DEF 14A: Definitive proxy statements
Published on March 20, 2002
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California Water Service Group
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[GRAPHIC OMITTED]
California Water Service Group
Notice of 2002 Annual Meeting and
Proxy Statement
Rising to the challenge
Corporate Profile
California Water Service Group provides high-quality water utility services to
1.5 million people through four subsidiaries: California Water Service Company,
Washington Water Service Company, New Mexico Water Service Company, and CWS
Utility Services. Regulated by state utility commissions, Cal Water and
Washington Water provide water utility services to customers in 96 communities
throughout California and Washington. New Mexico Water is nearing completion of
its acquisition of a regulated water utility in that state. CWS Utility Services
conducts the Company's non-regulated business, which includes providing billing
and meter reading services, as well as full-system water operations, for cities
and companies in California, Washington and New Mexico.
[LOGO] California Water Service Group
California Water Service Company, New Mexico Water Service Company,
Washington Water Service Company and CWS Utility Services
1720 North First Street o San Jose, CA 95112-4598 o (408) 367-8200
March 25, 2002
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders at 10:00
A.M. on Wednesday, April 24, 2002 at the executive offices of California Water
Service Group, 1720 North First Street, San Jose, California. At the Annual
Meeting, we will review our 2001 performance and answer your questions.
With this letter, we are including the notice for the Annual Meeting, the
proxy statement, the proxy card and the 2001 Annual Report. This year we've
again made arrangements for you to vote over the Internet or by telephone, as
well as by the traditional proxy card. See the proxy card for instructions on
these methods of voting.
When you review this proxy statement, you may wish to keep two factors in
mind. First, you will be deciding who will serve as the Group's directors until
the next Annual Meeting. The directors also will serve on the boards of two of
the Group's subsidiaries, California Water Service Company and CWS Utility
Services. Second, you will be deciding on the ratification of the appointment of
independent auditors.
Whether or not you plan on attending the Annual Meeting on April 24, 2002,
I hope you will vote as soon as possible. Your vote is important.
Thank you for your ongoing support of and continued interest in California
Water Service Group.
Sincerely,
/s/ ROBERT W. FOY
ROBERT W. FOY
CHAIRMAN OF THE BOARD
California Water Service Group 1
2002 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
For directions to the Annual Meeting, please refer to the map on the inside back
cover.
2 California Water Service Group
California Water Service Group
1720 North First Street
San Jose, CA 95112-4598
(408) 367-8200
Notice of Annual Meeting of Stockholders
Time 10:00 A.M. on Wednesday, April 24, 2002
Place Executive Offices of California Water Service Group,
1720 North First Street, San Jose, California
Items of Business (1) To elect directors
(2) To ratify the appointment of independent auditors
(3) To consider such other business as may properly come
before the meeting
Record Date You are entitled to vote if you were a stockholder at the
close of business on Monday, February 25, 2002.
Voting by Proxy Please submit a proxy as soon as possible so that your
shares can be voted at the meeting in accordance with your
instructions. You may submit your proxy (1) over the
Internet, (2) by telephone, or (3) by mail. For specific
instructions, please refer to the Questions and Answers
beginning on page 4 of this proxy statement and the
instructions on the proxy card.
By Order of the Board of Directors
PAUL G. EKSTROM
CORPORATE SECRETARY
This notice of meeting and proxy statement and accompanying proxy card are
being distributed beginning on or about March 25, 2002.
California Water Service Group 3
Questions and Answers About the Proxy Materials and the Annual Meeting
What am I voting on?
o Election of eight directors to serve until the 2003 Annual Meeting
o Ratification of the Board's selection of KPMG LLP, as the Group's
independent auditors for 2002
Those elected to serve as the Group's directors also will serve as the
directors of California Water Service Company and CWS Utility Services, two of
the Group's operating subsidiaries.
Who may attend the Annual Meeting?
All Group stockholders may attend.
Who is entitled to vote?
Stockholders of record at the close of business on February 25, 2002 (the
"Record Date"), or those with a valid proxy from a brokerage firm or another
similar organization which held shares on the Record Date.
How many votes do I get?
Each share of common stock is entitled to one vote. Each share of preferred
stock is entitled to 16 votes. You may also use "cumulative voting" in the
election of directors.
What is "cumulative voting" and how does it work?
Stockholders or persons holding a valid proxy may "cumulate" their votes for the
election of directors. That is, they may give one candidate eight votes for each
common share owned (instead of casting one vote for each of the eight candidates
they may cast all eight votes for a single candidate) or they may distribute
their votes on the same principle among as many candidates as they desire.
Because each preferred share is entitled to 16 votes, preferred stockholders may
cumulate 128 votes (16 x 8) for each share owned. If you do not indicate
otherwise, the proxies may use their discretion to cumulate votes.
How are the directors elected?
The eight nominees receiving the highest number of votes are elected to the
Board. Common and preferred shares vote together on directors. A vacancy exists
on the board because of a director who resigned. The board expects to fill the
vacancy after the Annual Meeting.
Who are the Board's nominees?
The nominees are Douglas M. Brown, Robert W. Foy, Edward D. Harris, Jr., M.D.,
Richard P. Magnuson, Linda R. Meier, Peter C. Nelson, Langdon W. Owen, and
George A. Vera. All the nominees are current Board members. See pages 10 and 11
for biographical information, including the nominees' current directorships in
other publicly held companies.
What is the required vote for the second proposal to pass?
In order for the Board's selection of KPMG LLP as auditors to be ratified the
proposal must receive the affirmative vote of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting.
How do I vote?
You may vote by mail.
You do this by signing the proxy card and mailing it in the enclosed,
prepaid and addressed envelope. If you mark your voting instructions on the
proxy card, your shares will be voted as you instruct.
You may vote by telephone.
You do this by following the "Vote by Telephone" instructions on the proxy
card. If you vote by telephone, you do not have to mail in your proxy card.
Stockholders who do not have touch-tone phones will not be able to vote by
telephone.
