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California Water Service Group
Notice of 2003 Annual Meeting
and Proxy Statement
[GRAPHIC OF MAN AND WOMAN OMITTED]
[GRAPHIC OF LOGO 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
March 21, 2003
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders at 10:00
a.m. on Wednesday, April 23, 2003, at the executive offices of California Water
Service Group, located at 1720 North First Street in San Jose, California.
With this letter, we are including the notice for the Annual Meeting, the
proxy statement, the proxy card and the 2002 Annual Report. You may vote over
the Internet, by telephone or by the traditional proxy card. Please see the
proxy card for instructions on these methods of voting.
As you review this proxy statement, you may wish to keep in mind the two
items you will be deciding. 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 to attend the Annual Meeting on April 23, 2003, I
hope you will vote as soon as possible. Your vote is important.
Thank you for your investment in the California Water Service Group.
Sincerely,
/s/ Robert W. Foy
ROBERT W. FOY
CHAIRMAN OF THE BOARD
California Water Service Group 1
2003 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
Notice of Annual Meeting
Questions and answers about the Proxy Materials and the Annual Meeting ................... 4
What am I voting on? ................................................................... 4
Who may attend the Annual Meeting? ..................................................... 4
Who is entitled to vote? ............................................................... 4
How many votes do I get? ............................................................... 4
What is "cumulative voting" and how does it work? ...................................... 4
How are the directors elected? ......................................................... 4
Who are the Board's nominees? .......................................................... 4
What is the required vote for the second proposal to pass? ............................. 4
How do I vote? ......................................................................... 4
What if I change my mind after I return my proxy? ...................................... 5
Will my shares be voted if I do not return my proxy? ................................... 5
What happens if my shares are held by my stockbroker? .................................. 5
What happens if I abstain from voting on a proposal? ................................... 5
Who will count the vote? ............................................................... 6
What does it mean if I get more than one proxy card? ................................... 6
What constitutes a quorum? ............................................................. 6
What percentage of stock do the directors and executive officers own? .................. 6
Who are the largest stockholders? ...................................................... 6
What is the deadline for submitting stockholder proposals for the Group's proxy
materials for next year's Annual Meeting? ........................................... 6
How can a stockholder propose a nominee for the Board? ................................. 6
How can a stockholder propose business at a stockholders' meeting? ..................... 7
Can I make comments and/or ask questions during the Annual Meeting? .................... 7
Board Structure .......................................................................... 8
Independence of Directors ................................................................ 8
Director Compensation Arrangements ....................................................... 9
Proposal No. 1--Election of Directors .................................................... 10
Stock Ownership of Management and Certain Beneficial Owners .............................. 13
Ownership of Directors, Director-Nominees and Executive Officers ....................... 13
Ownership of Largest Principal Stockholders ............................................ 14
Section 16(a) Beneficial Ownership Reporting Compliance ................................ 14
Executive Compensation ................................................................... 15
Summary Compensation Table ............................................................. 15
Severance Agreements ................................................................... 15
Option/SAR Grants in 2002 .............................................................. 16
Aggregated Option/SAR Exercises in 2002 and 2002 Fiscal Year-End Option/SAR Values ..... 17
Equity Compensation Plan Information ................................................... 17
Pension Plans .......................................................................... 18
Report of the Compensation Committee of the Board of Directors on Executive 19
Compensation
Compensation Committee Interlocks and Insider Participation ............................ 21
Audit Committee
Report of the Audit Committee .......................................................... 22
Relationship with Independent Auditors ................................................. 23
Performance Graph ........................................................................ 24
Proposal No. 2--Ratification of Selection of KPMG LLP as Auditors for 2003 ............... 25
Other Matters ............................................................................ 26
Appendix A
Audit Committee Charter ................................................................ 27
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 23, 2003
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 24, 2003.
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 21, 2003.
California Water Service Group 3
Questions and Answers About the Proxy Materials and the Annual Meeting
What am I voting on?
* Election of ten directors to serve until the 2004 Annual Meeting.
* Ratification of the Audit Committee's selection of KPMG LLP as the Group's
independent auditors for 2003.
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 24, 2003 (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 ten votes for each
common share owned (instead of casting one vote for each of the ten candidates
they may cast all ten 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 160 votes (16 x 10) 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 ten nominees receiving the highest number of votes are elected to the Board.
Common and preferred shares vote together on directors.
Who are the Board's nominees?
The nominees are Douglas M. Brown, Robert W. Foy, Edward D. Harris, Jr., M.D.,
Bonnie G. Hill, David N. Kennedy, Richard P. Magnuson, Linda R. Meier, Peter C.
Nelson, Langdon W. Owen, and George A. Vera. Except for Ms. Hill and Mr.
Kennedy, all the nominees are current Board members. See pages 10 - 12 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 Audit Committee'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. You
must have a touch-tone phone 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:
* for the ten named director nominees
* 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:
* signing another proxy with a later date,
* voting by telephone or on the Internet (your latest telephone or Internet
proxy is counted),
* voting again at the meeting, or
* 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 must 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:
* proceed to vote your shares on routine matters and refrain from voting on
non-routine matters, or
* leave your shares entirely unvoted.
Shares that 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 (either 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.
California Water Service Group 5
Who will count the vote?
Representatives of EquiServe, our transfer agent, will serve as the inspector of
elections and count the votes.
