RECD NOV 29 2006 CONSOLIDATED UTILITY SERVICES, INC. CONFIDENTIAL MEMORANDUM WINTER 2006 Tracxane Cove: wl) M~ HEADWATERS [MeADMINISTRATIVE INFORMATION CONFIDENTIAL, CONFIDENTIAL MEMORANDUM Headwaters MB has been appointed as the exclusive financial advisor of Consolidated Ltity Services, Inc. CUS” or the "Company’’ for the solicitation of a qualiied investor investor’ to purchase the Company. The information contained in this Confidential Memorandum (‘Memorandum’) has been prepared for the sole ‘urpase of providing interested parties with general information to assist them in theit evaluation of the Company. All inquiries cegarding the Company should be directed to Headwaters MB, This Memorandum has seen prepared from information, estimates, and assumptions provided by the ‘management of CUS ("Management") and other sources believed to be reliable. Nothing contained in this ‘Memorandum is, or shall be relied upon as a promise or representation by Headwaters MB, Management, or the Company as to either past or future performance of the Company. The contents of the Memorandum have not been independently verified by Headwaters MB, Management, or the Company, and any of their respective affiliates, employees, or representatives expressly disclaims any and all liability relating to or resulting from the use of this’ Memorandum, or such other information as stay be provided, whether ‘communicated in oral or written form, to a potential Investor or any of its afflates or representatives. The recipient expressly understands and agrees that any estimates, projections, and assumptions are uncertain and accordingly, no representation can be made as to their attainabilly. Only those representations and warranties made in a definitive, written purchase agreement, and subject to Such limitations and restrictions as may be specified therein, shall have any legal effect, Use of this Memorandum is governed by the terms of the signed confidentiaiity agreement he “Confidentiality Ageement’), which strictly limits the use, circulation, and reproduction of the information embodied herein. Any person in possession of the Memorandum should read and understand such Confidentiality “Agreement before reading the Memorandum, THE MEMORANDUM MAY NOT BE REPRODUCED OR DISTRIBUTED TO OTHERS IN WHOLE OR IN PART. Recipients of the Memorandum are: bound by the Confidentiality Agreement and agree that all of the information contained herein is of a strictly confidential nature, that they will not, directly or indirectly, disclose or permit their directors, officers, employees, or representatives to disclase, such information, arid that they will use the Memorandum and any ‘elated information only to evaluate a specific transaction ("Transaction") with the Company and far no other purpose. The Memorandum is nck intended to provide the sole basis for the evaluation of the Company or any other evaluation and does not purport to contain all of the information that may be required to evaluate the Transaction. Each potential Investor must rely on its own appraisal of the Transaction an its own independent verification of the information in the Memorandum and any other investigation it may deem necessary for the Durposes of determining whether to submit a proposal in connection with the Transaction. Headwaters MB Is acting as exclusive financial advisor to CUS in connection with a possible transaction Involving the Company. Under no circumstances should the Management of the Company or any of its employees be contacted directly. All inquiries relating to the Company should be directed to the following individuals at Headwaters MB, Robert Hellbronner Chris Haymons Ted Kinsman Michael Lucas 303.572.6008 303.572.6003 303.572.6013 303.217.5744 ‘metmronnershesdustasma.con —chaymensGneadatersmn com Yansvananacelerrincom _mhyasheodwates® com Note: Your receipt and review of these materials constitutes acceptance of the terms and conditions of the Confidentiality Agreement. PLRSLIANT TO THE CONFIDENTIALITY AGREEMENT, YOU HAVE AGREED TO. RETURN THESE MATERIALS TO HEADWATERS MB, Please return these materials to the address below if you determine that you cannot abide by tie slated terms of this agreement. Prospective Investors who do not wish t0 pursue this matter must return this Memorandum and other material relating to the Company, which was obtained from the Company, Management, or Headwaters MB, to Headwaters MB 1200 17" Steet, Suite 900 Denver, Colorado 80202 2 Goi pe HEADWATERS [ua UTILITY SERVICES, ING.‘TABLE OF CONTENTS CONFIDENTIAL Section 1 Execurive Summaay 5 6 Industry Overview, 7 Transaction Overview. 9 Transaction Considerafions,. 10 Selected Financial Information. 15 Section 2. Company Overview History, 7 Service Oiferings, 7 Operations, 19 Customers, on 25 Growth Opportunities, a7 Section 3 INDUSTRY OVERVIEW Development of the Industry, at North American Infrastructure investment. 32 Utility Services Industry, 32 Underground Utility Damage 32 Field Locating, 35 Ancillary Services, 37 Section 4 Corporate STRUCTURE Corporate Organization. . 4 OWNETSHID. neteneeerne 4 Managementevamminnnnnnnieennna a4 Employees, . 43 Information Technology, 46 Section 5 FINANCIAL PERFORMANCE Summary Financial Results, 49 Discussion and Analysis, 50 Disclaimer. earn 58 Financial Projection 57 HEADWATERS [me UTILITY SERVICES, ING.t 1. EXECUTIVE SUMMARY SS)EXECUTIVE SUMMARY. CONFIDENTIAL, introduction Consolidated Utility Services, Inc. CUS" or the "Company" is an industty-leading ‘and geographically diversified provider of a full spectrum of utility damage prevention process services and solutions, including underground utilty locating, one-call management, and asset management services. The Company provides sulte of services to customers from the utility (gas, electric, water, sewer, etc), telecommunications and cable industries for whom such services are non-core activities, Managed from its headquarters in Omaha, Nebraska, CUS's 800-person work force operates in 15 states and the Canadian province of Alberta. The Company perfarmed over 4.8 milion locates in 2005. CUS has projected revenues in 2008 of $57.4 million and EBITDA of $8.5 million; utility locating services currently account for more than 96 percent of revenue, The tisk of damage to underground utlly, telecom and cable assets exists any time excavation activities are undertaken across the entire range of project types from utility, telecom, transportation, municipal and general infrastructure development, to landscaping, fencing and irrigation. For the utility, telecommunications and cable industries, asset management is an expensive and ‘ongoing cost of doing business. Returns on investment in asset acquistion and/or installation are impacted significantly by the cost of maintaining field assets over their long lives. CLIS helps its customers manage the costs and service risks associated with damages to their buried infrastructure, Government studies predict the US, will see population growth in excess of an additional 100 milion more residents over the next 35 years. This demographic trend will require @ tremendous expansion in infrastructure in order keep up with the increase in demand. This significant population growth, coupled with the antiquated condition of the existing utility networks and the growing infrastructure buildouts by telecom and cable TV industries, will provide long-term increasing demand for underground damage prevention services. CUS provides critical services to its high-quality, diversified customer base under attractive contractual agreements. The platform has been put in place by an industry leading managernent team that has combined two mid-size operations and successfully completed the integration of those operations. Revenues have grown consistently while EBITDA has grown over 12 percent per year since the combination. The Company is now poised to take advantage of numerous growth initiatives, both organically and through further acquisi HEADWATERS [msExecurive SUMMARY CONFIDENTIAL The Company CUS was formed by a team of highly experienced professionals with the objective of creating a new, industry-leading platform company. Prior to founding CUS, CEO Rob Karam and COO Brian Johnson led UtiiQuest LLC, the largest company in the industry. In addition to significantly improving LitiiQuest’s earnings, market share andl operating efficiency, the team pioneered the use of wireless technology to improve responsiveness in the field and implemented a realtime monitoring infrastructure to ensure on-time delivery and quality, The team ultimately assisted in the sale of UtiliQuest to Dycom Industries, inc. Rob and Brian then went on to form CUS by combining two mid-size regional utility services companies, ProMark Utility Locators ("ProMark’, southeastern footprinb, acquired in late 2004, and Great Plains Locating Service (°GPLS", midwestern and plains states) and its one- call management subsidiary, Great Plains One Call "GPOC, both acquired in early 2005, CUS's strategy is to address the damage prevention industry as a “supply chain” where the entire lifecycle of outside and buried assets can be optimized. The result is a cent service model delivering the advantages of cost reduction, risk mitigation, and increased asset value. The Company provides an integrated suite of services, including: * Underground utility locating services - establishing the exact location of buried infrastructure in proximity to an area where underground ‘excavating is to occur, and marking It on the ground surface with colored paint and/or flags; + One-call management — CUS operates the Nebraska one-call center, handling in-bound calls from parties planning to excavate in thet state, and forwarding associated ‘tickets’ for locating to the impacted utilities or those acting on their behalf; + Damage and claims management services - outsourced management of claims of damaged infrastructure on behalf of third parties; and + Audit and compliance services — providing field survey services for the purpose of establishing and maintaining data concerning the location and condition of field assets As discussed above, locating services currently account for approximately 98 percent of the Company's revenue. CUS typically performs its locating activities under multi-year contracts or renewable one-year contracts. The average term of |ts current portfolio of over 180 contracts Is approximately 3.2 years. The Company's one-call business holds the exclusive contract for the state of Nebraska, generating approximately $1.6 milion in revenue per year. The other HEADWATERS [us UTILITY SERVICES, ING.Execurive SUMMARY CONFIDENTIAL, Industry Overview services, including damage and claims management and audit and compliance services together currently constitute a small percentage of revenue. While these business lines currently represent a negligible amount of the Company's revenue, Management believes these services could become a major source of growth for CUS if targeted in the future tfor more detail refer to Industry Overview section). ‘The CUS Management team has successfully consolidated the operations of Great Plains and ProMark and has generated both cost synergies and economies of scale in the combined entities, Management has implemented modern ‘communications, data capture, and reporting and management to's, resulting in 3 highly advanced operating model with significantly increased profit margins. Based on the pro-forma combined sales of ProMark and Great Plains in 2002 and the projected full year consolidated results for 2006, the Company has grown revenue trom $44.4 million to $57.4 million, translating into a 6.7 percent compound annual growth rate (CAGR'. For the same period, adjusted EBITDA ‘has grown at a 21.2 percent CAGR from $4.0 million in 2002 (89 percent margin) to projected $8.5 million in 2006 (14.8 percent margin). Based on these figures and other information, Management believes CUS is one of the five largest Companies in the industry in terms of revenue. Revenue and EBITDA Grown! Management estimates that the Company has the potential, solely through organic growth and further profftability enhancement, to reach $81 million in revenue and nearly $13 million in EBITDA by 2011. | In addition, Management believes opportunities exist for further growth through continued development of its ancillary service divisions as well as accretive strategic acquisitions, North America has a vast underground infrastructure of pipelines, conduits, wires and cables carrying natural gas, telecommunications, electricity, water, sewage, cable TV, petroleum products, and other vital goods and services. Any excavation activity performed for any purpose creates significant potential for disruptions to this underground infrastructure, The owners of these assels rely upon the utlity locating and damage prevention industry to mitigate the risks involved in the excavation activity that is proximate to their buried assets. These cisks include damage to the infrastructure, the interruption of service to customers and other damages consequential to unintended contact with the buried infrastructure. CUS estimates that approximately 60 percent of underground locating activity is Currently outsourced to third party contractors, This marks the continuation of an HEADWATERS |us UTILITY SERVICES, INC.EXECUTIVE SUMMARY CONFIDENTIAL ongoing trend by the uly and telecom industries toward increased outsourcing of activity that does not directy interface with the customer. Other factors, contributing to the development of the industry in the 1990s include the deciining membership and influence of unionized labor at utilities, and greater compliance with state-based one-call legislation The North American underground utility damage prevention market is comprised of the following general activities, in order of size: Field Locating: This activity represents nearly $1.2 billion (86 percent) of the overall $1-4 billion underground utility damage prevention industry. The volume of work performed by locating companies such as CUS is driven by the totality of excavation activity proximate to their customers’ assets, not by the excavation activity of the customers themselves. In the case of any given planned excavation, infrastructure owned by several CUS customers may be impacted, in which case the “ticket” generated by the one-call center receiving notice of that excavation will provide CUS with multiple locates to perform and, accordingly, multiple revenue events from a single site visit by one of its technicians. Notification: Linder regulations enacted in all LIS. states in the 1990s, any individual or entity planning to perform any excavation activity is required to notify 2 dedicated regional one-call center in order to serve notice of imminent diggina activity. The states typically outsource the management of these call centers (an a state-wide or regional basis) to private-sector entities, Management estimates the total size of this market segment to be approximately $120 million per year, consisting at present of 62 call centers across the US. and five in Canada. Damage / Claims Management: Third party damage and claims management is an emerging segment of the underground damage prevention industry that consists of ( investigation of the cause of the damage, {i generation of the repors that describe the organization at fault and the corresponding claim request and (iid administration and collection of the claim in full or a negotiated amount. With the infrastructure, people ‘and systems already in place to manage its own damage claims, CIS is ‘emphasizing this service capability to its customers and believes that this service, with an estimated $300 million market, may become an important business line over the next few years. HEADWATERS [wo UTILITY SERVICES, ING.Executive SUMMARY CONFIDENTIAL Transaction Overview CUS's core business is broadly correlated with the overall long-term level of activity within the $1.2 trlion Nostt: American construction market. In this context, “construction” refers to the installation of fixed infrastructures, including utility lines, transportation routes, communication systems, as well as commercial, industrial and residential structures. For the 12 months