SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Southwest Water Company
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(Name of Registrant as Specified In Its Charter)
Southwest Water Company
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Proxy Statement
April 7, 2000
[LOGO] Southwest Water Company
YOUR VOTE IS IMPORTANT
If you were a Stockholder of Southwest Water Company as of March 31, 2000, you
are eligible to vote on the proposals described in this Proxy Statement.
Depending on how your shares are registered, as described below, please use one
of the following voting procedures:
(1) If your securities are registered in your name with our transfer
agent, ChaseMellon Shareholder Services, you have two ways that
you can vote:
. By Telephone: Call the toll-free telephone number on your proxy
card to vote (1-800-840-1208).
. By Mail: Mark, sign, date and mail your proxy card to our
transfer agent, ChaseMellon Shareholder Services, in the
enclosed postage-paid envelope.
(2) If your shares are not held in your name with our transfer agent,
they are held for you by a bank, broker or other agency. You will
receive voting instructions directly from that agency, along with
your proxy materials.
ELIMINATE DUPLICATE MAILINGS
If you are a Stockholder with your stock recorded in your name with our transfer
agent and have more than one account in your name, or live at the same address
as other stockholders who have stock recorded with our transfer agent, you may
authorize us to discontinue multiple mailings. To discontinue multiple mailings,
mark the box on the appropriate proxy card(s).
SOUTHWEST WATER COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE AND TIME: Tuesday, May 23, 2000, at 10:00 a.m., Pacific time
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PLACE: Hotel Inter-Continental
251 South Olive Street, Los Angeles, California
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ITEMS OF BUSINESS: (1) Elect three members of the Board of Directors for three-year terms.
(2) Approve the Amended and Restated Stock Option Plan for Non-Employee
Directors, including increasing the number of authorized and available
shares by 120,000 and increasing the automatic annual and initial grant
level to 5,000 shares, all as described on Page 19.
(3) Approve the Second Amended and Restated Stock Option Plan, including
increasing the number of authorized and available shares by 750,000 shares,
providing for a 150,000 share annual award limit and adding certain non-
employee consultants as potential optionees, all as described on Page 22.
(4) Ratify the appointment of KPMG LLP as our independent auditors for
fiscal year 2000.
(5) Transact other business as may properly come before the Annual
Meeting and any adjournment or postponement.
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RECORD DATE: You can vote if you owned Southwest Water Company stock on March 31,
2000.
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ANNUAL REPORT AND FORM 10-K: Our 1999 Annual Report and Form 10-K, which are not a part of the proxy
soliciting material, are enclosed.
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PROXY VOTING: It is important that your shares be represented and voted so that we
can have a valid meeting. Please vote in one of two ways:
(1) Use the toll-free telephone number shown on the enclosed proxy
card, (1-800-840-1208) OR
(2) MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card in the
postage-paid envelope.
Your proxy may be revoked or changed at any time prior to the Annual
Meeting by submitting a new, later-dated proxy card.
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Peter J. Moerbeek
April 7, 2000 Secretary
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TABLE OF CONTENTS
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Page
PROXY STATEMENT
Proxy Delivery....................................................... 1
Annual Meeting Admission............................................. 1
Stockholders Entitled to Vote........................................ 1
Proxies.............................................................. 1
Vote by Telephone.................................................... 1
Vote by Mail......................................................... 1
Voting at the Annual Meeting......................................... 2
Voting on Other Matters.............................................. 2
List of Stockholders................................................. 2
Quorum............................................................... 2
Required Vote for Passage............................................ 2
Cost of Proxy Distribution and Solicitation.......................... 2
Section 16(a) Beneficial Ownership Reporting Compliance.............. 2
GOVERNANCE OF THE COMPANY
Our Corporate Governance Principles.................................. 3
Board and Committee Membership and Information....................... 4
Compensation Committee Interlocks.................................... 5
Compensation of Directors - Fees and Benefit Plans for
Non-Employee Directors.............................................. 5
Beneficial Ownership of the Company's Securities..................... 7
Comparison of the Cumulative Total Return on the
Company's Common Stock to Certain Industry Standards................ 8
Related Transactions................................................. 9
EXECUTIVE COMPENSATION
Summary Compensation Table for Executive Officers Who Are Not
Directors........................................................... 10
Executive Officers' Severance Compensation Agreements................ 11
Option Grants to Named Executive Officers in 1999.................... 12
Option Exercises in 1999 and Year-End Option Values.................. 13
Retirement Benefits.................................................. 13
Report of the Compensation Committee of the Board of Directors....... 15
ITEM 1 - ELECTION OF DIRECTORS
Nominees for Directors Whose Terms Expire in 2000.................... 17
Directors Whose Terms Expire in 2001................................. 18
Directors Whose Terms Expire in 2002................................. 18
Executive Officers Who Are Not Directors............................. 18
ITEM 2 - APPROVAL OF CHANGES TO THE DIRECTORS' STOCK OPTION PLAN......... 19
ITEM 3 - APPROVAL OF CHANGES TO THE EMPLOYEE STOCK OPTION PLAN........... 22
ITEM 4 - RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS........... 25
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS,
NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS............... 26
(LOGO) Southwest Water Company "A Water Management Company"
225 North Barranca Avenue, Suite 200
West Covina, California 91791-1605
Telephone: (626) 915-1551 - Fax: (626) 915-1558
e-mail: swwc@southwestwater.com
www.southwestwater.com
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PROXY STATEMENT
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Proxy Delivery to five votes per share on matters properly brought
These proxy materials are delivered in connection before the Annual Meeting. The combined total number
with the solicitation by the Board of Directors of of votes eligible to vote is 6,516,814.
Southwest Water Company, a Delaware corporation,
("Southwest Water," the "Company," "we" or "us"), Proxies
of proxies to be voted at our 2000 Annual Meeting Your vote is important so we can have a valid meeting.
of Stockholders and at any adjournment or The proxy card that accompanies this proxy statement
postponement of that meeting. will give you voting instructions. Please review the
enclosed proxy materials and vote as soon as possible.
You are invited to attend our Annual Meeting of
Stockholders (the "Annual Meeting") on May 23, Proxies may be changed or revoked at any time before
2000, beginning at 10:00 a.m., Pacific time. The the Annual Meeting by:
Annual Meeting will be held at the Hotel (1) written notice to the Secretary of the Company,
Inter-Continental, 251 South Olive Street, Los (2) timely delivery of a valid, later-dated proxy, or
Angeles, California. (3) voting by ballot at the Annual Meeting.
You can save us the expense of a second mailing by
This Proxy Statement, form of proxy and voting voting promptly. Choose one of the following voting
instructions are being mailed on or about April 7, methods to cast your vote, unless you are instructed
2000. differently:
Annual Meeting Admission 1. Vote by Telephone
If your shares are held in the name of a bank, You can vote your shares by telephone by calling the
broker or other holder of record and you plan to toll-free telephone number on your proxy card
attend the Annual Meeting, please obtain proof of (1-800-840-1208). Telephone voting is available 24
ownership, such as a current brokerage account hours a day. Have your proxy card with you when you
statement or certification from your broker. place your call. Easy-to-follow voice prompts allow
Admission to the Annual Meeting depends on your you to vote your shares and confirm that your
physical proof of ownership. If your shares are instructions have been properly recorded. If you vote
registered with our transfer agent, they will by telephone, you do not need to return your proxy
provide your proof of ownership at the Annual card.
Meeting.
2. Vote by Mail
Stockholders Entitled to Vote If you choose to vote by mail, simply mark your proxy,
Owners of Southwest Water Company common or date and sign it, and return it in the postage-paid
preferred Series "A" stock at the close of business envelope provided. If your shares are registered with
on March 31, 2000, are entitled to receive this our transfer agent, and if you wish to discontinue
notice and to vote their shares at the Annual future duplicate mailings, check the box provided on
Meeting. As of that date, there were 6,465,109 the card.
shares of common stock outstanding and 10,341
shares of preferred Series "A" stock outstanding.
Common shares are entitled to one vote per share,
and preferred Series "A" shares are entitled
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1
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Voting at the Annual Meeting ITEM 2. The favorable vote of a majority of the votes
The method by which you vote a proxy now will not cast is required to approve the Amended and Restated
limit your right to vote at the Annual Meeting if Stock Option Plan for Non-Employee Directors. Thus,
you later decide to attend in person. If your abstentions and broker non-votes on this proposal will
shares are held in the name of a bank, broker or not be counted as votes for or against the proposal.
other agency and you plan to attend the Annual
Meeting, please obtain proof of ownership, such as ITEM 3. The favorable vote of a majority of the votes
a current brokerage account statement or cast is required to approve the Second Amended and
certification from your broker. Restated Stock Option Plan. Thus, abstentions and
broker non-votes on this proposal will not be counted
All shares that have been properly voted - whether as votes for or against the proposal.
by telephone or mail - and not revoked will be
voted at the Annual Meeting in accordance with your ITEM 4. The favorable vote of a majority of the votes
instructions. If you sign your proxy card but do cast is required to ratify the appointment of KPMG
not give voting instructions, the shares LLP. Thus, abstentions and broker non-votes on this
represented by your proxy will be voted as proposal will not be counted as votes for or against
recommended by the Board of Directors. the proposal.
