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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)
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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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
(LOGO) Southwest Water Company "A Water Management Company"
PROXY STATEMENT 2001
April 12, 2001
The Proxy Statement cover is being designed as a companion piece to the
Annual Report - (sample attached)
YOUR VOTE IS IMPORTANT
If you were a stockholder of Southwest Water Company on March 30, 2001, you are
eligible to vote on the proposals described in this Proxy Statement. Depending
on the way in which your shares are held, you may vote using one of the
procedures described below. Normally, you can tell the way in which your stock
is held by looking at your proxy card. Please use one of the following voting
procedures:
(1) The majority of our stockholders hold their shares through a bank,
broker or other agency. If your shares are held in this manner, you
will receive voting instructions directly from that agency, along with
your proxy materials.
(2) If your securities are registered in your name with our transfer
agent, Mellon Investor Services LLC, 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 in the postage-paid envelope provided with this package.
ELIMINATE DUPLICATE MAILINGS
If you are a stockholder with your stock recorded in your name with our transfer
agent and are receiving duplicate mailings, you may authorize us to discontinue
these 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 22, 2001, at 10:00 a.m., Pacific time
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PLACE: Omni Los Angeles Hotel at California Plaza
251 South Olive Street, Los Angeles, California
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ITEMS OF BUSINESS: (1) Elect three members of the Board of Directors for terms of three
years.
(2) Ratify the appointment of KPMG LLP as our independent auditors for
calendar year 2001.
(3) Transact other business as may properly come before the Annual
Meeting and any adjournment or postponement.
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RECORD DATE: You may vote if you owned Southwest Water Company stock on March 30, 2001.
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ANNUAL REPORT AND FORM 10-K: Our 2000 Annual Report and Form 10-K, which are not 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. Depending on how your shares are held, please vote in
one of the following ways:
(1) If your shares are held for you by a bank, broker or other agency,
follow the voting instructions provided with your proxy materials or
(2) If your shares are registered in your name with our transfer agent,
use the toll-free number shown on the enclosed proxy card or mark,
sign, date and promptly return the enclosed proxy 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.
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April 12, 2001 Peter J. Moerbeek,
Secretary
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 and Insider Participation.............. 5
Compensation of Directors - Fees and Benefit Plans for
Non-Employee Directors.................................................. 5
Non-Employee Director Stock Option Grants................................. 6
Non-Employee Director Stock Option Exercises and Year-End Option Values... 6
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......................... 10
Executive Officers' Change of Control Compensation Agreements............. 11
Option Grants to Named Executive Officers in 2000......................... 12
Option Exercises in 2000 and Year-End Option Values....................... 13
Supplemental Executive Retirement Plan.................................... 14
Report of the Compensation Committee of the Board of Directors............ 15
ITEM 1 - ELECTION OF DIRECTORS
Nominees for Directors Standing for Election in 2001...................... 17
Director Whose Term Expires in 2002....................................... 18
Directors Whose Terms Expire in 2003...................................... 18
Officers Who Are Not Directors............................................ 18
ITEM 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS.................. 19
Report of the Audit Committee of the Board of Directors................... 20
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS,
NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS................ 21
AUDIT COMMITTEE CHARTER..................................................... Appendix A
(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
You are receiving these proxy materials in connection with the solicitation by
the Board of Directors of Southwest Water Company, a Delaware corporation,
("Southwest Water," the "Company," "we" or "us"), of proxies to be voted at our
2001 Annual Meeting of Stockholders and at any adjournment or postponement of
that meeting. This Proxy Statement, form of proxy and voting instructions are
being mailed on or about April 12, 2001.
You are invited to attend our Annual Meeting of Stockholders (the "Annual
Meeting") on May 22, 2001, beginning at 10:00 a.m., Pacific time. The Annual
Meeting will be held at the Omni Los Angeles Hotel at California Plaza, 251
South Olive Street, Los Angeles, California.
Annual Meeting Admission
If your shares are held in the name of a bank, broker or other holder of
record and you plan to attend the Annual Meeting, please obtain proof of
ownership, such as a current brokerage account statement or certification from
your broker. Admission to the Annual Meeting depends on your physical proof of
ownership. If your shares are registered with our transfer agent, they will
provide your proof of ownership prior to the Annual Meeting.
Stockholders Entitled to Vote
Owners of Southwest Water Company common or preferred Series "A" stock at the
close of business on March 30, 2001, are entitled to receive this notice and to
vote their shares at the Annual Meeting. As of that date, there were 8,579,638
shares of common stock outstanding and 10,288 shares of preferred Series "A"
stock outstanding. Common shares are entitled to one vote per share, and
preferred Series "A" shares are entitled to five votes per share on matters
properly brought before the Annual Meeting. The combined total number of
eligible votes is 8,631,078.
Proxies
Your vote is important so we can have a valid meeting. The proxy card that
accompanies this proxy statement will give you voting instructions. Please
review the enclosed proxy materials and vote as soon as possible. Proxies may be
changed or revoked at any time before the Annual Meeting by:
(1) written notice to the Secretary of the Company,
(2) timely delivery of a later-dated proxy, or
(3) voting by ballot at the Annual Meeting.
You can save us the expense of a second mailing by voting promptly. Choose
one of the following voting methods to cast your vote, unless you are instructed
differently:
1. Vote by Telephone
If your shares are registered in your name with Mellon Investor Services
LLC, our transfer agent, you can vote your shares by telephone by calling the
toll-free telephone number on your proxy card. Telephone voting is available
24 hours a day. Have your proxy card with you when you place your call. If
you vote by telephone, you do not need to return your proxy card.
2. Vote by Mail
If you choose to vote by mail, simply mark your proxy, date and sign it,
and return it in the postage-paid envelope provided. If your shares are
registered with our transfer agent, and if you wish to discontinue future
duplicate mailings, check the box provided on the card.