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.
At the Record Date, there were approximately 4,500 stockholders of record.
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, 2003, the largest principal stockholders were:
* SJW Corp. (1,099,952 shares of common stock, representing 7.3% of our common
stock);
* Participants of the Employees Savings Plan of California Water Service
Company, a Company-sponsored 401(k) plan (514,341 shares of common stock,
representing 3.4% of our common stock); and
* GE Financial Corporation (36,610 shares of Series C preferred stock,
representing 26.3% of the outstanding preferred stock).
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 2004 Annual Meeting of
stockholders must be received by the Corporate Secretary of the Group by
November 23, 2003 in order to be considered for inclusion in the Group's 2004
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 by-laws contain the requirements for doing
so. Contact the Corporate Secretary to request a copy of the full by-law
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 by-laws do not affect the rights of preferred holders to nominate
directors where they are otherwise entitled to do so.
6 California Water Service Group
The by-laws specify what the notice must contain. The notice deadline for
the 2004 Annual Meeting is November 25, 2003.
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 by-laws contain
the requirements. Contact the Secretary of the Group and request a copy of the
full by-law requirements. The stockholder must give timely prior notice to the
Group. The deadlines are the same as for stockholder nominations discussed
above. If the Group's Secretary receives a proposal after that deadline it will
be considered untimely, and the persons named in the proxy for the 2004 meeting
may exercise their discretion in voting with respect to the proposal.
The by-laws specify what the notice must contain. Stockholders must comply
with all requirements of the securities laws regarding proposals. The by-laws 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.
Can I make comments and/or ask questions during the Annual Meeting?
Yes, most certainly. 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. No cameras, video or recording
equipment will be permitted at the meeting.
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, the Committee is directly responsible for the
appointment, compensation and oversight of the independent auditors, subject to
stockholder ratification. All members are non-employee directors and are
independent as defined in the listing standards of the New York Stock Exchange.
The Board has determined that George A. Vera, chair of the Audit Committee, is a
financial expert as defined in the rules of the SEC and 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 and independent as
defined in the listing standards of the New York Stock Exchange.
NOMINATING/CORPORATE GOVERNANCE: Established in 2002 to assist the Board by (i)
identifying candidates and nominating individuals qualified to become Board
members and (ii) developing and recommending a set of corporate governance
principles applicable to the Group. The Committee has adopted the
"Nominating/Corporate Governance Committee Charter," which contains the Group's
corporate governance principles and the Committee's operating procedures. All
members of the Committee are non-employee directors and are independent as
defined in the listing standards of the New York Stock Exchange.
EXECUTIVE: Has limited powers to act on behalf of the Board whenever it is not
in session. This Committee meets only as needed. The Committee consists of two
non-employee directors and two employee directors.
During 2002, there were 11 regular meetings of the Board, five meetings of
the Audit Committee, two meetings of the Compensation Committee, two meetings of
the Nominating/Corporate Governance Committee and no meetings of the Executive
Committee. Each of the director-nominees who served on the Board of California
Water Service Group in 2002 attended at least 90% of all Board and applicable
committee meetings. Collectively, they attended an average of 98% of all of the
Board and applicable committee meetings.
Independence of Directors
The Board has determined that a majority of the members of the Board are
"independent," as defined in the listing standards of the New York Stock
Exchange.
8 California Water Service Group
Director Compensation Arrangements
The following table provides information on the Group's compensation and
reimbursement practices during fiscal year 2002 for non-employee directors, as
well as the range of compensation paid to non-employee directors who served
during the 2002 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 2002
Annual Director Retainer $18,000
Board and Committee Meeting Attendance Fee $ 1,115
Range of Committee Meeting Attendance Fees Paid to Directors $4,460 -- $12,295
Committee Meeting Attendance Fee for Committee Chairs $ 2,230
COMPENSATION. In 2002, Directors Brown, Harris, Magnuson, Meier, Owen and Vera
received an annual retainer of $18,000. Effective January 1, 2003, non-employee
directors are paid an annual retainer of $20,000 and a meeting attendance fee of
$1,250, and non-employee committee chairs are paid a meeting attendance fee of
$2,500.
DEFERRED COMPENSATION PLAN. Effective January 1, 2000, the Group established the
California Water Service Group 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 distribution
occurs 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 10 years.
California Water Service Group 9
Proposal No. 1--Election of Directors
There are ten nominees for election to our Board this year. All of the nominees
have served as directors since the last Annual Meeting, except for Bonnie G.
Hill and David N. Kennedy. 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 ten 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(3),(4),(5)
Director since 2001
age 65
Mr. Brown, a resident of the state of New Mexico, is president and chief
executive officer of Tuition Plan Consortium. From 1990 to 1999, he was
president and chief executive officer of Talbot Financial Services. He is also a
director of High Desert Investment Corporation and the Bank of Albuquerque and
president of Albuquerque Community Foundation.
Robert W. Foy(2),(9)
Director since 1977
age 66
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 company serving
Stockton, Modesto, Sacramento, San Jose, Vallejo, and Merced, California. He has
served as Chairman of California Water Service Group since January 1, 1996. He
serves as a member of the San Jose State University College of Business
International Board of Advisors.
Edward D. Harris, Jr., M.D. (2),(4),(5)
Director since 1993
age 65
Dr. Harris is the George DeForest Barnett professor of medicine, emeritus
at Stanford University Medical Center. He is the academic secretary for Stanford
University. 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.
