SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
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AMERICAN STATES WATER COMPANY
(Name of Registrant as Specified in its Charter)
----------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AMERICAN STATES
WATER COMPANY
[LOGO]
American States
WATER COMPANY
NOTICE OF THE 2003 ANNUAL MEETING
OF SHAREHOLDERS
AND THE
2003 PROXY STATEMENT
TABLE OF CONTENTS
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Notice of the Annual Meeting of Shareholders
Information about Attending
2003 Proxy Statement............................................................
General Information.............................................................
o Introduction...............................................................
Solicitation of Proxy and Revocability; Voting Securities.......................
o Date, Time and Place of Annual Meeting.....................................
o Record Date and Voting Rights..............................................
o Voting by Proxy............................................................
o Voting by Mail.............................................................
o Voting by Telephone........................................................
o Voting by Internet.........................................................
o Adjournments...............................................................
o Solicitation of Proxies....................................................
Proposal One - Election of Class I Directors....................................
o Nominees for Class I Directors with Terms Expiring in 2005.................
o Class II Directors with Terms Expiring in 2004.............................
Certain Relationships and Related Transactions..................................
Board Committees and Meetings...................................................
o Audit and Finance Committee................................................
o Nominating and Governance Committee........................................
o Compensation Committee.....................................................
o Remuneration for Directors.................................................
Section 16(a) Beneficial Ownership Reporting Compliance.........................
Executive Officers - Experience, Security Ownership, Compensation and Options...
o Executive Experience.......................................................
o Security Ownership of Directors and Executive Officers ....................
o Executive Compensation.....................................................
o Annual Incentive Plan......................................................
o Key Executive Long-Term Incentive Plan.....................................
o Equity Compensation Plan Information.......................................
o 2000 Stock Incentive Plan..................................................
o Option Grants in Last Year.................................................
o Option Exercises and Holdings..............................................
o Employment Contracts, Termination and Change-in-Control Arrangements.......
Pension Plan....................................................................
Deferred Compensation Plan for Directors........................................
Compensation Committee Interlocks and Insider Participation.....................
Board Committee Reports.........................................................
Report of the Audit and Finance Committee.......................................
o General....................................................................
o Committee Charter..........................................................
o Communication with Audit Committee.........................................
o Independence Discussions with Audit Committee..............................
o Recommendation for Inclusion in Form 10-K..................................
Report of the Compensation Committee............................................
o General Philosophy.........................................................
o Executive Compensation Program.............................................
o CEO Compensation...........................................................
o Section 162(m) Limitation..................................................
Proposal Two - Amendments to the 2000 Stock Incentive Plan......................
o Summary Description of the 2000 Plan.......................................
o Federal Income Tax Treatment of Awards under the 2000 Plan.................
o Specific Benefits..........................................................
Proposal Three - Increase in Authorized New Preferred Shares....................
Proposals Four, Five and Six - Elimination of Certain Restrictions on
Common Shares...................................................................
o Proposal 4 Increase in Voting Rights of Common Shares......................
o Proposal 5 Elimination of Certain Restrictions on Payment of Dividends.....
o Proposal 6 Elimination of All References to Stated Value...................
Proposal Seven - Ratify the Appointment of PricewaterhouseCoopers LLC as the
Independent Auditors............................................................
Stock Performance Graph.........................................................
Security Ownership of Certain Beneficial Owners.................................
Information on Independent Public Accountants...................................
o Audit Fees.................................................................
o Financial Information Systems and Implementation Fees......................
o All Other Fees.............................................................
Other Matters...................................................................
Proposals for Next Annual Meeting...............................................
o Requirements for Shareholder Proposals to be Brought Before an Annual
Meeting....................................................................
o Requirements for Shareholder Proposals to be Considered for Inclusion in
the Company's Proxy Materials..............................................
Additional Information..........................................................
Attachment I - 2000 Stock Incentive Plan, as proposed to be amended ............
Attachment II - Audit and Finance Committee Charter.............................
[LOGO]
American States
WATER COMPANY
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Notice of the Annual Meeting
of Shareholders
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Meeting Date Tuesday, May 20, 2003
Meeting Time 10:00 a.m., Pacific Time
Meeting Location Hilton Pasadena
168 South Los Robles Avenue
Pasadena, California
Record Date March 27, 2003
Agenda
o To elect three Class I directors to the Board of Directors of the Company
to serve until their successors are elected and qualified;
o To approve amendments to the Company's 2000 Stock Incentive Plan
o To approve an increase in authorized New Preferred Shares
o To approve an increase in the voting rights of the Common Shares to one
vote per share
o To approve deletion of certain restrictions on the Company's ability to pay
dividends on Common Shares
o To approve elimination of all references to stated value in the Company's
Articles of Incorporation
o To ratify the appointment of PricewaterhouseCoopers, LLP as the independent
auditors
o To transact any other business, which may properly come before the meeting
or any adjournment thereof.
The Board of Directors has nominated the following individuals for election as
Class I directors: James L. Anderson, Anne M. Holloway and Floyd E. Wicks.
By order of the Board of Directors,
McClellan Harris III
Secretary
San Dimas, California
April 7, 2003
INFORMATION ABOUT ATTENDING
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We will hold the Annual Meeting at the Pasadena Hilton in Pasadena, California.
Shareholders must present a ticket to be admitted to the Annual Meeting. For
shareholders of record, your admission ticket is the detachable portion of your
proxy form. Please have your ticket out and available when you reach the
registration area at the Annual Meeting.
For shareholders who hold shares through a brokerage firm, bank or other holder
of record, your ticket is the copy of your latest account statement showing your
American States Water Company stock balance. Please present your account
statement to the registration area at the Annual Meeting.
DIRECTIONS TO THE HILTON PASADENA
[MAP]
April 7, 2003 American States Water Company
630 East Foothill Boulevard
San Dimas, California 91773
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2003 Proxy Statement
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GENERAL INFORMATION
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INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the solicitation
by the Board of Directors of American States Water Company (the "Company") of
proxies to be voted at the Annual Meeting of Shareholders of the Company (the
"Annual Meeting") and any adjournments thereof. This statement and the
accompanying proxy are being sent to shareholders on or about April 7, 2003.
At the Annual Meeting, shareholders will be asked to elect four Class II
directors to serve until the Annual Meeting of Shareholders held in 2004 and
until their successors are elected and qualified.
Shareholders will also be asked to approve certain amendments to the Company's
2000 Stock Incentive Plan, to approve an increase in authorized New Preferred
Shares and to eliminate certain restrictions on the Company's Common Shares for
the benefit of holders of the Company's Preferred Shares that have been
redeemed.
SOLICITATION OF PROXY AND REVOCABILITY; VOTING SECURITIES
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DATE, TIME AND PLACE OF ANNUAL MEETING
The Annual Meeting will be held on May 20, 2003 at 10:00 a.m., Pacific Time at
the Hilton Pasadena, 168 South Los Robles Avenue, Pasadena, California.
RECORD DATE AND VOTING RIGHTS
Only holders of record of the Company's voting securities at the close of
business on March 27, 2003 (the "Record Date") are entitled to notice of and to
vote at the Annual Meeting. At the Record Date, the Company had 15,180,835
Common Shares outstanding. Each Common Share is entitled to one-tenth of a vote.
Votes cast by proxy or in person at the Annual Meeting will be counted by an
inspector of election appointed by the Board of Directors to act as an election
inspector for the Annual Meeting. Shares represented by proxies that reflect
abstentions will be treated as present and entitled to vote for purposes of
determining the presence of a quorum. Abstentions, however, will not constitute
a vote "for" or "against" any matter.
The inspector of election will treat shares referred to as "broker non-votes"
(i.e., shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote and as to which
the broker has physically indicated on the proxy that the broker or nominee does
not have discretionary power to vote on a particular matter) as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. However, for purposes of determining the outcome of any matter as to
which the broker has physically indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered present for quorum purposes and may be entitled to vote on other
matters). Any
unmarked proxies, including those submitted by brokers or nominees, will be
voted as indicated in the accompanying proxy card.
In the election of directors, the candidates for election receiving the highest
number of affirmative votes of the shares entitled to be voted for them, up to
the number of directors to be elected, will be elected. Votes cast against a
candidate or votes withheld will have no legal effect. No shareholder will be
entitled to cumulate votes (i.e., cast for any candidate a number of votes
greater than one-tenth of the number of Common Shares held of record by such
shareholder) unless such candidate's name has been placed in nomination prior to
the voting and the shareholder has given notice at the meeting, prior to the
voting, of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for candidates who have been nominated. If voting for directors is
conducted by cumulative voting, each share will be entitled to the number of
votes equal to the number of directors authorized times the number of votes to
which such share is otherwise entitled, which votes may be cast for a single
candidate or may be distributed among two or more candidates in whatever
proportion the shareholder may desire. The accompanying proxy card will grant
the named proxies discretionary authority to vote cumulatively, if cumulative
voting applies. In such event, unless otherwise instructed, the named proxies
intend to vote equally FOR each of the three candidates for the office of
director; provided, however, that if sufficient numbers of the Company's
shareholders exercise cumulative voting rights to elect one or more candidates,
the named proxies will determine the number of directors they are entitled to
elect, select such number from among the named candidates, cumulate their votes,
and cast their votes for each candidate among the number they are entitled to
elect. If voting is not conducted by cumulative voting, each Common Share will
be entitled to one-tenth of one vote, and shareholders having a majority of the
voting power exercised at the meeting will be able to elect all of the directors
if they choose to do so. In that event, the other shareholders will be unable to
elect any director or directors.
A majority of the Company's Common Shares present at the meeting in person or by
proxy must vote in favor of the proposed amendments to the Company's 2000 Stock
Incentive Plan in order for these amendments to become effective. A majority of
the Company's outstanding Common Shares must vote in favor of an increase in the
authorized amount of the Company's New Preferred Shares and the elimination of
certain restrictions on the Company's Common Shares for the benefit of holders
of the Company's Preferred Shares which have been redeemed, in order for each of
these proposals to become effective.
Assuming the presence of a quorum, the shareholders present at the meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
shareholders holding sufficient voting power to leave less than a quorum, if any
action taken (other than adjournment) is approved by at least a majority of the
voting power required to constitute a quorum by the requisite vote.
VOTING BY PROXY
Regardless of whether or not shareholders plan to attend the meeting in person,
all shareholders of the Company are urged to use the enclosed proxy card to vote
their shares. All proxies that are properly executed and returned, unless
revoked, will be voted at the Annual Meeting in accordance with the instructions
indicated thereon or, if no direction is indicated FOR the election of the
Board's nominees as directors and FOR each of the proposals. The execution of a
proxy will not affect the right to attend the Annual Meeting and vote in person.
A person who has given a proxy may revoke it at any time before it is exercised
at the Annual Meeting by filing with the Company a written notice of revocation
of a proxy bearing a later date or
by attendance at the Annual Meeting and voting in person (or presenting at the
meeting such written notice of the revocation of the proxy). Attendance at the
Annual Meeting will not, by itself, revoke a proxy. The proxies may also be
voted for a substitute nominee or nominees in the event any one or more of the
director nominees named under "Item 1--Election of Directors" will be unable to
serve for any reason or be withdrawn from nomination, a contingency not now
anticipated. Shares for which duly executed proxies are received will be voted
according to the Board's best judgment upon such matters as may properly come
before the Annual Meeting or any adjournment thereof.
VOTING BY MAIL
Shareholders may sign, date and return their proxy forms in the pre-addressed,
postage-paid envelope provided.
VOTING BY TELEPHONE
You may vote by proxy using the toll-free telephone number listed on the proxy
form.
The telephone voting procedures are designed to verify your vote using the
Control Number that is provided on each proxy form. Please see your proxy form
for specific instructions.
Shareholders whose shares are held through a brokerage firm, bank or other
holder of record may vote by telephone only if the holder of record (broker,
bank or other holder of record) offers those options.
VOTING BY INTERNET
You may vote by proxy using the Internet. The Internet address is
www.proxyvote.com and is also listed on the proxy form. The Internet voting
procedures are designed to verify your vote using the Control Number that is
provided on each proxy form. Please see your proxy form for specific
instructions.
Shareholders whose shares are held through a brokerage firm, bank or other
holder of record may vote by Internet only if the holder of record (broker, bank
or other holder of record) offers those options.
ADJOURNMENTS
The Annual Meeting may be adjourned, even if a quorum is not present, by a
majority of the votes of shareholders represented at the Annual Meeting in
person or by proxy. In the absence of a quorum at the Meeting, no other business
may be transacted at the Meeting.
Notice of the adjournment of a meeting need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken, provided
that if the adjournment is for more than 45 days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting must also be given. Any business may be transacted at an adjourned
meeting, which might have been transacted at the original meeting.
SOLICITATION OF PROXIES
The accompanying proxy relating to the meeting is being solicited by the Board
of Directors of the Company for use at the Annual Meeting.
The Company will bear the entire cost of preparing, assembling, printing and
mailing proxy statements, the proxies and any additional materials, which may be
furnished by the Board to shareholders. The solicitation of proxies will be made
by the use of the U.S. postal service and may also be made by telephone, or
personally, by directors, officers and regular employees of the Company who will
receive no extra compensation for such services.
In addition, the Company has retained Morrow & Co., a proxy distribution and
solicitation firm, to assist in the distribution and solicitation of proxies for
shares held in the names of banks, brokers and other nominees, for a fee of
$10,000 plus reimbursement of reasonable out-of-pocket expenses.
PROPOSAL ONE
ELECTION OF CLASS I DIRECTORS
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The Company's Articles of Incorporation provide that classification of the Board
will apply to every election of directors for so long as at least six directors
are authorized under the Company's Bylaws and the Company's Common Shares are
listed on the New York Stock Exchange. The Company's Bylaws provide that the
Board of Directors shall consist of not less than five and not more than nine
directors, with the exact number of directors currently set at seven. So long as
the Board continues to consist of at least six, but less than nine and the
Company's Common Shares are listed on the New York Stock Exchange, directors
will serve for a term of two years, and one-half of the directors (or as near to
one-half as practicable) will be elected each year.
Under the Company's Bylaws, the Board of Directors could increase the authorized
number of directors to up to nine without obtaining shareholder approval. In the
event that the number of directors increases during any period that the
Company's Common Shares are listed on the New York Stock Exchange, the increase
will be apportioned by the Board between the classes of directors to make each
class as nearly equal as possible. If the number of authorized directors is
increased to at least nine during any period that the Company's Common Shares
are listed on the New York Stock Exchange, the directors will be apportioned by
the Board among three classes, each consisting of one-third of the directors or
as close an approximation as possible, directors will serve for a term of three
years, and one-third of the directors (or as near to one-third as practicable)
will be elected each year. If the number of authorized directors is decreased to
less than five, then the Board will cease to be classified, provided the
decrease in the number of directors cannot shorten the term of any incumbent
director. Vacancies in the Board, except those existing as a result of a removal
of a director, may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director, and each director so
elected will hold office until the next annual meeting and until such director's
successor has been elected and qualified. The Company's shareholders may elect a
director or directors at any time to fill any vacancy or vacancies not filled by
the directors.
Pursuant to California law, members of the Board of Directors may be removed by
the Board of Directors for cause (defined to be a felony conviction or court
declaration of unsound mind), by the shareholders without cause or by court
order for fraudulent or dishonest acts or gross abuse of authority or
discretion. Generally, no director may be removed by the shareholders if the
votes cast against such removal (or, if done by written consent, the votes
eligible to be cast by the non-consenting shareholders) would have been
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes were cast (or, if the action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of the director's most recent election were
then being elected (the "Relevant Number of Directors"). The Relevant Number of
Directors, in the case of classified boards, is the greater of (i) the number of
directors elected at the most recent annual meeting of shareholders and (ii) the
number sought to be removed.
Three directors have been nominated for election as Class I directors for a
two-year term expiring at the end of the Annual Meeting of Shareholders in 2005,
or until their successors are elected and qualified. The terms of the remaining
directors will continue as indicated below. The ages of the directors reported
below are as of May 20, 2003.
NOMINEES FOR CLASS I DIRECTORS WITH TERMS EXPIRING IN 2005
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The Board of Directors recommends that Shareholders vote FOR each of the
nominees for Class I directors listed below.
[PHOTO]
James L. Anderson, President, since November 2000, of Americo Financial
Services, Inc., located in Austin, Texas and Senior Vice President of Americo
Life Inc. since September 1996. Prior to its acquisition by Americo Life Inc.,
Mr. Anderson had served for ten years as President and Chief Executive Officer
of Fremont Life Insurance Company. From 1975 to 1982, Mr. Anderson served as
President and Chief Operating Officer of National American Insurance Company of
California, a property and casualty company. Mr. Anderson, age 59, is a member
of the Company's Nominating and Governance Committee and Chairperson of the
Compensation Committee and has served as a director of the Company since 1997.
[PHOTO]
Anne M. Holloway, Having served as a Senior Consultant to Navigant Consulting,
Inc., a provider of consulting services to Fortune 500 companies, governments,
and governmental agencies from 1999 to 2000. Mrs. Holloway retired from 25 years
of active service in the finance profession. Mrs. Holloway was employed by
Peterson Worldwide, LLC from 1998 to 1999 and by the Resolution Group, a
subsidiary of Xerox Financial Services, from 1992 to 1998 serving in various
executive capacities. Prior to joining the Resolution Group, Mrs. Holloway was
employed for nine years in various management positions with Shawmut National
Corporation, a financial service company. Mrs. Holloway, age 51, is a member of
the Company's Audit and Finance, Nominating and Governance and Compensation
Committees and has served as a director of the Company since 1998.