4 California Water Service Group
You may vote on the Internet.
You do this by following the "Vote by Internet" instructions on the proxy
card. If you vote on the Internet, you do not have to mail in your proxy card.
You may vote in person at the meeting.
We will pass out written ballots to anyone who wants to vote at the
meeting. If you hold your shares in street name, you must request a legal proxy
from your stockbroker in order to vote at the meeting.
If you return a signed card but do not provide voting instructions, your
shares will be voted:
o for the eight named director nominees
o for the approval of the selection of auditors
We have been advised by counsel that these telephone and Internet voting
procedures comply with Delaware law.
What if I change my mind after I return my proxy?
You may revoke your proxy any time before the polls close at the meeting. You
may do this by:
o signing another proxy with a later date,
o voting by telephone or on the Internet (your latest telephone or Internet
proxy is counted),
o voting again at the meeting, or
o notifying the Corporate Secretary, in writing, that you wish to revoke your
previous proxy. We must receive your notice prior to the vote at the Annual
Meeting.
Will my shares be voted if I do not return my proxy?
If you are a stockholder of record (that is, you hold your shares in your own
name) your shares will not be voted unless you attend the meeting and vote in
person. Different rules apply if your broker holds your shares for you.
What happens if my shares are held by my stockbroker?
Your broker, under certain circumstances, may vote your shares.
Brokers will write to you asking how you want your shares voted. However,
if you do not respond, brokers have authority under exchange regulations to vote
your unvoted shares on certain "routine" matters, including election of
directors and approval of auditors. If you wish to change voting instructions
you give to your broker, you must ask your broker how to do so.
If you do not give your broker voting instructions, the broker may either:
o proceed to vote your shares on routine matters and refrain from voting on
non-routine matters, or
o leave your shares entirely unvoted.
Shares which your broker does not vote ("broker non-votes") will count
towards the quorum only. We encourage you to provide your voting instructions to
your broker. This ensures that your shares will be voted at the meeting.
You may have granted to your stockbroker discretionary voting authority
over your account. If so, your stockbroker may be able to vote your shares even
on non-routine matters, depending on the terms of the agreement you have with
your stockbroker.
What happens if I abstain from voting on a proposal?
If you abstain from voting on a proposal (whether by proxy or in person at the
Annual Meeting), your shares will be counted in determining whether we have a
quorum but the abstention will have the same effect as a vote against a
proposal.
Who will count the vote?
Representatives of EquiServe, our transfer agent, will serve as the inspector of
elections and count the votes.
California Water Service Group 5
What does it mean if I get more than one proxy card?
It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please sign and return all proxy cards to ensure that all your
shares are voted.
What constitutes a quorum?
A majority of the outstanding shares--present at the Annual Meeting or
represented by persons holding valid proxies--constitutes a quorum. If you
submit a valid proxy card, your shares will be part of the quorum.
Without a quorum, no business may be transacted at the Annual Meeting.
However, whether or not a quorum exists, a majority of the voting power of those
present at the Annual Meeting may adjourn the Annual Meeting to another date,
time and place.
There were 15,182,046 shares of our common stock outstanding and entitled
to vote at the Annual Meeting and 139,000 shares of our preferred stock
outstanding and entitled to vote at the Annual Meeting.
What percentage of stock do the directors and executive officers own?
Together, they own less than one percent of our common and preferred stock. See
page 13 for more details.
Who are the largest stockholders?
As of January 1, 2002, the largest principal stockholders were:
o SJW Corp. (1,099,952 shares of common stock, representing 7.3%);
o Employee Savings Plan of California Water Service Group, a Group-sponsored
401(k) plan (589,101 shares of common stock, representing 3.9%); and
o GE Investments (36,610 shares of Series C preferred stock, representing
26.3%).
See page 14 for more details.
What is the deadline for submitting stockholder proposals for the Group's proxy
materials for next year's Annual Meeting?
Any proposals which stockholders intend to present at the 2003 Annual Meeting
must be received by the Corporate Secretary of the Group by November 25, 2002 in
order to be considered for inclusion in the Group's 2003 proxy materials. A
proposal and any supporting statement together may not exceed 500 words. Please
submit the proposal to Paul G. Ekstrom, Corporate Secretary, California Water
Service Group, 1720 North First Street, San Jose, California 95112-4598.
How can a stockholder propose a nominee for the Board?
Any stockholder of record who is entitled to vote at a stockholders meeting may
propose a nominee for the Board. The bylaws contain the requirements for doing
so. Contact the Corporate Secretary to request a copy of the full bylaw
requirements. Briefly, a stockholder must give timely prior notice to the Group.
The notice must be received by the Corporate Secretary at the Group's principal
place of business by the 150th day before the first anniversary of the prior
year's Annual Meeting. If we move the date of the meeting by more than thirty
days before or more than sixty days after the date of the previous meeting,
notice is due by the 150th day before the Annual Meeting or the 10th day after
we publicly announce the holding of the meeting.
If the Board calls a special meeting to elect directors, stockholder notice
is due by the 150th day prior to that meeting or the 10th day after we publicly
announce the holding of the special meeting and identify the Board's director
nominees. The bylaws do not affect the rights of preferred holders to nominate
directors where they are otherwise entitled to do so.
The bylaws specify what the notice must contain. The notice deadline for
the 2003 Annual Meeting is November 25, 2002.
6 California Water Service Group
How can a stockholder propose business at a stockholders' meeting?
Any stockholder of record who is entitled to vote at a stockholders' meeting may
propose business for the meeting. Just as with nominations, the bylaws contain
the requirements. Contact the Secretary of the Group and request a copy of the
full bylaw requirements. The stockholder must give timely prior notice to the
Group. The deadlines are the same as for stockholder nominations discussed
above.
The bylaws specify what the notice must contain. Stockholders must comply
with all requirements of the securities laws regarding proposals. The bylaws do
not affect any stockholder right to request inclusion of proposals in the
Group's proxy statement under the rules of the Securities and Exchange
Commission.