Voting On Other Matters Cost of Proxy Distribution and Solicitation
If any other matters are properly presented for We will pay the expenses of distributing the proxy
consideration at the Annual Meeting, the persons materials and soliciting proxies. Proxies may be
named in the enclosed form of proxy will have the solicited on our behalf by Directors, officers or
discretion to vote on those matters for you. At employees, in person or by telephone, electronic
the date of this proxy statement, we did not know transmission or by facsimile transmission.
of any other matters to be raised at the Annual ChaseMellon Shareholder Services will distribute the
Meeting. proxy materials to our registered stockholders, and,
through a search process, obtain information to
List of Stockholders distribute these materials to our beneficial holders.
A list of stockholders who have shares registered in
their own name and are entitled to vote will be Section 16(a) Beneficial Ownership Reporting Compliance
available at the Annual Meeting. Section 16(a) of the Securities Exchange Act of 1934
requires our Directors, executive officers and
Quorum beneficial owners of more than 10% of our common stock
In order to carry on the business of the Annual to file reports of holdings and transactions in
Meeting, there must be a quorum. This means at Southwest Water shares with the SEC and the Nasdaq
least a majority of the outstanding shares entitled Stock Market. Based on our records and other
to vote (with each share of Preferred Stock information, we believe that in 1999 all of our
counting as five votes for every share owned for Directors and executive officers met all applicable
purposes of the quorum) must be represented at the SEC filing requirements. Our records indicate that we
Annual Meeting, either by proxy or in person. do not have any beneficial owners of more than 10% of
Abstentions and "broker non-votes" will be counted the Company's common stock.
as present and entitled to vote for purposes of
determining a quorum. "Broker non-votes" are
shares held by a broker, which are represented at
the meeting, but as to which the broker is not
empowered to vote on a particular proposal.
Required Vote for Passage
ITEM 1. The three nominees receiving the most votes
will be elected as Directors. Abstentions and broker
"non-votes" are not counted for purposes of the election
of Directors.
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2
GOVERNANCE OF THE COMPANY
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Our Corporate Governance Principles
Role and Composition of the Board of Directors
1. The Board of Directors, which is elected by the stockholders, is the
ultimate decision-making body of the Company, except with respect to those
matters reserved to the stockholders. The Board selects the senior
management team, which is charged with the conduct of the Company's
business. Having selected the senior management team, the Board acts as an
advisor and counselor to senior management and monitors its performance.
2. It is a policy of the Company that the Board consist of a majority of
outside Directors and that the number of Directors not exceed a number that
can function efficiently as a body. The Nominating Committee, in
consultation with the Chairman and CEO, considers and makes recommendations
to the Board concerning the appropriate size and needs of the Board. The
Nominating Committee considers candidates to fill new positions created by
expansion and vacancies that occur by resignation, retirement or any other
reason. Candidates are selected for their character, judgment, business
experience and acumen. Final approval of a candidate is determined by the
full Board. All Directors are expected to own the Company's stock. The
Company's current Directors are listed below.
Non-Employee Directors: H. Frederick Christie, Monroe Harris,
---------------------- Donovan D. Huennekens, Richard Kelton,
Maureen A. Kindel and Richard G. Newman.
Employee Director: Anton C. Garnier, Chairman and CEO
-----------------
3. The Chairman and CEO is responsible for establishing effective
communications with the Company's stockholders, Board members and Company
associates.
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3
Board and Committee
Membership and Information
During 1999, the Board of Directors and Board Committees met a total of 19
times, either in person or by telephone conference call. In 1999, all of our
Directors attended 85 percent or more of the meetings of the Board and Board
committees on which they served. Committees of the Board are as follows:
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The Audit Committee. The members of the Audit Committee . Sets overall investment policy with respect to the
during 1999 were Mr. Kelton (Chair), Mr. Huennekens and Company's short-term funds; and
Ms. Kindel. During 1999, this committee held three . Analyzes the effects of external economic conditions on
meetings. Among its responsibilities, the Audit the Company's investment policy.
Committee:
. Recommends to the Board the appointment of the Company's The Nominating Committee. The members of the Nominating
independent auditors for the ensuing year; Committee during 1999 were Mr. Newman (Chair) and Mr.
. Reviews with the independent auditors and management the Harris. During 1999, the Nominating Committee did not hold
scope and results of the audit engagement and a separate meeting outside the regular Board meetings where
management's internal audit program; all Nominating Committee matters were discussed. The
. Reviews the adequacy of the Company's internal control functions of the Nominating Committee include:
procedures and reviews the independence of the auditors; . Establishing criteria for the selection of nominees for
. Reviews with the outside auditors any questions or election as directors;
suggestions they may have relating to our internal . Reviewing the qualifications of and maintaining
controls, accounting practices or procedures or those of information concerning potential nominees;
our subsidiaries; and . Making recommendations to the Board with respect to
. Reviews compliance with laws, regulations, and internal nominees for election as directors at the Annual Meeting of
procedures, contingent liabilities and risks that may be Stockholders;
material to us. . Reviewing, on a long-term basis, the size and composition
of the Board as vacancies occur; and
The Investment/Acquisition Committee. The members . Making recommendations to the Board for age and service
of the Investment/ Acquisition ("I/A") Committee during limitations.
1999 were Mr. Huennekens (Chair), Mr. Christie, Mr. Kelton
and Ms. Kindel. During 1999, this committee held three The Nominating Committee will consider recommendations for
meetings. Among its responsibilities, the I/A Committee: director nominees proposed by stockholders. Any
. Provides direction in the areas of long-term planning, recommendations for nominees should be submitted in writing
consideration of diversification alternatives, new to Mr. Newman at the Company's principal executive offices:
business developments, and acquisitions and mergers; Southwest Water Company, 225 North Barranca Avenue, Suite
200, West Covina, California 91791-1605.
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4
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The Compensation Committee. The Compensation Committee Director Stock Option Plan. The Director Option Plan
consists of independent, non-employee Directors. The provides that Non-Employee Directors are automatically
members of the Compensation Committee during 1999 were granted an initial award of 1,000 shares of the Company's
Mr. Harris (Chair), Mr. Christie and Mr. Newman. common stock when they become Directors, and they are
During 1999, the Compensation Committee held six automatically granted an annual award of 1,000 shares of the
meetings. This committee is responsible for: Company's common stock on the day of each subsequent Annual
. Establishing annual and long-term performance goals for Meeting, provided the Director continues to serve as a
appointed executive officers; Director following the Annual Meeting. These options have
. Approving and reporting to the Board the annual been adjusted for stock dividends and stock splits.
compensation for all executive officers, including salary,
stock options, incentive compensation and other benefits; Initially, 50,000 shares of the Company's common stock were
. Granting stock options for employees; and reserved for issuance under the Director Option Plan. Stock
. Reviewing the Company`s benefit plans. dividends and stock splits, in the form of stock dividends,
increased the number of shares reserved for issuance by an
Compensation Committee Interlocks and Insider additional 68,125 shares to a total of 118,125 as of the
Participation. There were no Compensation Committee Record Date.
interlocks or insider participation during 1999.
You are asked to approve a proposal to amend and restate the
Director Option Plan, which, in part, will authorize an
Compensation of Directors - Fees and Benefit Plans for additional 120,000 shares of stock for issuance under the
Non-Employee Directors. Director Option Plan and increase the initial and annual
automatic grant level to 5,000 shares per non-employee
Annual Cash Retainer Fees. Non-Employee Directors Director. See Item 2.
receive an annual cash retainer fee of $12,000. In
addition, the Chair of each Board committee receives an Service Policy for Directors. In August 1998, the Board
additional $1,200 per year. established a Service Policy for Directors. This policy
stipulates that a Director will not serve on the Southwest
Meeting Fees. Non-Employee Directors also receive a fee Water Company Board past his or her 72nd birthday. The
of $1,000 for attending each Board meeting, committee Board authorized the Nominating Committee to develop a
meeting and long-range planning meeting. When a transition plan for any Directors who were at the time older
committee meeting is held on the same day as a Board than 72 years of age. The only remaining transition is for
meeting, the committee attendance fee is $500. Mr. Harris, who, if re-elected, will serve a final 3-year
term.
Directors who are officers of the Company are not paid
any fees or additional remuneration for services as
members of the Board or any Board committee.
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5
NON-EMPLOYEE DIRECTOR STOCK OPTIONS GRANTED IN 1999
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Individual Grants
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Exercise
Options Base Price Expiration
Eligible Directors (#)(1)(2) ($/sh.) (2) Date
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H. Frederick Christie 2,362 $10.00 2009
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Monroe Harris 2,362 $10.00 2009
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Donovan D. Huennekens 2,362 $10.00 2009
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Richard Kelton 2,362 $10.00 2009
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Maureen A. Kindel 2,362 $10.00 2009
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Richard G. Newman 2,362 $10.00 2009
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(1) Options vest 50% per year until fully vested.