[PHOTO]
Floyd E. Wicks, President and Chief Executive Officer of the Company since April
1992. Mr. Wicks served as President of the Company from April 1990 to March
1992, and as Vice President of Operations from January 1988 to March 1990. Mr.
Wicks, age 59, is a member of the Company's Nominating and Governance Committee
and has served as a director of the Company since 1990. Mr. Wicks has also
served as President of each of the Company's subsidiaries during the past five
years (or such lesser period of time as the subsidiaries have been owned by the
Company).
CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 2004
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[PHOTO]
Jean E. Auer, Consultant to the San Francisco Estuary Project since 1990 and
retired Mayor of the town of Hillsborough, California. Mrs. Auer has previously
served as a member of the National Drinking Water Advisory Board to the United
States Environmental Protection Agency, a member of the California State Water
Resources Control Board and a member of both the Central Coast and the San
Francisco Regional Water Quality Control Boards. Mrs. Auer is on the board of
the Water Education Foundation. Mrs. Auer, age 66, is a member of the Company's
Compensation Committee and Chairperson of the Nominating and Governance
Committee and has served as a director of the Company since 1995.
[PHOTO]
N.P. Dodge, Jr., President of the N.P. Dodge Company, a full service real estate
company in Omaha, Nebraska since September 1978. Mr. Dodge is a director of the
Omaha Public Power District and is a director of Bridges Investment Fund. Mr.
Dodge, age 66, is a member of the Company's Audit and Finance and Compensation
committees and has served as a director of the Company since 1990.
[PHOTO]
Robert F. Kathol, Executive Vice President of Smith Hayes Financial Service
Corp., an investment banking firm in Omaha, Nebraska since 1985. Mr. Kathol, age
62, is a member of the Company's Compensation Committee and is Chairperson of
the Audit and Finance Committee and has served as a director of the Company
since 1995.
[PHOTO]
Lloyd E. Ross, Retired Managing Partner of Invermex, L.P., a company developing
hotels in the southwestern United States and Northern Mexico since 1997. For
more than 35 years prior to his current position, Mr. Ross was associated with
SMI Construction Co., a commercial and industrial general contracting firm in
Irvine, California, having served as its President and Chief Executive Officer
since 1976. Mr. Ross is also a director of PacifiCare Health Systems. Mr. Ross,
age 62, has been Chairman of the Board of Directors of the Company since April
1999 and has served as a director of the Company since 1995.
The following table sets forth, as of March 27, 2003, the beneficial ownership
of Common Shares of the Company by each of the Company's current directors.
DIRECTORS' BENEFICIAL OWNERSHIP OF COMMON SHARES TABLE
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Amount and Nature of Percent of Class
Name Beneficial Ownership Beneficially Held
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James L. Anderson 3,725 *
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Jean E. Auer 5,328 *
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N.P. Dodge, Jr. 6,000 *
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Anne M. Holloway 3,049 *
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Robert F. Kathol 3,450 *
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Lloyd E. Ross 2,651 *
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Floyd E. Wicks *
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*Less than one percent
(1) Includes shares that maybe acquired upon exercise of options as of April
30, 2003
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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No director, nominee, executive officer or any member of their family, or any
holder of more than five percent of the Company's voting securities had any
indebtedness to the Company, any business relationship with the Company or any
transaction with the Company in 2002.
BOARD COMMITTEES AND MEETINGS
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During 2002, directors met as a Board four times. No director attended less than
75% of the meetings of the Board. The Board of Directors has an Audit and
Finance Committee, a Nominating and Governance Committee, and a Compensation
Committee. Each Committee operates under a charter, which identifies the purpose
of the Committee and its primary functions and responsibilities. The Board of
Directors may establish, from time-to-time, other committees on an ad hoc basis
to address strategic or business related opportunities. Members of such ad hoc
committees are paid for their services in accordance with policies of the Board.
The Chairman of the Board is an ex-officio member of all committees of the
Board.
AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee provides advice and assistance to the Board of
Directors on accounting and financial reporting practices of the Company. The
Committee reviews the scope of audit work and findings of the firm of
independent public accountants who serve as auditors of the Company and also
monitors the work of the Company's internal auditors. The Committee also reviews
the qualifications of, and recommends to the Board of Directors, a firm of
independent auditors and reviews and approves fees charged by the independent
auditors.
The Audit and Finance Committee conducts its responsibilities pursuant to its
Charter, adopted by the Board of Directors on January 29, 2001, and amended and
restated on October 28, 2002. A copy of the amended and restated charter is
presented and included, as Attachment II. Members of the Audit and Finance
Committee are "independent" as determined under the standards of the New York
Stock Exchange.
During 2002, the Audit and Finance Committee, consisting of Robert F. Kathol -
Chairperson, N.P. Dodge, Jr. and Anne M. Holloway, met six times to review and
discuss with management, the internal auditor and the Company's independent
auditors, the interim financial statements, annual audited financial statements
and certain other matters. The
Committee has received disclosures from and discussed with the Company's
independent auditors PricewaterhouseCoopers LLP, the auditors' independence as
required by Independence Standards Board Standard No. 1. No director attended
less than 75% of the meetings of the Audit and Finance Committee.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee assesses qualifications of and makes
recommendations as to candidates to fill vacancies on the Board of Directors.
The Nominating and Governance Committee will consider persons for election to
the Board of Directors who are recommended by shareholders. In order to submit a
recommendation to the Nominating and Governance Committee, such recommendation
must be submitted in writing and addressed to the Office of the Secretary at the
Company's corporate headquarters.
During 2002, the Nominating and Governance Committee, consisting of Jean E. Auer
- Chairperson, James L. Anderson and Anne M. Holloway, met four times. No
director attended less than 75% of the meetings of the Nominating and Governance
Committee.
COMPENSATION COMMITTEE
The Compensation Committee reviews and makes recommendations to the Board of
Directors as to appropriate compensation for the President and other executive
officers of the Company and determines the awards to be made under the Company's
Annual Incentive Plan and the 2000 Stock Incentive Plan.
During 2002, the Compensation Committee, consisting of James L. Anderson -
Chairperson, Jean E. Auer, N.P. Dodge, Jr., Anne M. Holloway and Robert F.
Kathol met four times. Each of the Committee Members are independent as
determined by standards of the New York Stock Exchange. No director attended
less than 75% of the meetings of the Compensation Committee.
SPECIAL PROJECTS COMMITTEE
The Special Projects Committee reviews potential changes to the regulated and
non-regulated operations of the Company including acquisitions, divestitures,
joint ventures and partnerships and makes recommendations to the Board of
Directors as to the financial and operational impact of such changes. During
2002, the Special Projects Committee consisting of N.P. Dodge, Jr. -
Chairperson, James L. Anderson and Robert F. Kathol met one time. All Directors
were present.
REMUNERATION FOR DIRECTORS
Outside directors (presently all directors except Mr. Wicks) are currently paid
an annual retainer of $15,000, payable in equal monthly installments. In
addition, each such director receives a $1,200 fee for each meeting attended,
which is reduced to $600 for telephonic meetings attended. The regular and
organizational meetings of the board are counted as one meeting for purposes of
the per meeting fee. In addition, each outside director who is a member of the
Compensation Committee, Nominating and Governance Committee, Special Projects
Committee or the Audit and Finance Committee receives a $1,200 fee for each
meeting attended, which is reduced to $600 for telephonic meetings attended.
The chairperson of the Compensation Committee, Nominating and Governance
Committee, Special Projects Committee, if an outside director, receives a fee of
$2,400 for each committee meeting attended, which is reduced to $1,200 for
telephonic meetings attended. The chairperson of the Audit and Finance Committee
receives a fee of $3,600, which is reduced to $1,800 for telephonic meetings
attended. Each director is reimbursed for reasonable and necessary travel,
lodging and other expenses incurred in the performance of their duties.
Chairman of the Board Ross earned $75,000 as chairperson for the year 2002. The
present annual compensation for the position of Chairman of the Board of
Directors is $75,000. Neither Mr. Ross nor Mr. Wicks received separate
compensation as directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
The Company has adopted procedures to assist its directors and executive
officers in complying with Section 16(a) of the Securities Exchange Act of 1934,
as amended, which includes assisting in the preparation of forms for filing.
For 2002, all but three of the reports were timely filed. The sale by Mrs.
Conway, an executive officer of the Company, of 452 Common Shares on May 29,
2002, was inadvertently not reported timely. The sale was subsequently reported
on Form 4.
The purchase by the spouse of Mr. Young, an executive officer of the Company
until December 31, 2002, of 100 Common Shares on July 26, 2002, and the purchase
of 15 shares by Mr. Young on April 17, 2002 were inadvertently not reported
timely. Subsequently, the purchases were reported on Form 4.
EXECUTIVE OFFICERS
EXPERIENCE, SECURITY OWNERSHIP, COMPENSATION AND OPTIONS
--------------------------------------------------------------------------------
EXECUTIVE EXPERIENCE
The Company had eleven executive officers as of April 7, 2003. Information
regarding their identities and business experience is shown in the following
table and footnotes thereto:
EXECUTIVE EXPERIENCE TABLE
-------------------------------------------------------------------------------------------------------------------------
Principal Occupation and Experience During the Past Five Held Current
Name Years Age Position Since
-------------------------------------------------------------------------------------------------------------------------
Floyd E. Wicks (1) President and Chief Executive Officer. 59 April 1992
-------------------------------------------------------------------------------------------------------------------------
McClellan Harris III (1) Senior Vice President of Finance, Chief Financial 51 October 2002
Officer, Treasurer and Secretary. Chief Financial
Officer, Vice President Finance, Treasurer, Corporate
Secretary from April 1997. Vice President and Treasurer
from October 1996. Treasurer from April 1994.
-------------------------------------------------------------------------------------------------------------------------
Joel A. Dickson (2) Senior Vice President of Administration. Vice President 50 October 2002
Administration from April 2001. Vice President Business
Development from April 1997. Vice President Customer
Service of Region III from April 1994.
-------------------------------------------------------------------------------------------------------------------------
Donald K. Saddoris (3) Senior Vice President of Operations. Vice President and 59 October 2002
Chief of Operations from October 2000. Vice President
Customer Service of Region I since 1994.
-------------------------------------------------------------------------------------------------------------------------
Denise L. Kruger (4) Vice President of Customer Service Region I. Vice 39 October 2002
President of Customer Service Region II from October
2001. Vice President Water Quality from January 1998.
Manager Quality Assurance from January 1997. Water
Quality Manager from October 1992.
-------------------------------------------------------------------------------------------------------------------------
James B. Gallagher (4) Vice President of Customer Service Region III. Chief 48 April 1997
Financial Officer, Vice President Finance and Secretary
from April 1994.
-------------------------------------------------------------------------------------------------------------------------
Susan L. Conway (5) Vice President Utility Regulation. Manager of Regulatory 41 January 1998
Affairs from February 1990.
-------------------------------------------------------------------------------------------------------------------------
Eva G. Tang (6) Vice President and Treasurer. Financial Planning 47 September 2002
Manager, Assistant Treasurer and Assistant Secretary
from October 1999.
-------------------------------------------------------------------------------------------------------------------------
James D. Carson (6) Vice President of Water Quality. Northern District 42 September 2002
Manager from March 1999.
-------------------------------------------------------------------------------------------------------------------------
Patrick R. Scanlon (6) Vice President of Customer Service Region II. Orange 45 October 2002
County District Manager from December 1994.
-------------------------------------------------------------------------------------------------------------------------
Roger F. Kropke (6) Vice President of Bear Valley Electric. Manager of Bear 57 October 2002
Valley Electric from December 1994.
-------------------------------------------------------------------------------------------------------------------------
(1) Holds same titles in Southern California Water Company, American States
Utility Services, Inc. and Chaparral City Water Company
(2) Holds same title in Chaparral City Water Company and Senior Vice President
Customer and Operations Support in Southern California Water Company
(3) Holds same titles in Southern California Water Company and Chaparral City
Water Company
(4) Holds same title in Chaparral City Water Company
(5) Holds title of Vice President Regulatory Affairs in Southern California
Water Company
(6) Officer of Southern California Water Company only
--------------------------------------------------------------------------------
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the number of Common Shares beneficially owned by the
twelve executive officers is shown in the following table. The holdings include
shares that the officers will have the right to acquire as of April 30, 2003
through the exercise of stock options under the Company's 2000 Stock Incentive
Plan.
EXECUTIVE SECURITY OWNERSHIP TABLE
-------------------------------------------------------------------------------------------------------------------------
Common Shares Percent of
Name Owned(1)(2) Option Shares(3) Total Class
-------------------------------------------------------------------------------------------------------------------------
Floyd E. Wicks 16,103 27,345 43,448 *
-------------------------------------------------------------------------------------------------------------------------
McClellan Harris III 4,906 13,945 18,851 *
-------------------------------------------------------------------------------------------------------------------------
Joel A. Dickson 13,888 13,945 27,833 *
-------------------------------------------------------------------------------------------------------------------------
Donald K. Saddoris 10,539 13,945 24,484 *
-------------------------------------------------------------------------------------------------------------------------
Susan L. Conway 6,259 13,945 20,204 *
-------------------------------------------------------------------------------------------------------------------------
James B. Gallagher 3,428 12,955 16,383 *
-------------------------------------------------------------------------------------------------------------------------
Denise L. Kruger 6,282 12,955 19,237 *
-------------------------------------------------------------------------------------------------------------------------
Eva G. Tang 1,593 1,078 2,670 *
-------------------------------------------------------------------------------------------------------------------------
James D. Carson 1,836 1,078 2,913 *
-------------------------------------------------------------------------------------------------------------------------
Patrick R. Scanlon 6,145 1,078 7,223 *
-------------------------------------------------------------------------------------------------------------------------
Roger F. Kropke 5,015 1,078 6,092 *
-------------------------------------------------------------------------------------------------------------------------
* Less than one percent
(1) Inclusive of 1,050 restricted shares options awarded to Floyd E. Wicks
subject to shareholder approval.
(2) As of March 27, 2003.
(3) Includes all Option shares that may be acquired upon exercise of options
under the Company's 2000 Stock Incentive Plan as of April 30, 2003.
--------------------------------------------------------------------------------
Directors and executive officers of the Company as a group beneficially owned
XXX,XXX Common Shares of the Company, inclusive of Common Shares that may be
acquired upon exercise of options awarded under the 2000 Stock Incentive Plan as
of April 30, 2003. The combined total is less than one percent of the total
Common Shares outstanding.
EXECUTIVE COMPENSATION
The following table sets forth information on compensation of the Company's
Chief Executive Officer and the four most highly compensated executive officers
of the Company or Southern California Water Company for the three most recent
calendar years:
EXECUTIVE COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------------
Number of
Shares
Annual Long Term Underlying Short Term Dividend
Comp. Comp. LTIP Options Comp. AIP Equivalent All Other
Name and Principal Salary (1) Payouts (2) Granted (3) Payouts (4) Rights Comp. (5)
Position Year ($) ($) (#) ($) (DER) ($)
--------------------------------------------------------------------------------------------------------------------------
Floyd E. Wicks -- 2002 $365,000 - 22,500 $113,179 $20,520 $6,687
President and Chief 2001 376,566 - 12,000 162,288 - 6,610
Executive Officer 2000 355,205 $135,943 12,000 158,949 - 9,513
--------------------------------------------------------------------------------------------------------------------------
McClellan Harris III -- 2002 207,000 - 12,075 51,370 10,521 7,903
Chief Financial 2001 205,122 - 6,000 67,738 - 7,926
Officer and Senior 2000 200,125 51,461 6,000 64,929 - 8,190
Vice President of
Finance
--------------------------------------------------------------------------------------------------------------------------
Joel A. Dickson -- 2002 207,000 - 12,075 51,370 10,521 7,903
Senior Vice President 2001 206,223 - 6,000 67,738 - 7,926
of Administration 2000 199,918 65,734 6,000 67,103 - 8,190
--------------------------------------------------------------------------------------------------------------------------
Donald K. Saddoris -- 2002 207,000 - 12,075 51,370 10,521 7,903
Senior Vice President 2001 201,710 - 6,000 51,056 - 7,926
of Operations 2000 182,285 57,777 6,000 39,716 - 8,203
--------------------------------------------------------------------------------------------------------------------------
James B. Gallagher -- 2002 171,000 - 9,075 42,274 7,907 253
Vice President of 2001 166,820 - 6,000 37,162 - 1,125
Customer Service 2000 160,591 54,428 6,000 36,653 - 7,392
Region III
--------------------------------------------------------------------------------------------------------------------------
(1) The executive officers of the Company receive certain perquisites,
including the personal use of a Company-owned vehicle and personal
computer. The aggregate amount of such perquisites received by each named
officer, in the case of any such named officer, does not exceed 10% of the
total annual salary of such officer.
(2) The Company had a Key Executive Long-Term Incentive Plan (LTIP), the
provisions of which became effective January 1, 1995. Under the LTIP,
benefits were paid in the year following the end of a three-year
performance cycle. The LTIP was terminated in May 2000 with the approval of
the 2000 Stock Incentive Plan. With termination of the LTIP, benefits
accrued under the 1997-1999 performance cycle and benefits accrued under
the partially completed 1998-2000 and 1999-2001 performance cycles then
pending under the LTIP were paid out at that time. The accrued benefits
paid under the one completed three-year performance cycle and the two
partially completed performance cycles were paid in Common Shares of the
Company. The shares vest equally over a three-year period. There will be no
future payments made under the LTIP.