Because of the 150-day notice requirement discussed above, stockholders who
have not given prior notice may not raise a proposal (or a nomination) at this
year's meeting.
How can I make comments and/or ask questions during the Annual Meeting?
Stockholders wishing to address the meeting are welcome to do so by adhering to
the following guidelines:
1. Stockholders may address the meeting when recognized by the Chairman or
President and Chief Executive Officer.
2. Each stockholder, when recognized, should stand and identify himself or
herself.
3. Stockholder remarks must be limited to matters before the meeting and may
not exceed 2 minutes in duration per speaker.
California Water Service Group 7
Board Structure
This section briefly describes the functions of the principal committees of the
Board.
AUDIT: Reviews the Group's auditing, accounting, financial reporting and
internal audit functions. Also recommends the selection of independent auditors
to the Board. All members are non-employee directors and are independent as
defined in the listing standards of the New York Stock Exchange.
COMPENSATION: Reviews the Group's executive compensation and employee benefit
plans and programs, including their establishment, modification and
administration. All members are non-employee directors.
EXECUTIVE: Has limited powers to act on behalf of the Board whenever it is not
in session. This Committee meets only as needed.
During 2001, there were 11 regular meetings of the Board, four meetings of
the Audit Committee, one meeting of the Compensation Committee, and no meetings
of the Executive Committee. Linda R. Meier, a member of the Board of Directors,
attended less than 75% all Board and applicable committee meetings. Collectively
the director-nominees who served on the Board of California Water Service Group
in 2001 attended 93% of all of the Board and applicable committee meetings.
8 California Water Service Group
Director Compensation Arrangements
The following table provides information on the Group's compensation and
reimbursement practices during fiscal year 2001 for non-employee directors, as
well as the range of compensation paid to non-employee directors who served the
entire 2001 fiscal year. Directors who are employed by the Group receive no
compensation for their Board activities except a fee for attending each Board
meeting. Directors receive no additional compensation for serving on the Boards
of the Group's subsidiaries.
DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2001
Annual Director Retainer $18,000
Board and Committee Meeting Attendance Fees $1,040 and $950
Range of Committee Meeting Attendance Fees Paid to Directors $950 -- $4,750
Committee Meeting Attendance Fees for Committee Chairs $1,900
COMPENSATION. In 2001, Directors Harris, Magnuson, Meier, Owen and Vera received
an annual retainer of $18,000. Director Brown, elected to the Board in April
2001, received an annual retainer of $12,000. Effective January 1, 2002, all
directors are paid a meeting attendance fee of $1,115 and non-employee committee
chairs are paid a meeting attendance fee of $2,230.
DEFERRED COMPENSATION PLAN. Effective January 1, 2000, the Group established the
California Water Service Group Director, Officer and Manager Deferred
Compensation Plan, an unfunded deferred compensation program for non-employee
directors, executive officers and managers. This plan succeeded the California
Water Service Group Directors Deferred Compensation Plan, which originally
became effective in January 1998. Under the new plan, as under the predecessor
plan, non-employee directors may defer up to 100% of their annual retainer with
a minimum annual deferral of $5,000. The plan also allows non-employee directors
to defer 100% of their meeting and committee meeting fees. Directors who are
also executive officers may defer 100% of their meeting fees and up to 50% of
their annual salary with a minimum annual deferral of $5,000. Other executive
officers and managers, who elect to participate in the plan, may defer up to 50%
of their annual salary with a minimum deferral of $5,000. Amounts deferred are
fully vested and recorded by Group as general liabilities and the value of
deferrals fluctuate according to one of several investment indices selected by
the participant. Funds are distributed from this plan when the participant
ceases to be a director (unless the participant is an employee, in which case we
make a distribution when employment terminates). Distributions also are
available upon a showing of hardship. Amounts remaining undistributed at death
are distributed to the participant's designated beneficiary or beneficiaries.
Group is under no obligation to make any investment or otherwise fund the plan.
Participants are general, unsecured creditors of the Group.
RETIREMENT PLAN. Effective January 1, 1998, we established a directors
retirement plan to succeed the retirement plan of California Water Service
Company. This plan operates in the same manner as the prior plan. Any director
who retires after serving on the Board for a total of five or more years
(including service on the California Water Service Company Board before January
1, 1998) will receive a benefit equal to the annual retainer paid to our
non-employee directors at the time of the director's retirement. This benefit
will be paid annually for the number of years the director served on the Board,
up to a maximum of 10 years.
California Water Service Group 9
Proposals of the Board Proposal
No. 1 - Election of Directors
There are eight nominees for election to our Board this year. All of the
nominees have served as directors since the last Annual Meeting. Information
regarding the business experience of each nominee is provided below. All
directors are elected annually to serve until the next Annual Meeting and until
their respective successors are elected.1
The Board of Directors recommends a vote FOR the election of each of the
following nominees.
Vote Required
The eight persons receiving the highest number of votes represented by
outstanding shares present or represented by proxy and entitled to vote will be
elected. Except as otherwise indicated, each director has served for at least
five years in the positions stated below.
Douglas M. Brown(4)
Director since 2001
age 64
Mr. Brown, a resident of the state of New Mexico, is president and chief
executive officer of Tuition Plan Consortium. He is also chairman of Talbot
Financial Services. From 1990 to 1999, he was president and chief executive
officer of Talbot Financial Services.
Robert W. Foy(2)
Director since 1977
age 65
Mr. Foy is chairman of the board of California Water Service Group and its
subsidiaries. He was formerly president and chief executive officer of Pacific
Storage Company, a diversified transportation and warehousing Group serving
Stockton, Modesto, Sacramento, San Jose, Vallejo, Marysville and Merced,
California. He has served as chairman of California Water Service Group since
January 1, 1996.
