DEF 14A: Definitive proxy statements
Published on March 24, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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California Water Service Group
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California Water Service Group
Notice of 2006 Annual Meeting and Proxy Statement
Life's Key Ingredient
[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 27, 2006
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders at
9:30 a.m. on Wednesday, April 26, 2006, at the executive offices of California
Water Service Group, located at 1720 North First Street in San Jose, California.
Enclosed are a notice of matters to be voted on at the meeting, our proxy
statement, a proxy card and our 2005 Annual Report.
Whether or not you plan to attend, your vote is important. Please vote your
shares, as soon as possible, in one of three ways: via Internet, telephone or
mail. Instructions regarding Internet and telephone voting are included in the
proxy card. If you choose to vote by mail, please mark, sign and date the proxy
card and return it in the enclosed postage-paid envelope.
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
2006 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
2 California Water Service Group
2006 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
For directions to the Annual Meeting, please refer to the map on the inside back
cover.
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 9:30 a.m. on Wednesday, April 26, 2006
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
registered public accounting firm
(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 27, 2006.
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
DAN L. STOCKTON
Corporate Secretary
This notice of meeting and proxy statement and accompanying proxy card are being
distributed beginning on or about March 27, 2006.
4 California Water Service Group
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
What am I voting on?
o Election of nine directors to serve until the 2007 Annual Meeting.
o Ratification of the Audit Committee's selection of KPMG LLP as the
Group's independent registered public accounting firm for 2006.
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, 2006 (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 independent
registered public accounting firm 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 hand out written ballots to anyone who wants to vote at the
meeting. If you hold your shares in street name, you must request a legal proxy
from your stockbroker in order to vote at the meeting.
If you return a signed card but do not provide voting instructions, your
shares will be voted:
o for the nine named director nominees
o for the ratification of the selection of independent registered public
accounting firm
We have been advised by counsel that these telephone and Internet voting
procedures comply with Delaware law.
What if I change my mind after I return my proxy?
You may revoke your proxy any time before the polls close at the meeting. You
may do this by:
o signing another proxy with a later date,
o voting by telephone or on the Internet (your latest telephone or
Internet proxy is counted),
o voting again at the meeting, or
o notifying the Corporate Secretary, in writing, that you wish to revoke
your previous proxy. We must receive your notice prior to the vote at
the Annual Meeting.
Will my shares be voted if I do not return my proxy?
If you are a stockholder of record (that is, you hold your shares in your own
name), your shares will not be voted unless you attend the meeting and vote in
person. Different rules apply if your 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 ratification of the selection of the independent
registered public accounting firm. 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:
o proceed to vote your shares on routine matters and refrain from voting
on nonroutine matters, or
o 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 nonroutine 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 American Stock Transfer and Trust Co., 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 date,
time and place.
At the Record Date, there were 3,024 stockholders of record. There were
18,405,138 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 common stockholders?
As of January 1, 2006, the largest principal stockholder was SJW Corp., which
held 1,099,952 shares of common stock, representing 6%. To the best of our
knowledge, no other stockholders held over 5% of our common shares. 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 2007 Annual Meeting of
stockholders must be received by the Corporate Secretary of the Group by
November 27, 2006 in order to be considered for inclusion in the Group's 2007
proxy materials. A proposal and any supporting statement together may not exceed
500 words. Please submit the proposal to Dan L. Stockton, Corporate Secretary,
California Water Service Group, 1720 North First Street, San Jose, California
95112-4598.
How can a stockholder propose a nominee for the Board?
Any stockholder of record who is entitled to vote at a stockholders' meeting may
propose a nominee for the Board. The bylaws contain the requirements for doing
so. Contact the Corporate Secretary to request a copy of the full bylaw
requirements. Briefly, a stockholder must give timely prior notice to the Group.
The notice must be received by the Corporate Secretary at the Group's principal
place of business by the 150th day before the first anniversary of the prior
year's Annual Meeting. If we move the date of the meeting by more than thirty
days before or more than sixty days after the date of the previous meeting,
notice is due by the 150th day before the Annual Meeting or the 10th day after
we publicly announce the holding of the meeting.
