-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ct4SRUILaCQaNclffJzciNSDKjDRc3U4ch60Axc4EKvLggmUNJpeFJj8k4c+yz+Y wmM1EFwVDWB/6cShlWWWyA== 0001047469-99-031474.txt : 19990813 0001047469-99-031474.hdr.sgml : 19990813 ACCESSION NUMBER: 0001047469-99-031474 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UTILX CORP CENTRAL INDEX KEY: 0000821361 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 911171716 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16821 FILM NUMBER: 99686113 BUSINESS ADDRESS: STREET 1: 22820 RUSSELL ROAD STREET 2: P O BOX 97009 CITY: KENT STATE: WA ZIP: 98064-9709 BUSINESS PHONE: 2353950200 MAIL ADDRESS: STREET 1: 22820 RUSSELL ROAD STREET 2: P O BOX 97009 CITY: KENT STATE: WA ZIP: 98064-9709 FORMER COMPANY: FORMER CONFORMED NAME: FLOWMOLE CORP DATE OF NAME CHANGE: 19910609 10-Q 1 FORM 10-Q =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________TO ________________ COMMISSION FILE NUMBER 0-16821 UTILX CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 91-1171716 (State of Incorporation) (I.R.S. Employer Identification Number) 22820 RUSSELL ROAD (98032) P. O. BOX 97009 KENT, WASHINGTON 98064-9709 (253) 395-0200 (Address of Principal Executive Offices) (Registrant's Telephone Number) Indicate by check mark whether the Registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes X No --- --- As of June 30, 1999, 7,431,560, shares of Common Stock were outstanding. =============================================================================== TABLE OF CONTENTS
ITEM PAGE ---- ---- PART I FINANCIAL INFORMATION 1. Financial Statements Consolidated Balance Sheet June 30, 1999 and March 31, 1999............................................................ 3 Consolidated Statement of Operations For the Three Months Ended June 30, 1999 and 1998...................................................................... 4 Consolidated Statement of Cash Flows For the Three months Ended June 30, 1999 and 1998...................................................................... 5 Notes to Consolidated Financial Statements.................................................. 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 9 3. Quantitative and Qualitative Disclosure About Market Risks.................................. 14 PART II OTHER INFORMATION 1. Legal Proceedings........................................................................... 14 2. Changes in Securities and Use of Proceeds................................................... 14 3. Defaults Upon Senior Securities............................................................. 14 4. Submission of Matters to a Vote of Security Holders......................................... 14 5. Other Information........................................................................... 14 6. Exhibits and Reports on Form 8-K............................................................ 14 Signatures.................................................................................. 15 Exhibit Index
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UTILX CORPORATION CONSOLIDATED BALANCE SHEET JUNE 30 AND MARCH 31, 1999 (IN THOUSANDS, EXCEPT SHARES) ASSETS
JUNE 30 MARCH 31 ------- -------- (UNAUDITED) Current assets: Cash and cash equivalents............................................. $ 1,126 $ 1,580 Accounts receivable, net.............................................. 19,344 16,301 Materials, supplies and inventories................................... 6,535 6,941 Income taxes receivable............................................... 192 191 Prepaid expenses and other............................................ 515 533 --------- -------- Total current assets ............................................. 27,712 25,546 Equipment and improvements, net............................................ 11,804 12,678 Other assets, net.......................................................... 288 351 --------- --------- Total assets ..................................................... $ 39,804 $ 38,575 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable to bank.................................................. $ 5,650 $ 5,538 Current portion of capital lease obligations.......................... 840 1,135 Accounts payable...................................................... 3,780 5,038 Accrued liabilities................................................... 7,705 5,573 --------- --------- Total current liabilities......................................... 17,975 17,284 Capital lease obligations, net of current portion.......................... 2,212 2,210 Other long term liabilities................................................ 946 972 --------- --------- Total liabilities................................................. 21,133 20,466 --------- --------- Commitments and Contingencies: Stockholders' equity: Common Stock, $0.01 par value (authorized 25,000,000 shares, 7,431,560 and 7,425,650 shares issued and outstanding, respectively).......................... 74 74 Additional paid-in capital............................................ 18,536 18,521 Retained earnings..................................................... 675 112 Cumulative foreign currency translation adjustment.................... (614) (598) ---------- ---------- Total stockholders' equity........................................ 18,671 18,109 ---------- --------- Total liabilities and stockholders' equity................... $ 39,804 $ 38,575 ========== =========
(See Notes to Consolidated Financial Statements) 3 UTILX CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
1999 1998 ---- ---- Revenues...................................................................... $ 23,375 $ 22,024 Cost of revenues.............................................................. 20,075 19,447 --------- --------- Gross profit............................................................. 3,300 2,577 --------- --------- Operating expenses: Selling, general and administrative...................................... 2,411 2,271 Research and Engineering................................................. 188 147 --------- --------- Total operating expenses............................................. 2,599 2,418 --------- --------- Operating income (loss) ...................................................... 701 159 Other expense, net............................................................ 138 135 --------- --------- Income (loss) before income taxes............................................. 563 24 Income tax provision.......................................................... 0 8 --------- --------- Net income (loss)............................................................. $ 563 $ 16 ========= ======== Earnings( loss) per share: Basic.................................................................... $ .08 $ .00 Diluted.................................................................. $ .07 $ .00 CALCULATION OF COMPREHENSIVE INCOME (LOSS): Net income (loss)........................................................ $ 563 $ 16 Change in cumulative foreign currency translation adjustment, net...................................... (16) (7) --------- --------- Comprehensive income (loss).............................................. $ 547 $ 9 ========= =========
(See Notes to Consolidated Financial Statements) 4 UTILX CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (IN THOUSANDS) (UNAUDITED)
1999 1998 ---- ---- OPERATING ACTIVITIES: Net income (loss)........................................................ $ 563 $ 16 Adjustments to reconcile to net cash provided by (used in) operating activities: Depreciation and amortization........................................ 1,088 1,114 (Gain)/loss on sale of equipment..................................... (6) Changes in assets and liabilities.................................... (3,196) 1,488 ---------- --------- Total adjustments.................................................... (2,114) 2,602 ---------- --------- Net cash provided by (used in) operating activities............. (1,551) 2,618 ---------- --------- INVESTING ACTIVITIES: Cost of additions to equipment........................................... (248) (1,130) Proceeds from sale of equipment.......................................... 23 24 --------- --------- Net cash provided by (used in) investing activities............. (225) (1,106) ---------- ---------- FINANCING ACTIVITIES: Net borrowings on note payable........................................... 112 80 Issuance of Common Stock................................................. 15 14 Net increase (decrease) in book overdraft................................ 1,494 (1,213) Principal payments on capital leases..................................... (294) (219) ---------- ---------- Net cash provided by (used in) financing activities............. 1,327 (1,338) --------- ---------- EFFECT ON CASH FLOWS OF CHANGES IN EXCHANGE RATES............................................... (5) 0 ---------- --------- Net increase (decrease) in cash and cash equivalents..................... (454) 174 CASH AND CASH EQUIVALENTS: Beginning of period...................................................... 1,580 528 --------- --------- End of period............................................................ $ 1,126 $ 702 ========= =========
