mandatorily redeemable the member units the Company is obligated to repurchase upon the death of a member. The Company has recorded the remaining member units as redeemable, all of which contain a put option giving the unit holder the right, but not the obligation, to sell their units back to the Company upon an age and years of service formula (relevant milestone) defined in the Unit Purchase Agreement. The Company’s obligation to make payments is limited to 5% of its operating income less a working capital reserve, and only in years where it achieves a 10% operating profit. Any payments required to be made are to be paid under a note with a five year term plus interest. During the three years ended December 31, 2009, no member units were exercised or put under this agreement. The settlement price for both the mandatorily redeemable units and the redeemable units is the unit value based on the Formula Value (defined below) in the Unit Purchase Agreement in effect at the date of the relevant milestone.
 
The Company used its internal valuation method to measure the fair value per unit for all unit valuations. This method is based on a formula whose inputs are a factor of the trailing twelve months of revenue, less debt as defined in the Unit Purchase Agreement (the “Formula Value”). No changes have been made in the valuation method for the three years ended December 31, 2009. The Company has reflected those member units with mandatory redemption features as a long-term liability and the member units with a redemption option as redeemable member units on its consolidated balance sheets. The change in fair value for those units with mandatory redemption features are included in compensation and benefits in the consolidated statements of operations. The change in fair value for the member units with a redemption option are included as a component of members’ equity (deficit). Such guidance did not apply historically to CTPartners as a private company.
 
Equity-Based Compensation — The Company accounts for equity-based compensation based on the formula defined in its Unit Purchase Agreement and recognizes compensation expense over the requisite service period using the straight-line method. Units are periodically issued under the Company’s Performance Unit Plan solely at management’s discretion.
 
Income Taxes — CTPartners is a limited liability company that passes through income and losses to its members. As a result, the Company is not subject to any U.S. federal or state income taxes, as the related tax consequences are reported at the individual member’s level and are not reported within the Company’s consolidated financial statements. The Company may be subject to minimum state taxes in certain states that assess capital taxes or taxes based on gross receipts. The Company’s subsidiaries may be subject to entity-level income taxes in their respective foreign jurisdictions.
 
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred liabilities are


F-8


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.   Basis of Presentation and Significant Accounting Policies (Continued)
 
recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
 
The Financial Accounting Standards Board issued new guidance on accounting for uncertainty in income taxes. The Company adopted this new guidance effective January 1, 2009. Management evaluated the Company’s tax position and concluded that the Company had taken no uncertain tax positions that require adjustment to the consolidated financial statements to comply with the provisions of this guidance. With few exceptions, the Company is no longer subject to tax examinations by U.S. federal, state, or local tax authorities for years prior to 2006. For non-US locations, the Company is no longer subject to audit examinations prior to 2006, except for the United Kingdom which extends to 2004. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expenses in the consolidated statements of operations.
 
Foreign Currency Remeasurement and Transactions — For all foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of accumulated other comprehensive income (loss) within members’ equity (deficit). Gains and losses from foreign currency transactions are included in operating results for the period. For 2009, 2008, and 2007, net foreign currency losses included in net income (loss) were $915,000, $325,000, and $55,000, respectively.
 
In 2009, the Company forgave a portion of its intercompany loan to its French subsidiary and needed to adjust accumulated other comprehensive income on the balance sheet for the cumulative amount of foreign currency adjustments relating to this portion of the intercompany loan.
 
Since the currency effect of the change in the intercompany debt flowed through comprehensive income (loss) as expense while the debt was outstanding, the Company recorded the currency effect of the debt forgiveness through comprehensive income (loss) as income when the debt was forgiven.
 
Accumulated Other Comprehensive Income (Loss) — The Company’s accumulated other comprehensive income (loss) is comprised of, and related to, the following at December 31:
 
                         
    2009     2008     2007  
 
Cumulative translation adjustments
  $ (1,051,638 )   $ (1,753,857 )   $ (181,521 )
Pension funding status
    (1,116,893 )     (1,304,220 )     (153,741 )
Other
    (122,055 )     (114,265 )     (54,265 )
                         
    $ (2,290,586 )   $ (3,172,342 )   $ (389,527 )
                         
 
Financial Instruments — The Company measures the fair values of its financial instruments in accordance with accounting guidance that defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance also discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair


F-9


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.   Basis of Presentation and Significant Accounting Policies (Continued)
 
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
 
  •  Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
  •  Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
 
  •  Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
 
The Company’s assets or liabilities carried at fair value are the mandatorily redeemable member units as described in Note 2, the performance units as described in Note 6 and the pension plan’s assets as described in Note 7. The carrying value of all other assets and liabilities does not differ materially from fair value.
 
Recently Adopted Accounting Standards — The Company follows accounting standards established by the Financial Accounting Standards Board (FASB) to ensure consistent reporting of financial condition, results of operations, and cash flows. References to Generally Accepted Accounting Principles (GAAP) in these footnotes are to the FASB Accounting Standards Codificationtm, sometimes referred to as the Codification or ASC. The Codification was effective for periods ending on or after September 15, 2009.
 
Recently Issued Accounting Pronouncements — The FASB issued Accounting Standards Update (ASU) 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value of such liability using one or more of the techniques prescribed by the update. ASU 2009-05 is effective for the Company beginning January 1, 2010. The Company is currently evaluating the impact that adoption will have on its consolidated financial statements.
 
The FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements, to provide more and improved disclosures about fair value measurements. This ASU affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurement.
 
The new disclosures and clarifications of existing disclosures are effective for annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010.
 
Basic and Diluted Earnings per Unit — Basic and diluted net income (loss) per unit is presented in conformity with the two-class method. The Class E units contain certain preference items related to income (loss) allocations and distributions. All other units share in the allocation of income (loss) and distributions equally. Participating units are allocated their portion of net income (loss) and consist of units subject to clawback and the mandatorily redeemable member units. The Company has not included the units that would be issued if the convertible promissory notes were converted because the conversion price is out of the money for all periods presented. The potentially dilutive units related to the convertible promissory notes were approximately 51,000 and 52,000 as of December 31, 2009 and 2008, respectively.


F-10


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.   Basis of Presentation and Significant Accounting Policies (Continued)
 
Income (loss) allocated to the unit holders in computing weighted average earnings per unit as follows:
 
                         
    2009     2008     2007  
 
Net income (loss) as reported
  $ 4,788,609     $ (1,208,166 )   $ 1,326,092  
Less: Income (loss) allocated to other participating member units
    240,920       (183,916 )     37,279  
                         
Net income (loss) used for earnings per share
  $ 4,547,689     $ (1,024,250 )   $ 1,288,813  
                         
 
                         
    2009     2008     2007  
 
Class E units
                       
Income
  $ 1,078,435     $     $ 81,748  
(Losses)
          (478,004 )      
Distributions
          711,582        
Previously allocated losses
    478,004             1,000,763  
                         
    $ 1,556,439     $ 233,578     $ 1,082,511  
                         
 
                         
    2009     2008     2007  
 
All other equity units
                       
Income
  $ 2,991,250     $     $ 206,302  
(Losses)
          (1,257,828 )      
Distributions
                 
                         
    $ 2,991,250     $ (1,257,828 )   $ 206,302  
                         
 
Unaudited Pro Forma Net Income per Share — Upon the conversion from a limited liability company to a C-corporation (corporation), all of the Company’s outstanding units will automatically convert into shares of common stock. The December 31, 2009 unaudited net income per share, calculated below, assumes a 1 to 5.269 unit-to-share ratio upon conversion. The Company’s unaudited pro forma income tax footnote has been prepared as if the Company were taxable as a corporation since its inception. The Company can make no guarantee that a conversion to a corporation will occur.
 
         
    2009  
    (Unaudited)  
 
Taxable income
  $ 5,108,562  
Income tax
    1,981,552  
Numerator:
       
Net income
    2,807,057  
Denominator:
       
Weighted average common shares used to compute net income per share
    6,830,769  
         
Pro forma net income per share
  $ 0.41  
         
 
As a consequence of the anticipated conversion to a corporation, the Company will be required to change its tax filings from cash to accrual basis. As of December 31, 2009 the Company anticipated a one-time tax expense of approximately $4.3 million in 2010 as a result of this change.


F-11


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.   Basis of Presentation and Significant Accounting Policies (Continued)
 
Unaudited Pro Forma Incomes Taxes — The Company has operated as a limited liability company since 2004. The following pro forma disclosures for the years ended December 31, 2009, 2008, and 2007 have been prepared as if the Company had been taxable as a corporation since inception. The pro forma income tax expense for the year ended December 31, 2009 was $1,981,552, which is net of $11,000 for a pro forma deferred tax asset related to the non-deductible portion of bonus expense not paid within two and one-half months after year-end as required by the Internal Revenue Code.
 