[PHOTO] [PHOTO] [PHOTO]
Douglas M. Brown Robert W. Foy Edward D. Harris, Jr., M.D.
10 California Water Service Group
Bonnie G. Hill
New nominee for 2003
age 61
Ms. Hill is the president of B. Hill Enterprises, LLC, a consulting firm
specializing in corporate governance and board organization and public policy
issues. She is also chief operating officer of Icon Blue, a brand marketing
company. From 1998 to 2001, she was president and chief executive officer of
Times Mirror Foundation and senior vice president, communications and public
affairs of The Los Angeles Times. She is a director of AK Steel Holdings Corp.,
Albertson's, Inc., ChoicePoint, Inc., Hershey Foods Corp., Home Depot, Inc. and
National Grid Transco PLC. She is also a director of the Orange County
Performing Arts Center and the Los Angeles Urban League.
David N. Kennedy
New nominee for 2003
age 66
Mr. Kennedy is retired from the State of California. From 1983 to 1998, he
was director of the California Department of Water Resources.
Richard P. Magnuson (2),(3),(4),(5),(8)
Director since 1996
age 47
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.
Linda R. Meier (3),(4),(5),(7)
Director since 1994
age 62
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 is the former chair of the Stanford Athletic Board, current chair of the
Western Regional Advisory Board of the Institute of International Education,
member of the National Board of the Institute of International Education and a
board member of the Stanford Alumni Association.
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Bonnie G. Hill David N. Kennedy Richard P. Magnuson Linda R. Meier
California Water Service Group 11
Peter C. Nelson (2)
Director since 1996
age 55
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. He is a director
of the California Chamber of Commerce and Chair of the Water Resources
Committee.
Langdon W. Owen (3)
Director since 2000
age 72
Mr. Owen is president of Don Owen & Associates, an assessment engineering
and special tax consulting firm. He is a director of the Metropolitan Water
District of Southern California.
George A. Vera (3),(6)
Director since 1998
age 59
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 Member of Nominating/Corporate Governance Committee
6 Chair of the Audit Committee
7 Chair of the Compensation Committee
8 Chair of the Nominating/Corporate Governance Committee
9 Chair of the Executive Committee
[PHOTO] [PHOTO] [PHOTO]
Peter C. Nelson Langdon W. Owen George A. Vera
12 California Water Service Group
Stock Ownership of Management and Certain Beneficial Owners Ownership of
Directors, Director-Nominees and Executive Officers
(Common and Preferred Stock Ownership as of January 1, 2003)(1)
Name Shares Owned
- --------------------------------------------------------------------
Douglas M. Brown 2,000
Director
- --------------------------------------------------------------------
Gerald F. Feeney 14,643 (2)
Executive Officer
- --------------------------------------------------------------------
Francis S. Ferraro 4,659 (3)
Executive Officer
- --------------------------------------------------------------------
Robert W. Foy 19,690 (4)
Director and Executive Officer
- --------------------------------------------------------------------
Edward D. Harris, Jr., M.D. 1,396
Director
- --------------------------------------------------------------------
Bonnie G. Hill --
Nominee
- --------------------------------------------------------------------
David N. Kennedy --
Nominee
- --------------------------------------------------------------------
Richard P. Magnuson 16,919
Director
- --------------------------------------------------------------------
Linda R. Meier 3,000
Director
- --------------------------------------------------------------------
Peter C. Nelson 22,535 (5)
Director and Executive Officer
- --------------------------------------------------------------------
Langdon W. Owen 13,121
Director
- --------------------------------------------------------------------
Raymond H. Taylor 8,130 (6)
Executive Officer
- --------------------------------------------------------------------
George A. Vera 1,248
Director
- --------------------------------------------------------------------
All directors and executive officers as a group (7) 131,244
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, 2003, all directors and executive officers
together beneficially owned an aggregate of less than 1% of the Group's
outstanding common shares.
2 Includes 4,725 shares held in the Employees Savings Plan. Includes 3,750
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2003.
3 Includes 909 shares in the Employees Savings Plan. Includes 3,750 shares
outstanding under options which are currently exercisable or exercisable
within 60 days of January 1, 2003.
4 Includes 1,676 shares held in the Employees Savings Plan. Includes 11,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2003.
5 Includes 1,735 shares held in the Employees Savings Plan. Includes 17,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2003.
6 Includes 4,380 shares held in the Employees Savings Plan. Includes 3,750
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2003.
7 Includes 20,574 shares held in the Employees Savings Plan for the benefit of
executive officers. Includes 56,000 shares outstanding under options which are
currently exercisable or exercisable within 60 days of January 1, 2003.
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, 2003:
Class Beneficial Owner Number of Shares Percent of Class
- ----------------------------------------------------------------------------------------------
Common SJW Corp.(1) 1,099,952 7.3%
374 W. Santa Clara Street
San Jose, CA 95196
- ----------------------------------------------------------------------------------------------
Common Participants of California 514,341 3.4%
Water Service Company
Employees Savings Plan (a 401(k) plan)
1720 N. First Street
San Jose, CA 95112
- ----------------------------------------------------------------------------------------------
Series C GE Investments(2) 36,610 26.3%
Preferred 3003 Summer Street
Stanford, CT 06905
- ----------------------------------------------------------------------------------------------
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 2002, 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, 2002.