1
Voting at the Annual Meeting
The method by which you vote a proxy will not limit your right to vote at the
Annual Meeting if you decide to attend in person. If your shares are held in
the name of a bank, broker or other agency and you plan to attend the Annual
Meeting, please bring proof of ownership, such as a current brokerage account
statement or certification from your broker.
All shares that have been properly voted - whether by telephone or mail - and
not revoked will be voted at the Annual Meeting in accordance with your
instructions. If you sign your proxy card but do not give voting instructions,
the shares represented by your proxy will be voted as recommended by the Board
of Directors.
Voting On Other Matters
If any other matters are properly presented for consideration at the Annual
Meeting, the persons named in the enclosed form of proxy will have the
discretion to vote on those matters for you. At the date of this proxy
statement, we do not know of any other matters to be raised at the Annual
Meeting.
List of Stockholders
A list of stockholders who have shares registered in their own name and are
entitled to vote will be available at the Annual Meeting.
Quorum
In order to carry on the business of the Annual Meeting, there must be a quorum.
This means at least a majority of the outstanding shares entitled to vote (with
each share of preferred stock counting as five votes for every share owned for
purposes of the quorum) must be represented at the Annual Meeting, either by
proxy or in person. Abstentions and broker "non-votes" will be counted 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.
ITEM 2. The favorable vote of a majority of the votes cast is required to
ratify the appointment of KPMG LLP as the Company's independent auditors for
2001. Abstentions and broker "non-votes" will not be counted as votes for or
against the proposal.
Cost of Proxy Distribution and Solicitation
We will pay the expenses of distributing the proxy materials and soliciting
proxies. Proxies may be solicited on our behalf by Directors, officers or
employees, in person or by telephone, electronic transmission or by facsimile
transmission. Mellon Investor Services will distribute the proxy materials to
our registered stockholders and, through a search process, obtain information to
distribute these materials to our stockholders whose shares are held by a bank,
broker or other agency.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors,
executive officers and beneficial owners of more than 10% of our common stock to
file reports of holdings and transactions in Southwest Water shares with the SEC
and the Nasdaq Stock Market. Based on our records and other information, we
believe that in 2000 all of our Directors and executive officers met all
applicable SEC Section 16(a) filing requirements. Our records indicate that we
do not have any beneficial owners of more than 10% of the Company's common
stock.
2
GOVERNANCE OF THE COMPANY
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 be stockholders. The Company's
current Directors are listed below.
Non-Employee Directors: H. Frederick Christie, Monroe Harris,
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Donovan D. Huennekens, Maureen A. Kindel
and Richard G. Newman.
Employee Directors: Anton C. Garnier, Chairman and CEO and
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Peter J. Moerbeek, Chief Financial Officer and
Secretary
3. Mr. Richard Kelton, who served as a Director for over 30 years, stepped down
in March 2001, and will not stand for reelection. At the April 11, 2001,
Board meeting, Mr. Moerbeek was appointed to fill his position.
4. The Chairman and CEO is responsible for establishing effective communication
with the Company's stockholders and Board members.
3
Board and Committee
Membership and Information
During 2000, the Board of Directors and Board Committees met a total of 18
times, either in person or by telephone conference call. In 2000, all of our
Directors attended 88 percent or more of the meetings of the Board and Board
committees on which they served. Committees of the Board are as follows:
The Audit Committee. The members of the Audit Committee during 2000 were Mr.
Huennekens (Chair), Mr. Kelton and Ms. Kindel. During 2000, this committee held
three meetings. In March 2001, with Mr. Kelton's resignation, Mr. Christie was
appointed to fill the vacancy on the Audit Committee. The primary duties and
responsibilities of the Audit Committee are to assist the Board with respect to
monitoring:
. The integrity of the Company's internal controls and financial reporting
process and the reliability of the Company's financial reports to the public.
. The independence and performance of the Company's external independent
auditors.
. The Company's compliance with legal and regulatory requirements.
. The Company's review of areas of significant financial risk to the Company.
The Investment/Acquisition Committee. The members of the Investment/
Acquisition ("I/A") Committee during 2000 were Mr. Newman (Chair), Mr. Christie,
Mr. Harris and Mr. Kelton. During 2000, this committee held one meeting. Among
its responsibilities, the I/A Committee:
. Provides direction in the areas of long-term planning, consideration of
diversification alternatives, new business developments, and acquisitions and
mergers;
. Sets overall investment policy with respect to the Company's short-term
funds; and
. Analyzes the effects of external economic conditions on the Company's
investment policy.
The Nominating Committee. The members of the Nominating Committee during 2000
were Ms. Kindel (Chair), Mr. Christie, Mr. Newman and Mr. Garnier. During 2000,
the Nominating Committee held one meeting; however, Nominating Committee matters
were discussed during regularly scheduled Board meetings. The functions of the
Nominating Committee include:
. Establishing criteria for the selection of nominees for election as
Directors;
. Reviewing the qualifications of and maintaining information concerning
potential nominees;
. Making recommendations to the Board with respect to nominees for election as
Directors at the Annual Meeting;
. Reviewing, on a long-term basis, the size and composition of the Board as
vacancies occur; and
. Making recommendations to the Board for age and service limitations.
The Nominating Committee will consider recommendations for Director nominees
proposed by stockholders. Any recommendations for nominees should be submitted
in writing to Ms. Kindel at the Company's principal executive offices: Southwest
Water Company, 225 North Barranca Avenue, Suite 200, West Covina, California
91791-1605.
4
The Compensation Committee. The Compensation Committee consists of
independent, non-employee Directors. The members of the Compensation Committee
during 2000 were Mr. Christie (Chair), Mr. Harris, Mr. Huennekens and Mr.
Newman. During 2000, the Compensation Committee held six meetings. This
committee is responsible for:
. Establishing annual and long-term performance goals for appointed executive
officers;
. Approving and reporting to the Board the annual compensation for all
executive officers, including salary, stock options, incentive compensation
and other benefits;
. Granting stock options for employees; and
. Reviewing the Company`s benefit plans.