                         
    For the Year Ended December 31,  
    2009     2008     2007  
 
US income
  $ 5,082,289     $ 5,648,426     $ 6,232,177  
Non-US income (loss)
    (293,680 )     (6,856,592 )     (4,906,085 )
                         
Net income (loss)
    4,788,609       (1,208,166 )     1,326,092  
Temporary differences and nondeductible expenses
    319,953       145,859       1,125,768  
Utilization of net operating loss carryover
                (2,358,911 )
                         
Taxable income
    5,108,562       (1,062,307 )     92,949  
Current expense:
                       
Federal tax
    1,736,911       (361,185 )     31,603  
State and local tax
    255,428       (53,115 )     4,647  
                         
      1,992,339       (414,300 )     36,250  
Deferred expense:
                       
Federal
    (9,404 )     90,201       (263,797 )
State and local
    (1,383 )     13,265       (38,794 )
                         
      (10,787 )     103,466       (302,591 )
                         
Total income tax expense
  $ 1,981,552     $ (310,834 )   $ (266,341 )
                         
 
Unaudited Pro Forma Members’ Equity (Deficit): If the Company converts from a limited liability company to a corporation, all of the member units outstanding will automatically convert into shares of common stock of CTPartners Executive Search, Inc. at a 1 to 5.269 conversion ratio. Unaudited pro forma stockholders’ equity, as adjusted for the assumed conversion of the member units is set forth in the following table:
 
                         
    December 31, 2009  
                Pro Forma
 
    As
    Pro Forma
    Stockholders’
 
    Reported     Adjustments     Equity (Deficit)  
 
Members’ equity (deficit)/stockholders’ equity (deficit)
                       
Common stock
  $     $ 6,831     $ 6,831  
Additional paid-in capital
          31,559,806       31,559,806  
Accumulated other comprehensive loss
          (2,290,586 )     (2,290,586 )
Mandatorily redeemable member units
    628,810       (628,810 )      
Redeemable member units
    30,937,827       (30,937,827 )      
Members’ deficit/accumulated deficit
    (32,612,258 )     (3,991,414 )     (36,603,672 )
                         
Total members’ equity (deficit)/stockholders’ equity (deficit)
  $ (1,045,621 )   $ (6,282,000 )   $ (7,327,621 )
                         


F-12


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.   Basis of Presentation and Significant Accounting Policies (Continued)
 
The pro forma common stock represents the aggregate par value of the common stock. The pro forma additional paid-in capital represents the aggregate carrying value of the member units less the aggregate par value.
 
The increase in the accumulated deficit is attributed to a $4,300,000 one time tax charge due to the conversion to a corporation and $1,982,000 of accrued tax related to non-deductible compensation expense.
 
Note 2.   Mandatorily Redeemable Member Units and Redeemable Member Units
 
The effects of adopting FASB ASC Topic 480 for mandatorily redeemable units and ASU 2009-04 for redeemable member units as of and for the years then ended December 31, 2008 and 2007 on the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows are included in the schedule below.
 
                         
    As Originally
  Effect of
   
Consolidated Balance Sheets
  Reported   Adoption   As Restated
 
2008
                       
Long-Term Liabilities
  $ 8,019,977     $ 926,781     $ 8,946,758  
Redeemable Member Units
          44,739,130       44,739,130  
Members’ Deficit
    (7,094,983 )     (45,665,911 )     (52,760,894 )
                         
                         
    As Originally
  Effect of
   
    Reported   Adoption   As Restated
 
2007
                       
Members’ Deficit
  $ (7,365,244 )   $ (31,509,265 )   $ (38,874,509 )
                         
                         
    As Originally
  Effect of
   
Consolidated Statements of Operations
  Reported   Adoption   As Restated
 
2008
                       
Compensation and benefits
  $ 82,581,845     $ 58,662     $ 82,640,507  
Operating loss
    (15,730 )     (58,662 )     (74,392 )
Net loss
    (1,149,504 )     (58,662 )     (1,208,166 )
                         
                         
    As Originally
  Effect of
   
    Reported   Adoption   As Restated
 
2007
                       
Compensation and benefits
  $ 87,367,557     $ 282,908     $ 87,650,465  
Operating income
    2,605,006       (282,908 )     2,322,098  
Net income
    1,609,000       (282,908 )     1,326,092  
                         
                         
    As Originally
  Effect of
   
Consolidated Statements of Cash Flows
  Reported   Adoption   As Restated
 
2008
                       
Net loss
  $ (1,266,828 )   $ 58,662     $ (1,208,166 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                       
Change in fair value of mandatorily redeemable member units
          58,662       58,662  
 


F-13


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 2.   Mandatorily Redeemable Member Units and Redeemable Member Units (Continued)
 
                         
    As Originally
  Effect of
   
    Reported   Adoption   As Restated
 
2007
                       
Net income
  $ 1,609,000     $ (282,908 )   $ 1,326,092  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Change in fair value of mandatorily redeemable member units
          282,908       282,908  
 
A reconciliation of the fair value of the Company’s redeemable member units is summarized as follows:
 
         
Balance as of January 1, 2007
  $ 30,806,731  
Change in fair value redeemable units
    14,921,079  
         
Balance as of December 31, 2007
  $ 45,727,810  
Change in fair value redeemable units
    (988,680 )
         
Balance as of December 31, 2008
  $ 44,739,130  
Change in fair value redeemable units
    (13,801,303 )
         
Balance as of December 31, 2009
  $ 30,937,827  
         
 
The Company’s mandatorily redeemable member units are measured at fair value and have been classified as a Level 3 liability.
 
The changes in fair value of the mandatorily redeemable member units are summarized as follows:
 
                         
    2009     2008     2007  
 
Balance, beginning of year
  $ 926,781     $ 985,443     $ 702,534  
Unrealized (gains) losses
    (297,971 )     (58,662 )     282,909  
                         
Balance, end of year
  $ 628,810     $ 926,781     $ 985,443  
                         
 
Note 3.   Leasehold Improvements and Equipment
 
The components of the leasehold improvements and equipment at December 31 are as follows:
 
                 
    2009     2008  
 
Leasehold improvements
  $ 3,522,433     $ 3,540,880  
Office furniture, fixtures and equipment
    2,201,861       2,249,770  
Computer equipment and software
    3,182,493       3,019,295  
                 
      8,906,787       8,809,945  
Accumulated depreciation and amortization
    (5,192,130 )     (3,951,744 )
                 
    $ 3,714,657     $ 4,858,201  
                 
 
Depreciation and amortization expense for the years ended December 31, 2009, 2008, and 2007 was $1,243,554 and $1,190,947, and $964,397, respectively.
 
Note 4.   Long-Term Debt
 
Notes Payable — Bank: The Company is a party to a credit and security agreement (the “Amended and Restated Credit and Security Agreement” or “Credit Agreement”) with a bank which includes both a revolving credit facility and a term loan. The Agreement, as amended, provides for the revolving credit facility to expire on August 29, 2012. Under the terms of the revolving credit facility, the Company may borrow an

F-14


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 4.   Long-Term Debt (Continued)
 
amount equal to the lesser of $10 million or the “Borrowing Base” (the Company’s eligible accounts receivable as defined in the Credit Agreement), with interest calculated at 325 basis points above the LIBOR rate as defined in the revolving credit agreement (the adjusted LIBOR rate), which was 0.23% at December 31, 2009. The balance owed under the revolving credit facility at December 31, 2009 and 2008 was $4,660,027 and $2,711,716, respectively. Additionally, the Company has issued letters of credit related to office lease agreements secured by the Credit Agreement in the amounts of $3,008,000 and $3,456,000 as of December 31, 2009 and 2008, respectively. Available borrowings under the revolving credit facility was $6,992,000 at December 31, 2009.
 
The term loan was fully paid as of December 31, 2009. At December 31, 2008 the balance was $392,124 and bore interest at 250 basis points above the adjusted LIBOR rate.
 
The loans under the Credit Agreement are secured principally by accounts receivable and equipment. Additionally, the Company is required to maintain specified leverage and fixed charge coverage ratios as defined in the Credit Agreement. The Credit Agreement also requires the Company to maintain a minimum net worth based on a formula in the Credit Agreement.
 
Notes Payable — Redemption of Members’ Units: In 2005, the Company assumed the debt of Christian & Timbers, Inc. (the predecessor entity to the Company). The debt consisted of a note to the founder of Christian & Timbers, Inc. and notes to other former shareholders of Christian & Timbers, Inc. Also from time to time, the Company purchases member units from former members in the form of notes, payable over 5 years. The total due on these notes amounted to $2,757,659 and $3,127,827 at December 31, 2009 and 2008, respectively.
 
