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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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.
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TABLE OF CONTENTS
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ITEM PAGE
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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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UTILX CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30 AND MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARES)
ASSETS
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<CAPTION>
JUNE 30 MARCH 31
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(UNAUDITED)
<S> <C> <C>
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
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Total liabilities and stockholders' equity................... $ 39,804 $ 38,575
========== =========
</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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1999 1998
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Revenues...................................................................... $ 23,375 $ 22,024
Cost of revenues.............................................................. 20,075 19,447
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Gross profit............................................................. 3,300 2,577
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Operating expenses:
Selling, general and administrative...................................... 2,411 2,271
Research and Engineering................................................. 188 147
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Total operating expenses............................................. 2,599 2,418
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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)
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Comprehensive income (loss).............................................. $ 547 $ 9
========= =========
</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
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1999 1998
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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
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Total adjustments.................................................... (2,114) 2,602
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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
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Net cash provided by (used in) investing activities............. (225) (1,106)
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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)
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Net cash provided by (used in) financing activities............. 1,327 (1,338)
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EFFECT ON CASH FLOWS
OF CHANGES IN EXCHANGE RATES............................................... (5) 0
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Net increase (decrease) in cash and cash equivalents..................... (454) 174
CASH AND CASH EQUIVALENTS:
Beginning of period...................................................... 1,580 528
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End of period............................................................ $ 1,126 $ 702
========= =========
</TABLE>
(See Notes to Consolidated Financial Statements)
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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:
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Three Months Ended
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June 30,
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1999 1998
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Net income (loss)................................. $ 563 $ 16
====== ======
Divided by weighted average common 7,428 7,408
====== ======
shares outstanding ...............................
Basic earnings (loss) per common share............ $ .08 $ .00
====== ======
</TABLE>
Diluted earnings (loss) per common share:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
June 30,
--------
1999 1998
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<S> <C> <C>
Net income (loss) .................................. $ 563 $ 16
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Weighted average common shares outstanding........... 7,428 7,408
Stock options and warrants assumed
exercised - net, if dilutive................ 108 181
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Total diluted shares outstanding .................... 7,536 7,589
====== ======
Diluted earnings (loss) per common share............. $ .07 $ .00
====== ======
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3. ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
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(In Thousands)
June 30, 1999 March 31, 1999
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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)
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$19,344 $16,301
======= =========
</TABLE>
4. MATERIALS, SUPPLIES AND INVENTORIES
Materials, supplies and inventories consist of the following:
<TABLE>
<CAPTION>
(In Thousands)
June 30, 1999 March 31, 1999
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<S> <C> <C>
Raw materials and spare parts........................ $ 7,330 $ 8,377
Work in process...................................... 73 26
Less allowance for obsolete or overstocked
Inventory........................................... (868) (1,462)
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$ 6,535 $ 6,941
======= ========
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities, are as follows:
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<CAPTION>
(In Thousands)
June 30, 1999 March 31, 1999
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<S> <C> <C>
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
======= =======
</TABLE>
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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.
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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.
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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.
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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
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
10 Amended and Restated 1994 Option and Restricted Stock Plan.
Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
</TABLE>
<PAGE>
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,
<PAGE>
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.
<PAGE>
"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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,126
<SECURITIES> 0
<RECEIVABLES> 19,654
<ALLOWANCES> 310
<INVENTORY> 6,535
<CURRENT-ASSETS> 27,712
<PP&E> 37,966
<DEPRECIATION> 26,162
<TOTAL-ASSETS> 39,804
<CURRENT-LIABILITIES> 17,975
<BONDS> 5,650
0
0
<COMMON> 74
<OTHER-SE> 18,597
<TOTAL-LIABILITY-AND-EQUITY> 39,804
<SALES> 0
<TOTAL-REVENUES> 23,375
<CGS> 20,075
<TOTAL-COSTS> 22,674
<OTHER-EXPENSES> 138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178
<INCOME-PRETAX> 563
<INCOME-TAX> 0
<INCOME-CONTINUING> 563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563
<EPS-BASIC> .08
<EPS-DILUTED> .07
</TABLE>