(3) The 2000 Stock Incentive Plan (the "2000 Plan") was approved at the 2000
Annual Meeting. The purpose of the 2000 Plan is to provide stock-based
incentives as a means of promoting the success of the Company by
attracting, retaining and aligning the interests of employees (including
officers) with those of shareholders generally.
(4) The Company adopted an Annual Incentive Plan (AIP) for executive officers
and managers in 2000. Payouts under the AIP, which are made in cash or
restricted stock pursuant to the provisions of the AIP, are based on the
prior year's operating results. All amounts paid in 2000, 2001, and 2002
were paid in cash. Restricted stock awards under the AIP will be granted
under the 2000 Plan.
(5) Includes payment by the Company of the premium on business travel and
accident policy of $99 per person per year for 2000, $86 for 2001, and $85
in 2002; payment by the Company of the premium for group life insurance of
$168 per person for 2000, $190 for 2001 and $168 for 2002. The balance
represents the Company's matching contribution to the 401(k) Plan for the
benefit of each named officer. Excludes restricted stock award of 1,050
shares granted to Mr. Wicks in April 2002, subject to shareholder approval
of the proposed amendments to the 2000 Plan, and payment under the dividend
equivalent rights associated therewith.
--------------------------------------------------------------------------------
ANNUAL INCENTIVE PLAN
The Company has adopted an Annual Incentive Plan ("AIP") for executive officers
and managers of the Company ("Eligible Participants"). The purpose of the AIP is
to compensate Eligible Participants of the Company for increasing shareholder
value and supporting future growth of the Company. Under the terms of the AIP,
awards may be granted annually to an Eligible Participant in accordance with the
terms of the AIP. If an award is granted to an Eligible Participant, a target
award will be established for that Eligible Participant by the Compensation
Committee based upon a percentage of that Eligible Participant's wages,
exclusive of overtime and bonuses, for the preceding calendar year. The target
award to be paid to that Eligible Participant may be adjusted by (i) a factor
reflecting the Company's financial performance for the preceding calendar year
and (ii) a factor reflecting certain strategic performance initiatives for the
preceding calendar year, both of which would be multiplied times the target
award for that Eligible Participant. The financial performance component is
based on the Company's actual return on rate base as a percentage of authorized
return on rate base, less a maintenance adjustment, if maintenance costs are
significantly less than estimated for rate base purposes. The strategic
adjustment factor is based upon achieving certain strategic goals established by
the Compensation Committee.
The Compensation Committee established the financial performance component for
the year 2002 based on a schedule ranging from a financial performance
percentage of 125% if the actual return on rate base was more than 105% of
authorized return on rate base to 0% if the actual return on rate base was less
than 94%. The Compensation Committee established the strategic adjustment
component for the year 2002 on the basis of a schedule ranging from 25% if there
was an increase in Company operating revenues as a result of acquisitions of
more than 33% to 0% if there was an increase in Company operating revenues as a
result of acquisitions of less than 10%.
Under the terms of the AIP, the Company's external auditors for the year in
which the awards were granted will pay awards after completion of a review of
the award calculations. If the awards are less than 20% of the Eligible
Participant's annual wages, the award will be paid in cash. If the awards are
20% or more of the Eligible Participant's annual wages, the awards may be paid
in restricted stock pursuant to the terms of the 2000 Plan. The restrictions
applicable to the restricted stock will lapse in a series of three successive
annual installments commencing on the first anniversary date after the end of
the plan year for which the award was granted unless the Compensation Committee
provides otherwise. Payment of the award under the AIP will be accelerated upon
a change in control of the Company, as defined in the 2000 Plan.
Based on the performance measurements in the AIP for the year ended December 31,
2002, the Compensation Committee did not approve any awards.
KEY EXECUTIVE LONG-TERM INCENTIVE PLAN
The Company implemented a Key Executive Long Term Incentive Plan effective as of
January 1, 1995 (see footnote (2) to the Executive Compensation Table). With the
approval of the 2000 Plan in March 2000, the LTIP was terminated. All accrued
benefits for the completed 1997-1999 Performance Cycle and the partially
completed 1998-2000 Performance Cycle and 1999-2001 Performance Cycle were paid
out in 2000 in Common Shares of the Company, subject to vesting.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------------------------------------------------------------------------------------------
Number of Securities to Weighted-Average Number of Securities remaining
be issued upon Exercise Exercise Price of available for future issuance under
of Outstanding Options, Outstanding Options, Equity Compensation Plans (excluding
Warrants and Rights Warrants and Rights securities reflected in
column (a))
Plan Category (a) (b) (c)
------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans 252,914 22.68 122,080
approved by Security
Holders
------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans -0- -0- -0-
not approved by Security
Holders
------------------------------------------------------------------------------------------------------------------------
Total 252,914 22.68 122,080
------------------------------------------------------------------------------------------------------------------------
2000 STOCK INCENTIVE PLAN
Shareholders at the 2000 Annual Meeting approved the 2000 Plan. For a
description of the 2000 Plan, see "Proposal Two, Amendments to the 2000 Stock
Incentive Plan-Summary Description of the 2000 Plan. Option Grants in Last Year
The following table sets forth information with respect to all options granted
to the named executive officers during 2002.
OPTION GRANTS IN LAST YEAR TABLE
------------------------------------------------------------------------------------------------------------------------
Number of
Shares
Underlying Grant Date
Options Percentage of Exercise Black-Scholes
Granted Total Options Price Value
Employee Name (#) Award Date Granted ($/Sh) Expiration Date (1)(2)(3)
------------------------------------------------------------------------------------------------------------------------
Floyd E. Wicks (4) 22,500 February 4, 2002 19.3% $23.43 February 3, 2012 $86,088
------------------------------------------------------------------------------------------------------------------------
McClellan Harris III 12,075 February 4, 2002 10.3% $23.43 February 3, 2012 $46,200
------------------------------------------------------------------------------------------------------------------------
Joel A. Dickson 12,075 February 4, 2002 10.3% $23.43 February 3, 2012 $46,200
------------------------------------------------------------------------------------------------------------------------
Donald K. Saddoris 12,075 February 4, 2002 10.3% $23.43 February 3, 2012 $46,200
------------------------------------------------------------------------------------------------------------------------
James B. Gallagher 9,075 February 4, 2002 7.8% $23.43 February 3, 2012 $34,722
------------------------------------------------------------------------------------------------------------------------
(1) The Black-Scholes option-pricing model was used to estimate the grant date
present value of the options. Assumptions for options granted are as
follows: 28.14% volatility; risk free rate of return of 4.30% based on
ten-year U.S. Treasury securities; dividend yield 6.01% and an estimated
period to exercise of 10 years.
(2) One-third of the stock options granted to the named executive become
exercisable on each of the first three anniversaries of the grant date, but
may be exercised earlier if there is a change in control of the Company as
defined under "Employment Contracts, Termination and Change-In-Control
Arrangements" below. The Company has not granted any stock appreciation
rights or other types of awards in 2002. No options were exercised by an
executive officer in 2002.
(3) These values are neither predictions nor indications of what the Company
believes the market value of its Common Shares will be. The ultimate values
of the options will depend on the future market prices of the Common
Shares, which cannot be forecasted with reasonable accuracy. The actual
value, if any that an optionee will recognize on exercise of an option will
depend on the difference between the market value of the Common Shares on
the date the option is exercised and the applicable exercise price.
--------------------------------------------------------------------------------
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the aggregate value of
exercised and unexercised options held by the executive officers of the Company.
Value at December 31, 2002 is measured as the difference between the exercise
price and fair market value on December 31, 2002.
AGGREGATED OPTION EXERCISES AND HOLDINGS TABLE
-------------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised In the
Options Held at Money Options Held at
Shares December 31, 2002 December 31, 2002
Acquired on Value -------------------------------------------------------------------
Employee Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------------------------------------
Floyd E. Wicks - - 11,880 61,270 18,374 9,466
-------------------------------------------------------------------------------------------------------------------------
McClellan Harris III - - 5,940 30,210 9,187 4,733
-------------------------------------------------------------------------------------------------------------------------
Joel A. Dickson - - 5,940 30,210 9,187 4,733
-------------------------------------------------------------------------------------------------------------------------
Donald K. Saddoris - - 5,940 30,210 9,187 4,733
-------------------------------------------------------------------------------------------------------------------------
James B. Gallagher - - 5,940 24,210 9,187 4,733
-------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company is an at-will employer and none of the executive officers has an
employment contract with the Company. Each of the executive officers of the
Company is a party to a change in control agreement which provides for certain
benefits in the event of a change in control of the Company if the executive
officer's employment with the Company or Southern California Water Company is
terminated other than for cause or disability or the executive terminates
employment for good reason. A change in control under these agreements will
generally include (i) an acquisition by certain persons of more than 50% of the
voting securities of the Company or Southern California Water Company, (ii)
certain changes in a majority of the Board of Directors of the Company or
Southern California Water Company, (iii) certain dissolutions or liquidations of
the Company or Southern California Water Company, or (iv) certain mergers or
consolidations or sales of all or substantially all of the assets of the Company
or Southern California Water Company, in any case involving more than a 50%
change in ownership. An executive may terminate his or her employment for good
reason if the executive is assigned duties inconsistent in any respect with the
executive's position or the executive is not re-appointed to the same position
following the change in control, the executive's salary or benefits are reduced
or the executive is located at an office that increases the distance from the
executive's home by more than 35 miles. The executive will be entitled to the
following benefits: a cash payment equal to 2.99 times the executive's highest
annual base salary during the preceding three years and an amount equal to the
difference between the single sum actuarial equivalent of the executive's
accrued benefits under the Company's Pension Plan and Pension Restoration Plan
and the single sum actuarial equivalent of the executive's accrued benefits
under such plans if the executive was credited with two additional years of
service at the executive's highest annual rate of compensation during the past
three years. Coverage under the Company's health and welfare benefit plans would
also be extended to these individuals for a period of 24 months after
termination under the circumstances previously described.
PENSION PLAN
--------------------------------------------------------------------------------
Southern California Water Company maintains a noncontributory, defined benefit
pension plan. Benefits are determined under a formula applied uniformly to all
employees, regardless of position, and amounts depend on length of service at
the average of the five highest consecutive years of compensation earned. For
purposes of pension calculations, compensation includes salary and all other
compensation but excludes the value of personal use of Company vehicles and
other perquisites. An employee who terminates employment after having at least
five years of service with the Company has a vested interest in the Plan. Annual
benefits payable at retirement (at age 65 or beyond) are reduced by a percentage
of primary social security benefits based upon years of credited service and are
payable monthly. The following table illustrates the estimated annual benefits
payable upon retirement for persons in the earnings classifications with years
of service as shown, excluding Social Security deductions, for employees in the
Southern California Water Company Pension Plan and the Southern California Water
Company Pension Restoration Plan.
PENSION PLAN TABLE
------------------------------------------------------------------------------------------------------------------------
Average Annual Benefits Based on Length of Service
Salary for Highest ------------------------------------------------------------------------------------
Consecutive Five Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
------------------------------------------------------------------------------------------------------------------------
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500 $100,000
------------------------------------------------------------------------------------------------------------------------
150,000 45,000 60,000 75,000 90,000 105,000 120,000
------------------------------------------------------------------------------------------------------------------------
175,000 52,500 70,000 87,500 105,000 122,500 140,000
------------------------------------------------------------------------------------------------------------------------
200,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
225,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
250,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
275,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
300,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
400,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
450,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
500,000 60,000 80,000 100,000 120,000 140,000 160,000
------------------------------------------------------------------------------------------------------------------------
The executive officers of the Company in 2002 have the following credited years
of service under the pension plan:
---------------------------------------------------------
Name Years of Service
---------------------------------------------------------
Floyd E. Wicks 14
---------------------------------------------------------
McClellan Harris III 12
---------------------------------------------------------
Joel A. Dickson 12
---------------------------------------------------------
Donald K. Saddoris 35
---------------------------------------------------------
James B. Gallagher 15
---------------------------------------------------------
The Plan provides a special early retirement option for those employees the sum
of whose age and number of years of service equals at least 90.
The Southern California Water Company Pension Restoration Plan supplements
retirement benefits payable to certain participants in the Southern California
Water Company Pension Plan by making up benefits, which are reduced by virtue of
Sections (a)(17) of 415 of the Internal Revenue Code of 1986, as amended.
The Company has a Retirement Plan for Non-Employee Directors (the "Non-Employee
Directors Plan") of the Company. This Non-Employee Directors Plan provides
annual benefits to an eligible director in an amount equal to the annual
retainer in effect at the director's date of retirement. Benefits are payable in
monthly installments for a period equal to the shortest of (a) the period he or
she was a director or (b) 10 years. In the case of a director's death, benefits
will continue to be received by that director's surviving spouse for the
remaining period for which the director would have been entitled to receive
benefits except for death. Benefits are payable to directors after the age of 62
and after retirement from the Board, except that a director who ceases to be a
director before attaining age 62 because of ill health or death may receive
benefits immediately after retirement from the Board, or at such later date as
he or she may request. Directors who are "removed for cause" are not eligible
for benefits under the Non-Employee Directors Plan. As a condition of
participation in the Non-Employee Directors Plan, an eligible director must
agree to retire from the Board at the annual shareholders' meeting occurring on
or next following such director's 72nd birthday, and to accept nomination as a
director if requested by the Board (and to serve if so nominated) for at least
10 years after his or her first election to the Board. The Non-Employee
Directors Plan contains change-in-control provisions, which provide for payment
of an amount equal to ten years of retainer discounted at 6%. A change in
control under the Non-Employee Directors Plan will occur in the same
circumstances in which a change in control will occur under the Company's
change-in-control arrangements with its executive officers.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
--------------------------------------------------------------------------------
Under the Company's Deferred Compensation Plan for Directors, directors are
entitled to defer a portion of their compensation until specified times after
the deferral. Interest accrues on amounts deferred under this plan. None of the
directors or nominees has currently deferred any income under the Deferred
Compensation Plan for Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
--------------------------------------------------------------------------------
All of the Company's directors, except Mr. Wicks, are members of the
Compensation Committee. Mr. Ross, as Chairman of the Board, serves as an
ex-officio member of the Compensation Committee. The Compensation Committee
recommends Mr. Ross' compensation as Chairman of the Board. The Board of
Directors determines Mr. Ross' compensation. No other member of this Committee
is a current or former officer or employee of the Company or any of its
subsidiaries or affiliates. The Compensation Committee's report on executive
compensation is set forth below under "Board Committee Reports-Report on
Executive Compensation".
BOARD COMMITTEE REPORTS
REPORT OF THE AUDIT AND FINANCE COMMITTEE
--------------------------------------------------------------------------------
The Audit and Finance Committee operates under a written charter adopted by the
Board of Directors and is composed of three directors - N.P. Dodge, Jr., Anne M.
Holloway and Robert F. Kathol. The members of the Committee have been determined
to be independent and financially literate (as independence and financial
literacy is defined by the New York Stock Exchange listing standards) by the
Board of Directors. Lloyd E. Ross, Chairman of the Company's Board of Directors
is an ex-officio member of the Committee.
GENERAL
The Committee reviews the overall scope and plans for the respective audits of
the internal and independent auditors. The Committee meets with the internal and
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluation of the internal controls and the
overall quality of the Company's financial reporting. The Committee oversees the
Company's financial reporting processes on behalf of the Board of Directors.
Management has primary responsibility for the Company's financial statements,
internal controls, disclosure controls and the financial reporting process. The
independent accountants are responsible for performing an independent audit of
the Company's consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon. The Committee's
responsibility is to monitor and oversee these processes. The independent
auditors report directly to the Committee and the Board of Directors.
COMMITTEE CHARTER
The Committee conducts its responsibilities pursuant to its charter, which was
adopted by the Board of Directors on January 29, 2001 and amended and restated
on October 28, 2002. A copy of the restated charter is presented and included as
attachment II to this Proxy Statement.
COMMUNICATION WITH AUDIT COMMITTEE
In this context, the Committee has met and held discussions with management and
the independent accountants. Management represented to the Committee that the
Company's internal controls have no material weakness and that the consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent
accountants. The Committee discussed with the independent accountants matters
required to be discussed by Statement on Auditing Standards No. 61.
INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEE
The Company's independent accountants also provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1, and the
Committee discussed with the independent accountants that firm's independence.
RECOMMENDATION FOR INCLUSION IN FORM 10-K
Based upon the Committee's discussion with management, the independent
accountants, and the Committee's review of the representations of management,
and the report of the independent accountants to the Committee, the Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 filed with the Securities and Exchange Commission.
Audit Committee
---------------
Robert F. Kathol - Chairperson
N.P. Dodge, Jr. Anne M. Holloway
REPORT OF THE COMPENSATION COMMITTEE
--------------------------------------------------------------------------------
The Compensation Committee operates under a written charter adopted by the Board
of Directors and is composed of five independent directors - James L. Anderson,
Jean E. Auer, N.P. Dodge, Jr., Anne M. Holloway, and Robert F. Kathol. Lloyd E.
Ross, Chairman of the Corporation's Board of Directors, is an ex-officio member
of the Committee.
The primary responsibility of the Compensation Committee is to review and make
recommendations to the Board of Directors as to the appropriate level of
compensation for the executive officers of the Company, including the Chief
Executive Officer.