(2) All options have been adjusted to reflect a 3-for-2 stock split (paid in
the form of a stock dividend) on
October 1, 1999.
NON-EMPLOYEE DIRECTOR
OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
Shares Number of
Acquired Unexercised Options Value of Unexercised In-the-Money
On Value At December 31, 1999 Options at December 31, 1999 (1)
Non-Employee Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Director Name (#) ($) (#) ($)
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H. Frederick Christie 0 0 5,101 / 4,583 43,868 / 29,963
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Monroe Harris 6,003 37,778 3,543 / 5,178 27,997 / 36,849
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Donovan D. Huennekens 0 0 11,227 / 3,543 98,656 / 19,368
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Richard Kelton 0 0 11,227 / 3,543 98,656 / 19,368
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Maureen A. Kindel 1,500 14,190 2,043 / 3,543 14,633 / 19,368
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Richard G. Newman 0 0 10,874 / 4,881 101,169 / 33,412
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(1) Difference between fair market value at fiscal year-end of $15.00 and
option exercise price.
At December 31, 1999, the Non-Employee Director Group had a total of 69,286
stock options outstanding with a weighted average exercise price of $7.16 per
share. The stock options shown in the above table include stock options granted
both under the current Director Option Plan and the Company's previous Stock
Option Plan.
6
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
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By Directors and Executive Officers
The following table sets forth, as of March 31, 2000, the number of shares
of each class of equity securities of the Company beneficially owned by each
Director and Executive Officer of the Company and its subsidiaries, and by all
directors and executive officers as a group. All securities are common stock,
and except as otherwise indicated, each individual named has sole investment and
voting power with respect to the securities shown.
Number of Exercisable Total Number of
Name of Shares Options Shares and
Beneficial Owner and Beneficially Beneficially Exercisable Options Percentage
Capacity with Company Owned Owned (a) Beneficially Owned Of Class
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H. Frederick Christie, Director 9,922 7,983 17,905 *
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Monroe Harris, Director 29,499 (b) 7,020 36,519 *
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Donovan D. Huennekens, Director 30,555 (c) 13,589 44,144 *
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Richard Kelton, Director 67,425 (d) 13,589 81,014 1%
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Maureen A. Kindel, Director 3,375 4,405 7,780 *
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Richard G. Newman, Director 19,759 (e) 14,054 33,813 *
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Anton C. Garnier, Director, Chairman, President
and Chief Executive Officer 220,866 (f) 168,777 389,643 6%
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Peter J. Moerbeek, Chief Financial
Officer and Secretary of Company;
President, ECO Resources, Inc. 14,441 (g) 64,412 78,853 1%
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Thomas C. Tekulve, Vice President
Finance of Company 55 1,500 1,555 *
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Maurice W. Gallarda, Vice President of New
Business Development of Company 0 1,050 1,050 *
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Michael O. Quinn, President,
Suburban Water Systems 13,153 (h) 20,978 34,131 *
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Robert L. Swartwout, President,
New Mexico Utilities, Inc. 7,618 15,005 22,623 *
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All Directors and Executive Officers
As a Group (12 persons) 416,668 332,683 749,030 11%
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* Indicates less than one percent of class of stock.
(a) Includes options that become exercisable within 60 days after March 31,
2000.
(b) Includes 25,573 shares of common stock held by Mr. Harris and his wife as
co-trustees of a family trust. Mr. Harris has shared voting and investment
power with respect to such shares. Not included in the table are 600
shares owned by Mrs. Harris in an IRA account for her benefit. Mr. Harris
disclaims beneficial ownership of these shares.
(c) Mr. & Mrs. Huennekens hold all of the 30,555 shares of common stock as
trustees of a revocable trust for their benefit. Mr. Huennekens is a
trustee of such trust, and has shared voting and investment power with
respect to such shares.
(d) Included in the table are 17,325 shares of common stock held by The Kelton
Foundation (the "Foundation"), a charitable corporation. Mr. Kelton is
President of the Foundation and has sole voting and investment power with
respect to such shares. Mr. Kelton disclaims pecuniary interest in the
shares held by the Foundation.
(e) Mr. and Mrs. Newman hold all of the 19,759 shares of common stock as
trustees of a revocable trust for their benefit. Mr. Newman is a trustee
of such trust, and has shared voting and investment power with respect to
such shares.
(f) Included in the table are 88,648 common shares owned by Mr. and Mrs.
Garnier as trustees of a revocable trust for their benefit. Mr. Garnier is
trustee of such trust and has shared voting and investment power with
respect to the shares. Also included in the table are 88,807 common shares
representing Mr. Garnier's proportionate interests in two corporations of
which Mr. Garnier is president, a director and a stockholder. Mr. Garnier
has shared voting and investment power with respect to these two
corporations, which own a total of 383,037 shares (6%) of Southwest Water
Company common stock. Other than his proportionate interests above, Mr.
Garnier disclaims beneficial ownership of these shares.
(g) Mr. and Mrs. Moerbeek hold all of the 14,441 shares of common stock as
trustees of a revocable trust for their benefit. Mr. Moerbeek is a trustee
of such trust, and has shared voting and investment power with respect to
such shares.
(h) Excludes 2,852 shares of common stock held by Mr. Quinn's wife, over which
Mr. Quinn has no voting or investment control, and Mr. Quinn disclaims
beneficial ownership of these shares.
7
By Others
The following table identifies others who own more than five percent of any
class or series of the Company's outstanding voting securities as of the Record
Date:
Number of
Shares Percentage of
Class of Stock Name and Address Beneficially Percentage Voting Power
Of Beneficial Owner Owned Of Class
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Series "A" Lincoln National Life Insurance Co. 3,607 35% 0.3
Preferred C/O Banker's Trust
P.O. Box 704, Church Street Station
New York, NY 10008
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COMPARISON OF THE CUMULATIVE TOTAL RETURN
ON THE COMPANY'S COMMON STOCK TO CERTAIN INDUSTRY STANDARDS
The following graph compares the cumulative total return to holders of the
common stock of the Company during the most recent five fiscal years versus the
average return to investors during the same period achieved by 12 publicly held
water utilities listed in the Edward Jones Water Utility Index and that achieved
by The Standard and Poor's Index of 500 Companies. The comparison assumes that
$100 was invested on December 31, 1994, and the cumulative total return assumes
the reinvestment of dividends. The historical stock performance shown on the
graph is not necessarily indicative of future stock performance.
[FIVE-YEAR PERFORMANCE GRAPH APPEARS HERE]
WATER
SWC AVGE. S&P 500
12/31/94 100.00 100.00 100.00
12/31/95 124.36 127.77 137.55
12/31/96 221.85 154.34 169.11
12/31/97 301.38 211.90 225.52
12/31/98 343.95 265.19 289.96
12/31/99 504.39 262.71 350.96
8
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Related Transactions In 1999, Suburban made a lease payment of $55,365 for the
use of water rights owned by a family trust of Mr. Garnier.
Mr. Garnier, our President, CEO and Chairman, is a Based upon payments made to other non-related parties, the
director and a beneficial owner of approximately 10 payments made to the family trust were at the same rate as
percent of the outstanding stock of California Michigan payments to non-related parties.
Land and Water Company (California Michigan). East
Pasadena Water Company (East Pasadena), a water The foregoing transactions were reviewed and approved by the
purveyor, is a wholly owned subsidiary of California outside members of the Board of Directors of the Company.
Michigan. In 1999, East Pasadena participated in Mr. Garnier did not participate in the Board's consideration
employee insurance coverage with the Company and its of these transactions.
wholly-owned subsidiary, Suburban Water Systems
("Suburban"), and reimbursed Suburban an aggregate of
$24,051, representing its proportionate share of the
cost of employee insurance coverage and other services.
East Pasadena is also a party to the Company's
Noncontributory Defined Benefit Pension Plan, and makes
contributions and pays administrative fees on the same
actuarial basis as payments by the Company.
The Pension Plan owns 17 percent of the outstanding
stock of California Michigan. As of December 30, 1999,
the Pension Plan was terminated, all benefit accruals
frozen, and all benefit accruals ceased. The Company
anticipates that the Plan assets will be distributed,
as permitted by ERISA, in late 2000.
- ---------------------------------------------------------------------------------------------------------------------------------
9
EXECUTIVE COMPENSATION
Summary Compensation Table
Long-Term
Annual Compensation Compensation
- ------------------------------------------------------------------------------------------------------------------
Stock
Name and Salary Bonus Options
Principal Position Year ($) (1) ($) (#) (2)
- ------------------------------------------------------------------------------------------------------------------
Anton C. Garnier 1999 240,000 160,000 45,000
Chairman, Chief Executive 1998 230,000 120,000 46,875
Officer and President 1997 220,000 154,000 23,625
- ------------------------------------------------------------------------------------------------------------------
Peter J. Moerbeek 1999 190,000 123,709 67,500
Chief Financial Officer and 1998 180,000 78,000 37,500
Secretary of the Company; 1997 161,000 89,900 15,750
President,
ECO Resources, Inc.
