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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
(Rule 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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UTILX CORPORATION
(Name of Subject Company)
UTILX CORPORATION
(Name of Person(s) Filing Statement)
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Common Stock, Par Value $0.01 Per Share
(Title of Class of Securities)
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918031105
(CUSIP Number of Common Stock)
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William M. Weisfield
President and Chief Executive Officer
UTILX Corporation
22820 Russell Road
PO Box 97009
Kent, Washington 98064-9709
(253) 395-0200
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
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With a copy to
CARMEN L. SMITH, ESQ.
Graham & Dunn PC
1420 Fifth Avenue
33rd Floor
Seattle, WA 98101-2390
(206) 340-9642
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[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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Item 1. SUBJECT COMPANY INFORMATION
The name of the subject company is UTILX Corporation, a Delaware corporation
(the "Company"). The address of the Company's principal executive offices
22820 Russell Road, PO Box 97009, Kent, Washington 98064-9709. The telephone
number of the principal executive offices of the Company is (253) 395-0200.
The title of the class of equity securities to which this Schedule 14D-9
relates is the common stock, par value $0.01 per share (the "Common Stock") of
the Company together with the associated rights to purchase preferred stock
(the "Rights") issued pursuant to the Rights Agreement, dated as of November
6, 1998, between the Company and American Stock Transfer & Trust Company (the
shares of Common Stock and the associated Rights are referred to in this
Statement as the "Shares"). As of June 2, 2000 there were 7,475,944 Shares
issued and outstanding, options outstanding to purchase an aggregate of
1,572,416 shares of Common Stock under the Company's stock option plans.
Item 2. IDENTITY AND BACKGROUND OF FILING PERSONS
The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
This statement relates to the tender offer being made byInfrastruX
Acquisition, Inc., a Delaware corporation (the "Purchaser") and a wholly-owned
subsidiary of InfrastruX Group, Inc. a Washington corporation (the "Parent"),
to purchase all outstanding shares of Common Stock and associated rights upon
the terms and subject to the conditions set forth in Purchaser's Offer to
Purchase, dated June 30, 2000 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which, together as they may be amended from time to
time, constitute the "Offer"), at the purchase price of $6.125 per Share (the
"Offer Price"), net to the tendering shareholder in cash, without interest.
A copy of the Offer to Purchase is attached as Exhibit (a)(1) hereto and is
incorporated herein by reference. Copies of the Offer to Purchase and the
Letter of Transmittal are being furnished to the Company's shareholders
concurrently with this Schedule 14D-9.
The Offer is described in a Tender Offer Statement on Schedule TO (as
amended or supplemented from time to time, the "Schedule TO"), dated June 30,
2000, filed by Purchaser with the Securities and Exchange Commission (the
"SEC") on June 30, 2000.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of June 28, 2000 among the Company, the Purchaser and Parent (the "Merger
Agreement"). The Merger Agreement provides, among other things, for the
commencement of the Offer by the Purchaser and further provides that, as soon
as practicable after consummation of the Offer and the satisfaction or waiver
of the other conditions set forth in the Merger Agreement, and in accordance
with the relevant provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), the Purchaser will be merged with and into the Company
(the "Merger"). The Company will continue as the surviving corporation after
the Merger and will be a wholly-owned subsidiary of Parent. At the effective
time of the Merger, each outstanding Share not tendered in the Offer (other
than Shares owned by the Company as treasury stock, the Parent, Purchaser or
any direct or indirect subsidiary of the Parent or Purchaser, or by
shareholders, if any, who are entitled to and who properly exercise appraisal
rights under the DGCL) will be converted into the right to receive $6.125 per
Share, the same amount per share as the Offer Price in the Offer (the "Merger
Consideration").
The Schedule TO states that the principal executive offices of the Purchaser
and Parent are located at One Bellevue Center, Bellevue, Washington 98004. All
information concerning the Purchaser, the Parent, or their affiliates, or
actions or events in respect of any of them, was provided by the Purchaser
and/or Parent, and the Company assumes no responsibility therefor.
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Item 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Except as set forth in this Item 3, to the knowledge of the Company there
are no material agreements, arrangements or understandings and no actual or
potential conflicts of interest between the Company or its affiliates and (i)
the Company's executive officers, directors or affiliates, or (ii) the
Purchaser, its executive officers, directors or affiliates.
In considering the recommendation of the special committee of the Board of
Directors (the "Special Committee", which is described below) set forth in
Item 4, the Company's shareholders should be aware that certain members of the
Company's management and certain members of the Company's Board of Directors
have interests in the Offer and the Merger, which are described below and
which may present them with certain conflicts of interest. The Special
Committee is aware of these potential conflicts and considered them along with
the other factors described in Item 4 below in making its recommendation.
John D. Durbin, a director of the Company, is also the President and Chief
Executive Officer of Parent, and a director of Puget Sound Energy, Inc., which
wholly owns Parent. John W. Ellis, a director of the Company, is also a
director of Puget Sound Energy, Inc. In view of these facts, the Company's
Board of Directors appointed the Special Committee to act on behalf of the
entire Board of Directors in connection with the evaluation and approval of
the Offer and the Merger. The Special Committee is composed of Messrs. Bright,
Higgins and Runice, all disinterested non-employee directors of the Company.
Mr. Gannon, also a disinterested director, was initially appointed to the
Special Committee upon his appointment as a director on June 9, 2000, but
subsequently recused himself in light of his relative inexperience with the
Company's business and affairs, and his inability to fully participate in the
Special Committee's evaluations. Because William M. Weisfield will serve as
President of the Company, as the surviving corporation following the Merger,
pursuant to the employment agreement described below, it was determined that
Mr. Weisfield would act only in an advisory capacity to the Special Committee,
and not as a voting member, but would coordinate the meetings of the Special
Committee and act as its Chair.
Parent is a wholly-owned subsidiary of Puget Sound Energy, Inc. ("PSE"). The
Company provides services to PSE in the ordinary course of its business. In
the fiscal year ended March 31, 2000, the Company received approximately
$480,000 from PSE for providing such services.
The Company has entered into executive employment agreements with William
Weisfield, effective November 1, 1998, which among other things, contain
provisions regarding payments to be made to Mr. Weisfield in the event of
termination due to a change of control of the Company. The Company has also
entered into an Incentive Compensation Agreement with Glen J. Bertini, Senior
Vice President Business Development. These agreements are described under
"Employment Contracts and Termination of Employment and Change of Control
Arrangements" in the Information Statement attached as Annex B to this
Statement.
Pursuant to the Merger Agreement, the Company and Parent have entered into
an employment agreement with Mr. Weisfield, which will be effective on the
closing of the Merger. Mr. Weisfield will serve as the President of the
Company following the Merger. The agreement may be terminated by either Mr.
Weisfield or the Company at any time, with or without reason. The agreement
provides for an annual base salary of $325,000, subject to increase in future
years in the discretion of the Company's Board. Mr. Weisfield will also be
granted stock options, following the Parent's adoption of a stock option plan,
to purchase a number of shares of Parent common stock equal to 1% of the
Parent's outstanding stock, subject to standard vesting provisions and at an
exercise price equal to the fair market value of the Parent common stock on
the date of grant. If Mr. Weisfield's employment is terminated without cause
(as defined in the agreement) or if Mr. Weisfield terminates his employment
for good reason (as defined in the agreement), he will be entitled to receive
termination payments equal to eight months salary. The preceding summary of
the employment agreement is qualified in its entirety by reference to the
Employment Agreement, a copy of which is attached as Exhibit (e)(9) and
incorporated herein by reference.
The Company has also entered into an employment agreement, dated as of
September 1, 1993 with Mr. Glenn Bertini. The agreement is for successive one
year terms commencing September 1, 1993, and is
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automatically renewed on each anniversary date unless at least 60 days prior
to any such anniversary date either party gives notice to the other party that
the agreement will not be extended. The agreement provides that in the event
of the termination of Mr. Bertini's employment without cause, as defined in
the agreement, or in the event of Mr. Bertini's termination of the agreement
for good reason (as defined in the agreement), Mr. Bertini will be entitled to
receive a severance payment equal to one year's base salary (so long as he has
not become reemployed with another employer) and an amount equal to his annual
bonus, prorated to the date of such termination. The agreement also provides
that Mr. Bertini will receive a like amount in the event of his termination
for any reason, except for cause, or his voluntary termination, within 180
days of a change of control of the Company. The preceding summary of the
agreement is qualified in its entirety by reference to the Employment
Agreement, a copy of which is attached as Exhibit (e)(11) and incorporated
herein by reference.
Confidentiality Agreement. Effective as of May 24, 2000, the Company and
Parent entered into a Confidentiality Agreement (the "Confidentiality
Agreement") pursuant to which the parties agreed to provide, among other
things, for the confidential treatment of their discussions regarding the
Offer and the Merger and the exchange of confidential information.
The Confidentiality Agreement also provides that for a period of two years
from the date of such agreement, each party agrees that unless specifically
invited in writing by the other party, neither party nor any affiliate will
directly or indirectly effect or seek, offer or propose to effect, or assist
any other person to effect or seek, offer or propose, any (i) acquisition of
the securities or assets of the other party; (ii) tender or exchange offer,
merger or other business combination involving the other party: (iii) any
recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to the other party; or (iv) any
solicitation of proxies or consents to vote any voting securities of the other
party, or otherwise act, alone or in concert with others, to seek to control
or influence the other party.