Compensation Committee Interlocks and Insider Participation. There were no
Compensation Committee interlocks or insider participation during 2000.
Compensation of Directors - Fees and Benefit Plans for Non-Employee
Directors.
Annual Cash Retainer Fees. Non-employee Directors receive an annual cash
retainer fee of $12,000. In addition, the Chair of each Board committee
receives an additional $1,200 per year.
Meeting Fees. Non-employee Directors also receive a fee of $1,000 for
attending each Board meeting, committee meeting and long-range planning meeting.
When a committee meeting is held on the same day as a Board meeting, the
committee attendance fee is $500.
Directors who are officers of the Company are not paid any fees or additional
remuneration for services as members of the Board or any Board committee.
Director Stock Option Plan. The Director Stock Option Plan provides that non-
employee Directors are automatically granted an initial award of 5,000 shares of
the Company's common stock when they become Directors, and each active Director
is also automatically granted an annual award of 5,000 shares of the Company's
common stock at each subsequent Annual Meeting.
As of March 30, 2001, there were 202,586 shares of the Company's common stock
available for issuance under the Director Option Plan.
Service Policy for Directors. In August 1998, the Board established a Service
Policy for Directors. This policy states that a Director will not serve on the
Southwest Water Company Board past his or her 72nd birthday. Mr. Harris, over
the age of 72 at the time the policy was implemented, will serve until January
2002.
5
NON-EMPLOYEE DIRECTOR STOCK OPTIONS GRANTED IN 2000
Individual Grants
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Options Exercise Base Expiration Date
Eligible Directors (1) (#)(2)(3) Price ($/sh.) (3)
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H. Frederick Christie 6,250 $10.00 2007
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Monroe Harris 6,250 $10.00 2007
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Donovan D. Huennekens 6,250 $10.00 2007
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Maureen A. Kindel 6,250 $10.00 2007
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Richard G. Newman 6,250 $10.00 2007
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(1) Mr. Kelton is no longer a Director and, therefore, his transactions are not
included.
(2) Options vest 50% per year for two years.
(3) All options and option exercise prices have been adjusted to reflect a 5-
for-4 stock split, in the form of a stock dividend, on January 1, 2001.
NON-EMPLOYEE DIRECTOR
OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
Shares Number of Value of Unexercised
Acquired Unexercised Options In-the-Money Options at December
On Value At December 31, 2000 31, 2000
Non-Employee Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Director Name (1) (#)(2) ($) (#) ($)(3)
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H. Frederick Christie 0 0 9,977 / 8,376 61,684 / 22,864
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Monroe Harris 0 0 8,773 / 8,376 52,816 / 22,864
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Donovan D. Huennekens 3,873 26,342 13,110 / 7,726 83,604 / 17,631
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Maureen A. Kindel 0 0 5,505 / 7,726 27,541 / 5,756
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Richard G. Newman 0 0 17,564 / 8,376 121,516 / 22,864
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(1) Mr. Kelton is no longer a Director and, therefore, his transactions are not
included.
(2) Shares acquired on exercise represent options exercised in 2000 and do not
reflect restatement for the 5-for-4 stock split which was effective January
1, 2001.
(3) Difference between fair market value at fiscal year-end of $11.90 and
option exercise price.
At December 31, 2000, the Non-Employee Director Group had a total of 115,602
stock options outstanding with a weighted average exercise price of $7.18 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
By Directors and Executive Officers
The following table sets forth, as of March 30, 2001, 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 12,402 15,228 27,630 *
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Monroe Harris, Director 16,841 (b) 14,024 30,865 *
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Donovan D. Huennekens, Director 44,018 (c) 13,838 57,856 *
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Maureen A. Kindel, Director 4,218 10,106 14,324 *
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Richard G. Newman, Director 25,214 (d) 21,045 46,259 *
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Anton C. Garnier, Director, Chairman, President
and Chief Executive Officer of the Company 210,547 (e) 163,654 374,201 4%
- ------------------------------------------------------------------------------------------------------------------
Peter J. Moerbeek, Director, Chief Financial
Officer and Secretary of the Company;
President, ECO Resources, Inc. 18,489 (f) 113,504 131,993 1.5%
- ------------------------------------------------------------------------------------------------------------------
Maurice W. Gallarda, Vice President of New
Business Development of the Company; 1,166 6,186 7,352 *
Chairman, Master Tek International, Inc.
- ------------------------------------------------------------------------------------------------------------------
Thomas C. Tekulve, Vice President
Finance of the Company 375 5,625 6,000 *
- ------------------------------------------------------------------------------------------------------------------
Michael O. Quinn, President,
Suburban Water Systems 16,743 (g) 25,498 42,241 *
- ------------------------------------------------------------------------------------------------------------------
All Directors and Executive Officers
As a Group (10 persons) 350,013 388,708 738,721 8.6%
- ------------------------------------------------------------------------------------------------------------------
* Indicates less than one percent of class of stock.
(a) Includes options that become exercisable on or before May 31, 2001.
(b) Mr. & Mrs. Harris hold all the 16,841 shares of common stock as co-trustees
of a family trust for their benefit. Mr. Harris has shared voting and
investment power with respect to such shares. Not included in the table
are 750 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 the 44,018 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) Mr. and Mrs. Newman hold all 25,214 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.
(e) Included in the table are 141,284 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 15,000 common shares
representing Mr. Garnier's proportionate interest in a corporation of which
Mr. Garnier is president, a director and a stockholder. Mr. Garnier has
sole voting and investment power with respect to these shares.
(f) Mr. and Mrs. Moerbeek hold all the 18,489 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.