- ------------------------------------------------------------------------------------------------------------------
Thomas C. Tekulve 1999 140,000 48,000 7,500
Vice President Finance 1998 - - -
1997 - - -
- ------------------------------------------------------------------------------------------------------------------
Michael O. Quinn 1999 157,040 32,562 5,250
President, 1998 151,000 42,575 4,687
Suburban Water Systems 1999 146,500 44,450 4,921
- ------------------------------------------------------------------------------------------------------------------
Robert L. Swartwout 1999 112,320 36,023 4,200
President, 1998 108,000 38,000 3,750
New Mexico Utilities, Inc. 1997 104,800 16,000 3,937
- ------------------------------------------------------------------------------------------------------------------
(1) The salary shown in 1999 for Mr. Tekulve, who joined the Company in
February 1999, is annualized based upon a full year of employment. Mr.
Tekulve's actual salary for 1999 was $128,333.
(2) Stock Options have been adjusted to reflect stock splits of 3-for-2 and 5-
for-4, paid in the form of stock dividends, on October 1, 1999 and October
1, 1998, respectively, and stock dividends of five percent on January 2,
1998, 20 percent on January 2, 1997, and five percent on January 2, 1996,
and were granted at fair market value on the date of grant. Restricted
stock can no longer be granted. Previously awarded restricted stock vested
10 years after grant. The last of the restricted stock was released in
March 1999.
10
- ---------------------------------------------------------------------------------------------------------------------------------
Executive Officers' Severance Compensation Agreements severance payments are payable within five days after
termination of employment.
In 1998, Messrs. Garnier and Moerbeek entered into
severance compensation agreements with the Company. Cash severance amounts as of December 31, 1999, assuming
The Company has agreed to provide severance benefits termination meets the requirements for a severance payment,
and payments to Messrs. Garnier and Moerbeek, based on are as follows: Mr. Garnier - $1,021,566; Mr. Moerbeek -
2.99 times their respective average 5-year compensation $740,375; Mr. Tekulve - $276,000;
if certain conditions are met. Mr. Quinn - $271,598 and Mr. Swartwout - $199,231. In
addition to the cash payment, each executive is entitled to
In 1995, Messrs. Quinn and Swartwout entered into certain health insurance benefits with a value of
severance compensation agreements with the Company. In approximately $25,000, and outplacement services with a
1999, Mr. Tekulve entered into a severance compensation maximum benefit of $15,000 each for Messrs. Garnier and
agreement with the Company. The Company has agreed to Moerbeek and $4,000 each for Messrs. Tekulve, Quinn and
provide severance benefits and payments to Messrs. Swartwout. For purposes of the severance compensation
Tekulve, Quinn and Swartwout based on 1.5 times their agreements, a "change in control" is generally defined as a
respective average 5-year compensation if certain change in the person or persons owning, directly or
conditions are met. indirectly, sufficient voting stock to elect the Board of
Directors for the entity that employs an executive. These
The severance compensation agreements for Messrs. severance compensation agreements are in addition to the
Garnier, Moerbeek, Tekulve, Quinn and Swartwout will be plans described under the heading "Retirement Benefits."
triggered if one of the following conditions is met:
(1) termination of the executive's employment by his In 1992, Mr. Swartwout and New Mexico Utilities, Inc. (NMUI)
employer prior to the second anniversary of a change in entered into an agreement whereby upon a disposition of
control, other than termination by retirement or for substantially all assets of NMUI, Mr. Swartwout is entitled
death, disability or cause; or (2) termination of to a severance payment of one percent of the gross
executive's employment by the executive within two disposition price if in excess of $6,000,000, or three
years after a change in control for "good reason" percent of the gross disposition price if in excess of
(including assignment of executive to duties $11,000,000. For Mr. Swartwout to receive this severance
inconsistent with executive's position, duties, payment, he would need to continue his employment with NMUI
responsibilities and status prior to the change in through the completion of the transaction, at which time he
control, or alternatively, a reduction in salary, a would receive a cash payment equal to the greater of (1) the
significant reduction in benefits, an elimination of cash severance payment determined by his severance
stock plans or a relocation of employment greater than compensation agreement or (2) the amount determined under
50 miles). Under these agreements, cash severance the NMUI agreement based upon the gross disposition price of
payments are based upon base salary, auto benefits, the NMUI assets.
bonuses and certain life insurance premium amounts paid
by the employer. Cash
- ---------------------------------------------------------------------------------------------------------------------------------
11
Option Grants To Named Executive Officers in 1999
The following table sets forth a summary of information relating to the
potential realizable value of stock options granted in 1999. Exercise prices and
numbers of options have been adjusted to reflect a 3-for-2 stock split paid in
the form of a stock dividend on October 1, 1999.
------------------------------------
Potential Realizable Value
At Assumed Annual Rates
Individual Grants Of Stock Price Appreciation
For 10-Year Option Term
- --------------------------------------------------------------------------------------------------------------------------
% of Total
Options Granted Exercise
to Or At 0% At 5% At 10%
Options Employees Base Annual Annual Annual
Granted In Price Expiration Growth Growth Growth
Executive (#) (1) Fiscal Year ($/sh.) (2) Date Rate ($) Rate ($) Rate ($)
- --------------------------------------------------------------------------------------------------------------------------
Anton C. Garnier 45,000 21% 10.08 2009 0 285,267 722,922
- --------------------------------------------------------------------------------------------------------------------------
Peter J. Moerbeek 67,500 31% 10.28 2009 0 436,579 1,106,376
- --------------------------------------------------------------------------------------------------------------------------
Thomas C. Tekulve 7,500 3% 10.08 2009 0 47,544 120,487
- --------------------------------------------------------------------------------------------------------------------------
Michael O. Quinn 5,250 2% 10.08 2009 0 33,281 84,341
- --------------------------------------------------------------------------------------------------------------------------
Robert L. Swartwout 4,200 2% 10.08 2009 0 26,625 67,473
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
All Stockholders (3) N/A N/A N/A N/A N/A 60,964,501 154,496,015
- --------------------------------------------------------------------------------------------------------------------------
All Optionees 218,022 100% 10.13 2009 0 1,389,144 3,520,363
- --------------------------------------------------------------------------------------------------------------------------
All Optionees' Gain
As % of Total
Stockholders' Gain N/A N/A N/A N/A N/A 2.3% 2.3%
- --------------------------------------------------------------------------------------------------------------------------
(1) Options vest 20 percent per year until fully vested. Under the terms of
the Company's Amended and Restated Stock Option and Restricted Stock Plan,
the Compensation Committee retains discretion, subject to plan limits, to
modify the terms of outstanding options and to re-price the options.
However, in February 2000, the Compensation Committee determined that, it
would delete all re-pricing opportunities under the Employee Stock Option
Plan. The options were granted for a term of 10 years, subject to earlier
cancellation upon certain events related to termination of employment. The
exercise price and tax withholding obligations related to exercise may be
paid by delivery of already owned shares, or by offset of the underlying
shares, subject to certain conditions.
(2) All exercise prices represent fair market value on the date of grant, after
adjusting to reflect a 3-for-2 stock split paid in the form of a stock
dividend on October 1, 1999.
(3) Based on total number of shares outstanding at December 31, 1999.
12
Option Exercises in 1999 and Year-End Option Values
The following table shows information on exercised and unexercised stock
options, value realized and the value of unexercised options during the
Company's most recent fiscal year by the chief executive officer of the Company
and the other named executive officers.
Shares Value of Unexercised In-The-Money
Acquired Number of Unexercised Options Options at
On Value At December 31, 1999 December 31, 1999
Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Executive (#) ($) (#) ($)(1)
- ----------------------------------------------------------------------------------------------------------------------
Anton C. Garnier 0 0 137,152 / 109,925 1,242,144 / 720,442
- ----------------------------------------------------------------------------------------------------------------------
Peter J. Moerbeek 0 0 45,975 / 118,480 458,973 / 715,385
- ----------------------------------------------------------------------------------------------------------------------
Thomas C. Tekulve 0 0 0 / 7,500 0 / 36,878
- ----------------------------------------------------------------------------------------------------------------------
Michael O. Quinn 14,551 79,527 15,816 / 15,278 163,514 / 109,602
- ----------------------------------------------------------------------------------------------------------------------
Robert L. Swartwout 0 0 10,811 / 11,912 100,727 / 84,397
- ----------------------------------------------------------------------------------------------------------------------
(1) Difference between fair market value at December 31, 1999 of $15.00 and
option exercise price.
Retirement Benefits
Until December 30, 1999, the Company sponsored a Noncontributory Defined
Benefit Pension Plan (the "Pension Plan"), which provided retirement benefits
and certain death benefits to all eligible employees of the Company, Suburban
Water Systems (Suburban) and New Mexico Utilities, Inc. (New Mexico Utilities).