The preceding summary of the Confidentiality Agreement is qualified in its
entirety by reference to the Confidentiality Agreement, a copy of which is
attached as Exhibit (e)(4) to this Statement and incorporated herein by
reference.
Non-Solicitation and Expense Reimbursement Agreement. Effective as of June
14, 2000, the Company and Parent entered into a Non-Solicitation and Expense
Reimbursement Agreement (the "Non-Solicitation Agreement"). The provisions of
the Non-Solicitation Agreement have subsequently been superceded by provisions
of the Merger Agreement. The Non-Solicitation Agreement provided that until
the earlier of June 30, 2000 or the signing of a definitive Merger Agreement,
the Company would cease all discussions with any parties other than Parent
with respect to any proposed merger, acquisition or similar transaction, and
would not initiate, solicit or encourage inquiries, negotiations or proposals
with respect to any such transactions. The Company was not prevented, however,
from responding to, or engaging in discussions with another party who made an
unsolicited inquiry or proposal to merge with or acquire the Company. The
Company was required to immediately notify Parent of any unsolicited inquiries
or proposals, and if an unsolicited proposal was received by the Company,
Parent was relieved of its "standstill" obligations, as described above, under
the Confidentiality Agreement. On June 14, 2000, the Company received an
unsolicited inquiry from a third party, and pursuant to the agreement advised
Purchaser of such inquiry and its intention to respond to such inquiry. The
Company responded to the inquiry and subsequently received additional
inquiries from such third party. The Company, together with Banc of America
Securities LLC, its financial adviser, responded to these inquiries. As of the
date of this statement, however, the Company has not received any proposal
from such third party.
The Non-Solicitation Agreement also provided that, in order to facilitate
negotiations, Parent would reimburse the Company for its actual reasonable
expenses incurred with respect to professional fees in connection with the
Offer and the Merger, up to a maximum amount of $150,000.
The preceding summary of the Non-Solicitation Agreement is qualified in its
entirety by reference to the Non-Solicitation Agreement, a copy of which is
attached as Exhibit (e)(5) to this Statement and incorporated herein by
reference.
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The Merger Agreement. A summary of the material terms of the Merger
Agreement and the description of the conditions of the Offer is included in
Section 12 of the Offer to Purchase, which is incorporated herein by
reference. Such summary may not contain all of the information that is
important to you. Accordingly, you should read the Merger Agreement in its
entirety for a more complete description of the material that is summarized in
the Offer to Purchase. A copy of the Merger Agreement is filed as Exhibit
(e)(1) hereto and is incorporated herein by reference.
Company shareholders do not have any appraisal or dissenters rights with
respect to the Offer. However, shareholders who do not tender their shares
will have certain rights under Delaware law to dissent and demand appraisal of
their shares if the Merger is consummated. These rights and the procedures
required to exercise such rights are summarized in the Offer to Purchase and
the applicable statute is filed as Exhibit (a)(5) hereto and incorporated
herein by reference.
Purchaser's Designation of Persons to be Elected to the Company's Board of
Directors. The Merger Agreement provides that, promptly upon the acquisition
by Purchaser pursuant to the Offer of at least 67% of the Shares outstanding
on a fully diluted basis (including all Shares issuable upon the cash exercise
of all vested and unvested stock options, warrants and conversion of any
convertible securities or other rights to purchase or acquire Shares), Parent
will be entitled to designate a majority of the Company's Board of Directors.
The Company agrees, upon request of Parent, to promptly increase the size of
the Board of Directors and/or secure the resignations of such number of
directors as is necessary to enable parent's designees to be elected to the
Board of Directors and to cause Parent's designees to be so elected. The
Information Statement attached as Annex B to this Statement is being furnished
in connection with the possible designation by Parent, pursuant to the terms
of the Merger Agreement, of certain persons to be elected to the Board of
Directors other than at a meeting of the Company's shareholders.
Indemnification; Directors and Officers Insurance. Pursuant to the Merger
Agreement, from and after the effective time of the Merger, Parent will cause
the Company, as the surviving corporation in the Merger, to fulfill and honor
in all respects the obligations of the Company pursuant to any indemnification
agreements between the Company and its directors and officers as of the
effective time of the Merger. The Merger Agreement also provides that the
Restated Certificate of Incorporation and Bylaws of the Company, as the
surviving corporation in the Merger, will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Company's directors and officers as those contained in the Company's Restated
Certificate of Incorporation and Bylaws as in effect on the date of the Merger
Agreement, which provisions will not be amended, repealed or otherwise
modified for a period of six years following the effective time of the Merger,
in any manner that would adversely affect the rights of individuals who,
immediately prior to the Merger, were directors, officers, employees or agents
of the Company, unless such modification is required by law.
The Merger Agreement further provides that for a period of at least six
years after the effective time of the Merger, Parent will cause the Company,
as the surviving corporation in the Merger, to maintain in effect the current
policies of directors' and officers' liability insurance maintained by the
Company, or substitute policies of equal coverage, with respect to claims
arising from facts or events that occurred before the effective time of the
Merger.
Effects of the Offer and the Merger on Company Stock Option Plans. The
Merger Agreement provides that as soon as reasonably practicable following the
date that the Purchaser acquires at least 67% of the Shares pursuant to the
Offer, the Company will use its best efforts to take actions necessary to
effect the following with respect the Company's stock option plans: (i) adjust
the terms of all outstanding stock options, whether vested or unvested, as
necessary to provide that each outstanding stock option, vested or unvested,
shall be cancelled immediately prior to the Merger, with the holder thereof
becoming entitled to receive an amount in cash equal to the excess, if any, of
the Offer Price over the exercise price per Share of the Common Stock subject
to the option, multiplied by the number of Shares for which such option has
not previously been exercised: and (ii) to make such other changes to the
plans as the Company and Parent may agree are appropriate to give effect to
the Merger. Under the Company's employee stock option plans, all unvested
options become exercisable upon a
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change of control and, in some cases, options may be cashed out. The stock
option plan pursuant to which director stock options have been granted
contains no such acceleration provisions. However, pursuant to the terms of
the Merger Agreement all outstanding options, both employee and director
options, will be accelerated and cashed out upon the closing of the Merger.
Item 4. THE SOLICITATION OR RECOMMENDATION
Recommendation of the Special Committee. The Special Committee, at a meeting
held on June 28, 2000, unanimously determined that the Merger represents the
best available transaction to the Company and that the terms of the Merger
Agreement, including the Offer and the Merger, are advisable, fair to and in
the best interests of the shareholders of the Company. At this meeting, the
Special Committee approved the Merger Agreement, the Offer and the Merger and
the other transaction contemplated by the Merger Agreement.
The Special Committee unanimously recommends that shareholders accept the
Offer and tender their shares in the Offer.
A letter to the Company's shareholders communicating the Special Committee's
recommendation and a joint press release announcing the Offer are filed
herewith as Exhibit (a)(3) and Exhibit (a)(4), respectively, and are
incorporated herein by reference.
Background; Reasons for the Special Committee's Recommendation.
On May 21, 2000, John Durbin, a director of Parent and Chief Executive
Officer of Purchaser, met informally with William Weisfield, Chairman and
Chief Executive Officer of the Company, to discuss a potential business
combination between the Company and Parent, a newly-formed subsidiary of Puget
Sound Energy, Inc. Mr. Durbin knew of the Company and Mr. Weisfield through
his membership on the Board of Directors of the Company.
On May 24, 2000, Mr. Durbin, Mr. Weisfield and Michael Lennon, a Managing
Director at Emerge Corporation, financial advisor to Parent, discussed the
Company's business at the offices of the Company and engaged in preliminary
discussions about a possible fit between the Company and Parent.
On May 24, 2000, Parent entered into the Confidentiality Agreement with the
Company.
On May 26, 2000, Mr. Durbin, Mr. Lennon and Mr. Weisfield met at the offices
of Emerge Corporation. At the meeting, Parent presented the Company with a
proposal to purchase all of the outstanding stock of the Company in a cash
tender offer. Parent also described its preliminary valuation of the Company.
On May 27, 2000, Mr. Weisfield and Darla Norris, the Company's Senior Vice
President and Chief Financial Officer, met with the Company's counsel to
discuss and review the terms of the proposal.
On May 31, 2000, the Company's Board of Directors met to discuss the
proposal of Parent. Due to potential conflicts of interest (as described in
Item 3), Messrs. Durbin and Ellis were absent, having recused themselves. Mr.
Weisfield reviewed with the Board, his meetings and discussions with
representatives of Parent. Management also discussed its initial contact with
potential financial advisers. Following extensive discussion, the Board formed
the Special Committee of disinterested non-employee directors to consider the
sale of the Company, including the proposal of Parent. The Board also
discussed the receipt of an unsolicited inquiry from a third party and a
planned meeting with such third party. Mr. Weisfield and Ms. Norris reported
on their identification of and contact with three potential investment
bankers.
On June 6, 2000, Mr. Durbin, Mr. Lennon, Mr. Weisfield and Ms. Norris met at
the offices of Emerge Corporation to discuss Parent's operating plan and
strategy, change of control provisions in the Company's contracts, and the
structure of the tender offer and valuation.
On June 7, 2000, the Special Committee met to discuss the status of the
proposal from Purchaser. The Company's management reported on its meetings
with potential financial advisors and provided its
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recommendations to the Special Committee. Based on such recommendations, the
Special Committee approved the engagement of BAS.
