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(Rule 14a-101)
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California Water Service Group
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California Water Service Group
Notice of 2004 Annual Meeting and Proxy Statement
You're in Good Company
[GRAPHIC OMITTED]
[LOGO] California Water Service Group
California Water Service Company, Hawaii 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 26, 2004
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders at
10:00 a.m. on Wednesday, April 28, 2004, 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 2003 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 that 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 28, 2004, 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
2004 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 .................. 5
What am I voting on? .................................................................. 5
Who may attend the Annual Meeting? .................................................... 5
Who is entitled to vote? .............................................................. 5
How many votes do I get? .............................................................. 5
What is "cumulative voting" and how does it work? ..................................... 5
How are the directors elected? ........................................................ 5
Who are the Board's nominees? ......................................................... 5
What is the required vote for the second proposal to pass? ............................ 5
How do I vote? ........................................................................ 5
What if I change my mind after I return my proxy? ..................................... 6
Will my shares be voted if I do not return my proxy? .................................. 6
What happens if my shares are held by my stockbroker? ................................. 6
What happens if I abstain from voting on a proposal? .................................. 6
Who will count the vote? .............................................................. 6
What does it mean if I get more than one proxy card? .................................. 7
What constitutes a quorum? ............................................................ 7
What percentage of stock do the directors and executive officers own? ................. 7
Who are the largest stockholders? ..................................................... 7
What is the deadline for submitting stockholder proposals for the Group's proxy
materials for next year's Annual Meeting? ............................................ 7
How can a stockholder propose a nominee for the Board? ................................ 7
How can a stockholder propose business at a stockholders' meeting? .................... 8
How can a stockholder contact the independent directors, the director who chairs the
Board's executive sessions or the full Board? ........................................ 8
Can I make comments and/or ask questions during the Annual Meeting? ................... 8
BOARD STRUCTURE ......................................................................... 9
Committees .............................................................................. 9
Audit ................................................................................. 9
Compensation .......................................................................... 9
Finance ............................................................................... 9
Nominating/Corporate Governance ....................................................... 9
Executive ............................................................................. 9
Independence Of Directors ............................................................... 10
Director Qualifications ................................................................. 11
Identification of Director Nominees ..................................................... 11
Executive Sessions of the Board ......................................................... 11
Corporate Governance Guidelines ......................................................... 11
Director Compensation Arrangements ...................................................... 12
Annual Meeting Attendance ............................................................... 12
PROPOSAL NO. 1--ELECTION OF DIRECTORS ................................................... 13
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS ............................. 16
Ownership of Directors and Executive Officers ......................................... 16
Ownership of Largest Principal Stockholders ........................................... 17
Section 16(a) Beneficial Ownership Reporting Compliance ............................... 17
2 California Water Service Group
2004 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
EXECUTIVE COMPENSATION .................................................................. 18
Summary Compensation Table ............................................................ 18
Severance Agreements .................................................................. 18
Option/SAR Grants in 2003 ............................................................. 18
Aggregated Option/SAR Exercises in 2003 and 2003 Fiscal Year-End Option/SAR Values .... 19
Equity Compensation Plan Information .................................................. 19
Pension Plans ......................................................................... 20
Report of the Compensation Committee of the Board of Directors on Executive
Compensation ....................................................................... 21
Compensation Committee Interlocks and Insider Participation ........................... 22
AUDIT COMMITTEE ......................................................................... 23
Report of the Audit Committee ......................................................... 23
Relationship with Independent Auditors ................................................ 24
PERFORMANCE GRAPH ....................................................................... 25
PROPOSAL NO. 2--RATIFICATION OF SELECTION OF KPMG LLP AS AUDITORS FOR 2004 .............. 26
CERTAIN TRANSACTIONS .................................................................... 27
OTHER MATTERS ........................................................................... 27
APPENDIX A .............................................................................. 28
Audit Committee Charter ............................................................... 28
For directions to the Annual Meeting, please refer to the map on the inside back
cover
California Water Service Group 3
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 28, 2004
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 Friday, February 27, 2004.
