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PROSPECTUS FILED PURSUANT TO RULE 424(b)(3)
- ---------- REGISTRATION NO. 333-47113
182,474 Shares
UTILX CORPORATION
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COMMON STOCK
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This Prospectus relates to up to 182,474 shares of Common Stock, par value
$0.01 per share (the "Common Stock") of UTILX Corporation ("UTILX" or the
"Company"). The Common Stock is traded on the Nasdaq National Market under the
symbol "UTLX." On February 26, 1998, the last reported sales price of the
Common Stock on the Nasdaq National Market was $6.0625 per share.
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The shares of Common Stock of UTILX offered hereby (the "Shares") may be
sold from time to time by a certain stockholder of the Company (the "Selling
Stockholder") in transactions in the over-the-counter market through the Nasdaq
National Market ("Nasdaq"), or on one or more other securities markets and
exchanges, in privately negotiated transactions, or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. The Selling
Stockholder may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholder and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they may sell as principals, or both. The Company will not receive any of
the proceeds from the sale of the Shares. The expenses incurred in registering
the Shares, including legal and accounting fees, will be paid by the Company.
The Shares offered hereby were acquired by the Selling Stockholder from the
Company on January 29, 1998, in connection with the exercise of a warrant and a
holder's put option pursuant to a Stock Purchase Warrant dated June 14, 1993,
and are "restricted securities" under the Securities Act of 1933, as amended
(the "Act"), prior to their sale hereunder. This Prospectus has been prepared
for the purpose of registering the Shares under the Act to allow for future
sales by the Selling Stockholder to the public without restriction. In
connection with any sales, the Selling Stockholder and any brokers participating
in such sales may be deemed to be "underwriters" within the meaning of the Act.
See "Plan of Distribution."
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is March 3, 1998.
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TABLE OF CONTENTS
Forward-Looking Information. . . . . . . . . . . . . . . . . . . . . . . . 2
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements other
than statements of historical fact made in this Prospectus or incorporated by
reference are forward-looking. In particular, the statements herein regarding
industry prospects and the Company's future results of operations or financial
position are forward-looking statements. Forward-looking statements represent
management's current expectations and are inherently uncertain. Investors are
warned that the Company's actual results may differ significantly from
management's expectations and, therefore, from the results discussed in such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the "Risk Factors" described herein.
AVAILABLE INFORMATION
UTILX is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at certain regional offices of the Commission
located at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a web site
(http://www.sec.gov) that contains certain reports, proxy statements and other
information regarding UTILX. Material filed by UTILX can also be inspected at
the offices of the National Association of Securities Dealers, Inc., Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. The
Registration Statement and any amendments thereto, including exhibits filed as a
part thereof, also are available for inspection and copying as set forth above.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON SUCH PERSON'S WRITTEN OR ORAL REQUEST, COPIES OF ANY SUCH DOCUMENTS, OTHER
THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN. REQUESTS SHOULD BE DIRECTED TO THE SECRETARY, UTILX
CORPORATION, P.O. Box 97009, KENT, WASHINGTON 98064-9709, TELEPHONE NUMBER
(253) 395-0200.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-16821)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30, September 30 and December 31, 1997; and
3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission on
April 29, 1988, including any amendment or report filed for the
purpose of updating such description.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of any offering of securities made by this Prospectus
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from their respective dates of filing.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.
THE COMPANY
UTILX is a specialty service provider to electric, telecommunications,
natural gas and other utilities and contractors, primarily in the United
States. Additionally, UTILX provides drilling equipment to contractors and
other users outside of the United States. The Company's primary service,
which it markets primarily under the FlowMole-Registered Trademark- name, is
installing and replacing underground cables and pipes using its trenchless
drilling technology. The Company sells its FlowMole drilling systems and
related products in international markets. The Company also provides its
CableCure-Registered Trademark- service to utility customers for injecting a
silicon fluid into electric and telephone cables to repair or prevent water
damage. The Company acquired worldwide exclusive licensing rights to the
CableCure process in 1991. UTILX is a Delaware corporation. The mailing
address of UTILX's principal executive offices is P.O. Box 97009, Kent,
Washington 98064-9709, and its telephone number is (253) 395-0200.
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RISK FACTORS
THE COMPANY IDENTIFIES THE FOLLOWING IMPORTANT FACTORS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS THAT MIGHT BE PROJECTED,
FORECAST, ESTIMATED OR BUDGETED BY THE COMPANY AS FORWARD-LOOKING INFORMATION.
ALL SUCH FACTORS ARE DIFFICULT TO PREDICT AND THE MAJORITY ARE BEYOND THE
CONTROL OF THE COMPANY. PROSPECTIVE PURCHASERS SHOULD CAREFULLY REVIEW THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE INFORMATION STATED BELOW. SEE "FORWARD-LOOKING INFORMATION."
