1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 5, 2000
-----------------
FUTURELINK CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-24833 95-4763404
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2 South Pointe Drive, Lake Forest, CA 92630
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 672-3000
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
2
ITEM 5. OTHER EVENTS
We are filing this Current Report on Form 8-K to report certain recent
developments affecting our business. We are describing these developments on
this Form 8-K to enable us to incorporate the following disclosures by reference
for purposes of registration statements filed under the Securities Act of 1933
(the "Securities Act") on Form S-3. We have previously disclosed, either through
press releases or through documents filed under the Securities Act, information
relating to the following topics.
CHANGES IN MANAGEMENT
In December 2000, Glen Holmes resigned as our President and Chief
Operating Officer. He continues to serve as a member of our Board of Directors.
In addition, Philip Ladouceur resigned as our Chief Executive Officer in
December 2000. Mr. Ladouceur continues to serve as our Executive Chairman and a
member of our Board of Directors.
In December 2000, we appointed Howard E. Taylor as our President and
Chief Executive Officer and entered into an employment agreement with him. Under
the employment agreement, Mr. Taylor is to receive an annual base salary of
$325,000 and a discretionary annual performance bonus of up to $250,000 in cash.
We granted to Mr. Taylor a performance-based option to purchase 200,000 shares
of our common stock at an exercise price of $0.81 per share. This option will
vest at the end of one year if Mr. Taylor meets the pre-determined milestones
established by our Board of Directors. If the milestones are not met, the option
will vest on January 1, 2004. In addition, we granted to Mr. Taylor an option to
acquire 2,500,000 shares of our common stock at an exercise price of $0.81 per
share. Two million of the shares vest in eight quarterly increments of 250,000
shares each, commencing on January 1, 2001. The remaining 500,000 shares will
vest on January 1, 2003. Mr. Taylor's employment agreement is an at-will
agreement and either party may terminate the agreement at any time. In
connection with his employment agreement, Mr. Taylor is entitled to receive a
signing bonus of $650,000. The signing bonus is payable in two installments of
$325,000, the first installment was paid in January 2001 and the second
installment is due in April 2001. If Mr. Taylor voluntarily terminates his
employment during the first 12 months of his employment, Mr. Taylor will be
required to repay to us a portion of the signing bonus on a pro rata basis for
each month which remains in the initial 12-month period. If we terminate Mr.
Taylor's employment within the first two years of his employment term without
just cause, we must pay him an amount equal to six month's salary, one-half of
his annual performance bonus and six month's insurance premium contributions
paid on his behalf. If we terminate Mr. Taylor's employment after the first two
years of his employment term without just cause, we must pay him an amount equal
to three month's salary, one-quarter of his annual performance bonus and three
month's insurance premium contributions paid on his behalf. In addition, if at
any time we terminate Mr. Taylor's employment without just cause, we must cause
any of Mr. Taylor's unvested stock options that are scheduled to vest within 12
months of the date of his termination to immediately accelerate and become
exercisable for three months from the date of his termination. Mr. Taylor's
employment agreement also provides that if there is a change in our control, and
Mr. Taylor is terminated without just cause within six months of such a change
in control, or his level of responsibility or compensation is reduced and he
elects within six months of such change in control to treat his employment as
terminated, in each such case we must cause all of his unvested stock options to
immediately accelerate and become exercisable for three months from the date of
his termination.
2
3
Before joining FutureLink, Mr. Taylor was a venture operating partner at
Pequot Capital Management, Inc. from September 2000 to November 2000. Pequot
Capital Management is one of our largest shareholders. From June 1999 to
September 2000, Mr. Taylor served as Chairman and Chief Executive Officer of
OnSite Access, Inc., a building-centric communications company. From November
1996 to June 1999, he served as President and Chief Operating Officer of WinStar
Broadband Services, a business unit of WinStar Communications. From September
1994 to November 1996, Mr. Taylor served as President of the Customer Business
Group of Southern New England Telephone.