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 5 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 26, 2004.
4 California Water Service Group
Questions and Answers About the Proxy Materials and the Annual Meeting
What am I voting on?
* Election of nine directors to serve until the 2005 Annual Meeting.
* Ratification of the Audit Committee's selection of KPMG LLP as the Group's
independent auditors for 2004.
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 27, 2004 (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 nine votes for each
common share owned. Instead of casting one vote for each of the nine candidates
they may cast all nine 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 144 votes (16 x 9) 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 nine 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, and George A. Vera. All the nominees are current Board members. See
pages 13-15 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.
California Water Service Group 5
Questions and Answers About the Proxy Materials and the Annual Meeting
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 nine 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 stockbroker holds your shares for you.
What happens if my shares are held by my stockbroker?
Your stockbroker, under certain circumstances, may vote your shares.
Stockbrokers must write to you asking how you want your shares voted.
However, if you do not respond, stockbrokers 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 stockbroker, you must ask your stockbroker how to
do so.
If you do not give your stockbroker voting instructions, the stockbroker
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 stockbroker does not vote ("stockbroker non-votes") will
count towards the quorum only. We encourage you to provide your voting
instructions to your stockbroker. 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.
Who will count the vote?
Representatives of EquiServe, our transfer agent, will serve as the inspector of
elections and count the votes.
6 California Water Service Group
Questions and Answers About the Proxy Materials and the Annual Meeting
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 time and
place.
At the Record Date, there were approximately 4,500 stockholders of record.
There were 16,932,046 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 16 for more details.
Who are the largest stockholders?
As of January 1, 2004, the largest principal stockholders were:
* SJW Corp. (1,099,952 shares of common stock, representing 6.3% of our
common stock); and
* Participants in the Employees Savings Plan of California Water Service
Company, a Company-sponsored 401(k) plan (458,658 shares of common stock,
representing 2.7% of our common stock).
See page 17 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 2005 Annual Meeting of
stockholders must be received by the Corporate Secretary of the Group by
November 26, 2004 in order to be considered for inclusion in the Group's 2005
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.
The by-laws specify what the notice must contain. The notice deadline for
the 2005 Annual Meeting is November 30, 2004.
California Water Service Group 7
Questions and Answers About the Proxy Materials and the Annual Meeting
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 2005 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.
How can a stockholder contact the independent directors, the director who chairs
the Board's executive sessions or the full Board?
Stockholders may address inquiries to any of the Group's directors, to the
director who chairs the Board's executive sessions, or to the full Board, by
writing to Paul G. Ekstrom, Corporate Secretary, California Water Service Group,
1720 North First Street, San Jose, California 95112-4598. All such
communications are sent directly to the intended recipient.
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.
8 California Water Service Group
Board Structure
This section briefly describes the structure of the Board and the functions of
the principal committees of the Board. The charters for the Audit, Compensation,
Finance and Nominating/Corporate Governance committees are posted on the Group's
website at http://www.calwatergroup.com. The Audit Committee charter is also
attached as Appendix A to this proxy statement.
The Group's policy is that all directors must be able to devote the required
time to carry out director responsibilities and should attend all meetings of
the Board and of Committees on which they sit.
Committees:
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, are
independent as defined in the listing standards of the New York Stock Exchange
and meet the additional independence and financial literacy requirements for
audit committee members imposed by the Sarbanes-Oxley Act and the rules of the
SEC thereunder. The Group has not relied on any exemptions in the SEC's rules
from the audit committee independence requirements.
The Board has determined that George A. Vera, chair of the Audit Committee, is a
financial expert and is independent as defined in the rules of the SEC and in
the listing standards of the New York Stock Exchange. This means that the Board
believes Mr. Vera has:
(i) an understanding of generally accepted accounting principles and
financial statements;
(ii) the ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves;
(iii) experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Group's financial statements, or experience actively supervising
one or more persons engaged in such activities;
(iv) an understanding of internal control over financial reporting; and
(v) an understanding of audit committee functions.