In August 1999, the Board of Directors approved a resolution to terminate the
Pension Plan and ceased all benefit accruals as of December 30, 1999. In
connection with the termination of the Pension Plan, the Company enhanced its
current defined contribution plan, covering employees of the Company, Suburban
and New Mexico Utilities. Upon receipt of a favorable determination from the
Internal Revenue Service, the net assets of the Pension Plan will be distributed
as permitted by ERISA and its related regulations.
Four executive officers of the Company and its participating subsidiaries
were participants in the Pension Plan. Non-Employee Directors were not eligible
to participate in the Pension Plan. The Company and its participating
subsidiaries paid the cost of administering the Pension Plan. All of the
trustees and administrators of the Pension Plan are currently officers or
employees of the participating companies. Payments to the Pension Plan by the
Company were computed on an actuarial basis to provide fixed benefits to
employees upon retirement at specified ages.
13
The following table indicates the approximate annual benefits that would be
received by participants in the Pension Plan if the Plan had not been
terminated, based upon the assumptions indicated.
5-Year Average Estimated Annual Benefit
Annual Compensation for Years of Service Indicated
----------------------------------
15 Years 20 Years 30 Years
- -------------------------------------------------------------------------
$ 80,000 $23,300 $31,000 $ 46,500
120,000 35,300 47,000 70,500
160,000 47,300 63,000 94,500
200,000 59,300 79,000 118,500
240,000 71,300 95,000 142,500
- -------------------------------------------------------------------------
The actual maximum amount of compensation that may be recognized for
Pension Plan purposes according to the Internal Revenue Code (the "Code") was
$160,000 in 1999. The maximum annual defined benefit in 1999 allowable under the
Code was $130,000. These limits are subject to annual cost of living
adjustments.
The compensation on which benefits under the Pension Plan were based is
limited to salary paid by the Company and certain subsidiaries and excludes
bonuses and other forms of compensation. The amounts used in making the
calculations under the Pension Plan for 1999 were based on July 1, 1999 base
compensation as follows: Anton C. Garnier - $240,000, Peter J. Moerbeek -
$190,000, Michael O. Quinn - $157,040 and Robert L. Swartwout - $112,320. On
December 31, 1998, years of credited service for each individual was 29, 4, 20
and 6, respectively. Thomas C. Tekulve was not eligible for benefits at July 1,
1999, when benefits were determined. Benefits under the Pension Plan are not
subject to offset for amounts received from Social Security or other sources.
14
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Executive Officer Compensation Philosophy
The compensation philosophy for executive officers is to ensure that
compensation is directly linked to continuous improvements in the Company`s
financial performance and increases in stockholder value. To implement the
philosophy, the Committee is guided by the following objectives: (1) enable the
Company to attract and retain highly qualified executives, (2) focus executives'
efforts on the fulfillment of Company annual and long-term business objectives
and strategies, and (3) ensure that a portion of executive compensation is tied
to specific performance measures. The Committee has used various outside
consultants in designing the current executive compensation plan.
Executive Compensation
In determining the base salary of executives, the Committee considers
individual performance, the performance of the operations directed by the
executives, and the competitive salary levels of executives in companies of
similar size and complexity. Competitive salary information, obtained primarily
through published compensation surveys, is used to determine the reasonableness
of total compensation, which includes base salary and incentive compensation.
For executives other than the Chief Executive Officer, the Committee also
considers the recommendations of the Chief Executive Officer.
Annual Incentive Compensation
The Committee believes that the Company's short-term objectives are
enhanced with annual performance-based incentive compensation for its
executives. Annual incentive awards are based on meeting certain financial
objectives for the Company and on an executive's achievement of goals in his or
her area of responsibility. Executive performance objectives include both
quantitative and qualitative criteria. As an executive's level of
responsibility increases, a greater portion of potential total cash compensation
is at risk in the form of annual performance-based incentives.
Financial goals and performance-based measures are established by the
Committee at the beginning of each year. Awards are made at the end of the year
based on actual performance. Each year, the Committee establishes a performance
threshold. No awards are made if the performance threshold is not met. In 1999,
the results for the year exceeded the threshold set by the Committee, and
incentive compensation awards were approved for the Company's executives.
Long-term Incentive Compensation
The purpose of long-term incentives is to encourage and facilitate personal
stock ownership by the executive officers and thus strengthen both their
personal commitments to the Company and a longer-term perspective in their
managerial responsibilities. This component of an executive officer's
compensation links the officer's interests with those of the Company`s
stockholders. Currently, the primary form of long-term incentive compensation is
non-qualified stock options. The Committee approves stock options for all
executives and managers.
15
In determining the number of stock options awarded, the Committee considers
a number of factors including the executive's pay level, responsibilities in the
organization, and ability to significantly improve future financial results. In
addition, the Committee compares the Company's option grant levels with similar
industry practices.
Chief Executive Officer Compensation
Anton C. Garnier has been President and Chief Executive Officer of the
Company since November 1968 and has been Chairman of the Board since August
1996. The Committee reviewed Mr. Garnier's 1999 performance based on the
performance of the Company as a whole and his performance with respect to
quantitative and qualitative objectives approved at the start of the year by the
Committee. The Committee carefully considered the Company's continuing
improvements in financial results, including earnings improvement, new business
development, return on equity and the creation of stockholder value. The
Committee also evaluated Mr. Garnier's progress in attaining qualitative
objectives in such areas as investor relations, planning for the Company's long-
term future, setting strategic objectives, and communications. The Committee
did not use specific weighting factors with respect to quantitative and
qualitative performance measures. The Committee Chairman prepared a CEO
performance evaluation, which was discussed with Mr. Garnier.
In determining Mr. Garnier's performance for 1999, the Committee gave
particular emphasis to the continuing improved operating results of the
Company's contract operations subsidiary. After the Committee's deliberations,
the Committee increased Mr. Garnier's annual salary to $255,000, effective
January 1, 2000, and awarded him an incentive compensation amount of $160,000
for 1999. In addition, on January 13, 2000, the Committee awarded Mr. Garnier a
stock option grant of 45,000 shares of the Company`s Common stock.
Compensation Committee
Monroe Harris (Chair)
H. Frederick Christie
Richard G. Newman
February 15, 2000
16
ITEM 1 - ELECTION OF DIRECTORS
- ---------------------------------------------------------------------------------------------------------------------------------
The Board of Directors maintenance services on an international basis. He also
The Board of Directors is divided into three classes, serves on the boards of 13 mutual funds managed by the
currently consisting of two classes of three Directors Capital Research and Management Company. Mr. Newman was
and one class of two Directors whose terms expire at first elected a director in 1991.
successive annual meetings. For 2000, the Class II
Directors, consisting of three Directors, are nominated The three nominees receiving the most votes will be elected
for election at our 2000 Annual Meeting for a as Directors. Abstentions and broker "non-votes" are not
three-year term expiring at our Annual Meeting in the counted for purposes of the election of Directors.
year 2003.
The persons named in the enclosed proxy intend to vote the
The Class II Director nominees are: Monroe Harris, proxy for the election of the three nominees, unless you
Donovan D. Huennekens and Richard G. Newman. All three indicate on the proxy card that your vote should be withheld
Directors were elected to their current terms of office from a named nominee or all of the nominees. If you are
at the 1998 Annual Meeting of Stockholders. We expect voting by telephone, you will be instructed how to withhold
all three Directors will be able to serve if elected. your vote from a nominee or nominees. If elected, the
If any one of the nominee directors is not able to nominees will continue in office until their successors have
serve, proxies may be voted for the election of a been elected, or until their resignation or retirement.
substitute nominee recommended by the Board.
There are no family relationships between any director and
Information About the Nominees for any executive officer of the Company. None of the entities
Directors Whose Terms Expire in 2000 by which the Directors are employed is related to the
(Class II) Company. No Director is a director of any other corporation
subject to Sections 12 or 15(d) of the Securities Exchange
Monroe Harris, 78, is a consultant and retired executive Act of 1934 or registered as an investment company under the
vice president and director of Johns-Manville Investment Company Act of 1940. No Director or executive
Corporation. Mr. Harris was first elected a director in officer of the Company has been, during the last five years,
1963. He resigned from the Board in 1965 when he moved involved in a legal proceeding of the type that would
to New York. Mr. Harris was reelected a director in require disclosure herein by the Securities Exchange Act of
1987. 1934. There are no arrangements or understandings between
any Director and any other persons pursuant to which any
Donovan D. Huennekens, 63, is a partner of HQT Homes, a Director was selected as a Director or nominee of the
real estate development company and a director of Bixby Company or of any other company.
Ranch Company. Mr. Huennekens was first elected a
director in 1969. Your Board of Directors recommends a vote FOR the election
of these nominees as Directors.
Richard G. Newman, 65, is chairman, chief executive
officer, and a director of AeCOM Technology Corporation,
the parent of several subsidiaries that provide
architectural, engineering, construction, operations and
- ---------------------------------------------------------------------------------------------------------------------------------
17
- ---------------------------------------------------------------------------------------------------------------------------------
Directors Whose Terms Expire in 2001 Officers Who Are Not Directors
(Class III)
Peter J. Moerbeek, CPA, 52, is our chief financial officer
H. Frederick Christie, 66, is an independent and secretary, and is also president of ECO Resources, Inc.
consultant. He retired in 1990 as president and chief (ECO), a subsidiary of the Company. Mr. Moerbeek joined the
executive officer of the Mission Group, a subsidiary of Company in 1995 as vice president finance, chief financial
SCEcorp, which oversaw SCEcorp's non-utility businesses. officer and secretary.