On June 7, 2000, Mr. Durbin, Mr. Lennon, and representatives of Perkins Coie
LLP, counsel to Parent, met with Mr. Weisfield and Ms. Norris and
representatives of Graham & Dunn PC, counsel to the Company, at the offices of
Graham & Dunn to discuss issues relating to timing and expenses, a
nonsolicitation agreement presented by Parent, and the duties of the Company's
Board of Directors.
On June 9, 2000, the Special Committee met to further consider the proposal
of Parent. Mr. Weisfield reported on his meeting with Parent and its counsel
and reviewed the status of the proposal. With input from management and
representatives of BAS, the Special Committee discussed the factors that would
be considered in analyzing the Company's value, reviewed stock trading
history, certain Company financial information, and the Company's strategic
plan. Following such discussions, the Special Committee authorized
Mr. Weisfield and Darla Norris, the Company's Senior Vice President and Chief
Financial Officer, to pursue negotiations with Parent of a definitive
agreement to acquire the Company, subject to the Special Committee's further
review and approval and the condition that such negotiations preserve the
ability of the Company to consider and pursue any potentially superior offer
and to obtain reimbursement of expenses.
On June 12, 2000, the Special Committee met to further discuss the proposal
of Parent, including the proposed Non-Solicitation Agreement, and the
engagement of BAS. The Special Committee received information from management
and its corporate and securities counsel regarding the proposed transaction,
including a review of filings necessary under applicable antitrust laws and
securities matters related to the proposed transaction.
On June 14, 2000, the Company and Parent entered into the Non-solicitation
Agreement.
On June 14, 2000, the Company engaged BAS as its financial advisor.
On June 20, 2000, members of the Company's management, Mr. Durbin, Mr.
Weisfield, and representatives of BAS, Graham & Dunn PC, Emerge Corporation
and PricewaterhouseCoopers, Parent's accountants, held meetings at the offices
of Graham & Dunn PC to discuss due diligence matters.
On June 20, 2000, Mr. Weisfield met with Mr. Durbin and Mr. Lennon to
discuss due diligence matters and the status of the proposed transaction.
On June 22, 2000, Mr. Weisfield, representatives of Graham & Dunn PC, Mr.
Durbin, representatives of Emerge Corporation, and representatives of Perkins
Coie LLP met to negotiate the terms of the Merger Agreement.
From June 22 through June 28, 2000, the Company, Parent and their respective
counsel continued to negotiate the Merger Agreement and began preparation of
the offering materials and exhibits.
On June 26, 2000, the Special Committee met with management, representatives
of BAS and Graham & Dunn PC, for an update of the status of the proposal and
to conduct a preliminary review of the terms of the proposed Merger Agreement.
On June 28, 2000, the Special Committee reviewed the proposed transactions
with management, and representatives of Graham & Dunn PC and BAS, and approved
the Merger Agreement and transactions contemplated thereby.
On June 28, 2000, the parties concluded negotiations and executed the Merger
Agreement.
Reasons for the Special Committee's Recommendation. In approving the Merger,
the Offer and the Merger Agreement, and recommending that all shareholders
tender their Shares, the Special Committee considered a number of factors,
including:
1. The Special Committee considered the current and historical financial
condition and results of operation of the Company, as well as the prospects
and strategic objectives of the Company, including the
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risks involved in achieving those prospects and objectives, and the current
and expected conditions in the industries in which the Company operates its
business. The Special Committee discussed its belief that the Company's
Common Stock has historically been undervalued and the challenges of a
relatively small market capitalization in the marketplace.
2. The Special Committee considered the relationship of the Offer Price
and the Merger Consideration to the historical market price of the Common
Stock. The $6.125 Offer Price and the Merger Consideration exceed the
average closing price of the Common Stock during the one month and one year
periods preceding the announcement of the Offer ($4.125 and $4.445,
respectively) and represent a 40% premium over the $4.375 Nasdaq National
Market closing price of the shares on June 28, 2000 (the last trading day
prior to the announcement of the Offer). The Special Committee also
considered the form of consideration to be paid to holders of shares of the
Common Stock in the Offer and the Merger, and the certainty of cash
consideration as opposed to stock consideration. The Special Committee was
aware that the consideration to be received by holders of the shares in the
Offer and the Merger would be taxable to holders for federal income tax
purposes.
3. The Special Committee participated in presentations from Banc of
America Securities LLC ("BAS") and reviewed the opinion of BAS, dated June
28, 2000, that, based upon and subject to certain considerations and
assumptions, the consideration to be received by the Company's stockholders
in the Offer and the Merger is fair, from a financial point of view, to the
Company's stockholders. A copy of the opinion delivered by BAS to the
Special Committee, setting forth the procedures followed, the matters
considered and the assumptions made by BAS in arriving at its opinion, is
attached hereto as Annex A and incorporated herein by reference.
Stockholders are urged to read this opinion in its entirety.
4. The Special Committee recognized that the obligation of Purchaser to
consummate the Offer and the Merger is subject to a relatively limited
number of conditions, and is not subject to any financing conditions on the
part of Purchaser. The Special Committee also considered the likelihood of
obtaining required regulatory approvals, and the terms of the Merger
Agreement regarding the obligation of both companies to pursue such
regulatory approvals.
5. The Special Committee considered that under the terms of the Non-
Solicitation Agreement, while the Company was prohibited from soliciting
acquisition proposals from third parties, the Company was permitted to
respond to, and under certain circumstances engage in discussions with,
another party who made an unsolicited inquiry or acquisition proposal. The
provisions of the Merger Agreement that supercede the Non-Solicitation
Agreement provide that the Company may respond to, and engage in
discussions with and furnish information to, third parties having made an
unsolicited, bona fide acquisition proposal that the Special Committee in
good faith determines, upon advice of its independent financial advisors,
would result in a transaction more favorable, from a financial point of
view, than the transactions contemplated by the Merger Agreement and for
which there would not be a financing condition; if the Special Committee
determines to accept and recommend such acquisition proposal, the Merger
Agreement will be terminated and the Company will be obligated to pay
Purchaser $2,000,000 as liquidated damages. The Special Committee has
considered the possible effect of these provisions on third parties who
might be interested in exploring a business combination with the Company.
In this regard, the Special Committee recognized that the provisions of the
Non-Solicitation Agreement and the superceding provisions of the Merger
Agreement were insisted upon by Purchaser and Parent as a condition to
entering into the Merger Agreement and would be a factor in negotiating the
Offer Price and the Merger Consideration.
6. The Special Committee considered the fact that pursuant to the Non-
Solicitation Agreement, Purchaser advanced $50,000, and upon the execution
of the Merger Agreement advanced an additional $225,000, to defray expenses
to be incurred in connection with the Offer and the Merger. Pursuant to the
Merger Agreement, such advances are required to be repaid to Purchaser only
if the Merger Agreement is terminated due to the fact that the Company is
in material breach of any of its covenants or obligations under the Merger
Agreement, or if there is any material inaccuracy in the representations
and warranties of the Company contained in the Merger Agreement.
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7. The Special Committee considered the complementary nature of Parent's
business and the Company's business, and Parent's intent to maintain the
Company's business strategy and employees.
In view of the many factors considered, the Special Committee did not find
it practical to, and did not, quantify or otherwise assign relative weights to
the specific factors considered. After weighing all of these considerations,
the Special Committee determined that the Merger, and the transactions
contemplated by the Merger, represented the best available transactions to the
Company and unanimously approved the Merger Agreement and resolved to
recommend that holders of shares of Common Stock tender their shares in the
Offer.
Intent to Tender. To the extent known by the Company after making reasonable
inquiry, all of the members of the Board of Directors and the Company's
executive officers currently intend to tender in the Offer all Shares that
they own of record or beneficially (other than shares where beneficial
ownership is disclaimed), unless to do so would subject any such person to
liability under Section 16(b) of the Securities Exchange Act of 1934. The
foregoing does not include any Shares over which, or with respect to which,
any such executive officer or director acts in a fiduciary or representative
capacity or is subject to the instructions of a third party with respect to
such tender.
Item 5. PERSONS/ ASSETS RETAINED, EMPLOYED OR TO BE COMPENSATED OR USED
Pursuant to a letter agreement dated as of June 14, 2000, the Company has
retained BAS to act as its financial advisor in connection with transactions
involving business opportunities acceptable to the Company whereby the Company
may be combined with a business partner, including the Offer and Merger.
Pursuant to the terms of this engagement, the Company has agreed to pay BAS a
nonrefundable fee of $50,000, payable upon execution of the letter agreement,
and an additional fee of $150,000 payable upon the Company's entering into an
agreement for a Transaction as defined in the letter agreement. Additionally,
BAS will receive a success fee of $900,000 (less the amount of fees paid as
described in the preceding sentence) plus an amount equal to 4% of aggregate
consideration in excess of $60 million payable upon consummation of a
transaction. However, if the Merger Agreement with Parent and Purchaser is
consummated, and no potential purchaser other than Parent and Purchaser is
involved, the $900,000 fee will be adjusted to $750,000. The Company has also
agreed to reimburse BAS for out-of-pocket expenses, including the fees and
expenses of legal counsel, and to indemnify BAS and related parties against
certain liabilities, including liabilities arising under the federal
securities laws, relating to or arising out of its engagement.