If the Board calls a special meeting to elect directors, stockholder notice
is due by the 150th day prior to that meeting or the 10th day after we publicly
announce the holding of the special meeting and identify the Board's director
nominees. The bylaws do not affect the rights of preferred holders to nominate
directors where they are otherwise entitled to do so.
The bylaws specify what the notice must contain. The notice deadline for
the 2007 Annual Meeting is November 27, 2006.
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 bylaws contain
the requirements. Contact the Corporate Secretary and request a copy of the full
bylaw requirements. The stockholder must give timely prior notice to the Group.
The deadlines are the same as for stockholder nominations discussed above. 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 2007 meeting may
exercise their discretion in voting with respect to the proposal.
The bylaws specify what the notice must contain. Stockholders must comply
with all requirements of the securities laws regarding proposals. The bylaws do
not affect any stockholder right to request inclusion of proposals in the
Group's proxy statement under the rules of the Securities and Exchange
Commission.
Because of the 150-day notice requirement discussed above, stockholders who
have not given prior notice may not raise a proposal (or a nomination) at this
year's meeting.
How can a stockholder or other interested party contact the independent
directors, the director who chairs the Board's executive sessions or the full
Board?
Stockholders or other interested parties may address inquiries to any of the
Group's directors, to the director who chairs of the Board's executive sessions,
or to the full Board, by writing to Dan L. Stockton, 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 charters are also available
in written form upon request to Dan L. Stockton, Corporate Secretary, California
Water Service Group, 1720 North First Street, San Jose, California 95112-4598.
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 registered public
accounting firm, although stockholders are asked to ratify the Committee's
selection. All members are nonemployee directors, are independent as defined in
the listing standards of the New York Stock Exchange and meet the additional
independence 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 and Director compensation, employee
benefit plans and programs, including their establishment, modification and
administration. All members are nonemployee directors and independent as
defined in the listing standards of the New York Stock Exchange.
FINANCE: Assists the Board in reviewing the Group's financial policies,
strategies and capital structure, and makes reports and recommendations to the
Board as the Committee deems advisable. All members are nonemployee directors
and independent as defined in the listing standards of the New York Stock
Exchange.
NOMINATING/CORPORATE GOVERNANCE: Assists 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 nonemployee 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
nonemployee directors and two employee directors.
During 2005, there were 11 regular meetings of the Board, six meetings of
the Audit Committee, two meetings of the Compensation Committee, two meetings of
the Finance Committee, one meeting of the Nominating/Corporate Governance
Committee and no meeting of the Executive Committee. Each of the
California Water Service Group 9
director-nominees who served on the Board of California Water Service Group in
2005 attended at least 93% of all Board and applicable committee meetings.
Collectively, they attended an average of 99% of all of the Board and applicable
committee meetings.
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 or the
Group's independence standards. The following relationships or transactions
disqualify a person from being considered independent under the Exchange's
standards
o receipt during any twelve-month period 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;
o the director or an immediate family member is a current partner of the
Group's internal or external auditor; the director is a current
employee of such a firm; the director's immediate family member is a
current employee of such a firm who participates in the firm's audit,
assurance or tax compliance practice or the director or an immediate
family member was in the last three years a partner or employee of such
a firm and personally worked on the Group's audit;
o employment of the director or of an immediate family member within the
last three years as an executive officer of a company whose
compensation committee includes an executive officer of the Group;
o being an employee or having an immediate family member who is an
executive officer of a customer or vendor or other party which has made
payments to or received payments from the Group of at least 2% or $1
million, whichever is greater, of the party's consolidated gross
revenues, in any of the past three years.