Long Term
Annual Compensation Compensation
---------------------------- -----------------------
Other Annual Securities Underlying All Other
Name and Principal Position Year Salary(1) Compensation Options/SAR's (#) Compensation
- --------------------------------------- ------ ----------- -------------- ----------------------- -------------
Peter C. Nelson 2002 $479,309 $12,265 (2) 15,000 $6,336 (3)
President and Chief Executive Officer 2001 449,296 11,440 (2) 15,000 5,586 (4)
2000 412,409 11,440 (2) 12,500 5,586 (4)
- -----------------------------------------------------------------------------------------------------------------------
Robert W. Foy 2002 $291,257 $12,265 (2) 10,000 $6,336 (3)
Chairman of the Board 2001 276,584 11,440 (2) 10,000 5,586 (4)
2000 261,706 12,480 (2) 8,000 5,586 (4)
- -----------------------------------------------------------------------------------------------------------------------
Gerald F. Feeney 2002 $231,853 -- 3,000 $6,336 (3)
Vice President, 2001 221,036 -- 3,000 5,586 (4)
Chief Financial Officer and Treasurer 2000 204,974 -- 3,000 5,586 (4)
- -----------------------------------------------------------------------------------------------------------------------
Francis S. Ferraro 2002 $221,628 -- 3,000 $6,336 (3)
Vice President, Regulatory Matters 2001 204,857 -- 3,000 5,586 (4)
and Corporate Development 2000 191,700 -- 3,000 5,586 (4)
- -----------------------------------------------------------------------------------------------------------------------
Raymond H. Taylor 2002 $187,643 -- 3,000 $6,336 (3)
Vice President, Operations 2001 181,969 -- 3,000 5,586 (4)
2000 169,394 -- 3,000 5,586 (4)
- -----------------------------------------------------------------------------------------------------------------------
Footnotes to Summary Compensation Table
1 Includes salary, amounts deferred under the Employees 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 $6,601, $7,047, $7,011 and $4,763 for Messrs. Foy,
Feeney, Ferraro and Taylor, respectively.
2 Director meeting fees.
3 Includes Employees Savings Plan contributions of $6,000 and annual life
insurance premiums of $336.
4 Includes Employees Savings Plan contributions of $5,250 and annual life
insurance premiums of $336.
SEVERANCE AGREEMENTS In 1998, we entered into executive severance plan
agreements with all officers. These agreements provide officers with severance
payments of approximately three times their annual salary if the Group merges
with another company or effects another transaction by which another company
acquires control and as a result, within 24 months, these officers lose their
executive positions. This severance amount would be paid in three equal annual
payments, beginning the month following termination.
California Water Service Group 15
OPTION/SAR GRANTS IN 2002 The following table shows individual grants of stock
options during 2002 to the president and chief executive officer and our four
other most highly paid executive officers.
Individual Grants
-----------------------------------------------------------------------------
Percentage
Number of of Total
Securities Options/SARs
Underlying Granted to Exercise Grant Date
Options/SARs Employees in or Base Expiration Present
Name Granted (#) Fiscal Year Price ($/Sh) Date Value ($)(1)
- -----------------------------------------------------------------------------------------------------------------------
Peter C. Nelson 15,000 27.27% $ 25.15 1/1/13 $66,150
President and
Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------------------
Robert W. Foy 10,000 18.18% $ 25.15 1/1/13 $44,100
Chairman of the Board
- -----------------------------------------------------------------------------------------------------------------------
Gerald F. Feeney 3,000 5.45% $ 25.15 1/1/13 $13,230
Vice President,
Chief Financial Officer and Treasurer
- -----------------------------------------------------------------------------------------------------------------------
Francis S. Ferraro 3,000 5.45% $ 25.15 1/1/13 $13,230
Vice President, Regulatory Matters and
Corporate Development
- -----------------------------------------------------------------------------------------------------------------------
Raymond H. Taylor 3,000 5.45% $ 25.15 1/1/13 $13,230
Vice President, Operations
- -----------------------------------------------------------------------------------------------------------------------
1 The term "SAR" or "stock appreciation right" refers to an award that is
payable in cash or stock without payment of an exercise price. Group does not
currently grant SARs.
The grant date present value shown is estimated using the Black-Scholes option
pricing model, a method of approximating the present value of options
exercisable at a fixed price at the end of a fixed period. It relies on
certain assumptions as of the date of grant of the options, such as interest
rates, dividend yield, time to exercise, and stock price sensitivity
(volatility). Each of these factors could change over the life of the options
and affect the estimated value. The actual value of the options when exercised
may be a lesser or greater amount, depending on the price of the stock at the
date of exercise; it is also possible that the options will expire unexercised
and produce no cash value to the optionee.
The present value of the options was based on the following assumptions:
* risk-free interest rate of 4.6%
* expected dividend yield of 4.3%
* holding period of 5.0 years
* stock price volatility of 27.68%
* that all options ultimately will be exercised
No adjustment has been made for non-transferability or risk of forfeiture
associated with the options.