(See Notes to Consolidated Financial Statements) 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. FINANCIAL STATEMENT PRESENTATION In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position and operating results for the three month period ended June 30, 1999 and 1998. The statements should be read in conjunction with the March 31, 1999 audited consolidated financial statements included in the fiscal 1999 Annual Report on Form 10-K. 2. EARNINGS PER SHARE Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of Common Stock of UTILX Corporation, $0.01 par value per share (the "Common Stock") outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of shares of Common Stock and, when dilutive, common stock equivalents outstanding during the period. Common stock equivalents include shares issuable upon exercise of the Company's stock options and certain warrants, net of the number of shares repurchasable on the open market with proceeds from the exercise of such options and warrants. Earnings (loss) per share is calculated as follows: Basic earnings (loss) per common share:
Three Months Ended ---------------------- June 30, -------- 1999 1998 ---- ---- Net income (loss)................................. $ 563 $ 16 ====== ====== Divided by weighted average common 7,428 7,408 ====== ====== shares outstanding ............................... Basic earnings (loss) per common share............ $ .08 $ .00 ====== ======
Diluted earnings (loss) per common share:
Three Months Ended ---------------------- June 30, -------- 1999 1998 ---- ---- Net income (loss) .................................. $ 563 $ 16 ====== ====== Weighted average common shares outstanding........... 7,428 7,408 Stock options and warrants assumed exercised - net, if dilutive................ 108 181 ------ ------ Total diluted shares outstanding .................... 7,536 7,589 ====== ====== Diluted earnings (loss) per common share............. $ .07 $ .00 ====== ======
6 3. ACCOUNTS RECEIVABLE Accounts receivable, net consist of the following:
(In Thousands) June 30, 1999 March 31, 1999 ------------- -------------- North American Customers: Work Completed but not billed........................ $ 9,225 $ 5,825 Billed but uncollected............................... 9,228 9,332 International customers............................. 1,201 2,652 Less allowance for doubtful accounts................. (310) ( 1,508) ------- --------- $19,344 $16,301 ======= =========
4. MATERIALS, SUPPLIES AND INVENTORIES Materials, supplies and inventories consist of the following:
(In Thousands) June 30, 1999 March 31, 1999 ------------- -------------- Raw materials and spare parts........................ $ 7,330 $ 8,377 Work in process...................................... 73 26 Less allowance for obsolete or overstocked Inventory........................................... (868) (1,462) ------- -------- $ 6,535 $ 6,941 ======= ========
5. ACCRUED LIABILITIES Accrued liabilities, are as follows:
(In Thousands) June 30, 1999 March 31, 1999 ------------- -------------- Accrued payroll and related costs......................... $ 2,291 $ 1,858 Book overdraft............................................ 1,494 0 Accrued sales tax......................................... 286 223 Accrued insurance, net of prepayments..................... 1,950 1,988 Other..................................................... 1,684 1,504 ------- ------- Total $ 7,705 $ 5,573 ======= =======
7 6. NOTE PAYABLE TO BANK On April 23, 1999, the Company entered into a $10,000,000, two year, revolving credit facility from FINOVA Capital Corporation ("FINOVA"). Outstanding borrowings under the facility are not to exceed the lesser of $10,000,000 or the sum of a) 85% of eligible accounts receivable, plus, b) an amount not to exceed the lesser of 50% of the auction value of the Company's equipment or $4,000,000, less, c) any loan reserves. The FINOVA facility is secured by the Company's assets. The credit agreement requires that the Company maintain certain financial covenants, including requirements to maintain certain levels of net worth and debt service. The agreement also places certain restrictions on capital expenditures, other indebtedness and executive compensation. Borrowings bear interest at prime plus 1%. The Company pays annual fees of $50,000, monthly fees of $2,000 and would be required to pay certain termination fees if the Company terminates the facility prior to the two year term. At June 30, 1999, the Company had an outstanding balance of $5,650,000 under this facility, compared to $5,538,000 at March 31, 1999 under a prior facility. For the first quarter of fiscal 2000 and fiscal 1999, the weighted average borrowing rate was 8.96% and 7.44%, respectively. 7. COMMITMENTS AND CONTINGENCIES The Company is involved in various litigation matters, both as a plaintiff and as a defendant, arising in the ordinary course of its business. Management expects that these matters will not have a materially adverse effect on the consolidated financial position, results of operations or liquidity of the Company. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUES Consolidated revenues increased 6% in the first quarter of fiscal 2000, compared to the same period in fiscal 1999. NORTH AMERICAN OPERATIONS. Revenue from North American operations increased to $20.9 million in the first quarter of fiscal 2000, compared to $16.0 million in the same period of the prior year. In the first quarter of fiscal 2000, the Company provided services to 90 customers in North America. Sales to Florida Power & Light Company ("FPL"), U S West and Virginia Electric and Power Company amounted to 33%, 16% and 9%, respectively, of the Company's total consolidated revenues. For the first quarter of fiscal 1999, the percentages were 40%, 5% and 9%, respectively. Domestic CableCURE-Registered Trademark- services account for 20% and 15% of the Company's total consolidated revenues in the first quarter of fiscal 2000 and 1999, respectively. INTERNATIONAL OPERATIONS. Revenues from international operations increased to $1.6 million in the first quarter of fiscal 2000, compared to $1.5 million in the same period of fiscal 1999. On March 31, 1999, the Company sold its drilling service business in the United Kingdom. The drilling service industry in the United Kingdom has been undergoing a consolidation, with declining business opportunities for the specialty driller. The decline in revenues in the first quarter of fiscal 2000 caused by the sale of the drilling services business which accounted for $440,000 of revenues in the first quarter of fiscal, was offset by increased revenues from CableCURE-Registered Trademark- services in Europe and Asia. GROSS PROFIT Gross profit increased $723,000 million or 28% in the first quarter of fiscal 2000, compared to the same period in fiscal 1999. NORTH AMERICAN OPERATIONS. Gross profit from the Company's services increased $660,000 or 35% in the first quarter of fiscal 2000 compared to the same period of fiscal 1999. An increase in the percentage of CableCURE-Registered Trademark- services as well as efficiencies in the Company's Florida operations contributed to this increase. INTERNATIONAL OPERATIONS. Gross profit from international operations in the first quarter of fiscal 2000 increased $63,000 or 9% compared to the same period of the prior year primarily due to increased revenue from CableCURE-Registered Trademark-operations in Germany. OPERATING EXPENSES AND OTHER INCOME (EXPENSES) Total operating expenses increased 8% in the first quarter of fiscal 2000, compared to the same period of fiscal 1999, primarily due to an increase in selling, general and administrative expenses, resulting from expenses associated with the continued modification of the Company's information system. Other expense, net, was $138,000 in the first quarter of fiscal 2000, compared to other expense, net, of $135,000 in the same period of the prior year. This 2% increase is a result of increased interest expense due to financing arrangements. INCOME (LOSS) BEFORE INCOME TAXES As a result of the foregoing, the Company recorded a pretax income of $563,000 in the first quarter of fiscal 2000, compared to a pretax income of $24,000 in the same period of fiscal 1999. 