From 1984 to 1987, he served as president of Southern
California Edison Company, a subsidiary of SCEcorp. Mr. Maurice W. Gallarda, P.E., 46, was appointed vice president
Christie is a director of Ultramar Diamond Shamrock, of new business development in August 1999, and in January
IHOP Corp. and Ducommun Incorporated and also serves on 2000 was named president of Inland Pacific Water Company, a
the boards of 19 mutual funds managed by the Capital subsidiary of the company. He brings more than 20 years of
Research and Management Company. Mr. Christie was experience in corporate development and marketing to the
first elected a Director in 1996. Company and leads the Company's efforts to expand into new
markets and services.
Anton C. Garnier, 59, has been president and chief
executive officer of the Company since 1968. Mr. Thomas C. Tekulve, CPA, 48, joined us in February 1999 as
Garnier was first elected a Director in 1968 and was vice president of finance. He oversees finance, accounting
elected Chairman of the Board in 1996. and information systems and provides guidance in strategic
planning for the Company and its subsidiaries. Mr. Tekulve
Richard Kelton, 70, is an attorney and president of has 25 years' experience in finance.
Bollenbacher & Kelton, Inc., a commercial and residential
developer. Mr. Kelton was first elected a Director in Shelley A. Farnham, 44, joined the Company in July 1998 as
1969. vice president human resources. She brings 20 years
experience in the human resources field. Ms. Farnham
Directors Whose Terms Expire in 2002 oversees organizational planning and development, employee
(Class I) relations, training, compensation and benefits
administration for the Company and its subsidiaries.
Maureen A. Kindel, 60, is president of Rose & Kindel,
a public affairs firm. Ms. Kindel is past president of the Michael O. Quinn, 53, is president of Suburban Water
City of Los Angeles Board of Public Works, is a founding Systems, (Suburban) a subsidiary of the Company. Mr. Quinn
and current member of the Pacific Council on International has been with the Company over 28 years, serving as
Policy, and is a board member of the International treasurer of Suburban prior to his move to ECO as CEO and
Women's Forum, the Los Angeles Urban League, the president between 1985 and 1992. He rejoined Suburban and
Board of Governors of Town Hall of Los Angeles and the was promoted to president of Suburban in 1996.
Los Angeles Amateur Athletic Foundation. Ms. Kindel is
a trustee for the International Foundation of Electoral Robert L. Swartwout, 58, joined the Company 7 years ago as
Systems. Ms. Kindel was first elected a Director president of New Mexico Utilities, Inc., a subsidiary of the
in 1997. Company. Mr. Swartwout is a registered professional
engineer in New Mexico and New York and has over 30 years of
Director Emeritus experience with public utilities and state/federal
Michael J. Fasman, a member of our Board of regulatory agencies.
Directors for 24 years, retired from our Board in 1999
and passed away in February 2000. We are deeply grateful
for his wise counsel and his dedication to the Company's
success.
- ---------------------------------------------------------------------------------------------------------------------------------
18
ITEM 2 - APPROVAL OF CHANGES TO THE STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS OF SOUTHWEST WATER COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
The Board of Directors has approved an amendment by written request to Secretary, Southwest Water Company,
and restatement of the Stock Option Plan for Non- 225 North Barranca Avenue, Suite 200, West Covina,
Employee Directors, subject to stockholder approval. California 91791. You are encouraged to read the Director
Proposed amendments include: Option Plan in its entirety.
. Authorizing an additional 120,000 shares for
issuance under the Plan. SUMMARY OF THE
. Increasing the initial automatic grant and annual DIRECTOR OPTION PLAN
automatic grant of stock option awards to 5,000
shares per Non-Employee Director. The Director Option Plan authorizes the grant to our
. Allowing the exercise of options within 12 months non-employee directors of non-qualified stock options.
of a Director ending his or her service on the Board.
(The Plan now allows for various terms following a Securities Available
Director leaving the Company, ranging from 3 months The aggregate number of shares of common stock currently
to 12 months.) authorized and reserved under the Director Option Plan is
. Decreasing the option term from 10 years and one 238,125 shares, inclusive of all stock dividends and stock
day to 7 years and one day. splits. As of the Record Date, 72,066 shares were available
. Permitting the transfer of an option to immediate for issuance. Assuming stockholder approval of this
family members and family trusts, at the discretion proposal, 192,066 shares would be available for future
of the Board of Directors. issuance under the Director Option Plan. Also available for
. Extending the Plan termination date from May 21, future grant under the Director Option Plan are:
2006 to May 23, 2010. . shares subject to expired or canceled options; and
. Confirming that the anti-dilution adjustments for . shares delivered to the Company or withheld by the
stock splits and dividends provided by the Plan Company in payment of the exercise price or tax withholding
applied to the 1,000 share annual automatic option obligations.
grants since inception of the Plan, but will not
apply to the 5,000 automatic option grants to be in Automatic Option Grants
effect following adoption of the proposed amendments Non-qualified stock options are granted automatically to
and restatement of the Plan. non-employee directors, as follows:
. each person who is a non-employee director as of this
The following is only a summary of the material Annual Meeting of Stockholders will automatically be granted
terms of the Amended and Restated Stock Option on the date of this Annual Meeting an option to purchase
Plan for Non-Employee Directors ("Director Option 5,000 shares of common stock;
Plan"). A full copy of the proposed Director . each person who first becomes a non-employee director
Option Plan can be obtained by contacting the after this Annual Meeting of Stockholders by election or
Company's Secretary by telephone at (626) 915-1551 appointment to the Board shall be granted automatically on
or the date of such person's election or appointment to the
Board, an initial option to purchase 5,000 shares of
common stock; and
- ---------------------------------------------------------------------------------------------------------------------------------
19
- ---------------------------------------------------------------------------------------------------------------------------------
. each non-employee director shall thereafter be Exercise of Options
automatically granted, on the date of each An option may be exercised for any vested portion of the
subsequent Annual Meeting of Stockholders as of shares subject to the option until the option expires or
which such person continues as a non-employee terminates. Only whole shares may be purchased upon exercise.
director, an additional option to purchase
5,000 shares of common stock. An option may be exercised by delivering to the Company a
Thus, presuming they continue as non-employee written notice of exercise, together with payment of the
directors following the Annual Meeting, each of aggregate exercise price in the form of cash or a check
Messrs. Christie, Harris, Huennekens, Kelton and payable to the Company. The Board may, however, in its
Newman and Ms. Kindel, will, if this proposal is discretion allow payment through:
approved by the stockholders, be automatically . the delivery of shares of our common stock already owned
granted an option covering 5,000 shares on the for more than six months;
date of this Annual Meeting. . the surrender of shares of our common stock which would
Each option, and its exercise price, term, vesting otherwise be issuable on exercise of the option;
and other material terms are evidenced by a . use of an interest bearing full recourse note upon such
written stock option agreement. terms as the Board prescribes; or
. the delivery of a notice that the optionee has placed a
Exercise Price market sell order with a broker with respect to shares of
The exercise price of the options is the fair common stock issuable upon exercise of the option, and that
market value for a share of our common stock on the broker has been directed to pay a sufficient portion of
the date of grant, which equals the last sales the net proceeds of the sale to the Company in satisfaction
price on the Nasdaq National Market. On March 29, of the option exercise price.
2000, the last sales price for our common stock as The Company must also receive payment of any applicable
reported on the Nasdaq National Market was $11.00. withholding tax, which in the discretion of the Board may be
in the same form as used to pay the exercise price.
Vesting of Options
An option may be exercised when and to the extent An optionee will not have any rights as a stockholder until
it "vests." The options vest 50% on the first the Company has issued and delivered the shares of common
anniversary of the grant date and 50% on the stock following option exercise. The Company will not
second anniversary of the grant date. In adjust for dividends or distributions if the record date for
addition, the options become fully vested upon the dividend or distribution is prior to the date of such
termination of the optionee's service as a stock issuance.
director of the Company after the first
anniversary of the option grant date. Options Not Transferable
An optionee cannot assign or transfer any option, except:
Term and Termination of Options . by will or the laws of descent and distribution;
The term of each option will be 7 years and one day . pursuant to a qualified domestic relations order;
from the date of grant. In the event of the . or with permission from the Board, to certain family
termination of the optionee's service as a members and family trusts.
director of the Company, the optionee (or the
optionee's representative) may exercise the option
at any time prior to the earliest of:
. one year following such termination, unless the
optionee dies within such period;
. one year following the death of such optionee;
or 7 years and one day following the option grant
date.