The Board has determined that none of the following relationships, in itself, is
material for purposes of these standards:
o being a residential customer of the Group;
o 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;
o 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;
o 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;
o 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 of Directors 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 of
Directors 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:
o shows evidence of leadership in his/her particular field;
o has broad experience and exercises sound business judgment;
o has expertise in an area of importance to Group and its subsidiaries;
o is able to work in a collegial Board environment;
o has the highest personal and professional ethics and integrity;
o is able to devote the required time to carry out director
responsibilities;
o has the ability and willingness to contribute special competencies to
Board activities, to include appointment to Board committees;
o is free from conflicts of interest which would interfere with serving
and acting in the best interests of the Group and its stockholders;
o 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 bylaws 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 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 Dan L. Stockton, 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 2005 for nonemployee directors, as
well as the range of compensation paid to nonemployee directors who served
during the 2005 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 2005
Annual Director Retainer $22,000
Board and Committee Meeting Attendance Fee $1,400
Committee Meeting Attendance Fee for Committee Chairs $2,800
Range of Committee Meeting Attendance Fees Paid to Directors $4,200 - $18,200
Compensation. In 2005, each director received an annual retainer of $22,000.
Effective January 1, 2006, nonemployee directors are paid an annual retainer of
$23,500 and a meeting attendance fee of $1,500, and nonemployee committee chairs
are paid a meeting attendance fee of $3,000. The Audit Committee Chair is paid
an annual retainer of $8,500.
Deferred Compensation Plan. The Group has established the California Water
Service Group Deferred Compensation Plan, an unfunded deferred compensation
program for nonemployee directors, executive officers and managers. Under the
plan, nonemployee directors may defer up to 100% of their annual retainer with a
minimum annual deferral of $5,000. The plan also allows nonemployee 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 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 Age of Directors.
The Group has established a mandatory retirement age for directors. A director
must retire no later than the Annual Meeting that follows the date of the
director's 75th birthday. An employee director must retire as an employee or a
director no later than the Annual Meeting that follows the date of the
director's 70th birthday.
Director Retirement Plan.
Any current nonemployee director who retires subsequent to February 22, 2006,
after serving on the Board for a total of five or more years will receive a
retirement benefit equivalent to $22,000 per year. This benefit will be paid for
the number of years the director served on the Board, up to 10 years. Retirement
benefit payments will be made monthly at the same time as retainer payments are
made to active directors. In December 2005, the Director Retirement Plan was
cancelled for future directors.
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 Linda
R. Meier, all of the Group's directors who were in office at that time attended
the Group's 2005 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)
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.
The Board of Directors recommends a vote FOR the election of each of the
following nominees:
Douglas M. Brown (3,5,6,9,12,13)
Director since 2001
Age 68
Mr. Brown, a resident of the state of New Mexico, is Treasurer for the
state of New Mexico. From 1999 to 2005, he was president and chief executive
officer of Tuition Plan Consortium and from 1990 to 1999, he was president and
chief executive officer of Talbot Financial Services. He is also a former
trustee of Stanford University and former regent of the University of New
Mexico.
Robert W. Foy (2,11)
Director since 1977
Age 69
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, Auburn 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
Advisory Board.
Edward D. Harris, Jr., M.D. (2,4,6, 8, 13)
Director since 1993
Age 68
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 editor of "The Pharos." He is a Master of
the American College of Rheumatology, and a Fellow of both the American College
of Physicians and the Royal College of Physicians (London).
[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 (4,6,13)
Director since 2003
Age 64
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 co-founder 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., Hershey Foods Corp., Home Depot, Inc. and Yum Brands, Inc. She is also a
director of the Los Angeles Urban League, Goodwill Industries of Greater Los
Angeles and the NASD Investor Education Foundation.
David N. Kennedy (4,5,13)
Director since 2003
Age 69
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 50
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 one privately held company.
Linda R. Meier (3,4,6,13)
Director since 1994
Age 65
Ms. Meier is a director of Greater Bay Bancorp, the Peninsula Community
Foundation and a former board member of the National Advisory Board of the Haas
Public Service Center. She is also a former 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 58
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 Chamber Water Resources
Committee, and President of the National Association of Water Companies.