GENERAL PHILOSOPHY
In general, the executive compensation program is designed to reward, motivate
and retain the skilled management necessary to achieve the Company's goals of
increasing shareholder value and maintaining leadership position within the
industry. The Committee has established as its objective the design and
implementation of a compensation program for executives that will (i) provide
fair, equitable and reasonable compensation, (ii) reward excellent team and
individual job performance and abilities, and (iii) attract, retain and motivate
talented and experienced executives. In making its recommendations to the Board,
the Compensation Committee takes into account the fact that both the California
Public Utilities Commission and the Arizona Corporation Commission review
executive salaries of regulated public utilities for reasonableness. Moreover,
the Committee recognizes that, as a holding company of regulated public
utilities, financial performance of the Company is constrained by and dependent
upon not only the regulatory process but also a number of other factors beyond
the Company's immediate control, such as weather, water quality and water
supply. As a result, executive compensation is based on a number of subjective
and objective factors beyond the recent financial performance of the Company.
EXECUTIVE COMPENSATION PROGRAM
In determining individual compensation, the Committee considered the executive
officer's duties, the quality of his or her performance of those duties, the
importance of the position, the contribution that each individual has made to
the Company's overall performance and its strategic positioning for the future.
The Committee also considered whether an executive officer's duties have
expanded or otherwise materially changed from the previous year, the officer's
experience and value to the Company and the extent and frequency of prior
adjustments to that officer's salary. The Committee retained outside consultants
and executive compensation specialists in evaluating the current compensation
program and in implementing any changes. For executives other than the Chief
Executive Officer, the Committee also considered recommendations made by the
Chief Executive Officer.
Total compensation consists of three components - base salary, short-term
incentives in the form of cash bonuses and long-term incentives in the form of
stock options. Adjustment to base salaries, after consideration of all relevant
factors, allow for annual adjustments and avoid wide fluctuations in
compensation from year to year. Salary ranges are set by periodic comparison to
rates of pay for comparable positions within the utility industry and individual
salaries are adjusted based on external salary levels, individual performance
and changes in responsibilities.
The Committee determines executive compensation not only on base salary, but
believes that executives should have the opportunity to earn a significant
amount of variable pay based on the short and long-term performance of the
Company. The Committee
believes that stock-based incentives promote the success of the Company by
attracting, motivating, rewarding, retaining and aligning the interests of
executive officers with those of shareholders generally, Including all forms of
compensation, an executive's total annual compensation opportunity is such that
at maximum performance levels, base salary plus awards under the Company's
existing Annual Incentive Plan (the "AIP") and the 2000 Stock Incentive Plan is
intended to yield annual compensation between the 60th and 75th percentiles of
compensation for comparable positions at certain identified companies within the
utility industry (the "Competitive Target Level"). Long-term incentives are
provided through stock-based awards.
During 2002, the AIP was amended to reduce the levels of cash award that could
be earned under the provisions of the AIP. As amended, the AIP provides for
increased amounts of stock-based awards that can be earned by an executive. All
stock-based awards under the AIP will be issued pursuant to the 2000 Stock
Incentive Plan. Based on the results reported for 2002, no executive, including
Mr. Wicks, earned any awards under the terms of the AIP.
In 2002, the Company approved the issuance of dividend equivalent rights with
respect to each stock option granted to an executive officer of the Company.
Each holder of a dividend equivalent right is entitled to receive cash in an
amount equal to the cash dividend of other cash distribution that would have
been payable on the underlying Common Shares if the stock option granted to such
holder in 2002 had been exercised. The dividend equivalent right applies to all
unexercised stock options granted to such holder in 2002 for a period of three
years.
CEO COMPENSATION
Floyd E. Wicks has been President and Chief Executive Officer of the Company
since 1992. As with the compensation of the Company's other executive officers,
the Committee has chosen not to adopt a direct formula approach to determining
Mr. Wicks' base salary. Rather, the Committee reviewed a number of objective and
subjective measures including the Competitive Target Level for Mr. Wicks'
position, the performance of the Company as a whole, his effectiveness in
addressing local, industry-wide issues and specific issues facing the Company,
business development, the Company's immediate and long-term financial health and
the performance of the Company's stock price. After the Committee's
deliberations and review, the Committee recommended and the Board of Directors
authorized that Mr. Wicks' base salary be established as $365,000. The Committee
determined that, including base salary, maximum payouts under the Annual
Incentive Plan and options granted under the Stock Incentive Plan would place
Mr. Wicks' total compensation within the Competitive Target Level.
SECTION 162(m) LIMITATION
The Committee has reviewed the Company's compensation structure in light of
Section 162(m) of the Internal Revenue Code (the "Code") which limits, subject
to limited exceptions, the amount of compensation that the Company may deduct
from its taxable income for any year to $1,000,000 for any of its five most
highly compensated executives. In 2002, no executive officer's compensation
exceeded the limitation set by Section 162(m), and therefore such limitation is
presently inapplicable to the Company. The Committee will address this
limitation when and if it becomes meaningful.
Compensation Committee
----------------------
James L. Anderson - Chairperson
Jean E. Auer N.P. Dodge, Jr.
Anne M. Holloway Robert F. Kathol
PROPOSAL TWO
AMENDMENTS TO THE 2000 STOCK INCENTIVE PLAN
--------------------------------------------------------------------------------
The Board of Directors has amended the 2000 Stock Plan, subject to shareholder
approval to:
o increase the maximum aggregate number of Common Shares that may be
delivered pursuant to awards to be granted under the 2000 Plan from 375,000
to 750,000 Common Shares ; and
o increase the maximum number of Common Shares that may be delivered pursuant
to awards granted under the 2000 Plan to any one individual in a calendar
year from 22,500 to 50,000 Common Shares.
The Board has approved these amendments to the 2000 Plan (the "Amendments") and
believes them to be in the best interest of the Company and its shareholders.
Members of the Board who are also employees of the Company are eligible to
receive Awards under the 2000 Plan and thus have a personal interest in its
approval.
The Board of Directors Recommends Shareholders Vote FOR the Amendments to the
2000 Plan.
If the shareholders do not approve the Amendments, the Company will continue to
make awards under the 2000 Plan as it was in effect prior to the Amendments,
subject to the maximum limitations under the 2000 Plan. As of March 27, 2003,
500,000 Common Shares were available for delivery pursuant to awards to be
granted under the 2000 Plan. In 2000, 2001 and 2002, awards for 68,985, 68,985
and 118,275 Common Shares were granted to officers and employees of the Company
under the terms of the 2000 Plan. A restricted stock award within the new limits
was granted to one senior executive officer, subject to shareholder approval of
the Amendments. This grant is described in the "Specific Benefits" section
below.
In addition to the Amendments, the Board has also amended the 2000 Plan to
require that any amendment to an outstanding award (other than adjustments made
in connection with the occurrence of certain corporate events) that results in
the reduction of the exercise or purchase price below the exercise or purchase
price of the original or prior award shall be subject to prior shareholder
approval.
Summary Description of the 2000 Plan
The principal terms of the 2000 Plan, as modified by the Amendments and the
repricing amendment, are summarized below. The following summary is qualified in
its entirety by reference to the full text of the 2000 Plan, as proposed to be
amended, which is attached as attachment I to this Proxy Statement. Capitalized
terms used but not defined herein have the meanings assigned to them in the 2000
Plan.
Purpose. The purpose of the 2000 Plan is to provide stock-based incentives as a
means of promoting the success of the Company by attracting, motivating,
rewarding, retaining and aligning the interests of employees (including
officers) with those of shareholders generally.
Eligible Employees. Eligible Employees under the 2000 Plan generally include the
employees (including officers) of the Company and its subsidiaries. Awards also
may be granted to persons becoming employees in connection with or to facilitate
an acquisition by the Company of another entity on terms necessary to preserve
the intrinsic value of prior outstanding awards issued by the other entity, or
on other terms authorized by the 2000 Plan.
As of March 27, 2003, there were approximately 40 employees and officers of the
Company, all of whom are Eligible Employees under the 2000 Plan. The Board
retains the power to determine the particular eligible persons to whom Awards
will be granted.
Administration. The 2000 Plan is administered by the Board of Directors or one
or more committees appointed by the Board (the appropriate acting body is the
"Committee"), currently the Compensation Committee. All Awards to Eligible
Employees will be authorized by the Board or the Committee (See "Board
Committees and Meetings" on page [__] of this Proxy Statement.) The Committee
has broad authority under the 2000 Plan:
o to select the Participants;
o to determine the number of shares that are to be subject to Awards and the
terms and conditions of such Awards, including the price (if any) to be
paid for the shares or the Award and any vesting criteria;
o to permit the recipient of any Award to pay the exercise or purchase price
of the Common Shares or Award in cash, by the delivery of previously owned
shares of Common Shares, by notice and third party payment, or, if
permitted by applicable law, by a promissory note meeting the requirements
contained in the 2000 Plan;
o to reprice Options, subject to shareholder approval, and amend other option
terms, to accelerate the receipt or vesting of benefits and to extend
benefits under an Award;
o to make certain adjustments to an outstanding Award and authorize the
conversion, succession or substitution of an Award in connection with
certain reorganizations or Change in Control Events (as generally described
below under Acceleration of Awards; Possible Early Termination of Awards);
o to cancel, modify or waive the Company's rights to, or modify, discontinue,
suspend or terminate any or all outstanding Awards, subject to any required
consents;
o to accelerate or extend the exercisability or extend the term of any or all
outstanding Awards within the maximum 10-year term;
o to approve the forms of Award Agreements and construe and interpret the
2000 Plan and make all other determinations necessary or advisable for the
administration of the 2000 Plan; and
o to delegate ministerial, non-discretionary functions to individuals who are
officers and employees of the Company.
Share Limits. Various share limits are imposed under the 2000 Plan. The maximum
number of Common Shares that may be issued under the 2000 Plan may not exceed
750,000 shares of which no more than:
o 187,500 shares may be subject to Incentive Stock Options;
o 50,000 shares may be granted as Restricted Stock Awards if their vesting is
based solely on the passage of time and/or continued service;
o 50,000 shares may be issued subject to Options and to all share-based
Awards granted to an individual in any calendar year.
Each share limit and Award under the 2000 Plan is subject to adjustment for
certain changes in the Company's capital structure, reorganizations and other
extraordinary events. Shares subject to Awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
2000 Plan.
Securities Underlying Awards. The closing price of the Common Shares as of March
27, 2003 was $[_______] per share. The Company plans to register under the
Securities Act of 1933, as amended, the additional shares available under the
2000 Plan, prior to the time that any shares are issued thereunder.
Types of Awards. The Plan authorizes the grant of Options and Restricted Stock,
collectively "Awards." Generally speaking, an Option will expire, and any other
Award will vest or be forfeited, not more than 10 years after the date of grant.
The Committee determines the applicable vesting schedule for each Award. The
Company may authorize settlement of Awards in cash or Common Shares or other
Awards, subject to preexisting rights of Participants or commitments evidenced
by an Award agreement.
Transfer Restrictions. Subject to customary exceptions, Awards under the 2000
Plan are not transferable by the recipient other than by will or the laws of
descent and distribution and are generally exercisable only by the recipient.
The Committee, however, may permit certain transfers of an Award if the
transferor presents satisfactory evidence that the transfer is for estate and/or
tax planning purposes to certain related persons or entities and without
consideration (other than nominal consideration).
Stock Options. An Option is the right to purchase Common Shares at a future date
at a fixed or variable exercise price (the "Option Price") during a specified
term not to exceed 10 years. The Committee must designate each Option granted as
either an Incentive Stock Option ("ISO") or a Nonqualified Stock Option
("NQSO").
The Option Price per share will be determined by the Committee at the time of
grant, but will not be less than 100% of the fair market value of a Common Share
on the date of grant (110% in the case of an ISO granted to a beneficial holder
of more than 10% of the total combined voting power of all classes of stock of
the Company), except in the context of an acquisition of another entity, as
referred to above. ISO tax consequences differ, and ISOs are subject to more
restrictive terms by the Internal Revenue Code of 1986, as amended (the Code"),
and the 2000 Plan. Full payment for shares purchased on the exercise of any
Option and any related taxes must be made at the time of such exercise, in cash,
shares already owned, or other lawful consideration, including payment through
authorized third party payment procedures.
The Committee may grant one or more Options to any employee (including an
officer or director) of the Company or any of its subsidiaries. If the optionee
ceases to be employed by the Company, the Committee may determine the effect of
a termination of service (including retirement) on the rights and benefits under
the Options and in so doing may make distinctions based upon cause of
termination.
Restricted Stock Award. A Restricted Stock Award is an award typically for a
fixed number of Common Shares which are subject to restrictions ("Restricted
Stock"). The Committee specifies the price, if any, or services the recipient
must provide for the shares of Restricted Stock, the conditions on vesting
(which may include, among others, the passage of time or specified performance
objectives or both) and any other restrictions (for example, restrictions on
transfer) imposed on the shares. A Restricted Stock Award confers voting as well
as any dividend rights prior to vesting.
Restricted Stock Awards granted under the AIP will be granted pursuant to the
terms of the 2000 Plan and the terms of the Restricted Stock established by the
Committee. (See "Executive Officers, Experience, Security Ownership and
Compensation-Annual Incentive Plan" on page [__] of this Proxy Statement.)
Promissory Notes to Purchase Shares. The 2000 Plan allows the Committee, subject
to compliance with applicable law (including, but not limited to, the
Sarbanes-Oxley Act of 2002), to authorize acceptance of one or more promissory
notes from certain Eligible Employees to finance or facilitate the exercise or
receipt of Awards. The principal of the note must not exceed the exercise or
purchase price and applicable withholding taxes. The note must be full recourse
and secured by the stock purchased, if required by the Committee or by
applicable law, but may include favorable (below market) terms as to interest
rates or other provisions; however the interest rate cannot be less than the
interest rate necessary to avoid the imputation of interest under the Code. The
term of any note under the 2000 Plan may not exceed 5 years. The unpaid
principal balance of the note will become due and payable no later than the 10th
business day after termination of service (including
retirement), unless the Committee otherwise provides.
Adjustments. As is customary in incentive plans of this nature, the number and
kind of shares available under the 2000 Plan and the outstanding Awards, as well
as exercise or purchase prices and other share limits, are subject to adjustment
in the event of certain reorganizations, mergers, combinations, consolidations,
recapitalizations, reclassifications, stock splits, stock dividends, asset sales
or other similar events, or extraordinary dividends or distributions of property
to the Company's shareholders.
The 2000 Plan does not limit the authority of the Board or the Committee to
grant Awards or authorize any other compensation, with or without reference to
the Common Shares, under any other plan or authority.
Change in Control; Acceleration of Awards; Possible Early Termination of Awards.
Upon the occurrence of a Change in Control Event, each Option will become
immediately exercisable and Restricted Stock may immediately vest free of
restrictions, unless the Committee otherwise provides. Under the 2000 Plan, a
Change in Control Event generally includes (subject to certain exceptions):
o an acquisition by certain persons of more than 50% of the voting securities
of the Company;
o certain changes in a majority of the Board;
o certain dissolutions or liquidations of the Company; or
o certain mergers or consolidations or sales of all or substantially all of
the Company's assets, in any case involving more than a 50% change in
ownership.
In certain circumstances Awards which are fully accelerated and which are not
exercised or settled at or prior to a Change in Control Event may be terminated,
subject to any provisions for assumption, substitution or settlement. If the
vesting of an Award has been accelerated expressly in anticipation of an event
or subject to shareholder approval of an event and the Committee or the Board
later determines that the event will not occur, the Committee may rescind the
effect of the acceleration as to any then outstanding and unexercised or
otherwise unvested Awards.
Termination of or Changes to the 2000 Plan and Awards. The Board may amend or
terminate the 2000 Plan at any time and in any manner, including a manner that
increases, within 2000 Plan aggregate limits, Awards to officers and directors.
Unless required by applicable law or the terms of the 2000 Plan, shareholder
approval of amendments will not be required. No new Awards may be granted under
the 2000 Plan after January 31, 2010, although the applicable plan provisions
and authority of the Committee will continue as to any then outstanding Awards.
(This authority includes authority to amend outstanding Options or other
Awards.) Outstanding Options and other Awards generally may be amended, but the
consent of the holder is required if the amendment materially and adversely
affects the holder.
Federal Income Tax Treatment of Awards under the 2000 Plan
The federal income tax consequences of the 2000 Plan under current federal law
are summarized in the following discussion of general tax principles applicable
to the 2000 Plan. This summary is not intended to be exhaustive and does not
describe state or local tax consequences.
The Company is generally entitled to deduct and the optionee recognizes taxable
income in an amount equal to the difference between the Option Price and the
fair market value of the shares at the time of exercise of a Non-Qualified Stock
Option. With respect to Incentive Stock Options, the Company is generally not
entitled to a deduction nor does the optionee recognize income, either at the
time of grant or exercise or (provided the optionee holds the shares at least
two years after grant and one year after exercise) at any later time. Rather,
the optionee receives
capital gains treatment on the difference between his basis and the ultimate
sales price.
Restricted Stock is taxed at the time of vesting, (although employees may elect
earlier taxation and convert future gains to capital gains). The Company will
generally have a corresponding deduction at the time the optionee recognizes
income.
If an Award is accelerated under the 2000 Plan in connection with a change in
control (as this term is used under the Code), the Company may not be permitted
to deduct the portion of the compensation attributable to the acceleration
("parachute payment") in excess of average annual base salary if the parachute
payments exceed certain threshold limits under the Code; certain related excise
taxes also may be triggered. Furthermore, if compensation attributable to Awards
is not "performance-based" within the meaning of Section 162(m) of the Code, the
Company may not be permitted to deduct aggregate compensation to certain
executive officers that is not performance-based, to the extent it exceeds
$1,000,000 in any tax year.