In December 2000, Raghu Kilambi resigned from his positions as
Executive Vice President, Chief Financial Officer and as a director, and we
appointed Richard M. White to serve as our Executive Vice President and Chief
Financial Officer. Mr. White has served in various senior executive positions
with us since January 2000. We have an employment agreement with Mr. White which
provides for an annual base salary of $200,000, and the opportunity to earn an
annual performance bonus of up to $100,000. The agreement provides for the
payment to Mr. White of up to $39,200 for expenses incurred by Mr. White in
relocating from Canada to California. Our employment agreement with Mr. White is
an at-will agreement which either party can terminate at any time. If we
terminate Mr. White's employment without just cause or if we change his level of
responsibility and he elects to terminate after such change, we must pay him an
amount equal to twelve months' base salary, his most recent performance bonus,
plus certain insurance premium contributions paid on his behalf, provide him
with up to $10,000 in relocation and financial consulting services or, at his
option, pay him $10,000, and reimburse him up to $39,200 for expenses incurred
by Mr. White in relocating back to Canada. Mr. White's employment agreement also
provides that if there is a change in our control, and Mr. White is terminated
without just cause within six months of such a change in control, or his level
of responsibility or compensation is reduced and he elects within six months of
such change in control to treat his employment as terminated, we must cause his
unvested stock options to immediately accelerate and become exercisable for
three months from the date of his termination.
In December 2000, we appointed Marshall S. Geller as a director. Since
1995, Mr. Geller has been the Chairman, Chief Executive Officer and Founding
Partner of Geller & Friend Capital Partners, Inc. and Brighton Venture Partners,
two venture capital firms. From February 1991 to October 1995, Mr. Geller served
as Senior Managing Partner of Golenberg & Geller, Inc., a merchant banking
investment company which he founded. From April 1988 to December 1990, he was
Vice Chairman of Gruntal & Company, a New York Stock Exchange investment banking
firm. From July 1967 to March 1988, Mr. Geller served as Senior Managing
Director of Bear, Stearns & Co. Inc. Mr. Geller currently serves as a director
of ValueVision International, Inc., Ballantyne of Omaha, Inc. and Cabeltel
Communications Corporation.
3
4
FACILITIES
In September 2000, we moved our headquarters to a 77,326 square foot
facility which we lease in Lake Forest, California. In October 2000, we closed
our offices in Los Angeles, California; Atlanta, Georgia; Ft. Lauderdale,
Florida; Chantilly, Virginia; Las Vegas, Nevada and Durham, North Carolina. We
have no further obligations under our leases in Chantilly, Virginia and Durham,
North Carolina and have subleased our Las Vegas facility to a third party. We
plan to sublease the other closed facilities to third parties until the leases
expire.
LEGAL PROCEEDINGS
Cameron Chell, our former Chief Executive Officer and a co-defendant in
the lawsuit filed by Michael Chan in the Court of Queen's Bench of Alberta,
Judicial District of Calgary, has filed a claim against us, seeking
indemnification with respect to Mr. Chan's claims. Mr. Chan's suit alleges that
FutureLink Alberta breached its contract to deliver him options to purchase
250,000 Class "A" common shares of FutureLink Alberta at $1.00 per share. Mr.
Chan seeks 50,000 shares of our common stock or, alternatively, damages of
approximately $1.5 million in cash, general damages of approximately $200,000
and punitive damages of approximately $200,000. We have filed a Statement of
Defense in this action refuting Mr. Chan's claims.
REALIGNMENT STRATEGY AND COST-SAVINGS MEASURES
In October 2000, consistent with our plan to integrate our recently
acquired companies and achieve more efficient operations, we closed 6 branch
offices and eliminated an aggregate of 75 positions company-wide through a
combination of reduction in force and attrition. In January 2001, we announced a
corporate realignment plan designed to reduce operational costs and increase
profitability by focusing on our core business of offering a full range of
professional computing services while at the same time continuing to pursue our
ASP business. As part of this realignment plan, in January 2001 we reduced our
660 person work force by approximately 8%. We are continuing to evaluate all
aspects of our operations with a view to reducing our operating losses. This may
include the elimination of certain unprofitable lines of business, further staff
and overhead reductions and the curtailment of further expansion of our ASP
business and infrastructure until such time as ASP services become more readily
accepted by the market. We are also refocusing our efforts to improve our
margins in our professional computing services business. We believe that, even
with our cost-savings and realignment strategy, our available cash, cash
equivalents and available borrowings under our lease and bank credit facilities
may not be sufficient to meet our anticipated cash needs to fund our operating
losses, working capital and capital expenditures through 2001 unless we are
successful in raising additional financing and continuing to reduce our
operating losses.