George A. Vera (3,5,7,13)
Director since 1998
Age 62
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]
Peter C. Nelson 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, 2006)(1)
Name Shares Owned
- --------------------------------------------------------------------------------
Douglas M. Brown 2,000
Director
- --------------------------------------------------------------------------------
Francis S. Ferraro 1,746 (2)
Executive Officer
- --------------------------------------------------------------------------------
Robert W. Foy 37,461 (3)
Director and Executive Officer
- --------------------------------------------------------------------------------
Robert R. Guzzetta 9,261 (4)
Executive Officer
- --------------------------------------------------------------------------------
Edward D. Harris, Jr., M.D. 1,695
Director
- --------------------------------------------------------------------------------
Bonnie G. Hill 1,500
Director
- --------------------------------------------------------------------------------
David N. Kennedy 1,800
Director
- --------------------------------------------------------------------------------
Richard P. Magnuson 18,954
Director
- --------------------------------------------------------------------------------
Linda R. Meier 3,000
Director
- --------------------------------------------------------------------------------
Richard D. Nye 131
Executive Officer
- --------------------------------------------------------------------------------
Peter C. Nelson 48,175 (5)
Director and Executive Officer
- --------------------------------------------------------------------------------
George A. Vera 2,040
Director
- --------------------------------------------------------------------------------
All directors and executive officers as a group(6) 151,930
- --------------------------------------------------------------------------------
(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, 2006, all
directors and executive officers together beneficially owned an
aggregate of less than 1% of the Group's outstanding common shares.
(2) Includes shares held in the Employees Savings Plan. Includes 750 shares
outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2006.
(3) Includes shares held in the Employees Savings Plan. Includes 28,000
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2006.
(4) Includes 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, 2006.
(5) Includes shares held in the Employees Savings Plan. Includes 42,500
shares outstanding under options which are currently exercisable or
exercisable within 60 days of January 1, 2006.
(6) Includes shares held in the Employees Savings Plan for the benefit of
executive officers. Includes 98,250 shares outstanding under options
which are currently exercisable or exercisable within 60 days of
January 1, 2006.
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, 2006:
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
(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 2005, all SEC 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, 2005.
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. The value of automobile use amounted to $7,090, $17,045,
$10,772, $9,388 and $5,416 for Messrs. Nelson, Foy, Ferraro, Nye and
Guzzetta, respectively.
(2) Director meeting fees.
(3) Includes Employees Savings Plan contributions of $9,000 and annual life
insurance premiums of $336.
(4) Includes Employees Savings Plan contributions of $8,000 and annual life
insurance premiums of $336.
(5) Includes Employees Savings Plan contributions of $7,000 and annual life
insurance premiums of $336.
(6) Includes Employees Savings Plan contributions of $7,796 and annual life
insurance premiums of $336.
(7) Includes Employees Savings Plan contributions of $7,912 and annual life
insurance premiums of $336.
(8) Includes Employees Savings Plan contributions of $6,500 and annual life
insurance premiums of $336.
(9) Includes Employees Savings Plan contributions of $6,000 and annual life
insurance premiums of $196.
(10) Includes Employees Savings Plan contributions of $8,631 and annual life
insurance premiums of $336.
(11) Includes Employees Savings Plan contributions of $6,000 and annual life
insurance premiums of $336.
(12) Options grants were not awarded for 2003, 2004, and 2005.
(13) Mr. Nye left the Group effective October 27, 2005.
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.
18 California Water Service Group
SEPARATION AGREEMENT Richard D. Nye, former Chief Financial Officer of the
Company, submitted his resignation from the Company effective October 27, 2005.
Mr. Nye's Separation Agreement and Release dated as of December 15, 2005,
provides, among other terms, as follows:
o payment to Mr. Nye, previously made on October 28, 2005, of final
salary through October 27, 2005, plus six weeks unused vacation, and
one week salary as termination wages;
o payment in the amount of $137,500 minus applicable tax withholding,
equivalent to six months' salary, payable upon Mr. Nye's request made
by March 31, 2006;
o continuing entitlement to any benefits accrued as of October 27, 2005,
under the Company's pension plan, supplemental executive retirement
plan, and deferred compensation plan. Mr. Nye was hired on March 1,
2003, and as such, has not vested in the pension or supplemental
executive retirement plan under the vesting terms of the respective
plans. Benefits accrued Mr. Nye under the deferred compensation plan
were solely contributed to the plan by Mr. Nye;
o payment of Mr. Nye's current medical insurance premiums for 12 months
in the aggregate amount of $6,795, less tax withholding;
o allowing Mr. Nye to purchase a Company-owned, 2003 Toyota Avalon
automobile, at a price of $17,000, which was more than trade-in value;
and
o the agreement also contains a release of any liability of the Company
to Mr. Nye.