Specific Benefits
On April 29, 2002, the Committee granted a Restricted Stock Award to Floyd E.
Wicks, the President and Chief Executive Officer of the Company, subject to
shareholder approval of the Amendments. The Restricted Stock Award covered 1,050
(after split) Common Shares, in consideration for services rendered and to be
rendered. The Restricted Stock Award will vest in three annual installments on
each first, second and third anniversaries of the award date. Additionally, on
January 1, 2003, Floyd E. Wicks was granted 4,150 additional share options
subject to shareholder approval.
The grant of other Awards under the 2000 Plan in the future and the nature of
any such Awards are subject to the Compensation Committee's discretion.
Accordingly, the number, amount and type of Awards to be received by or
allocated to Eligible Employees under the 2000 Plan in the future cannot be
determined as of this time.
PROPOSAL THREE
INCREASE IN AUTHORIZED NEW PREFERRED SHARES
--------------------------------------------------------------------------------
The Company is authorized to issue two classes of stock, New Preferred Shares
and Common Shares. The number of New Preferred Shares, which the Company is
authorized to issue, is 150,000 New Preferred Shares, of which ____ New
Preferred Shares were reserved for issuance as Junior Participating Preferred
Stock pursuant to the Company's shareholder rights plan at ____, 2003. The
Company has no outstanding New Preferred Shares. Under the Company's Amended and
Restated Articles of Incorporation (the "Articles"), the Board of Directors has
the power to determine the rights, preferences and privileges of any class or
series of New Preferred Shares.
The Board of Directors has voted to increase the authorized amount of New
Preferred Shares from 150,000 shares to 450,000 shares, subject to approval of a
majority of the outstanding Common Shares, in order to enable the Company to
issue New Preferred Shares as a means of meeting the Company's capital needs.
Preferred stock is a common part of the capital structure of public utilities
and public utility holding companies. The amount of the authorized New Preferred
Shares is, however, insufficient to enable the Company to issue New Preferred
Shares in response to market conditions. The financial terms of preferred stock,
such as dividend rate, redemption price, conversion rate, if any, and similar
terms are typically determined in negotiations with underwriters the day prior
to an offering. It is therefore not practicable to notice a special
shareholders' meeting in order
to obtain shareholder approval of a particular offering.
Although the Company does not have any current plans to issue New Preferred
Shares, the Company believes that it is in the Company's best interests for the
Board of Directors to authorize the issuance of New Preferred Shares upon terms
and conditions approved by the Board if the Board determines that it is
advantageous for the Company to do so. The Board of Directors therefore
recommends that the first paragraph of Article IV of the Articles be amended in
its entirety in order to increase the number of authorized New Preferred Shares
as follows:
This Corporation is authorized to issue two classes of stock to be designated,
respectively, "New Preferred Shares" and "Common Shares". The total number of
shares which this Corporation is authorized to issue is 30,450,000; 450,000
shares are to be New Preferred Shares with no par value with a stated value of
$100 per share and an aggregate stated value of $45,000,000, and 30,000,000
shares are to be Common Shares with no par value with a stated value of $2.50
per share and an aggregate stated value of $75,000,000.
The Company's Board of Directors has [unanimously] approved the increase in the
authorized number of New Preferred Shares.
The Company's Board of Directors recommends that the Common Shares Vote FOR an
increase in the authorized number of New Preferred Shares.
If a majority of the Company's outstanding Common Shares also approves
elimination of the concept of stated value, all references to stated value will
be eliminated from Article IV of the Articles as described below. For
information on the proposal to eliminate the concept of stated value, see
Proposals Four, Five and Six, Elimination of Certain Restrictions on Common
Shares, Proposal and Elimination of All References to Stated Value.
In certain circumstances, the authorization of classes of preferred stock with
unspecified voting rights may be used to create voting impediments or to
otherwise frustrate persons seeking to effect a merger or otherwise gain control
of an issuer. The Company has no intention of using the New Preferred Shares for
this purpose. There are also restrictions imposed on the Company by California
law and the rules of the New York Stock Exchange (the "NYSE") that would impede
the Company's ability to issue New Preferred Shares for this purpose.
Under California law, the Company is prohibited from issuing New Preferred
Shares with terms that would require the approval of more than a majority of the
New Preferred Shares, voting as a class, without obtaining approval of a
majority of the Company's outstanding Common Shares. The NYSE, as a matter of
policy, may refuse to list additional Common Shares of the Company if the
Company approves unusual voting provisions created to nullify or restrict the
voting of a class of stock or the right to veto the action of another class is
created. The NYSE is also concerned about the issuance of preferred stock which,
by its terms, would vote separately as a class from the common stock on the
approval of mergers and acquisitions, unless required by federal or state
statute. Neither California law nor the Articles require a class vote for
holders of the New Preferred Shares.
Certain provisions of the Company's Articles and Bylaws may delay or make more
difficult acquisitions or changes in control of the Company or changes in the
management of the Company. For instance, the Articles provide for the
classification of the Company's Board of Directors into one, two or three
classes (depending upon the number of directors), each consisting of a number of
directors as nearly equal as practicable. The Company's Board of Directors
currently has two classes. So long as the Board remains classified into two
classes, a minimum of two annual meetings of shareholders would
generally be required to replace the entire Board, absent intervening vacancies.
The Articles also provide that certain business combinations and sales of
substantially all of the Company's assets must be approved either by the
affirmative vote of a majority of its continuing directors or by the affirmative
vote of at least two-thirds of the combined voting power of the Company's
outstanding shares, voting together as a single class, in addition to any other
approvals required by applicable law. In addition, any amendments to the
Company's Bylaws relating to the calling of shareholders' meetings, the bringing
of business at shareholders' meetings or amending the provisions of the Articles
described in this paragraph and the preceding paragraph must be approved by at
least two-thirds of the combined voting power of the Company's outstanding
shares, voting together as a single class.
Certain provisions of state and federal law may also delay or make more
difficult acquisitions or changes in control of the Company. Certain of these
provisions are summarized below.
Under California law, if a tender offer or a written proposal for approval of a
reorganization of a corporation or a sale of substantially all of its assets is
made by an "interested party", the person making the offer must deliver an
affirmative opinion to each shareholder in writing as to the fairness of the
consideration to be received by the shareholders. The term "interested party"
means a person who is a party to the transaction and who:
o directly or indirectly controls the corporation that is the subject of the
tender offer or proposal, or
o is directly or indirectly controlled by, an officer or director of the
corporation, or
o Is an entity in which any director or executive officer holds a material
financial interest.
In addition, no person may acquire or control, either directly or indirectly,
any public utility in Arizona or California without prior approval of either the
Arizona Corporation Commission ("ACC") or the California Public Utilities
Commission ("CPUC"), as applicable. A business combination involving the Company
would result in the acquisition of control of both Southern California Water
Company, a public utility regulated by the CPUC ("SCWC"), and Chaparral City
Water Company, a public utility regulated by the ACC.
No person may acquire, either directly or indirectly, 5% or more of the voting
stock of an electric utility (other than by merger), without approval of the
Securities and Exchange Commission ("SEC"), if such person owns 5% or more of
the stock of another public utility or public utility holding company. A
registered public utility holding company may not acquire any security of
another electric utility without SEC approval, unless an exemption is available
under the Public Utility Holding Company Act of 1935, as amended (the "PUHCA"),
or the regulations promulgated thereunder. The SEC may not approve the
acquisition of securities of an electric utility or holding company unless it
determines that the acquisition would tend toward the economical and efficient
development of an integrated public utility system and would not be detrimental
to investor interests. The SEC may also condition its approval of the
acquisition of the securities of an electric utility upon a fair offer being
made for the other securities of the utility. SCW is an electric utility under
PUHCA. The company is a holding company under PUHCA.
A person becomes a holding company required to be registered under PUHCA upon
acquisition of 10% or more of the voting stock of a holding company or an
electric utility, unless the SEC determines that the person does not control the
electric utility or an exemption is available. The SEC may condition any such
determination upon the
applicant refraining from exercising voting rights, controlling proxies or
designating officers or directors.
The Company is exempt from registration as a holding company under PUHCA. The
acquisition of the Company by a third party could, however, affect the
availability of this exemption. Registered holding companies are subject to
extensive regulation by the SEC and limitations on certain of their activities.
These limitations may make it impracticable to acquire the Company, unless an
exemption is available. The Company also has a shareholder rights plan. If an
entity acquires more than 15% of the Company's outstanding voting stock, or in
the event of a squeeze-out merger, holders of the rights would be entitled to
purchase either the Company`s Common Shares or stock in the merged entity at
half of market value. The Company is entitled to redeem the rights for a nominal
amount at any time until the tenth day following public announcement that a 15%
position has been acquired in the Company.
PROPOSALS FOUR, FIVE AND SIX
ELIMINATION OF CERTAIN RESTRICTIONS ON COMMON SHARES
--------------------------------------------------------------------------------
The Company redeemed all of its outstanding Preferred Shares on April 19, 2002.
The Company thereafter amended its Articles to eliminate all rights, preferences
and privileges of the Preferred Shares, except for certain restrictions on the
Company's Common Shares which may only be eliminated if approved by a majority
of the Company's outstanding Common Shares and the Company's Board of Directors.
The Company's Board of Directors has [unanimously] voted in favor of elimination
of these restrictions.
The Company's Board of Directors recommends that the Common Shares Vote FOR
elimination of these restrictions.
There are three restrictions on the Company's Common Shares that were imposed
for the benefit of the holders of the Preferred Shares, each of which is
described below. A separate vote is required in order to eliminate each of these
restrictions.
PROPOSAL FOUR
INCREASE IN VOTING RIGHTS OF COMMON SHARES
The Company's Common Shares currently have one-tenth of a vote per share. The
Company's Preferred Shares, prior to their redemption, had one vote per share.
With the redemption of the Preferred Shares, there is no longer any reason for
the Company's Common Shares to have only one-tenth of a vote per share.
The Company's Board of Directors therefore recommends that subparagraph (1) of
the second paragraph of Article IV of the Articles be amended in its entirety to
change the voting rights of the Common Shares to one vote per share from
one-tenth of one vote per share as follows:
(1) Subject to the provisions of this Article IV, New Preferred Shares of any
particular series shall be entitled to such voting rights, if any, as may be
specified for shares of such series in the certificate of determination of
preferences of such series filed as provided below. All Common Shares shall be
entitled to voting rights on the basis of one vote per share.
PROPOSAL FIVE
ELIMINATION OF CERTAIN RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Articles currently restrict the Company's ability to declare and pay
dividends on its Common Shares, if, after giving effect to the dividend, the
Company's Common Equity as of the end of the calendar month preceding the date
of the dividend would be less than 25% of the Company's Total Capitalization on
that
date, with certain limited exceptions described below. The term "Common Equity",
as defined in the Articles, is the sum of the stated value of the Company's
Common Shares, capital surplus, earned surplus or paid-in surplus on the
Company's Common Shares and the premium, if any on the Company's Common Shares.
The term "Total Capitalization", as defined in the Articles, means the sum of
the Company's Common Equity, the premium on and the stated value of all
outstanding shares of the Company having preferences over the Common Shares as
to dividends or assets and the principal amount of all outstanding debt maturing
more than 12 months after the date of the declaration or payment of the
dividend, less all organizational expenses.
These restrictions do not apply to dividends payable in shares of the Company or
to any reclassification, subdivision, split-up or combination of Common Shares,
including any transfer between the Company's capital and surplus accounts in
connection with any such reclassification, subdivision, split-up or combination.
In addition, notwithstanding the restrictions described above, the Articles
permit the Company to declare dividends on its Common Shares in either of the
following two circumstances:
(1) the Company's Common Equity is not less than 20% of Total Capitalization and
the amount of the dividends payable on the Company's Common Shares, including
the dividend to be declared, does not exceed 75% of the Company's Net Income
applicable to Common Shares for the preceding 12 month period, or
(2) the amount of the dividends payable on the Company's Common Shares,
including the dividend to be declared, does not exceed 50% of the Company's Net
Income applicable to its Common Shares for the preceding 12 month period.
The term "Net Income", as defined in the Articles, means net income determined
in accordance with accepted accounting practice after deduction of all dividends
payable for the period on all classes of securities having a preference over the
Common Shares as to dividends or assets, less all provisions for taxes based
upon or measured by net income, annual interest charges, adjusted by provision
for amortization of bond discount and expense or premium on indebtedness, and
depreciation for the 12 month period as reported in accounts of the Company
filed with the CPUC or other public authority having jurisdiction to establish
or approve accounts of the Company.
These restrictions were imposed for the benefit of the holders of the Preferred
Shares, not the holders of the Company's Common Shares and are more restrictive
than restrictions imposed under California law on the declaration and payment of
dividends. Under California law, a corporation may pay a dividend unless, as a
result, it would likely be unable to meet its liabilities as they mature. In
addition, one of two separate tests, either the retained earnings test or the
assets/liabilities test, must be satisfied.
Under the retained earnings test, a corporation may pay a dividend if the
corporation's retained earnings, determined in accordance with generally
accepted accounting principles, equals or exceeds the amount of the proposed
dividend. Under the assets/liabilities test, a corporation may pay a dividend if
the following two tests are both satisfied:
(1) the sum of the corporation's assets (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would be at least equal
to 1 1/4 times its liabilities (not including deferred taxes, deferred income
and other credits), and
(2) current assets of the corporation would be at least equal to one times
current liabilities, unless the corporation's average earnings before interest
expense for the preceding two years was less than the average of the
corporation's interest expense for such year, in which event the corporation's
current assets to
current liabilities must be equal to at least 1 1/4 times.
In addition to being more restrictive than the dividend tests required by
California law, the definitions of "Common Equity", "Total Capitalization" and
"Net Income" use antiquated terminology, such as capital and surplus, concepts
that were deleted from California law in 1977. The definition of "Total
Capitalization" excludes a number of types of hybrid securities, such as trust
preferred securities and income preferred securities, from the definition of
"Total Capitalization", even though these types of securities are commonly found
in the capital structure of public utilities and public utility holding
companies. The definition of "Net Income" also includes references to reports of
the Company's accounts to the CPUC. The Preferred Shares were issued by SCWC and
became part of the Company's capital structure upon formation of the Company as
a holding company. Unlike SCWC, the Company does not file reports of its
accounts with the CPUC. As a result, the references to the CPUC are outdated.
The Company's Board of Directors does not believe that there is any benefit to
holders of its Common Shares in retaining restrictions on payment of dividends
intended to protect holders of Preferred Shares which have been redeemed that:
o Are more restrictive than required by California law, and
o Do not reflect current California law, accounting concepts and the
Company's status as a holding company not directly regulated by the CPUC.
The Company therefore recommends that subparagraph (3) of the second paragraph
of Article IV of the Articles be amended in its entirety in order to delete
certain restrictions on the ability of the Company to pay dividends on the
Common Shares as follows:
(3) Subject to the dividend preferences provided for all shares of each other
class at the time outstanding and to the restrictions set forth in this
Paragraph (3), the Common Shares shall be entitled to receive dividends when and
as declared by the Board of Directors out of any funds of this Corporation
legally available therefore. After payment of the full preferential amounts
hereinabove provided for all shares of each other class outstanding at the time
of any liquidation, dissolution or winding up of this Corporation, whether
voluntary or involuntary, all then remaining assets of this Corporation
available for distribution to its shareholders shall be distributed ratably upon
the Common Shares.
The Company's Common Equity is ___% of Total Capitalization on a consolidated
basis at December 31, 2002. As a result, the restrictions on the payment of
dividends contained in the Articles do not currently impose any impediments to
the Company's ability to declare dividends on the Common Shares, but could do so
in the future.
PROPOSAL SIX
ELIMINATION OF ALL REFERENCES TO STATED VALUE
Each of the Company's Common Shares has a stated value of $2.50 and its Common
Shares have an aggregate stated value of $75,000,000. Each of the Company's New
Preferred Shares has a stated value of $100 per share and an aggregate stated
value of $15,000,000. All other references to stated value were eliminated from
the Articles at the time the Articles were amended to eliminate the rights,
preferences and privileges of the Preferred Shares, with the exception of
references to stated value in restrictions on the Company's ability to pay
dividends on Common Shares described above. The concept of stated value, along
with the related concepts of par value and no par value, were also eliminated
from California law in 1977. As a result, the remaining references to stated
value will no longer serve any function if the restrictions on the Company's
ability to pay dividends on Common Shares are eliminated.
The Board of Directors therefore recommends that the first paragraph of Article
IV of the Articles be amended in its entirety in order to delete all references
to stated value as follows, unless a majority of the outstanding Common Shares
does not approve the elimination of certain restrictions on the Company's
ability to pay dividends on Common Shares described above:
This Corporation is authorized to issue two classes of stock to be designated,
respectively, "New Preferred Shares" and "Common Shares". The total number of
shares which this Corporation is authorized to issue is 30,150,000; 150,000
shares are to be New Preferred Shares with no par value, and 30,000,000 shares
are to be Common Shares with no par value.