Edward D. Harris, Jr., M.D.(2,4)
Director since 1993
age 64
Dr. Harris is the George DeForest Barnett professor of medicine at Stanford
University Medical Center, where he is the director of the
Immunology/Rheumatology Division and the medical director of the International
Medicine Service. He is a director of the Genentech Research and Educational
Foundation. He is also the executive secretary of Alpha Omega Alpha, the
National Medical Honor Society and the governor of the American College of
Physicians/American Society of Internal Medicine--Northern California Chapter.
Richard P. Magnuson(3,4)
Director since 1996
age 46
Mr. Magnuson is a private venture capitalist. From 1984 to 1996, he was a
general partner of Menlo Ventures, a venture capital firm. He also is a director
of several privately held companies.
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Douglas M. Brown Robert W. Foy Edward D. Harris Jr., M.D. Richard P. Magnuson
10 California Water Service Group
Linda R. Meier(3,4,6)
Director since 1994
age 61
Ms. Meier is a director of Greater Bay Bancorp, the Peninsula Community
Foundation and the National Advisory Board of the Haas Public Service Center.
She is also a member of the Board of Trustees of the California Academy of
Sciences, the former chair of the Stanford University Hospital Board of
Directors (1992-1997) and a former trustee of Stanford University (1984-1994).
She currently serves as chair of the Stanford Athletic Board and chair of the
Western Regional Advisory Board of the Institute of International Education and
is a member of the National Board of the Institute of International Education.
Peter C. Nelson(2)
Director since 1996
age 54
Mr. Nelson is president and chief executive officer of California Water
Service Group and its subsidiaries. Before joining California Water Service
Group in 1996, he was vice president, division operations (1994-1995) and region
vice president (1989-1994) of Pacific Gas & Electric Company.
Langdon W. Owen(3)
Director since 2000
age 71
Mr. Owen is president of Don Owen & Associates, an assessment engineering
and special tax consulting firm. He is also a director of the Metropolitan Water
District of Southern California.
George A. Vera(3,5)
Director since 1998
age 58
Mr. Vera is vice president and chief financial officer of the David and
Lucile Packard Foundation. Until 1997, he was an audit partner at Arthur
Andersen, LLP.
(1) No nominee has any family relationship with any other nominee or with any
executive officer of the Group. "Director since" date refers to the year
the nominee first was elected or appointed to the Board of California Water
Service Group or California Water Service Company, as appropriate.
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
(5) Chair of the Audit Committee
(6) Chair of the Compensation Committee
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Linda R. Meier Peter C. Nelson Langdon W. Owen George A. Vera
California Water Service Group 11
Proposal No. 2 - Ratification of Selection of KPMG LLP as Auditors for 2002
Vote Required
In order for the ratification of independent auditors to be approved, it must
receive the affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting.
Stockholders will vote on the ratification of KPMG LLP, certified public
accountants, to audit our books, records and accounts for the year ending
December 31, 2002. KPMG has acted as independent auditors for California Water
Service Company and Group since 1939. Following the recommendation of the Audit
Committee, the Board recommends a vote FOR the adoption of this proposal.
Representatives of KPMG LLP will be present at the meeting to answer appropriate
questions and will have an opportunity to make a statement if they desire to do
so. If the stockholders do not ratify this appointment, the Board will
reconsider the selection of the auditors.
The Board urges you to vote FOR this proposal.
12 California Water Service Group
Stock Ownership of Management and Certain Beneficial Owners
Ownership of Directors and Executive Officers
(Common and preferred stock ownership as of January 1, 2002)(1)
Name Shares Owned
- --------------------------------------------------------------------------------
Douglas M. Brown 3,000(2)
Director
- --------------------------------------------------------------------------------
Gerald F. Feeney 12,228(3)
Executive Officer
- --------------------------------------------------------------------------------
Francis S. Ferraro 2,370(4)
Executive Officer
- --------------------------------------------------------------------------------
Robert W. Foy 12,193(5)
Director and Executive Officer
- --------------------------------------------------------------------------------
Edward D. Harris, Jr., M.D. 1,396
Director
- --------------------------------------------------------------------------------
Richard P. Magnuson 16,182
Director
- --------------------------------------------------------------------------------
Linda R. Meier 3,000
Director
- --------------------------------------------------------------------------------
Peter C. Nelson 11,650(6)
Director and Executive Officer
- --------------------------------------------------------------------------------
Langdon W. Owen 13,121
Director
- --------------------------------------------------------------------------------
Raymond H. Taylor 5,684(7)
Executive Officer
- --------------------------------------------------------------------------------
George A. Vera 956
Director
- --------------------------------------------------------------------------------
All directors and executive officers as a group(8) 97,539
(1) No director or executive officer owns any shares of Series C preferred
stock. All directors and executive officers have sole voting and investment
power over their shares (or share such powers with their spouses). To the
knowledge of the Group, as of January 1, 2002, all directors and executive
officers together beneficially owned an aggregate of less than 1% of the
Group's outstanding common shares.
(2) Includes 1,000 shares in a trust for which Mr. Brown is the trustee and has
voting and investment power. Mr. Brown disclaims beneficial ownership of
these shares.
(3) Includes 4,561 shares held in the Employee Savings Plan. Includes 1,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2002.
(4) Includes 870 shares held in the Employee Savings Plan. Includes 1,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2002.
(5) Includes 1,462 shares held in the Employee Savings Plan. Includes 4,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2002.
(6) Includes 1,475 shares held in the Employee Savings Plan. Includes 6,875
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2002.
(7) Includes 4,184 shares held in the Employee Savings Plan. Includes 1,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2002.
(8) Includes 19,307 shares held in the Employee Savings Plan for the benefit of
executive officers. Includes 24,875 shares outstanding under options which
are currently exercisable or exercisable within 60 days of January 1, 2002.
California Water Service Group 13
Ownership of Largest Principal Stockholders
The following table shows the largest principal holders of the Group's voting
securities as of January 1, 2002:
(1) SJW Corp. has sole voting and investment power over these shares.