FINANCING ACTIVITIES
In November 2000, we entered into a loan and security agreement with a
financial institution relating to a revolving credit facility that allows
borrowings of up to a maximum of $25 million, which may be increased to $30
million at our option subject to payment of additional fees and the satisfaction
of other conditions. The amount that we are permitted to borrow at any given
time will vary based upon a percentage of our eligible accounts receivable and
other factors as described in the loan and security agreement. In addition,
there are limits as to how much we can borrow against various categories of
accounts receivable. For example, the most we can borrow against our Canadian
subsidiary accounts receivable is $10 million. The percentage of our accounts
receivable against which we can borrow may be reduced if the amount of bad debt
write-downs, advertising allowances, credits, or similar reductions of our
accounts receivable exceed 5% of the applicable category of accounts receivable
used for purposes of determining the maximum borrowing amount. If at any time
the amount we owe under the credit facility exceeds the borrowing limits under
the facility, we may immediately be required to repay in cash the amount of such
excess. The credit facility is secured by
4
5
substantially all of our assets, the receivables and other assets of some of our
subsidiaries, and by guarantees and a pledge of a percentage of the shares of
those subsidiaries. The credit facility has an initial term of three years, and
will automatically be renewed for successive one-year terms, unless it is
terminated sooner. We can terminate the facility at any time upon 90 days prior
notice, but if we terminate the credit facility during the first three years, we
will be required to pay a prepayment penalty. The credit facility bears interest
at prime or prime plus 1.5% per annum, depending on the amount of our available
unrestricted cash from time to time; however, at no time will the interest rate
charged by the lender be less than 8% per annum. The credit facility contains
certain financial and other covenants and restrictions, including the
maintenance of a minimum tangible net worth, limitations on capital expenditures
and the incurrence of indebtedness and restrictions on the payment of dividends.
The terms of the $25 million credit facility also require us to follow cash
management procedures. Specifically, we are required to establish and maintain
cash management bank accounts in the lender's name, into which our collections
on accounts receivable will be deposited. So long as we are not in default under
the credit facility and our aggregate cash balances are at least $10 million, we
may transfer funds from the cash management accounts to our operating accounts.
If we default under the credit facility, or if our aggregate cash balances fall
below $10 million, all amounts in the cash management bank accounts will be
forwarded by daily sweep to the lender's account. After paying any amounts due
to itself, the lender must remit the remaining balance to us.
In December 2000, our UK subsidiaries entered into a loan agreement with
the same financial institution relating to a revolving credit facility for up to
$5 million. Any amount we borrow under the UK facility will reduce the available
amount we can borrow under our $25 million credit facility. The UK credit
facility is secured by substantially all of the assets of our UK subsidiaries
and by guarantees by us and some of our subsidiaries. The terms of the UK credit
facility are substantially the same as the $25 million credit facility.
As of January 31, 2001, we have borrowed $10.6 million under the $25
million credit facility, which includes borrowings of $1.6 million under the UK
credit facility, leaving the available amount we could borrow under the credit
facility at $2.6 million. A portion of the funds we borrowed were used to
refinance $4.4 million of outstanding indebtedness under our prior credit
facility, which allowed borrowings of up to $10 million. The balance will be
used to provide the necessary funds for working capital, including the funding
of hardware and software purchases related to the performance of our
server-based computing services. As of February 9, 2001, as a condition to
granting us a waiver of certain financial covenants under the $25 million credit
facility for the months of December 2000 and January 2001, our lender suspended
our ability to borrow against our Canadian subsidiary accounts receivable.
In connection with entering into the new $25 million credit facility, we
granted the lender a warrant to purchase 100,000 shares of our common stock at
an exercise price of $8.40 per share, with related registration rights.
5
6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FUTURELINK CORP.
Date: February 9, 2001 By: /s/ HOWARD E. TAYLOR
-------------------------------
Howard E. Taylor, President
6