to August 2006, the overall construction put-in-place rose 4.4 percent over the same period in the prior year. Within this, non-residential ultlity/transportation expenditures grew significantly, with the private segment up 29.7 percent and the public segment up 13.5 percent, 2004 US Damages Analysis 5p Construction Tye > 1.0% Conttuton! LUninown Or, "59% Landscaping 9.5% Ses 938 Seti 6.9% Not cotecedN Roadwork, 47% 27st — Fencing, 4496 soum bein 8 —corevacion, 3.0% 1 telecom, 27% cary, 1388 aoe While activity within individual sectors of the economy may ebb and flow, the stable annual growth of ticket volumes in the locating industry arises in part from the broad distribution of the activities which generate the excavation need. In 2005, The Common Ground Alliance, a damage prevention industry association, published an analysis of the damages to ubity and telecom infrastructure reported in 2004 (see chart abovel, The analysis found that no single category of construction accounted for more than 10 percent of all damages. Management believes that, while the analysis pertains specifically to damages reported, itis also suggestive of the breadth and distribution of sources of excavation that generate locating activity as well. The landscaping and fencing categories are likely over- represented as a source of overall locating activity, as the relatively low level of compliance with one-call legislation of home owners likely leads to a higher incidence of damages pet dig. In summary, the sources of excavating activity, 38 derived by the above damages analysis, are numerous and driven by a large variely of non-correlated sources American Capital Strategies (“ACAS", River Associates, and Management, the controlling shareholders of CUS, have recognized that the Company is at a critical juncture. Having achieved their targeted results from successful integration and improvement efforts, the group wishes to see the Company expand its growth horizon through a more aggressive approach to new business development in its core and ancillary markets, including a comprehensive strategy for growth through acquisition. As a result, the shareholders have decided to explore a sale of the Company and have engaged Headwaters MB as exciusive financial advisor. In Certain circumstances, members of Management may consider re-investing a portion of their proceeds from the contemplated sale. Any transaction will be structured as a sale of the stock of CUS. HEADWATERS [we 9 fe UTILITY SERVIFES, ING,Executive SUMMARY CONFIDENTIAL Transaction Considerations Prospective investors may wish to consider the following in their evaluation of the Company and the contemplated transaction: Top-Performing, Geographically-Diverse Industry Leader The Company estimates that itis the fourth or fifth-largest company by revenue in the underground utility locating industry, with projected 2006 sales of $57.4 milion, It operates in 15 states across the south and midwest, as well as in Alberta, Canada. The Company's southern footprint allows it to benefit from the less pronounced seasonality in the construction industry in those areas, while its Canadian business continues to benefit from the effects of booming hydrocarbon. ‘elated infrastructure development activity. No single state accounts for more than 18 percent of the Company's revenue. This geographic diversity allows the Company to generate top line and earings results that reflect the overall long term growth of the infrastructure maintenance and installation activity in North America Consolidated Utility Services ‘Geographic Reach canada Region Yao. bbe soa tao woo venue, $27 tion \ \) YYID revenue as of September 30, 2006. Excludes Colorado which was iscontinuea in Api, 2008, Strong, Long-Term Underlying Growth Dynamics Several broad trends support the Company's continued growth’ + Backlog of utlity infrastructure capital investment. Arising trom both the anticipated growth of the US. population (various estimates suggest approximately 100 million additional inhabitants by 2040) and the aging and poor condition of existing electric transmission/distribution, water, sewer and transportation infrastructure, the level of excavation related to these large and easily-financed sectors of the economy will continue to exhibit strong growth over the next several decades, Additionally, the mandated undergrounding of power lines in states like California and the HEADWATERS |s @UI DATE UTILITY SERVICES, Inc. 10Execurive Summary CONFIDENTIAL continued rebuilding process from hurricane damage in the Southeast will, drive increased locating activity. + The continued drive by telecom and cable companies to build out “last mile” infrastructure and capitalize “fiber to the premises” initiatives. US. Wireline and MSO (multi system operator) capital expenditures began to grow again in 2004 after a drop from the spike in 2000 and 2001 Capital expenditures in this sector are projected to grow 4 percent in 2006 with continued low to mid-single digit growth in 2007 Uuly 2006 Margan Keegan equity research’. With the increased competition from telecom companies, cable companies also continue t enhance and update their network architectures, requiring similarly _ significant infrastructure development over the next five to eight years. ‘See Industry Overview for further details + The ongoing trend for the utility, telecom and cable industries to outsource non-core services. Increased focus on core competencies has led utilities, to seek streamlined workforces by outsourcing nan-fevenue generating functions. Declining union representation has reduced one of the Constraints that has historically been placed on outsourcing. Merger and acquisition activities in the utiities industry Wave also led to early retirement offers to long-term workers with legacy knowledge of "the field.” Having contractors such as CUS as the keepers of ongoing field operations and asset management knowledge and experience reduces this risk for customers in the future. In addition, as telecom and cable companies compete for market share, they cantinue to work toward a reduction of their unionized work forces in an effort to bring costs in line ‘with the increasingly compettive landscape. One strategy in this effort is to outsource a greater proportion of non-customer facing work functions. + Persistent “call before you dig” awareness messaging by state one-call boards and public service commissions. By law, excavators are required to notify appropriate parties of their intentions t0 dig, thereby potentially generating a locate request for every excavation in the US. Management estimates indicate 9B percent awareness by excavators, but only 75 percent compliance with such regulations by excavators and home owners, Marketing budgets of state one-call boards and public service commissions will continue to broadcast these “call before you dig’ regulations and increase the compliance by excavators, thereby increasing locating requests. Blue Chip, Diversified Customer Base CUS's revenue is principally generated from a diversified mix of large-cap public utilities and sizeable cable and telecom providers. The Company's top 10 customers accounted for only 53.5 percent of the total revenue base for YTD September 2006. On a revenue-weighted basis, the toa 30 customers, who ‘account for 90 percent of the Company's revenues, have been with CUS for approximately 5 years on average and are spread across all of the Company's operating districts. ‘The Company's customer list includes names such as Bellsouth, Atco Gas, Comcast, Ameren, Alliant, West Virginia Water Authority, Westar and Sprint, among others. Only five clients individually accounted for more than 5 percent of YTD HEADWATERS [we UTILITY SERVICES, ING.EXECUTIVE SUMMARY CONFIDENTIAL, September 2006 revenues, with the largest being Bellsouth, at approximately 9 percent. ‘The customers are also diversified across the various utility industries. These companies’ underground assets are a core part of their business, providing a highly predictable demand for locating services. In addition, the credit rating of CUS’ customers is typically very strong, fin every year from 2004 to the present, Company bad debts have been less than $100,000). Due in part to these factors, CUS enjoys a high degree of visibility and predictability to financial results. For ‘example, for YTD September, 2006, the Company is within two percent of each of budgeted revenue, gross profit and adjusted EBITDA (above budget in each case. YTD 2006 Revenue By Customer Type Management's intention in forming CUS was to apply its superior operating experience to create the most operationally advanced and eficient company in the utility locating industry. Areas in which the Company believes it has created ‘operating efficiency advantages compared to its peers include: + Robust data collection, reporting and analysis toolsets + Lower number of field offices, based upon use of enhanced wireless communications and wireless ticket management + Automatic dispatch with no need for depots to manage its highly mobile work force ‘+ Rationaized wireless and hard-line IT infrastructure + Implementation of effective and timely training of the field staff across the seasonal demand curve This efficient operating model has allowed the Company to generate improved margins despite rising costs of insurance and fuel over the past few years, a5 illustrated in the chart below. Additionally, Management believes CUS is an industry leader in damage management, a crucial cost component in the locating industry. For Q3 2006, damage costs as a percentage of revenue were approximately 3.6 percent compared to 43 percent in Q3 2005. Furthermore, the Company has successiully increased the productivity of its work force, as evidenced by an increase in revenue per empioyee from approximately $70,000 per year in 2004 to $75,000 in 2006, Management believes thet further opportunities for improved cost efficiencies remain in purchasing, vehicle fleet management, and route ‘optimization. HEADWATERS [ae 2 NSOL UTILITY SERVICES, INC.Executive SUMMARY CONFIDENTIAL HEADWATERS [ms Margin Analysis Margin Trend Compared to Fuel and insurance Cos roo re com | sen [eee uarge =ScaTOA Larger and longer-term utility locating contracts are often put out to competitive bid amongst the largest locating companies. in such situations, price is generally ‘one of the most important factors to the customer, The Company believes that, in such situations, its industry-leading operating model and advanced systems would allow i¢ to be more aggressive than its compettors on price (should it choose to do so for strategic reasons) and still maintain acceptable margins, which generate strong returns on capital employed. Experienced Management Team The CUS Management team benefits from their collective industry experience, their significant. multi-discipline skill set formed both inside and outside the industry, and the ownership stake they hold in the Company. Priar to founding Consolidated Utility Services, Chief Executive Officer Rob Karam and Vice President and Chief Operating Officer Brian Johnson led the management team of ‘one of the Company's largest competitors, UtiiQuest, where the twa served as Chiet Executive Officer and Senior Vice President, Operations, respectively. Over the course of 2000 and 2001 they quadrupled earnings at UtiiQuest by means of both organic growth and strategic acquisitions and grew market share of the company from third to first in the industry. Subsequently, in 2003, they led the divestiture of UtliQuest to Dycom Industries, Inc, the largest transaction in industry history. At the time of thet respective acquisitions in late 2004 and early 2005, ProMark ‘and Great Plains employed processes, systems and organizational structures well suited to their former sizes, but not robust and flexible enough for the newly formed CUS to execute its’strategy and operate at the peak of its integrated potential. During the remainder of 2005, Management addressed these issues by implementing numerous operational and system upgrades. The Company also filled various corporate and field supervisory positions with a group of experienced professionals who could aid in the execution of the Company's strategy. The team’s post merger integration work has delivered approximately $0.8 milion in cost synergies, and an organizationaitoo'set that wll help drive future growth has been built end implemented. Its noteworthy that the prior controliing owners of both ProMark and Great Plains each agieed to re-nvest a portion of their sale proceeds in CUS without on-going active involvement, a testament to the Management team’s regard within the industry N SOLID 13 oak UTILITY SERVICES, ING.EXECUTIVE SUMMARY CONFIDENTIAL Opportunities For Growth From Organic Sources and Accretive Acquisitions The Company has targeted the following growth opportunites: Continue Adding New Locating Contracts, There are three primary strategies for gaining additional locating contracts: + Layering adaitional contracts with new customers in areas where CUS already has a base level of activity; + Expanding in contiguous service areas with major customers who currently in-source or use a different provider; and + Entering new geographic markets as M&A and other growth activity by its core customers presents opportunity. Market and Sell Additional Products and Services with Intellectual Property Components and/or Residual Value for Customers. By leveraging its existing customer relationships, and reassigning existing internallyfocused business activities and staff, CUS is positioned to generate revenue from provi additional, ancillary services to certain utility customers, in some instances creating ‘a new market for these third party services. These service offerings, such as damage and claims management, as well as audit and compliance services, utilize proprietary data capture and centralization and delivery models, requiring greater technology and training expertise than most locating competitors can offer, but which the Company already possesses. Pursue Additional Add-on Acquisitions. The outsourced segment of locating industry participants is stratified into ‘wo basic tiers. The top tier is comprised of five companies totaling approximately $580 million in 2005 sales, with CUS estimating that itis the fourth or th-largest and approximately double the size of the sixth-largest. The second tier comprises aumerous companies generating ‘annual locating revenue of less than $25 million, and most frequently less than $10 milion. With its excellent geographic breadth, advanced operating model and experienced management team, CUS represents an ideal platform for growth through acquisition of a large competitor and/or a number of smaller participants. Significant Available Synergies Business combinations in the locating industry present strong syreray opportunities due to the natural scalability of the business, With corporate and management costs fepresenting @ significant percentage of total costs, the elimination of redundant personnel can meaningfully impact results. Other areas of overhead synergy Include travel costs, ticket management costs, rent expense and consulting fees, Field synergies are also material, particularly in the context of ‘overlapping or contiguous operations; greater density of routing, enhanced productivity per field technician, lower fuel costs and vehicle mileage per dolar of revenue can all dramatically improve profitabilty. While its two predecessor entities had no geographic overlap, CUS has extensive overlap with each of the four other top-tier industry participants and many of the smaller players. Finally, with its advanced operating systems and data-analysis toolsets, CUS is in a strong position to maximize such synergies in a short time frame. Whether as an acquirer of smaller locating companies or as a target, the same types of business combination benefits that led to the formation of CUS remain available for further capture, HEADWATERS [ms 14 DATED UTILITY SERVICES, INC.Execurive SUMMARY CONFIDENTIAL, Selected Financial Information HEADWATERS [ua Set out below is a summary of the Company's income statement for 2004 through projected 2006 and 2007. Over