16 California Water Service Group
AGGREGATED OPTION/SAR EXERCISES IN 2002 AND 2002 FISCAL YEAR-END OPTION/SAR
VALUES The following table shows 2002 fiscal year-end number and value of
unexercised options held by the president and chief executive officer and our
four other most highly paid executive officers. There were no options exercised
by such persons during 2002.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at FY-End Options/SARs at FY-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------
Peter C. Nelson 17,500/25,000 $3,672/$3,672
President and
Chief Executive Officer
Robert W. Foy 11,500/16,500 $2,350/$2,350
Chairman of the Board
- ---------------------------------------------------------------------------------------------------
Gerald F. Feeney 3,750/5,250 $ 881/$881
Vice President,
Chief Financial Officer and Treasurer
- ---------------------------------------------------------------------------------------------------
Francis S. Ferraro 3,750/5,250 $ 881/$881
Vice President, Regulatory Matters and
Corporate Development
- ---------------------------------------------------------------------------------------------------
Raymond H. Taylor 3,750/5,250 $ 881/$881
Vice President, Operations
- ---------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLAN INFORMATION The following table sets forth information
about the number of options previously granted and outstanding and the number
available for future grants. All options were granted under the Group's Long
Term Incentive Plan, which was approved by the stockholders of the Group at
their 2000 Annual Meeting.
(a) (b) (c)
Number of securities to be Weighted-average Number of securities remaining
issued upon exercise of exercise price of available for future issuance under
outstanding options, outstanding options, equity compensation plans (excluding
Plan category warrants and rights warrants and rights securities reflected in column (a))
- ---------------------- ---------------------------- ---------------------- -------------------------------------
Equity compensation 154,500 $ 24.77 1,345,500
plans approved by
security holders
- ----------------------------------------------------------------------------------------------------------------------
Equity compensation None None None
plans not approved by
security holders
- ----------------------------------------------------------------------------------------------------------------------
Total 154,500 $ 24.77 1,345,500
- ----------------------------------------------------------------------------------------------------------------------
California Water Service Group 17
PENSION PLANS The table(1) that follows shows the estimated annual benefits the
Group must pay upon retirement to 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. Effective January 1, 2003, the
years of service required to earn maximum benefit under the SERP was reduced
from 30 to 15 years, as discussed below in the Compensation Committee Report.
Three Highest Consecutive
Years Average Compensation(2) 5 Years 10 Years 15 Years
- --------------------------------------------------------------------
$ 150,000 $ 30,000 $ 60,000 $ 90,000
200,000 40,000 80,000 120,000
250,000 50,000 100,000 150,000
300,000 60,000 120,000 180,000
350,000 70,000 140,000 210,000
400,000 80,000 160,000 240,000
450,000 90,000 180,000 270,000
500,000 100,000 200,000 300,000
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 as set forth in the
Summary Compensation Table. The number of years of credited service at January
1, 2003, for officers named in the Compensation Table is as follows: Mr.
Nelson, 22; Mr. Foy, 22; Mr. Feeney, 26; Mr. Ferraro, 13; and Mr. Taylor, 20.
18 California Water Service Group
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 2002.
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 2002, 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 the 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 its evaluation of factors that are within management's control.
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 2001, the Committee reviewed the
compensation for Peter C. Nelson, president and chief executive officer. The
Committee determined Mr. Nelson's 2002 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 the 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 interests 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.
California Water Service Group 19
What awards were granted under the Long Term Incentive Plan for 2002?
The plan provides for three different types of awards: non-qualified stock
options, dividend units, and performance shares. In 2002, 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 2002?
On January 2, 2002, the Group granted options 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 others as a group (12 in number) 55,000
Who determines the amount and type of award granted?
In 2002, 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.
Were option grants awarded under the Long Term Incentive Plan for 2003?
No. Option grants were not awarded for 2003.
Why was the number of years of service for maximum benefits under the SERP
reduced from 30 to 15 years?
The purpose of the SERP is to offer competitive long-term benefits to attract
and retain key officers and to restore benefits lost due to IRS limits on the
qualified pension plan. Similar plans are offered by 100% of Cal Water's
competitors and over 75% of the Fortune 1000. The SERP is the primary source of
long-term compensation offered by Cal Water to its officers.
At its inception, the SERP program provided full benefits upon reaching 30
years of service. In recent recruitment efforts and in reviewing competitive
practices it became clear that a 15-year vesting schedule is most common. As the
workplace has become more mobile and typical executive tenures have shortened,
it became clear that this change was needed in order to remain competitive to
attract and retain the most qualified and effective executive staff for the
Group.
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, in the event of a change in control, to provide
effective leadership during a transition period. Prior to a change in control,
the plan also would facilitate a transaction that is in the best interests of
the Group and its stockholders, and provide some measure of security to
management in the event their employment is terminated following a change in
control.
20 California Water Service Group
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 2002, 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
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Linda Meier (Chair), Douglas
Brown, Edward Harris and Richard Magnuson. No member of the Compensation
Committee was an officer or employee of the Group or any of its subsidiaries
during 2002. None of the executive officers of the Group has served on the Board
of Directors or on the Compensation Committee of any other entity, any of whose
officers served either on the Board of Directors or on the Compensation
Committee of the Group.
California Water Service Group 21
Report of the Audit Committee
The Audit Committee oversees the Group's financial reporting process on behalf
of the Board of Directors. The Committee's purpose and responsibilities are set
forth in the Audit Committee Charter, which was revised and restated by the
Board of Directors at its January 29, 2003 meeting. The charter, which is
printed in Appendix A of this Proxy Statement, was revised to include newly
enacted provisions of federal law and newly adopted or proposed regulations of
the SEC and the New York Stock Exchange that pertain to audit committees. The
Committee consists of five members, each of whom meets the New York Stock
Exchange standards for independence. During 2002, the Committee met five times.