9 INCOME TAX PROVISION The Company would normally expect an effective income tax rate of approximately 37% on positive pretax income. This exceeds the federal statutory rate due to the impact of state income taxes and nondeductible, expenses. The Company has provided a valuation allowance against the full amount of the Company's net, deferred tax assets. A tax expense was not recorded against operating profits generated in fiscal 2000, due to the reversal of a portion of the valuation allowance. NET INCOME (LOSS) As a result of the foregoing, the Company recorded net income of $563,000 in the first quarter of fiscal 2000, compared to net income of $16,000 in the same period of fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES On April 23, 1999, the Company closed a new, two year, revolving credit facility with FINOVA Capital Corporation for $10,000,00. The facility is secured primarily by the assets of the Company. See Note 6 of Notes to Consolidated Financial Statements. At June 30, 1999, the Company had unused sources of liquidity consisting of $1,126,000 in cash and cash equivalents and an available balance on its committed line of credit from FINOVA of $3,550,000. This compares to $1,580,000 in cash and cash equivalents and an available balance on its committed line of credit of $1,462,000 at March 31, 1999. Uses of cash during the first quarter of fiscal 2000 primarily related to capital expenditures of $248,000 and changes in working capital. Capital expenditures in the three months ended June 30, 1999 primarily included costs associated with the Company's new management information systems. The Company relies on cash flow from operations and lease financing, in addition to its line of credit, to fund operations and capital expenditures. There can be no assurance that these facilities or similar replacement facilities will continue to be available on terms acceptable to the Company or at all. The Company's financial performance will be a key factor in determining the availability of such facilities. If either facility became unavailable to the Company, or if the Company is required to seek additional capital to fund anticipated growth, the Company would be required to seek other sources of public or private capital. There can be no assurance that adequate funds will be available to the Company through such sources when needed or will be available on terms favorable to the Company. If at any time the Company is unable to obtain sufficient funds, the Company will be required to restrict or eliminate plans for expansion and other aspects of its operations or may be unable to meet its financial obligations on a timely basis. REVIEW AND OUTLOOK INSTALLATION AND REPLACEMENT SERVICES. The Company anticipates that opportunities to add installation and replacement services for existing customers will be a source of growth in the near future, especially from existing customers who utilize CableCURE-Registered Trademark- services. In mid December 1998, FPL informed the Company that they would award to the Company all of FPL's statewide underground cable injection and replacement work for a three year period, beginning January 1999. The Company expects FPL to continue to be a significant customer in calendar 1999 and future years. However, there can be no assurances that competition, budgetary factors or other matters, including cancellation of previously issued work orders, will not reduce the level of work performed for FPL. Also, the Company's revenue levels and the average number of crews in operation on any given day will be affected by a number of factors, including weather, pricing, competition, customer work release practices, soil and other working conditions, and permitting. See also the discussion under, UTILITIES' BUDGETARY CONSIDERATIONS, COMPETITION AND SEASONAL FACTORS included under "Important Risk Factors Regarding Forward-Looking Statements," below. 10 REPAIR AND RESTORATION SERVICES. The Company expects a continuation of the trend towards increased customer acceptance of the CableCURE-Registered Trademark- process, including an increased level of work under "Test, Treat or Replace" contracts. To improve customer acceptance of CableCURE-Registered Trademark-, the Company now offers a new full refund twenty year warranty on CableCURE-Registered Trademark- services. Management does not believe that this will have a material impact on the financial position or operating results of the Company based on historical results and laboratory tests. The Company anticipates that the trend towards lower pricing for cable replacement will continue to place downward pressure on the price for CableCURE-Registered Trademark- services. CableCURE-Registered Trademark- revenues in Florida will be a key factor in determining growth in consolidated CableCURE-Registered Trademark- revenues in calendar 1999. The Company expects to see increased volumes from new customers in calendar 1999, and some increased volumes from existing customers, but expects to continue to be dependent upon a small number of customers. The Company's goal is to reduce this dependency through growth. Because the Company's customers can typically cancel their work on short notice, a certain degree of uncertainty always exists in the Company's future revenue levels. See also the discussion under UTILITIES' BUDGETARY CONSIDERATIONS, COMPETITION, SEASONAL FACTORS and DOW CORNING CORPORATION included under "Important Risk Factors Regarding Forward-Looking Statements", below. INTERNATIONAL OPERATIONS. Due to adverse developments affecting the general economy in many Asian countries, the Company cannot predict the level of equipment sales in the foreseeable future. However, the Company does expect equipment sales to continue at some modest level. Company management expects most of its international growth to come from CableCURE-Registered Trademark- services in Europe and Asia. IMPORTANT RISK FACTORS REGARDING FORWARD-LOOKING STATEMENTS The Company may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, in press releases and in reports to stockholders. The Private Securities Litigation Reform Act of 1995 contains a safe harbor for forward-looking statements on which the Company relies in making such disclosures. In connection with this safe harbor provision, the Company is hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Any such statement is qualified by reference to the following cautionary statements: UTILITIES' BUDGETARY CONSIDERATIONS. Budgetary considerations arising from unfavorable regulatory determinations on matters such as rate-setting, capitalization of services performed by the Company, approval of mergers and acquisitions, siting of power production facilities, reductions in new housing starts, reductions in electric utility revenues due to mild weather, general economic downturns or overall utility profitability relative to its objectives have affected the ability of some of the Company's utility customers to sustain their cable replacement or other maintenance programs and, accordingly, can adversely impact the Company's revenues and profits. Although the Company has broadened its customer base, in the first quarter of fiscal 2000 one customer generated over 33% of the Company's consolidated revenues, and a few customers generated approximately 60% of its CableCURE-Registered Trademark- revenues. Because cable replacement, restoration and other maintenance programs are, to a substantial extent, deferrable and the Company's contracts with its utility customers permit termination of orders on relatively short notice, postponement or cancellation of such programs by customers can cause substantial volatility to the Company's revenues and profits. COMPETITION. The Company has experienced a long term trend of declining prices for trenchless drilling services, particularly for smaller diameter utility installations, due to competitive pressures and changes in utility bidding practices. This trend has also caused the Company to lower its prices for CableCURE-Registered Trademark- injection services, which are priced at a discount to replacement costs, including replacement via trenchless drilling. In addition, the Company's utility customers are increasing their requests for "turnkey" installation, replacement and restoration services, requiring their drilling contractors to take responsibility for switching circuits, terminating circuits and other non-incidental tasks. These tasks require additional equipment and labor, and the cost increases can offset any price increase the Company is able to negotiate for the expansion of its services. The overall trend of falling prices for trenchless drilling services is expected to continue into the future as more customers award work based on competitive bidding, more customers require their drilling contractors to perform additional tasks as part of 11 the drilling contract and more conventional contractors acquire drilling capabilities in order to enter into this segment of the construction industry. This trend will continue to put downward pressure on the market price for CableCURE-Registered Trademark- Services. SEASONAL FACTORS. Weather and other seasonal factors may decrease the Company's revenues and profits in any given period. Adverse weather may preclude the Company from operating its FlowMole drilling systems or providing its CableCURE-Registered Trademark- services at certain times of the year. In addition, the Company believes that the regular budgetary cycles of certain of its North American utility customers tend to concentrate demand for the Company's services during the third quarter of its fiscal year (the fourth quarter of the calendar year), although other budgetary factors described below may override this trend in any given quarter. As a result of these factors, results of operations in any given fiscal quarter are not necessarily indicative of results in any other fiscal quarter. MANAGEMENT OF GROWTH. There can be no assurance that the Company's systems, procedures and controls will be adequate to support the Company's operations as they expand. Any future growth will impose significant additional responsibilities on members of senior management, including the need to identify, recruit and integrate new senior level managers and executives. To the extent that the Company is unable to manage its growth efficiently and effectively, or is unable to attract and retain additional qualified management, there could be a material adverse effect on the