the 2004-2006 period, revenue has demonstrated a CAGR of 6.2 percent, EBITDA has experienced a CAGR of 12.2, percent and EBITDA margins have grown from 13.3 percent to 14.8 percent. Top line growth for 2007 and subsequent years will be driven by organic tticket volume) growth, market share gains, layering of contracts, and expansion into new geographic areas. Growth in the One-Call business has been projected in line with historical experience. The Company has projected relatively minor growth in the ancillary business, although significant growth potential is envisaged for these services. Margin growth will be driven by a confluence of factors including, + Increased labor cost management awareness and application of the combined Company toolset across a greater range of management; + The continued layering of new business in existing markets; + Implementation of piece work programs to a specific subset of employees; + Although not part of the current or projected results, the Company believes there is substantial productivity improvement available via route optimization and related personnel oversight via the use of route ‘optimization software and GPS technology. The Company has strong forward visibility into its near-term financial performance, based on its systems and the underlying relative predictability of volumes and costs. Revenue for the 9 months ending September 30, 2006 was 0.7 percent above budgeted revenue for the period, and EBITDA was 23 percent above budgeted EBITDA for the period, Based on this near-term business predictability, Management is confident that its current forecast for full year 2006 ‘and 2007 (set out below! will be met Sunman stra & oected Operating Sass Sintouenis Wb Petet ender Soe ve “mine Gar Faee Tess nee “ase Dera! mse asst _aapr_zasis_v7gee 731 Tor S68 aoe 25600 26208, _27805 2o2s8 rarros ea 692382808075 6680 Sor camerenpens 22 sos ae Aaj aT04 asia seer 8317 Depecton &Anosean 00 zen __a.186 Acros eT 422 sow 3731 fr 2073 200s 3.500 tos a i ° gmt Fees ane an Cont 3a as? a8 rom Rate Anas ‘conse WA maa om ‘ened SOTO nL ae Arsin Asia ons soem sa cage sage s81m osm Seed e104 Bos os Mam ge Tm SES UTILITY SERVICES, ING.CJ 2. ComMPANy OVERVIEW =Company OveRviEW CONFIDENTIAL History Service Offerings HEADWATERS [na From 2000 to 2003, Rob Karam and Brian Johnson served as the key leadership team of UtiliQuest (previously owned first by Enron, then GFI Energy Ventures) Under their leadership and quest to improve efficiency and profitability, UitiiQuest became the largest participant in the locating market, UitliQuest was sold to Dycom Industries, Inc. in 2003, at which time Karam and Johnson left the company. In late 2004, they founded Consolidated Utility Services with the backing of River Assaciates and ACAS, and acquired ProMark in November, 2004. In January, 2005, CUS acquired GPLS. The team immediately commenced the consolidation of the operations of both companies into a single business, while retaining the two legacy brands as necessary, ant transitioning the CUS brand into all subsequently initiated or renewed contracts, ProMark, with operations focused in the southeast, was founded in 1985, originally ‘as North American Locating, Inc. In 1996, its name was changed to ProMark At the time of its acquisition by CUS, it employed more than 300 locators operating in 10 states and one Canadian province. z GPLS was founded in 1993, in relation to iis three founders’ instrumental role in the drafting of Nebraska's One-Call Notification Act A year later, the company ‘conynenced damage prevention operations in Omaha, Nebraska, Over its 12-year history and until its acquisition by CUS in 2005, GPLS had grown to nearly 500 employees, servicing approximately 100 utiities and a number of private companies across the Midwest, Today, CUS operates as one of the leading providers of utility damage prevention process services and solutions, including underground utility locating, one-call management, and asset management services in 15 states, as well as Canada, fielding more than five milion utiity locate requests annually Below is a description of the Companys service offerings Underground Utility Locating Services Under laws operating in all 50 U.S. states, any person or entity that plans to perform excavation activities, whether for new construction, remodeling, alteration OF repair work, is required to have underground infrastructure located and marked prior to excavating. Locating entails consultation of utilty maps, as well as electronic sweeping of an area to locate and identity any type of power, gas, sewer, cable, telecom or water infrastructure buried in the ground, The located infrastructure is then marked with flags and/or paint on the ground, according to an official color coding system. The chain of events leading to a locate begins with notification to the regional one- call office, by an entity that is planning excavation activities. The regional one-call Center is then responsible for notifying all the owners of infrastructure located on ‘or near that site that an entity is planning excavation activity. All infrastructure ‘owners are required to have the infrastructure located and marked according to regulations, prior to the digging activity being undertaken by the notifying party. UTILITY SERVICES, INC.Company OVERVIEW CONFIDENTIAL, This notifcation may go to the infrastructure owner, or it may go directly to the third party contractor that the utility has designated for locating services, such as Us. CUS Historical Locate Volume Hl 2212008 22005 G3 2005" Qe 2008 gH 2008 G2 2006 QS 2008 Other Services CUS generates the majority ofits revenue from its locating services, and forecasts this segment to reman the largest component of the business going forward. However, the Company also generates revenue from several other business lines, which represent attractive avenues for growth. One-Call Services. The Company's one-call services subsidiary, Great Plains One Call, exclusively manages the receipt and transmission of requests for underground locating services for the state of Nebraska. The call center personnel include one manager, two supervisors and 20 operators that staff the center 24/7/365, Ticket volume for Great Plains One Call has grown from 924,662 in 1996 to over 1.4 million in 2006, a compound annual growth rate of 4.4 percent (October to December 2006 estimated’. These figures, in addition to anecdotal evidence compiled from other regionat one-call centers, indicate steady mid-single digit growth rates fer the industry. GPOC is also a significant profitability engine for CLIS with EBITDA of approximately $850,000 (51 percend in 2005, and $541,000 (43 percent) in YTD 2006, tthis lower margin is due to reallocation of certain employees from GPLS !o GPOC in 2006) The company was recently awarded the contract for Nebrasta for an additional four years beyond the current Contract expiration in October 2007. Damage and Claims Management Services. CUS’ Damage and Claims ‘Management Services group helps organizations reduce third party damages and increase cost recovery through the Company's existing field investigation and collection capabilities. CUS provides 4 complete solution from the field work through the recovery of costs. There is no dedicated headcount to this service, which is accomplished through extending the reusable capability of its existing field and back office processes and staf, The combined affering provides: On-site investigation of damaged facilities; Automated capture of damage investigation supporting documentation; Professional research and analysis to determine the “at fault” party; and, Invoicing and collection processes for cost recovery, CNS@uIr UTILITY SERVICES, ING. 18 HEADWATERS [aaCompany OVERVIEW. CONFIDENTIAL, Operations The Company validated this business model with a pilot customer in Virginia during 2006 and is finalizing a contract with a client in Kansas which will bring approximately $175,000 in claims receivables under CUS management in 2007. ‘The claims management contracts renew automatically each year in perpetuity Unt terminated. While this business line has been in the germination process during 2006, Management believes there is significant growth potential for this service through beth increased internal emphasis as well as through acquisitions. Within the estimated $300 million market for this service most of this activity is performed in-house by the entity whose infrastructure has been damaged. However, due to the same pressures that are driving increased outsourcing of locating activities, Management believes an increasing number of companies in the utility, telecom and cable industries will seek to outscaxtce damage and claims management as well. Additionally, there exist today a small ramber of other entities that perform this service as a third party contractor, which are potential acquisition candidates. Audit and Compliance Services. The Audit and Compliance Services group provides professional fleld survey solutions to capture accurate information concerning the condition of utlity distribution assets, The field audit process can assist in optimizing join use scenarios, identifying non-compliant. installation situations, and capturing assets not currently within the existing tracking systems, The full service offering includes: + Design and planning procedures for effective data capture, + Integrated hardware and software partnerships to increase productivity in the field; + Quality Control procedures to ensure the accuracy of the field survey data; + Equipment and personnel for a full outsourced solution. The Company currently has one contract in place for pole audit services in the Canadian province of Ontario, which will provide revenue of approximately $780,000 in 2007. The project is staffed with one contract project manager and 6 field personnel, Management estimates that approximately 24 million pole audits are required in the LLS. each year, indicating a potential market size for pole auditing services of $360 million (see Industry Overview far more cetail) The Audit and Compliance Services group currently performs only pole audit services, however there is the potential to add several other services aimed at the surveying and auditing of ulilty, telecom and cable infrastructure. Most of the industries encompassed in CUS's customer base are required by law to provide some assurance to regulatory bodies of the compliance of their field assets with laws and cegulations. These regulations provide a regular, recurring demand for audit and survey services which CUS intends to provide, Field Activities The Company delivers its services through a highly trained workforce typically consisting of between 500 ané 800 field personne! araund North America, depending on the season. Each of the Company's lacators is typically equioped with 2 vehicle, locating instruments, a laptop computer, and communication devices such as 2 cell phone, pager, or two-way radio, Locators also have assorted traffic and safety equipment. Currently the cost 0 equip one locator ranges from $14,000 to $17,000. The Company typically purchases. the equipment, computers and trucks, and is in the process of transitioning from HEADWATERS |™® 19 1S@LI 1, UTILITY SERVICES, ING.Company OVERVIEW CONFIDENTIAL lance on light-duty pickup trucks, typical in the industry, to less expensive and ‘more fuel efficient economy hatchbacks, such as the Chevy Aveo. (See Financial Performance section for an analysis of the impact ofthis initiative. Below is a summary of the Company's operating districts. Tertiary © 646.2218 5.983.838 [110/00 Teo 03014] 2,580,507 35/45 Trevi 239,028] 2,693,723 | 50/40 Tertoy 705,902 1909267 | 1/10. Terioys T4080] 3725.407 | 05735, Teton. 23.620 [ 353,986, Tas Terrioy7 Zassia[S5ea994[ 00/40, Teron 6 249.045 | 2,982,199 | 62/35, Toray 9 56610 753,094, 15/8 Terstoy 10 3inza7 [3578608] 75/45, Nero 1 5.527 | 1,112,888 2a Nerntoy 12 10.398] 1.115.176) 31720 [resiton 13 177253 [ 846,127 | 42/35 Ternary 16 igar7] 1,150,164 25/22 "otal" 7090.457 | $ 33.370,085| — 713/408 Bess nO TEI COORG Wes Vegi, PScons GT Tring IE Te CUS's headquarters building in Omaha, Nebraska houses the Company's 25- person corporate staff, which provides the administrative, accounting and ‘operations support for the business. The headquarters facility includes 3,000 square feet of office and 3,000 square feet of storage. The field offices typically have less than 1,000 square feet of office and storage space and about half are ot permanently staffed. Field offices usually have larger facilities for storage and maintenance and clerical support. while satelite offices are used primarily as supply depots. Each field office manages between 6 and 120 locators at any given time, depending on the season and the population density of the market Periodically, the locators re-supply their trucks and check equipment at their field office, although this activity is increasingly accomplished via field delivery by supervisors or forwardlly-deployed supply depots. Work Flow Subsequent to a one-call center being notified that a party intends to dig in the Vicinity of the infrastructure of one of the Company's customers, a request for one oF more locates, called a notification, is sent electronically by the relevant one-cail center to whe Company's headquarters in Omaha, Nebraska, where it is automatically entered into the Company's wireless ticket management system, Ticket Rx. Each ticket is assigned to the appropriate operating district, whereupon itis allocated by the system. to the job queue of an available field technician, Field technicians are wirelessly linked to Ticket Rx, and periodically sync by laptop with the system to view their current job queue. Upon arriving at a job site, the field technician iaiso called a locaton’ consults maps provided by the utility customers (paper or electronic maps depending on the Utility provider) to gain a general understanding of the location of the utility lines in the vicinity of the [ob site. The locators then connect a transmitter to the utility, HEADWATERS |ue SOL! DATED UTILITY SERVICES, ING. 20Company Overview CONFIDENTIAL ‘ypically at or near the meter, which appiies a signal to the utility line. Using a handheld receiver device that emits an audible or visual signal, the tech can then electronically sweep the area indicated by his maps to determine the exact location of the underground utility infrastructure. Finally, the tech paints the ground or places marking flags above the uly line, using the appropriate colors 35 defined by the belaw mandated color coding systems. At times, the technician may find that no customer assets are in fact in the affected area. This situation results in a “cleared” ticket, wirich may become evident to the technician at the site or at the time the notification is dispatched and prior to a physical inspectian. Upon completion of a locate, technicians enter the results of their work into the ticket management system accessed wirelessly and via hard-line connections through laptops in the field. The ticket management. system automatically uploads the data to the corporate database and, in states with a. postive response requirement, informs the one-call center that the work js complete, This is an improvement over the paper-based and non. wireless systems in place at the beginning of 2008, which required office staff to manually enter ‘work results into separate systems on daily basis. Gnce techs enter data, the system automatically generates te base information for iavoicing customers, which are typically prepared and delivered to customers fon a weekly or monthly basis. All information necessary for disciplined, efficient management of tne Company is almost instantly available, In general, a locator is capable of performing locates at approximately two to five Job sites per hour, depending on the number of locates he/she is performing at a job site and the geographic proximity of successive tickets. The unit of measurement of work performed for the Company is called a Billable Linit GU», of ‘which there may be several per ticket, one for each piece of infrastructure owned by a different customer, For YO 2006, the Company has averaged approximately 