(2) GE Financial Corp. has sole voting and investment power over these shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934 requires our directors,
certain officers, and holders of more than 10% of our common stock to file with
the Securities and Exchange Commission reports regarding their ownership of our
securities. Based solely on its review of the copies of forms furnished to the
Group, or written representations that no annual forms (SEC Form 5) were
required, the Group believes that during 2001, all SEC Section 16(a) filings of
the officers, directors and 10-percent stockholders of the Group complied with
requirements for reporting stock ownership.
14 California Water Service Group
Executive Compensation
SUMMARY COMPENSATION TABLE The following table discloses the compensation of the
president and chief executive officer and our four other most highly paid
executive officers for the three years ended December 31, 2001.
Footnotes to Summary Compensation Table
(1) Includes salary, amounts deferred under the Employee Savings Plan and
compensation associated with the non-business use of a Company automobile
except for Mr. Nelson, who does not have a Company automobile. The value of
automobile use amounted to $6,964, $5,336, $7,091 and $5,134 for Messrs.
Foy, Feeney, Ferraro and Taylor, respectively.
(2) Director meeting fees.
(3) Includes Employee Savings Plan contributions of $5,250 and annual life
insurance premiums of $336.
(4) Includes Employee Savings Plan contributions of $5,000 and annual life
insurance premiums of $336.
SEVERANCE AGREEMENTS In 1998, we entered into executive severance plan
agreements with all officers. These agreements provide officers with severance
payments of approximately three times their annual salary if we merge with
another company or effect another transaction by which another company acquires
control of us and as a result, within 24 months, these officers lose their
executive positions. This severance amount would be paid in three equal annual
payments, beginning with the month following termination. The agreements provide
uniform payment levels for all officers.
California Water Service Group 15
OPTION/SAR GRANTS IN 2001 The following table shows individual grants of stock
options during 2001 to the president and chief executive officer and our four
other most highly paid executive officers.
(1) The term "SAR" or "stock appreciation right" refers to an award that is
payable in cash or stock without payment of an exercise price. Group does
not currently grant SARs.
On January 2, 2001, Group granted 58,000 options at an exercise price of
$25.9375 per share. In addition, Group awarded grants of 55,000 options on
January 1, 2002 at an exercise price of $25.15, as disclosed below in the
Report of the Compensation Committee. On June 28, 2000, Group awarded
grants of 53,500 options at an exercise price of $23.0625. During 2001,
12,000 options that had been granted to employees who terminated during the
year were cancelled. After the grant of options on January 2, 2002, a total
of 154,500 option grants were outstanding with exercise prices ranging from
$23.0625 to $25.9375. All options were granted at the fair market value of
Group's common stock on the date of the grant, expire ten years from the
date of the grant, and vest 25% per year during the first four years.
(2) The grant date present value shown is estimated using the Black-Scholes
option pricing model, a method of approximating the present value of
options exercisable at a fixed price at the end of a fixed period. It
relies on certain assumptions as of the date of grant of the options, such
as interest rates, dividend yield, time to exercise, and stock price
sensitivity (volatility). Each of these factors could change over the life
of the options and affect the estimated value. The actual value of the
options when exercised may be a lesser or greater amount, depending on the
price of the stock at the date of exercise; it is also possible that the
options will expire unexercised and produce no cash value to the optionee.
The present value of the options was based on the following assumptions:
o risk-free interest rate of 4.6%
o expected dividend yield of 4.3%
o holding period of 5.0 years
o stock price volatility of 30.4.%
o that all options ultimately will be exercised
No adjustment has been made for non-transferability or risk of forfeiture
associated with the options.
16 California Water Service Group
AGGREGATED OPTION/SAR EXERCISES IN 2001 AND 2001 FISCAL YEAR-END OPTION/SAR
VALUES The following table shows 2001 fiscal year-end value of unexercised
options held by the president and chief executive officer and our four other
most highly paid executive officers. There were no option exercises by such
persons during 2001.
(1) Based on the year-end closing price of $25.75 of the Group's Common Stock
on the New York Stock Exchange on December 31, 2001. The ultimate value of
the option will depend on the future market price of Group stock.
PENSION PLANS The table(1) that follows shows the estimated annual benefits we
must pay upon retirement to our executive officers under the Group's Pension
Plan and Supplemental Executive Retirement Plan ("SERP"). The SERP is designed
to provide executive officers a pension benefit which when combined with the
regular pension plan benefit would equal the pension benefit that would be
provided if the regular Pension Plan's benefit were unaffected by the federal
tax law restrictions on retirement plan benefits.
(1) The pension table above shows estimated annual retirement benefits, payable
as a straight life annuity, assuming retirement at age 60, using the normal
form of benefits under the above plans. The benefits are not subject to any
deductions for Social Security or other offset amounts.
(2) Compensation includes salary plus all other compensation. Effective January
1, 2002, Mr. Foy and Mr. Nelson received credit for an additional 5 years
of service. The number of years of credited service at January 1, 2002, for
officers named in the Compensation table is as follows: Mr. Nelson, 21, Mr.
Foy, 21, Mr. Feeney, 25, Mr. Ferraro, 12 and Mr. Taylor 19.
California Water Service Group 17
Report of the Compensation Committee of the Board of Directors on
Executive Compensation
What is this report?
The Securities and Exchange Commission requires that public companies disclose
the policies that the Group uses to establish executive officer compensation.
This report explains the criteria that the Group used to determine the
compensation of all of its officers in 2001.
What are the Compensation Committee's responsibilities?
The Committee is responsible for establishing and implementing policies and
programs to compensate Group executives. Each November, the Committee reviews
and recommends compensation levels for all executive officers for the 12-month
period beginning January 1. The Committee submits its recommendations to the
entire Board for approval. In 2001, the Board adopted the Committee's
recommendations without modification.
What is our compensation philosophy?
The primary objectives of our executive compensation program are:
1) To attract, retain and motivate talented and experienced executives,
2) To reward excellent job performance and contributions to Group's
future success, and
3) To provide fair and reasonable compensation.