- ---------------------------------------------------------------------------------------------------------------------------------
20
- ----------------------------------------------------------------------------------------------------------------------------
Plan Amendment and Termination Federal Income Tax Consequences
The Board may not, without prior stockholder The following is a general summary under current law of the
approval: material federal income tax consequences to participants in
. change the number of shares of stock that may be the Director Option Plan. The summary does not discuss all
issued under the Director Option Plan; aspects of income taxation that may be relevant to a
. or amend the Director Option Plan in a manner particular optionee.
requiring stockholder approval under any
applicable law. For federal income tax purposes, optionees granted
non-qualified stock options will not have taxable income on
All other amendments may be made by the Board the grant of the option, nor will the Company be entitled to
without stockholder approval. The Director Option any deduction. Generally, on exercise of non-qualified
Plan will be in effect until May 23, 2010. stock options the optionee will recognize ordinary income,
and the Company will be entitled to a deduction, in an
Adjustment in Securities amount equal to the difference between the option exercise
If there is a dividend, recapitalization, price and the fair market value of the common stock on the
reclassification, stock split, merger, date of exercise. The optionee's basis for the stock for
consolidation, split-up, spin-off, combination, purposes of determining gain or loss on subsequent disposition
consolidation, dissolution or other similar of such shares generally will be the fair market value of the
corporate transaction that affects the common common stock on the date of option exercise. Any subsequent
stock, the Committee may appropriately adjust: gain or loss will be generally taxable as capital gains or
. the aggregate number of shares of common stock losses.
subject to the Director Option Plan;
. the number of shares of common stock subject to *****
outstanding options; and
. the price per share of outstanding options.
Your Board of Directors and management believe that it is in
After this Annual Meeting, however, no adjustment the best interest of the Company to approve the Director
may be made to the number of options granted Option Plan in order to attract and retain qualified
automatically under the Director Option Plan directors and remain competitive in a fast changing industry.
(5,000) as a result of any stock dividend, split
or combination. The Director Option Plan also The favorable vote of a majority of the votes cast is
confirms that appropriate anti-dilution required to approve the Amended and Restated Stock Option
adjustments were to be made to the 1,000 automatic Plan for Non-Employee Directors. Thus, abstentions and
grant of options previously provided under the broker non-votes on this proposal will not be counted as
Plan. These anti-dilution adjustments resulted in votes for or against the proposal.
the Non-Employee Directors being automatically
granted 1,200, 1,260 and 1,575 options in 1997, Your Board of Directors unanimously recommends a vote FOR
1998 and 1999, respectively. Item 2.
In addition, if there is a merger of the Company,
the sale of all or substantially all of the
Company's assets or 80% or more of the Company's
voting stock, or the dissolution or liquidation of
the Company, the Board may provide in the option
agreement or in a resolution that the options may
be exercisable as to all shares covered by the
option, and/or may provide for the assumption of
the option by the successor corporation.
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21
ITEM 3 - APPROVAL OF CHANGES TO THE SOUTHWEST WATER COMPANY
STOCK OPTION AND RESTRICTED STOCK PLAN, AS AMENDED
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The Board of Directors has approved an amendment Securities Available
and restatement of the Amended and Restated The aggregate number of shares of common stock
Southwest Water Company Stock Option and currently authorized and reserved under the Employee
Restricted Stock Plan for employees of the Stock Option Plan is 1,763,905 shares, inclusive of
Company, now known as The Second Amended and all stock dividends and stock splits. As of the
Restated Stock Option Plan (the "Employee Stock Record Date, only 13,942 shares were available for
Option Plan"), subject to stockholder approval. issuance. Assuming stockholder approval of this
Proposed amendments include: proposal, 763,942 shares would be available for future
. Authorize an additional 750,000 shares for issuance under the Employee Stock Option Plan. Also
issuance under the Employee Stock Option Plan. available for future grant under the Employee Stock
. Set an annual award limit of 150,000 shares to any Option Plan are:
one individual and make such other changes as are . shares subject to expired or canceled options; and
advisable under Section 162(m) of the Internal . shares delivered to the Company or withheld by the
Revenue Code. Company in payment of the exercise price or tax
. Extend the Plan termination date from February 17, withholding obligations.
2007 to May 23, 2010.
. Modify the eligibility requirements to include The maximum number of shares which may be subject to
certain consultants to the Company. options granted to any individual in any calendar year
may not exceed 150,000 shares.
The following is a summary of the material terms
of the Employee Stock Option Plan, as proposed to Grant and Terms of Options
be amended and restated. A full copy of the The Compensation Committee of the Board of Directors,
proposed Employee Stock Option Plan can be appointed to administer the Employee Stock Option Plan
obtained by contacting the Company's Secretary by (the "Committee"), is comprised of two or more
telephone at (626) 915-1551 or by written request directors, each a "non-employee director" as defined
to Secretary, Southwest Water Company, 225 North by Rule 16b-3 under the Securities Exchange Act of
Barranca Avenue, Suite 200, West Covina, 1934, and an "outside director" under Section 162(m)
California 91791. You are encouraged to read the of the Code. The Committee grants the options and
Employee Stock Option Plan in its entirety. determines the following:
. which employees, directors or consultants are to be
SUMMARY OF THE granted options;
SECOND AMENDED AND RESTATED . the number of shares subject to option grants and
STOCK OPTION PLAN the exercise price; and
. the time in which the options may vest or be
The Employee Stock Option Plan authorizes the exercised, including any accelerations or extensions.
grant of non-qualified options to our employees,
directors and certain consultants. Each option, and its exercise price, term, vesting and
other material terms are evidenced by a written stock
option agreement.
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22
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Inclusion of Consultants Term and Termination of Options
In addition to employees and directors, certain The term of an option is set by the Committee,
consultants are eligible for the grant of options provided, that no option shall be no longer than 10
under the Employee Stock Option Plan. To be years and one day from the date of grant. The
eligible for an option grant, a consultant must Committee also establishes the time period following
be: termination of employment or retention, death or
. An individual who has contracted with the Company disability during which the optionee may exercise
or a subsidiary to provide consulting or advisory vested options.
services;
. Rendering bona fide consulting or advisory Exercise of Options
services to the Company or a subsidiary; and An option may be exercised for any vested portion of
. Rendering services which are not in connection the shares subject to the option until the option
with the sale of securities or promotion or expires or terminates. Only whole shares may be
maintenance of a market for the Company's securities. purchased upon exercise.
Options granted to consultants are subject to the An option may be exercised by delivering to the
same provisions which govern options granted to Company a written notice of exercise, together with
employees. payment of the aggregate exercise price in the form of
cash or a check payable to the Company. The Committee
Exercise Price may, however, in its discretion allow payment through:
The Committee sets the per share exercise price at . the delivery of shares of our common stock already
not less than 100% of the fair market value of owned for more than six months;
our common stock on the grant date, which equals . the surrender of shares of our common stock which
the last sales price on the Nasdaq National would otherwise be issuable on exercise of the option;
Market. On March 28, 2000, the last sales price . use of an interest bearing full recourse note upon
for our common stock as reported on the Nasdaq such terms as the Committee prescribes; or
National Market was $11.00. . the delivery of a notice that the optionee has
placed a market sell order with a broker with respect
Re-pricing of Options to shares of common stock issuable upon exercise of
Under the current terms of the Employee Stock the option, and that the broker has been directed to
Option Plan, the Compensation Committee retains pay a sufficient portion of the net proceeds of the
discretion, subject to plan limits, to modify the sale to the Company in satisfaction of the option
terms of outstanding options and to re-price the exercise price.
options. However, in February 2000, the The Company must also receive payment of any
Compensation Committee determined that, subject applicable withholding tax, which in the discretion of
to stockholder approval, it would delete all the Committee may be in the same form as used to pay
re-pricing opportunities for the Employee Stock the exercise price.
Option Plan.
An optionee will not have any rights as a stockholder
Vesting of Options until the Company has issued and delivered the shares
An option may be exercised when and to the extent of common stock following option exercise. The
it "vests." The Committee determines the period Company will not adjust for stock dividends or
during which the optionee's right to exercise the distributions if the record date for the dividend or
option in whole or part vests, which has been 20% distribution is prior to the date of such stock issuance.
per year. No portion of an option which is not
vested when the optionee's relationship with the Options Not Transferable
Company is terminated shall thereafter become An optionee cannot assign or transfer any option,
vested. At any time after the grant of an except:
option, the Committee may accelerate the period
during which an option vests.
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23
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. By will or the laws of descent and distribution; Option Plan. The summary does not discuss all aspects
. pursuant to a qualified domestic relations order; of income taxation that may be relevant to a
. certain family members and family trusts. particular optionee.
Plan Amendment and Termination For federal income tax purposes, optionees granted
The Committee may not, without prior stockholder non-qualified stock options will not have taxable
approval: income on the grant of the option, nor will the
Company be entitled to any deduction.