Neither the Company nor any person acting on its behalf has or currently
intends to employ, retain or compensate any other person to make solicitations
or recommendations to shareholders of the Company on its behalf with respect
to the Offer and the Merger.
Item 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
Except for the transaction described below, no transactions in shares of the
Common Stock have been effected in the past 60 days by the Company or, to the
knowledge of the Company, by any affiliate, executive officer or director of
the Company.
On June 9, 2000, in connection with his election to the Company's Board of
Directors, the Company granted stock options for the purchase of 10,000 Shares
to Robert P. Gannon, at an exercise price of $4.00 per Share. Such options
were granted pursuant to the Company's 1987 Restated Stock Option Plan for
Non-Employee Directors.
Item 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that
relate to (i) a tender offer or other acquisition of the Company's securities
by the Company, any subsidiary of the Company, or any other person; (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (iii) a purchase, sale
or transfer of a material amount of assets of the Company or any subsidiary of
the Company; or (iv) any material change in the present dividend rate or
policy, or indebtedness or capitalization of the Company.
9
<PAGE>
Except as set forth in this Statement, there are no transactions,
resolutions of the board of directors, agreements in principle, or signed
contracts in response to the Offer that relate to or would result in one or
more of the events referred to in the preceding paragraph.
Item 8. ADDITIONAL INFORMATION
Rights Agreement. On June 28, 2000, the Rights Agreement, dated as of
November 6, 1998, between the Company and American Stock Transfer & Trust
Company, as Rights Agent, was amended (the "Amendment to Rights Agreement")
(a) to render the Rights Agreement inapplicable with respect to the Offer, the
Merger, the Merger Agreement and the transactions contemplated hereby and
thereby, and (b) to ensure that (i) neither Parent nor Purchaser nor any of
their Affiliates (as defined in the Rights Agreement) is considered to be an
Acquiring Person (as defined in the Rights Agreement) and (ii) the provisions
of the Rights Agreement, including the occurrence of a Distribution Date (as
defined in the Rights Agreement), are not and shall not be triggered by reason
of the announcement or consummation of any of the other transactions
contemplated by the Merger Agreement. A copy of the Amendment to Rights
Agreement is attached hereto as Exhibit (e)(6) and is incorporated herein by
reference.
Regulatory Approvals. The Offer is subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the rules
promulgated pursuant to the HSR Act, which provides that certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Anti-
Trust Division") and the Federal Trade Commission (the "FTC") and certain
waiting period requirements have been satisfied.
Pursuant to the requirements of the HSR Act, the Purchaser has advised the
Company that it expects to file a Notification and Report Form with respect to
the Offer and the Merger with the Antitrust Division and the FTC on or about
June 30, 2000. The waiting period applicable to the purchase of shares
pursuant to the Offer would be scheduled to expire at 11:59 p.m., New York
City time, on the 15th day after filing, unless early termination of the
waiting period is granted. If, however, within the initial 15 day period,
either the Antitrust Division or the FTC requests additional information or
material from InfrastruX Group, Inc. concerning the Offering, the waiting
period will be extended and would expire at 11:59 p.m., New York City time, on
the 10th day after the date of substantial compliance by the Purchaser with
such request. Only one extension of the waiting period pursuant to a request
for additional information is authorized by the HSR Act. Thereafter, such
waiting period may only be extended by court order or with the consent of the
Purchaser. In practice, complying with a request for additional information or
material can take a significant amount of time. In addition, if either the
Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties may engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and
may agree to delay consummation of the transaction while such negotiations
continue. The relevant governmental agency may also seek to prevent the
consummation of the transaction as discussed below. Expiration or termination
of applicable waiting periods under the HSR Act is a condition of the
Purchaser's obligation to accept for payment and pay for shares of Common
Stock tendered pursuant to the Offer.
The FTC and the Antitrust Division frequently scrutinize the legality under
antitrust laws of transactions such as the Purchaser's proposed acquisition of
shares pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of the shares, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable
in the public interest, including seeking to enjoin the acquisition of shares
pursuant to the Offer or the consummation of the Merger, or seeking
divestiture of the shares acquired by the Purchaser or divestiture of
substantial assets of Parent, Purchaser or their subsidiaries or the Company
or its subsidiaries. Private parties and state attorneys general may also
bring actions under the antitrust laws under certain circumstances.
The Company does not, and the Purchaser has advised the Company that it does
not, believe that the consummation of the Offer or the Merger will result in a
violation of the antitrust laws. Nevertheless, there can be no assurance that
a challenge to the Offer or the Merger on antitrust grounds will not be made
or, if such a challenge is made, of the ultimate result.
10
<PAGE>
Item 9. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(a)(1) Offer to Purchase dated June 30, 2000 (incorporated by reference
to Exhibit (a)(1) to the Schedule TO of Purchaser filed on June
30, 2000).
(a)(2) Letter of Transmittal (incorporated by reference to Exhibit (a)(2)
to the Schedule TO of Purchaser filed on June 30, 2000).
(a)(3) Letter to Shareholders of UTILX Corporation, dated June 30, 2000.*
(a)(4) Joint Press Release issued by Parent and the Company on June 29,
2000 (incorporated by reference to Exhibit 99.1 of the Form 8-K
filed by the Company on June 29, 2000).
(a)(5) Appraisal Rights (Section 262 of the Delaware General Corporation
Law) (incorporated by reference to Annex A to the Offer to
Purchase, Exhibit (a)(1) of the Schedule TO of Purchaser filed on
June 30, 2000).
(e)(1) Agreement and Plan of Merger, dated as of June 28, 2000, among
Parent, Purchaser and the Company (incorporated by reference to
Exhibit (d)(1) to the Schedule TO of Purchaser filed on June 30,
2000).
(e)(2) Opinion of Banc of America Securities LLC, dated June 28, 2000
(included as Annex A to the Statement).*
(e)(3) The Information Statement of the Company dated June 30, 2000
(included as Annex B to the Statement).*
(e)(4) Confidentiality Agreement, dated as of May 24, 2000, between
Parent and the Company (incorporated by reference to Exhibit
(d)(2) to the Schedule TO of Purchaser filed on June , 2000).
(e)(5) Non-Solicitation and Expense Reimbursement Agreement, dated as of
June 14, 2000, between Parent and the Company (incorporated by
reference to Exhibit (d)(3) to the Schedule TO of Purchaser filed
on June 30, 2000).
(e)(6) Amendment to Rights Agreement, dated as of June 28, 2000, to the
Rights Agreement, dated as of November 6, 1998, between the
Company and American Stock Transfer & Trust Company (incorporated
by reference to Exhibit 2.1 to the Form 8-A/A of the Company filed
on June 29, 2000).
(e)(7) Senior Management Employment Agreement between the Company and
William Weisfield, dated as of November 1, 1998 (incorporated by
reference to Exhibit 10.2 to the Form 8-K filed by the Company on
December 4, 1998).
(e)(8) Executive Employment Agreement, dated as of November 1, 1998,
between the Company and William Weisfield (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed by the Company on
December 4, 1998).
(e)(9) Employment Agreement among the Company, Parent and William
Weisfield, dated as of June 28, 2000 (incorporated by reference to
Exhibit (d)(4) to the Schedule TO of Purchaser filed on June 30,
2000).
(e)(10) Incentive Compensation Agreement between the Company and Glen
Bertini, dated as of October 29, 1999 (incorporated be reference
to Exhibit 10.9 to the Form 10-K of the Company for the fiscal
year ended March 31, 2000).
(e)(11) Employment Agreement between the Company and Glen Bertini, dated
as of September 1, 1993.
(g) Not applicable.
</TABLE>
--------
* Included with the Statement mailed to shareholders.
11
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
DATED: June 30, 2000
/s/ William M. Weisfield
_____________________________________
William M. Weisfield, President and
Chief Executive Officer
12
<PAGE>
ANNEX A
[LETTERHEAD OF BANK OF AMERICA]
June 28, 2000
Special Committee of the
Board of Directors
UTILX Corporation
22820 Russell Road
P.O. Box 97009
Kent, Washington 98064
Members of the Special Committee of the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of UTILX Corporation (the "Company") of the
consideration proposed to be received by such stockholders in the proposed
tender offer (the "Offer") by InfrastruX Acquisition, Inc. (the "Purchaser"),
a wholly owned subsidiary of InfrastruX Group, Inc. (the "Parent"), a wholly
owned subsidiary of Puget Sound Energy, Inc. for all of the outstanding shares
of Common Stock, no par value, of the Company (the "Company Common Stock") and
the proposed subsequent merger (the "Merger" and together with the Offer, the
"Transactions") of the Purchaser with and into the Company. Pursuant to the
terms of the Agreement and Plan of Merger, to be dated as of June 28, 2000
(the "Agreement"), among the Company, the Parent and the Purchaser, the
Purchaser will commence the Offer at an offer price of $6.125 per share in
cash, and subsequently engage in the Merger pursuant to which the Company will
become a wholly owned subsidiary of the Parent and stockholders of the Company
will receive for each share of Company Common Stock held by them, other than
shares held in treasury or held by the Purchaser or any affiliate of the
Purchaser or as to which dissenters' or appraisal rights have been perfected,
consideration equal to $6.125 per share. The terms and conditions of the
Transactions are more fully set out in the Agreement.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company;
(iii) analyzed certain financial forecasts prepared by the management of
the Company;
(iv) discussed the past and current operations, financial condition and
prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Company
Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Company Common Stock with that of certain
other publicly traded companies we deemed relevant;
(vii) compared certain financial terms of the Transactions to financial
terms, to the extent publicly available, of certain other business
combination transactions we deemed relevant;
(viii) reviewed the June 27, 2000 draft of the Agreement and certain
related documents;
(ix) performed such other analyses and considered such other factors as
we have deemed appropriate.