The Compensation Committee believes that compensating executives on this basis
leads to excellent executive performance, which benefits stockholders and
ratepayers alike. When making its recommendations, the Committee takes into
account that the California Public Utilities Commission (CPUC) reviews the
compensation decisions of the Group's officers for reasonableness. Furthermore,
as a regulated utility, the Group's financial performance is to a large extent
dependent upon CPUC ratemaking decisions and other factors beyond management's
control, such as weather. Therefore, the Committee's decisions largely are
determined by factors other than the Group's most recent financial performance.
Who serves on the Compensation Committee?
The Compensation Committee is composed of Ms. Meier (Committee Chair), Mr.
Brown, Dr. Harris, and Mr. Magnuson.
How is executive compensation determined?
When examining the annual compensation of individual executives, the Committee
considers the officer's duties, performance and contribution to the Group's
current and future success. The Committee also considers the officer's
experience, tenure, value to the Group, prior salary adjustments and the
inflation rate.
In order to set salaries for the Group's officers at competitive and
reasonable levels, the Committee annually reviews the compensation of officers
of other major water companies. The Committee factors into its analysis the
Group's comparatively low number of officers and its limited methods of
compensation.
Mr. Nelson's Compensation. In November 2000, the Committee reviewed the
compensation for Peter C. Nelson, president and chief executive officer. The
Committee determined Mr. Nelson's 2001 compensation using the same factors that
it used to set the compensation of the other Group executives.
Do executive officers of California Water Service Group receive additional
compensation for serving as executive officers of California Water Service
Company, CWS Utility Services, New Mexico Water Service Company and Washington
Water Service Company?
No. Group officers do not receive additional compensation for serving as
officers of the Group's subsidiaries.
Does the Group have a Long Term Incentive Plan?
Yes. Stockholders of Group approved a Long Term Incentive Plan at the April 19,
2000 Annual Meeting. The plan allows the Group to offer competitive
compensation, thus assisting in recruiting and retaining top-performing
individuals. The plan also aligns the interest of stockholders and participants.
Finally, the plan provides the potential to link benefits to the Group's
achievement of stockholder, customer or other performance goals, which gives
participants an incentive to achieve these goals.
18 California Water Service Group
What awards were granted under the Long Term Incentive Plan for 2001?
The plan provides for three different types of awards: non-qualified stock
options, dividend units, and performance shares. In 2001, non-qualified options
were awarded. Non-qualified stock options are options to purchase a certain
number of shares of the Group's common stock. The options will have an exercise
price not lower than the closing price of the Group's common stock on the New
York Stock Exchange on the date of the grant. Options are granted for a term of
not more than 10 years and become exercisable in yearly increments as determined
by the Compensation Committee.
What was the number of option grants awarded in 2001?
On January 2, 2001, the Group awarded option grants covering 58,000 shares at an
exercise price of $25.94. All options granted were for a term of ten years and
will vest 25% per year during the first four years. The option grants awarded
for 2001 are the following:
Mr. Nelson 15,000
Mr. Foy 10,000
Mr. Feeney 3,000
Mr. Ferraro 3,000
Mr. Taylor 3,000
All executive officers as a group (13 in number) 58,000
In addition, on January 2, 2002, the Group awarded option grants covering 55,000
shares at an exercise price of $25.15. All options granted were for a term of
ten years and will vest 25% per year during the first four years. The option
grants awarded for 2002 are the following:
Mr. Nelson 15,000
Mr. Foy 10,000
Mr. Feeney 3,000
Mr. Ferraro 3,000
Mr. Taylor 3,000
All executive officers and other as a group (12 in number) 55,000
Who determines the amount and type of award granted?
In 2001, the Compensation Committee determined stock option awards for the
Chairman of the Board and the Chief Executive Officer. The Chief Executive
Officer recommended the stock option award level for all other participants. All
stock option awards, including the terms and conditions, were approved by the
Compensation Committee and the Board of Directors.
Does the Group have an Executive Severance Plan?
Yes. Effective December 16, 1998, the Board of Directors adopted an Executive
Severance Plan for the benefit of the officers of Group and its subsidiaries.
The Board adopted the plan to provide security for the officers in the event of
a change in control of Group. See page 15 for more detailed information.
How have we responded to IRS limits on deductibility of compensation?
The Committee has reviewed the Group's compensation structure in light of
Section 162(m) of the Internal Revenue Code, which limits the amount of
compensation that the Group may deduct in determining its taxable income for any
year to $1,000,000 for any of its five most highly compensated executive
officers. In 2001, no executive officer's compensation exceeded the limitation
set by Section 162(m).
Compensation Committee
Linda R. Meier, Committee Chair
Douglas M. Brown
Edward D. Harris, Jr., M.D.
Richard P. Magnuson
California Water Service Group 19
Audit Commitee
Audit Committee Report
The Audit Committee's purpose and responsibilities are set forth in the Audit
Committee Charter which is printed in Appendix A of the Proxy Statement. The
Committee consists of four non-management Board members. During 2001, the
Committee met four times.
In connection with the December 31, 2001 financial statements, the Audit
Committee:
(1) reviewed and discussed the audited financial statements with
management;
(2) discussed with KPMG LLP, the independent auditors, the matters
required by Statement on Auditing Standards No. 61, "Communication
with Audit Committees";
(3) received and discussed with the auditor matters required by the
Independence Standards Board Statement No. 1, "Independence
Discussions with Audit Committees"; and
(4) met separately with management and the independent auditors.
Based upon these reviews and discussions, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
It is the recommendation of the Committee to the Board of Directors that
KPMG LLP be appointed as the Company's independent auditors for the year ending
December 31, 2002. In making this recommendation, the Audit Committee did
consider the compatibility of non-audit services provided by KPMG LLP with
maintaining the auditors' independence, and determined that the auditors'
independence relative to financial audits was not jeopardized by the non-audit
services.