The Group's management has primary responsibility for preparing the Group's
financial statements and the overall reporting process, including the Group's
system of internal controls. KPMG LLP, the independent auditors, audited the
financial statements prepared by the Group and expressed their opinion that the
financial statements present fairly the Group's financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
In connection with the December 31, 2002 financial statements, the Audit
Committee:
(1) reviewed and discussed the audited financial statements with management
and the independent auditors;
(2) discussed with the independent auditors the matters required by Statement
on Auditing Standards No. 61, "Communication with Audit Committees;"
(3) received from KPMG LLP and discussed with the auditor written disclosures
required by the Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees;" the Committee also
discussed with KPMG LLP the firm's independence, and considered whether
the firm's provision of non-audit services and the fees and costs billed
for those services are compatible with KPMG LLP's independence; and
(4) met privately with the Group's independent auditors and internal
auditors, each of whom have unrestricted access to the Audit Committee,
without management present, and discussed their evaluations of the
Group's internal controls and overall quality of the Group's financial
reporting and accounting principles used in preparation of financial
statements. The Committee also met privately with the Group's Chairman
and the President and Chief Executive Officer to discuss the same issues.
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 to be filed with the Securities and Exchange
Commission.
Audit Committee
George A. Vera, Committee Chair
Douglas M. Brown
Richard P. Magnuson
Linda R. Meier
Langdon W. Owen
January 29, 2003
22 California Water Service Group
Relationship with Independent Auditors
The Audit Committee has selected KPMG LLP to serve as the Group's independent
auditors for the year ending December 31, 2003. The Committee's selection of
KPMG LLP as independent auditors is subject to ratification by vote of the
stockholders at their Annual Meeting.
The Audit Committee considered the compatibility of non-audit services
provided by KPMG LLP with maintaining the auditors' independence. The Committee
also reviewed the non-audit service fees paid to KPMG LLP which are described
below. Based on its review, the Committee determined that the auditors'
independence relative to financial audits was not jeopardized by the non-audit
services.
Audit Fees
During 2002, the Group was billed or accrued $255,000 by KPMG LLP for audit
services. The audit services included audits of California Water Service Group
and California Water Service Company annual financial statements for the year
ended December 31, 2002, and quarterly reviews of the Group's interim financial
statements.
Financial Information System Design and Implementation Fees
During 2002, KPMG did not provide any financial information system design and
implementation consulting service to the Group.
All Other Fees
KPMG LLP billed the Group $157,000 for professional services provided other than
Audit Fees during 2002. These fees were primarily for internal audit services.
During 2002, the Audit Committee adopted a policy that the independent auditor
would not provide future internal audit services. That work will be performed by
another firm which has been engaged.
California Water Service Group 23
Performance Graph
The graph below shows a five-year comparison of cumulative total returns for the
Group, the S&P 500 Index and the AG Edwards Water Utility Average of 11
companies.
[The following table was depicted as a line graph in the printed material.]
Performance Graph Data
1997 1998 1999 2000 2001 2002
California Water Service Group 100 110 111 104 103 99
S&P 500 Index 100 129 156 141 125 97
AG Edwards Water Utility Avg of 11 Companies 100 128 176 164 202 200
Past stock performance is not necessarily indicative of future performance.
24 California Water Service Group
Proposal No. 2--Ratification of Selection of KPMG LLP as Auditors for 2003
Stockholders will vote on the ratification of KPMG LLP, certified public
accountants, to audit the Group's books, records and accounts for the year
ending December 31, 2003. 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 Audit Committee and Board will
reconsider the selection of the auditors.
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.
The Board urges you to vote FOR this proposal.
California Water Service Group 25
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.
The Group has adopted a written code of ethics that applies to its
principal executive officer, principal financial officer, principal accounting
officer or controller.
26 California Water Service Group
Appendix A
Audit Committee Charter
As adopted by the Board of Directors on January 29, 2003
I. Purpose
The purpose of the Audit Committee of the Board of Directors is to assist the
Board in oversight of the quality and integrity of the Company's financial
statements and the Company's compliance with legal, regulatory and reporting
requirements. The Committee is solely responsible for the selection,
qualifications and compensation of the Company's independent auditors, including
oversight and evaluation of Company's independent auditors and internal audit
function.
II. Committee Membership
The Audit Committee shall be comprised of three or more directors appointed
annually by the Board of Directors. Each Committee member shall satisfy the
independence, financial literacy and experience requirements of the Securities
and Exchange Commission ("SEC"), the New York Stock Exchange and other
regulatory bodies. The Board of Directors shall determine that each member is
free of any relationship with the Company which, in the opinion of the Board of
Directors, may interfere with the exercise of independent judgement. At least
one member of the Committee shall have accounting or financial management
expertise, as required by the rules and regulations of the Exchange.
III. Meetings
The Audit Committee shall meet as often as necessary to fulfill its
responsibilities, but not less than quarterly. At least quarterly, the Committee
shall hold separate, private meetings with the Company's Chief Financial Officer
and Controller, and the Company's independent auditors. At least twice each
year, the Committee shall meet with representatives of the internal audit firm.