90,000 dilfable units per week, or 3.8 billable units per locater hour worked. Billable Units Per Hour yro 2006 450 os 400 350 3.00 ~ 250 200 150 100 050 ~— 00 24 HEADWATERS [oe UTILITY SERVICES, ING.Company Overview CONFIDENTIAL. Seasonality Operational and cost efficiency improvements remain a focus of the Company today as well as into the future. With the use of the nearly realtime reporting capabilites implemented, CUS is able 10 manage workforce seasonality 10 a ‘greater degree of precision than it believes many of its competitors achieve. Daily data feedback enables Management to view trends in revenue or ticket volume per employee within specific geographies, and to act accordingly to optimize ‘employee levels quickly. Collaborative efforts on planning for and achieving early peak and trough headcount forecasts are a critical part ofits operating model, ‘Monthly Revenue and Revenue Per Employee =alllll: A ELEPLEP LEM PEPE Cer Superior systems and reporting capabilities (including a weekly operations report payroll period reporting for overtime, average hourly wage, pay changes, and data ‘on new hires) help to keep managers informed about labor costs, the single most. important driver of results, The Company's ticket management system, its internal reporting features and its OLAP (Online Analytical Processing toot by-praduct also help managers make daily adjustments in ticket load balancing, routing and scheduling. The result of this process has been a steady improvement in revenue per employee, as well as a smoothing of the effects of workforce seasonality, as ilystrated in the graph above. ‘This total too! set helps CUS quickly adjust labor and costs throughout the year. It also helps provide detailed and quantified feedback to employees to help estabish specific goals for individual and small group performance in the field. Ticket Management Process CUS uses a product called Ticket Rx for managing its mobile field workers. Ticket Rx is a complete mobile work management system designed specifically for the utility locating industry. CUS licenses the product from software development group MWM Solutions, and pays a rate of approximately $1.17 per user per day. There is no setup charge and no minimum cantract term Ticket Rx receives tickets from one-call centers or directly from utility companies and routes the work to the appropriate locator. It tracks all activity on the tickets and uses this information to provde billing, reports and positive response HEADWATERS [uo CONS@LIPATED UTILITY SERVICES, INC. 22Company OVERVIEW CONFIDENTIAL notification. The core system runs as a hosted service (ASP modeb, on servers in the Company's data center with redundant power, air condition, and networking. The system is effectively self sufficient and requires little outside maintenance and support. Field technicians are able to connect remotely to download and schedule their work for the day. Managers can connect and get real-time data about the work ‘being done, to measure productivity, backlogs, and any other pertinent information, Through the use of wireless communications and data connectivity, CUS operates its field work force with minimal olfice and associated overhead cost requirements. Field technicians can operate nearly autonomously, by linking to the ticket ‘management system remotely, and by garaging the Company automobiles at their home, Routes to be taken throughout the day in order to complete the list of locates are determined by the individual field technician and home-garaged vehicles and corporate gas card programs minimize unnecessary driving, CUS currently has only 2? field offices and 29 small supply depots around the US. and Canada, all of which are leased on terms closely matching the time horizan of existing customer contracts, Below is an averview of the Ticket Rx process, ‘Texettx High Level Prcess Flow Overview Damages and Claims Damage cost management is an extremely important driver of financial results in the locating industry. CUS believes itis the industry leader in effectively managing damage costs through superior data capture, training, reporting and management. Management spends a considerable amount of time on identifying and eliminating the root causes of atfauit locate damages and at fault damage expenses, In 2005, the Company was at fault for 1,823 utlity damages for a ratio of one damage per 2,566 billed units. CUS has been at fault for 1,463 damages YTD HEADWATERS [ws 23, UTILITY SERVICES, ING.Company Overview CONFIDENTIAL September 2006 for a ratio of one damage per 2,543 billed units. During the Q4 2005 damage expenses were equivalent to 5.7 percent of revenues including the discontinued Colorado operations, (excluding the Colorado operations, the ratio was 4.5 percend. For the most recent quarter ending September 2006, damage expenses as a percentage of revenue were 3.5 percent. Management seeks 10 maintain a ratio of less than 4.0 percent ere Pee eeon encore actions ferme nen ent ie eee emer Tionihy —Camalatve —Cornaainve Billed Units__Damages Patio _YTD Damage _ TD fatio January 339309 “107-015 107 0315 Febraary 312350 139 0445, 248 0377 march 4217s 152 0360 398, 0371 Apri 449953185 oan 583 0383 aay 483,496 160 0331 73 0370 une 465055183, 0394 16. 0375 “ly 403.228 195, ass 1523 0.390 ‘august 452984 193 04261314 0.395 September 391,713 149) 03801463, 0393 ce T Damage in every 2,543 GES unis CUS investigates all service interruptions notified by customers, The standard for dispatching 2 local damage investigator following notification is 4 hours. A field supervisor typically handles routine claims investigations, and a district manager or dedicated regional claims manager handles the investigation in the event of petential claims against high profile / high repair cost facilities, Completion of investigation is typically within 48 hours from notification, and 80 percent of claims ate resolved within 30 days. Payment to customers for at-fault claims is within 30 days from the date of receipt of an invoice. However, claims notification and invoicing can stretch as lang as 24 months. For this reason, the Company carries adequate damage reserves including those related to IBNR ‘incurred but not reported) incidents Damage Costs as a 9 of Revenue Including and Excudng Colorado Operations 6.00% 5.50% ~ 5.009% = 4508 - 4.00% - 3.50% 3.00% —_—— 4-05, Qi 06 2-08 Q3- 06 [Damage Cost % Excluding Colorado 9 | HEADWATERS |= UTILITY SERVICES, ING. 24Commany OveRviEW CONFIDENTIAL Customers Contracting Principles Outsourced locating contracts cansist of four key metrics: Price Volume Density Indemnity for cost of repair isk! ‘The combination of these factors determines pricing, of which volume has the least impact on price. The infrastructure density af the area impacts billable-unit pricing significantly. Most contracts include indemnification, Gut certain utility types experience fewer damages and catry lower risk Pricing Is per ‘work unit’, o locate, Depending on the complexity of the work, a ticket submitted to a locating company can entail one or mare locates. Pricing varies by the type of uty and secondarily by the level of risk and technician productivity. The following chart is broadly illustrative of typical levels: ER ee $4.00» $7.00 $6.00 $11.00, Medium $9.00 $18.00 High $9.00 - $15.00 ‘Source CUS Management Once a contract Is awarcled, it is exclusive to the provider for a particular regior Biling is performed either weekly, biweekly of monthly. The service level ! agreement is dictated by the state regulations for the area where work is performed, ‘Top 10 Customers, CUS enjoys a high-quality and diversified customer base. YTD 2006, its top 10 customers accounted far approximately 53.5 percent of revenue with no customer accounting for more than 9.2 percent. Eight of these top 10 customers have been ‘with CUS for at least six years In 2005, the top 10 customers accounted for 52.1 percent with its largest customer accounting for 9.6 percent of total revenue, SL Poeeechcmmrecenaa 8% of Total Total of Years as [ customer Y3_ Revenue Revenue 1 1S086 T3898 74197 4717s” 8.2% 0 2 5063 13975 13875 3.2612 73% 4 a 7460172275 31032 70% 6 4 6573. 1006.4 26079 5.95% 7 5 3478 10952 23139 52% 8 6 BUSS 77157973 teas eB 7 7 TOTS 65216253. NBS 45% 13 8 4942 593858296709 3.7% 7 3 G1AT 3761315 13723 3.0%. 4 no aoe 8073 a 13129 HEROWATERS (me 28 UTILITY SERVICES, ING.Company OVERVIEW: CONFIDENTIAL, Contracts Large contracts are often awarded based on bidding processes conducted by the major utility companies. The procurement organizations within the major utility companies may elect to bid contracts as tney expire or renew directly with the incumbent vendor. The length of a contract award or renewal can range from one year to five years depending on the preference of the utility plant owner. The ‘Company has contracts with term lengths across this range, Among its top twenty largest customers, the average contract term is approximately 3.2 years. Within this mix are four customers with five year contract terms, fourteen customers with three year contract terms and two customers with one year contract terms. In some instances the Company holds several contracts with a single customer. CUS has diversified its revenue model by acquiring a significant number of smaller revenue accounts supported under perpetual one year agreements. These customers, referred to by the Company as “footprint accounts’, provide increased profitability and very low customer management costs. These smaller accounts would not be profitable an a stand-alone basis, but in combination with larger accounts in the same areas, are very high margin. They currently provide annuity- like revenue of roughly $4.2 million per year. The accounts in this group are comprised of either contracts in areas with litte competitive pressure or those under perpetual one year agreements which renew automaticaly. Combining 2005 and 2006 retention results (described in more detail in “Financial Performance’) demonstrates that the Company was able to retain $36.2 millon, dollars of the $41.6 millon expiring contracts or roughly 87 percent. The Company more than replaced the expired contracts with over $8 million in new business acquisition and pending growth of aver $3 milion prior to the end of the 2006 year, Retention Strategy (CUS has a multifaceted strategy to ensure 2 high level of customer retention. ‘The first part of the strategy is to create a compettive barrier in each region. Major contract expiration are purpasely staggered to avoid multiple contracts renewing together. This strategy forces potential competitors to pursue single-party Contracts (which are typically unprofitable) in order to establish a presence in a region that CUS has significant operations Secondly, approximately six to 12 months prior to the contract expiration, CLIS seeks an extension of the contract without a competitive bid cycle. This strategy has, in certain cases, allowed the Company to increase rates marginally with Key accounts and to avoid rate reductions or lost business due to a formal competitive bia. Lastly, CUS utilizes a detailed cost analysis model for bid renewals. This system allows the Company to both forecast profitability and to assess competitive risk in the bid submission process. In some cases, it also identifies renewal accouints that Fequire significant price modifications to achieve profitability and allows the Company to exit contzacts which do not meet financial targets, During 2005, the Company identified @ significant lump in potential contract expirations during the second half of 2007. The Company instituted a targeted program focused on conducting direct negotiations with selected customers to BaNSE 26 1S@l) DATED UTILITY SERVICES, INC. WEADWATERS [ueCompany OVERVIEW CONFIDENTIAL Growth Opportunities transition revenue expirations more evenly across the upcoming years. To this end, CUS has secured a cantractual agreement from a large customer to extend the contract from the end of 2007 to the end of 2009. in addition, the Company has identified a target which, through a similar agreement, would further distribute contract expirations more evenly over the next four years. Contract Renewals by Half Year $16,000 ssi S008 + FS SSS SP SS e SPO OE 8 “ ey The CUS Sales and Marketing Team has primary responsibilty to drive top-line growth. Its three sales professionals work together to devise marketing strategy and drive overall revenue growth efforts. Brian Seaberg, who has fiteen years of relevant experience leads the Sales and Marketing team. The Business Development Manager is in charge of procurement of new contracts and has twelve years of industry experience. The Business Controller oversees the organizational aspect of sales and marketing operations. In adcition to its primary objective af procuring the new business for the Company's locating services, the Sales and Marketing team also actively pursues opportunities for the Company's, differentiated, higher margin lines of services such as damage and claims management, and audit ar compliance services. Mr. Seaberg and the Business Development Manager consistently maintain a dialogue with potential customers with the goal of growing revenue from these additional services, The Company's strategy for growth includes the tollawing, Continue Adding New Locating Contracts Through Three Primary Avenues: 1. Layer Additional Contracts onto Existing Operational infrastructure. The support requirements for major locating contracts, defined by CUS as those over $1 milion in size, require staffing and equipment to cover significant geographic areas. The client revenue generated by a sole contract in a given area tends 10 generate fairly low margins due to the high costs for the infrastructure and staff to cover a region. Additional contracts within an area where the costs already reside provide for improved margins as underlying asset expenses are distributed! across a larger revenue stieam, Due to the low investment requirements for additional infrastructure, layered core services contracts provide incremental gross and net margin improvements across the service territories. Below is a chart illustrating the effect of muttiple contracts layered upon the same aperational infrastructure. HEADWATERS [ms 7CoMPANy OVERVIEW CONFIDENTIAL fitment eras (arcu Mate Crem ieee keonicae) Incremental Curative Sc8A and To Oreet sito Mevewe Revere aoe _ Goss _eomToa Magia} \conact Standalone $3.10 $3,100 (com 3 Lyered 82 sea CUS dedicates business development resources to growing the revenue that is supported by its current asset base. Layering contracts are acquired primarily through a directly negotiated process (as opposed to bid cycles), resulting in negotiated pricing and terms that are more favorable than the major contracts. CUS targets 3 percent growth in layering of core services contracts each year. 2. Leverage Current Relationships to Add Volurne in Adjacent Geographic Areas. Utility plant owner mergers, divestitures, and reorganizations have created a large number of geographic “pockets” where core services contracts are not aligned with other utility owners in the same geographic area The cost of providing services in these fringe services areas may be higher and less competitive for the company with the largest part of the footprint. As a result, often times the utility ‘owner either performs the work in-house, or the competitor that services the region has difficulty meeting the service levels. With the broad combined client base of GPLS and ProMark, CUS is able to leverage existing core service contracts to expand into these fringe areas that are less profitable for competitors, particularly where they are adjacent to its own service areas, and increase volume ‘with existing contracts, In some cases, the Company's opportunity arises when tity plant owners express interest in reducing their vendor pool. CUS has also expanded with clients where the Company's service levels in the areas of quality and omtime performance are significantly better than an adjacent provider. 