Company's financial condition, results of operations and cash flows. AVAILABILITY OF QUALIFIED EMPLOYEES. The Company's ability to provide high-quality services on a timely basis requires an adequate supply of skilled laborers, equipment operators, journeymen linemen and project managers. Accordingly, the Company's ability to increase its productivity and profitability will be limited by its ability to employ, train and retain skilled personnel necessary to meet the Company's requirements. Many companies in the Company's industry are currently experiencing shortages of qualified personnel, and there can be no assurance that the Company will be able to maintain an adequate skilled labor force necessary to operate efficiently, that the Company's labor expenses will not increase as a result of a shortage in the supply of skilled personnel or that the Company will not have to curtail its planned internal growth as a result of labor shortages. DOW CORNING CORPORATION. The Company purchases its CableCURE-Registered Trademark- fluid exclusively from Dow Corning. In May 1995, Dow Corning filed for protection under Chapter 11. While the Company has been informed by Dow Corning that it intends to continue the CableCURE-Registered Trademark- business, there can be no assurance that Dow Corning or the bankruptcy court will not take action to amend or terminate the CableCURE-Registered Trademark- license agreement. FOREIGN CURRENCY FLUCTUATIONS. The Company's financial results are affected by fluctuations in certain foreign currencies, particularly the exchange rate between the U.S. Dollar and the British Pound Sterling, German Deutschmark and Euro. Such fluctuations could result in material adverse adjustments to the carrying values of accounts receivable or other assets measured in foreign currencies, or on the reported results of operations of the Company's European operations. YEAR 2000 RISK FACTORS. Significant uncertainty exists concerning the potential costs and effects associated with Year 2000 compliance. Any Year 2000 compliance problem of either the Company or its major vendors and customers could have a material adverse effect on the Company's financial condition, results of operations and cash flows. The Company has determined that its propriety equipment used by FlowMole and CableCURE-Registered Trademark- crews does not rely on date-sensitive software. The Company believes that it has identified substantially all of the major computers, software applications and related equipment used in connection with is internal operations that must be modified, upgraded, or replaced to minimize the possibility of a material disruption to its business. The Company has completed the process of replacing systems that have been identified as adversely affected. On November 2, 1998, the Company converted its enterprise-wide information systems to newly installed software certified by the vendor to be Year 2000 compliant. 12 In addition to computers and related systems, the operation of office and facilities equipment, such as fax machines, photocopiers, telephone switches, security systems, elevators, and other common devices may be affected by the Year 2000 problem. The Company is currently assessing the potential effect of, and remediation costs of, the Year 2000 problem on its office and facilities equipment. The Company estimates the total cost to the Company of completing any required modifications, upgrades, or replacements of these other internal systems will not have a material adverse effect on the Company's business or results of operations. This estimate is being monitored and will be revised as additional information becomes available. The Company has begun to implement a communications plan with its customers to attempt to identify and resolve, if possible, issues associated with the Year 2000. If the Company's customers are unable to resolve Year 2000 issues, those customers could have difficulty preparing new work packages for issuance to the Company or approving and paying invoices for the Company's services. The Company's revenues and cash flows from operations could be severely affected as a result. The Company's customers primarily consist of large utility companies who are expending substantial resources to solve Year 2000 problems. However, there can be no assurance that the Company will be able to determine if its customers have Year 2000 problems that will affect the Company. Also, even if such problems are identified, the Company may not be able to influence its customers to prioritize a timely solution to Year 2000 problems that are identified. Any failure of customers to resolve Year 2000 issues in a timely manner could have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. The Company has initiated communications with third party suppliers of the products and financial services used, operated, or maintained by the Company to identify and, to the extent possible, to resolve issues involving the Year 2000 problem. The Company believes that its major suppliers are adequately addressing their Year 2000 exposure. However, the Company has limited or no control over the actions of these third party suppliers. Thus, while the Company expects that it will be able to resolve any significant Year 2000 problems with these systems before the occurrence of a material disruption to the business of the Company or any of its customers, any failure of these third parties to resolve Year 2000 problems with their systems in a timely manner could have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. The Company expects to identify and resolve all Year 2000 problems that could materially adversely affect its business operations. However, management believes that it is not possible to determine with complete certainty that all Year 2000 problems affecting the Company have been identified or corrected. The number of devices that could be affected and the interactions among these devices are simply too numerous. In addition, one cannot accurately predict how many Year 2000 problem related failures will occur or the severity, duration or financial consequences of potential failures. As a result, management expects that the Company could suffer the following consequences: 1. a significant number of operational inconveniences and inefficiencies for the Company and its clients that may divert management's time and attention and financial and human resources from its ordinary business activities; and 2. a lesser number of serious system failures that may require significant efforts by the Company's customers to prevent or alleviate material business disruptions. The Company is currently developing contingency plans to be implemented as part of its efforts to identify and correct Year 2000 problems affecting its customers or major vendors. The Company expects to complete its contingency plans, and all other assessments, by September 30, 1999. These plans could include, but are not limited to, increased work hours for Company personnel or use of contract personnel to provide manual workaround solutions for customer work release systems or invoice approval processes. If the Company is required to implement any of these contingency plans, it could have a material adverse effect on the Company's financial condition and results of operations. 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its revolving credit facility which bears interest at variable rates. The Company uses the U.S. Dollar as its functional currency, except for its European operations. The assets and liabilities of the Company's European operations are translated into U.S. Dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. Aggregate translation gains and losses included in the determination of net income have not been material. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various litigation matters, both as a plaintiff and as a defendant, arising in the ordinary course of its business. Management expects that these matters will not have a materially adverse effect on the consolidated financial position, results of operations or liquidity of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10 Amended and Restated 1994 Option and Restricted Stock Option Plan. Filed herewith. 27.1 Financial Data Schedule. Filed herewith. (b) Reports on Form 8-K: None 14 UTILX CORPORATION 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. UTILX CORPORATION -------------------------------------------- (Registrant) Date: August 12, 1999 By: /s/ William M. Weisfield ----------------------------------------- William M. Weisfield, President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Date: August 12, 1999 By: /s/ Darla Vivit Norris ----------------------------------------- Darla Vivit Norris, Senior Vice President and Chief Financial Officer (Principal Financial Officer) 15 UTILX CORPORATION As Filed with the Securities and Exchange Commission on August 12, 1999 File No. 0-16821 ----------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- EXHIBITS TO QUARTERLY REPORT FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 UNDER THE SECURITIES EXCHANGE ACT OF 1934 --------------------- UTILX CORPORATION INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10 Amended and Restated 1994 Option and Restricted Stock Plan. Filed herewith. 27.1 Financial Data Schedule. Filed herewith.