Each such person shall have free and direct access to the Committee and any of
its members.
The Committee shall maintain a one-year schedule of future meeting dates
including a preliminary agenda for each meeting. Final meeting agendas shall be
drafted by the Committee Chair in consultation with the Chief Financial Officer,
the independent auditors and the internal auditor.
Following each Committee meeting, the Chair shall report to the Board of
Directors the Committee's activities, concerns, conclusions and recommendations,
reviewing with the Board the broad scope of issues that may come before the
Committee including the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory requirements, the
performance and independence of the Company's independent auditors, and
performance of the internal audit function.
IV. Authority of Committee
In discharging its oversight role and responsibilities, the Committee is
empowered to investigate any matter brought to its attention or assigned by the
Board of Directors. The Committee may require Company personnel to assist in any
such investigations, and it is empowered to engage and retain outside legal
counsel and other experts to assist in such investigations or other matters as
it deems necessary.
V. Responsibilities of the Audit Committee
The Company's management is responsible for preparing the Company's financial
statements and the independent auditors are responsible for auditing those
financial statements. In fulfilling these responsibilities, the independent
auditors are ultimately accountable to the Audit Committee, and management is
ultimately accountable to the Audit Committee and the Board of Directors. The
Audit Committee provides an oversight function. This Charter should not be
construed to imply that the Audit Committee is required to provide or does
provide any assurance or certification as to the Company's financial statements
or as to its compliance with laws, rules or regulations. In order to fulfill its
oversight responsibility, the Audit Committee must be capable of conducting free
and open discussions with management, internal and independent auditors,
employees and others regarding the quality of the financial statements and the
system of internal controls.
To fulfill its responsibilities, the Audit Committee shall:
California Water Service Group 27
With Respect to the Independent Auditors:
1. Bedirectly responsible for the appointment, compensation and oversight of
the independent auditors, subject to stockholder ratification.
2. Review and evaluate the independent auditors' performance. The evaluation
should include a performance review of the independent auditors' lead
partner. In making its evaluation, the Committee should take into account
the opinions of management.
3. Ensure the auditors' independence by:
(i) requiring that the auditors submit annually to the Audit Committee
a formal written statement delineating all relationships between
the auditor and the Company;
(ii) actively engaging in a dialogue with the auditors with respect to
all relationships or services that may impact their objectivity
and independence, including the matters required by Independence
Standards Board Standard No. 1, "Independence Discussions with
Audit Committees"; and
(iii) setting clear policies defining the circumstances under which the
Company is permitted to hire former employees of the independent
auditors.
4. Review and approve in advance any non-audit services and related fees
proposed to be undertaken by the independent auditors on behalf of the
Company.
5. Annually review the auditors' proposed scope and audit plan, and discuss
staffing and timing of the audit and related matters.
6. Review, at least annually, the auditors' report on their internal quality
controls and any material issues and the steps taken and to be taken to
deal with issues raised by the independent auditors' internal quality
review, peer review, or inquiry by governmental or professional
organizations, at any time within the past five years.
7. Obtain from management, review and approve a description of issues and
responses whenever a second opinion is proposed to be sought by
management from another outside accountant.
8. Require the auditors to rotate the lead audit partner assigned to the
Company's audit and the second partner responsible for reviewing the
audit at least every five years.
9. Periodically review rotating the independent audit firm to be selected as
the Company's independent auditors. The audit committee should present
its conclusions with respect to the independent auditors to the Board of
Directors.
With Respect to Financial Statements:
10. Review accounting principles and financial statement presentations,
including:
(i) any changes in the Company's selection or application of
significant accounting principles;
(ii) any major issues as to the adequacy of the Company's internal
controls and any special audit steps adopted by the independent
auditors in light of material control deficiencies;
(iii) analyses prepared by management and/or the independent auditor
setting forth significant financial reporting issues and judgments
made in connection with the preparation of the financial
statements, including analyses of the effects of alternative
Generally Accepted Accounting Principles ("GAAP") on the financial
statements; and
(iv) the effect of regulatory and accounting initiatives, as well as
off-balance sheet arrangements, on the Company's financial
statements for compliance with applicable accounting and
disclosure rules.
11. Review with the Company's auditors:
(i) all critical accounting policies and practices to be used;
(ii) all alternative treatments of financial information within GAAP
that have been discussed with Company management, ramifications of
the use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditors; and
(iii) other material written communications between the independent
auditors and Company's management, such as any management letter
or schedule of unadjusted accounting differences.
28 California Water Service Group
12. Inquire of the independent auditors at a post-audit, pre-issuance review
of the Company's annual financial statements, the auditors' opinion
thereon, and any problems, difficulties or disagreements with management
encountered by the auditors during the course of the audit, and
management's response, including reviewing with the auditor:
(i) any restrictions on the scope of the independent auditors'
activities or access to requested information;
(ii) any accounting adjustments, whether material or not, that were
noted or proposed by the auditors but were not recorded by the
Company and assess the reason the adjustments were not recorded;
(iii) any communications between the audit team and the audit firm's
national office respecting auditing or accounting issues presented
by the engagement; and
(iv) any "management" or "internal control" letter issued, or proposed
to be issued, by the auditors to the Company.