The note to the founder of Christian & Timbers, Inc. provides for minimum annual principal and interest payments of $300,000, provided that net profits are at least break-even on a rolling six month basis. Additional payments could be required to increase total payments to 1.5% of the prior calendar year’s net revenues, provided that the Company achieves certain operating performance benchmarks. The amount payable in the future is based on the Company’s estimated future results.
 
Convertible Promissory Notes: In 2008, the Company issued convertible promissory notes to certain unit holders. The notes bear a fixed annual interest rate of 5% and are due and payable in 2013. The notes can be prepaid by the Company at any time without penalty. The notes bear a conversion feature which gives the holders the option, but not the obligation, to convert any part or all of the unpaid principal due on the note into units of the Company, at the price defined in the notes purchase agreement. The price of the Company’s member unit is calculated per the Unit Purchase Agreement.
 
The convertible notes contain a nondetachable (embedded) conversion feature. The conversion feature in the notes is deemed beneficial because the embedded conversion feature was deemed “in-the-money” at the date of issuance. The conversion feature is recognized and measured by allocating a portion of the proceeds equal to the value of the conversion feature to members’ equity (deficit).
 
At December 31, 2009 and 2008, the outstanding balance of convertible notes was $2,548,000 and $2,623,000, respectively. At the date of issuance, the fair value of the beneficial conversion feature was $156,108. Interest expense related to amortization of the debt discount was $34,307 and $16,937 for 2009 and 2008, respectively.
 
The fair value of the notes payable-redemption of members’ units approximates carrying value. The fair value of the convertible promissory notes cannot be determined due to their related party nature.


F-15


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 4.   Long-Term Debt (Continued)
 
Long-term debt consists of the following at December 31:
 
                 
    2009     2008  
 
Notes payable — redemption of members’ units
  $ 2,757,659     $ 3,127,827  
Note payable — bank
          392,124  
Convertible promissory notes, net of discount of $104,864 and $139,171
    2,443,136       2,483,829  
                 
      5,200,795       6,003,780  
Less current portion of long-term debt
    960,742       762,293  
                 
    $ 4,240,053     $ 5,241,488  
                 
 
The schedule for future payments to be made on long-term debt is as follows:
 
         
2010
  $ 960,742  
2011
    1,151,355  
2012
    634,767  
2013
    2,453,931  
         
    $ 5,200,795  
         
 
Note 5.   Commitments
 
The Company is obligated under lease arrangements for office space and office equipment expiring in various years through 2017. Future annual required payments as of December 31, 2009 are as follows:
 
                         
    Office
             
    Space     Equipment     Total  
 
2010
  $ 8,325,366     $ 142,403     $ 8,467,769  
2011
    6,356,755       89,366       6,446,121  
2012
    5,821,871       59,116       5,880,987  
2013
    5,504,973       9,286       5,514,259  
2014
    5,315,819             5,315,819  
Thereafter
    9,604,609             9,604,609  
                         
    $ 40,929,393     $ 300,171     $ 41,229,564  
                         
 
The minimum future payments to be received as of December 31, 2009 on sub-leases of certain office space, which expire in 2011, are as follows:
 
         
2010
  $ 1,149,514  
2011
    213,051  
         
    $ 1,362,565  
         
 
Rent expense (excluding sublease rental income) for the years ended December 31, 2009, 2008, and 2007 was $9,707,223, $9,945,497, and $10,142,827, respectively. Sublease rental income for the years ended December 31, 2009, 2008, and 2007 was $1,460,307, $1,782,390, and $1,981,786, respectively, and is included in general and administrative expenses as an offset to rent expense in the consolidated statements of operations.


F-16


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 6.   Non-Qualified Unit Purchase Plan and Performance Unit Plan
 
The Company maintains a member unit purchase plan and a performance unit plan for the benefit of its officers and key employees. The plans are administered by a committee that has the discretionary authority to issue member units to eligible employees. The member units are valued under both plans in accordance with the Formula Value as defined in the Unit Purchase Agreement, which is a valuation model based on the Company’s 12-month trailing performance.
 
The purpose of the member unit purchase plan is to encourage ownership in the Company by its senior executives, to at times award units to new executives, and to reward performance as an enhancement to cash compensation. All member units are fully vested upon issuance, but in certain cases units are subject to a clawback provision, which places the obligation on the unit holder to surrender a portion of the member units if their employment with the Company is terminated before a specified period, typically three years. The total fair value of member units issued during the years ended December 31, 2009, 2008, and 2007 was $34,000, $823,000 and $2,058,000, respectively. Total compensation expense related to the plans was $827,370, $1,071,313 and $1,133,705 for the years ended December 31, 2009, 2008, and 2007, respectively.
 
A summary of the status of the Company’s member units subject to the clawback provisions as of December 31, 2009, and changes during the year ended December 31, 2009, is presented below:
 
                 
          Weighted-
 
          Average
 
    Member
    Grant-Date
 
Member Units Subject to Clawback
  Units     Fair Value  
 
Member units subject to clawback at December 31, 2008
    57,157     $ 37.43  
Granted
    923       36.91  
Expiration of clawback provisions
    (35,095 )     32.31  
Forfeited
    (1,000 )     52.67  
                 
Member units subject to clawback at December 31, 2009
    21,985     $ 44.88  
                 
 
As of December 31, 2009, there was approximately $990,000 of unrecognized compensation expense related to member units subject to clawback provisions granted under the plan. This expense is expected to be recognized over a weighted-average period of 1.3 years.
 
The purpose of the performance unit plan is to reward executive performance with any potential increase in the fair value of the Company over the fair value at the date of the performance unit issuance. Performance units generally vest over a three-year period. The value of a performance unit is limited to the excess value, if any, of the fair value over the value at the date of issue. Compensation expense (income) recorded under the plan for the years ended December 31, 2009, 2008, and 2007 was ($78,605), $123,638, and $0, respectively. Total performance units outstanding at December 31, 2009 was 122,073.
 
A summary of the Company’s non-vested performance units as of December 31, 2009, and changes during the year ended December 31, 2009, is presented below:
 
                 
          Weighted-
 
          Average
 
          Grant-Date
 
Performance Units
  Units     Fair Value  
 
Total non-vested units at December 31, 2008
    46,106     $ 40.89  
Granted
    71,830       35.00  
Vested
    (16,687 )     39.52  
Forfeited
    (1,100 )     35.00  
                 
Total non-vested units at December 31, 2009
    100,149     $ 33.26  
                 


F-17


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 6.   Non-Qualified Unit Purchase Plan and Performance Unit Plan (Continued)
 
The Company’s performance units are measured at fair value and have been classified as a Level 3 liability.
 
The changes in fair value of the performance units are summarized as follows:
 
                 
    2009     2008  
 
Balance, beginning of year
  $ 123,638     $  
Unrealized (gains) losses
    (78,605 )     123,638  
                 
Balance, end of year
  $ 45,033     $ 123,638  
                 
 
Note 7.   Retirement Plans
 
The Company sponsors a noncontributory defined benefit cash balance plan covering United States employees who meet certain eligibility requirements. Participants’ accrued benefits are based on account balances maintained for each individual which are credited with additions equal to a percentage of compensation as defined in the plan. Participants’ balances are also credited with interest in accordance with the plan. The Company’s funding policy has been to contribute to the plan the amount actuarially determined necessary to fund the benefit obligation. The Company contributed $0, $1,234,362, and $1,765,567 for the years ended December 31, 2009, 2008, and 2007, respectively. The Company recorded pension expense of $71,393, $733,694, and $1,722,009 for the years ended December 31, 2009, 2008, and 2007, respectively. The plan was frozen effective December 31, 2008. No future benefit accruals will be earned by participants.
 
The Company (i) recognizes the overfunded or underfunded status of the plan, measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its consolidated balance sheet; (ii) recognizes changes in that funded status in the year in which the changes occur through comprehensive income; (iii) recognizes as a component of other comprehensive income the gains and losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs; and (iv) measures plan assets and obligations as of the date of the employer’s fiscal year end.
 
The Company uses December 31 as its annual measurement date.