(g) Excludes 3,640 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:
Class of Name and Address Number of Shares Percentage Percentage of
Stock Of Beneficial Owner Beneficially Owned Of Class Voting Power
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
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, 1995, 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]
8
Related Transactions
Mr. Garnier, our President, CEO and Chairman, is a beneficial owner of
approximately 10 percent of the outstanding stock of California Michigan Land
and Water Company (California Michigan). He is also a director of California
Michigan. East Pasadena Water Company (East Pasadena), a water purveyor, is a
wholly owned subsidiary of California Michigan. In 2000, East Pasadena
participated in employee insurance coverage with the Company and its wholly-
owned subsidiary, Suburban Water Systems ("Suburban"), and reimbursed Suburban
an aggregate of $28,498, representing its proportionate share of the cost of
employee insurance coverage and other services.
The Company's Noncontributory Defined Benefit 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 were frozen, and all benefit
accruals ceased. The Company anticipates that the Plan assets will be
distributed, as permitted by the Employee Retirement Income Security Act
(ERISA), in 2001.
In 2000, Suburban made a lease payment of $55,365 for the use of water rights
owned by a family trust of Mr. Garnier. The payments made to the family trust
were at the same rate and terms as payments made to non-related parties.
The foregoing transactions were reviewed and approved by the non-employee
Directors of the Company. Mr. Garnier did not participate in the Board's
consideration of these transactions.
9
EXECUTIVE COMPENSATION
Summary Compensation Table
Long-Term
Annual Compensation Compensation
- --------------------------------------------------------------------------------------------------------------
Name and Salary Bonus Options
Principal Position Year ($) (1) (2) ($) (#) (3)
- --------------------------------------------------------------------------------------------------------------
Anton C. Garnier 2000 255,000 175,000 56,250
Chairman, Chief Executive 1999 240,000 160,000 56,250
Officer and President 1998 230,000 120,000 58,593
- -------------------------------------------------------------------------------------------------------------
Peter J. Moerbeek 2000 200,000 116,620 42,500
Chief Financial Officer and 1999 190,000 123,709 84,375
Secretary of the Company; 1998 180,000 78,000 46,875
President, ECO Resources, Inc.
- -------------------------------------------------------------------------------------------------------------
Maurice W. Gallarda 2000 160,000 128,680 9,375
Vice President, Business 1999 155,000 38,750 15,000
Development; Chairman, 1998 - - -
Master Tek International, Inc.
- -------------------------------------------------------------------------------------------------------------
Thomas C. Tekulve 2000 146,000 40,755 9,375
Vice President, Finance 1999 140,000 48,000 9,375
1998 - - -
- -------------------------------------------------------------------------------------------------------------
Michael O. Quinn 2000 163,000 42,030 3,750
President, 1999 157,040 32,562 6,562
Suburban Water Systems 1998 151,000 42,575 5,858
- -------------------------------------------------------------------------------------------------------------
(1) The salary shown in 1999 for Mr. Gallarda, who joined the Company in August
1999, is annualized based upon a full year of employment. Mr. Gallarda's
actual salary for 1999 was $64,580.
(2) 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.
(3) Stock Options have been adjusted to reflect all stock dividends/splits and
were granted at fair market value on the date of grant.
10
Executive Officers' Change of Control Compensation Agreements
In 1998, Messrs. Garnier and Moerbeek entered into change of control
compensation agreements with the Company. The Company has agreed to provide
benefits and payments to Messrs. Garnier and Moerbeek based on 2.99 times their
respective average five-year compensation if certain conditions are met.
In 1995, Mr. Quinn entered into a change of control compensation agreement
with the Company. In 1999, Messrs. Gallarda and Tekulve entered into similar
agreements. Under these agreements, the Company has agreed to provide severance
benefits and payments to Messrs. Gallarda, Quinn and Tekulve based on 1.5 times
their respective average five-year compensation if certain conditions are met.
For purposes of these agreements, a "change in control" is generally defined
as a change in the person or persons owning, directly or indirectly, sufficient
voting stock to elect the Board of Directors for the entity that employs an
executive. These compensation agreements are in addition to the plans described
under the heading "Supplemental Executive Retirement Plan."
The agreements for Messrs. Garnier, Moerbeek, Gallarda, Quinn and Tekulve will
be triggered if one of the following conditions is met: (1) termination of the
executive's employment by his employer prior to the second anniversary of a
change in control, other than termination by retirement or for death, disability
or cause; or (2) termination of executive's employment by the executive within
two years after a change in control for "good reason" (including assignment of
executive to duties inconsistent with executive's position, duties,
responsibilities and status prior to the change in control, or alternatively, a
reduction in salary, a significant reduction in benefits, an elimination of
stock plans or a relocation of employment greater than 50 miles). Under these
agreements, cash severance payments are based upon base salary, auto benefits,
bonuses and certain life insurance premium amounts paid by the employer. Cash
severance payments are payable within five days after termination of employment.
Cash severance amounts as of December 31, 2000, assuming termination met the
requirements for a severance payment, are as follows: Mr. Garnier - $1,131,628;
Mr. Moerbeek - $838,686; Mr. Gallarda - $303,908, Mr. Quinn - $287,537; and Mr.
Tekulve $258,500. In addition to the cash payment, each executive is entitled to
certain health insurance benefits with a value of approximately $25,000, and
outplacement services with a maximum benefit of $15,000 each for Messrs. Garnier
and Moerbeek and $4,000 each for Messrs. Gallarda, Quinn and Tekulve.
11
Option Grants To Named Executive Officers in 2000
The following table provides a summary of information on the potential
realizable value of stock options granted in 2000. Exercise prices and numbers
of options have been adjusted to reflect a 5-for-4 stock split, in the form of a
stock dividend, on January 1, 2001.