3. Build Business with New and Existing Customers in Non-Contiguous Geographic Areas. As the utility market place continues to consolidate, CUS's abilily to deliver nationwide coverage provides the breadth and depth to pursue large multi-state contracts. Because the Company is an active vendor for these major plant owners, it garners visibility to additional territory on a continual basis as its existing customer's contracts reach expiration in these non-contiguous geographies. CUS is registered with the procurement organizations of all major utility and telecommunications owners throughout the US. In combination with ‘opportunities to expand the Companys geography with existing clients, CUS pursues new client contracts in non-contiguous geographic areas on an ‘opportunistic basis. Management develops profitability models for territory expansion and submits pricing to allow for positive EBITDA contributions over the initial 12 month period for new market areas. Market and Sell Additional Products and Services with Intellectual Property Components and/or Residual Value for Customers The Company employs @ large distributed labor force that, in addition to locating, provides adaitianal products and services for the utility services market. Utility plant owners require cantinuous and ongoing field activity to support regulatory compliance testing, GIS and mapping verifications, asset management auditing, damage investigations, joint use analysis and a hast of other requirements, which CUS is capable of providing in a more efficient manner, HEADWATERS [mo 28 cONSOL! UTILITY SERVICES, INC.Company OVERVIEW CONFIDENTIAL, HEADWATERS [wa As distinct from locating, these audit and compliance services require capturing ‘and centralizing information for use in core utility management applications, Similar to locating, these field activities require the logistical capabilities and asset base of a distributed field services organization, CUS is active in several non- locating activities that deliver additional service work. These services require technology and training expertise and thus support increased profitability over its core services offering, CUS has initiated a project for field audit work in the Canadian province of Ontario. The Company is also actively pursuing other auditing and non-locating service work throughout its footprint. The Company has also established a business line for damage and claims management services, but has put litle emphasis to date on developing this business. The same internal staff that handles CUS's own internal damage claims currently provides this service to customers and as such the Company requires no additional staffing, training or systems to support the current volume of third-party claims. Management believes that this service is an excellent growth opportunity due to the desire of its customers to outsource such non-core activities, and due to the redundancy of this service ta its own existing internal processes. While each of these activities have been a relatively low priority for the Company during its period of integration in the last two years, Management believes that such services have the potential to add significant topline growth at attractive margins over the next several years, These services are already established business lines for the Company, albeit currently on a relatively small scale. Some of the services are also established business lines for ather entities, which may represent acquisition candidates Pursue Additional Add-On Acquisitions Five major players dominate the underground locating industy, CUS is watchful for niche opportunities to either acquire assets or organizations within the locating industry that support its margin returns and deliver accretive earings. CLIS's ‘Management has significant experience in buying smaller players such as ProMark. ‘and Great Plains and integrating them. The alternate services market segment is siill highly fragmented, and presents aditional opportunities for acquisition, CUS has several partnerships with technology and service providers for non- locating operations. The Company Is utilizing these relationships tactically to identity and pursue alternate service opportunities. If conditions support the targeted growth and margin requirements, CUS will consider the acquisition of organizations that increase the quality and value of its alternate services strategy 29 (S@LI DATED UTILITY SERVICES, INC.3. INDUSTRY OVERVIEW eeINousTRY OveRVIEW CONFIDENTIAL Development The outsourced locating industry emerged during the 1980s with the formation of of the Industry 2 Sumber of small companies operating principally on a local or single'state basis, Industry growth accelerated in the early 90s with the one-call notification systems established in an effort to facilitate state and local regulations concerning ‘excavation, One-call centers were designed to manage the information requited to ensure safe excavation. The implementation of these centers drastically Teduced the time frames for connecting excavators and underground asset ‘owners. Industry growth in the 90s was driven by the increased awareness through regulations and initiatives, such as the “call before you dig” program, as well as telecommunication companies burying a significant portion of the previously above-ground infrastructure. The increase in telecommunication infrastructure upgrades and maintenance was brought upen by the connectivity and internet boom, ‘The primary growth drivers in the locating industry are: + infrastructure activity, both private-sector and publicly financed, across the cabie, telecommunications, water sewer, gas, and electricity industries, as well as commercial, industrial and residential construction, and consisting cf both new investment (such as “last mile” infrastructure “fiber to the premises" initiatives) and maintenance projects; + utlity and communication companies continuing to outsource non-core activities (such as locating), + mandates to bury infrastructure for aesthetic, safety, insurance and/or environmental reasons. The charts below outiine the increased trend for the outsourcing of underground damage prevention services. Management estimates that the outsourced portion of the business will continue to grow. 1980 2008 Source: CUS Management ‘The underground damage prevention industry is a subset of the utlty services industry, which in turn is broadly correlated with the averall construction industy. 31 HEADWATERS [wo UTILITY SERVICES, ING.Inpustry Overview CONFIDENTIAL North American The $1.2 trilion US. construction market has continued to exhibit healthy growth Infrastructure Investment tility Services Industry Underground Utility Damage Prevention Industry rates, with 4.4 percent growth from August 2005 to August 2006. Year-over-Year construction trends also point to a sharp increase in utility and transportation- related expenditures, significant sources of locating demand. Growth in this sector comes from both the private and public sectors, with the former up 29.7 percent and the ladder up 13.5 percent over the same period. The table below shows recent data on the overall size of the infrastructure construction market, plus sub-set data which drives revenue streams for utility locating companies. I YEROAE OTOL CGT NG [oe ee aie eect Commaneaton 35375 1388 27% Semaue an waste posal 19231 16% 39% 97%) Transportsion 29987 25% 520 15.1%) Power faze Highwoy and sos Source: US, Census The utility services industry is largely driven by infrastructure development and maintenance spending as well as by the trend in utlty and telecommunications industries to improve operating efficiencies by outsourcing non-core competencies. Specifically, the continued upgrading of underground infrasructures especially by telecom and MSO (multi-service operaton companies provides a large impetus for third party locating services. Currently, there are a significant number of service providers focused on selling services to the utilities and telecommunications industries. These companies range in size from sole proprietorships to the combined operations of holding companies that generate over $1 bilion in annualized revenue. However, the great majority of companies providing utlity services are smaller than $10 million in annualized revenue. ‘The utility services market can be broken down into Labor Based Service Providers, Technology Based Service Providers and Blended Service Providers The businesses that are most related to CUS's service offering generally fall under the category of Labor Based Service Providers, including construction/engineering firms, vegetation management, survey/inspection, manual/autamated meter reading, one-call centers and risk management services, ‘The North American underground utility damage prevention market is a growing sector within the utility services industry and includes: i field locating, i notification, i) damage / claims management, and fv) audit and compliance. Utilities increasingly outsource these acivities as part of an ongoing effort to focus ‘on core competencies and streamline nen-revenue producing and non-customer facing activities. As this trend continues, the industry will likely experience a ‘continued increase in the portion of undergreund damage prevention services that are outsourced HEADWATERS [waINoustry OveRvIEW CONFIDENTIAL In addition to the trend toward increased outsourcing by utility and telecom companies, the sources of demand for damage prevention services are driven and ultimately related to three factors, namely population growth, upgrades in infrastructures and the rising amount of infrastructure per capita. The US. added 100 millon people in the past 39 years and recently topped 300 milion people. According to government estimates, the country will add another 100 million people by 2040. This increase, coupled with rising wealth and the correlated increase in infrastructure per’ capita will provide impetus for enormous infrastructure upheaval in the future, driving demand for damage prevention services. Some of the specific industry demand drivers are briefly reviewed below. U.S. Construction Market The $1.2 trilion ULS. construction market has continued to exhibit healthy growth rates, and construction spending is forecasted to exhibit strong growth again in 2007, with an anticipated increase of 63 percent, Non-residentiat building and heavy engineering will account for a significant portion of the increase in spending, generating 12.3 and 126 percent growth, respectively. New residential build spending is expected to decrease by 1.7 percent, but this drop will be buoyed by 2 106 percent increase in residential improvements, ultimately resulting in 1.3 percent increase in total residential construction spending, Locating demand is not significantly correlated to the construction of new buildings and homes. Locating requests result from any excavation activity that creates the possibilty for underground infrastructure damage. In adeition to general construction activities, there are several significant near-term infrastructure development trends that will provide long-term support for growth in locating demand, mostly related to the increased infrastructure requirements resulting from the addition of 100 milion people in the US. over the next 30-35 years. A few of these developments are detailed below, and include such initiatives as telecommunication and cable companies building out vast underground networks, the upgrade of the US. electrical power grid consisting of 160,000 miles of transmission lines, continued increased transportation infrastructure spending and the overhaul of aging water infrastructure. US, Telco / MSO Companies ~ Continued Network Buildouts The telecommunication industry's FTTP Mfiber-to-the-premise? initiatives expand the range of services and applications delivered to residential and business end-users. For example, Verizon Communications, AT&T and Bellsouth have implemented aggressive network infrastructure buildouts that entail large expenditures over ‘muttiple years, Verizon Communications is in the midst of a six year, $23 billion fiberoptic network improvement in an effort to expand the delivery of TV and super-high-speed internet services. AT&T, over the next four years will spend approximately $5 billion in an effort to pass 18 million homes, BellSouth, who has entered into merger agreement with AT&T, implemented a $6 billion initiative aimed to push its fiber to the curb initiatives. Morgan Keegan research estimates that U.S. telecom companies will spend approximately $25 bilion in capital expenditures in 2006, with mid to low single digit growth in 2007. Industry professionals expect approximately $200 billion in capital expenditures required to maintain and modernize infrastructure over the next eight to 10 years, HEADWATERS [mo SOL! DATED UTILITY SERVICES, ING. 33INousTRy OvERVIEW CONFIDENTIAL Cable TV Operators ~ Continued Network Buildouts With telecom companies entering the home media market, the cable industry has been challenged to support a sophisticated interactive environment that includes video, internet, information, telephony options, and a host of interactive services. To meet the challenge of increasing competition, broadband network operators must ensure quality and reliabiity while expanding their services. From 1996 to 2005, cable operators spent on average, $96 bilion on infrastructure maintenance and upgrades. However, in order to further enhance and update its infrastructures cable companies are expected to employ significant amounts of capital aver the next five to eight years, As evidence of this trend, the National Cable and Telecommunications Association estimates. $11.1 billion of infrastructure spending in 2006 for the cable industry, representing a near 17 peccent increase YoY. Recent cable industry reports have highlighted the need for existing cable operators to drive node segmentation from an average today in excess of 750 homes per node to less than 36 homes per node, which would potentially requite instatation of approximately three to five times the amount of existing nodes, as well as the corollary fiber and cable. A material portion of this capital relates to underground infrastructure. Going forward, increases in services provided by U.S. telecom companies as descrined above represent a significant competitive pressure to the cable industry. This pressure combined with customer demands for increased bandwidth and services will drive centinued capital spending by the cable industry over the next several years. Power ~ Upgrades are imminent In 2003, the most recent year for which complete data are available, the total US. net generation of electricity rose slightly to 3.9 billion Kilowatt hours. To distribute that power, the US. electric transmission grid consists of nearly 160,000 miles of high-voltage (230 kilovolts and greater) transmission lines. In 1999, America’s electric utilities spent more than $3 billion maintaining and operating these links to customers, and $2.3 billion on construction expenditures (including replacements, additions and improvements). Despite these investments, the state of the grid remains a cause for deep concem among experts. The CECA (Consumer Energy Council of America) noted that investment in the transmission grid was at a low of $83 million per year fram 1975 to 1999. However, it increased to $286 million annually from 1999 through 2003 and investment in transmission fines during the next 10 years is expected to be $3 bition to $4 billion per year. Transportation A 2004 US. Department of Transporation (DOT) study prepared tor Congress found that urban road and highway pavement conditions are likely to worsen at current funding levels, The DOT study estimates that the annual investment needed to maintain urban roads and highways in their current condition is $15.6 bilion annually. Required annual investment to improve the condition of urban roads and highways is $19.3 billion annually. The DOT study found that keeping urban roadways in their current condition would require a 40 percent increase in annual funding. Improving the physical condition of urban roadways would require a 73 percent increase in annual funding. To this end, in August of 2006, President Bush signed into law a $286 bilion transportation legislation to fund road and mass transit construction projects for six years, the largest