EX-10 2 EXHIBIT 10 EXHIBIT 10 UTILX CORPORATION AMENDED AND RESTATED 1994 OPTION AND RESTRICTED STOCK PLAN 1. DEFINITIONS The following terms have the corresponding meanings for purposes of the Plan: "Change of Control" means the occurrence of any one of the following events: (a) a "Board Change." For purposes of the Plan, a Board Change occurs if a majority of the seats (other than vacant seats) on the Corporation's Board of Directors (the "Board") become occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated. An "Incumbent Director" is a member of the Board who has been either (A) nominated by a majority of the directors of the Corporation then in office or (B) appointed by directors so nominated, but excluding any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as defined by Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (b) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of "Beneficial Ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of (i) 15% or more of either (A) the then-outstanding shares of Common Stock (the "Outstanding Corporation Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"), which is not approved in advance by a majority of the Incumbent Directors, or (ii) 33% or more of either (A) the Outstanding Corporation Common Stock or (B) the Outstanding Corporation Voting Securities, which is approved in advance by a majority of the Incumbent Directors. The following acquisitions, however, shall not constitute a Change of Control: (x) any acquisition by the Corporation, (y) any acquisition by any employee benefit plan (or related trust) sponsored by or maintained by the Corporation or any corporation controlled by the Corporation, or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following the reorganization, merger or consolidation, the conditions described in Section 1(c) (i), (ii) and (iii) of the following subsection (c) are satisfied. (c) approval by the stockholders of the Corporation of a reorganization, merger or consolidation, unless, immediately following the reorganization, merger or consolidation, (i) all or substantially all of the individuals and entities who were the beneficial owners of, respectively, the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately before the reorganization, merger or consolidation then beneficially own, directly or indirectly, more than 66-2/3% of both the then-outstanding shares of common stock of the corporation resulting from the reorganization, merger or consolidation and the combined voting power of the then-outstanding voting securities of the resulting corporation entitled to vote generally in the election of directors, in substantially the same proportions as their ownership, immediately before the reorganization, merger or consolidation, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, (ii) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation or the corporation resulting from the reorganization, merger or consolidation and any Person beneficially owning, directly or indirectly, immediately before the reorganization, merger or consolidation, 33% or more of the Outstanding Corporation Common Stock or Outstanding Corporation Voting Securities) beneficially owns, directly or indirectly, 33% or more of either the then-outstanding shares of common stock of the corporation resulting from the reorganization, merger or consolidation or the combined voting power of the then-outstanding voting securities of the resulting corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from the reorganization, merger or consolidation were Incumbent Directors at the time the Board executed the initial agreement providing for the reorganization, merger or consolidation. (d) approval by the Corporation's stockholders of (i) a complete liquidation or dissolution of the Corporation or (ii) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation, in which immediately following the sale or other disposition, (A) all or substantially all of the individuals and entities who were the beneficial owners of, respectively, the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately before the sale or other disposition then beneficially own, directly or indirectly, more than 66-2/3% of both the then-outstanding shares of common stock of the resulting corporation and the combined voting power of the then-outstanding voting securities of the resulting corporation entitled to vote generally in the election of directors, in substantially the same proportion as their ownership of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately before the sale or other disposition, (B) no Person (excluding the Corporation and any employee benefit plan (or related trust) of the Corporation or the resulting corporation and any Person beneficially owning, directly or indirectly, immediately before the sale or other disposition, 33% or more of the Outstanding Corporation Common Stock or Outstanding Corporation Voting Securities) beneficially owns, directly or indirectly, 33% or more of either the then-outstanding shares of common stock of the resulting corporation or the combined voting power of the then-outstanding voting securities of the resulting corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of the resulting corporation were approved by a majority of the Incumbent Directors at the time the Board executed the initial agreement of action providing for the sale or other disposition of assets of the Corporation. "Code" means the United States Internal Revenue Code of 1986, as amended. "Committee" means the Committee or Committees provided for in Section 4, which shall administer the Plan. "Common Stock" means the Corporation's common stock, par value $0.01 per share. "Corporation" means UTILX Corporation, a Delaware corporation. "Designated Beneficiary" means any person designated in writing by a Participant as a legal recipient of payments due under an award in the event of the Participant's death or, in the absence of such designation, the Participant's estate. This designation must be on file with the Corporation in order to be effective but, unless the Participant has made an irrevocable designation, may be changed from time to time by the Participant. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" of the Common Stock as of any trading day means the closing sales price of the Common Stock as reported on that trading day by the Nasdaq National Market. If Nasdaq reports no closing sales price for the Common Stock on that trading day, then "Fair Market Value" shall mean the highest bid price reported for the Common Stock on that trading day by the National Quotation Bureau Incorporated or any similar nationally recognized organization. The Committee, at its sole discretion, shall make all determinations required by this definition. "Incentive Stock Option" means an incentive stock option as defined in Section 422 of the Code. "Maximum Annual Participant Grant" means the maximum number of shares for which an Option or Options may be granted to any optionee Participant in any one fiscal year of the Corporation. "Nonqualified Stock Option" means an Option that does not qualify as an Incentive Stock Option. "Officer" means a duly elected officer of the Corporation as defined in the Corporation's Bylaws. "Option" means an option to purchase shares of Common Stock granted under the Plan, whether an Incentive Stock Option or a Nonqualified Stock Option. "Participant" means an employee or Officer who has received an award under the Plan. "Plan" means this UTILX Corporation Amended and Restated 1994 Option and Restricted Stock Plan. "Related Corporation" (other than a parent corporation) means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, if one of the other corporations in the chain owns stock possessing 50% or more of the total combined voting power of all classes of stock of each of the corporations other than the Corporation. When referring to a parent corporation, the term "Related Corporation" means any corporation in an unbroken chain of corporations ending with the Corporation if, at the time of the granting of the Option or Restricted Stock, each of the corporations other than the Corporation owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. "Restricted Period" shall have the meaning set forth in Section 7(c). "Restricted Stock" means the shares of Common Stock referred to in Section 7. "Retirement" means the termination of the services of a Participant because of normal retirement or early retirement, as may be approved by the Committee. "Rule 16b-3" means Rule 16b-3 under the Exchange Act. "Withholding Tax" means any tax, including any federal, state or local income tax or payroll tax, required by any governmental entity to be withheld or otherwise deducted and paid with respect to the transfer of shares of Common Stock as a result of the exercise of a Nonqualified Stock Option (as defined in Section 6(a)) or the award or vesting of Restricted Stock or stock grants. 2. STOCK SUBJECT TO THE PLAN On April 21, 1994, the effective date of the Plan, 600,000 shares of Common Stock were reserved for issuance upon the exercise of Options and for issuance of Restricted Stock awards under the Plan. On April 1, 1997 and on April 1 of each year thereafter until April 1, 2001, the number of shares of Common Stock that are available for issuance under the Plan shall be increased by an amount of 3.4% of the outstanding common shares on that date. Any unused portion of the available shares in any fiscal year, including those available as of April 1, 1997, are carried forward and available for grants and awards in succeeding fiscal years. Shares reserved for issuance upon the exercise of Options and for issuance of Restricted Stock may be authorized and unissued shares of Common Stock or previously outstanding shares of Common Stock then held in the Corporation's treasury. The maximum number of Incentive Stock Options issuable under the Plan after May 30, 1997 is 900,000. The issuance of shares of Restricted Stock is limited to 50,000 in any one fiscal year. If any Option granted under the Plan expires or terminates for any reason (including, without limitation, because of its cancellation, in whole or in part, under the provisions of Section 6(c) or otherwise, or the substitution of a new option) without having been exercised in full, the shares subject to that Option shall again be available for issuance under the Plan. If shares of Restricted Stock are forfeited and returned to the Corporation under the provisions of Section 7, those shares shall again be available for the purposes of issuance under the Plan to the extent permitted by Rule 16b-3. 