Individual Grants
- ---------------------------------------------------------------------------------------------
% of Total Exercise
Options Options Granted Or Base
Executive Granted to Employees Price Expiration
(#) (1) In Fiscal Year ($/sh.) (2) Date
- ---------------------------------------------------------------------------------------------
Anton C. Garnier 56,250 23% 11.65 2007
- ---------------------------------------------------------------------------------------------
Peter J. Moerbeek 42,500 17% 11.65 2007
- ---------------------------------------------------------------------------------------------
Maurice W. Gallarda 9,375 4% 11.65 2007
- ---------------------------------------------------------------------------------------------
Thomas C. Tekulve 9,375 4% 11.65 2007
- ---------------------------------------------------------------------------------------------
Michael O. Quinn 3,750 2% 11.65 2007
- ---------------------------------------------------------------------------------------------
All Stockholders (3) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
All Optionees 249,625 100% 10.89 2007
- ---------------------------------------------------------------------------------------------
All Optionees' Gain
As % of Total
Stockholders' Gain N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
For 10-Year Option Term
- ------------------------------------------------------------------------
At 0% At 5% At 10%
Annual Annual Annual
Growth Growth Growth
Executive Rate ($) Rate ($) Rate ($)
- ------------------------------------------------------------------------
Anton C. Garnier 0 412,123 1,044,399
- ------------------------------------------------------------------------
Peter J. Moerbeek 0 311,381 789,102
- ------------------------------------------------------------------------
Maurice W. Gallarda 0 68,687 174,067
- ------------------------------------------------------------------------
Thomas C. Tekulve 0 68,687 174,067
- ------------------------------------------------------------------------
Michael O. Quinn 0 27,475 69,627
- ------------------------------------------------------------------------
All Stockholders (3) N/A 63,865,152 161,846,833
- ------------------------------------------------------------------------
All Optionees 0 1,709,477 4,332,151
- ------------------------------------------------------------------------
All Optionees' Gain
As % of Total
Stockholders' Gain N/A 2.7% 2.7%
- ------------------------------------------------------------------------
(1) Options vest 20 percent per year until fully vested. The options were
granted for a term of seven years and one day, 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. All options have been adjusted for a
5-for-4 stock split, in the form of a dividend, on January 1, 2001.
(2) All exercise prices represent fair market value on the date of grant, after
adjusting to reflect a 5-for-4 stock split, in the form of a stock
dividend, on January 1, 2001.
(3) Based on total number of shares outstanding at December 31, 2000.
12
Option Exercises in 2000 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
Acquired Number of Unexercised Options
On Value At December 31, 2000
Exercise Realized Exercisable/Unexercisable
Executive (#)(1) ($) (#)(2)
- -------------------------------------------------------------------------------------------------
Anton C. Garnier 40,185 277,156 160,737 / 154,126
- -------------------------------------------------------------------------------------------------
Peter J. Moerbeek 2,500 4,011 104,832 / 140,110
- -------------------------------------------------------------------------------------------------
Maurice W. Gallarda 0 0 2,999 / 21,375
- -------------------------------------------------------------------------------------------------
Thomas C. Tekulve 0 0 1,875 / 16,875
- -------------------------------------------------------------------------------------------------
Michael O. Quinn 5,283 50,755 19,617 / 16,394
- -------------------------------------------------------------------------------------------------
Value of Unexercised
In-The-Money Options at
December 31, 2000
Exercisable/Unexercisable
Executive ($)(2)
- -----------------------------------------------------------
Anton C. Garnier 1,134,053 / 475,370
- -----------------------------------------------------------
Peter J. Moerbeek 707,943 / 433,864
- -----------------------------------------------------------
Maurice W. Gallarda 11,946 / 50,141
- -----------------------------------------------------------
Thomas C. Tekulve 7,188 / 31,092
- -----------------------------------------------------------
Michael O. Quinn 144,387 / 66,340
- -----------------------------------------------------------
(1) Shares acquired on exercise represent options exercised in 2000 and do not
reflect restatement for the 5-for-4 stock split which was effective January
1, 2001.
(2) Difference between fair market value at December 31, 2000 of $11.90 and
option exercise price.
13
Supplemental Executive Retirement Plan
The Southwest Water Company Supplemental Executive Retirement Plan (the
"SERP") was adopted by Southwest Water Company effective May 8, 2000. An
employee must be selected by the Compensation Committee of the Board of
Directors to participate in the SERP. Two executive officers of the Company and
its participating subsidiaries are participants in the SERP, Messrs. Garnier and
Moerbeek. Under the SERP, in most cases, a vested participant with 5 to 10
years of service will be eligible for a yearly benefit for his or her lifetime
beginning at age 65 equal to: (1) the participant's average annual compensation
multiplied by (2) the applicable compensation percentage less (3) the Social
Security benefit for the most recent five years of employment and less (4)
benefits received under the Company-sponsored Noncontributory Defined Benefit
Pension Plan (the "Pension Plan"). The Pension Plan was terminated December 30,
1999.
The following table shows the estimated annual benefits that would be payable
to participants in the SERP at age 65.
5-Year Average Estimated Annual Benefit
Annual Compensation for Years of Service Indicated*
$ $
---------------------------------
15 Years 25 Years 35 Years
- ------------------------------------------------------------------------------------
160,000 12,100 0 0
200,000 24,100 18,200 27,400
240,000 36,100 38,200 55,400
280,000 48,100 58,200 83,400
- ------------------------------------------------------------------------------------
*The calculations above assumed Mr. Garnier had 30 years of service in
the Pension Plan and Mr. Moerbeek had five years of service in the
Pension Plan.
The compensation used in determining final average compensation under the
SERP is the participant's base salary and excludes bonuses and other forms of
compensation.
On December 31, 2000, the base compensation for the participating officers
was: Anton C. Garnier - $255,000 and Peter J. Moerbeek - $200,000. Their years
of credited service were 31 and 6, respectively. Maurice A. Gallarda, Thomas C.