F-18


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 7.   Retirement Plans (Continued)
 
The fair value of the plan’s assets at December 31, 2009, by asset category and fair value hierarchy level, is as follows:
 
                                 
          Quoted Prices in
    Significant
    Significant
 
          Active Markets for
    Observable
    Unobservable
 
          Identical Assets
    Inputs
    Inputs
 
Asset Category
  Total     Level 1     Level 2     Level 3  
 
Equities:
                               
Mutual Funds:
                               
International
  $ 148,882     $ 148,882     $     $           —  
Fixed income
    1,798,972       1,798,972              
Other
    116,423       116,423              
Stocks:
                               
Mid cap
    250,440       250,440              
Large cap
    94,340       94,340              
Fixed Income:
                               
U.S. government obligations
    1,037,413       1,037,413              
Corporate bonds
    1,454,639               1,454,639        
Money market funds
    85,856       85,856              
                                 
Total
  $ 4,986,965     $ 3,532,326     $ 1,454,639     $  
                                 
 
The weighted-average asset allocations of the Company’s pension benefits at December 31, 2009 and 2008 was as follows:
 
                 
    Plan Assets  
    2009     2008  
 
Asset Category:
               
Mutual funds
    41 %     20 %
Stocks
    7 %     8 %
Fixed income
    50 %     68 %
Money market funds
    2 %     4 %
                 
Total
    100 %     100 %
                 
 
Selected actuarially determined information for the defined benefit plan follows:
 
                 
    2009     2008  
 
Change in Benefit Obligation
               
Accumulated benefit obligation, beginning of year
  $ 5,427,348     $ 4,477,173  
Service cost
          769,444  
Interest cost
    270,858       212,205  
Actuarial cost
    (123,433 )     156,494  
Benefits paid
    (18,803 )     (187,968 )
                 
Benefit obligation at end of year
  $ 5,555,970     $ 5,427,348  
                 
 


F-19


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 7.   Retirement Plans (Continued)
 
                 
    2009     2008  
 
Change in Plan Assets
               
Fair value of plan assets at beginning of year
  $ 4,742,407     $ 4,442,046  
Actual return on plan assets
    263,361       (746,031 )
Company contribution
          1,234,362  
Benefits paid
    (18,803 )     (187,970 )
                 
Fair value of plan assets at end of year
  $ 4,986,965     $ 4,742,407  
                 
 
                 
    2009     2008  
 
Funded Status
               
Accumulated benefit obligation at end of year
  $ (5,555,970 )   $ (5,427,348 )
Fair Value of plan assets at end of year
    4,986,965       4,742,407  
                 
Underfunded status, amount recognized as a long-term liability on the consolidated balance sheet
  $ (569,005 )   $ (684,941 )
                 
 
The following expected benefit payments reflect expected future service and payments in the form of monthly annuities. The plan allows a lump sum payment option that has not been included in this projection.
 
         
2010
  $ 621,753  
2011
    570,860  
2012
    587,986  
2013
    605,626  
2014
    623,794  
2015-2019
    1,338,753  
 
Amounts recognized in accumulated other comprehensive income (loss) consist of:
 
                         
    2009   2008   2007
 
Net loss
  $ 1,116,893     $ 1,304,220     $ 153,741  
Prior service cost (credit)
                 
                         
    $ 1,116,893     $ 1,304,220     $ 153,741  
                         
 
Components of Net Periodic Benefit Cost are as follows:
 
                         
    2009     2008     2007  
 
Net Periodic Benefit Cost:
                       
Service cost
  $     $ 769,444     $ 1,765,567  
Interest cost
    270,858       212,205       121,818  
Expected return on plan assets
    (236,611 )     (247,955 )     (165,376 )
Amortization of prior service cost
                 
Amortization of net loss
    37,146              
                         
Net periodic benefit cost
  $ 71,393     $ 733,694     $ 1,722,009  
                         

F-20


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 7.   Retirement Plans (Continued)
 
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:
 
                         
    2009     2008     2007  
 
Net (gain) loss
  $ (187,327 )   $ 1,150,479     $ 153,741  
Prior service cost (credit)
                 
Amortization of prior service cost
                 
                         
Total recognized in other comprehensive income (loss)
  $ (187,327 )   $ 1,150,479     $ 153,741  
                         
Total recognized in net periodic benefit cost and other comprehensive income (loss)
  $ (115,934 )   $ 1,884,173     $ 1,826,558  
                         
 
The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $29,000.
 
The assumptions used in the actuarial present value of the projected benefit obligations and to determine net periodic benefit costs were as follows:
 
                         
    2009     2008     2007  
 
Discount rate
    5.00 %     4.85 %     4.85 %
Expected return on assets
    5.00 %     5.00 %     5.00 %
Rate of compensation increases
    0.00 %     0.00 %     0.00 %
 
The plan’s investment strategy is to invest in a diversified portfolio of equity and fixed-income securities, with the objective of providing long-term growth with conservative investments with characteristics of limited volatility. The long term rate of expected return of 5% is based on the investment mix in the plan.
 
The Company also sponsors a defined contribution plan (the “Profit Sharing Plan”) whereby U.S. employees meeting the Plan’s eligibility requirements may elect to defer a portion of their compensation into the Plan. The maximum allowable employee deferral is adjusted each year is subject to certain limitations. The Company has no obligation to make any contributions to the Plan. For 2009, 2008 and 2007, the Company made voluntary contributions of $0, $285,000 and $230,512, respectively.
 
In addition, the Company also sponsors a qualified defined contribution discretionary profit sharing plan which covers U.S. employees meeting certain eligibility requirements. The Company made cash contributions to the plan of $273,500, $242,600 and $626,600 for the years ended December 31, 2009, 2008 and 2007, respectively. Most employees outside of the U.S. are covered by statutorily required retirement plans. In certain cases the Company makes voluntary, discretionary contributions to supplement the mandated minimum funding requirements. The Company complies with the funding requirements in all countries, and has no unfunded future liabilities.
 
Note 8.   Income Taxes
 
The Company’s gross deferred tax assets amounted to $4.6 million at December 31, 2009. The entire balance relates to the Company’s foreign subsidiaries’ net operating loss carryforwards. The Company has recorded a full valuation allowance against these deferred tax assets, because it has determined it is more likely than not that they will not be realized in the near term.


F-21


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 8.   Income Taxes (Continued)
 
Net operating losses by foreign location are as follows:
 
             
    At December 31,
     
    2009     Expiration
 
United Kingdom
  $ 17,435,711     No expiration
France
    1,943,591     No expiration
Switzerland
    648,765     2015
Singapore
    195,023     No expiration
Hong Kong
    1,261,715     No expiration
China
    179,990     2014
             
    $ 21,664,795      
             


F-22


Table of Contents

CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 9.   Enterprise Geographic Concentrations
 
The Company operates in three principal geographic regions: the Americas, Europe and Asia Pacific. The revenue, operating income (loss), depreciation and amortization, capital expenditures and assets, by region, for the years ended December 31, are as follows:
 
                         
    2009     2008     2007  
 
Revenue
                       
Americas
  $ 46,374,844     $ 69,468,324     $ 82,829,848  
Europe
    22,753,379       29,658,797       30,019,538  
Asia Pacific
    4,732,517       6,588,609       3,778,624  
                         
Net revenue before reimbursable expenses
    73,860,740       105,715,730       116,628,010  
Reimbursable expenses
    2,727,182       4,994,766       4,304,209  
                         
Total
  $ 76,587,922     $ 110,710,496     $ 120,932,219  
                         
Operating income (loss)
                       
Americas
  $ 5,854,660     $ 6,792,642     $ 7,101,821  
Europe
    435,142       (6,516,747 )     (3,820,073 )
Asia Pacific
    (628,461 )     (350,287 )     (959,650 )
                         
Total
  $ 5,661,341     $ (74,392 )   $ 2,322,098  
                         
Depreciation and amortization
                       
Americas
  $ 756,013     $ 686,278     $ 551,417  
Europe
    428,127       447,842       393,450  
Asia Pacific
    59,414       56,827       19,530  
                         
Total
  $ 1,243,554     $ 1,190,947     $ 964,397  
                         
Capital expenditures
                       
Americas
  $ 126,948     $ 95,789     $ 2,337,370  
Europe
    2,002       553,658       267,985  
Asia Pacific
    742       30,302       217,145  
                         
Total
  $ 129,692     $ 679,749     $ 2,822,500  
                         
Assets
                       
Americas
  $ 14,763,726     $ 14,321,942     $ 16,623,544  
Europe
    10,309,723       7,312,430       10,865,844  
Asia Pacific
    2,802,651       1,779,125       1,304,931  
                         
Total
  $ 27,876,100     $ 23,413,497     $ 28,794,319  
                         


F-23


Table of Contents

 
 
                 
    September 30,
    December 31,
 
    2010     2009  
 
Assets
               
Current Assets
               
Cash
  $ 13,600,540     $ 5,093,700  
Accounts receivable, net
    24,398,253       15,351,547  
Other receivables
    358,685       790,975  
Prepaid expenses
    2,235,572       1,671,510  
Other
    916,352       550,425  
                 