3. ADMINISTRATION The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have plenary authority and discretion to determine the individuals to whom, and the times at which, Restricted Stock shall be awarded and Options shall be granted (including, without limitation, whether such Options shall be Incentive Stock Options, Nonqualified Stock Options or both) and the number of shares to be covered by each such award or grant. In making these determinations, the Committee may take into account the nature of the services rendered by the respective Participants, their present and potential contributions to the Corporation's success and any other factors that the Committee may deem relevant. Subject to the express provisions of the Plan, the Committee shall have plenary authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of Restricted Stock and option agreements (which need not be identical) and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations of the matters referred to in this Section 3 shall be conclusive. The Corporation intends for the Plan and its administration to comply in all respects with Rule 16b-3, and if any Plan provision is later found not to be in compliance with Rule 16b-3, the provision shall be void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in the Plan to the contrary, the Board, at its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to persons who are subject to Section 16 of the Exchange Act without so limiting or conditioning the Plan with respect to other persons. 4. THE COMMITTEE The Board shall designate a Committee (or Committees) of members of the Board. With respect to Options granted and Restricted Stock awarded to officers and directors who are subject to Section 16 of the Exchange Act, the Committee (or Committees) shall meet the requirements of Rule 16b-3. The Committee shall be appointed by the Board, which may from time to time appoint members of the Committee in substitution for members previously appointed and may fill vacancies, however caused, in the Committee. The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all the Committee members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. 5. ELIGIBILITY The Committee may award Restricted Stock and grant Options to employees or Officers of the Corporation or a Related Corporation. The award of Incentive Stock Options by the Committee is limited to employees of the Corporation and any Related Corporation. Any person eligible under the Plan may receive one or more grants of Options or one or more awards of Restricted Stock, or any combination of the two, as the Committee shall from time to time determine, and these determinations may be different for different Participants and may vary between different awards and grants. 6. OPTION GRANTS (a) The Committee is authorized, at its discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock Options, and the Options shall be designated as Incentive Stock Options or Nonqualified Stock Options in the applicable option agreement. The Maximum Annual Participant Grant shall be 100,000 shares, subject to adjustment as provided in Section 12; provided, however, that during the first calendar year of a Participant's employment with the Corporation, the Maximum Annual Participant Grant shall be 300,000, subject to adjustment under Section 12. The purchase price of the Common Stock under each Option granted under the Plan shall be determined by the Committee, but shall be not less than 100% of the Fair Market Value of the Common Stock at the time the Option is granted. (b) The Committee is authorized, at its discretion, to prescribe in the Option grant the installments, if any, in which an Option granted under the Plan shall become exercisable. No Option shall be exercisable, however, before the first anniversary of the date of its grant except as provided in Sections 6(c), (d), (g), (h) and (j) or except as the Committee otherwise determines. In no case may an Option be exercised for less than 10 shares at any one time (or the remaining shares covered by the Option if less than 10) during the term of the Option. The Committee is also authorized to establish the manner of the exercise of an Option. The term of each Option shall be not more than 10 years from the date of its grant. In general, upon exercise, the Option price is to be paid in full in cash; however, the Committee can determine at the time the Option is granted for Incentive Stock Options or at any time before exercise for Nonqualified Stock Options, that additional forms of payment will be permitted. To the extent permitted by the Committee and applicable laws and regulations (including, but not limited to, federal tax and securities laws and regulations and state corporate law), an Option may be exercised (i) in Common Stock owned by the Option holder having a Fair Market Value on the date of exercise equal to the aggregate Option price or in a combination of cash and stock. However, that payment in stock shall not be made unless the stock shall have been owned by the Option holder for a period of at least six months before the payment; or (ii) by delivery of a properly executed exercise notice, together with irrevocable instructions to a broker designated by the Corporation, all in accordance with the regulations of the Federal Reserve Board, to deliver promptly to the Corporation the amount of sale or loan proceeds necessary to pay the exercise price and any Withholding Tax obligations that may arise in connection with the exercise. As a condition to the exercise of an Option, the Option holder shall make such arrangements as the Committee may require for the satisfaction of any federal, state or local Withholding Tax obligations that may arise in connection with the exercise. (c) If a Participant's services for the Corporation or a Related Corporation shall cease and the termination of the individual's service is for cause, the Options shall automatically terminate upon first notification to the Option holder of the termination of services, unless the Committee determines otherwise, and the Option shall automatically terminate upon the date of the termination of services for all shares that were not purchasable upon such date. For purposes of this Section 6(c), "cause" is defined as a determination by the Committee that the Option holder has (i) committed a felony, (ii) engaged in an act or acts of deliberate and intentional dishonesty resulting or intended to result directly or indirectly in improper material gain to or personal enrichment of the individual at the Corporation's expense, or (iii) willfully disobeyed the Corporation's appropriate rules, instructions or orders, and that willful disobedience has continued for a period of 10 days following notice of the disobedience from the Corporation. If the services of an Option holder terminate because of Retirement or disability, the Option holder may (unless the Option has been previously terminated under the provisions of the preceding paragraph or unless otherwise provided in his or her Option grant) exercise the Option at any time before 24 months from the date of the termination, (i) in the event of disability or Retirement, to the extent of the number of shares covered by the Option, whether or not such shares had become purchasable by the Option holder at the date of the termination of his or her services, and (ii) in the event of early retirement not approved by the Committee, to the extent of the number of shares covered by the Option at such time or times within 24 months from the date of the termination as the Option becomes purchasable by the Option holder in accordance with its terms. If an individual to whom an Option has been granted under the Plan dies while performing services for the Corporation or a Related Corporation, the Option previously granted to that individual (unless the Option has been previously terminated under this Section 6(c) or unless otherwise provided in the Option grant) may, subject to the limitations described in Section 6(f), be exercised by that individual's Designated Beneficiary, by the legatee or legatees of the Option under that individual's last will, or by the individual's personal representatives or distributees, at any time within a period of 24 months after the individual's death, but not after the expiration of the Option, to the extent of the remaining shares covered by the Option, whether or not such shares had become purchasable by the individual at the date of his or her death. If an individual dies (i) during the 24-month period following termination of his or her services or (ii) following termination of his or her services by reason of Retirement or disability, then the Option (if not previously terminated under this Section 6(c)) may be exercised during the remainder of that 24-month period or during the remaining term of the Option, respectively, by the individual's Designated Beneficiary, by the legatee or legatees under his or her last will, or by the individual's personal representative or distributee, but only to the extent of the number of shares purchasable by such individual under Section 6(d) at the date of termination of his or her services. If the services of an Option holder are terminated other than by reason of Retirement, disability or death, the holder may (unless his or her Option has been previously terminated under this Section 6(c) or unless otherwise provided in his or her Option grant) exercise such Option at any time within three months after the termination, but not after the expiration of the Option, to the extent of the number of shares covered by the Option that were purchasable by him or her at the date of the termination, and the Option shall automatically terminate upon the date of the termination of services for all shares that were not purchasable upon such date. Although an Option may be exercised after Retirement, disability, death or other termination under Section 422 of the Code, if the Option has been designated as an Incentive Stock Option, it must be exercised within three months after the date of Retirement or other termination or one year after the termination of employment due to disability in order to qualify for Incentive Stock Option tax treatment. (d) Notwithstanding these provisions, the Committee may determine, at its sole discretion, in