transportation funding bill in history, HEADWATERS [wo 34 - LID ATED UTILITY SERVICES, ING.INoustry Overview CONFIDENTIAL Field Locating For the first time since World War Il, limited rail capacity has created significant chokepoints and delays within the national rail network This problem will increase, as freight rail tonnage is expected to increase at least 50 percent by 2020 (Bureau of Transportation Statistics, Transportation Statistics Annual Report, September 2004). In addition, the use of rail track for inter-city passenger and commuter fail service is increasingly being recognized a8 a worthwhile transportation investment. Congestion relief, Improved safety, environmental and economic development benefits create a good rationale for public sector investment. To simply maintain the current share of freight carried, and anticipated increase in total freight carried, railroads would require $175 billion to $195 billion in investments over the next 20 years, according to the American Society of Civil Engineers. Expansion of the railroad network to develop intercity corridor passenger rail service is estimated to be cost approximately $60 billion over 20 years. All told, rail investment needs are $12 - $13 billion per year. water ‘Aging wastewater management systems discharge billions of galions of untreated sewage into surface waters, and decrepit systems lose huge amounts of fresh ‘water through leakage each year, The EPA estimates that the U.S. must invest $390 billion over the next 20 years to replace existing and build new systems to meet increasing demands as @ result in the rise in population. Currently, the federal government has mvested more than $72 billion in the construction of publicly owned sewage treatment works |POTWs) and related facilities. An additional investment af $181 bilion for all types of sewage treatment projects eligible for funding under the Clean Water Act in 1972 is required, according to the EPA Several municipalities have unvelled massive water infrastructure projects, Atlanta, for example, has instituted the Clean Water Atlanta program, which it will spend over $3.8 billion through 2014 to overhaul its water and sewer systems. A similar project has been initiated in Tampa, Florida, where the city will spend the next five years revamping its storm water facilities to ameliorate its flood problems. Further, across the southeastern coastat regions, hurricane risk mitigation efforts are driving all types of new and existing utility and telecom infrastructure underground, Size ‘The field locating market represents nearly $1.2 billion (86 percent) of the current $1.4 billion underground utility damage prevention industry, Roughly 40 percent of this market is handled in-house (performed by the internal staff of the utility ‘company! and the remainder is outsourced to third parties, A specific company decision whether to cutsource is generally related to geographical, historical, and Union related issues. There have been cases of some companies moving between each operational strategy or taking different approaches in different regions Industry Structure, Field locating competitors typically vie for major accounts thraugh competitive bid cycles that award geographic contracts over one to five year contract periods. Highly profitable markets are established for @ given locating company when multiple facility contracts are “layered” within 2 specific geographic region Smaller contracts can often only be supported profitably where a larger contract service agreement exists in the area, For these reasons, large incumbent players HEADWATERS |uo 38 JDATED UTILITY SERVICES, INC.SNouSTRY OVERVIEW. CONFIDENTIAL, are difficult to dislodge from territories which they have effectively layered, Management's view of the two tiers of industry participants, excluding in-house locators, is set out below’ 5-350 minin revenue < $50 mma ‘The chart below outlines Management's estimate of market share within the overall $1.2 billion market Market Share Analysis Lalique 168 = os ie Source: Management estimates, Dycom and Laclede SEC flings A review of the Company's four major competitors is set out below. All have either large regional footprints or quasi-national operations. Central Locating Service Central Locating Service operates as the utility locating company within LtiliCon Solutions, Ltd,, which is a broad portfolio of utility industry service companies Utiicon is a subsidiary of privately-held Asplundh Tree Expert Co. CLS generated approximately $128 million in revenue during 2005, primarily operating in the ‘Mid-Atlantic, Mid-West and Wester regions of the US. ELM Locating and Utility Services ELM Locating and Uitiity Services is a subsidiary or ELM Enterprises, LLC, a provider of environmental risk and related management consulting services. CUS estimates that ELM generated approximately $50-60 millian from its locating 36 UTILITY SERVICES, ING. HEADWATERS |BSNousTay Overview CONFIDENTIAL Ancillary Services HEADWATERS |= related operations in 2005. ELM operates throughout the Midwest and Western regions of the US. sap SM&P is a subsidiary of the Laclede Group, a publicly traded natural gas distribution company located in Missouri. SM&P produced 2005 locating revenue of approximately $140 sllion. SM&P’s operations extend from the upper Mid- west through Texas utifiquest UttiQuest is a subsidiary of Dycom Industries, Inc., a publicly traded company whose main business is the provision of telecommunications contracting services, UsiiQuest operates in the Mid-Atlantic, Southeast, Southwest and Western regions of the US. with revenue of roughly $212 million The map below illustrates the approximate geographic presence in the U.S. of the top five industry participants, The distribution of colors within the state is not intended to indicate the specific regions where each company operates. Competitive Map mcus other Notification The North American one-call market consists of 62 call centers spread across the US and 5 in Canada, One-call operations run Independently from the locate services and manage the collection of dig requests and the corresponding routing of work orders (notifications) to the field locating operations. Rather than having to notify each utility individually, an excavator (or homeowner will contact the one- call center, which will record the precise time and location of the proposed excavation in what is known as a “ticket” The one-call centers then submit the tickets to the party responsible for performing the locate, either the local utlity itself or an outsourced locating company. Larger one-call centers can generate in excess of $5 milion in annual revenue, while some smaller centers generate $1 million or fess in annual revenue. The tots North American one-call market is roughly $120 million, 37 UTILITY SERVICES, ING.INDustry Overview CONFIDENTIAL, (CUS participates in this market via its Great Plains One Call operations. One-call operations are awarded by state or sui-state region, and changes to stewardship ‘occur fairly rarely. CUS is a very small player in this market with less than a 2 percent ($2 million) market share, Damages and Claims Management Damage / Claims Management is the process of ( investigating the cause of the damage, (id generating the reports that describe the organization at fault and the corresponding claim request and ‘ji? collection of the claim in full or a negotiated amount, This service aims to reduce thitd party damages and increase cost recovery for organizations that do not have robust systems and operations for this, purpose, by utilizing the resources of a company with domain expertise. eee need \Genteral Assumptions: [CUS claims are comparable to the broader market as a percentage of revenue [Contractor "at fault” damages ave from 5 to 8 times greater (Sra Party "At Fault” Damages cus Untiquest smaP cs. eM [all others. ‘At Faulk Damages frotal Locator "At Fauit Pius Excavator “At Faut Total Reported Darnages As outlined in the above table, CUS Management estimates that approximately $400 million of damages are caused each year to utlly, cable and telecommunication assets. This estimate is generated by using CUS's approximate historical damage rate of 3.5 percent of revenue applied across the rest of the 3” party locator market, Assuming 60 percent af locating is outsourced, the amount of damages incurred by in-house lacators is calculated to be 40 percent of the 3° ary amount, Management estimates that excavators account far an additional six times the amount of locator-caused damages. Finally, based on historical data, itis assumed that an additional 25 percent of damages are unreported. Based on an assumption that a manager of claims can recoup approximately 75 percent of the underlying claims, Management estimates a potential market size of $300 mition, HEADWATERS [ms Oupat UTILITY SERVICES, INC. 38_INousTRY OVERVIEW CONFIDENTIAL Audit and Compliance Audit and Compliance services provide field survey solutions to capture accurate information concerning the condition of ullity distribution assets as required by various local and national regulations. A thorough field audit assists in identifying ‘non-compliant installation situations, optimizing joint use scenarios and can even capture assets not currently within the existing tracking systems. There are several potential services within this general category, including pole auditing, pipe corrosion testing, line sag auditing, and pipeline notification, Currertty the Company has one contract for pole auditing in Canada, however this is a service which Management believes can contribute much greater revenue in the future. Pole auditing, like the other audit and compliance services, is a regular, recurring service demand, driven by local and national laws mandating that, companies ensure that the condition of their field assets comply with various regulations. Today in the US, there are roughly 120 million utility poles in service (AISI, 2005) which need to be audited on average every five years. At this rate, approximately 24 million pole audits are performed per year. At an estimated cost of approximately $15 per pole, this indicates a total pole auditing market of approximately $360 milion per year. Although it has not quantified the market opportunity of all audit, and compliance services (such as corrosion testing, line sag auditing and pipeline notification, the Company believes the market far these other services are similarly significant HEADWATERS [ws aoNSO! 50 TONS@L UTILITY SERVICES, INC.4. CORPORATE STRUCTURECorPorATE STRUCTURE CONFIDENTIAL Corporate Organization Ownership Management CUS was formed in 2004 as a C corporation, It is the parent company for the acquired assets of Great Plains Locating Services and the stock purchase of ProMark Utlity Locators. The ProMark and GPLS acquisitions closed in November 2004 and January 2005 respectively, The operations of both former business are how run jointly and generally without distinction as to brand or legacy of staf. New contracts are increasingly executed under the CUS name CImIne Nes | ProMark Litity Great Plains Locators ‘Locating Service Great Pains | ‘One Call CUS Management, River Associates and American Capital Strategies together control the Company. ACAS is @ publicly traded buyout and mezzanine fund (NASDAQ: ACAS) with capital resources of $8.9 billion. River Associates is a Chattanoose, Tennessee based private equity fim formed in 1989 for the purpose ct acquiring companies in the $10 milion to $50 milion enterprise value range. Management's total shareholding is approximately 20 percent an a fully diluted basis. The sellers of the two platform businesses which Comprise CUS also retain significant ownership stakes. ‘CUS's senior Management team shares a unique passion for the business as well 38 2 significant insight into the utlty locating industry Rob A. Karam ~ President and Chief Executive Officer Rob is a co-founder of the Company. As President and Chief Executive Officer of CUS, Rob is primarily responsible for the shape, scope, and velocity of the Company's develapment Rob works with the CUS Board of Directors to develop and implement long-range company growth and shareholder value maximization strategies, ‘As former Chief Executive Officer and President of tiiQuest LLC, the nation's largest undergroure! wilty locating firm, Mr. Karam led the senior management team that quadrupled company earnings and improved market share from third to first duting the recessionary period of 2001 through 2002, ‘The civestiture of UtiiQuest by its owner, GFI Energy Ventures, LLC, in late 2003, led to the largest valuation in industry history, and a greater than 200 percent return on shareholder equity in 27 months of ownership. Rab was instrumental in fueling that company's growth through leadership of multiple M&A due diligence and integration exercises, including the integration of a $23 million competitor. In the first 90 days following acquisition, he made changes to processes and statfing that created over $2,2 million in organizational synergies Rob was also former President of Advancec| Management Services, a management consulting firm focused on delivering pragmatic solutions to executives faced with strategy and operational execution issues in the manufacturing and distribution industries. Rob has held numerous other leadership positions with some of the premier operations impiementation firms in the world, including North American Director of Operations for GPR Dehler ana Director, Supply Chain Business Unit for The Highland Group. Notable clients include Trans World Airways, ASA Airlines, HEADWATERS [ns 41 UTILITY SERVICES, ING,‘CorPoRATE STRUCTURE CONFIDENTIAL Atlantic Richfield, Rayovac, RP. Schering, Osmose, and Enron Principal Investments, Group, Rob hakls @ Bachelor's degree in Industrial Management from the Georgia Institute of Technology. Brian R. Johnson ~ Vice President and Chief Operating Officer. Brian worked wit Rob Karam, ACAS and River to co‘found the Company in 2004. As Vice President and Chief Operating Officer of CUS, Brian’s responsibilies include ultimate P&L responsibility for operations, operations support, quality and corporate IT services. Brian has 10 direct reports who manage approxiniately 800 field and field support employees in 24 locations in 15 states and two offices in Alberta, Canada, Brian is the executive responsible for development and execution of the Company's operating structure and all key work processes, As former Senior Vice President, Operations for UNiQuest LLC, Brian led the design, development and implementation of an industry-changing wireless ticket management system. The system was the first broadly deployed and commercially developed application of its type in the industry, and served as the touchstone that led to all companies of significance adopting this type of application over the past five years, Brian has over 14 years of experience in developing and implementing operational process Improvements, pracess engineering solutions and strategic concepts for companies in the manufacturing, financial services, software development and energy indusiries. Brian worked together with Rob Karam as Vice President, Marketing for GPR Dehier North America. Notable consulting engagements include work with Equitable Bag, Poulan Weed Eater, Rayovac, ARCO Pipeline, AXA Advisors and infrasource, Brian holds @ Bachelor's degree in English Writing with an Emphasis in Business from Florida State University. He holds a Masters of Science in Business Administration from Boston University, Michael Johnson ~ Chief Financial Officer. Mr. Johnson joined CUS in 2005 as its Chief Financial Officer. Mike and his staff are fully responsible for producing accurate, timely and well-expiained financial statements and financial analysis, as well as providing operations and administrative support to the field organization, Prior to joining CUS as its CFO, Mr. Johnson served as the Chief Financial Officer for integrated Distribution Solutions, LLC, a provider of comprehensive and fully integrated enterprise software solutions to the food and consumer goods distribution industry. While at {DS, Mike was instrumental in the integration of two significant acquisitions, identified and implemented several process improvement initiatives and played a key role in the planned sale of the company to Retallx Lid in early 2005. Prior to his tenure at Integrated Distribution Services, LLC, he spent five years in public accounting where he was an audit supervisor focusing primarily on manufacturing and distribution clients. Mr. Johnson was previously & machine gunner in the LS. Marine Corps. In addition, ne successfully founded, developed and sold 2 local contracting business. Mr. Johnson holds a bachelor’s degree in Accounting from the University of Nebraska where he graduated Magna Cum Laude. Mr. Johnson is a Certified Public Accountant. HEADWATERS |e 42 — UTILITY SERVICES, INCCCorPORATE STRUCTURE CONFIDENTIAL, Employees. Brian Seaberg ~ Director of Sales and Marketing. ®tian Seaberg joined CUS in early 2005. During the first full year as a combined organization, Gian’s team helped the Company achieve $12 million in revenue growth and extended contacting relationships with value in excess of $15 million. He is tasked with developing the diversification strategies for leveraging technology within the CUS umbrella Prior to joining CUS, Brian spent fifteen years in a variety of sales roles both as a direct contributor and in regionat management in the high technology market segment. At ProClarity Corporation ‘now an operating company under Microsoft Corporation), Mr. Seaberg grew revenue by 600 percent as a direct contributor and as Regional Director built an Eastern regional sales organization that delivered 50 percent quarter over quarter revenue growth for six consecutive quarters, Brian holds a Bachelor's degree in Computer Science from Florida State University. ‘The Company's Management team structure is shown below. As of September 30, 2006, the Company employed approximately 734 employees. Due to the seasonal nature of the business, the number of employees fluctuates between low 700's and mid 800's during the year. A detailed account of employment by function is provided in the table below Perio Porat inet HEADWATERS [ms 43. UTILITY SERVICES, ING.