A-1
<PAGE>
Special Committee of the
Board of Directors
UTILX Corporation
June 28, 2000
Page 2
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by
us for the purposes of this opinion. With respect to the financial forecasts,
we have assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the future
financial performance of the Company. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have
we been furnished with any such appraisals.
We were requested not to and did not contact any other parties with respect
to the sale of all or any part of the Company or any other alternative
transaction other than those parties that could be contacted under the
Company's Non-Solicitation and Expense Reimbursement Agreement dated June 14,
2000. We were not requested to and did not directly participate in
negotiations with respect to the terms of the Transactions. Consequently, we
have assumed that such terms are the most beneficial terms from the Company's
perspective that could under the circumstances be negotiated among the parties
to the Transactions, and no opinion is expressed as to whether any alternative
transaction might produce consideration for the Company's stockholders in an
amount in excess of that contemplated in the Transactions.
We have acted as sole financial advisor to the Special Committee of the
Board of Directors of the Company in connection with the Transactions and will
receive a fee for our services, including a fee, which is contingent upon the
consummation of the Merger. In the past, Banc of America Securities LLC or its
affiliates have provided financial advisory and financing services for the
Company and have received fees for the rendering of these services. In the
ordinary course of our businesses, we and our affiliates may actively trade
the debt and equity securities of the Company and Puget Sound Energy, Inc. for
our own account or for the accounts of customers and, accordingly, we or our
affiliates may at any time hold long or short positions in such securities.
It is understood that this letter is for the benefit and use of the Special
Committee of the Board of Directors of the Company in connection with and for
purposes of its evaluation of the Merger. This opinion may not be disclosed,
referred to, or communicated (in whole or in part) to any third party for any
purpose whatsoever except with our prior written consent in each instance.
However, this opinion may be included in its entirety in any filing made by
the Company in respect of the Transactions with the Securities and Exchange
Commission, so long as this opinion is reproduced in such filing in full and
any description of or reference to us or summary of this opinion and the
related analysis in such filing is in a form acceptable to us and our counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion
and we do not have any obligation to update, revise, or reaffirm this opinion.
In addition, BAS expresses no opinion or recommendation as to how the
stockholders of the Company should vote at the stockholders' meeting held in
connection with the Merger or whether stockholders of the Company should or
should not tender their shares of Company Common Stock to the Purchaser
pursuant to the Offer.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, we are of the opinion on the date hereof
that the consideration to be received by the Company's stockholders in the
proposed Transactions is fair from a financial point of view to the Company's
stockholders.
Very truly yours,
/s/ BANC OF AMERICA SECURITIES LLC
A-2
<PAGE>
ANNEX B
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF UTILX CORPORATION'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT
TO SEND A PROXY TO UTILX CORPORATION.
----------------
GENERAL
This Information Statement is being mailed on or about June 30, 2000 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of UTILX Corporation, a Delaware corporation (the "Company"), to the
holders of record of shares of common stock, par value $.01 per share, of the
Company ("Common Stock"). Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election
of persons designated by the Purchaser to the Board of Directors of the
Company. Such designation is to be made pursuant to an Agreement and Plan of
Merger dated June 28, 2000 ("Merger Agreement"), among the Company, the
Purchaser and Parent.
Purchaser's Designation of Persons to be Elected to the Company's Board of
Directors. The Merger Agreement provides that, promptly upon the acquisition
by Purchaser pursuant to the Offer of at least 67% of the Shares outstanding
on a fully diluted basis (including all Shares issuable upon the cash exercise
of all vested and unvested stock options, warrants and conversion of any
convertible securities or other rights to purchase or acquire Shares), Parent
will be entitled to designate a majority of the Company's Board of Directors.
The Company agrees, upon request of Parent, to promptly increase the size of
the Board of Directors and/or secure the resignations of such number of
directors as is necessary to enable parent's designees to be elected to the
Board of Directors and to cause Parent's designees to be selected. This
Information Statement attached as Annex B to the Schedule 14D-9, is being
furnished in connection with the possible designation by Parent, pursuant to
the terms of the Merger Agreement, of certain persons to be elected to the
Board of Directors other than at a meeting of the Company's shareholders.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with the Information
Statement.
The information contained in this Information Statement concerning Parent
and the Purchaser has been furnished to the Company by Parent. The Company
assumes no responsibility for the accuracy or completeness of such
information.
VOTING SECURITIES OF THE COMPANY
The shares of Common Stock are the only class of voting securities of the
Company outstanding. Each share of Common Stock has one vote. As of June 2,
2000, there were 7,475,944 shares of Common Stock outstanding.
B-1
<PAGE>
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of seven members.
Parent has informed the Company that Parent will choose the Parent Designees
from the directors and executive officers of Parent listed in Schedule I of
the Purchaser's Offer to Purchase, a copy of which is being mailed to the
Company's stockholders, together with the Schedule 14D-9 and this Information
Statement. The information on such Schedule I is incorporated herein by
reference. The business address of each such person is as set forth on
Schedule I.
Except as disclosed in the Purchaser's Offer to Purchase, Parent and the
Purchaser have advised the Company that none of the individuals referenced
above (i) is currently a director or holds any position with the Company, (ii)
has any familial relationship with any directors or executive officers of the
Company and (iii) to the knowledge of Parent and the Purchaser, beneficially
owns any equity securities (or rights to acquire any such securities) of the
Company. The Company has been advised by Parent and the Purchaser that, to
Parent's and the Purchaser's knowledge, none of the individuals listed above
has been involved in any transaction with the Company or any of its directors,
executive officers or affiliates that are required to be disclosed pursuant to
the rules and regulations of the Commission, except as may be disclosed
herein, in the Schedule 14D-9 or in the Schedule TO.
It is expected that the Parent Designees may assume office at any time
following the purchase by Purchaser of a specified minimum number of Shares
pursuant to the Offer, which purchase cannot be earlier than July 28, 2000,
and that, upon assuming office, the Parent Designees will thereafter
constitute at least a majority of the Board. This step will be accomplished at
a meeting or by written consent of the Board providing that the size of the
Board will be increased and/or sufficient numbers of current directors will
resign such that, immediately following such action, the number of vacancies
to be filled by the Parent Designees will constitute at least a majority of
the available positions on the Board. It is currently not known which of the
current directors of the Company will resign.
THE CURRENT MEMBERS OF THE BOARD OF DIRECTORS
Board Nominees
At the 2000 Annual Meeting of Shareholders to be held on July 28, 2000, the
shareholders of the Company will vote to, among other things, elect two
directors to the Board of Directors. A separate Notice and Proxy Statement
("2000 Notice and Proxy Statement") was previously distributed to shareholders
on or about June 23, 2000. The names of the nominees for the Board of
Directors, together with certain information regarding them, are as follows:
John W. Ellis (age 71) has been a director of the Company since August
1988. Mr. Ellis' term as a director expires in 2000. Since October 1999, he
has held the position of Chairman Emeritus of the Seattle Mariners'
Baseball Club, and from 1992 to October 1999, was its Chairman of the Board
and Chief Executive Officer. Since 1969, he has been a director of Puget
Sound Energy, Inc. (formerly Puget Sound Power & Light Company), a
diversified gas and electric utility, where he was President from 1976 to
1987, and Chief Executive Officer from 1976 until his retirement in 1993.
Mr. Ellis is also a director of Washington Mutual Savings Bank, a banking
company, SAFECO Corporation, an insurance company, and AEGIS, Ltd., an
insurance company, and serves as Chairman of the Board of Trustees of
Seattle University. He is past Chairman of the Edison Electric Institute
and the Electric Power Research Institute.
Robert P. Gannon (age 56) has been a director of the Company since June
9, 2000 and will stand for election for a three-year term commencing July
28, 2000. Mr. Gannon is the Chairman, President and Chief Executive Officer
of the Montana Power Company and Touch America, the telecommunications
subsidiary of Montana Power. He first joined the Montana Power Company in
1974 as an attorney and became its Vice President and General Counsel in
1984. Mr. Gannon was named its President in 1990, Chief Executive Officer
in 1997 and Chairman in 1998. He is a director of the Edison Electric
Institute, the Mansfield
B-2
<PAGE>
Foundation and the Butte-Silver Bow Chamber of Commerce and past director
and president of the Western Electric Power Institute.
Current Members of the Board of Directors
In addition to John W. Ellis and Robert P. Gannon, the names of the current
members of the Board of Directors, together with certain information regarding
them, are as follows:
Stanley J. Bright (age 60) has been a director of the Company since
January 1995. Mr. Bright's term as a director expires in 2002. Mr. Bright
is a director of MidAmerican Energy Holdings Company (MidAmerican), a
subsidiary of Berkshire Hathaway, Inc. which has domestic and international
utility operations. MidAmerican was formed on March 12, 1999 in the merger
of the prior MidAmerican Energy Holdings Company (MidAmerican Energy) and
CalEnergy Company, Inc. Prior to the merger, Mr. Bright served as Chairman,
President and Chief Executive Officer of MidAmerican Energy from June 1,
1997, as President and Chief Executive Officer from July 1, 1996, and as
President, Office of the Chief Executive Officer from July 1, 1995 when
MidAmerican Energy was formed in the merger of Iowa-Illinois Gas and
Electric Company (Iowa-Illinois) and Midwest Resources, Inc. He had been
Chairman, President and Chief Executive Officer of Iowa-Illinois, a utility
company, since May 1991. Mr. Bright is also a director of TransAlta
Corporation and Utech Venture Capital Corporation.