the case of any termination of services, that the holder of an Option may exercise the Option to the extent of some or all of the remaining shares covered by the Option whether or not such shares had become purchasable by that individual at the date of the termination of his or her services and may exercise the Option at any time before the expiration of the original term of the Option, except that any such extension shall not cause any Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option without the consent of the Option holder. Options granted under the Plan shall not be affected by any change of relationship with the Corporation so long as the holder continues to be an employee or Officer of the Corporation or of a Related Corporation; however, a change in a participant's status from an employee to a nonemployee Officer shall result in the termination of an outstanding Incentive Stock Option held by that participant in accordance with Section 6(c). The Committee, at its absolute discretion, may determine all questions of whether particular leaves of absence constitute a termination of services. With respect to Incentive Stock Options, however, that determination shall be subject to any requirements contained in the Code. Nothing in the Plan or in any Option granted pursuant to the Plan shall confer on any individual any right to continue in the employ or other service of the Corporation or any other person or interfere in any way with the right of the Corporation or any other person to terminate his or her employment or other services at any time. (e) The date of grant of an Option pursuant to the Plan shall be the date specified by the Committee at the time it grants the Option, provided that the date shall not be before the date of the grant by the Committee and that the price shall be determined in accordance with Section 6(a) on that date. The Committee shall promptly notify a grantee of an award and a written Option grant shall promptly be duly executed and delivered by or on behalf of the Corporation. (f) If an Option holder is granted Incentive Stock Options that in the aggregate entitle the Option holder to purchase, in the first year such Options become exercisable (whether under their original terms or as a result of the occurrence of an Acceleration Event, as defined below), Common Stock of the Corporation or a Related Corporation having a Fair Market Value (determined as of the time such Options are granted) in excess of $100,000, the portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. This limitation shall not apply, however, if the Internal Revenue Service publicly rules, issues a private ruling to the Corporation, any Option holder of the Corporation or any legatee, personal representative or distributee of an Option holder or states in proposed, temporary or final regulations that provisions which allow the full exercise of an Option holder's Incentive Stock Options upon the occurrence of the relevant Acceleration Event do not violate Section 422(d) of the Code. An "Acceleration Event" means (i) a determination of the Committee to allow an Option holder to exercise his or her Options in full upon termination of his or her employment or other service as provided in Section 6(c) or (d), (ii) the death of an Option holder while he or she is employed by the Corporation or a Related Corporation, (iii) any Change of Control, or (iv) the Option holder's termination of employment or other service under circumstances that will allow him or her to exercise Options not otherwise exercisable pursuant to Section 6(j). (g) Notwithstanding any contrary waiting period, installment period or other limitation or restriction in any Option agreement or in the Plan, in the event of a Change of Control, each Option outstanding under the Plan shall become exercisable by the Option holder at any time during the remaining term of the Option, but not after the term of the Option, to the extent of the number of shares covered by the Option, whether or not such shares had become purchasable by the Option holder immediately before the Change of Control, subject to the limitations described in Section 6(f). (h) Notwithstanding anything in the Plan to the contrary, upon a Change of Control an Option holder (other than an Option holder who initiated a Change of Control in a capacity other than as an officer or a director of the Corporation) who is an officer or a director of the Corporation (within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated under Section 16) who holds an Option that was granted at least six months before the date of exercise pursuant to this sentence shall, unless the Committee determines otherwise at the time of grant, surrender the Option to the Corporation and receive in cash an amount equal to the amount by which the fair market value of the Option on the date of exercise (determined as provided in Section 6(i)) exceeds the purchase price per share under the Option multiplied by the number of shares of Common Stock granted under the Option. Any other Option holder who is not an officer or director of the Corporation (within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated under Section 16) with respect to an Option shall, unless the Committee shall determine otherwise at the time of grant, have the right, in lieu of payment of the full purchase price of the shares of Common Stock being purchased under the Option and by giving written notice to the Corporation, to elect (within the 90-day period following a Change of Control) to surrender all or part of the Option to the Corporation and to receive in cash an amount equal to the amount by which the fair market value of the Option on the date of exercise (determined as provided in Section 6(i)) exceeds the purchase price per share under the Option multiplied by the number of shares of Common Stock granted under the Option. The written notice shall specify the Option holder's election to purchase shares of Common Stock granted under the Option or to receive the cash payment. Notwithstanding the above, this Section 6(h) shall be operative only in the event of a Change of Control in which the consideration to be paid does not consist solely of equity securities registered under Section 12 of the Exchange Act. (i) For the purpose of determining the amount payable under Section 6(h), the "fair market value of the Option" will be equal to the higher of (x) the highest Fair Market Value of the Common Stock on any trading day during the 90-calendar-day period ending on the date of exercise and (y) whichever of the following is applicable: (i) the highest per-share price paid in any tender or exchange offer that is in effect at any time during the 90 calendar days preceding the exercise of the limited right; (ii) the fixed or formula price for the acquisition of shares of Common Stock in a merger or similar agreement approved by the Corporation's stockholders or the Board, if such price is determinable on the date of exercise; or (iii) the highest price per share paid to any stockholder of the Corporation in a transaction or group of transactions giving rise to the exercisability of the Option. In no event, however, may the holder of an Incentive Stock Option receive an amount in excess of the maximum amount that will enable the Option to continue to qualify as an Incentive Stock Option without the consent of the Participant. (j) Notwithstanding these provisions, the Option holder's employment or other contract with the Corporation may provide that upon termination of his or her employment or other services for other than cause or for "good reason" (as defined in his or her contract), all Options shall become immediately exercisable. 7. RESTRICTED STOCK AWARDS (a) Subsequent to April 1, 1997, the number of shares available for issuance as Restricted Stock awards is limited to 50,000 in any one fiscal year. (b) The consideration to be received for shares of Restricted Stock issued under the Plan out of authorized but unissued shares or out of treasury shares shall be equal to cash in an amount equal to the par value of the shares and past services for the Corporation. The recipient of Restricted Stock shall be recorded as a stockholder of the Corporation, at which time the Corporation, at its discretion, may either issue a Restricted Stock certificate or make a book entry credit in the Corporation's stock ledger to evidence the award of the Restricted Stock, and the Participant shall have, subject to the provisions of the Plan, all the rights of a stockholder with respect to those shares and receive all dividends or other distributions made or paid with respect to those shares. However, the shares themselves and any new, additional or different shares or securities that the recipient may be entitled to receive with respect to those shares by virtue of a stock split or stock dividend or any other change in the corporate or capital structure of the Corporation shall be subject to the restrictions of the Plan described below. (c) Except for 35,000 shares of Restricted Stock granted on or before April 21, 1994, during a period of years following the date of grant, as determined by the Committee, which shall in no event be less than 12 months (the "Restricted Period"), the Restricted Stock or any rights thereto may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of by the recipient, except in the event of the recipient's death or the transfer of the Restricted Stock or any rights thereto to the Corporation under the provisions of the next paragraph. In the event of the death or Retirement of the recipient during the Restricted Period, these restrictions shall immediately lapse, and the recipient or, in the case of the recipient's death, his or her Designated Beneficiary, the legatee under his or her last will or his or her personal representative or distributee, shall be free to transfer, encumber or otherwise dispose of the Restricted Stock. In the event of the early retirement of the recipient not approved by the Committee during the Restricted Period, however, these restrictions shall continue until they lapse in accordance with the terms of the grant. Except as provided in Section 7(d), if during the Restricted Period the service of the recipient by the Corporation or a Related Corporation terminates for any reason (including termination with or without cause by the Corporation or a Related Corporation or resignation by the recipient), other than termination of service due to the