If a majority of the outstanding Common Shares does not approve the elimination
of the restrictions on the payment of dividends, then the Board of Directors
recommends that the first paragraph of Article IV of the Articles be amended in
its entirety to delete all references to stated value of the New Preferred
Shares as follows:
This Corporation is authorized to issue two classes of stock to be designated,
respectively, "New Preferred Shares" and "Common Shares". The total number of
shares which this Corporation is authorized to issue is 30,150,000; 150,000
shares are to be New Preferred Shares with no par value, and 30,000,000 shares
are to be Common Shares with no par value with a stated value of $2.50 per share
and an aggregate stated value of $75,000,000
If a majority of the Company's outstanding Common Shares also approve an
increase in the authorized amount of the Company's New Preferred Shares, the
total number of shares which this Corporation will be authorized to issue will
be 30,450,000, instead of 30,150,000, and the total number of New Preferred
Shares which this Corporation will be authorized to issue will be 450,000,
instead of 150,000.
PROPOSAL SEVEN
RATIFY THE APPOINTMENT OF PRICEWATERHOUSE COOPERS, LLP AS THE INDEPENDENT
AUDITORS
--------------------------------------------------------------------------------
The Board of Directors has appointed PricewaterhouseCoopers, LLP as the
Company's independent public accountants for the year ended December 31, 2002,
subject to ratification by the Company's shareholders. Representatives of
PricewaterhouseCoopers are expected to be in attendance at the Annual Meeting of
Shareholders and will have an opportunity to make a statement, if they desire to
do so, and to respond to appropriate questions from those attending the meeting.
STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following graph compares the Company's cumulative total shareholder return
on its Common Shares with the cumulative total return of (i) the Standard &
Poor's 500 Stock Index, and (ii) the Dow Jones Water Utility Index.
The cumulative total shareholder return computations set forth in the Stock
Performance Graph assume an initial investment of $100 made on December 31, 1997
in each of the Company's Common Shares, the Standard & Poor's 500 Stock Index
and the Dow Jones Water Utility Index. The computations also assume reinvestment
of all dividends. As with any investment, the historical performance reflected
in the Stock Performance Graph is not necessarily indicative of future
performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG AMERICAN STATES WATER COMPANY, THE STANDARD & POOR's 500
STOCK INDEX AND THE DOW JONES WATER UTILITIES INDEX
[LINE GRAPH]
---------------------------------------------------------------------------------
Cumulative Total Return
---------------------------------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
------------------------------------------------------------------------------------------------------------------------
American States Water Company 100.00 114.14 157.22 168.14 165.66 170.31
------------------------------------------------------------------------------------------------------------------------
S&P 500 Index 100.00 128.58 155.64 141.46 124.65 97.10
------------------------------------------------------------------------------------------------------------------------
Dow Jones Water Utilities Index 100.00 127.99 120.87 140.63 198.31 210.05
------------------------------------------------------------------------------------------------------------------------
*$100 Invested on 12/31/97 in stock or index -- including reinvestment of dividends. Fiscal year-ending December 31.
------------------------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
--------------------------------------------------------------------------------
The following table sets forth information with respect to the beneficial owners
of more than five percent of any class of the Company's voting securities on
March 26, 2003 based upon public information known to and believed to be correct
by the Company.
------------------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owners Amount and Nature of
Title of Class Beneficial Ownership Percent of Class
------------------------------------------------------------------------------------------------------------------------
Common Shares
------------------------------------------------------------------------------------------------------------------------
INFORMATION ON INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
The Audit and Finance Committee of the Board of Directors considers and
recommends to the Board of Directors the selection of the Company's independent
public accountants. As recommended by the Company's Audit and Finance Committee,
effective as of May 13, 2002, the Company's Board of Directors dismissed Arthur
Andersen LLP ("Andersen") as its independent public accountants and engaged
PricewaterhouseCoopers LLP (PwC) to serve as the Company's independent public
accountants for 2002.
Andersen's reports on the Company's consolidated financial statements for each
of the years ended December 31, 2001 and December 31, 2000 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
During the Company's two most recent fiscal years and through the Form 8-K,
dated May 13, 2002 there were no disagreements with Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Andersen's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on the Company's consolidated financial statements for such years; and
there were no reportable events, as listed in Item 304(a)(1)(v) of Regulation
S-K.
The Company provided Andersen with a copy of the foregoing and by letter dated
May 13, 2002, Andersen stated its agreement with such statements. The Company
also gave Andersen an opportunity to comment on the information in this Section,
but received no comments from Andersen.
During the Company's two most recent fiscal years and through the date of this
Proxy Statement, the Company did not consult PricewaterhouseCoopers LLP with
respect to the application or accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on Registrant's consolidated financial statements, or any other matters
or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.
AUDIT FEES
Fees for the fiscal year 2002 audit and quarterly reviews are $XXXX, of which an
aggregate amount of $250,932 has been billed through December 31, 2002, of which
$170,732 was paid to PwC.
FINANCIAL INFORMATION SYSTEMS AND IMPLEMENTATION FEES
PricewaterhouseCoopers, LLP rendered no such services to the Company during
fiscal year 2002.
ALL OTHER FEES
Aggregate fees billed for all other services for fiscal year 2002 were $118,949
all of which were audit related fees. Audit-related fees include statutory
audits of subsidiaries; benefit plan audits, accounting consultation, attest
services under professional standards, assistance with registration statements,
comfort letters and consents. Non-audit fees include billings for tax-related
services.
OTHER MATTERS
--------------------------------------------------------------------------------
Management of the Company knows of no business, other than that mentioned above,
to be transacted at the Annual Meeting, but if other matters properly come
before the meeting, it is the intention of the persons named in the enclosed
proxy to vote in regard thereto in accordance with their judgment, and
discretionary authority to do so is included in the proxy. Whether or not you
intend to be present at the meeting, you are urged to complete, sign and return
your proxy promptly.
PROPOSALS FOR NEXT ANNUAL MEETING
--------------------------------------------------------------------------------
REQUIREMENTS FOR SHAREHOLDER PROPOSALS TO BE BROUGHT BEFORE AN ANNUAL MEETING
For shareholder proposals to be considered before an annual meeting by a
shareholder, the shareholder must have given timely notice in writing to the
Secretary of the Company. To be timely for the 2004 Annual Meeting, a
shareholder's notice must be delivered to or mailed and received by the
Secretary of the Company at the principal executive offices of the Company not
less than 75 days nor more than 90 days prior to the first anniversary of the
2003 Annual Meeting; provided however that in the event that the annual meeting
date is changed by more than 30 days from such anniversary date, notice by the
shareholder to be timely must be received not later than the close of business
on the tenth day following the day on which notice of the meeting was mailed or
public disclosure of the date of the meeting was made. A shareholder's notice to
the Secretary must set forth as to each matter the shareholder proposes to bring
before the annual meeting (i) a brief description of the matter to be brought
before the annual meeting and the reasons for conducting such matter at the
annual meeting, (ii) the name and record address of the shareholder proposing
such business (and the name and address of the beneficial owner, if any), (iii)
the class and number of shares of the Company which are owned by the
shareholder, and (iv) any material interest of the shareholder in such matter.
REQUIREMENTS FOR SHAREHOLDER PROPOSALS TO BE CONSIDERED FOR INCLUSION IN THE
COMPANY'S PROXY MATERIALS
Shareholder proposals submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended and intended to be presented at the Company's
2004 Annual Meeting of Shareholders must be received by the Company not later
than December 20, 2003 in order to be considered for inclusion in the Company's
proxy materials for that meeting and must satisfy the requirement for such
proposals set forth in the Rule.
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
The Company undertakes, on written request, to provide, without charge, to each
person from whom the accompanying proxy is solicited, with a copy of the
Company's Annual Report on Form 10-K for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission, including the financial
statements and schedules. Requests should be addressed to American States Water
Company, 630 East Foothill Boulevard, San Dimas, California 91773, Attention:
Office of the Secretary.
ATTACHMENT I
AMERICAN STATES WATER COMPANY
2000 STOCK INCENTIVE PLAN
(As Proposed to be Amended)
1. THE PLAN
1.1 Purpose
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company. "Corporation"
means American States Water Company and "Company" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms are defined
in Article 5.
1.2 Administration and Authorization; Power and Procedure.
(a) Committee. This Plan shall be administered by and all Awards to
Eligible Employees shall be authorized by the Committee. Action of the Committee
with respect to the administration of this Plan shall be taken pursuant to a
majority vote or by written consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine eligibility and, from among those persons
determined to be eligible, the particular Eligible Employees who will
receive an Award;
(ii) to grant Awards to Eligible Employees, determine the price
at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of such
Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants
under this Plan, further define the terms used in this Plan, and
prescribe, amend and rescind rules and regulations relating to the
administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Employees, subject to any required
consent under Section 4.6;
(vi) to accelerate or extend the exercisability or extend the
term of any or all such outstanding Awards within the maximum ten-year
term of Awards under Section 1.6; and
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(vii) to make all other determinations and take such other action
as contemplated by this Plan or as may be necessary or advisable for
the administration of this Plan and the effectuation of its purposes.
(c) Binding Determinations/Liability Limitation. Any action taken by,
or inaction of, the Corporation, any Subsidiary, the Board or the Committee
relating or pursuant to this Plan and within its authority hereunder or under
applicable law shall be within the absolute discretion of that entity or body
and shall be conclusive and binding upon all persons. Neither the Board nor any
Committee, nor any member thereof or person acting at the direction thereof,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with this Plan (or any Award made
under this Plan), and all such persons shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or expense
(including, without limitation, attorneys' fees) arising or resulting there from
to the fullest extent permitted by law and/or under any directors and officers
liability insurance coverage that may be in effect from time to time.
(d) Reliance on Experts. In making any determination or in taking or
not taking any action under this Plan, the Committee or the Board, as the case
may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No director, officer or agent of the
Company shall be liable for any such action or determination taken or made or
omitted in good faith.
(e) Delegation. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Company.
1.3 Participation
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.
1.4 Shares Available for Awards; Share Limits.
(a) Shares Available. Subject to the provisions of Section 4.2, the
capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock. The shares may be delivered
for any lawful consideration.
(b) Share Limits. The maximum number of shares of Common Stock that
may be delivered pursuant to Awards granted to Eligible Employees under this
Plan shall not exceed 750,000 shares (the "Share Limit"). The maximum number of
shares of Common Stock that may be delivered pursuant to options qualified as
Incentive Stock Options granted under this Plan is 187,500 shares. The maximum
number of shares subject to those options that are granted during any calendar
year to any individual shall be limited to 50,000 and the maximum individual
limit on the number of shares in the aggregate subject to all Awards that during
any calendar year are granted under this Plan shall be 50,000. Each of the four
foregoing numerical limits shall be subject to adjustment as contemplated by
this Section 1.4 and Section 4.2.
(c) Share Reservation; Replenishment and Reissue of Unvested Awards.
No Award may be granted under this Plan unless, on the date of grant, the sum of
(i) the maximum number of shares issuable at any time pursuant to such Award,
plus (ii) the number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable legal limitations, plus (iii) the maximum
number of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not exceed the Share
Limit. Shares that are subject to or underlie Awards which expire or for any
reason are cancelled or terminated, are forfeited, fail to vest, or for any
other reason are not paid or delivered under this Plan, as well as reacquired
shares, shall again, except to the extent prohibited by law, be available for
subsequent Awards under the Plan. Except as limited by law, if an
I-2
Award is or may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
1.5 Grant of Awards.
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award and the
price (if any) to be paid for the shares or the Award. Each Award shall be
evidenced by an Award Agreement signed by the Corporation and, if required by
the Committee, by the Participant. The Award Agreement shall set forth the
material terms and conditions of the Award established by the Committee
consistent with the specific provisions of this Plan.
1.6 Award Period.
Each Award and all executory rights or obligations under the related
Award Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options or other rights to acquire Common Stock
not later than ten (10) years after the Award Date.
1.7 Limitations on Exercise and Vesting of Awards.
(a) Provisions for Exercise. Unless the Committee otherwise expressly
provides, no Award shall be exercisable or shall vest until at least six months
after the initial Award Date, and once exercisable an Award shall remain
exercisable until the expiration or earlier termination of the Award.
(b) Procedure. Any exercisable Award shall be deemed to be exercised
when the Secretary of the Corporation receives written notice of such exercise
from the Participant, together with any required payment made in accordance with
Section 2.2.
(c) Fractional Shares/Minimum Issue. Fractional share interests shall
be disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Employees that cash, other securities, or other property
will be paid or transferred in lieu of any fractional share interests. No fewer
than 100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
1.8 Acceptance of Notes to Finance Exercise.
The Corporation may, with the Committee's approval, accept one or more
notes from any Eligible Employee in connection with the exercise or receipt of
any outstanding Award; provided that any such note shall be subject to the
following terms and conditions:
(a) The principal of the note shall not exceed the amount required to
be paid to the Corporation upon the exercise or receipt of one or more Awards
under the Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the
Committee; provided that the term of the note, including extensions, shall not
exceed a period of five years.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than the
interest rate necessary to avoid the imputation of interest under the Code.
(d) If the employment of the Participant terminates, the unpaid
principal balance of the note shall become due and payable on the 10th business
day after such termination; provided, however, that if a sale of such shares
would cause such Participant to incur liability under Section 16(b) of the
Exchange Act, the unpaid
I-3
balance shall become due and payable on the 10th business day after the first
day on which a sale of such shares could have been made without incurring such
liability assuming for these purposes that there are no other transactions (or
deemed transactions in securities of this Corporation) by the Participant
subsequent to such termination.
(e) If required by the Committee or by applicable law, the note shall
be secured by a pledge of any shares or rights financed thereby in compliance
with applicable law.
(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform with
applicable rules and regulations of the Federal Reserve Board as then in effect.
1.9 No Transferability; Limited Exception to Transfer Restrictions.
(a) Limit On Exercise and Transfer. Unless otherwise expressly
provided in (or pursuant to) this Section 1.9, by applicable law and by the
Award Agreement, as the same may be amended, (i) all Awards are non-transferable
and shall not be subject in any manner to sale, transfer, anticipation,
alienation, assignment, pledge, encumbrance or charge; Awards shall be exercised
only by the Participant; and (ii) amounts payable or shares issuable pursuant to
an Award shall be delivered only to (or for the account of) the Participant.
(b) Exceptions. The Committee may permit Awards to be exercised by
and paid only to certain persons or entities related to the Participant,
including but not limited to members of the Participant's immediate family, or
trusts or other entities whose beneficiaries or beneficial owners are members of
the Participant's immediate family, pursuant to such conditions and procedures
as the Committee may establish. Any permitted transfer shall be subject to the
condition that the Committee receive evidence satisfactory to it that the
transfer is being made for essentially estate and/or tax planning purposes on a
gratuitous or donative basis and without consideration (other than nominal
consideration or in exchange for an interest in a qualified transferee).
Notwithstanding the foregoing or anything to contrary in Section 1.9(c), ISOs
and Restricted Stock Awards shall be subject to any and all additional transfer
restrictions under the Code.
(c) Further Exceptions to Limits On Transfer. The exercise and
transfer restrictions in Section 1.9(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the
event of the Participant's death or, if the Participant has died,
transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution,
(iii) transfers pursuant to a QDRO order if approved or ratified
by the Committee,
(iv) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by his or her
legal representative, or
(v) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Committee.
2. OPTIONS.
2.1 Grants.
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One or more Options may be granted under this Article to any Eligible
Employee. Each Option granted shall be designated in the applicable Award
Agreement, by the Committee as either an Incentive Stock Option, subject to
Section 2.3, or a Non-Qualified Stock Option.
2.2 Option Price.
(a) Pricing Limits. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the time of the
Award, but shall not be less than 100% (110% in the case of an ISO granted to a
Participant described in Section 2.4) of the Fair Market Value of the Common
Stock on the date of grant.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.8; (iv) by notice and third party payment in such
manner as may be authorized by the Committee; or (v) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
2.3 Limitations on Grant and Terms of Incentive Stock Options.
(a) $100,000 Limit. To the extent that the aggregate "Fair Market
Value" of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to Incentive Stock Options under this Plan and
stock subject to incentive stock options under all other plans of the Company,
such options shall be treated as Nonqualified Stock Options. For this purpose,
the "Fair Market Value" of the stock subject to options shall be determined as
of the date the options were awarded. In reducing the number of options treated
as incentive stock options to meet the $100,000 limit, the most recently granted
options shall be reduced first. To the extent a reduction of simultaneously
granted options is necessary to meet the $100,000 limit, the Committee may, in
the manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
(b) Option Period. Each Option and all rights thereunder shall expire
no later than 10 years after the Award Date.
(c) Other Code Limits. Incentive Stock Options may only be granted to
Eligible Employees of the Corporation or a Subsidiary that satisfies the other
eligibility requirements of the Code. There shall be imposed in any Award
Agreement relating to Incentive Stock Options such other terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 Limits on 10% Holders.
No Incentive Stock Option may be granted to any person who, at the
time the Option is granted, owns (or is deemed to own under Section 424(d) of
the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
I-5
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions.
Subject to Section 1.4 and Section 4.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee
any adjustment in the exercise or purchase price, the vesting schedule, the
number of shares subject to, the restrictions upon or the term of, an Award
granted under this Article by cancellation of an outstanding Award and a
subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result in, among other changes, an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award, provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise period; provided,
however, that, except for adjustments contemplated by Section 4.2, any such
amendment that results in the reduction of the exercise or purchase price below
the exercise price or purchase price of the original or prior Award shall be
subject to prior shareholder approval.
2.6 Effects of Termination of Employment; Termination of Subsidiary
Status; Discretionary Provisions.