COMPETITION
The Company has experienced a long-term trend of declining prices for
guided boring (FlowMole) 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 injection services, which are priced at a discount to replacement
costs, including replacement via guided boring. 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 installation and replacement 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 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 Services. The Company cannot predict the ultimate duration or the
magnitude of these decreases.
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 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 operation in any given fiscal quarter are
not necessarily indicative of results in any other fiscal quarter.
UTILITIES' BUDGETARY CONSIDERATIONS
Budgetary considerations arising from unfavorable regulatory determinations
on matters such as rate-setting, capitalization of services performed by the
Company, or siting of power production facilities; or from reductions in new
housing starts, reductions in electric utility revenues due to mild weather, and
general economic downturns have affected the ability of some of the Company's
utility customers to sustain their cable replacement or other maintenance
programs and accordingly adversely impact the Company's revenues and profits.
Although the Company has broadened its customer base, one customer generates a
significant portion of the Company's consolidated revenues, and a small number
of customers generate more than half of its CableCure 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 interject substantial volatility into the
Company's revenues and profits. Such factors resulted in deferrals of
significant CableCure projects scheduled for the third quarter of fiscal 1998.
DOW CORNING CORPORATION
The Company purchases its CableCure 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
business, there can be no assurance that Dow Corning or the bankruptcy court
will not take action to amend or terminate the CableCure license agreement.
4
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FLORIDA SUBCONTRACT NEGOTIATIONS
The Company is a party to an agreement (the "underlying agreement") under
which it utilizes a single Florida-based subcontractor for performance of
certain CableCure injection tasks for Florida Power & Light through
January 2000. The underlying agreement calls for the Company to pay the
subcontractor a percentage of the amount charged to Florida Power & Light for
certain services defined in the underlying agreement. The Company agreed to new
pricing in its contract with Florida Power & Light in the first quarter of
fiscal 1998. The Company is in a dispute with this subcontractor, over amounts
to be paid to the subcontractor effective April 1, 1997. An interim agreement,
subject to retroactive adjustments, was agreed to by the Company and the
subcontractor for the period April 1, 1997 to May 31, 1997. The subcontractor is
continuing to perform the injection services required by the Company under the
underlying agreement. The Company believes that payments made to the
subcontractor subsequent to April 1, 1997 are in conformity with the underlying
agreement. The subcontractor claims to be entitled to a percentage of
additional amounts. On October 31, 1997, the Company filed suit against the
subcontractor in Florida, seeking resolution of the price dispute, among other
matters. There can be no assurance that the final price settled upon for
payments to the subcontractor will not result in any adverse effect on the gross
profit realized by the Company under its contract with Florida Power & Light.
Based on the footage injected by the subcontractor during the first three
quarters of fiscal 1998, management of the Company does not anticipate that the
final resolution of this matter will result in any material adverse impact on
the results of operations or on the Company's consolidated financial position or
liquidity. The subcontractor may continue injection services until this matter
is resolved, which will serve to increase the total amount of footage subject to
the pricing dispute.
YEAR 2000 COMPLIANCE
The Company has determined that many of its computer software applications
do not accurately adjust for the year 2000. The Company has decided to replace
virtually all of its management information systems with new enterprise wide
software. The software selected is certified by the vendor to be year 2000
compliant. The Company expects to incur an increased level of operating
expenses during the fourth quarter of fiscal 1998, largely due to costs
associated with the planning and design of the software. Total expenditures are
anticipated to be between $2 million and $3 million, including internal labor
costs. However, there can be no assurance that the Company will not determine
that it is necessary to incur additional expenditures, which could be material.
The implementation of the new system is scheduled for no later than the third
quarter of fiscal 1999.
The Company has begun contacting its major vendors and customers to obtain
their assurance that systems affecting the Company are year 2000 compliant. To
date, the Company is unaware of any situations of noncompliance that would
adversely affect its operations. The Company has also analyzed its equipment
and its operations and has not identified any processes that depend upon
software that is date sensitive or otherwise subject to risks associated with
the year 2000.
REVENUES FROM ASIA
Due to adverse developments affecting the general economy in many Asian
countries, the Company does not expect significant levels of sales of FlowMole
drilling equipment to customers in Asia in the foreseeable future. However,
because the Company's largest markets for equipment sales in Asia are Japan and
Taiwan, countries less adversely impacted by economic factors than other Asian
countries, the Company does expect to continue to complete some level of
equipment sales. Also, the Company's Korean CableCure licensee has temporarily
suspended much of its operations. Revenue from Korea CableCure activities was
not material in the nine months ended December 31, 1997.