Designation of a person as an audit committee financial expert does not result
in the person being deemed an expert for any purpose, including under Section 11
of the Securities Act of 1933. The designation does not impose on the person any
duties, obligations or liability greater than those imposed on any other audit
committee member or any other director and does not affect the duties,
obligations or liability of any other member of the Audit Committee or Board of
Directors.
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.
FINANCE: Established in 2003 to assist the Board in reviewing the Group's
financial policies, strategies and capital structure, and to make reports and
recommendations to the Board as the Committee deems advisable. All members are
non-employee directors and independent as defined in the listing standards of
the New York Stock Exchange.
NOMINATING/CORPORATE GOVERNANCE: Established 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. All members 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 2003, there were 11 regular meetings of the Board, four meetings of
the Audit Committee, four meetings of the Compensation Committee, one meeting of
the Finance Committee, two meetings of the Nominating/Corporate Governance
Committee and one meeting of the Executive Committee. Each of the
director-nominees who served on the Board of California Water Service Group in
2003 attended at least 88% of all Board and applicable committee meetings.
Collectively, they attended an average of 98% of all of the Board and applicable
committee meetings.
California Water Service Group 9
Independence of Directors:
The Board has adopted a standard of director independence. The standard
determines that a director is independent if he or she has no material
relationship, whether commercial, industrial, banking, consulting, accounting,
legal, charitable or familial, with the Group, either directly or indirectly as
a partner, stockholder or officer of an entity that has a material relationship
with the Group.
A director is not independent if he or she fails the standard for independence
in Section 303A of the New York Stock Exchange Listed Company Manual. The
following relationships or transactions disqualify a person from being
considered independent:
* employment of the director or of an immediate family member within the
last three years as an executive officer of the Group, or employment of
the director within the last three years as an employee of the Group;
* receipt within the past three years by the person, or by an immediate
family member of the person, of more than $100,000 in direct compensation
from the Group, other than director or committee fees and pension or other
forms of deferred compensation for prior service;
* affiliation or employment of a director, or affiliation with or employment
of an immediate family member of the director in a professional capacity,
within the past three years with the Group's auditors;
* employment of the director or of an immediate family member within the
last three years with a company whose compensation committee includes an
executive officer of the Group;
* being an executive officer or employee of a customer that accounts for at
least 2% or $1 million, whichever is greater, of the Group's consolidated
gross revenues, or an executive officer or employee of a vendor or other
party for which the Group accounts for at least 2% or $1 million,
whichever is greater, of the party's consolidated gross revenues, within
the past three years.
The Board has determined that none of the following relationships, in itself, is
material for purposes of these standards:
* being a residential customer of the Group;
* being an executive officer or employee, or being otherwise affiliated
with, a commercial customer from which Cal Water's consolidated gross
revenues in any of the last three years are or were not more than the
greater of (i) 1% of Cal Water's consolidated gross revenues for the year
or (ii) $500,000;
* being an executive officer or employee of a supplier or vendor that has or
had consolidated gross revenues from the Group in any of the last three
years of not more than the lesser of (i) 1% of Cal Water's consolidated
gross revenues for the year or (ii) $500,000;
* having a 5% or greater ownership interest or similar financial interest in
a supplier or vendor that has or had consolidated gross revenues from the
Group in any of the last three years of not more than the lesser of (i) 1%
of Cal Water's consolidated gross revenues for such year or (ii) $500,000;
* being a director of any of the Group's subsidiaries.
If a director is eligible for treatment as an independent director under Section
303A but has a relationship with the Group other than one of the five
relationships described above, the Board or the Nominating/Corporate Governance
Committee will review the facts and circumstances of the relationship and make a
good faith determination whether it considers the director independent in light
of the purposes of the Sarbanes-Oxley Act of 2002 and the New York Stock
Exchange listing standards and, if it determines that the director is
independent, will disclose the basis for its determination in the Group's proxy
statement for its next Annual Meeting of stockholders as required by applicable
laws and regulation.