Total current assets
    41,509,402       23,458,157  
Leasehold Improvements and Equipment, Net
    3,369,974       3,714,657  
Other Assets
    1,946,453       703,286  
                 
    $ 46,825,829     $ 27,876,100  
                 
Liabilities, Redeemable Member Units and Members’ Equity (Deficit)
               
Current Liabilities
               
Current portion of long-term debt
  $ 1,382,235     $ 960,742  
Line of credit
          4,660,027  
Accounts payable
    870,116       647,473  
Accrued compensation
    28,314,729       13,425,668  
Accrued business taxes
    1,378,653       1,115,697  
Accrued expenses
    2,598,228       1,414,786  
                 
Total current liabilities
    34,543,961       22,224,393  
                 
Long-Term Liabilities
               
Long-term debt, less current maturities
    3,915,300       4,240,053  
Deferred rent
    1,850,056       1,697,122  
Pension liability
          569,005  
Mandatorily redeemable member units
    1,130,861       628,810  
Other
    58,955       191,148  
                 
Total long-term liabilities
    6,955,172       7,326,138  
                 
Redeemable Member Units
    54,923,448       30,937,827  
Members’ Equity (Deficit)
    (49,596,752 )     (32,612,258 )
                 
    $ 46,825,829     $ 27,876,100  
                 
 
See Notes to Condensed Consolidated Financial Statements.


F-24


Table of Contents

 
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net revenue
  $ 30,431,162     $ 19,681,444     $ 86,010,878     $ 50,571,384  
Reimbursable expenses
    970,256       646,643       2,806,587       1,966,539  
                                 
Total revenue
    31,401,418       20,328,087       88,817,465       52,537,923  
Operating expenses
                               
Compensation and benefits
    23,162,351       12,220,180       62,440,526       33,886,938  
General and administrative
    5,792,323       4,676,619       16,409,122       13,417,296  
Reimbursable expenses
    989,995       749,974       2,926,547       2,081,188  
                                 
      29,944,669       17,646,773       81,776,195       49,385,422  
                                 
Operating income
    1,456,749       2,681,314       7,041,270       3,152,501  
Interest expense, net
    (57,235 )     (88,757 )     (197,843 )     (276,909 )
                                 
Income before income taxes
    1,399,514       2,592,557       6,843,427       2,875,592  
Income tax benefit (expense)
    174,900       (226,869 )     (45,916 )     (491,502 )
                                 
Net income
  $ 1,574,414     $ 2,365,688     $ 6,797,511     $ 2,384,090  
                                 
Basic income per weighted average unit
                               
Class E units
  $ 1.71     $ 4.01     $ 7.38     $ 4.01  
All other equity units
  $ 1.71     $ 2.00     $ 7.38     $ 2.00  
Basic weighted average units outstanding
                               
Class E units
    238,046       238,046       238,046       238,046  
All other equity units
    652,462       648,964       649,526       658,351  
Diluted income per weighted average unit
                               
Class E units
  $ 1.62     $ 4.01     $ 7.00     $ 4.01  
All other equity units
  $ 1.62     $ 2.00     $ 7.00     $ 2.00  
Diluted weighted average units outstanding
                               
Class E units
    238,046       238,046       238,046       238,046  
All other equity units
    702,016       648,964       699,080       658,351  
 
See Notes to Condensed Consolidated Financial Statements.


F-25


Table of Contents

 
 
                 
    Nine Months Ended September 30,  
    2010     2009  
 
Cash Flows From Operating Activities
               
Net income
  $ 6,797,511     $ 2,384,090  
Adjustments to reconcile net income to net cash provided by (used in) operating activities
               
Depreciation and amortization
    862,414       967,884  
Loss on leasehold improvements and equipment disposals
    563,311       84,481  
Equity-based compensation
    967,975       527,797  
Change in fair value mandatorily redeemable member units
    502,051       (273,106 )
Changes in operating assets and liabilities:
               
Accounts receivable
    (9,013,459 )     (4,488,483 )
Accrued compensation
    14,645,104       (1,273,595 )
Accrued business taxes
    (40,525 )     (135,165 )
Accounts payables
    226,192       (2,539,524 )
Accrued expenses
    1,101,578       418,646  
Deferred rent
    (140,768 )     (639,720 )
Pension liability
    (569,005 )     140,495  
Prepaid expenses
    (572,569 )     522,759  
Other receivables
    430,712       (132,087 )
Other assets
    (1,633,720 )     95,306  
                 
Net cash provided by (used in) operating activities
  $ 14,126,802     $ (4,340,222 )
                 
Cash Flows From Investing Activities
               
Purchase of leasehold improvements and equipment
  $ (540,551 )   $ (66,668 )
                 
Cash Flows From Financing Activities
               
Payments on notes payable — redemption of members’ equity
  $ (661,158 )   $ (238,320 )
Net (payments) proceeds on revolving credit facility
    (4,660,027 )     2,825,193  
Principal payments on note payable — bank
          (218,434 )
Redemption of member units
          (12,988 )
Payments received on members’ notes receivable
    28,035       34,463  
Payments on convertible promissory notes
    (50,000 )     (75,000 )
                 
Net cash (used in) provided by financing activities
  $ (5,343,150 )   $ 2,314,914  
                 
Net increase (decrease) in cash
  $ 8,243,101     $ (2,091,976 )
Effect of foreign currency on cash
    263,739       1,890,716  
Cash:
               
Beginning
    5,093,700       3,666,370  
                 
Ending
  $ 13,600,540     $ 3,465,110  
                 
 
See Notes to Condensed Consolidated Financial Statements.


F-26


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
 
Note 1.   Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements include the accounts of CTPartners Executive Search LLC, together with its subsidiaries (together “CTPartners” or the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and the requirements of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation.
 
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010.
 
The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
 
The interim financial statements contained in this report should be read in conjunction with the audited consolidated financial statements and footnotes presented elsewhere in this registration statement.
 
Note 2.   Accounts Receivable
 
The allowance for doubtful accounts and reserve for billing adjustments at September 30, 2010 and December 31, 2009 was $1,259,000 and $1,012,000 respectively.
 
Note 3.   Pro Forma Information
 
Unaudited Pro Forma Net Income per Share — Upon the conversion from a limited liability company to a C-corporation (corporation), all of the Company’s outstanding units will automatically convert into shares of common stock. The September 30, 2010 unaudited net income per share, calculated below, assumes a 1 to 5.269 unit-to-share ratio upon conversion. The Company’s unaudited pro forma income tax footnote has been prepared as if the Company were taxable as a corporation since its inception. The Company can make no guarantee that a conversion to a corporation will occur.
 
         
    September 30,
 
    2010  
 
Taxable income
  $ 5,892,387  
Income tax
    2,074,992  
Numerator:
       
Net income
    4,722,519  
Denominator:
       
Weighted average common shares used to compute net income per share
    6,830,769  
         
Pro forma net income per share
  $ 0.69  
         
 
As a consequence of the anticipated conversion to a corporation, the Company will be required to change its tax filings from cash to accrual basis. As of September 30, 2010 the Company anticipates a one-time tax expense of approximately $4.3 million in 2010 as a result of this change.
 
Unaudited Pro Forma Incomes Taxes — The Company has operated as a limited liability company since 2004. The following pro forma disclosure for the nine months ended September 30, 2010 has been prepared as if the Company had been taxable as a corporation. The pro forma income tax expense for the nine months ended September 30, 2010 was $2,074,992, which is net of $223,000 for a pro forma deferred tax asset related to the non-deductible portion of bonus expense not paid within two and one-half months after year-end as required by the Internal Revenue Code.