Audit Committee
George A. Vera, Committee Chair
Richard P Magnuson
Linda R. Meier
Langdon W. Owen
February 4, 2002
Audit Fees
During 2001, the Company paid or accrued $196,000 in fees for audit services
provided by KPMG LLP. The audit services included the audit of the Company's
annual financial statements for the year ended December 31, 2001, and quarterly
reviews of the Company's interim financial statements included in the Company's
Form 10-Q filings during the year.
Financial Information Systems Design and Implementation Fees
During 2001, KPMG LLP did not provide any financial information system design
and implementation consulting service to the Company.
All Other Fees
During 2001, the Company paid or accrued $116,000 for professional service
provided by KPMG LLP for services other than Audit Fees. These fees were
primarily for internal audit services, which will not be continued beyond 2002,
and tax services.
20 California Water Service Group
Performance Graph
The graph below shows a five-year comparison of cumulative total returns from an
initial $100 investment in California Water Service Group, the S&P 500 Index and
the Edward Jones Water Utility Average of 12 companies.
[The following table was depicted as a line chart in the printed material.]
[GRAPHIC OMITTED]
Performance Graph Data
Past stock performance is not necessarily indicative of future performance.
California Water Service Group 21
Other Matters
ADJOURNMENT. Notice of adjournment need not be given if the date, time and place
thereof are announced at the Annual Meeting at which the adjournment is taken.
However, if the adjournment is for more than 45 days, or if a new record date is
fixed for the adjourned Annual Meeting, a notice of the adjourned Annual Meeting
will be given to each stockholder entitled to vote at the Annual Meeting. At
adjourned Annual Meetings, any business may be transacted which might have been
transacted at the original Annual Meeting.
COST OF PROXY SOLICITATION. The Group will bear the entire cost of preparing,
assembling, printing and mailing this proxy statement, the proxies and any
additional materials which may be furnished by the Board to stockholders. The
solicitation of proxies will be made by the use of the U.S. postal service and
also may be made by telephone, or personally, by directors, officers and regular
employees of the Group, who will receive no extra compensation for such
services. Morrow & Co. was hired to assist in the distribution of proxy
materials and solicitation of votes for $7,000, plus out-of-pocket expenses. The
Group will reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and
solicitation materials to stockholders.
OTHER MATTERS. The Board is not aware of any matters to come before the Annual
Meeting other than the proposals for the election of directors and the
ratification of the selection of independent auditors. If any other matters
should be brought before the Meeting or any adjournment thereof, upon which a
vote properly may be taken, the proxy holders will vote in their discretion
unless otherwise provided in the proxies. The Report of the Compensation
Committee, the Report of the Audit Committee, the Performance Graph, the Audit
Committee Charter contained in Appendix A to this proxy statement and the
statement of independence of Audit Committee members referred to under "Board
Structure-Audit" are not to be considered as incorporated by reference into any
other filings which the Group makes with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended. These portions of this proxy statement are not a part of any
of those filings unless otherwise stated in those filings.
22 California Water Service Group
Appendix A
Audit Committee Charter
The Board of Directors of California Water Service Group ("Group") has
established an audit committee with authority, duties and responsibilities as
described below. The committee will function as the audit committee for Group
and its consolidated subsidiaries. On an annual basis, the audit committee will
review the adequacy of its charter and propose changes as necessary to the full
Board. The charter will be printed in Group's proxy statement at least once
every three years.
Membership
The committee will be appointed annually by the full Board. It shall be composed
of at least three directors, each independent of management and free of any
relationships that would interfere with the exercise of the member's
independence or judgment.
Committee members will have a basic understanding of finance and accounting
and be able to read and understand financial statements. At least one member
shall have accounting and financial expertise.
One of the members shall be appointed committee chair by the Chairman of
the Board of Directors.
Purpose
The committee shall assist the Board in fulfilling its fiduciary
responsibilities to the stockholders, the public and various reporting agencies
primarily in financial areas relating to Group's accounting policies, auditing
and financial reporting practices. The responsibility shall extend to the
separate financial and benefit plan audits. It should endeavor to assure the
independence of Group's outside auditor, the integrity of management and the
adequacy of disclosures to stockholders, reporting agencies and the public.
The outside auditor is accountable to the audit committee and the Board as
representatives of the stockholders. The Board has the authority and
responsibility to select, evaluate and if appropriate recommend replacement of
the outside auditor to the stockholders.
The audit committee should provide a vehicle for communication among the
Directors, the outside auditor, the internal audit staff, and financial
management in order to provide an exchange of views and information and to keep
the committee informed of any unresolved issues.
Authority
The Board of Directors has granted the audit committee authority to investigate
any financial activity of Group and all employees are directed to cooperate as
requested by the committee members.
Minutes
Minutes of each meeting will be prepared and distributed to committee members
and to Directors who are not members of the committee. The minutes will be
included with the general minutes of regular meetings of the Directors of the
Group.
Meetings and Reports
The committee will convene at least four times annually. It will review
quarterly and annual financial statements and related press releases prior to
their public issuance. At its fall and January meetings, agenda items specified
in this charter will be covered. Additional committee meetings may be held as
deemed necessary.
In addition to the committee members, the outside auditor, the chief
financial officer, controller and senior management, normally will attend these
meetings. The internal auditor will attend at least the fall meeting.
Following each audit committee meeting, the committee chair will report to
the full Board as to the matters covered at the audit committee meeting.
Annually the committee will prepare a report to the stockholders as
required by the Securities and Exchange Commission. The report will be printed
in the annual proxy statement.
California Water Service Group 23
Fall Meeting
Matters to be covered will include the following:
1. Review with the outside auditor the scope of the current year's audit.
2. Review with the outside auditor their audits of employee benefit plans
completed during the year.
3. Review financial accounting and regulatory agency developments to
determine possible effects on financial statements.
4. Review any significant changes in accounting principles, policies and
practices.
5. Receive and review reports from the internal auditor on results of
examinations in the districts and general office.
6. Review the internal auditor's proposed audit plan and budget for the
coming year and coordination with the outside auditors.