In making a determination regarding independence of a director, the Board will
consider, among other things, the materiality of the relationship to the Group,
to the director, and, if applicable, to the organization with which the director
is affiliated.
The Board has determined that a majority of the members of the Board meet the
standard and also are "independent," as defined in the listing standards of the
New York Stock Exchange.
10 California Water Service Group
Director Qualifications
The Group seeks directors with the following specific qualifications:
* shows evidence of leadership in his/her particular field;
* has broad experience and exercises sound business judgment;
* has expertise in an area of importance to Group and its subsidiaries;
* is able to work in a collegial Board environment;
* has the highest personal and professional ethics and integrity;
* is able to devote the required time to carry out director
responsibilities;
* has the ability and willingness to contribute special competencies to
Board activities, to include appointment to Board committees;
* is free from conflicts of interest which would interfere with serving and
acting in the best interests of the Group and its stockholders;
* is the highest caliber individual who has achieved a level of prominence
in his or her career; for example, a CEO or highest level financial
officer of a sizeable corporation, a director of a major corporation, a
prominent civic or academic leader, etc.
In addition, Section 2.8 of the Group's by-laws contains requirements which a
person must meet to avoid conflicts of interest which would disqualify that
person from serving as a director.
Identification of Director Nominees
The Group identifies new director candidates by director recommendations and by
the use of search firms selected by the Nominating/Corporate Governance
Committee. The Nominating/Corporate Governance Committee has selected the search
firm of SpencerStuart to identify new director candidates.
The Group considers nominees of stockholders in the same manner as all other
nominees. The Group will consider director nominees recommended by stockholders
who adhere to the procedure described under "Questions and Answers About the
Proxy Materials and the Annual Meeting--How can a stockholder propose a nominee
for the Board" on page 7.
Executive Sessions of the Board
As required by the listing standards of the New York Stock Exchange, the Group
schedules regular executive sessions of directors in which directors meet
without management participation. Mr. Douglas M. Brown has been appointed to
chair these sessions.
Corporate Governance Guidelines
The Board has adopted corporate governance guidelines as defined by the listing
standards of the New York Stock Exchange. The guidelines are posted on the
Group's website at http://www.calwatergroup.com. The guidelines are also
available in written form upon request to Paul G. Ekstrom, Corporate Secretary,
California Water Service Group, 1720 North First Street, San Jose, California
95112-4598.
California Water Service Group 11
Director Compensation Arrangements
The following table provides information on the Group's compensation and
reimbursement practices during fiscal year 2003 for non-employee directors, as
well as the range of compensation paid to non-employee directors who served
during the 2003 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 2003
Annual Director Retainer $20,000
Board and Committee Meeting Attendance Fee $ 1,250
Range of Committee Meeting Attendance Fees Paid to Directors $5,000 -- $17,500
Committee Meeting Attendance Fee for Committee Chairs $ 2,500
COMPENSATION. In 2003, Directors Brown, Harris, Magnuson, Meier and Vera
received an annual retainer of $20,000. Directors Hill and Kennedy, elected to
the Board in April 2003, received an annual retainer of $15,000. Effective
January 1, 2004, non-employee directors are paid an annual retainer of $20,800
and a meeting attendance fee of $1,300, and non-employee committee chairs are
paid a meeting attendance fee of $2,600. Effective January 1, 2004, the Audit
Committee Chair is paid an annual retainer of $7,500.
DEFERRED COMPENSATION PLAN. The Group has established the California Water
Service Group Deferred Compensation Plan, an unfunded deferred compensation
program for non-employee directors, executive officers and managers. Under the
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 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 the 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. The Group is under no
obligation to make any investment or otherwise fund the plan. Participants are
general, unsecured creditors of the Group.
RETIREMENT PLAN. The Group has established a directors' retirement 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.