Retirement or death of the recipient, then the shares of Restricted Stock held by him or her shall be forfeited to the Corporation and the recipient shall immediately transfer and return to the Corporation the certificates, if any have been issued to him or her, representing all the Restricted Stock. The recipient's rights as a stockholder with respect to the Restricted Stock shall cease, effective with such termination of service. Notwithstanding this provision, the recipient's service contract with the Corporation may provide that upon termination of his or her service for other than cause or for "good reason" (as defined in his or her contract), all Restricted Stock shall cease to be subject to these restrictions. A recipient's rights to Restricted Stock may not be assigned or transferred except upon death by will, descent or distribution. If the recipient attempts to sell, exchange, transfer, pledge or otherwise dispose of shares of Restricted Stock in violation of these provisions, those shares shall be forfeited to the Corporation. (d) Notwithstanding the Restricted Period contained in the grant of Restricted Stock, in the event of a Change of Control in which the consideration to be paid does not consist solely of equity securities registered under Section 12 of the Exchange Act, all restrictions on shares of Restricted Stock shall immediately lapse and the Restricted Shares shall become immediately transferable and nonforfeitable. (e) Notwithstanding anything contained in the Plan to the contrary, the Committee may determine, at its sole discretion, in the case of any termination of a recipient's service, that the restrictions on some or all of the shares of Restricted Stock awarded to a recipient shall immediately lapse and such Restricted Shares shall become immediately transferable and nonforfeitable. 8. WITHHOLDING TAXES In connection with the transfer of shares of Common Stock as a result of the exercise of a Nonqualified Stock Option or the award of Restricted Stock or stock grants, the Corporation (a) shall not issue a certificate for such shares until it has received payment from the Participant of any Withholding Tax in cash or by the retention by the Corporation or acceptance by the Corporation upon delivery by the Participant of shares of Common Stock sufficient in Fair Market Value to cover the amount of the Withholding Tax and (b) shall have the right to retain or sell without notice, or to demand surrender of, shares of Common Stock in value sufficient to cover any Withholding Tax. The Corporation shall have the right to withhold from any cash amounts due from the Corporation to the award recipient pursuant to the Plan an amount equal to the Withholding Tax. In either case, the Corporation shall make payment (or reimburse itself for payment made) to the appropriate taxing authority of an amount in cash equal to the amount of the Withholding Tax, remitting any balance to the Participant. For purposes of this Section 8, the value of shares of Common Stock so retained or surrendered shall be equal to the Fair Market Value of the shares on the date that the amount of the Withholding Tax is to be determined (the "Tax Date"), and the value of shares of Common Stock so sold shall be the actual net sale price per share (after deduction of commissions) received by the Corporation. Notwithstanding these provisions, the Participant may elect, subject to approval by the Committee, to satisfy the obligation to pay any Withholding Tax, in whole or in part, by providing the Corporation with funds sufficient to enable the Corporation to pay the Withholding Tax or by having the Corporation retain or accept upon delivery by the Participant shares of Common Stock sufficient in Fair Market Value to cover the amount of the Withholding Tax. Each election by a Participant to have shares retained or to deliver shares for this purpose must be in writing and made on or before the Tax Date. 9. TRANSFERABILITY AND OWNERSHIP RIGHTS OF OPTIONS Options granted under the Plan may be exercised during a Participant's lifetime only by the Participant, and Options granted under the Plan and the rights and privileges conferred by the Options shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) except to the extent permitted by the Committee, by Section 422 of the Code and by Rule 16b-3. 10. HOLDING PERIODS (a) If an individual subject to Section 16 of the Exchange Act sells shares of Common Stock obtained upon the exercise of an Option within six months after the date the Option was granted, that sale may result in short-swing profit recovery under Section 16(b) of the Exchange Act. (b) In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, an Option holder must hold the shares issued upon the exercise of an Incentive Stock Option for two years after the date of grant of the Option and one year from the date of exercise. An Option holder may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option. The Committee may require an Option holder to give the Corporation prompt notice of any disposition in advance of the required holding period of shares of Common Stock acquired by exercise of an Incentive Stock Option. Tax advice should be obtained when exercising any Option and before the disposition of the shares issued upon the exercise of any Option. 11. RULE 16b-3 COMPLIANCE AND BIFURCATION OF PLAN The Corporation intends that, if any of the Corporation's equity securities are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange Act. If any Plan provision is later found not to be in compliance, the provision shall be void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in the Plan to the contrary, the Board, at its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Participants who are Officers and directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants. 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION Except as otherwise provided in Section 6(g) and (h), in the event of any changes in the outstanding stock of the Corporation by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other similar changes in capitalization, or any distribution to stockholders other than cash dividends, the Committee shall make such adjustments, if any, in the number and class of shares or rights subject to Options and the exercise prices of the Options as the Committee in its sole discretion shall determine to be appropriate. In the event of any such change in the outstanding Common Stock of the Corporation, the Committee shall appropriately adjust the aggregate number and class of shares available under the Plan, the Maximum Annual Participant Grant set forth in Section 6, the maximum number of shares as to which Options may be granted and the maximum number of shares of Restricted Stock that may be awarded. 13. AMENDMENT AND TERMINATION Unless the Plan has previously been terminated as provided below, the Plan shall terminate on, and no awards of Restricted Stock or Options shall be made after, April 21, 2004. This termination, however, shall have no effect on awards of Restricted Stock or Options made prior to that date. The Plan may be terminated, modified or amended by the stockholders of the Corporation. The Board may also terminate the Plan, and may modify or amend the Plan in such respects as it deems advisable in order to conform to any change in any applicable law or regulation, or in other respects; however, to the extent required for compliance with Rule 16b-3, Section 422 of the Code or other applicable law or regulation, stockholder approval will be required for any amendment that will (a) materially increase the total number of shares as to which Options may be granted or that may be issued as Restricted Stock, (b) materially change the class of persons eligible to receive awards of Restricted Stock and grants of Options, (c) materially increase the benefits accruing to participants under the Plan, or (d) otherwise require stockholder approval under any applicable law or regulation. The amendment or termination of the Plan shall not, without the consent of the recipient of any award under the Plan, alter or impair any rights or obligations under any award previously granted under the Plan. 14. INDEMNIFICATION In addition to all other rights of indemnification they may have as directors of the Corporation or as members of the Committee, members of the Board and the Committee shall be indemnified by the Corporation for all reasonable expenses and liabilities of any type and nature, including attorneys' fees, incurred in connection with any action, suit or proceeding to which they or any of them are a party by reason of, or in connection with, any Option granted, Restricted Stock or stock grants awarded under the Plan and against all amounts paid by them in settlement of any action, suit or proceeding (if the settlement is approved by independent legal counsel selected by the Corporation). If the member or members are adjudged liable for willful misconduct, however, the indemnification provisions of this Section 14 shall not apply to expenses that relate to matters involving the willful misconduct. This indemnification shall apply only if the member or members notify the Corporation in writing of the action, suit or proceeding within 14 days after the action is instituted, so that the Corporation may have the opportunity to make appropriate arrangements to prosecute or defend the action. 15. EFFECTIVENESS OF THE PLAN The Plan became effective on April 21, 1994. The Committee may at its discretion authorize the awarding of Restricted Stock and the granting of Options, the issuance or exercise of which shall be expressly subject to the conditions that (a) the shares of Common Stock reserved for issuance under the Plan shall have been duly listed, upon official notice of issuance, upon each stock exchange in the United States upon which the Common Stock is traded and (b) a registration statement under the Securities Act of 1933, as amended, with respect to such shares shall have become effective. 16. DATES OF AMENDMENT The Plan was amended effective on June 22, 1995, June 27, 1997, and November 11, 1998. EX-27.1 3 EXHIBIT 27-1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF UTILX CORPORATION FOR THE THREE MONTHS ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 1,126 0 19,654 310 6,535 27,712 37,966 26,162 39,804 17,975 5,650 0 0 74 18,597 39,804 0 23,375 20,075 22,674 138 0 178 563 0 563 0 0 0 563 .08 .07
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