John D. Durbin (age 65) has been a director of the Company since April
1997. Mr. Durbin's term as a director expires in 2001. Since February 2000,
Mr. Durbin is Chief Executive Officer of Infrastrux Group, Inc. a new
subsidiary at Puget Sound Energy, Inc. (formerly Puget Sound Power & Light
Company), a diversified gas and electric utility. Mr. Durbin has been a
Principal of Olympic Capital Partners, an investment banking firm, from
1996 to 1998 and Executive Director, Emerge Corporation from August 1999 to
February 2000. He is also a general Partner of John Durbin & Associates, a
26 year old firm which owns and manages commercial and agricultural real
estate. Previously, he was Chairman, President and Chief Executive Officer
of Bellevue-based Hostar International, a hotel equipment manufacturer,
which he co-founded in 1988. In addition, he is a board member of several
Northwest companies, including Puget Sound Energy, Inc., ConnexT, Inc. and
Frank Russell Trust Co. and is a member of the Advisory Board of Barclay
Dean Interiors, Inc. and Glant Pacific Companies. Mr. Durbin's community
service includes being a past member of the Board of Trustees of Seattle
University and a former board member of Children's Hospital Foundation, a
board member of Junior Achievement of Greater Seattle, past Chairman and
board member of the Washington Athletic Club. Mr. Durbin is a past Chairman
of United Way of King County and past President of the Seattle Rotary Club.
Walter M. Higgins (age 55) has been a director of the Company since
January 1998. Mr. Higgins' term as a director expires in 2001. Mr. Higgins
was named President and Chief Executive Officer of AGL Resources, Inc., an
Atlanta-based energy holding company in January 1998 and became Chairman,
President and Chief Executive Officer of AGL Resources in May 1999. He is
also Chairman and Chief Executive Officer of Atlanta Gas Light Company, the
largest natural gas distributor in the Southeastern United States. Mr.
Higgins joined Sierra Pacific Resources, a utility holding company in late
1993, and was named Chairman of the Board, President and Chief Executive
Officer in January 1994. He also served as President and Chief Executive
Officer of Sierra Pacific Power Co., a subsidiary of Sierra Pacific
Resources. Prior to joining Sierra Pacific Resources, he was President and
Chief Operating Officer of Louisville Gas and Electric Co., the principal
subsidiary of LG&E Energy, a Louisville, Kentucky-based utility holding
company. In addition, he is a board member of AGL Resources, Inc. and
AEGIS, Ltd., an insurance company, and serves on the board of trustees of
numerous business and community organizations. Mr. Higgins is the 2000
Campaign Chairman for the United Way of Metropolitan Atlanta and is the
Chairman of the Board of Trustees of the National Environmental Education
and Training Foundation.
Robert E. Runice (age 70) has been a director of the Company since
November 1988 and is retiring from the Board effective July 28, 2000, the
date of the Annual Meeting. Mr. Runice is a private investor and business
consultant. From 1983 until his retirement in 1991, Mr. Runice had been
Vice President of
B-3
<PAGE>
U S West Inc., a diversified telecommunications company, and President of
its Commercial Development Division. Mr. Runice is also a director of The
Bombay Company, Inc., a specialty retail company, and Tandy Brands
Accessories, Inc., a manufacturer of men's, women's and boys' accessories.
William M. Weisfield (age 58) has been a director of the Company since
January 1995, Chairman of the Board since January 1996 and the Company's
President and Chief Executive Officer since November 1998. Mr. Weisfield's
term as a director expires in 2002. Mr. Weisfield was Senior Vice President
of Benaroya Capital Company, a privately held investment company
specializing in development of Pacific Northwest real estate and other
investments, since January 1, 1994. Mr. Weisfield previously served as
Chief Operating Officer for Robbins Company, an underground tunnel boring
manufacturing company from November 1992 to December 1993. Mr. Weisfield
also acts as a director of Lindal Cedar Homes, Inc., Lifespan Biosciences,
Inc., the Downtown Seattle Association, and is a member and past President
of the Seattle Rotary Club.
Committees of the Board of Directors
The Board of Directors has established standing committees, including an
Audit Committee, a Compensation Committee and a Nominating and Organization
Committee. All committees are responsible to the full Board of Directors and
their activities are therefore subject to approval of the Board of Directors.
As provided in the Company's By-laws, each committee is appointed annually by
the Board of Directors and consists of not less than three directors, at least
a majority of whom must be independent and not members of management. The
functions performed by these Committees are summarized as follows:
Audit Committee. The Audit Committee reviews and makes recommendations
regarding the selection of outside auditors, the scope and results of the
annual audit, internal controls, procedures and the adequacy of staff for the
safeguard of the Company's assets, related-party transactions, potential
conflicts of interest and compliance with corporate policies including the
Company's Code of Ethical Conduct. The members of the Audit Committee are
presently John D. Durbin (Chairman), Robert E. Runice and Stanley J. Bright.
The Audit Committee met six times during fiscal year 2000.
Compensation Committee. The Compensation Committee reviews and makes
recommendations regarding compensation, including salaries and other
incentives, of directors, officers and other executives of the Company. Those
members of the Compensation Committee who are "nonemployee directors" within
the meaning of the rules adopted under Section 16 of the Securities Exchange
Act of 1934, as amended, and "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended, also act as plan
administrator of the Company's stock option plans. The members of the
Compensation Committee are presently Robert E. Runice (Chairman), John W.
Ellis, John D. Durbin and Walter M. Higgins. The Compensation Committee met
three times during fiscal year 2000.
Nominating and Organization Committee. The Nominating and Organization
Committee reviews and makes recommendations regarding the size and composition
of the Board of Directors, nominees for directors, election of officers and
the organization of the Company. The Nominating and Organization Committee
also considers nominees for directors recommended by any stockholder of the
Company. Any stockholder desiring to do so must mail a written recommendation
and any comments to the Chairman of the Nominating and Organization Committee
addressed in care of the Secretary of the Company at the Company's corporate
offices at P.O. Box 97009, Kent, Washington 98064-9709. The members of the
Nominating and Organization Committee are presently John W. Ellis (Chairman),
Stanley J. Bright and Robert E. Runice. The Nominating and Organization
Committee met three times during fiscal year 2000.
Fiscal Year 2000 Director Meeting Attendance
During fiscal year 2000, there were six meetings of the Board of Directors.
Each director attended at least 80% of the total number of the meetings of the
Board of Directors and the Committees of the Board of Directors on which each
such director served.
B-4
<PAGE>
Director Compensation
Directors who are employees of the Company do not receive any fees for their
services as directors. Directors of the Company who are not employees are paid
a quarterly retainer of $1,500 and committee chairpersons are paid an
additional quarterly retainer of $500. Nonemployee directors are also paid
$750 for each Board of Directors meeting and $400 for each committee meeting
attended in person and one-half of those amounts for participation in
telephonically conducted meetings, plus reimbursement of expenses incurred in
attending such meetings. For extraordinary services beyond those incidental to
service on the Board and its committees, nonemployee directors receive fees
for work on matters specially requested by the Board at a rate of $125 per
hour with a daily minimum of $500 and a daily maximum of $1,000.
The Company has also adopted the 1987 Restated Stock Option Plan for
Nonemployee Directors (the "1987 Director Plan"), which currently provides for
the grant of options to acquire up to an aggregate 300,000 shares of Common
Stock to nonemployee directors. As discussed in the 2000 Notice and Proxy
Statement, the Board of Directors has approved, and is seeking shareholder
approval of, an amendment to the 1987 Director Plan to increase the number of
authorized shares of Common Stock under the Plan. Pursuant to the 1987
Director Plan, each nonemployee director receives an option to purchase 10,000
shares of Common Stock upon initial appointment to the Board, which options
vest 40% one year after the date of grant and 20% each year thereafter. Each
nonemployee director then automatically receives annually an option to
purchase 5,000 shares of Common Stock, concurrently with each year's Annual
Meeting of Stockholders. Such options vest upon the date of grant. All grants
under the 1987 Director Plan are made at an exercise price equal to the fair
market value of the Common Stock on the date of grant. The purpose of the 1987
Director Plan is to help the Company attract and retain qualified nonemployee
directors.
B-5
<PAGE>
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth as of June 2, 2000 (unless otherwise noted
below) information regarding the beneficial ownership of the Common Stock by
each stockholder who, to the Company's knowledge, owned more than 5% of the
outstanding Common Stock, by each of the directors, nominees and by each of
the executive officers named in the Summary Compensation Table, and by all
directors and executive officers, as a group. Each of the named persons and
members of the group has sole voting and investment power with respect to the
shares shown, except as stated below.