Annual Meeting Attendance
All directors are expected to attend each Annual Meeting of the Group's
stockholders, unless attendance is prevented by an emergency. Except for Langdon
W. Owen, who was ill, all of the Group's directors who were in office at that
time attended the Group's 2003 Annual Meeting of stockholders.
12 California Water Service Group
Proposal No. 1--Election of Directors
There are nine 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 nine 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(3,4,5,6,9,12,13)
Director since 2001
age 66
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
president of Albuquerque Community Foundation and serves as a regent of the
University of New Mexico.
Robert W. Foy(2,11)
Director since 1977
age 67
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.(2,4,6,13)
Director since 1993
age 66
Dr. Harris is the George DeForest Barnett professor of medicine, emeritus,
at Stanford University Medical Center. He is the Academic Secretary to 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.
California Water Service Group 13
Proposal No. 1--Election of Directors
Bonnie G. Hill(6,13)
Director since 2003
age 62
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 1997 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
Yum Brands, Inc. She is also a director of the Los Angeles Urban League, United
Way of Los Angeles, and Goodwill Industries of Greater Los Angeles.
*Ms. Hill is not standing for reelection as a director of ChoicePoint Inc.
David N. Kennedy(4,5,13)
Director since 2003
age 67
Mr. Kennedy is retired from the State of California. From 1983 to 1998, he
was director of the California Department of Water Resources. He is a life
member of the American Society of Civil Engineers. In 1998, he was elected to
the National Academy of Engineering.
Richard P. Magnuson(2,3,4,5,6,10,13)
Director since 1996
age 48
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(3,4,6,8,13)
Director since 1994
age 63
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
14 California Water Service Group
Proposal No. 1--Election of Directors
Peter C. Nelson(2)
Director since 1996
age 56
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.
George A. Vera(3,5,7,13)
Director since 1998
age 60
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 the Finance Committee
6 Member of Nominating/Corporate Governance Committee
7 Chair of the Audit Committee
8 Chair of the Compensation Committee
9 Chair of the Finance Committee
10 Chair of the Nominating/Corporate Governance Committee
11 Chair of the Executive Committee
12 Chair of Board's Executive Sessions
13 Independent director
[PHOTO] [PHOTO] [PHOTO]
Peter C. Nelson Langdon W. Owen George A. Vera
California Water Service Group 15
Stock Ownership of Management and Certain Beneficial Owners
Ownership of Directors and Executive Officers
(Common and Preferred Stock Ownership as of January 1, 2004)(1)
Name Shares Owned
- --------------------------------------------------------------------------------
Douglas M. Brown 2,000
Director
- --------------------------------------------------------------------------------
Francis S. Ferraro 6,983(2)
Executive Officer
- --------------------------------------------------------------------------------
Robert W. Foy 27,363(3)
Director and Executive Officer
- --------------------------------------------------------------------------------
Robert R. Guzzetta 9,090(4)
Executive Officer
- --------------------------------------------------------------------------------
Edward D. Harris, Jr., M.D 1,399
Director
- --------------------------------------------------------------------------------
Bonnie G. Hill 1,000
Director
- --------------------------------------------------------------------------------
David N. Kennedy 1,000
Director
- --------------------------------------------------------------------------------
Richard P. Magnuson 17,661
Director
- --------------------------------------------------------------------------------
Linda R. Meier 3,000
Director
- --------------------------------------------------------------------------------
Peter C. Nelson 33,444(5)
Director and Executive Officer
- --------------------------------------------------------------------------------
Raymond H. Taylor 8,310(6)
Executive Officer
- --------------------------------------------------------------------------------
George A. Vera 1,550
Director
- --------------------------------------------------------------------------------
All directors and executive officers as a group(7) 147,237
- --------------------------------------------------------------------------------
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, 2004, all
directors and executive officers together beneficially owned an aggregate
of less than 1% of the Group's outstanding common shares.