OPTION/SAR GRANTS IN 2005 Option grants were not awarded for 2005.
AGGREGATED OPTION/SAR EXERCISES IN 2005 AND 2005 FISCAL YEAR-END OPTION/SAR
VALUES The following table shows 2005 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 4,500 options
exercised by such persons during 2005.
California Water Service Group 19
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. The number of securities issuable upon exercise
reflects options outstanding under the former Long-Term Incentive Plan. That
plan was replaced by the Group's Equity Incentive Plan, which was approved by
the stockholders at their Annual Meeting held on April 27, 2005. The number of
securities remaining available for future issuance reflects shares available for
grant under the Equity Incentive Plan as of December 31, 2005, the end of the
Group's last fiscal year.
(1) On January 4, 2006, the Group granted stock appreciation rights (37,500
shares) and restricted stock (9,142 shares) under the Equity Incentive
Plan, which reduces the number of shares available for future grant to
953,358 shares.
PENSION PLANS The table1 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
600,000 120,000 240,000 360,000
700,000 140,000 280,000 420,000
750,000 150,000 300,000 450,000
(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, 2006, for
officers named in the Compensation Table is as follows: Mr. Nelson, 25;
Mr. Foy, 25; Mr. Ferraro, 16; Mr. Nye, 2; and Mr. Guzzetta, 28. Because
Mr. Nye had not vested in the Group's Pension Plan and SERP at the time
he left the Group, he is not entitled to benefits under either of these
two plans.
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 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 2005.
What are the Compensation Committee's responsibilities?
The Committee is responsible for establishing and implementing policies and
programs to compensate Group executives and Directors. Each November, the
Committee reviews and recommends compensation levels for all executive officers
for the 12-month period beginning January 1. The Committee then submits its
recommendations to the entire Board. In 2005, the Board adopted the Committee's
recommendations without modification. During 2005, the Committee met twice.
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;
3) To provide fair and reasonable compensation.
The Compensation Committee believes that compensating executives by use of these
criteria 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 are determined
largely by its evaluation of factors that are within management's control.
Who serves on the Compensation Committee?
The Compensation Committee is composed of Dr. Harris (Committee Chair), Ms.
Hill, Mr. Kennedy, Mr. Magnuson and Ms. Meier. 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 2004, the Committee reviewed the
compensation for Peter C. Nelson, president and chief executive officer. The
Committee set Mr. Nelson's 2005 compensation using the same factors that it used
to set the compensation of the other Group executives.
California Water Service Group 21
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
Does the Group have a Long-Term Incentive Plan?
Yes. Stockholders of the Group approved an Equity Incentive Plan at the April
27, 2005 Annual Meeting. This plan replaced the former Long-Term Incentive Plan
which was approved by the stockholders at the April 19, 2000, meeting. The plan
allows the Group to offer competitive compensation to assist 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 and other
performance goals, giving participants an incentive to achieve these goals.
Who determines the amount and type of award granted?
The Equity Incentive Plan is administered by the Board of Directors of the
Group. The Board has the power to construe and interpret the plan and, subject
to the provisions of the plan, to determine the persons to whom and the dates on
which awards will be granted, the number of shares to be subject to each award,
the time or times during the term of each award within which all or a portion of
the award may be exercised, the exercise price, the type of consideration, and
other terms of the award.
The Board of Directors is authorized to delegate administration of the Equity
Incentive Plan to a committee composed of one or more of its members. The Board
of Directors also is authorized to delegate to one or more officers of the Group
the authority to designate employees of the Group or its affiliates to whom
stock awards will be granted (other than themselves), and to determine the
number of shares to be subject to that award. The Board of Directors has
delegated administration of the Equity Incentive Plan to the Compensation
Committee of the Board of Directors. As used in this proxy statement with
respect to the Equity Incentive Plan, the "Board" refers to the Compensation
Committee as well as to the Board of Directors itself.