7. Meet privately with the outside auditor to ascertain that the audit
scope is without limitations imposed by management and to discuss
other matters the auditor believes should be brought to the attention
of the committee.
8. Meet separately with management to discuss the quality of service and
performance of the outside auditor in order to be in a position to
consider their reappointment for the succeeding year.
January Meeting
In late January, after the conclusion of the independent audit and before
financial results are presented to the Board and released to the public, the
committee will meet to consider the following matters:
1. Review the annual financial statements and related footnotes to be
included in Group's annual report to stockholders and the Form 10-K
filing with the Securities and Exchange Commission. Also review the
draft news release announcing fourth quarter and annual financial
results.
2. Discuss with the auditor certain matters required to be communicated
to the audit committee in accordance with Statement on Auditing
Standards 61 and related amendments. These matters include the
auditor's judgment about the quality and appropriateness of Group's
accounting principles as applied to financial reporting.
3. Review and discuss any significant adjustments proposed by the outside
auditor or any deficiencies noted by them in Group's internal
accounting controls.
4. Review and discuss the results of the audit and the disposition of any
changes in accounting policies or procedures that were recommended in
the prior audit.
5. Receive a written report from the outside auditor delineating all
relationships, including audit and non-audit services, between the
auditor and Group during the past year. Evaluate the auditor's
qualifications regarding independence in light of the professional
services provided by the auditor.
6. Review the proposed scope of the annual audit for the new year and the
fee proposed to be charged as negotiated by management in order be in
a position to recommend the reappointment of the outside auditor to
the Board for approval by the stockholders. In the event the decision
is against reappointment, further committee meetings would be in order
to select a replacement auditor.
7. Review officers' expense accounts submitted during the prior year.
8. Meet separately with the outside auditor to inquire as to limitations
imposed by management on the scope of the audit. The committee will
receive an assessment of the effectiveness of Group's internal
controls, and receive and discuss other information the auditor
believes should be brought to the attention of the committee.
9. Meet with management to discuss the quality of work performed by the
outside auditor in order to assist in the committee's recommendation
to the full Board in considering the auditor's reappointment for the
new year.
Financial Statement Responsibility
While the audit committee has responsibilities as set forth in its charter, it
is not the committee's duty to plan or conduct audits, nor to determine the
completeness and accuracy of Group's financial statements. The outside auditor
is responsible for planning and conducting the audits of the financial
statements. Management is responsible for the completeness and accuracy of the
financial statements.
24 California Water Service Group
[GRAPHIC OMITTED]
California Water Service Group
California Water Service Company, New Mexico Water Service Company,
Washington Water Service Company and CWS Utility Services
1720 North First Street
San Jose, CA 95112-4598
(408) 367-8200
[GRAPHIC OMITTED]
California Water Service Group
1720 North First Street
San Jose, California 95112-4598
408.367.8200
www.calwater.com
1780-PS-02
PROXY
CALIFORNIA WATER SERVICE GROUP
PROXY SOLICITED BY THE BOARD OF DIRECTORS
PETER C. NELSON and PAUL G. EKSTROM, and each of them with full power of
substitution, are hereby authorized to vote, as designated on the reverse side,
all the shares of California Water Service Group common stock and preferred
stock of the undersigned at the Annual Meeting of Stockholders of California
Water Service Group to be held at 1720 N. First Street, San Jose, California on
Wednesday, April 24, 2002, at 10:00 A.M., or at any adjournment thereof. By my
signature on the reverse side of this proxy, I acknowledge that I have received
a copy of the notice of meeting and proxy statement relating to this meeting and
of the Group's Annual Report to Stockholders for 2001.
Please date, sign and mail as soon as possible in the enclosed envelope.
Unless otherwise specified below this proxy authorizes the proxies to cumulate
all votes that the undersigned is entitled to cast at the Annual Meeting for,
and to allocate such votes among, one or more of the nominees listed on the
reverse side as the proxies determine in their discretion. To specify a
different method of cumulative voting, write "Cumulate For" and the number of
shares and the name(s) of the nominee(s) in the space provided below.
- ------------------------------------------------------------------------------
(Continued and to be signed on reverse side)
|X| Please mark votes as in this example.
If not otherwise directed, this proxy will be voted FOR the election of
directors, FOR ratification of the appointment of KPMG LLP as independent
auditors and in the discretion of the proxy holders on any other matter properly
raised at the meeting. The Company knows of no other matter to be raised at the
meeting other than as set forth in the Company's proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSALS 1 AND 2.
---------------------------------------------------------------
1. ELECTION OF DIRECTORS
Nominees: Douglas M. Brown, Robert W. Foy, Edward D. Harris, Jr., M.D.,
Richard P. Magnuson, Linda R. Meier, Peter C. Nelson, Langdon W. Owen and
George A. Vera
___ FOR ALL NOMINEES ___ WITHHELD FROM ALL NOMINEES
___ FOR ALL NOMINEES EXCEPT AS NOTED: _______________________________________
2. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP, as the independent
auditors of the Group.
___ FOR ___ AGAINST ___ ABSTAIN
================================================================================
Mark here for address change and note at left ____________________________
NOTE: Please sign exactly as name appears hereon. If signing as attorney,
executor, administrator, trustee, guardian or the like, please give your full
title as such. If signing for a corporation, please give your title. In the case
of shares standing in the name of two or more persons, Delaware law permits the
voting of such shares under a proxy signed by any one of such persons if none of
the others is present in person or represented by proxy.
Please date, sign and return promptly.
Signature _____________________ Date _____________
Signature _____________________ Date _____________
Vote by Telephone
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Call the toll-free number 1-877 PRX-VOTE (1-877-779-8683)
3. Enter your 14-digit Control Number located on your Proxy Card above
your name.
4. Follow the recorded instructions.
Vote by Internet
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Go to the Website http://www.eproxyvote.com/__
3. Enter your 14-digit Control Number located on your Proxy Card above
your name.
4. Follow the instructions provided.