(a) Options - Resignation or Dismissal. If the Participant's
employment by the Company terminates for any reason (the date of such
termination being referred to as the "Severance Date") other than Retirement,
Total Disability or death, or for Cause (as determined in the discretion of the
Committee), the Participant shall have, unless otherwise provided in the Award
Agreement and subject to earlier termination pursuant to or as contemplated by
Section 1.6 or 4.2, three months after the Severance Date to exercise any Option
to the extent it shall have become exercisable on the Severance Date. In the
case of a termination for Cause, the Option shall terminate on the Severance
Date. In other cases, the Option, to the extent not exercisable on the Severance
Date, shall terminate.
(b) Options - Death or Disability. If the Participant's employment by
the Company terminates as a result of Total Disability or death, the
Participant, Participant's Personal Representative or his or her Beneficiary, as
the case may be, shall have, unless otherwise provided in the Award Agreement
and subject to earlier termination pursuant to or as contemplated by Section 1.6
or 4.2, until 12 months after the Severance Date to exercise any Option to the
extent it shall have become exercisable by the Severance Date. Any Option to the
extent not exercisable on the Severance Date shall terminate.
(c) Options - Retirement. If the Participant's employment by the
Company terminates as a result of Retirement, the Participant, Participant's
Personal Representative or his or her Beneficiary, as the case may be, shall
have, unless otherwise provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 4.2, until 12
months after the Severance Date to exercise any Option to the extent it shall
have become exercisable by the Severance Date. The Option, to the extent not
exercisable on the Severance Date, shall terminate.
(d) Committee Discretion. Notwithstanding the foregoing provisions of
this Section 2.6, in the event of, or in anticipation of, a termination of
employment with the Company for any reason, other than discharge for Cause, the
Committee may, in its discretion, increase the portion of the Participant's
Award available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, or, subject to the provisions of Section
1.6, extend the exercisability period upon such terms as the Committee shall
determine and expressly set forth in or by amendment to the Award Agreement.
3. RESTRICTED STOCK AWARDS.
3.1 Grants.
The Committee may, in its discretion, grant one or more Restricted
Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement
shall specify the number of shares of Common Stock to be
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issued to the Participant, the date of such issuance, the consideration for such
shares (but not less than the minimum lawful consideration under applicable
state law) by the Participant, the extent (if any) to which and the time (if
ever) at which the Participant shall be entitled to dividends, voting and other
rights in respect of the shares prior to vesting, and the restrictions (which
may be based on performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions of release or
lapse of such restrictions. Such restrictions shall not lapse earlier than six
months after the Award Date, except to the extent the Committee may otherwise
provide. Stock certificates evidencing shares of Restricted Stock pending the
lapse of the restrictions ("Restricted Shares") shall bear a legend making
appropriate reference to the restrictions imposed hereunder and shall be held by
the Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance of
the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.
3.2 Restrictions.
(a) Pre-Vesting Restraints. Except as provided in Section 3.1 and
1.9, restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.
(b) Dividend and Voting Rights. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, provided that such rights shall terminate
immediately as to any Restricted Shares which cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or received
cash (including any dividends) in connection with the Restricted Stock Award,
the Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
3.3 Return to the Corporation.
Unless the Committee otherwise expressly provides, Restricted Shares
that remain subject to restrictions at the time of termination of employment or
are subject to other conditions to vesting that have not been satisfied by the
time specified in the applicable Award Agreement shall not vest and shall be
returned to the Corporation in such manner and on such terms as the Committee
shall therein provide.
4. OTHER PROVISIONS
4.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Employment Status. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) No Employment Contract. Nothing contained in this Plan (or in any
other documents under this Plan or in any Award) shall confer upon any Eligible
Employee or Participant any right to continue in the employ or other service of
the Company, constitute any contract or agreement of employment or other service
or affect an employee's status as an employee at will, nor shall interfere in
any way with the right of the Company to change a person's compensation or other
benefits, or to terminate his or her employment or other service, with or
without cause. Nothing in this Section, however, is intended to adversely affect
any express independent right of such person under a separate employment or
service contract other than an Award Agreement.
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(c) Plan Not Funded. Awards payable under this Plan shall be payable
in shares or from the general assets of the Corporation, and (except as provided
in Section 1.4(c)) no special or separate reserve, fund or deposit shall be made
to assure payment of such Awards. No Participant, Beneficiary or other person
shall have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise provided) of
the Company by reason of any Award hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right shall be no greater than the right
of any unsecured general creditor of the Company.
4.2 Adjustments; Acceleration.
(a) Adjustments. Upon or in contemplation of any reclassification,
recapitalization, stock split (including a stock split in the form of a stock
dividend) or reverse stock split; any merger, combination, consolidation, or
other reorganization; any spin-off, split-up, or similar extraordinary dividend
distribution ("spin-off") in respect of the Common Stock (whether in the form of
securities or property); any exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate transaction in
respect of the Common Stock; or a sale of all or substantially all the assets of
the Corporation as an entirety ("asset sale"); then the Committee shall, in such
manner, to such extent (if any) and at such time as it deems appropriate and
equitable in the circumstances:
(1) proportionately adjust any or all of (a) the number and type
of shares of Common Stock (or other securities) that thereafter may be
made the subject of Awards (including the specific maxima and numbers
of shares set forth elsewhere in this Plan), (b) the number, amount
and type of shares of Common Stock (or other securities or property)
subject to any or all outstanding Awards, (c) the grant, purchase, or
exercise price of any or all outstanding Awards, (d) the securities,
cash or other property deliverable upon exercise of any outstanding
Awards, or (e) (subject to limitations under Section 4.10(c)) the
performance standards appropriate to any outstanding Awards, or
(2) make provision for a cash payment or for the assumption,
substitution or exchange of any or all outstanding share-based Awards
or the cash, securities or property deliverable to the holder of any
or all outstanding share-based Awards, based upon the distribution or
consideration payable to holders of the Common Stock upon or in
respect of such event.
The Committee may adopt such valuation methodologies for outstanding Awards as
it deems reasonable in the event of a cash or property settlement and, in the
case of Options, but without limitation on other methodologies, may base such
settlement solely upon the excess if any of the amount payable upon or in
respect of such event over the exercise or strike price of the Award.
In each case, with respect to Awards of Incentive Stock Options, no adjustment
shall be made in a manner that would cause the Plan to violate Section 422 or
424(a) of the Code or any successor provisions without the written consent of
holders materially adversely affected thereby.
In any of such events, the Committee may take such action prior to such event to
the extent that the Committee deems the action necessary to permit the
Participant to realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is or will be available to shareholders
generally.
(b) Possible Early Termination of Accelerated Awards. If any Option
or other right to acquire Common Stock under this Plan has been fully
accelerated as required or permitted by Section 4.2(c) but is not exercised
prior to (1) a dissolution of the Company, or (2) an event described in Section
4.2(a) that the Company does not survive, or (3) the consummation of an event
described in Section 4.2(a) involving a Change of Control
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Event approved by the Board, such Option or right shall terminate, subject to
any provision that has been expressly made by the Board or the Committee,
through a plan of reorganization or otherwise, for the survival, substitution,
assumption, exchange or other settlement of such Option or right.
(c) Acceleration of Awards Upon Change in Control. Unless prior to a
Change in Control Event the Committee determines that, upon its occurrence,
benefits under any or all Awards shall not be accelerated or determines that
only certain or limited benefits under any or all Awards shall be accelerated
and the extent to which they shall be accelerated, and/or establishes a
different time in respect of such Event for such acceleration, then upon the
occurrence of a Change in Control Event:
(1) each Option shall become immediately exercisable, and
(2) Restricted Stock shall immediately vest free of restrictions.
Any discretion with respect to these events shall be limited to the extent
required by applicable accounting requirements in the case of a transaction
intended to be accounted for as a pooling of interests transaction.
The Committee may override the limitations on acceleration in this Section
4.2(c) by express provision in the Award Agreement and may accord any Eligible
Employee a right to refuse any acceleration, whether pursuant to the Award
Agreement or otherwise, in such circumstances as the Committee may approve. Any
acceleration of Awards shall comply with applicable legal requirements and, if
necessary to accomplish the purposes of the acceleration or if the circumstances
require, may be deemed by the Committee to occur (subject to Section 4.2(d) a
limited period of time not greater than 30 days before the event. Without
limiting the generality of the foregoing, the Committee may deem an acceleration
to occur immediately prior to the applicable event and/or reinstate the original
terms of an Award if an event giving rise to an acceleration does not occur.
(d) Possible Rescission of Acceleration. If the vesting of an Award
has been accelerated expressly in anticipation of an event or upon shareholder
approval of an event and the Committee or the Board later determines that the
event will not occur, the Committee may rescind the effect of the acceleration
as to any then outstanding and unexercised or otherwise unvested Awards.
(e) Acceleration Upon Termination of Service Following a Change in
Control.
(1) Termination After Change in Control. If any Participant's
employment is terminated by the Company upon or within one year after
a Change in Control Event, and the termination is not the result of
death, Total Disability, Retirement or a termination for Cause, then,
subject to the other provisions of this Section 4.2 (including without
limitation Section 4.2(b) and Section 4.4), all outstanding Options
and other Awards held by the Participant shall be deemed fully vested
immediately prior to the Severance Date, irrespective of the vesting
provisions of the Participant's Award Agreement, unless the Award
Agreement specifies a different result in the case of a Change in
Control Event.
(2) No Extension Beyond Expiration. Notwithstanding the
foregoing, in no event shall an Award be reinstated or extended beyond
its final expiration date.
4.3 Effect of Termination of Service on Awards.
(a) General. The Committee shall establish the effect of a
termination of employment on the rights and benefits under each Award under this
Plan and in so doing may make distinctions based upon the cause of termination.
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(b) Events Not Deemed Terminations of Service. Unless Company policy
or the Committee otherwise provides, the employment relationship shall not be
considered terminated in the case of (i) sick leave, (ii) military leave, or
(iii) any other leave of absence authorized by the Company or the Committee;
provided that unless reemployment upon the expiration of such leave is
guaranteed by contract or law, such leave is for a period of not more than 90
days. In the case of any Eligible Employee on an approved leave of absence,
continued vesting of the Award while on leave from the employ of the Company
shall be suspended, unless the Committee otherwise provides or applicable law
otherwise requires. In no event shall an Award be exercised after the expiration
of the term set forth in the Award Agreement.
(c) Effect of Change of Subsidiary Status. For purposes of this Plan
and any Award, if an entity ceases to be a Subsidiary a termination of
employment shall be deemed to have occurred with respect to each Eligible
Employee in respect of the Subsidiary who does not continue as an Eligible
Employee in respect of another entity within the Company.
4.4 Compliance with Laws.
This Plan, the granting and vesting of Awards under this Plan, the offer,
issuance and delivery of shares of Common Stock, the acceptance of promissory
notes and/or the payment of money under this Plan or under Awards are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. In addition, any securities
delivered under this Plan may be subject to any special restrictions that the
Committee may require to preserve a pooling of interests under generally
accepted accounting principles. The person acquiring any securities under this
Plan will, if requested by the Company, provide such assurances and
representations to the Company as the Committee may deem necessary or desirable
to assure compliance with all applicable legal and accounting requirements.
4.5 Tax Matters.
(a) Provision for Tax Withholding or Offset. Upon any exercise,
vesting, or payment of any Award or upon the disposition of shares of Common
Stock acquired pursuant to the exercise of an Incentive Stock Option prior to
satisfaction of the holding period requirements of Section 422 of the Code, the
Company shall have the right at its option to (i) require the Participant (or
Personal Representative or Beneficiary, as the case may be) to pay or provide
for payment of the minimum amount of any taxes which the Company may be required
to withhold with respect to such Award event or payment or (ii) deduct from any
amount payable in cash the minimum amount of any taxes which the Company may be
required to withhold with respect to such cash payment. In any case where a tax
is required to be withheld in connection with the delivery of shares of Common
Stock under this Plan, the Committee may in its sole discretion (subject to
Section 4.4) grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their Fair Market Value, to satisfy such minimum
withholding obligation, determined in each case as of the trading day next
preceding the applicable date of exercise, vesting or payment. Shares in no
event shall be withheld in excess of the minimum number required for tax
withholding under these provisions.
4.6 Plan Amendment, Termination and Suspension.
(a) Board Authorization. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after termination of
this Plan, but the Committee shall retain jurisdiction as to Awards then
outstanding in accordance with the terms of this Plan.
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(b) Shareholder Approval. To the extent then required under Sections
162, 422 or 424 of the Code or any other applicable law, or by the provisions of
Section 2.5 of the Plan, or deemed necessary or advisable by the Board, any
amendment to this Plan shall be subject to shareholder approval.
(c) Amendments to Awards. Without limiting any other express
authority of the Committee under (but subject to) the express limits of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Participants that the Committee in the prior exercise
of its discretion has imposed, without the consent of a Participant, and
(subject to the requirements of Section 1.2(b)) may make other changes to the
terms and conditions of Awards that do not affect in any manner materially
adverse to the Participant, the Participant's rights and benefits under an
Award.
(d) Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of this Plan or change of or affecting any outstanding
Award shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Company under any Award granted under this Plan prior to
the effective date of such change. Changes contemplated by Section 4.2 shall not
be deemed to constitute changes or amendments for purposes of this Section 4.6.
4.7 Privileges of Stock Ownership.
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by the
Participant. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
4.8 Effective Date of the Plan.
This Plan is effective as of January 27, 2000 the date of approval by the
Board. The Plan shall be submitted for and subject to shareholder approval.
4.9 Term of the Plan.
No Award will be granted under this Plan after January 26, 2010 (the
"termination date"). Unless otherwise expressly provided in this Plan or in an
applicable Award Agreement, any Award granted prior to the termination date may
extend beyond such date, and all authority of the Committee with respect to
Awards hereunder, including the authority to amend an Award, shall continue
during any suspension of this Plan and in respect of Awards outstanding on the
termination date.
4.10 Governing Law/Construction/Severability.
(a) Choice of Law. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California.
(b) Severability. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining provisions of this Plan shall
continue in effect.
(c) Plan Construction.
(1) Rule 16b-3. It is the intent of the Corporation that the
Awards and transactions permitted by Awards be interpreted in a manner
that, in the case of Participants who are or may be subject to Section
16 of the Exchange Act, satisfies the applicable requirements for
exemptions under Rule 16b-3. The exemption will not be available if
the authorization of actions by any Committee of the Board with
respect to such Awards does not satisfy the applicable
I-11
conditions of Rule 16b-3. Notwithstanding the foregoing, the
Corporation shall have no liability to any Participant for Section 16
consequences of Awards or events under Awards.
(2) Section 162(m). It is the further intent of the Company that
(to the extent the Company or Awards under this Plan may be or become
subject to limitations on deductibility under Section 162(m) of the
Code), Options granted with an exercise or base price not less than
Fair Market Value on the date of grant will qualify as
performance-based compensation or otherwise be exempt from
deductibility limitations under Section 162(m) of the Code, to the
extent that the authorization of the Award (or the payment thereof, as
the case may be) satisfies any applicable administrative requirements
thereof.
4.11 Captions.
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.
4.12 Stock-Based Awards in Substitution for Stock Options or Awards Granted
by Other Corporation.
Awards may be granted to Eligible Employees under this Plan in substitution
for employee stock options, stock appreciation rights, restricted stock or other
stock-based awards granted by other entities to persons who are or who will
become Eligible Employees in respect of the Company, in connection with a
distribution, merger or other reorganization by or with the granting entity or
an affiliated entity, or the acquisition by the Company, directly or indirectly,
or all or a substantial part of the stock or assets of the employing entity.
4.13 Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
4.14 No Corporate Action Restriction.
The existence of the Plan, the Award Agreements and the Awards granted
hereunder shall not limit, affect or restrict in any way the right or power of
the Board or the shareholders of the Corporation to make or authorize: (a) any
adjustment, recapitalization, reorganization or other change in the
Corporation's or any Subsidiary's capital structure or its business, (b) any
merger, amalgamation, consolidation or change in the ownership of the
Corporation or any subsidiary, (c) any issue of bonds, debentures, capital,
preferred or prior preference stock ahead of or affecting the Corporation's or
any Subsidiary's capital stock or the rights thereof, (d) any dissolution or
liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of
all or any part of the Corporation or any Subsidiary's assets or business, or
(f) any other corporate act or proceeding by the Corporation or any Subsidiary.
No participant, beneficiary or any other person shall have any claim under any
Award or Award Agreement against any member of the Board or the Committee, or
the Corporation or any employees, officers or agents of the Corporation or any
Subsidiary, as a result of any such action.
4.15 Other Company Benefit and Compensation Program.
Payments and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant's compensation
for purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Corporation or any
Subsidiary, except where the Committee or the Board expressly otherwise provides
or authorizes in writing. Awards under this Plan may be made in addition to, in
combination with, as alternatives to or in payment of grants, awards or
commitments under any other plans or arrangements of the Company or the
Subsidiaries.
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5. DEFINITIONS.
5.1 Definitions.
(a) "Award" means an award of any Option or Restricted Stock, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.
(b) "Award Agreement" means any writing setting forth the terms of an
Award that has been authorized by the Committee.
(c) "Award Date" means the date upon which the Committee took the
action granting an Award or such later date as the Committee designates as the
Award Date at the time of the Award.
(d) "Award Period" means the period beginning on an Award Date and
ending on the expiration date of such Award.
(e) "Beneficiary" means the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Award Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is designated and able to act under the circumstances.
(f) "Board" means the Board of Directors of the Corporation.