13. Discuss with the Company's financial management and with the independent
auditors the quarterly and annual financial statements, including the
Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," prior to any public
release or announcement or submission to a regulatory agency.
14. Review with management each Form 10-K and 10-Q report required to be
submitted to the SEC, its disclosures to the Committee under Section 302
of the Sarbanes-Oxley Act ("Act") and the contents of the Chief Executive
Officer and the Chief Financial Officer certifications required to be
filed under Section 302 and 906 of the Act.
15. Discuss with the independent auditors the matters required to be
discussed by relevant auditing standards, including the quality, and not
just the acceptability, of the accounting principles and underlying
estimates used in the preparation of the financial statements.
16. Recommend to the Board of Directors that the financial statements be
included in the Company's annual report to the SEC on Form 10-K, if the
Committee finds the financial statements acceptable; such recommendation
shall be reported in the Audit Committee report included in the proxy
statement.
17. Review and discuss quarterly earnings releases with the Company's
financial management and the independent auditors prior to issuance.
18. Review the Company's policy for financial information and earnings
guidance provided to analysts and rating agencies. Review, prior to
publication or filing of other Company financial information, such as
news releases, required regulatory filings and guidance provided to
financial analysts, that include financial information, as the Committee
deems desirable.
With Respect to Internal Auditing and Internal Controls:
19. Appoint, in consultation with management, the Company's internal audit
firm that shall report to and be responsible to the Committee.
20. Review and approve the annual internal audit plan including internal
audit firm compensation.
21. Annually review the quality of internal accounting and financial control,
internal auditor reports and opinions and any recommendations the auditor
may have for improving or changing the Company's internal controls, as
well as management's response to the auditor's recommendations.
22. Discuss policies with respect to the Company's risk assessment and risk
management, and review the Company's major financial risk exposures and
the steps management has taken and proposes to take to monitor and
control such exposures.
California Water Service Group 29
VI. Annual Performance Evaluation and Other Matters
23. The Committee shall conduct an annual performance evaluation that
considers matters related to its responsibilities in dealing with the
independent auditors, financial statements, internal audit function and
internal control.
24. This Charter will be reviewed at least annually with revisions the
Committee determines as necessary proposed to the Board of Directors.
25. The Committee will prepare a report to the stockholders for inclusion in
each proxy statement, as required by SEC regulations. The Audit Committee
Charter will be published each year in the proxy statement and be
available through the Company's website. The report will include the
name(s) of the Committee members who qualify as financial experts as
defined by the SEC.
26. Annually the Committee will review and approve the Company's code of
business conduct and ethics for directors and executive officers,
including the code of conduct for the CEO and financial executives. The
Committee will approve any waivers in the codes and ascertain that
changes and waivers are disclosed in a Form 8-K filing with the SEC.
27. The Committee will maintain procedures whereby an employee may submit, on
a confidential and anonymous basis, complaints regarding questionable
accounting, internal accounting controls, or auditing matters. There
shall also be procedures for the Committee, at its Chair's direction, to
investigate these matters.
30 California Water Service Group
[GRAPHIC OF MAP SHOWING COMPANY'S STREET LOCATION OMITTED]
California Water Service Group
1720 North First Street
San Jose, CA 95112-4598
(408) 367-8200
[GRAPHIC OF LOGOS OF COMPANY AND ITS SUBSIDIARIES OMITTED]
California Water Service Group
1720 North First Street
San Jose, California 95112-4598
408.367.8200
www.calwater.com
1780-PS-03
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
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 23, 2003 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 2002.
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)
CALIFORNIA WATER SERVICE GROUP
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
VOTER CONTROL NUMBER
--------------------------
--------------------------
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
- ------------------------------------
VOTE-BY-INTERNET
1. LOG ON TO THE INTERNET AND GO TO
HTTP://WWW.EPROXYVOTE.COM/CWT
2. ENTER YOUR VOTER CONTROL NUMBER
LISTED ABOVE AND FOLLOW THE EASY
STEPS OUTLINED ON THE SECURED
WEBSITE. [GRAPHIC: SYMBOL OF A
PERSONAL COMPUTER]
- ------------------------------------
OR
- ------------------------------------
VOTE-BY-TELEPHONE
1. CALL TOLL-FREE 1-877-PRX-VOTE
(1-877-779-8683)
2. ENTER YOUR VOTER CONTROL NUMBER
LISTED ABOVE AND FOLLOW THE EASY
RECORDED INSTRUCTIONS. [GRAPHIC:
SYMBOL OF A TELEPHONE]
- ------------------------------------
IF YOU VOTE OVER THE INTERNET OR BY TELEPHONE, PLEASE DO NOT MAIL YOUR CARD.
We have been advised by counsel that these telephone
and Internet voting procedures comply with Delaware law.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
X PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSALS 1 AND 2.
1. ELECTION OF DIRECTORS
NOMINEES: (01) Douglas M. Brown,
(02) Robert W. Foy,
(03) Edward D. Harris, Jr., M.D.,
(04) Bonnie G. Hill,
(05) David N. Kennedy,
(06) Richard P. Magnuson,
(07) Linda R. Meier,
(08) Peter C. Nelson,
(09) Langdon W. Owen and
(10) George A. Vera
[ ] FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES
[ ] ___________________________
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
2. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP, as the independent auditors
of the Group for 2003.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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 FOR 2003 AND IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER
MATTERS 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.
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: _____________________