In addition, the Equity Incentive Plan provides that, in the Board's discretion,
directors who grant options to employees covered under Section 162(m) of the
Internal Revenue Code ("Section 162(m)") generally will be "outside directors"
as defined in Section 162(m). See "How have we responded to the IRS limits on
deductibility of compensation?" below for a discussion of the application of
Section 162(m).
The Equity Incentive Plan provides for the following types of awards: incentive
stock options, nonqualified (or "nonstatutory") stock options, stock
appreciation rights, restricted stock awards, restricted stock units, and other
stock awards.
Were awards made under the Equity Incentive Plan for 2005?
No. Awards were not made for 2005.
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.
22 California Water Service Group
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
How have we responded to the 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 2005, no executive officer's compensation exceeded the limitation
set by Section 162(m).
Compensation Committee:
Edward D. Harris, Jr., M.D., Committee Chair
Bonnie G. Hill
David N. Kennedy
Richard P. Magnuson
Linda R. Meier
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 2005. 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 23
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. The current charter is printed in Appendix
A of this Proxy Statement. 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
2005, the Committee met six 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 Group's independent registered public
accounting firm, 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. KPMG LLP also audited management's
assessment that the Group maintained effective internal control over financial
reporting as of December 31, 2005, and expressed their opinion that management's
assessment is fairly stated, in all material respects, and that the Group
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005.
In connection with the December 31, 2005, financial statements, the Audit
Committee:
(1) reviewed and discussed the audited financial statements with
management and the independent registered public accounting firm;
(2) discussed with the independent registered public accounting firm 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 registered public
accounting firm and internal auditors, each of whom has 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
24 California Water Service Group
Relationship with the independent registered public accounting firm
The Audit Committee has selected KPMG LLP to serve as the Group's independent
registered public accounting firm for the year ending December 31, 2006. The
Committee's selection of KPMG LLP as independent registered public accounting
firm is submitted for ratification by vote of the stockholders at their Annual
Meeting.
- ---------------------------- ------------------------- -------------------------
Category of Services Fiscal Year 2004 Fiscal Year 2005
- ---------------------------- ------------------------- -------------------------
Audit Fees (1) $766,000 $645,500
- ---------------------------- ------------------------- -------------------------
Audit-Related Fees (2) 50,000 0
- ---------------------------- ------------------------- -------------------------
Tax Fees (3) 0 0
- ---------------------------- ------------------------- -------------------------
Subtotal $816,000 $645,500
- ---------------------------- ------------------------- -------------------------
All Other Fees (4) $0 $0
- ---------------------------- ------------------------- -------------------------
(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, 2004 and 2005, and quarterly reviews of the Group's
interim financial statements. Included for the year ended December 31,
2005, are fees related to the audit of management's assessment of internal
control over financial reporting and an audit of the effectiveness of
internal control over financial reporting.
(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."
(3) Services include tax compliance, tax advice, and tax planning.
(4) Services include other services (and products) provided by the independent
registered public accounting firm, other than the services reported above
in this table.
Fees reported in the above table relate to that fiscal year and were incurred
either during the fiscal year or in the quarter following the fiscal year end.
All non-audit services provided by the independent registered public accounting
firm are subject to preapproval by the Audit Committee, as described in the
Audit Committee Charter, Appendix A of this proxy statement.
California Water Service Group 25
Performance Graph
The graph below shows a five-year comparison of cumulative total returns for the
Group, the S&P 500 Utilities Index, and the AG Edwards Water Utility Average of
11 companies.
[LINE CHART OMMITTED]
2000 2001 2002 2003 2004 2005
California Water Service Group 100 100 96 116 165 174
S&P 500 Utilities Index 100 68 45 55 66 74
AG Edwards Water Utility Index 100 125 124 151 162 188
Past stock performance is not necessarily indicative of future performance.
Data provided courtesy of AG Edwards, Inc.
26 California Water Service Group
PROPOSAL NO. 2--RATIFICATION OF SELECTION OF KPMG LLP AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2006
Stockholders will vote on the ratification of the selection of KPMG LLP,
certified public accountants, to audit the Group's books, records and accounts
for the year ending December 31, 2006. 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 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 independent registered public accounting firm.