F-27


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 3.   Pro Forma Information (Continued)
 
         
    For the Nine
 
    Months Ended
 
    September 30, 2010  
 
US income
  $ 4,914,955  
Non-US income
    1,882,556  
         
Net income
    6,797,511  
Temporary differences and nondeductible expenses
    971,897  
Utilization of net operating loss carryover
    (1,877,021 )
         
Taxable income
    5,892,387  
Current expense:
       
Federal tax
    2,003,411  
State and local tax
    294,620  
         
      2,298,031  
Deferred expense:
       
Federal
    (194,444 )
State and local
    (28,595 )
         
      (223,039 )
         
Total income tax expense
  $ 2,074,992  
         
 
Unaudited Pro Forma Members’ Equity (Deficit) — If the Company converts from a limited liability company to a corporation, all of the member units outstanding will automatically convert into shares of common stock of CTPartners Executive Search, Inc. at a 1 to 5.269 conversion ratio. Unaudited pro forma stockholders’ equity (deficit), as adjusted for the assumed conversion of the member units is set forth in the following table:
 
                         
    September 30, 2010  
                Pro Forma
 
    As
    Pro Forma
    Stockholders’
 
    Reported     Adjustments     Equity(Deficit)  
 
Members’ equity (deficit)/stockholders’ equity (deficit)
                       
Common stock
  $     $ 6,831     $ 6,831  
Additional paid-in capital
            56,047,478       56,047,478  
Accumulated other comprehensive loss
            (2,275,081 )     (2,275,081 )
Mandatorily redeemable member units
    1,130,861       (1,130,861 )      
Redeemable member units
    54,923,448       (54,923,448 )      
Members’ deficit/accumulated deficit
    (49,596,752 )     (4,099,911 )     (53,696,663 )
                         
Total members’ equity (deficit)/stockholders’ equity (deficit)
  $ 6,457,557     $ (6,374,992 )   $ 82,565  
                         
 
Note 4.   Basic and Diluted Earnings Per Unit
 
Basic and diluted earnings per member unit is presented in conformity with the two-class method. The Class E units contain certain preference items related to income (loss) allocations and distributions. All other member units share in the allocation of income (loss) and distributions equally. Participating member units are allocated their portion of net income (loss) and consist of member units subject to clawback and the mandatorily redeemable member units.


F-28


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 4.   Basic and Diluted Earnings Per Unit (Continued)
 
Income allocated to the unit holders in computing basic income per weighted average member unit is as follows:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net income as reported
  $ 1,574,414     $ 2,365,688     $ 6,797,511     $ 2,384,090  
Less income allocated to other participating units
    50,059       114,523       249,690       114,202  
                                 
Net income used for earnings per share
  $ 1,524,355     $ 2,251,165     $ 6,547,821     $ 2,269,888  
                                 
Class E units
                               
Income
  $ 407,483     $ 475,861     $ 1,756,120     $ 475,850  
Previously allocated losses/(losses)
          478,004             478,004  
Distributions
                       
                                 
    $ 407,483     $ 953,865     $ 1,756,120     $ 953,854  
                                 
All other member units
                               
Income
  $ 1,116,872     $ 1,297,300     $ 4,791,701     $ 1,316,034  
(Losses)
                       
Distributions
                       
                                 
    $ 1,116,872     $ 1,297,300     $ 4,791,701     $ 1,316,034  
                                 
 
Income allocated to the unit holders in computing diluted income per weighted average member unit is as follows:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Net income as reported
  $ 1,574,414     $ 2,365,688     $ 6,797,511     $ 2,384,090  
Less income allocated to other participating units
    47,500       114,523       236,947       114,202  
                                 
Net income used for earnings per share
  $ 1,526,914     $ 2,251,165     $ 6,560,564     $ 2,269,888  
                                 
Class E units
                               
Income
  $ 386,651     $ 475,861     $ 1,666,496     $ 475,850  
Previously allocated losses/(losses)
          478,004             478,004  
Distributions
                       
                                 
    $ 386,651     $ 953,865     $ 1,666,496     $ 953,854  
                                 
All other member units
                               
Income
  $ 1,140,263     $ 1,297,300     $ 4,894,068     $ 1,316,034  
(Losses)
                       
Distributions
                       
                                 
    $ 1,140,263     $ 1,297,300     $ 4,894,068     $ 1,316,034  
                                 


F-29


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 5.   Offering Costs
 
The Company has incurred approximately $1,200,000 in costs related to the Company’s initial public offering during the nine months ended September 30, 2010. These costs are included in Other Assets on the consolidated balance sheet. These costs will be netted against the proceeds of the initial public offering upon consummation.
 
Note 6.   Leasehold Improvements and Equipment
 
The components of the leasehold improvements and equipment as of September 30, 2010 and December 31, 2009 are as follows:
 
                 
    As of
    As of
 
    September 30, 2010     December 31, 2009  
 
Leasehold improvements
  $ 3,569,181     $ 3,522,433  
Office furniture, fixtures, and equipment
    2,212,599       2,201,861  
Computer equipment and software
    3,639,705       3,182,493  
                 
      9,421,485       8,906,787  
Accumulated depreciation and amortization
    (6,051,511 )     (5,192,130 )
                 
    $ 3,369,974     $ 3,714,657  
                 
 
Depreciation and amortization expense for the three and nine months ended September 30, 2010 was $286,119 and $862,414 respectively, and for the three and nine months ended September 30, 2009 was $296,235 and $967,884 respectively.
 
Note 7.   Line of Credit
 
The Company, under the terms of its revolving credit facility, may borrow an amount equal to the lesser of $10 million or the “Borrowing Base” (the Company’s eligible accounts receivable as defined in the Credit Agreement), with interest calculated at 325 basis points above the LIBOR rate as defined in the revolving credit agreement (the adjusted LIBOR rate), which was 0.26% at September 30, 2010. The balance owed under the revolving credit facility at September 30, 2010 and December 31, 2009, was $0 and $4,660,027 respectively. Additionally, the Company had issued letters of credit related to office lease agreements secured by the Credit Agreement in the amount of $3,008,000 as of September 30, 2010 and December 31, 2009. Available borrowings under the revolving credit facility were approximately $10,000,000 at September 30, 2010.
 
Note 8.   Non-Qualified Unit Purchase Plan and Performance Unit Plan
 
The Company maintains a member unit purchase plan and a performance unit plan for the benefit of its officers and key employees. The plans are administered by a committee that has the discretionary authority to issue member units to eligible employees. The member units are valued under both plans in accordance with the Formula Value as defined in the Unit Purchase Agreement, which is a valuation model based on the Company’s 12-month trailing performance. All member units are fully vested upon issuance, but in certain cases units are subject to a clawback provision, which places the obligation on the unit holder to surrender a portion of the member units if their employment with the Company is terminated before a specified period, typically one year.


F-30


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 8.   Non-Qualified Unit Purchase Plan and Performance Unit Plan (Continued)
 
A summary of the status of the Company’s member units subject to clawback provisions for the nine month period ending September 30, 2010, is presented below:
 
                 
          Weighted-
 
          Average
 
          Grant-Date
 
Member Units Subject to Clawback
  Units     Fair Value  
 
Member units subject to clawback at December 31, 2009
    21,985     $ 44.88  
Granted
    6,668       55.80  
Expiration of clawback provisions
    (16,868 )     42.50  
Forfeited
           
                 
Member units subject to clawback at September 30, 2010
    11,785     $ 53.50  
                 
 
As of September 30, 2010, there was approximately $631,000 of unrecognized compensation expense related to member units subject to clawback provisions granted under the plan. This expense is expected to be recognized over a weighted-average period of one year.
 
The total fair value of member units issued during the nine months ended September 30, 2010 and 2009 was $588,302 and $369 respectively. Total compensation expense related to the plan for the three and nine months ended September 30, 2010 was $592,444 and $967,975 respectively. Total compensation expense for the three and nine month period ending September 30, 2009 was $213,356 and $527,797 respectively.
 
The purpose of the performance unit plan is to reward executive performance with any potential increase in the fair value of the Company over the fair value at the date of the performance unit issuance. Units generally vest over a three-year period. The value of a performance unit is limited to the excess value, if any, of the fair value over the value at the date of issue.
 
A summary of the Company’s non-vested performance units for the nine months ended September 30, 2010, is presented below:
 
                 
          Weighted-
 
          Average
 
          Grant-Date
 
Performance Units
  Units     Fair Value  
 
Total non-vested units at December 31, 2009
    100,149     $ 33.26  
Granted
    29,100       30.28  
Vested
    (42,344 )     38.14  
Forfeited
    (200 )     38.21  
                 
Total non-vested units at September 30, 2010
    86,705     $ 35.66  
                 
 
Compensation expense recorded under the plan for the three and nine months ended September 30, 2010 was $522,917 and $1,135,853 respectively. There was no compensation expense recorded under the plan for the three and nine months ended September 30, 2009.


F-31


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 8.   Non-Qualified Unit Purchase Plan and Performance Unit Plan (Continued)
 
The change in fair value of the performance units are summarized as follows:
 
         
Balance at December 31, 2009
  $ 45,033  
Unrealized losses
    306,468  
         
Balance at March 31, 2010
    351,501  
Unrealized losses
    306,468  
         
Balance at June 30, 2010
    657,969  
Unrealized losses
    522,917  
         
Balance at September 30, 2010
  $ 1,180,886  
         
 
Note 9.   Mandatorily Redeemable Member Units and Redeemable Member Units
 
The Company has reflected those member units with mandatory redemption features as a long-term liability and the member units with a redemption option as redeemable member units on its consolidated balances sheets. The change in fair value for those member units with mandatory redemption features are included in compensation and benefits in the consolidated statements of operations. The change in fair value for the member units with a redemption option are included as a component of members’ equity (deficit).
 