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock
-------------------------------------------------
Options and
Outstanding Other Rights
Shares of Exercisable
Common Stock Within
Name and Address* of Beneficially 60 days of Percent
Beneficial Owner Owned June 2, 2000 Total of Class(1)
-------------------- ------------ ------------ ------- -----------
<S> <C> <C> <C> <C>
Dimensional Fund Advisors
Inc.(2).................... 566,720 0 566,720 7.58%
1299 Ocean Avenue, 11th
Floor
Santa Monica, CA 90401
Trigran Investments,
L.P.(3).................... 535,000 0 535,000 7.15%
155 Pfingsten Road, Suite
360
Deerfield, IL 60015
Stanley J. Bright........... 163,500 30,000(4) 193,500(5) 2.59%
John D. Durbin.............. 8,000 28,000(4) 36,000 **
John W. Ellis............... 5,000 55,000(4) 60,000 **
Robert P. Gannon............ 0 5,000(4) 5,000
Walter M. Higgins........... 3,000 21,000(4) 24,000 **
Robert E. Runice............ 4,000 45,000 49,000 **
William M. Weisfield........ 15,285 80,000(6) 95,285 1.27%
James E. Bartholomew........ 4,574 63,750(7) 68,324 **
Glen J. Bertini............. 10,649 37,800(7) 48,449 **
Darla V. Norris............. 2,000 16,250(7) 18,250 **
Scott E. Reynolds........... 1,842 58,250(7) 60,092 **
All directors and executive
officers, as a group
(12 persons): 217,850 476,300 694,150 9.28%
</TABLE>
Notes to Beneficial Ownership Table:
* Addresses are listed of owners of more than 5% of the outstanding Common
Stock.
** Less than 1% of the outstanding Common Stock.
(1) In calculating the percentage ownership of any stockholder holding options
or other rights exercisable within 60 days of June 2, 2000, it is assumed
that such options or rights were exercised.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 566,720 shares of the
Company's common stock as of December 31, 1999, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit
B-6
<PAGE>
plans, all of which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(3) The voting and dispositive power of 26,000 of these shares is shared with
Castle Creek Partners LLP.
(4) Consists of options to purchase shares of Common Stock granted under the
1987 Director Plan and includes options to purchase 5,000 shares of Common
Stock that will be granted on July 28, 2000. See "Director Compensation."
(5) Includes 158,500 shares owned by UVCC Fund I which may be deemed
beneficially owned by Mr. Bright. Utech Venture Capital Corporation has a
majority interest in the UTILX Common Stock held in UVCC Fund I. Mr.
Bright serves as a board member of Utech Venture Capital Corporation. Mr.
Bright disclaims beneficial ownership of such shares.
(6) Consists of options to purchase 30,000 shares of Common Stock granted
under the Company's 1987 Director Plan and 50,000 shares of Common Stock
granted under the Company's Amended and Restated 1994 Option and
Restricted Stock Plan (the "1994 Plan").
(7) Consists of options to purchase shares of Common Stock granted under the
Company's 1994 Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who beneficially own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than 10%
stockholders are required by Commission regulation to furnish the Company with
copies of all Section16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no forms were
required for those persons, the Company believes that during the 2000 fiscal
year all filing requirements applicable to its officers, directors and greater
than 10% beneficial owners were complied with, other than one late filing
relating to a purchase of stock on behalf of Mr. George Taylor, an executive
officer.
B-7
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's Chief
Executive Officer and the four most highly compensated executive officers
whose salary and bonuses exceeded $100,000 (the "named executive officers")
for services rendered in fiscal year 2000 and the two prior fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------ ------------
Securities
Underlying All Other
Options Compensation
Name and Principal Position Salary($) Bonus($) Awarded (#) ($)
--------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William M. Weisfield(2)..... 2000 $300,019 $70,000 0 $5,319(3)
President/Chief Executive
Officer 1999 $142,754 $ 0 205,000 $ 346(3)
Scott E. Reynolds(4)........ 2000 $125,766 $40,000 45,000 $4,561(5)
Chief Operating Officer
Glen J. Bertini(6).......... 2000 $123,848 $35,000 45,000 $5,443(7)
Senior Vice President
Business Development
James E. Bartholomew(8)..... 2000 $115,003 $35,000 25,000 $5,317(9)
Senior Vice President
Eastern Region 1999 $102,091 $ 0 0 $4,702(9)
Darla V. Norris(10)......... 2000 $111,859 $35,000 25,000 $1,096(11)
Senior Vice President Chief
Financial Officer
</TABLE>
Notes to Summary Compensation Table:
(1) The Company's fiscal year ended March 31 of the year identified.
(2) Mr. Weisfield served as a board member for the Company during the entire
1999 and 2000 fiscal years, and as an executive officer since November
1, 1998.
(3) Consists of $3,808 for Company matching contributions to qualified
benefit plan ("Company matching contributions") and $1,511 for taxable
life benefits ("insurance benefits") for 2000 and $346 for insurance
benefits for 1999.
(4) Mr. Reynolds became an executive officer of the Company in January 1996.
Because his annual compensation received during 1999 and 1998 did not
exceed $100,000, it is not included in the table above.
(5) Consists of $4,399 for Company matching contributions and $162 for
insurance benefits for 2000.
(6) Mr. Bertini became an executive officer of the Company in December 1998.
Because his annual compensation received during 1999 did not exceed
$100,000, it is not included in the table above.
(7) Consists of $5,348 for Company matching contributions and $95 for
insurance benefits for 2000.
(8) Mr. Bartholomew became an executive officer of the Company in March
1994. Because his annual compensation did not exceed $100,000 during
1998, it is not included in the table above.
(9) Consists of $5,175 for Company matching contributions and $142 for
insurance benefits for 2000 and $4,594 and $108 respectively for 1999.
(10) Ms. Norris became an executive officer of the Company in December 1998.
Because her annual compensation received during 1999 did not exceed
$100,000, it is not included in the table above.
(11) Consists of $944 for Company matching contributions and $152 for
insurance benefits for 2000.
B-8
<PAGE>
Option Grants in Fiscal Year 2000
The following tables set forth information concerning option grants and
exercises during the Company's 2000 fiscal year to or by the named executive
officers and the value of the options held by such officers as of March 31,
2000:
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(2)
----------------------------------------------- ----------------
Number of % of Total
Securities Options Granted Exercise
Underlying to Employees in Price
Options Fiscal Year per Expiration
Name Granted 2000 Share(1) Date(1) 5% 10%
---- ---------- --------------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
William M. Weisfield.... 0 N/A N/A N/A $ 0 $ 0
OPTION GRANTS IN FISCAL YEAR 2000
James E. Bartholomew.... 25,000(3) 4.79% $2.1875 4/30/09 $34,392 $ 87,157
Glen J. Bertini......... 25,000(3) 4.79% $2.1875 4/30/09 $34,392 $ 87,157
20,000(3) 3.83% $3.9375 10/29/09 $49,525 $125,507
Darla V. Norris......... 15,000(3) 2.87% $2.1875 4/30/09 $20,635 $ 52,294
10,000(3) 1.91% $3.9375 10/29/09 $24,762 $ 62,753
Scott E. Reynolds....... 25,000(3) 4.79% $2.1875 4/30/09 $34,392 $ 87,157
20,000(3) 3.83% $3.9375 10/29/09 $49,525 $125,507
</TABLE>
Option Exercises in Fiscal Year 2000
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000
AND 2000 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at March 31, in-the-Money Options at
2000(1) March 31, 2000(2)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William M. Weisfield........ 80,000 150,000 $289,062 $637,500
James E. Bartholomew........ 44,000 46,500 $113,625 $171,250
Glen J. Bertini............. 27,684 76,316 $ 53,574 $249,738
Darla V. Norris............. 12,500 62,500 $ 53,125 $243,437
Scott E. Reynolds........... 39,000 66,000 $116,875 $215,937
</TABLE>
Notes to Aggregated Option Exercises Table:
(1) Consists of options granted under the Company's 1987 Director Plan and
1994 Plan.
(2) Based on a closing price of $6.25 per share on March 31, 2000.
Employment Contracts and Termination of Employment and Change of Control
Arrangements
Employment Agreements. The Company has entered into an executive employment
agreement with William M. Weisfield. This agreement establishes a starting
annual base salary and eligibility to participate in Company bonus and stock
plans. The agreement obligates the Company to continue employment and
compensation of Mr. Weisfield until November 1, 2001 unless terminated by Mr.
Weisfield upon 60 days' notice or by the Company upon 30 days' notice. If the
Company terminates Mr. Weisfield's employment during the term of the agreement
for reasons other than "cause" (as defined in the agreement), the Company will
be obligated to pay to Mr. Weisfield an amount equal to four month's salary,
presently $108,333. The Company has also entered into a senior management
employment agreement with Mr. Weisfield with an initial term of two
B-9
<PAGE>
years. Unless earlier terminated by either the Company or Mr. Weisfield upon
30 days' notice, on each annual anniversary date, this agreement shall
automatically be renewed for successive two-year terms. This agreement also
obligates the Company to make certain payments to Mr. Weisfield in the event
of termination for reasons other than "cause" or in the event of a "Change of
Control" (as defined in the agreement) up to an amount equal to two times his
annual base salary then in effect plus an amount equal to the bonus paid to
Mr. Weisfield for the prior fiscal year. Based on Mr. Weisfield's present base
salary, two years salary amounts to the sum of $650,000.
The executive employment agreement with Mr. Weisfield, effective November 1,
1998, established an initial annual base salary of $300,000. The agreement
required the Company to grant to Mr. Weisfield at the commencement of his
employment, options to purchase 200,000 shares of Common Stock under the 1994
Plan.