Vote Required
In order for the ratification of the selection of the independent registered
public accounting firm 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 27
CERTAIN TRANSACTIONS
Cal Water provides laboratory services to a subsidiary of SJW Corp., which has
ownership of over 6% of the common stock outstanding. The rates charged are
comparable to rates charged to other third parties. The revenue for 2005 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 30 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 $9,000, 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 the independent registered public accounting
firm. 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 codes of ethics for
its employees and directors. The codes are posted on the Group's website at
http://www.calwatergroup.com. The codes are also available in written form upon
request to Dan L. Stockton, Corporate Secretary, California Water Service Group,
1720 North First Street, San Jose, California 95112-4598.
28 California Water Service Group
Appendix A
California Water Service Group
Audit Committee Charter
(As adopted by the Board of Directors February 22, 2006)
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 Registered Public
Accounting Firm (IRPAF), including oversight and evaluation of Company's IRPAF
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 IRPAF. 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 IRPAF 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 IRPAF, 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 IRPAF is responsible for auditing those financial statements.
In fulfilling these responsibilities, the IRPAF is 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 audit, and the IRPAF, employees and others regarding the
quality of the financial statements and the system of internal controls.
California Water Service Group 29
To fulfill its responsibilities, the Audit Committee shall:
With Respect to the Independent Registered Public Accounting Firm:
1. Be directly responsible for the appointment, compensation and
oversight of the IRPAF, subject to stockholder ratification.
2. Review and evaluate the IRPAF's performance. The evaluation should
include a performance review of the IRPAF's lead partner. In making
its evaluation, the Committee should take into account the opinions of
management.
3. Ensure the IRPAF independence by:
(i) requiring that the IRPAF submit annually to the Audit Committee a
formal written statement delineating all relationships between
the IRPAF and the Company;
(ii) actively engaging in a dialogue with the IRPAF 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 IRPAF.
4. Review and approve in advance any non-audit services and related fees
proposed to be undertaken by the IRPAF on behalf of the Company;
5. Annually review the IRPAF's proposed scope and audit plan, and discuss
staffing and timing of the audit and related matters.
6. Review, at least annually, the IRPAF's 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 IRPAF's 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 accounting firm.
8. Require the IRPAF 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 IRPAF to be selected as the Company's
IRPAF. The audit committee should present its conclusions with respect
to the IRPAF 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 IRPAF in
light of material control deficiencies;
(iii) analyses prepared by management and/or the IRPAF 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.
30 California Water Service Group
11. Review with the Company's IRPAF:
(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 IRPAF; and
(iii) other material written communications between the IRPAF and
Company's management, such as any management letter or schedule
of unadjusted accounting differences.
12. Inquire of the IRPAF at a post-audit, pre-issuance review of the
Company's annual financial statements, the IRPAF's opinion thereon,
and any problems, difficulties or disagreements with management
encountered by the IRPAF during the course of the audit, and
management's response, including reviewing with the IRPAF:
(i) any restrictions on the scope of the IRPAF's activities or access
to requested information;
(ii) any accounting adjustments, whether material or not, that were
noted or proposed by the IRPAF but were not recorded by the
Company and assess the reason the adjustments were not recorded;
(iii) any communications between the IRPAF and the IRPAF'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 IRPAF to the Company.
13. Discuss with the Company's financial management and with the IRPAF 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. Each
quarter, review with management the status of significant deficiencies
or material weaknesses as reported under Section 404 of the Act.
Annually, review management's and the IRPAF's report on internal
controls as required under Section 404 of the Act and discuss relevant
issues as appropriate.
15. Discuss with the IRPAF 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 IRPAF 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.
California Water Service Group 31
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 internal 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.
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
IRPAF, 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, as required, 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.
28. Annually, the Committee will review the pension plan investment
objectives and changes to pension plan assumptions. The Committee
shall report its finding to the Board of Directors.