2 Includes 983 shares in the Employees Savings Plan. Includes 6,000 shares
outstanding under options which are currently exercisable or exercisable
within 60 days of January 1, 2004.
3 Includes 2,063 shares held in the Employees Savings Plan. Includes 18,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2004.
4 Includes 3,090 shares held in the Employees Savings Plan. Includes 6,000
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2004.
5 Includes 1,800 shares held in the Employees Savings Plan. Includes 28,125
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2004.
6 Includes 2,310 shares held in the Employees Savings Plan. Includes 6,000
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2004.
7 Includes 14,683 shares held in the Employees Savings Plan for the benefit
of executive officers. Includes 94,625 shares outstanding under options
which are currently exercisable or exercisable within 60 days of January
1, 2004.
16 California Water Service Group
Ownership of Largest Principal Stockholders
The following table shows the largest principal holders of the Group's voting
securities as of January 1, 2004:
Class Beneficial Owner Number of Shares Percent of Class
- -------------------------------------------------------------------------------------------
Common SJW Corp.(1) 1,099,952 6.3%
374 W. Santa Clara Street
San Jose, CA 95196
- -------------------------------------------------------------------------------------------
Common Participants in California 458,658 2.7%
Water Service Company
Employees Savings Plan (a 401(k) plan)
1720 N. First Street
San Jose, CA 95112
- -------------------------------------------------------------------------------------------
1 SJW 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 2003, all Section 16(a) filings of the
officers, directors and 10-percent stockholders of the Group complied with
requirements for reporting stock ownership.
California Water Service Group 17
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, 2003.
Long Term
Annual Compensation Compensation
---------------------------- -----------------------
Other Annual Securities Underlying All Other
Name and Principal Position Year Salary(1) Compensation Options/SAR's (#)(8) Compensation
- -----------------------------------------------------------------------------------------------------------------------
Peter C. Nelson 2003 $514,066 $13,750(2) -- $7,336(3)
President and Chief Executive Officer 2002 479,309 12,265(2) 15,000 6,336(4)
2001 449,296 11,440(2) 15,000 5,586(5)
- -----------------------------------------------------------------------------------------------------------------------
Robert W. Foy 2003 $306,552 $13,750(2) -- $7,336(3)
Chairman of the Board 2002 291,257 12,265(2) 10,000 6,336(4)
2001 276,584 11,440(2) 10,000 5,586(5)
- -----------------------------------------------------------------------------------------------------------------------
Francis S. Ferraro 2003 $237,355 -- -- $7,336(3)
Vice President, Regulatory Matters 2002 221,628 -- 3,000 6,336(4)
and Corporate Development 2001 204,857 -- 3,000 5,886(5)
- -----------------------------------------------------------------------------------------------------------------------
Robert R. Guzzetta 2003 $197,307 -- -- $6,336(4)
Vice President, Engineering and 2002 185,874 -- 3,000 5,836(6)
Water Quality 2001 175,080 -- 3,000 5,586(5)
- -----------------------------------------------------------------------------------------------------------------------
Raymond H. Taylor 2003 $195,464 -- -- $7,330(7)
Vice President, Operations 2002 187,643 -- 3,000 6,336(4)
2001 181,969 -- 3,000 5,586(5)
- -----------------------------------------------------------------------------------------------------------------------
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 $6,938, $7,753, $7,568 and $5,644 for
Messrs. Foy, Ferraro, Guzzetta and Taylor, respectively.
2 Director meeting fees.
3 Includes Employees Savings Plan contributions of $7,000 and annual life
insurance premiums of $336.
4 Includes Employees Savings Plan contributions of $6,000 and annual life
insurance premiums of $336.
5 Includes Employees Savings Plan contributions of $5,250 and annual life
insurance premiums of $336.
6 Includes Employees Savings Plan contributions of $5,500 and annual life
insurance premiums of $336.
7 Includes Employees Savings Plan contributions of $6,994 and annual life
insurance premiums of $336.