(Corporate STRUCTURE CONFIDENTIAL Technicians are compensated on an hourly basis with a companywide base hourly wage of $14.25/h, In addition to bonus and training programs, employees are entitled to health / vision 7 dents! insurance, life insurance, short-term and long term disabilty insurance, and a 401k retirement plan «there is a discretionary ‘match that the Company can elect to make at the end of each fiscal yean. (On average, locators tend to stay with the Company for 2-4 years, although there is significant variation by geography. More senior staff tend to stay with the Company longer. Seasonality plays a role in longevity as well ia Locators Overall state t NA 1555 NA NA 675-320 365 state 2 NA 444 NA 504 362 194 227 state 3 WA 10390 N/A 085 (057 270 342 state 4 NA 338 NA NA 218 232 238 state 5 NA 216 O51 142259 134143 ‘tate 6 NA N/A NA NA 1303 459 627 state 7 NA B21 759 251 $43 404 430 State 8 NA 3.47 Nia. WA 349 250257 state 9 NA N/A nN oz 116 051 056 State [0 NA 144 Nia. NA 100 086 oat State 1 NA 931 7.80 634 693 293 350 ‘uate 12 NA 741 NA 627 510 447 462 ‘state 13 NA N/A NA. NA NA 182 182 Ste 14 NA NIA NA. NA 1088 229 285 Corporate 257 086 113 274 NA NIA 197 ‘ne Call Center 14s N/A 1077 378 WANA 492 ‘Overall 4.05 6.07 3.52. 487 Management's commitment to acquiring and retaining a quality workforce is exemplified by the training and bonus programs set up for employees. The Company's bonus program is designed to be used to reward employees for maintaining a high level of safety, quality, and performance. Bonus Programs There is @ bonus plan for Regional and District Managers. To be eligible for bonus, each RM's or DM's district EBITDA must reach at least 90 percent of budget. Each RM or DM is awarded an annual bonus based upon their achievement of budgeted EBITDA results for their region, Hourly techs are eligible for a Quality Bonus Program which is paid! on monthiy basis. Bonus calculations are affected by damage costs associated with each individual locator. Locators with damages may not qualify to receive bonus money for the month of the damage. Adcltional incentive money may be earned and paid at the discretion of the Company. Canada has no bonus plan but does have a piece rate compensation plan made available to qualified techs. All One-Call center employees can receive quality incentive bonus each month, ‘This bonus is determined based on the quality of calls monitored on a regular basis (at least twice every two weeks). The One-Call Quantity Bonus program is designed to encourage employees to process as many tickets as possible, with as few mistakes as possible, so they can earn more during the "busy season" than during the slower winter months, HEADWATERS [as 44 OLIDATED UTILITY SERVICES, ING.CORPORATE STRUCTURE CONFIDENTIAL Training Program Management believes that the Company's training program is the most extensive {and sophisticated in the industry, and is a large reason for CUS's excellent damage ratios and customer service reputation. Below is a summary of the training program. New Hires: ea EM PEST ‘Orientation Dhours [ist day of Training [Overview of our lacalor and safey Classroom HER | 3 weeks [Material presented [During the 3 weeks of classroom Training Joaiy in each module, Al training the instructor teaches all modules feature safety [new hires the proper way to lvaining. There is @ Jpertorm every aspect oftheir job Jdedicated module leach module presented ‘a the new speci to safety vaicing |rires outines in detail te correct which is reviewed for en |way todo the'r job ina lente day, safe manner. aaa aigate Meet THour | weekly [Supervisors meet wih all oftheir employees toreekly updates, locating ips and safety checks (Crew Safely Mesings | Thou | Monihiy |The feld superar meats with al fee lemployees ance a manth and presents the salety topic supplied by the Regional Safety {end Training Coordinator eatngs Thou Penoaicaly [Any group meeting hate Reld throughout Ihe year is taken advantage of by our Safety lana Training Coordinator. They address 3 safety topic that is relevant to a particular {end that they have been seeing in their ‘region, ‘All supervisors are required to attend a two day Session levery spring on satety and praper procedures, Coursework CUS's instruction of basic locator training concepts and_ techniques is accomplished by presenting information in ‘Process Order". The, learning of modules/objectives are introduced in the exact order the technician performs the locate. The modules are taughtt in a three-week period in both classroom and field settings, ‘Module #1:Company Orientation, Modute #2: Overview of Consolidated Urtiiy Services, Inc, ‘Module #3: Sne-Col/Damage Prevention (Historical Perspective), ‘Module #4: Utity identticatian Visual Observations/Meps!, ‘Module #5: Theory & Tools of Locating, ‘Module #6: Marking Standards/Documentation, HEADWATERS Ins 45 —_~— UTILITY SERVICES, ING.(CORPORATE STRUCTURE CONFIDENTIAL, Information Technology Module #7: Reading end Understanding Prints, ‘Module #8: Sate Work Practices and Scfety Paley/Procedures, Module #9: Sith System Daving, ‘Module #10: Consolidated Utility Services, Inc. Administrative Procedies on Laptops, ‘Module #1 1:Sketches/Digital Photos and Locate Documentation, ‘Module #12: Telephone/CAlV. Module #13:Gas/Flectic, ‘Module #14: Damage Investigation, Module #15:Field Test, ‘Module #16:Wistion Test Each Module has a web-based test associated with it that the new employee must pass to move on in the training program. Before a new employee is hired they go through a testing and interview process to ensure they have the aptitude to work in the industry. The pre-employment test is web-based and assesses the potential ew hire’s ability to sort numbers and names numerically and alphanumerically, perform simple math, read a map, write clearly and use a computer and associated software. The applicant has to score a minimum of 80 percent to proceed to an interview. ‘A staff of 10 trainers is regionally based. All locators receive continuing training on an annual basis of as needed, by one of our Regional trainers or supervisors. If any technician receives an at fault utiity damage or a failed audit they are required to review one or more of the Modules and re-test that particular Module. In addition, they will receive follow-up training by the Regional Trainer, Supervisor, or Auditor. ‘The Company's continuing training also includes weekly safety tailgate sessions, where a locating and safely topics are discussed. Safety Safety is an integral part of new locator training and continuing training, The new locator training teaches safe work practices in each module as well as a separate module dedicated exclusively to safety. Weekly tailgate safety meetings are coordinated theaugh the Company's Safety and Training Coordinators in each region with all supervisors, who in turn hold weekly tailgate meetings and monthly safety meeting with all field locators. CUS's gas locators meet the Department of Transpattation Operator Qualification guidelines and compliance is documented using the methods provided by Midwest Energy Association, The Company's IT architecture is designed for minimum maintenance, 2 cost effective level of operational uptime and full supportabilty in its mobile field user environment, The CUS Corporate Data Center is housed within the same building as its One-Call Center in Omaha, NE. Itis fed by multi-honed data and voice networks, The corporate headquarters and the OneCall center are all connected via the redundant fiver paths, The Company has public servers attached to the redundant. Cisco 2900 Series switches that are protected by redundant Cisco PIX 515E hardware. The switches HEADWATERS [us UTILITY SERVICES, ING.(CorPORATE STRUCTURE CONFIDENTIAL protect the Company servers from outside attacks as well a5 controls data input and output to the public internet. Both office locations share local and long distance calling services. Local service is provided by Cox Communications. Long distance service is provided by Quest. This system allows for 48 jocal telephone calls, as well as 24 long distances calls at any one given point in time. Voice mait anc call processing are supported via external PC systems, CUS also backs up its data using Veritas BackupEXEC 10.1 software. Full system backups accur weekly on Saturday, and differential backups are done nightly on tapes. The off-site backup storage contains weekly / monthly / quarterly & yearly tapes at ali imes, Domain Name Service (DNS) and emai for CUS are handled externally by EasyDNS. A vast majority of tickets from one-call centers are received via email CUS has installed redundant, clustered email servers dedicated for ticket receipt only. All critical services and connections are monitored 24/7/365 by redundant sources located in different regions of the LLS. When an outage is experienced traffic is re-routed and e-mait and text messages are sent to the appropriate IT personnel so that they can proactively resoive any issues that may occur. HEADWATERS [uo UTILITY SERVICES, INC, a75. FINANCIAL PERFORMANCEFINANCIAL PERFORMANCE CONFIDENTIAL, summary Financial Results HEADWATERS [ma The following financial review summarizes the Companys historical financial results for fiscal years 2004 through 2005, interim nine months ending September 30 for 2005 and 2006, and the Company's balance sheet as of September 30, 2006. The Company maintains a December 31 year-end for accounting and tax Purposes. The financial statements presented in this Memorandum are derived from the audited financial statements for the fiscal year 2005, internal interim statements for the nine months ending 2005 and 2006, and internally projected financial statements for 2006 through 2011. BKD, LLP audited the financial statements ior 2005. The historical financial statements of the legacy companies prior to being acquired by CUS were either audited or reviewed by a certified public accounting firm, Sra Hatin ing Stas (5 otouanee, 7 Paid Ee a5 ovenve 0890 ass Sas ict Labor 20981 17948, _ 17631 aon ot 30040 24802 26947 ‘nie Labor an Borets 8023, e100 aaa Conmuncaere 333 rea 1s Darages we (3s ae Stopes hs Ve Mae Rie oh zo eas Tota 3684 02 ios26 20288 ato 607 5266 6600 erncemereerse 1800 ns ase Py 198 a7 ‘Adhuted EDA, 6767 7080512 aan sat ga Deprecaton & Anotaation Adjsted eT Nora Fees nd Tans Cos avenue NA eae 41m 5a game m8 eed EarD NA 43% adm 33% ADU 267m ‘gen ran soow sa comm som ash 49 UTILITY SERVICES, INC.FINANCIAL PERFORMANCE Discussion and Analysis CONFIDENTIAL 305-05 Sep-06 ‘awcent assets ‘cash si.100 $398 ‘Trade Accounts Recewable Moe 9864 Inter Company 0 ° Propad Expenses sd 649 Deve Tax Asset - Carron 0 7 (Omer Curent asses n 168 otal Curent Asses rata nine Net Fie Asses 7.286 6547 Deered Tax Asset Noncurrent an 15.405 Inangile Asset Total Asses Current uabes ‘Recounts Paysle $1070 Accrued Expenses 2.581 Accrued Damages 538 Currant Parton o Long Term Debt 4300 ther Cert abies in8 Total Curent Lazites 10313 Long Term Lites ° Tevouing Line of Crest ana evoking Line of Creat - Fd Assets ° Tem toms aan Term Lsons -Fited Assets ° Semor Secures Suboranates Debt 6500 Seller Notes 2400 “Tata Long Term Liaites 17485 TOTAL UABIUTIES arrst Total Equity 10,209 Tol Lables & Eauiy are, Upon the acquisition of ProMark anc Great Plains Locating Service, the Company was able rapidly 10 extract over $0.8 milion of clearly defined costs primarily composed of headcount reductions and office rent expense, In addition, over the first full year of ownership the Company implemented a companywide wireless ticket management system and installed a new accounting system giving unprecedented visibility into the daily operations of the business allowing Management to be pro-active in regard to labor management thereby driving better gross margin and overall company profitability despite rising fuel and insurance costs Set out below is the quarterly EBITDA budget compared to actuals for January through September 2006, which demonstrates the predictability of earnings, feo ete] BOVE eee 2008 ‘Actual Budgeted Dollar Percentage’ EBITDA EBITDA __Diflerence__ Difference Qi 2006 635,805 644,504 8639) 02 2006, 3275159 3,130,774 144,385, 03 2006, 3,906,092 __2973.14a 32.948 6917116 6748422 168,504 HEADWATERS |M= 50 ee UTILITY SERVICES, INC.FINANCIAL PERFORMANCE, CONFIDENTIAL HEADWATERS [4D Nine Months Ended September 30, 2006 compared with 2005 For the nine months ended September 30, 2006 the Company reported revenue of $44.6 milion, an increase of 7.1 percent from the same period in 2005. In April 2006 the Company voluntary terminated its Colorado operations which represented $1.6 million of 2006 and $3.3 million of 2005 revenue, respectively, while having a negative EBITDA contribution of $17 1k and $105k in these periods, respectively. In addition to the negative earnings contribution, the primary driver for terminating the Colorado operations was heavy damage cost and liability assessment 19 CUS from its core customer which accounted for $192k or 10 percent of YTD September 2006 damage expense while only contributing 4 percent of Company revenue. Gross margin increased from 59.1 percent in 2005 to projected 60.0 percent in 2008. This 0.9 percent margin increase is the result of increased productivity primarily driven by labor management visibility provided by the systems and controls put in place by Management in 2005. Using pro forms employee and revenue data from the two predecessor companies, revenue per emplayee has improved from approximately $69,700 in 2004 to over $75,000 per year for projected 2006. This represents an improvement of almost 8 percent. Revenue per Employee zaaall For the nine months ended September 30, 2006, operating expenses (including depreciation anc amortization) were $23.4 million in 2006 or 526 percent of revenue compared t0 $21.7 milion or $2.2 percent of revenue for the same period in 2005. The primary driver contributing 0 the increase of operating expenses as a percentage of revenue i the contribution of $572k of amortization of specifically identified intangible assets related to the acquisition of ProMark and Great Plains. These intangibles