32 California Water Service Group
[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.calwatergroup.com
[GRAPHIC OF LOGOS OF COMPANY AND ITS SUBIDIARIES OMITTED]
ANNUAL MEETING OF STOCKHOLDERS OF
CALIFORNIA WATER SERVICE GROUP
April 26, 2006
Please date, sign and mail
your proxy card in the
envelope provided, or vote
by Telephone or Internet, as
soon as possible.
Please detach along perforated line and mail in the envelope provided.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
- --------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
NOMINEES:
( ) Douglas M. Brown
[ ] FOR ALL NOMINEES ( ) Robert W. Foy
( ) Edward D. Harris, Jr. M.D.,
( ) Bonnie G. Hill
[ ] WITHHOLD AUTHORITY ( ) David N. Kennedy
FOR ALL NOMINEES ( ) Richard P. Magnuson
( ) Linda R. Meier
( ) Peter C. Nelson
[ ] FOR ALL EXCEPT ( ) George A. Vera
(See instruction below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee whom
you wish to withold voting for, (as shown here: ( X )
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To change the address on your account, please
check the box at right and indicate your new
address in the address space above. Please note
that changes to the registered name(s) on the
account may not be submitted via this method. [ ]
- --------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP as the independent
registered public accounting firm of the Group for 2006.
FOR AGAINST ABSTAIN
|_| |_| |_|
If not otherwise directed, this proxy will be voted FOR the election of
directors and FOR ratification of the appointment of KPMG LLP as independent
registered public accounting firm for 2006 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.
Please date, sign and return promptly.
Signature of Stockholder _______________________ Date: ___________________
Signature of Stockholder _______________________ Date: ___________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized person.
CALIFORNIA WATER SERVICE GROUP
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PETER C. NELSON and DAN L. STOCKTON, 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 26, 2006 at 9:30 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 2005. 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.
- --------------------------------------------------------------------------------
Please date, sign, and mail as soon as possible in the enclosed envelope.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
CALIFORNIA WATER SERVICE GROUP
April 26, 2006
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy
card in the envelope provided as soon as
possible.
- or - _____________________________________
| |
TELEPHONE - Call toll-free 1-800-PROXIES | |
(1-800-776-9437) from any touch-tone | COMPANY NUMBER |
telephone and follow the instructions. |__________________|__________________
Have your proxy card available when you | |
call. | |
| ACCOUNT NUMBER |
- or - |__________________|__________________
| |
INTERNET - Access "www.voteproxy.com" | |
and follow the on-screen instructions. | |
Have your proxy card available when you |__________________|__________________
access the web page.
- --------------------------------------------------------------------------------
You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up
until 11:59 PM Eastern Time the day before the meeting date. We have been
advised by counsel that these telephone and Internet voting procedures comply
with Delaware law.
- --------------------------------------------------------------------------------
Please detach along perforated line and mail in the envelope provided IF you are
not voting via telephone or the Internet.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
- --------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS: You cannot cumulate your votes when voting by
Internet or telephone. In order to cumulate
your votes, you must return this proxy card by
mail in the enclosed envelope.
NOMINEES:
( ) Douglas M. Brown
[ ] FOR ALL NOMINEES ( ) Robert W. Foy
( ) Edward D. Harris, Jr. M.D.,
( ) Bonnie G. Hill
[ ] WITHHOLD AUTHORITY ( ) David N. Kennedy
FOR ALL NOMINEES ( ) Richard P. Magnuson
( ) Linda R. Meier
( ) Peter C. Nelson
[ ] FOR ALL EXCEPT ( ) George A. Vera
(See instruction below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee whom
you wish to withold voting for, (as shown here: ( X )
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To change the address on your account, please
check the box at right and indicate your new
address in the address space above. Please note
that changes to the registered name(s) on the
account may not be submitted via this method. [ ]
- --------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP as the independent
registered public accounting firm of the Group for 2006.
FOR AGAINST ABSTAIN
|_| |_| |_|
If not otherwise directed, this proxy will be voted FOR the election of
directors and FOR ratification of the appointment of KPMG LLP as independent
registered public accounting firm for 2006 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.
Please date, sign and return promptly.
Signature of Stockholder _______________________ Date: ___________________
Signature of Stockholder _______________________ Date: ___________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized person.