8 Option grants were not awarded for 2003.
SEVERANCE AGREEMENTS In 1998, we entered into executive severance plan
agreements with all officers. These agreements provide officers with severance
payments of approximately three times their annual salary if the Group merges
with another company or effects another transaction by which another company
acquires control and as a result, within 24 months, these officers lose their
executive positions. This severance amount would be paid in three equal annual
payments, beginning the month following termination.
OPTION/SAR GRANTS IN 2003 Option grants were not awarded for 2003.
18 California Water Service Group
AGGREGATED OPTION/SAR EXERCISES IN 2003 AND 2003 FISCAL YEAR-END OPTION/SAR
VALUES The following table shows 2003 fiscal year-end number and value of
unexercised options held by the president and chief executive officer and our
four other most highly paid executive officers. There were no options exercised
by such persons during 2003.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at FY-End Options/SARs at FY-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------
Peter C. Nelson 20,625/21,875 $60,071/$49,837
President and
Chief ExecutiveOfficer
- ------------------------------------------------------------------------------------------------
Robert W. Foy 13,500/14,500 $38,401/$32,863
Chairman of the Board
- ------------------------------------------------------------------------------------------------
Francis S. Ferraro 4,500/4,500 $13,641/$10,510
Vice President, Regulatory Matters
and Corporate Development
- ------------------------------------------------------------------------------------------------
Robert R. Guzzetta 4,500/4,500 $13,641/$10,510
Vice President, Engineering and
Water Quality
- ------------------------------------------------------------------------------------------------
Raymond H. Taylor 4,500/4,500 $13,641/$10,510
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 149,250 $ 24.77 1,350,750
plans approved by
security holders
- ----------------------------------------------------------------------------------------------------------------------
Equity compensation None None None
plans not approved by
security holders
- ----------------------------------------------------------------------------------------------------------------------
Total 149,250 $ 24.77 1,350,750
- ----------------------------------------------------------------------------------------------------------------------
California Water Service Group 19
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. The years of service required
to earn maximum benefit under the SERP is 15 years.
Three Highest Consecutive
Years Average Compensation(2) 5 Years 10 Years 15 Years
- -----------------------------------------------------------------------
$ 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
550,000 110,000 220,000 330,000
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 as set forth in the Summary Compensation
Table. The number of years of credited service at January 1, 2004, for
officers named in the Compensation Table is as follows: Mr. Nelson, 23;
Mr. Foy, 23; Mr. Ferraro, 14; Mr. Guzzetta, 26; and Mr. Taylor, 21.
20 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 they use to establish executive officer compensation. This
report explains the criteria that the Group used to determine the compensation
of all of its officers in 2003.
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 2003, the Board adopted the Committee's
recommendations without modification. During 2003, the Committee met four times.
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, Mr. Kennedy and Mr. Magnuson. All members of the Compensation
Committee meet the independence standard adopted by the Board and the New York
Stock Exchange standard for independence.
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 2002, the Committee reviewed the
compensation for Peter C. Nelson, president and chief executive officer. The
Committee set Mr. Nelson's 2003 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, Hawaii Water Service Company, 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 21
Report of the Compensation Committee of the Board of Directors on
Executive Compensation
Who determines the amount and type of award granted?
The Compensation Committee determines stock option awards for executive
officers. The Chief Executive Officer recommends the stock option award level
for all other participants. All stock option awards (if any), including the
terms and conditions, are 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.
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.
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 2003, 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.
David N. Kennedy
Richard P. Magnuson
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of the Group
or any of its subsidiaries during 2003. 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.
22 California Water Service Group
Audit Committee
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 28, 2004 meeting. The charter, which is
printed in Appendix A of this proxy statement, was revised to include
definitions of a quorum. The Committee consists of four members, each of whom
meets the New York Stock Exchange standards for independence and the
Sarbanes-Oxley Act independence standards for audit committee membership, and
has at least one member meeting the requirements of a financial expert. During
2003, the Committee met four 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, 2003 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, the Chief Financial Officer and the Controller 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
California Water Service Group 23
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, 2004. 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.