Tekulve and Michael O. Quinn were not eligible for SERP benefits on December 31,
2000. The SERP is currently funded through corporate-owned life insurance.
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 be directly linked to continuous improvements in the Company`s
financial performance and stockholder value. To implement this 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 retained outside consultants
and executive compensation specialists in evaluating and modifying the current
executive compensation plan.
Executive Compensation
In determining the base salaries of the executives, the Committee considers
individual performance, the performance of the operations directed by the
executive, 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
2000, 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 long-term
Company performance through greater personal stock ownership by the executive
officers and thus strengthen both their personal commitments to the Company and
a longer-term perspective
15
in their managerial responsibilities. This component of an executive officer's
compensation links the officer's interests with the Company's long-term goals
and with the interests 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.
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 2000 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 short-term and long-term 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 areas such 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.
In determining Mr. Garnier's performance for 2000, 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 $290,000, effective
January 1, 2001, and awarded him an incentive compensation amount of $175,000
for 2000. In addition, on February 8, 2001, the Committee awarded Mr. Garnier a
stock option grant of 50,000 shares of the Company's Common stock in recognition
of the Company's five-year performance.
Compensation Committee
H. Frederick Christie (Chair)
Monroe Harris
Donovan D. Huennekens
Richard G. Newman
February 8, 2001
16
ITEM 1 - ELECTION OF DIRECTORS
The Board of Directors
The Board of Directors is divided into three classes, currently consisting of
two classes of three Directors and one class of one Director whose terms expire
at successive annual meetings. The three Class III Directors are nominated for
election at our 2001 Annual Meeting for a three-year term expiring at our Annual
Meeting in the year 2004.
The Class III Director nominees are: H. Frederick Christie, Anton C. Garnier
and Peter J. Moerbeek. Messrs. Christie and Garnier were elected to their
current terms of office at the 1999 Annual Meeting of Stockholders.
Mr. Moerbeek was elected by the Board of Directors on April 11, 2001, to fill
the vacancy left by the resignation of Mr. Richard Kelton. We expect all
Directors will be able to serve if elected. If any nominee Director is not able
to serve, proxies may be voted for the election of a substitute nominee
recommended by the Board.
Information About the Nominees for
Director Standing for Election in 2001
(Class III)
H. Frederick Christie, 67, is an independent consultant. He retired in 1990
as president and chief executive officer of the Mission Group, a subsidiary of
SCEcorp, which oversaw SCEcorp's non-utility businesses. From 1984 to 1987, he
served as president of Southern California Edison Company, a subsidiary of
SCEcorp. Mr. Christie is a director of Ultramar Diamond Shamrock, IHOP Corp. and
Ducommun Incorporated and also serves on the boards of 19 mutual funds managed
by the Capital Research and Management Company. Mr. Christie was first elected
a Director in 1996.
Anton C. Garnier, 60, has been president and chief executive officer of the
Company since 1968, when he was first elected a Director. Mr. Garnier was
elected Chairman of the Board in 1996.
Peter J. Moerbeek, CPA, 53, is the Company's chief financial officer and
secretary, and is also president of ECO Resources, Inc., a subsidiary of the
Company. Mr. Moerbeek joined the Company in 1995 as vice president, finance,
chief financial officer and secretary. Mr. Moerbeek was first elected a
Director on April 11, 2001.
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. The persons named in the enclosed proxy intend to vote the proxy
for the election of the three nominees, unless you indicate on the proxy card
that your vote should be withheld from one or more of the named nominees. If you
are voting by telephone, you will be instructed how to withhold your vote from a
nominee or nominees. If elected, the nominees will continue in office until
their successors have been elected, or until their resignation or retirement.
There are no family relationships between any Director and any executive
officer of the Company. None of the entities by which the Directors are employed
is related to the Company. No Director is a director of any other corporation
subject to Sections 12 or 15(d) of the Securities Exchange Act of 1934 or
registered as an investment company under the Investment Company Act of 1940. No
Director or executive officer of the Company has been, during the last five
years, involved in a legal proceeding of the type that would require disclosure
herein by the Securities Exchange Act of 1934. There are no arrangements or
understandings between any Director and any other persons pursuant to which any
Director was selected as a Director or nominee of the Company or of any other
company.
Your Board of Directors recommends a vote FOR the election of these nominees.
17
Director Whose Term Expires in 2002
(Class I)
Maureen A. Kindel, 63, is president of Rose & Kindel, a public affairs firm.
Ms. Kindel is past president of the City of Los Angeles Board of Public Works,
is a founding and current member of the Pacific Council on International Policy,
and is a board member of the International Women's Forum, the Los Angeles Urban
League, the Board of Governors of Town Hall of Los Angeles and the Los Angeles
Amateur Athletic Foundation. Ms. Kindel is a trustee for the International
Foundation of Electoral Systems. Ms. Kindel was first elected a Director in
1997.
Directors Whose Terms Expire in 2003
(Class II)
Monroe Harris, 79, is a consultant and retired executive vice president and
director of Johns-Manville Corporation. Mr. Harris was first elected a Director
in 1963. He resigned from the Board in 1965 when he moved to New York. Mr.
Harris was reelected a Director in 1987. Mr. Harris will retire from the Board
in January 2002.
Donovan D. Huennekens, 64, is a partner of HQT Homes, a real estate
development company and a director of Bixby Ranch Company. Mr. Huennekens was
first elected a Director in 1969.
Richard G. Newman, 66, is chairman, chief executive officer, and a director of
AECOM Technology Corporation, the parent of several subsidiaries that provide
architectural, engineering, construction, operations and maintenance services on
an international basis. He also serves on the boards of 13 mutual funds
managed by the Capital Research and Management Company. Mr. Newman was first
elected a Director in 1991.
Officers Who Are Not Directors
Maurice W. Gallarda, P.E., 47, was appointed vice president of new business
development in August 1999. In January 2000, he was named president of Inland
Pacific Water Company and, in April 2000, he was named chief executive officer
and chairman of the board of Master Tek International, Inc., both subsidiaries
of the Company. He has more than 20 years of experience in corporate
development and marketing and leads the Company's efforts to expand into new
markets and services.