. increase the number of shares of stock that may be
issued under the Employee Stock Option Plan; or Generally, on exercise of non-qualified stock options
. modify the 150,000 per person per year grant the optionee will recognize ordinary income, and the
limit; or Company will be entitled to a deduction, in an amount
. extend the expiration date of the Employee Stock equal to the difference between the option exercise
Option Plan; or price and the fair market value of the common stock on
. amend the Employee Stock Option Plan in a manner the date of exercise. The optionee's basis for the
requiring stockholder approval under any applicable stock for purposes of determining gain or loss on
law. subsequent disposition of such shares generally will
be the fair market value of the common stock on the
All other amendments may be made by the Committee date of option exercise. Any subsequent gain or loss
without stockholder approval. The Employee Stock will be generally taxable as a capital gain or loss.
Option Plan will be in effect until May 23, 2010.
*****
Adjustment in Securities
If there is a dividend, recapitalization,
reclassification, stock split, merger, Your Board of Directors and management believe that it
consolidation, split-up, spin-off, combination, is in the best interest of the Company to approve the
consolidation, dissolution or other similar Employee Stock Option Plan as summarized in order to
corporate transaction that affects the common attract and retain qualified employees, remain
stock, the Committee may appropriately adjust: competitive and to continue to meet industry standards.
. the aggregate number of shares of common stock
subject to the Employee Stock Option Plan; The favorable vote of a majority of the votes cast is
. the limit of 150,000 shares a year per person; required to approve the Second Amended and Restated
. the number of shares of common stock subject to Stock Option Plan. Thus, abstentions and broker
outstanding options; and non-votes on this proposal will not be counted as
. the price per share of outstanding options. votes for or against the proposal.
In addition, if there is a merger of the Company, Your Board of Directors unanimously recommends a vote
the sale of all or substantially all of the FOR Item 3.
Company's assets or 80% or more of the Company's
voting stock, or the dissolution or liquidation
of the Company, the Committee may provide in the
option agreement or in a resolution that the
options may be exercisable as to all shares
covered by the option.
Federal Income Tax Consequences
The following is a general summary under current
law of the material federal income tax
consequences to participants in the Employee Stock
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24
ITEM 4 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
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The Board of Directors has selected KPMG LLP as If the stockholders fail to ratify the selection, the
the Company's independent auditors for the year Board will reconsider whether or not to retain that
ending December 31, 2000. KPMG LLP has audited firm. Even if the selection is ratified, the Board in
the Company's financial statements since 1978. its discretion may direct the appointment of a
different independent accounting firm at any time
Representatives of KPMG LLP are expected to be during the year if the Board determines that such a
present at the Annual Meeting and will have the change would be in the best interests of the Company
opportunity to make a statement if they so desire and its stockholders.
and will be available to respond to appropriate
questions. The favorable vote of a majority of the votes cast is
required to ratify the appointment of KPMG LLP. Thus,
Stockholder ratification of the selection of KPMG abstentions and broker non-votes on this proposal will
LLP as the Company's independent auditors is not not be counted as votes for or against the proposal.
required by the Company's Bylaws or otherwise.
However, the Board is submitting the selection Your Board of Directors unanimously recommends a vote
of KPMG LLP to the stockholders for ratification FOR Item 4.
as a matter of corporate practice.
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25
REQUIREMENTS, INCLUDING DEADLINES,
FOR SUBMISSION OF PROXY PROPOSALS,
NOMINATION OF DIRECTORS
AND OTHER BUSINESS OF STOCKHOLDERS
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The Company expects to hold the 2001 Annual Meeting of Also, the Company's Bylaws provide that for a stockholder
Stockholders on May 24, 2001. proposal (including nomination of a person for election to
the Board of Directors) to be acted upon at an annual
Stockholder proposals (including nomination of a person meeting, the stockholder must provide written notice to the
for election to the Board of directors) to be included Company no later than 90 days prior to the scheduled annual
in the proxy statement for the 2001 meeting must be meeting. Thus, such notice must be submitted no later than
received by the Company's Secretary not later than February 23, 2001. This notice must contain information
January 24, 2001. In order for proposals to be required by the Bylaws. A copy of the Bylaws may be
included, you must comply with the rules of the obtained from the Company's Secretary.
Securities and Exchange Commission governing the
submission of stockholder proposals. All proposals should be submitted in writing to the
Company's Secretary at 225 North Barranca Avenue, Suite 200,
West Covina, California 91791-1605.
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Whether or not you plan to attend the Annual Meeting, please vote by
telephone as instructed or mark, sign, date and promptly return the enclosed
proxy in the envelope provided.
By order of the Board of Directors,
Peter J. Moerbeek
April 7, 2000 Secretary
26
DIRECTIONS TO
SOUTHWEST WATER COMPANY
ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 2000 AT 10:00 A.M. (Pacific Time)
[MAP APPEARS HERE]
Suggested Route:
- ---------------
Exit the Harbor Frwy. (110) at 4th Street.
Take 4th Street east to Olive Street, turn left. Hotel is about 100 yards on
the left side of the street. Circular drive in front.
Parking:
- -------
To receive complimentary valet parking, please tell the attendant that you are
attending Southwest Water Company's Annual Meeting.
Hotel Inter-Continental
-----------------------
Located on Bunker Hill At California Plaza
251 South Olive Street
Los Angeles, CA
(213) 617-3300
- --------------------------------------------------------------------------------
SOUTHWEST WATER COMPANY ANNUAL MEETING OF STOCKHOLDERS Please mark
your votes as
indicated in [X]
this example
The Board of Directors unanimously recommends a vote FOR the three Director
nominees, and FOR Item 2 and Item 3 and FOR the limitation of the appointment of
the independent auditors for the 2000 fiscal year.
1. Election as director of the nominees listed in the accompanying (INSTRUCTION: To withhold authority to vote for any
Proxy Statement. 01 MONROE HARRIS individual nominee, write that nominee's name on the
02 DONOVAN D. HUENNEKENS space provided below.)
FOR the nominees WITHHOLD AUTHORITY to 03 RICHARD G. NEWMAN
listed at right for the nominees listed ______________________________________________________
at right
[ ] [ ]
FOR AGAINST ABSTAIN
2. Approval of the Amended and Restated Stock [ ] [ ] [ ] 4. Ratification of the appointment of KPMG
Option Plan for Non-Employee Directors: LLP as the Company's independent auditors
for 2000:
3. Approval of the Second Amended and Restated [ ] [ ] [ ] FOR AGAINST ABSTAIN
Stock Option Plan: [ ] [ ] [ ]
FOR SHAREHOLDERS WITH MULTIPLE
ACCOUNTS ONLY: Mark this box to [ ]
discontinue receipt of an Annual
Report for this account.
Signature____________________Signature____________________Date________________
Note: Please sign your name as it appears on the label. Joint owners should
both sign. When signing as attorney, administrator, trustee, or guardian,
please give full title as such.
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
VOTE BY TELEPHONE
[PICTURE OF TELEPHONE APPEARS HERE] [PICTURE OF TELEPHONE APPEARS HERE]
QUICK *** EASY *** IMMEDIATE
===============================================================================
VOTE BY PHONE: For U.S. Shareholders only, call toll free 1-800-840-1208
on a touch tone telephone 24 hours a day, 7 days a week.
There is NO CHARGE to you for this call. Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box
in the lower right hand corner of this form.
OPTION 1: To vote as the Board of Directors recommends on ALL proposals, Press
- --------
1.
When asked, please confirm by Pressing 1
OPTION 2: If you choose to vote on each proposal separately, Press 0. You will
- --------
hear these instructions:
Proposal 1, Director Election Proposal: To vote FOR ALL nominees, Press 1, to
WITHHOLD FOR ALL nominees, Press 9. To
WITHHOLD FOR AN INDIVIDUAL nominee,
Press 0 and listen to the instructions.
Proposal 2, and All Other Proposals: To vote FOR, Press 1; AGAINST, Press 9;
ABSTAIN, Press 0
When asked, please confirm by Pressing 1
================================================================================
OR
================================================================================
VOTE BY PROXY CARD: mark, sign and date your proxy card and return it promptly
in the enclosed envelope.
NOTE: If you vote by telephone,
THERE IS NO NEED TO MAIL BACK YOUR PROXY CARD.
================================================================================
THANK YOU FOR VOTING
- -------------------------------------------------------------------------------
PROXY
SOUTHWEST WATER COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Anton C. Garnier and Peter J. Moerbeek, each with the power of substitution,
are hereby appointed by the stockholders(s) named on the reverse side of this
Proxy to vote all eligible shares of common or preferred stock of Southwest
Water Company at the Annual Meeting of Stockholders to be held on May 23, 2000,
or any adjournments thereof, on the matters set forth on the reverse side in
accordance with any directions given by the stockholder(s) and, in the
discretion of the Proxy holders, on all other matters that may properly come
before the Annual Meeting or any adjournments thereof.
IMPORTANT - PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL
DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3 AND 4.
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--FOLD AND DETACH HERE--
Southwest Water Company
YOUR VOTE IS IMPORTANT!
You can vote in one of two ways:
1. Mark, date, sign and return your Proxy by detaching the top portion of this
sheet and returning it in the enclosed envelope.
OR
2. Call toll-free 1-800-840-1208 on a touch-tone telephone and follow the
instructions on the reverse side of this card. There is NO CHARGE to you for
this call.
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