(g) "Cause" with respect to a Participant means (unless otherwise
expressly provided in the applicable Award Agreement or another
applicable contract with the Participant) a termination of
employment based upon a finding by the Company, acting in good
faith and based on its reasonable belief at the time, that the
Participant:
(1) has failed to render services to the Company where such
failure amounts to gross negligence or misconduct of the Participant's
responsibility and duties; or
(2) has committed an act of fraud or been dishonest against the
Company or any affiliate of the Company; or
(3) has been convicted of a felony or other crime involving moral
turpitude.
A termination for Cause shall be deemed to occur (subject to reinstatement upon
a contrary final determination by the Committee) on the date on which the
Company first delivers written notice to the Participant of a finding of
termination for Cause.
(h) "Change in Control Event" means any of the following events
(1) the dissolution or liquidation of either the Company, unless
its business is continued by another entity in which holders of the
Company's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing entity's
voting securities immediately after the event;
(2) any sale, lease, exchange or other transfer (in one or a
series of transactions) of all or substantially all of the assets of
either the Company, unless its business is continued by another entity
in which holders of the Company's voting securities immediately before
the event own, either directly or indirectly, more than 50% of the
continuing entity's voting securities immediately after the event;
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(3) any reorganization or merger of the Company, unless the
holders of the Company's voting securities immediately before the
event own, either directly or indirectly, more than 50% of the
continuing or surviving entity's voting securities immediately after
the event;
(4) an acquisition by any person, entity or group acting in
concert of more than 50% of the voting securities of the Company,
unless the holders of the Company's voting securities immediately
before the event own, either directly or indirectly, more than 50% of
the acquirer's voting securities immediately after the acquisition; or
(5) a change of one-half or more of the members of the Board of
Directors of the Company within a twelve-month period, unless the
election or nomination for election by shareholders of new directors
within such period constituting a majority of the applicable Board was
approved by the vote of at least two-thirds of the directors then
still in office who were in office at the beginning of the
twelve-month period.
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(j) "Commission" means the Securities and Exchange Commission.
(k) "Committee" means the Board or one or more committees appointed
by the Board to administer all or certain aspects of this Plan, each committee
to be comprised solely of one or more directors or such number as may be
required under applicable law.
(l) "Common Stock" means the Common Stock of the Corporation and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 4.2 of this
Plan.
(m) "Company" means, collectively, the Corporation and its
Subsidiaries.
(n) "Corporation" means American States Water Company, a California
corporation, and its successors.
(o) "Eligible Employee" means an officer (whether or not a director)
or key employee of the Company, including participants in the American States
Water Company Annual Incentive Plan.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(q) "Fair Market Value" on any date means (1) if the stock is listed
or admitted to trade on a national securities exchange, the closing price of the
stock on the Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on which the stock
is so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (2) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (3) if the stock is not listed or admitted to
trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD or a similar organization; or (4) if the
stock is not listed or admitted to trade on a national securities exchange, is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the value
as established by the Committee at such time for purposes of this Plan.
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(r) "Incentive Stock Option" means an Option which is intended, as
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of shareholder approval of this Plan, if the
Award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.
(s) "Nonqualified Stock Option" means an Option that is designated as
a Nonqualified Stock Option and shall include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted hereunder that is not designated as an incentive
stock option shall be deemed to be designated a nonqualified stock option under
this Plan and not an incentive stock option under the Code.
(t) "Option" means an option to purchase Common Stock granted under
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option.
(u) "Participant" means an Eligible Employee who has been granted an
Award under this Plan.
(v) "Personal Representative" means the person or persons who, upon
the disability or incompetence of a Participant, shall have acquired on behalf
of the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.
(w) "Plan" means this 2000 Stock Incentive Plan, as it may be amended
from time to time.
(x) "QDRO" means a qualified domestic relations order.
(y) "Restricted Shares" or "Restricted Stock" means shares of Common
Stock awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include, among
others, the passage of time, specified performance objectives or other factors)
and such transfer and other restrictions as are established in or pursuant to
this Plan and the related Award Agreement, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
(z) "Retirement" means retirement from active service as an employee
or officer of the Company on or after attaining age 65.
(aa) "Rule 16b-3" means Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.
(bb) "Section 16 Person" means a person subject to Section 16(a) of
the Exchange Act.
(cc) "Securities Act" means the Securities Act of 1933, as amended
from time to time.
(dd) "Subsidiary" means any corporation or other entity a majority of
whose outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
(ee) "Total Disability" means a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.
I-15
ATTACHMENT II
AUDIT and FINANCE COMMITTEE CHARTER
(Applicable to American States Water Company
and its subsidiaries, hereinafter "the Corporation")
Purpose
The Audit/Finance Committee (hereinafter, "the Committee") is a committee of the
Board of Directors (hereinafter, "the Board"). Its primary functions are: to
assist the Board in fulfilling its oversight responsibilities by reviewing the
financial information which will be provided to the shareholders and others, the
systems of internal controls which management and the Board have established,
and the audit process; and to review and make recommendations to the Board with
respect to the management of the financial affairs of the Corporation. In doing
so, the Committee shall have the sole responsibility and authority to appoint,
oversee, terminate and compensate the Corporation's independent accountants. The
Committee shall provide an avenue of communication between the Board,
management, the internal auditor, and the independent accountants.
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 Corporation's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Committee to conduct investigations, or to assure compliance with laws and
regulations and the Corporation's code of conduct.
The outside auditor and internal audit function ultimately report to the Board
of Directors and the Audit and Finance Committee of the Board of Directors.
Organization
The Board shall appoint the members of the Committee annually. The Committee
shall be composed of at least three, but not more than five, directors that meet
the independence and experience requirements of the New York Stock Exchange. At
least one member shall have the experience and knowledge to meet the definition
of "financial expert" as defined by the rules of the Securities and Exchange
Commission.
The Chairman of the Board shall serve as an "ex-officio" member of the
Committee. The Board shall appoint one of the members of the Committee as
Chairperson. It is the responsibility of the Chairperson to schedule all
meetings of the Committee and, with the assistance of management, provide the
committee with a written agenda for all meetings.
Audit/Finance Committee members may receive no remuneration from the Corporation
or its subsidiaries other than that received as members of the Board and
committees of the Board.
In meeting its responsibilities, the Committee shall:
General
o Have the power to conduct or authorize investigations into any matters
within the Committee's scope of responsibilities. The Committee shall have
unrestricted access to members of management and all information relevant
to its responsibilities. The Committee shall be empowered to retain
independent counsel, accountants or others to assist it in the conduct of
any investigation of matters brought to its attention within the scope of
its duties as outlined herein.
o Meet at least 4 times per year or more frequently as circumstances require.
The Committee may ask members of management or others to attend the
meetings and provide pertinent information as necessary.
o Submit the Committee meeting minutes and report actions of the Committee to
the Board with such recommendations as the Committee may deem appropriate.
o Review the Committee's charter annually and update as necessary and
annually review its own performance.
o Review accounting and financial human resources and succession planning
within the Corporation.
o Perform such other functions assigned by law, the Corporation's by-laws, or
the Board.
II-1
o Receive reports under Section 10A of the Securities Exchange Act which
requires the Corporation's independent auditors to report illegal acts
(other than those which are inconsequential) to the Committee.
o Meet at least quarterly with the internal auditor, the independent
accountants and the chief financial officer in separate executive sessions
to discuss any matters that the Committee or these groups believe should be
discussed privately with the Committee. Among the items to be discussed in
these meetings are the independent accountants' evaluation of the
Corporation's financial, accounting and auditing personnel and the
cooperation and/or any conflicts experienced with management during the
course of the audit or other related engagements.
Internal Controls and Risk Assessment
o Review and evaluate the effectiveness of the Corporation's process for
assessing significant risks or exposures and the steps management has taken
to minimize such risks to the Corporation.
o Consider and review with management, the independent accountants and
internal auditing:
1. The adequacy and effectiveness of, or weaknesses in, the Corporation's
internal controls including computerized information system controls
and security, the overall control environment and accounting and
financial controls.
2. Any related significant findings and recommendations of the
independent accountants and internal auditing together with
management's responses thereto, including the timetable for
implementation of recommendations to correct weaknesses in internal
controls.
o Review with internal auditing and the independent accountants, the
coordination of audit effort to assure completeness of coverage of key
business controls and risk areas, reduction of redundant efforts, and the
effective use of audit resources.
o Discuss with management, the Corporation's independent accountants, and
internal auditing, the status and adequacy of management information
systems and other information technology, including the significant risks
related thereto and major controls over such activities.
Financial Reporting
o Review filings with the Securities and Exchange Commission (including,
without limitation "Management's Discussion and Analysis of Financial
Condition and Results of Operations, when applicable) and other significant
published documents filed with other agencies containing the Corporation's
financial statements, including annual and interim reports, pre-announced
press releases of earnings, statutory filings, as well as financial
information and earnings guidance provided to analysts and ratings
agencies, and consider whether the information contained in these documents
is consistent with the information contained in the financial statements.
o Review with management and the independent accountants at the completion of
the annual examination:
1. The Corporation's annual financial statements and related footnotes.
2. The independent accountants' audit of the financial statements and its
report thereon.
3. Any significant changes required in the independent accountants' audit
plan.
4. Any serious difficulties or disputes with management encountered
during the course of the audit.
5. The existence of significant estimates and judgments underlying the
financial statements, including the rationale behind those estimates
as well as the details on material accruals and reserves.
6. Other matters related to the conduct of the audit that are to be
communicated to the Committee under generally accepted auditing
standards or pursuant to the rules of the Securities and Exchange
Commission or the requirements of the New York Stock Exchange.
7. Review the Corporation's accounting principles and proposed changes
thereto.
8. Review the adequacy and appropriateness of the Corporation's code of
business conduct.
9. Advise the Board with respect to the Corporation's policies and
procedures regarding compliance with applicable laws and regulations.
o Assess internal processes for determining and managing key financial
statement risk areas.
External Independent Auditor
o Review and recommend to the Board the independent accountants to be
nominated to audit the financial statements of the Corporation, approve the
compensation of the independent accountants, and review and
II-2
approve the discharge of the independent accountants.
o Meet with and review the scope and approach for the proposed annual audit
with the independent accountants to:
1. Assess the external auditors' process for identifying and responding
to key audit and internal control risks.
2. Review the external auditors' identification of issues and business
and financial risks and exposures.
3. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
o Confirm and assure the independence of the independent accountants in
writing, including a review of the nature of all services and related fees
provided by the independent accountants.
o Review the qualifications of the independent accountants.
o Direct the attention of the independent accountants to specific matters or
areas deemed by the Committee to be of special significance; and
authorizing the independent accountants to perform such supplemental
reviews or audits.
o Instruct the independent accountants to communicate directly to the
Committee any serious difficulties or disputes with management and resolve
disputes between management and the independent accountants
o Recommend to the Board policies for the Corporation's hiring of employees
or former employees of the independent accountants who were engaged on the
Corporation's account.
o Obtain and review any reports required to be obtained from independent
accountants pursuant to the rules of the Securities and Exchange Commission
or the requirements of the New York Stock Exchange.
Internal Auditor
o Meet with the internal auditor and evaluate the internal audit process for
establishing the annual internal audit plans and the focus on risk and the
coordination of such plans with the independent accountants.
o Consider, in consultation with the internal auditor, the audit scope and
the overall role of the internal auditors.
o Review and evaluate the scope, risk assessment and nature of the internal
auditors' plan and any subsequent changes, including whether or not the
internal auditors' plan is sufficiently linked to the Corporation's overall
business objectives and management's success and risk factors.
o Receive prior to each meeting, a summary of the findings from completed
internal audits since the prior such report and a progress report on the
proposed audit plan, with explanations of deviations there from.
o At least annually, consider and review with management and internal
auditing:
1. Significant findings during the year and management's responses
thereto, including the timetable for implementation of the
recommendations to correct weaknesses in internal control.
2. Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information.
3. Any changes required in the planned scope of their audit plan.
4. The internal auditing department budget and staffing. Internal
auditing department's compliance with The IIA's Standards for the
Professional Practice of Internal Auditing.
o Review and concur in the appointment, replacement, reassignment, or
dismissal of personnel in internal auditing.
o Confirm and assure the independence of the internal auditor function within
the Corporation.
Finance Matters
o Review and make recommendations thereon to the Board for the following:
1. Proposed changes to the capital structure of the Corporation,
including the establishment or revision of bank lines of credit or
other short-term borrowing arrangements, the issuance of any
intermediate or long-term indebtedness and the issuance of additional
equity securities.
2. Proposed capital expenditures budget of the Corporation.
3. Performance of the investment manager for the Pension Plan assets.
4. Financial impact of the implementation of all compensation and
employee benefit plans and of any amendments or modifications thereto
and the actuarial assumptions and financial policies pertaining to the
investment of funds related to such plans.
II-3
5. Operations of and reporting for all employee benefit plans to ensure
that they are operated in accordance with existing legal requirements
and sound financial principles.
o Consider, review and make appropriate recommendations to the Board with
respect to all other financial matters of the Corporation specifically
delegated to it by the Board in the management of the financial affairs of
the Corporation.
o Review the activities of management in the sale and issuance of specific
debt and equity securities, when specifically authorized to do so by action
of the Board.
Reports
o Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Corporation's annual proxy statement.
o Submit a written affirmation annually, or whenever the composition of the
Committee changes, to the New York Stock Exchange certifying that the
Committee meets the requirements of the New York Stock Exchange.
o Disclose, on a triennial basis, this Charter in the Corporation's annual
meeting of shareholders.
II-4
[LOGO]
American States
WATER COMPANY
AMERICAN STATES WATER COMPANY
630 E. FOOTHILL BLVD.
SAN DIMAS, CA 91773
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions up until 11:59 P.M.
Eastern Time the day before the meeting date. Have your proxy card in hand when
you access the web site. You will be prompted to enter your 12-digit Control
Number which is located below to obtain your records and to create an electronic
voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the meeting date. Have your proxy card in hand
when you call. You will be prompted to enter your 12-digit Control Number which
is located below and then follow the simple instructions the Vote Voice provides
you.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to American States Water Company, c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
AMSTA1 KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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AMERICAN STATES WATER COMPANY
The Board of Directors recommends that Shareholders vote FOR each of the
nominees for Class I directors listed below.
Election of Directors
1. To elect three Class I directors to the Board of Directors of the Company
to serve until their successors are elected and qualified. The Board of
Directors has nominated the following individuals for election as Class I
directors: 01) James L. Anderson, 02) Anne M. Holloway, and 03) Floyd E.
Wicks
For Withhold For All To withhold authority to vote, mark "For All
All All Except Except" and write the nominee's number on
the line below.
( ) ( ) ( )
---------------------------------------------
For Against Abstain
2. To approve amendments to the Company's
2000 Stock Incentive Plan ( ) ( ) ( )
3. To approve an increase in authorized New
Preferred Shares ( ) ( ) ( )
4. To approve an increase in the voting
rights of the Common Shares to one vote
per share ( ) ( ) ( )
5. To approve deletion of certain
restrictions on the Company's ability to
pay dividends on Common Shares ( ) ( ) ( )
6. To approve elimination of all references
to stated value in the Company's
Articles of Incorporation ( ) ( ) ( )
7. To ratify the appointment of
PricewaterhouseCoopers, LLP as the
independent auditors ( ) ( ) ( )
8. To transact any other business, which
may properly come before the meeting or
any adjournment thereof. ( ) ( ) ( )
For address changes and/or comments, please check this box and
write them on the back where indicated ( )
Please sign exactly as name(s) appear hereon. When shares are
held by joint tenants, both should sign. When signing as attorney
or executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Yes No
Please indicate if you plan to attend the meeting ( ) ( )
----------------------------------------- -------------------------------
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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INFORMATION ABOUT ATTENDING
We will hold the Annual Meeting at the Pasadena Hilton in Pasadena, California.
Shareholders must present a ticket to be admitted to the Annual Meeting. For
shareholders of record, your admission ticket is the detachable portion of your
proxy form. Please have your ticket out and available when you reach the
registration area at the Annual Meeting.
For shareholders who hold shares through a brokerage firm, bank or other holder
of record, your ticket is the copy of your latest account statement showing your
American States Water Company stock balance. Please present your account
statement to the registration area at the Annual Meeting.
[MAP]
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AMERICAN STATES WATER COMPANY 2003 ANNUAL
MEETING OF SHAREHOLDERS
APRIL 29, 2003
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Lloyd E. Ross and N.P. Dodge, Jr., and each
or any of them, proxies of the undersigned, each with full power of
substitution, to vote in their discretion at the Annual Meeting of Shareholders
of the Company (the "Annual Meeting") and any adjournments thereof. The Annual
Meeting will be held on Tuesday, April 29, 2003 at 10:00 a.m., Pacific Time at
the Hilton Pasadena, 168 South Los Robles Avenue, Pasadena, California.
This proxy, when properly executed, will be voted in the manner described
herein by the undersigned shareholder(s) and the named proxies will, in their
sole discretion, vote such shares on any other matters that may properly come
before the meeting or any adjournments thereof. If no direction is made, this
proxy will be voted FOR the listed Nominees. Further, if cumulative voting
rights for the election of directors (Item 1) are exercised at the meeting, the
proxies will cumulatively vote their shares as provided in the proxy statement.
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Address Changes/Comments: ____________________________________________
______________________________________________________________________
______________________________________________________________________
----------------------------------------------------------------------
(If you noted any Address Changes/Comments above, please mark
corresponding box on the reverse side.)
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