Thomas C. Tekulve, CPA, 49, joined us in February 1999 as vice president of
finance. He oversees finance, accounting and information systems and provides
guidance in strategic planning for the Company and its subsidiaries. Mr.
Tekulve has 25 years of experience in finance.
Shelley A. Farnham, 45, joined the Company in July 1998 as vice president
of human resources. She has more than 20 years of experience in the human
resources field. Ms. Farnham oversees organizational planning and development,
employee relations, training, compensation and benefits administration for the
Company and its subsidiaries.
Michael O. Quinn, 54, is president of Suburban Water Systems, (Suburban) a
subsidiary of the Company. Mr. Quinn has been with the Company for over 28
years, serving as treasurer of Suburban prior to his move to ECO as president
between 1985 and 1992. He rejoined Suburban and was promoted to president of
Suburban in 1996.
Robert L. Swartwout, P.E., 59, joined the Company eight years ago as president
of New Mexico Utilities, Inc., a subsidiary of the Company. Mr. Swartwout is a
registered professional engineer in New Mexico and New York and has over 30
years of experience with public utilities and state/federal regulatory agencies.
18
ITEM 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP as the Company's independent
auditors for the year ending December 31, 2001. KPMG LLP has audited the
Company's financial statements since 1978.
Representatives of KPMG LLP are expected to be present at the Annual Meeting
and will have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
The fees billed for professional services for the audit of the Company's
annual financial statements for the year-ended December 31, 2000, and for the
reviews of the financial statements included in the Company's Quarterly Reports
on Form 10-Q for the year 2000 were $150,300. Included in that amount were fees
related to tax services.
KPMG LLP did not render professional services relating to financial
information systems design and implementation for the year ended December 31,
2000.
Stockholder ratification of the selection of KPMG LLP as the Company's
independent auditors is not required by the Company's Bylaws or otherwise.
However, the Board is submitting the selection of KPMG LLP to the stockholders
for ratification as a matter of corporate practice.
If the stockholders fail to ratify the selection, the Board will reconsider
whether or not to retain that firm. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interests of the Company and its stockholders.
The favorable vote of a majority of the votes cast is required to ratify the
appointment of KPMG LLP. Thus, abstentions and broker non-votes on this
proposal will not be counted as votes for or against the proposal.
Your Board of Directors unanimously recommends a vote FOR Item 2.
19
Report of the Audit Committee of the Board of Directors
The Audit Committee of the Board of Directors is composed of three
independent directors and operates under a written charter adopted by the Board
of Directors. Each member of the Audit Committee meets the independence
requirements set by the National Association of Securities Dealers. A copy of
the Company's Audit Committee Charter is included as Appendix A to this Proxy
Statement.
Management is responsible for Southwest Water's internal controls,
financial reporting process and compliance with laws and regulations and ethical
business standards. The independent auditors are responsible for performing an
audit of the Company's consolidated financial statements in accordance with
generally accepted auditing standards and to issue a report thereon. The Audit
Committee's responsibility is to monitor and oversee this process.
In the context stated above, the Audit Committee has met and held
discussions with management and with the independent auditors. Management has
represented to the Audit Committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the consolidated
financial statements with management and the independent auditors. The Audit
Committee also discussed with the independent auditors matters required to be
discussed by Statement on Auditing Standards No. 61 "Communication with Audit
Committees."
Southwest Water's independent auditors also provided to the Audit Committee
the written disclosures and the letter required by Independence Standards Board
Standard No. 1 "Independence Discussions with Audit Committees," and the Audit
Committee discussed with the independent auditors that firm's independence.
Based upon the Audit Committee's review and discussions referred to above,
the Audit Committee has recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission.
Audit Committee
Donovan D. Huennekens (Chair)
H. Frederick Christie
Maureen A. Kindel
March 20, 2001
20
REQUIREMENTS, INCLUDING DEADLINES,
FOR SUBMISSION OF PROXY PROPOSALS,
NOMINATION OF DIRECTORS
AND OTHER BUSINESS OF STOCKHOLDERS
The Company expects to hold the 2002 Annual Meeting of Stockholders on May
23, 2002.
Stockholder proposals (including nomination of a person for election to the
Board of Directors) to be included in the proxy statement for the 2002 meeting
must be received by the Company's Secretary not later than December 12, 2001.
In order for proposals to be included, you must comply with the rules of the
Securities and Exchange Commission governing the submission of stockholder
proposals.
Also, the Company's Bylaws provide that for a stockholder proposal (including
nomination of a person for election to the Board of Directors) to be acted upon
at an annual meeting, the stockholder must provide written notice to the Company
no later than 90 days prior to the scheduled annual meeting. Thus, such notice
must be submitted no later than February 22, 2002. This notice must contain
information required by the Bylaws. A copy of the Bylaws may be obtained from
the Company's Secretary.
All proposals should be submitted in writing to the Company's Secretary at 225
North Barranca Avenue, Suite 200, West Covina, California 91791-1605.
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 12, 2001 Secretary
21
APPENDIX A
Southwest Water Company
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee (the "Committee") is appointed by the Board of Directors
to assist the Board in fulfilling its oversight responsibilities. The
Committee's primary duties and responsibilities are to assist the Board with
respect to monitoring:
. The integrity of the Company's internal controls and financial reporting
process and the reliability of the Company's financial reports to the
public.
. The independence and performance of the Company's external independent
auditors.
. The Company's compliance with legal and regulatory requirements.
. The Company's review of areas of significant financial risk to the
Company.
The Committee shall have the authority, in its discretion, to conduct
investigations and retain, at the Company's expense, special legal,
accounting or other consultants or experts to advise the Committee.