As of September 30, 2010 and December 31, 2009, the liability for mandatorily redeemable member units was $1,130,861 and $628,810 respectively. The expense included in compensation and benefits in the consolidated statements of operations for the three and nine months period ended September 30, 2010 was $104,978 and $502,051 respectively. The credit for the three and nine month periods ended September 30, 2009 was ($24,864) and ($273,106) respectively.
 
The change in fair value of the mandatorily redeemable member units are summarized as follows:
 
         
Balance at December 31, 2009
  $ 628,810  
Unrealized losses
    198,536  
         
Balance at March 31, 2010
    827,346  
Unrealized losses
    198,537  
         
Balance at June 30, 2010
    1,025,883  
Unrealized losses
    104,978  
         
Balance at September 30, 2010
  $ 1,130,861  
         
 
As of September 30, 2010 and December 31, 2009, the fair value of the redeemable member units was $54,923,448 and $30,937,827 respectively. The increase in the fair value, included as a component of members’ equity (deficit), for the three and nine months ended September 30, 2010 was $5,582,019 and $23,985,621 respectively. The decrease in the fair value for the three and nine months ended September 30, 2009 was $(10,666) and $(12,686,434) respectively.
 
Note 10.   Defined Benefit Cash Balance Plan
 
The Company fully funded its defined benefit cash balance plan during the nine months ended September 30, 2010. Total contributions to the plan were $720,000 for the nine months ended September 30, 2010. The Company did not make any contributions for the nine months ended September 30, 2009.


F-32


Table of Contents

 
CTPARTNERS EXECUTIVE SEARCH LLC AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 11.   Enterprise Geographic Concentrations
 
The Company operates in three principal geographic regions: the Americas, Europe and Asia Pacific. The revenue, operating income (loss), depreciation and amortization, and capital expenditures, by region, for the three and nine months period ended September 30, 2010 and 2009 are as follows:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Revenue:
                               
Americas
  $ 21,258,130     $ 13,681,003     $ 56,003,864     $ 34,815,339  
Europe
    6,047,388       4,040,149       20,246,157       11,797,090  
Asia Pacific
    3,125,644       1,960,292       9,760,857       3,958,955  
                                 
Net revenue before reimbursements
    30,431,162       19,681,444       86,010,878       50,571,384  
Reimbursements
    970,256       646,643       2,806,587       1,966,539  
                                 
Total regions
  $ 31,401,418     $ 20,328,087     $ 88,817,465     $ 52,537,923  
                                 
Operating income (loss):
                               
Americas
  $ 1,044,397     $ 3,598,133     $ 4,551,923     $ 5,004,987  
Europe
    (265,632 )     (543,200 )     699,972       (998,992 )
Asia Pacific
    677,984       (373,619 )     1,789,375       (853,494 )
                                 
Total
  $ 1,456,749     $ 2,681,314     $ 7,041,270     $ 3,152,501  
                                 
Depreciation and amortization:
                               
Americas
  $ 167,154     $ 192,795     $ 503,620     $ 650,952  
Europe
    91,848       89,447       281,863       271,832  
Asia Pacific
    27,117       13,993       76,931       45,100  
                                 
Total
  $ 286,119     $ 296,235     $ 862,414     $ 967,884  
                                 
Capital expenditures:
                               
Americas
  $ 250,127     $     $ 315,535     $ 66,668  
Europe
    98,535             105,247        
Asia Pacific
                119,769        
                                 
Total
  $ 348,662     $     $ 540,551     $ 66,668  
                                 
 
Identifiable assets by geographic concentrations are as follows:
 
                 
    September 30,
    December 31,
 
    2010     2009  
 
Identifiable assets:
               
Americas
  $ 25,183,970     $ 14,763,726  
Europe
    13,446,465       10,309,723  
Asia Pacific
    8,195,394       2,802,651  
                 
Total regions
  $ 46,825,829     $ 27,876,100  
                 


F-33


Table of Contents

Note 11.   Enterprise Geographic Concentrations (Continued)
 
 
 
2,307,692 Shares of Common Stock
 
(CTPARTNERS EXECUTIVE SEARCH INC LOGO)
 
 
Prospectus
Dated          , 2010
 
 
William Blair & Company C.L. King & Associates
 
 
Through and including          , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
 
 


Table of Contents

PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.   Other Expenses of Issuance and Distribution.
 
The following table sets forth all expenses other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee.
 
         
Securities and Exchange Commission Registration Fee
  $ 2,460  
Financial Industry Regulatory Authority Filing Fee
    3,950  
NYSE Amex Equities stock exchange Listing Fee
    50,000  
Legal Fees and Expenses
    300,000  
Printing Expenses
    90,000  
Blue Sky Fees
    7,500  
Transfer Agent Fees
    15,000  
Accounting Fees and Expenses
    775,000  
Miscellaneous
    360,000  
         
Total
  $ 1,603,910 (1)
         
 
 
(1) Approximately $1.2 million of such expenses have been paid prior to the effectiveness of this registration statement.
 
All expenses (other than underwriting discounts and commissions) will be borne by the Company in connection with the sale of the common stock being registered.
 
ITEM 14.   Indemnification of Officers and Directors
 
Section 145(a) of the Delaware General Corporation Law (“DGCL”) provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
 
Section 145(b) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue, or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other adjudicating court shall deem proper.


II-1


Table of Contents

Section 145(e) of the DGCL provides that expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized by Section 145 of the DGCL.
 
Section 145(e) of the DGCL further provides that such expenses (including attorneys’ fees) incurred by former directors and officers or other employees or agents of the corporation may be so paid upon such terms and conditions as the corporation deems appropriate.
 
Section 145(g) of the DGCL provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the DGCL.
 
Our bylaws that will be in effect upon the completion of this offering will provide that we will indemnify, to the fullest extent permitted by the DGCL, any person who was or is made or is threatened to be made a party or is involved in any actual or threatened action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was one of our directors or officers or, while serving as one of our directors or officers, is or was serving at our request as a director, officer, employee, or agent of another corporation or of another entity, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such person, subject to limited exceptions relating to indemnity in connection with a proceeding (or part thereof) initiated by such person. Our bylaws that will be in effect upon completion of this offering will further provide for the advancement of expenses to each of our officers and directors.
 
Our certificate of incorporation that will be in effect upon completion of this offering will provide that, to the fullest extent permitted by the DGCL, as the same exists or may be amended from time to time, our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Under Section 102(b)(7) of the DGCL, the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty can be limited or eliminated except:
 
  •  for any breach of the director’s duty of loyalty to the corporation or its stockholders;
 
  •  for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
 
  •  under Section 174 of the DGCL (relating to unlawful payment of dividend or unlawful stock purchase or redemption); or
 
  •  for any transaction from which the director derived an improper personal benefit.
 
We also intend to maintain a general liability insurance policy which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers, whether or not we would have the power to indemnify such person against such liability under the DGCL or the provisions of our certificate of incorporation or bylaws.
 
In connection with the sale of common stock being registered hereby, we intend to enter into indemnification agreements with each of our directors and our executive officers. These agreements will provide that we will indemnify each of our directors and such officers to the fullest extent permitted by law and by our certificate of incorporation or bylaws.


II-2


Table of Contents

In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us, within the meaning of the Securities Act, against certain liabilities.
 
ITEM 15.   Recent Sales of Unregistered Securities
 
The following sets forth information regarding all unregistered securities sold since July 1, 2007:
 
  1.      On January 1, 2007, we issued an aggregate of 25,000 performance units to executive search consultants pursuant to our performance unit plan, which was terminated prior to the effectiveness of this registration statement. The performance unit plan worked much like a stock appreciation rights plan, in that units were granted to participants with a value equal to the value of our member units at the date of grant and were cashed out at a price equal to the spread between the value of CT Partners Executive Search LLC’s member units at the time of exercise and their date of grant value.
 
          Therefore, the participant only received the increase in value from the date of grant to the date of purchase. The grants made in 2007 were made with a grant price of $38.21 per member unit. These grants were made in connection with the employment of certain executive search consultants and we received no consideration in connection therewith. The grants were exempt from registration pursuant to Rule 701 under the Securities Act or pursuant to Section 4(2) under the Securities Act.
 
  2.   On January 1, 2008, we issued an aggregate of 35,850 performance units to executive search consultants pursuant to our performance unit plan, which was terminated prior to the effectiveness of this registration statement. The grants made in 2008 were made with a grant price of $53.60 per member unit. These grants were made in connection with the employment of certain executive search consultants and we received no consideration in connection therewith. The grants were exempt from registration pursuant to Rule 701 under the Securities Act or pursuant to Section 4(2) under the Securities Act.
 