An Incentive Compensation Agreement with Mr. Bertini, effective October 29,
1999, established a royalty sharing arrangement relating to gross revenues
received by the Company for any sale or other transfer of products or services
related to Trynergy, including any disposition of the Company's Trynergy
business to another party.
Amended and Restated 1994 Option and Restricted Stock Plan (the 1994
Plan). The named executive officers participate in the 1994 Plan.
Compensation Committee Report
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of directors who are not employees of the Company. Current
members of the Committee are Robert E. Runice, Chairman, John W. Ellis, John
D. Durbin and Walter M. Higgins. None of the members of the Committee
participate in the compensation programs described in this report.
Philosophy, Procedures and General Policies. In determining executive
compensation, the Committee and the Board are guided by the following
objectives:
. Attracting, retaining and motivating highly qualified and committed
executives.
. Using the competitive employment marketplace as a guide to assessing and
establishing compensation levels.
. Determining total compensation to a meaningful degree by returns to the
Company's stockholders.
. Exercising appropriate discretion and judgment in making individual
compensation determinations based on the performance and particular
employment position of the affected executive, the current economic and
business circumstances of the Company, and the prevailing conditions in
the relevant employment marketplace.
. Encouraging executives to obtain and hold an equity stake in the Company.
The responsibility of the Committee is to review and make recommendations
regarding executive compensation to the Board of Directors. The Board of
Directors exercises final authority with respect to approval of executive
compensation, except with regard to grants under the Company's stock plans for
which the Committee has final authority. The Committee and the Board also
specifically approve the compensation of individual executives, including any
merit or promotional adjustments, and individually review the performance of
those executives on at least an annual basis. Base salary increases are based
upon the results of such performance reviews and, for executives other than
the President and Chief Executive Officer, such increases are also based upon
the recommendation of the President and Chief Executive Officer.
Executive Compensation Plan. Under the Company's fiscal year 2000 Executive
Compensation Plan, executive compensation consisted of the following
components:
. Annual base salary
B-10
<PAGE>
. Annual incentive bonus
. Long-term compensation in the form of stock option grants
In establishing this plan, comparative executive compensation information
was collected by the Company using both publicly available sources as well as
compensation surveys produced by independent, outside compensation firms. That
information included, but was not specifically limited to, the group of
companies comprising the peer issuers index in the Stock Performance Graph.
See footnote 2 to "Stock Performance Graph" below.
Annual Compensation--Base Salaries. The Company seeks to establish base
salaries of executives at median levels in those employment markets within
which the Company competes in order to recruit and retain qualified executive
employees. The Company reviews base salaries of each executive periodically,
generally on an annual basis, to ensure that the Company remains competitive.
Such annual reviews, conducted in conjunction with annual merit reviews,
provide the basis for assessments of base salary and adjustments, several of
which were made during fiscal 2000 to executive officers.
The Committee considers recommendations from the President and Chief
Executive Officer when making adjustments to executive salaries. The Committee
also considers the initial base salaries set forth in the employment
agreements of certain executives and such variables as relative
responsibility, expertise, past years' compensation and performance, and
comparative market data, including median salary data for similar positions
within the industry.
Annual Compensation--Annual Incentive Bonuses. The Committee has an
established program of annual cash incentives to executives in the form of
performance awards. This program is intended to encourage achievement of
certain goals developed and specified at the beginning of the fiscal year. A
performance award target is established for each participating executive,
based on median competitive levels in those employment markets within which
the Company competes. Performance awards are to be distributed out of a
performance award fund whose size is determined by the success of the
management group as a whole in achieving the annual financial goals of the
Company. If Company goals are met, the performance award fund is divided among
all participating executives based on their respective performance award
targets. Although performance award targets are specified at the beginning of
the fiscal year, the relative share of the performance award fund received by
a specific executive may be increased or decreased at the time of distribution
of performance awards, based upon an assessment by the Board and Committee of
the individual's performance.
In April 1997, the Board and the Committee established performance award
targets for executives ranging from 20% to 50% of earned base salary and
established Company performance goals relating to achieving profitability of
specific profit centers and the entire Company. During fiscal year 2000,
performance awards totaling $262,500 were paid to executive officers.
Long-Term Compensation--Stock Plans. Long-term incentives are designed to
link management reward with the long-term interest of the Company's
stockholders. Currently, the Company grants stock options and restricted stock
as long-term incentives.
During fiscal 2000, the Committee and the Board granted a total of 452,250
stock options to executive officers and senior managers. These options were
scheduled to vest in either three or four years after the grant date.
In fiscal 1998, the Committee and the Board approved an Exempt Employee
Stock Option Plan, designed to make every salaried employee of the Company
eligible for annual nonqualified stock option awards upon achievement of
individual performance objectives. During fiscal 2000, 39 of the Company's
employees received these nonqualified stock options as a result of achieving
their individual objectives.
Compensation of Chief Executive Officer. In November 1998, William Weisfield
was elected President and Chief Executive Officer to replace Mr. Davies. Under
the terms of his employment contract, Mr. Weisfield
B-11
<PAGE>
received an initial annual base salary of $300,000 and a performance-based
target bonus of up to 100% of his annual base salary. Pursuant to his
employment agreement, the Company granted Mr. Weisfield at the commencement of
his employment, options to purchase 200,000 shares of Common Stock under the
1994 Plan. On April 28, 2000 the Board and Committee approved an annual salary
increase of $25,000 for Mr. Weisfield, a $70,000 bonus and options to purchase
an additional 50,000 shares of Common Stock under the 1994 Plan.
The compensation package for Mr. Weisfield was determined with the
assistance of a compensation consultant and was based upon a number of
factors, including market data indicating median salaries and annual bonuses
for similar positions in the employment market within which the Company
competes. In determining compensation, the Committee considered Mr.
Weisfield's past services to the Company, his expertise and relevant
operational experience as well as his demonstrated achievement in his prior
and present position.
Cap on Company Deductions for Certain Compensation. Under Section 162(m) of
the Code, certain compensation payments in excess of $1 million are subject to
a cap on deductibility for the Company. The limitation on deductibility
applies with respect to that portion of a compensation payment for a taxable
year in excess of $1 million to either the Company's chief executive officer
or any one of the other four highest paid executives. Certain performance-
based compensation is not subject to the cap on deductibility. Options can
qualify for this performance-based exception, but only if they are granted at
fair market value, the total number of shares that can be granted to an
executive for any period is stated, and stockholder and Board approval is
obtained. Restricted stock does not satisfy the definition of performance-
based compensation unless the lapse of the Restricted Period is based on the
attainment of specified performance goals approved by the issuer's
stockholders. Restricted stock grants under the 1994 Plan will not satisfy the
performance-based criteria. The option portion of the 1994 Plan is intended to
comply with the performance-based criteria.
Compensation Committee Members. The foregoing report has been provided by
the Compensation Committee of the Board of Directors.
Robert E. Runice (Chairman)
John W. Ellis
John D. Durbin
Walter M. Higgins
B-12
<PAGE>
Stock Performance Graph
The graph below compares for each of the last five fiscal years ending March
31, 2000 the cumulative total return of the Company, The Nasdaq Stock Market
index and the SIC 1600-1699 index. The cumulative total return of Common Stock
assumes $100 invested on March 31, 1995 in UTILX Common Stock and for the
comparator indices that all dividends are fully reinvested. The Company has
paid no dividend during the period indicated.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
UTILX CORPORATION, NASDAQ INDEX,/1/ AND SIC 1600--1699 INDEX/2/
[PERFORMANCE GRAPH OF DATA BELOW]
March March March March March March
CRSP Total Returns Index for: 1995 1996 1997 1998 1999 2000
---------------------------- ----- ----- ----- ----- ----- -----
UTILX CORPORATION 100.0 69.6 152.2 191.3 54.3 217.4
Nasdaq Stock Market
(US Companies) 100.0 135.8 151.0 228.9 309.2 574.0
NASDAQ Stock (SIC 1600-1699
US Companies) 100.0 127.7 228.7 395.1 252.9 445.8
Notes to Cumulative Total Return Chart:
(1) Broad market index consisting of all United States companies traded on The
Nasdaq Stock Market during the period indicated.
(2) Peer issuers index consisting of all United States companies traded on The
Nasdaq Stock Market during the period indicated, including the Company,
whose Standard Industrial Classification ("SIC") code is within Major
Group 16, "Heavy Construction other than Building Construction-
Contractors." The Company's SIC code is 1623, "Water, Sewer, Pipeline and
Communications and Power Line Construction." The following companies (and
their ticker symbols) comprise the group of peer issuers: Guy F. Atkinson
Company of California (ATKN); Cerbco, Inc. (CERB); Devcon International
Corporation (DEVC); Enviroq Corporation (EROQ); Euroweb International
Corporation (EWEB); Global Industries, Ltd. (GLBL); Granite Construction,
Inc. (GCCO); Harding Associates, Inc. (HRDG); Horizon Offshore, Inc.
(HOFF); Hungarian Teleconstruction Corporation (HTEL); Insituform East,
Inc. (INEI); Insituform Mid America, Inc. (INSMA); Insituform
Technologies, Inc. (INSUA); International Fibercom, Inc. (IFCI); Mastec,
Inc. (MASX); Meadow Valley Corporation (MVCO); Noxso Corporation (NOXO);
Transcoastal Marine Services, Inc. (TCMS) and UTILX Corporation (UTLX).
B-13