II. Audit Committee Membership and Meetings
The Committee shall be composed of no fewer than three members of the Board.
All members of the Committee shall be non-executive directors and shall meet
the independence requirements of Nasdaq as interpreted by the Board in its
business judgment.
Each member of the Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial
statements.
At least one member of the Committee shall have accounting or related
financial management expertise as the Board interprets such qualification in
its business judgment.
The Committee shall meet at least four times annually, and at any additional
times as either the Board or the Committee deems necessary.
The Committee shall meet privately in executive session at least annually
with the independent auditors to discuss any matters that the Committee or
the independent auditors believe should be discussed.
The Committee may ask members of management or others to attend meetings and
provide pertinent information as necessary.
1
III. Audit Committee Responsibilities and Duties
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting
principles. Such duties are the responsibility of management and the
independent auditors.
Nor is it the duty of the Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditors or
to assure compliance with laws and regulations and the Company's Code of
Conduct.
Review Procedures
-----------------
1. The Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
2. The Committee shall review and discuss with management the audited
financial statements of the Company and the results of the year-end
audit by the Company's independent auditors.
3. The Committee shall discuss with management and the independent
auditors:
a. The adequacy of the Company's internal accounting controls and
the financial reporting process.
b. The status of internal control recommendations made by the
independent auditors.
c. Significant financial risk exposures and the steps management
has taken to monitor, control and report such exposures.
4. Prior to releasing quarterly earnings, the Committee shall discuss
with the independent auditors the results of their limited review.
5. The Committee shall discuss with management and the independent
auditors the matters that the independent auditors determine are
required to be discussed by Statement on Auditing Standards No. 71
regarding the interim quarterly financial statements prior to filing
any Form 10-Q with the Securities and Exchange Commission.
Independent Auditors
--------------------
6. The independent auditors are ultimately accountable to the Committee
and the Board of Directors. The Committee shall review the
independence and performance of the independent auditors and annually
recommend to the Board of Directors the appointment of the independent
auditors or approve any discharge of independent auditors when
circumstances warrant.
7. The Committee shall recommend to the Board of Directors for their
approval the fees and other significant compensation to be paid to the
independent auditors.
2
8. If the Company's independent auditors identify a significant problem which
is not being adequately addressed by management, it shall be communicated to
the Committee.
9. On an annual basis, the Committee shall review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the independence of the independent auditors, and
ensure that the independent auditors submit annually a formal written
statement including the written disclosures required by Independence
Standards Board Standard No. 1, delineating all relationships between the
independent auditors and the Company.
10. The Committee shall review and approve requests for significant consulting
engagements to be performed by the independent auditors' firm and be advised
of any significant work undertaken by the independent auditors at the
request of management that is beyond the scope of the audit engagement
letter.
11. Prior to the inception of the annual audit, the Committee shall discuss with
the independent auditors their audit plan and review the engagement letter.
12. Prior to releasing year-end earnings, the Committee shall discuss the
results of the audit with the independent auditors.
13. The Committee shall discuss with the independent auditors the matters the
independent auditors determine are required to be discussed by Statement on
Auditing Standards No. 61.
14. Based on the review and discussions with management and the independent
auditors referred to above, the Committee will advise the Board of Directors
whether the Committee recommends that the audited financial statements be
included in the Company's annual report on Form 10-K (or incorporated from
the Annual Report to Stockholders).
Legal Compliance
- ----------------
15. On at least an annual basis, the Committee shall discuss with the
independent auditors the results of their discussion with the Company's
legal counsel concerning legal matters that could have a significant impact
on the organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from regulators or
governmental agencies.
Other Audit Committee Responsibilities
- --------------------------------------
16. The Committee shall annually prepare a report to stockholders to be included
in the proxy as required by the Securities and Exchange Commission.
17. The Committee shall maintain minutes of meetings and periodically report to
the Board of Directors significant results of the foregoing activities.
3
DIRECTIONS TO
SOUTHWEST WATER COMPANY
ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 2001 AT 10:00 A.M. (Pacific Time)
[MAP APPEARS HERE]
Suggested Route:
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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:
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To receive complimentary valet parking, please tell the attendant that you are
attending Southwest Water Company's Annual Meeting.
Omni Los Angeles Hotel
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Located on Bunker Hill At California Plaza
251 South Olive Street
Los Angeles, CA
(213) 617-3300
PROXY
SOUTHWEST WATER COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2001
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 stockholder(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
22, 2001, 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 PROPOSAL 2.
- 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.
SOUTHWEST WATER COMPANY ANNUAL MEETING OF STOCKHOLDERS Please mark [X]
your votes as
indicated in
this example
The Board of Directors unanimously recommends a vote FOR the three Director
nominees, and FOR the ratification of the appointment of the independent
auditors for the 2001 fiscal year.
1. Election as director of the nominees listed in the accompanying Proxy
Statement.
FOR the nominees WITHHOLD AUTHORITY to vote 01 H. FREDERICK CHRISTIE
listed at right for the nominees listed at 02 ANTON C. GARNIER
right 03 PETER J. MOERBEEK
[_] [_]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
________________________________________________________________________________
2. Ratification of the appointment of KPMG LLP as the Company's independent
auditors for 2001:
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Transact other business as may properly come before the annual meeting and
any adjournment or postponement.
FOR SHAREHOLDERS WITH MULTIPLE ACCOUNTS ONLY: [_]
Mark this box to discontinue
receipt of an Annual Report for this account.
I PLAN TO ATTEND THE ANNUAL MEETING. [_]
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
QUICK *** EASY *** IMMEDIATE
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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
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When asked, please confirm by pressing 1
OPTION 2: If you choose to vote on each proposal separately, Press 0. You will
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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: To vote FOR, Press 1; AGAINST, Press 9;
ABSTAIN, Press 0
When asked, please confirm by Pressing 1
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OR
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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.
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THANK YOU FOR VOTING