Because of the adverse developments affecting the general economy in Asian
countries, the Company may be required to pay for drilling systems that it
ordered in early 1997 in advance of opportunities to sell those drilling
systems. The Company ordered 55 drilling systems, and the delivery of 34 drills
and 24 field power units had been accepted as of December 31, 1997. The Company
will be required to accept delivery of the remaining drilling systems by the end
of fiscal 1999. The total committed expenditures for such equipment to be
delivered after December 31, 1997 is approximately $2.5 million. This equipment
may also be used to add capacity in the Company's North American operations;
however, there can be no assurance of the Company's ability to absorb all of the
remaining drilling systems in its internal operations.
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FOREIGN CURRENCY FLUCTUATIONS
The Company's financial results are affected by fluctuations in certain
foreign currencies, particularly the British Pound Sterling and the German
Deutschemark. Most of the Company's exposure to foreign currency fluctuations
is derived from the operations of the Company's wholly-owned subsidiary in the
United Kingdom.
SELLING STOCKHOLDER
The following table provides certain information regarding the Selling
Stockholder and the number of Shares being offered by it.
<TABLE>
<CAPTION>
SHARES THAT MAY BE SOLD SHARES BENEFICIALLY OWNED AFTER OFFERING
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SHARES BENEFICIALLY PERCENTAGE OF
OWNED PRIOR TO COMMON STOCK PERCENTAGE OF COMMON
NAME AND ADDRESS OFFERING AMOUNT OUTSTANDING AMOUNT STOCK OUTSTANDING
- ---------------------------------- ------------ ------------ ----------- ------------ ------------------------
<S> <C> <C> <C> <C> <C>
FlowMole Partners, a Research and 182,474 182,474 2.5% 0 --
Development Limited Partnership, a
Washington limited partnership
c/o Waterjet Technology, Inc.
General Partner
21414 68th Ave. South
Kent, Washington 98032
</TABLE>
The securities offered hereby are for the account of FlowMole Partners, a
Research and Development Limited Partnership, a Washington limited partnership
("FM Partners"). Prior to the offering contemplated hereby, FM Partners
beneficially owned 182,474 shares. Up to 182,474 shares may be sold in the
offering.
In the past, UTILX has had several contracts with FM Partners, including
research and development agreements and licensing agreements. Pursuant to a
Settlement Agreement dated June 14, 1993, under which disputes concerning
various agreements between the parties were settled, FM Partners received a
Stock Purchase Warrant (the "Warrant") to purchase 600,000 shares of the
Company's Common Stock at $5.50 per share. FM Partners acquired the Shares on
January 29, 1998, when it exercised the Warrant and a holder's option, which
allowed FM Partners to put the shares back to the Company at their current
value. As permitted by the Warrant, the Company elected to pay the difference
between the Warrant exercise price and the current value of the Warrant shares
by issuing 182,474 shares of Common Stock to FM Partners. Pursuant to the
Warrant, such number of shares was determined based on the average of the
last reported bid and asked prices reported on the National Association of
Securities Dealers, Inc. Automated Quotations System on the date five
business days before the effective date of the Registration Statement of
which this Prospectus forms a part.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common Stock
offered hereby.
PLAN OF DISTRIBUTION
The shares of Common Stock of UTILX are traded on the Nasdaq National
Market. The Shares may be sold from time to time by the Selling Stockholder in
transactions in the over-the-counter market through Nasdaq, or on one or more
other securities markets and exchanges, in privately negotiated transactions, or
otherwise, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices relating to such prevailing market prices or at
negotiated prices. The Selling Stockholder may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Stockholder and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they may sell as
6
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principals, or both. In connection with any sales, the Selling Stockholder and
any broker-dealers who participate in a sale of shares of Common Stock may be
deemed to be "underwriters" as defined in the Securities Act. Any commissions
paid or any discounts or concessions allowed to any such broker-dealers, and, if
any such broker-dealers purchase shares of Common Stock as principal, any
profits received on the resale of such shares of Common Stock, may be deemed to
be underwriting discounts and commissions under the Securities Act.
The rules of the Commission generally prohibit underwriters, brokers,
dealers and certain other persons engaged or participating in the distribution
of the Shares from making a market in such Shares during the "cooling off"
period preceding the commencement of such distribution.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless it has been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Pursuant to a Registration Rights Agreement with the Selling Stockholder,
UTILX has agreed to bear all expenses of registering the shares. Additionally,
UTILX has agreed to indemnify the Selling Stockholder, and any underwriters
offering securities on behalf of the Selling Stockholder, against certain
liabilities, including liabilities under the Act.
There can be no assurance that the Selling Stockholder will sell any or all
of the shares of Common Stock offered hereunder. It is anticipated that this
offering will remain in effect for 120 days or until the shares offered
hereunder have been sold, whichever is earlier.
EXPERTS
The consolidated financial statements of UTILX Corporation as of March
31, 1997 and 1996 and for each of the three years in the period ended March
31, 1997, incorporated by reference in this prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Perkins Coie LLP, Seattle, Washington.
7
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
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182,474 SHARES
UTILX CORPORATION
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
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PROSPECTUS
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March 3, 1998
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