were amortized ratably in 2008 compared to 2005 in which all amortization was recorded in the month of December. Exclusive of amortization costs, operating expenses a8 a percentage of revenue actualy decreased by approximately 1 percent over 2005. In late 2005 early 2006, major vendor contracts were renegotiated with communication and supply providers reflecting the larger buying base of the Company. AS a result of these etfors, for the nine months ending September 2006, communications expense has dropped from 3.8 percent fo 3.3 percent of revenue and supply costs have dropped from 3.3 percent ‘0 32 percent of revenue compared to prior year. Moreover, these changes were accompished in an environment of aggressive rightsiing and Lungrading ofthe corporate stat 51 SONS@L! UTILITY SERVICES, ING.FINANCIAL PERFORMANCE CONFIDENTIAL ‘Coats a5 a % of Revenue 9.0% 83% gto boa sm 20% 10% oo CCommunistons Sump Ineo Labor % of Revenue ? ae 308 For the nine months ended September 2006, adjusted EBITDA was $6.9 milion, or 15.5 percent of revenue. This is an increase of $1.5 million, or 26.7 percent ‘over the result in the same period in 2005. Management has undertaken a number af steps toward mitigating fuel cost risk The transition to economy hatchback vehicles (discussed below’ is the most significant manifestation, but CUS has also implemented other cost saving programs. For example, the Company has engaged all willing customers in Conversations regarding fuel pass through programs. Since mid 2005, the Company has secured almost $150,000 in annual cost reductions due to these efforts, Wright Express, a corporate fuel card program, is also utilized, providing a high level of insight and control on employee fuel expenditures. The system is able to provide a variety of real time exception reports on fuel usage patterns, and gives Management the ability to restrict usage of cards during given time periods, Contract Retention Results in 2006 For 2006, the $10.8 million of revenue scheduled for expiration among the top twenty customers was below 2005 levels. CUS saw ttle change in the revenue secured under its perpetual one-year contracts The historical evidence demonstrates that this revenue is highly predictable year over year. The $10.8 milion in renewal revenue was comprised of $6.5 million to be retained trough direct negotiations and $2.6 milion to be retained through competitive bid cycles. The Company has been able to increase pricing across both sets of processes by an average of 2.5 percent, demonstrating the effectiveness of the retention strategy. There is one contract for $1.7 milion that is pending approval througi direct negotiations, If this final account is retained, the Company will have secured 100 percent renewals on the major contracts scheduled to expire in 2006. The Company was also able to retain roughly $2.8 million in midttier accour through both direct negotiation and bid processes. The Company lost one mid-tier account to competitive pricing in Texas valued at roughly $0.6 millon, As in previous years, in 2006 CUS elected to exit a few small footprint contracts due 10 staffing and coverage issues, HEADWATERS [ms 82 DATED UTILITY SERVICES, ING.FINANCIAL PERFORMANCE CONFIDENTIAL HEADWATERS [na Outside of the decision to end contracts in Colorado ‘which in 2005 generated revenue of approximately $3.4 milion), the contracts lost for 2006 represented $2.5 millon comprised of one account in Georgia and the one account previously referenced in Texas. in Georgia, the account was not scheduled for renewal until 2008, but a material change in ownership caused this organization to deviate from its standard contract cycle. This custorner also realigned its regions creating a more challenging environment for vendors to support. The account was lost through a competitive bid cycle, but the bid procedures that the award was conducted under were unusual for the industry. ‘Summarizing retention results for 2006, the Company was able to retain $17.8 million dollars in contract value from @ potential pool of $20.3 million with one $1.7 million contract still pending, The Company was also able to otfset the $2.4 milion in profitable business losses by adding $1.5 million in profitable footprint growth. in addition, the Company anticipates an additional $3-5 million in profitable new contracts to be secured by the end of 2006, 2005 compared with 2004 ‘Tne Company reported revenue of $55.2 million in 2005, an increase of 8.3 percent from $50.9 million in 2004, driven primarily by new contracts in Colorado, New Mexico and Texas. Gross profit in absolute dollars increased to $32.6 million from $30.0 milion in 2004, an increase of $2.6 million or 8.7 percent, Operating expenses (exclusive of depreciation and amortization) were $25.7 ‘million in 2005, compared to $23.1 million in 2004, an increase of 11.3 percent or $2.6 million, and increased as a percentage of revenue from 45.4 percent in 2004 to 466 percent in 2005 due to significantly higher fuel, Insurance, and damage costs as well as significant one-time expenses associated with the integration of GPLS and Pro Mark into CUS, Adjusted EBITDA was $7.0 million, or 12.8 percent of revenue, in 2005, compared to $6.8, milion or 13.3 percent of revenue in 2004. This relatively stable result was achieved despite the aforementioned majar maraet star ups, higher than expected fuel, Insurance and damage costs, and one-time costs associated with post acquisition integration efforts ‘Additionally, in 2005 the Company started and finished the vast majority ofits post acquisition integration efforts. Management installed back office, front affice, accounting and field systems that deliver the most streamlined, comprehensive and flexible management systems available. All operations were moved to a new robust accounting system (MAS 500) with one unified chart of accounts. All field technicians were transitioned to the Ticket Rx, the Company’s wireless ticket management system, Fleet maintenance ectivities were migrated to Enterprise Fleet Management, and then to ARI. Monthly and weekly financial and operational reporting packages were introduced and implemented, giving managers across the Company unprecedented visibilty into their individual operations, Retention Results in 2005, Following the merger, CUS successfully implemented its customer retention strategy across the combined organization. At that time, @ certain degree of volatility existed in the contract renewal cycles due to the fact each organization was managing renewal cycles independently UTILITY SERVICES, ING.FINANCIAL PERFORMANCE CONFIDENTIAL Among the Company's top twenty customers, over $14.2 milion in revenue faced contract expirations during 2005. CUS secured two of the top ten major contracts, through direct renewal totaling $5.9 million. Additionally, $8.3 million in renewal revenue was secured through the competitive bid cycle process with four contracts above $1 milion each, and these competitive renewals averaged 4.6 years in extended term length, Of the more than150 accounts categorized as footprint accounts, typically between five and ten terminate per year at the instigation of CUS or the customer. ‘Among the footprint contracts that are perpetual one year terms, there is rarely any tumover. Retention losses for 2005 totaled $2.9 milion and were more than offset by $6.5 million in profitable new business (excluding Colorado). The lost business was segmented into two categories. The first category was unprofitable accounts, representing $1.7 million of annual revenue. CUS elected to significantly increase the price during the bid cycle with these contracts to either ensure profitability or eliminate the loss from servicing these customers, These accounts resulted in top line revenue reductions in West Virginia (which the Company exited), Missouri, and North Carolina, but improved EBITDA results in the states where CUS continued to provide service. The second category was competitive losses that totaled $1.2 million. These two accounts ‘in Georgia and Kansas) were profitable contracts, where overlapping competitors provided significantly lower pricing than CUS was willing to accept. Overall, the Company was able to retain $18.4 million in contract value from a potential pool of $21.3 million in contract expirations. The company was also able to offset the $1.3 million in profitable business losses by adding $6.5 million in profitable growth. Capital Expenditures During 2005, the Company invested $3.9 million in capital expenditures, with the comparable estimated. full-year figure for 2006 being $26 million These expenditures, primarily on vehicles, tools and IT equipment, have modernized the Company's fleet and operations. Over the next several years, lower levels of capex will be required to maintain the current level of business. Additionally, the ‘Company has invested strongly in maintenance and repair since its formation, ‘A major initiative of the Company TS has been to transition its vehicie fleet from light pickups to compact hatchbacks, such as. the Chevy ‘Aveo. This has resulted in savings on multiple fronts, including capital cost, fuel consumption, repair and maintenance costs, interest payments, insurance and workers compensation rates. With only approximately 145 Aveos out of 900 total vehicles today, a significant amount of cost reduction stil remains attainable. Eventually the Company believes that it can utilize vehicles similar to the Aveo for virtually all ofits fleet Below is an analysis performed to estimate the potential fuel cost and capex savings from such 2 transition HEADWATERS [w5 54 UTILITY SERVICES, INC.FINANCIAL PERFORMANCE CONFIDENTIAL Vehicle Fleet Transition Cost Analysis. An analysis performed by the Company suggests that a vehicle fleet 100 percent comprised of hatchback vehicles would yield potential total fuel cost savings of approximately $1.1 million per year by 2011. In addition, assuming all new vehicles purchased are hatchbacks, annual capex savings are estimated to be approximately $1.7 million per year by 2011 This is in comparison to the existing fleet mix, grown at 7 percent per year through 2011 ‘Although CUS truck fleet is an amalgam of several types of light duty «rucks, for the purposes of the analysis the price and fuel economy ratings for the light trucks are based on those of the Ford Ranger. Other assumptions used in the analysis include a flat cost of fue! over time of $2.50 per gallon, and fuel efficiency ratings fof 19 mpg and 28 mpg for the light pickup and hatchback vehicles, respectively In adcition, itis assumed, based on Management's estimates, that 20 percent of the total fleet is turned over annually. foccemamerenm ie oe is PENT Bae tie Vehicle Fleet Transition Anadsis HEADWATERS [ws OLIDA 55 e ON) Be UTILITY SERVICES, ING.FINANCIAL PERFORMANCE. CONFIDENTIAL Disclaimer Further currently un-quantified savings also exist in repair costs, tire costs and insurance costs associated with the Aveo. For example, for YTD 2006, while Aveas accounted for 15 percert of ali fleet miles driven, they only accounted for 2 percent of all atfault accidents experienced by CUS. THE FOLLOWING FINANCIAL INFORMATION HAS BEEN PREPARED BY THE MANAGEMENT OF THE COMPANY AND IS BASED ON PRESENT CIRCUMSTANCES, INFORMATION CURRENTLY AVAILABLE, AND ASSUMPTIONS ABOUT FUTURE GROWTH OPPORTUNITIES. PROJECTIONS ARE INHERENTLY UNCERTAIN BECAUSE THEY ARE BASED ON ASSUMPTIONS ABOUT FUTURE, EVENTS. NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF SUCH INFORMATION OR THE RELIABILITY OF SUCH ASSUMPTIONS. GROWTH OF THE COMPANY MAY NOT MATERIALIZE AS EXPECTED, OR MAY OCCUR AT A SIGNIFICANTLY DIFFERENT PACE THAN PROJECTED. — ACCORDINGLY, ACTUAL REVENUE AND EXPENDITLIRES MAY VARY SIGNIFICANTLY FROM MANAGEMENT'S PROJECTIONS, THEREFORE, THE PROJECTIONS AND THE ASSUMPTIONS ON WHICH THEY ARE BASED SHOULD NOT BE INTERPRETED AS ‘A GUARANTEE OR PROMISE OF THE COMPANY. NEITHER THE COMPANY NOR HEADWATERS MB HAS ANY OBLIGATION TO MODIFY, AMEND, UPDATE, ALTER, (OR CHANGE THE PROJECTIONS CONTAINED HEREIN, HEADWATER: 56 UTILITY SERVICES, INC.FINANCIAL PERFORMANCE CONFIDENTIAL Financial Projections Revenue is projected to increase 5.4 percent during 2007 to $60.5 million and then grow 7.5 percent annually over the next four years, increasing to $80.8 millon in 2011. The Company belioves these praiections to be readily attainable for the following reasons: The recurring nature ofits revenue stream Organic ticket volume growth The history of high contract renewal rates No assumed penetration of growth opportunities such as damage and ‘claims management or audit and compliance services + Potential acquisitions are not included The revenue growth rate is projected based on forecast organic ticket volume growth in existing contracts, together with, i) additional layering of contracts in existing markets, and (id expanded geographical penetration and associated layering, ‘The Company has already contractually secured $32.7 million or 55,0 percent of projected 2007 revenue from contracts currently in place. Additionally, the Company has a substantial population af customers operating under perpetual one-year agreements which renew automatically and have historically proven extremely stable. These contracts total $5.7 million o 10.0 percent of projected 2007 revenue. The Company has a relatively normal renewal cycle that takes place over the next fifteen months in which $17.2 million of existing contracts expire. The vast majority of renewals come from long-standing customers with an average tenure of approximately 4 years that are in footprints i which the Company is significanty layered and, as such, has pricing advantages its Competitors do not have. The Company believes, based on the aforementioned facts and historical renewal success, that these contracts will renew with immaterial if any, losses. Additionally, based upon the Company's current pipeline 5 well as its bid processes throughout 2007, Management projects additional new business of $4.9 million or 80 percent of projected 2007 revenue. (Carisact Renewals - Over Next 15 Months 472 280%, (New Busines -Icentified and Actively Pursuing 49 ‘6 2007 Projected Revenue 505, 100% Gross margin is projected to increase from 60.0 percent in 2006 to 60.9 percent in 2007 and then to grow modestly by 15 basis points sanually over the following four years increasing from 59,1 percent or $32.6 million in 2005 to 61.5 percent or $49.7 million in 2011, Gross profit is therefore pjolected to increase from $32.6 million in 2005 and $34.5 million in 2006 to $36.9 million in 2007 ane $49.7 million in 2011 Operating expenses (exclusive of depreciation and amortization) are projected to remain stable as a perceniage of revenue over the projected period based on historical trends and the Company's understanding of the cost and operational structure. Operating expenses as a percentage of revenue were 46.6 percent in HEADWATERS [no 57 UTILITY SERVICES, INC.FINANCIAL PERFORMANCE, CONFIDENTIAL, 2005, and 45.4 percent for the nine months ended September 2006. The Company is projecting operating expenses as a percentage of revenue to be 46.0 percent of revenue for the projected period Based on the foregoing, Management estimates that adjusted EBITDA margins will continue to expand through the projection horizon growing from 12.8 percent in 2005 to 15.7 percent in 2011. This trend is supperted from past results, profitable revenue growth and operational efficiencies. Summary Projected Operating Statistics Sin thesantsh “3007 ovene Tae Tosa Teas Dee Lae” nse, 23865 _ 25521 _ 27s, _ 29055 _ 31005 ron Froft g4485 3686758762 aann 465.738 roa soea ze208 _77005, _mngo1 _agi33, 34500, a3 cto an 9078 gas sasa8 e268 “Ge ncomelexense! ase ‘0 a oe on ” Aust 8174 e512 918s asi sores 11885 DOreciion€Ameniztion _4260, 4435 _ 36053957, _ 3385 Acta 007 azz 469562213697 az09 28 cor 3979 4640 gts 7600 8am ae ret vst 3567 ugar owas toc sso 000 tane= 28673027 saa More Feesondtrmecons 301, "390, "5a, 350, 300, caren aes 2909 ago 080308 727 "Oa ESTE pO BC BOG Fe TTT COLS CN SETS SEA avenve 8x 54 778M 755 Dejutes EBITDA am 73% Bow deme ‘roe rae 600% 600% wrt 12 LA ISH estes EBDA, Mam 151 tsa 137% 58 INS@LI DATED MEAOWATERS [48 UTILITY SERVICES, ING.