(amounts in thousands)
Category of Services Fiscal Year 2002 Fiscal Year 2003
- --------------------------------------------------------------------------------
Audit Fees(1) $256 $249
- --------------------------------------------------------------------------------
Audit-Related Fees(2) 25 0
- --------------------------------------------------------------------------------
Tax Fees(3) 10 0
- --------------------------------------------------------------------------------
Subtotal $291 $249
- --------------------------------------------------------------------------------
All Other Fees(4) $122 $130
- --------------------------------------------------------------------------------
1 The audit services included audits of California Water Service Group and
California Water Service Company annual financial statements for the year
ended December 31, 2003, and quarterly reviews of the Group's interim
financial statements.
2 Services include assurance and related services by the auditor that are
reasonably related to the performance of the audit or review of the
Group's financial statements and are not reported under "Audit Fees."
Services in this category rendered during 2002 included a review of the
Group's process of closing its books.
3 Services include tax compliance, tax advice and tax planning.
4 Services include other services (and products) provided by the auditors,
other than the services reported above in this table. Services in this
category rendered during 2002 included internal audit services . Services
in this category rendered during 2003 included reviewing the Group's shelf
registration statement on Form S-3 and providing a comfort letter related
to the issuance of common stock.
All non-audit services provided by the auditors are subject to pre-approval by
the Audit Committee, as described in the Audit Committee Charter, Appendix A of
this proxy statement.
24 California Water Service Group
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.]
[LINE CHART OMITTED]
Performance Graph Data
1998 1999 2000 2001 2002 2003
California Water Service Group 100 101 94 94 90 109
S&P 500 Index 100 91 143 99 70 88
AG Edwards Water Utility Average 100 136 130 156 154 187
Past stock performance is not necessarily indicative of future performance.
California Water Service Group 25
Proposal No. 2--Ratification of Selection of KPMG LLP as Auditors for 2004
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, 2004. 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 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.
26 California Water Service Group
Certain Transactions
CalWater provides laboratory services to a subsidiary of SJW Corp., which has
ownership of over 5% of the common stock outstanding. The rates charged are
comparable to rates charged to other third parties. The revenue for 2003 was
approximately $0.1 million. The revenue and income from these activities are not
significant to our business.
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- Committees-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.
CODE OF ETHICS. The Group has adopted a written code of ethics that applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller. The Group has also adopted a code of ethics
for its employees. The codes are posted on the Group's website at
http://www.calwatergroup.com.
California Water Service Group 27
Appendix A
Audit Committee Charter
As amended and restated by the Board of Directors on January 28, 2004 and as
posted on the Group's website at http://www.calwatergroup.com.
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 judgment. 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 meet only if a quorum is present. The presence of a
majority of the members will constitute a quorum.
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:
28 California Water Service Group
With Respect to the Independent Auditors:
1. Be directly 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.
California Water Service Group 29
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.
30 California Water Service Group
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.
California Water Service Group 31
[GRAPHIC OF MAP SHOWING COMPANY'S STREET LOCATION OMITTED]
California Water Service Group
California Water Service Company,
Hawaii 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
California Water Service Group
1720 North First Street
San Jose, California 95112-4598
408.367.8200
www.calwater.com
[GRAPHIC OF LOGOS OF COMPANY AND ITS SUBSIDIARIES OMITTED]
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 28, 2004 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 2003.
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
--------------------------
--------------------------
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
- --------------------------------------------
VOTE-BY-INTERNET
LOG ON TO THE INTERNET AND GO TO [GRAPHIC]
HTTP://WWW.EPROXYVOTE.COM/CWT
- --------------------------------------------
OR
- --------------------------------------------
VOTE-BY-TELEPHONE
CALL TOLL-FREE [GRAPHIC]
1-877-PRX-VOTE (1-877-779-8683)
- --------------------------------------------
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, and
(09) 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 2004.
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 2004 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: _____________________