  3.   On July 1, 2009, we issued an aggregate of 71,830 performance units to executive search consultants pursuant to our performance unit plan, which was terminated prior to the effectiveness of this registration statement. These grants were made in connection with the employment of certain executive search consultants and we received no consideration in connection therewith. The grants made in 2009 were made with a grant price of $35.00 per member unit. The grants were exempt from registration pursuant to Rule 701 under the Securities Act or pursuant to Section 4(2) under the Securities Act.
 
  4.   On March 1, 2010, we issued an aggregate of 29,100 performance units to executive search consultants pursuant to our performance unit plan, which was terminated prior to the effectiveness of this registration statement. The grants made in 2010 were made with a grant price of $30.28 per member unit. These grants were made in connection with the employment of certain executive search consultants and we received no consideration in connection therewith. The grants were exempt from registration pursuant to Rule 701 under the Securities Act or pursuant to Section 4(2) under the Securities Act.
 
  5.   On August 1, 2010, we granted an executive search consultant 20,000 member units, 6,668 of which vested immediately with the remaining vesting on the first and second anniversary of the date of grant. The grant was made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  6.   On August 2, 2010, we granted an executive search consultant 2,000 member units, which vest on the first, second and third anniversary of the date of grant. The grant was made as part of an offer of employment for an executive search consultant. This grant was exempt from


II-3


Table of Contents

registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  7.   On August 3, 2010, we granted an executive search consultant 1,700 member units, which vest on the first, second and third anniversary of the date of grant. The grant was made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  8.   On April 1, 2010, we granted an executive search consultant 3,000 member units. The units are subject to a three-year clawback and were made as part of renegotiating the compensation package for one of our executive search consultants. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  9.   On April 1, 2010, we granted an executive search consultant 9,500 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  10.   On January 18, 2010, we granted an executive search consultant 1,500 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  11.   On January 6, 2010, we granted an executive search consultant 1,000 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  12.   On September 9, 2009, we granted an executive search consultant 3,000 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  13.  On July 20, 2009, we granted an executive search consultant 3,000 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  14.  On July 20, 2009, we granted an executive search consultant 3,500 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  15.  On May 28, 2009, we granted an executive search consultant 5,000 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.


II-4


Table of Contents

 
  16.  On May 11, 2009, we granted an executive search consultant 2,500 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  17.  On June 16, 2008, we entered into identical convertible promissory notes with certain of the executive search consultants of CT Partners Executive Search LLC, pursuant to which we raised $2.7 million. The notes paid interest at a fixed rate of 5% per year. The notes can be prepaid at any time, provided that the holder of the note has the right to convert the note to equity in the event that we give notice of our intent to prepay. The convertible notes were issued to accredited investors pursuant to Regulation D under the Securities Act.
 
  18.  On October 1, 2008, we granted an executive search consultant 2,750 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
  19.  On July 1, 2008, we granted an executive search consultant 3,500 member units. The units are subject to a three-year clawback and were made as part of an offer of employment for an executive search consultant. This grant was exempt from registration under Section 4(2) of the Securities Act, as a sale not involving a public offering, or pursuant to Rule 701 under the Securities Act.
 
ITEM 16.   Exhibits
 
         
Exhibit
   
No.
 
Description of Document
 
  1 .1   Form of Underwriting Agreement**
  2 .1   Form of Plan of Conversion of CTPartners Executive Search LLC into CTPartners Executive Search Inc.**
  3 .1   Form of Certificate of Incorporation of CTPartners Executive Search Inc., to be in effect upon completion of the offering†
  3 .2   Form of Bylaws of CTPartners Executive Search Inc., to be in effect upon completion of the offering†
  4 .1   Form of CTPartners Executive Search Inc. Common Stock Certificate*
  5 .1   Opinion of Ulmer & Berne LLP*
  10 .1   Form of Indemnification Agreement, by and between CTPartners Executive Search Inc. and each of its Directors and Executive Officers†
  10 .2   Employment Agreement with Brian M. Sullivan dated September 1, 2010**
  10 .3   Employment Agreement with David C. Nocifora dated September 1, 2010**
  10 .4.   Form of 2010 equity incentive plan of CTPartners Executive Search Inc. to be in effect upon effectiveness of conversion**
  10 .5   Amended and Restated Credit and Security Agreement by and between JPMorgan Chase Bank, NA and Christian & Timbers LLC dated October 17, 2006*
  10 .6   Revised Letter of Agreement (Affiliation and License Agreement) between CTPartners Executive Search LLC and HS Andean Holding Corporation dated April 26, 2007†
  10 .7   Form of Convertible Promissory Note of CTPartners Executive Search LLC†
  10 .8   Form of Note Prepayment and Conversion Agreement†
  16     Letter re Change in Certifying Accountant†
  21     List of Subsidiaries**
  23 .1   Consent of Ulmer & Berne LLP (included in Exhibit 5.01)*
  23 .2   Consent of Independent Registered Public Accounting Firm, McGladrey & Pullen, LLP**
  99 .1   Consent of Director Designee, Scott M. Birnbaum†
  99 .2   Consent of Director Designee, Michael C. Feiner†


II-5


Table of Contents

         
Exhibit
   
No.
 
Description of Document
 
  99 .3   Consent of Director Designee, Thomas R. Testwuide, Sr.†
  99 .4   Consent of Director Designee, Betsy L. Morgan**
 
 
†   previously filed
*   To be filed by amendment.
**   filed herewith
 
ITEM 17.   Undertakings
 
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
 
The undersigned hereby undertakes as follows:
 
  •  For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective; and
 
  •  For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6


Table of Contents

SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, as amended, CTPartners Executive Search LLC has duly caused this Amendment No. 3 to the registrant’s registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Cleveland, Ohio on November 16, 2010.
 
CTPartners Executive Search LLC
 
  By: 
/s/  David C. Nocifora
Name:     David C. Nocifora
Title:     Chief Operating and Chief Financial Officer
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated below.
 
             
Name
 
Title
 
Date
 
         
/s/  Brian M. Sullivan

Brian M. Sullivan
  Chief Executive Officer and Member of
the Board of Managers
(Principal Executive Officer)
  November 16, 2010
         
/s/  David C. Nocifora

David C. Nocifora
  Chief Operating and Chief Financial
Officer and Member of the Board of Managers (Principal Accounting Officer)
  November 16, 2010


II-7


Table of Contents

EXHIBIT INDEX
 
         
Exhibit
   
No.
 
Description of Document
 
  1 .1   Form of Underwriting Agreement**
  2 .1   Form of Plan of Conversion of CTPartners Executive Search LLC into CTPartners Executive Search Inc.**
  3 .1   Form of Certificate of Incorporation of CTPartners Executive Search Inc., to be in effect upon completion of the offering†
  3 .2   Form of Bylaws of CTPartners Executive Search Inc., to be in effect upon completion of the offering†
  4 .1   Form of CTPartners Executive Search Inc. Common Stock Certificate*
  5 .1   Opinion of Ulmer & Berne LLP*
  10 .1   Form of Indemnification Agreement, by and between CTPartners Executive Search Inc. and each of its Directors and Executive Officers†
  10 .2   Employment Agreement with Brian M. Sullivan dated September 1, 2010**
  10 .3   Employment Agreement with David C. Nocifora dated September 1, 2010**
  10 .4.   Form of 2010 equity incentive plan of CTPartners Executive Search Inc. to be in effect upon effectiveness of conversion**
  10 .5   Amended and Restated Credit and Security Agreement by and between JPMorgan Chase Bank, NA and Christian & Timbers LLC dated October 17, 2006*
  10 .6   Revised Letter of Agreement (Affiliation and License Agreement) between CTPartners Executive Search LLC and HS Andean Holding Corporation dated April 26, 2007†
  10 .7   Form of Convertible Promissory Note of CTPartners Executive Search LLC†
  10 .8   Form of Note Prepayment and Conversion Agreement†
  16     Letter re Change in Certifying Accountant†
  21     List of Subsidiaries**
  23 .1   Consent of Ulmer & Berne LLP (included in Exhibit 5.01)*
  23 .2   Consent of Independent Registered Public Accounting Firm, McGladrey & Pullen, LLP**
  99 .1   Consent of Director Designee, Scott M. Birnbaum†
  99 .2   Consent of Director Designee, Michael C. Feiner†
  99 .3   Consent of Director Designee, Thomas R. Testwuide, Sr.†
  99 .4   Consent of Director Designee, Betsy L. Morgan**
 
 
†   previously filed
*   To be filed by amendment.
**   filed herewith


S-1