-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K6fPWQl/cN1M+y1sJ5+GAg63ArK/HD2DZclvAcllqkYqMKI7YMyDInOy3y6798eO r0YpDmJMga09XHNsOEEQjw== 0000898430-00-001181.txt : 20000407 0000898430-00-001181.hdr.sgml : 20000407 ACCESSION NUMBER: 0000898430-00-001181 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000523 FILED AS OF DATE: 20000406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST WATER CO CENTRAL INDEX KEY: 0000092472 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 951840947 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-08176 FILM NUMBER: 595011 BUSINESS ADDRESS: STREET 1: 225 N BARRANCA AVE STE 200 CITY: WEST COVINA STATE: CA ZIP: 91791-1605 BUSINESS PHONE: 8189151551 MAIL ADDRESS: STREET 1: 225 N BARRANCA AVENUE STREET 2: SUITE 200 CITY: WEST COVINA STATE: CA ZIP: 91791-1605 FORMER COMPANY: FORMER CONFORMED NAME: SUBURBAN WATER SYSTEMS DATE OF NAME CHANGE: 19751202 DEF 14A 1 DEFINITIVE NOTICE & PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 Southwest Water Company - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) Southwest Water Company - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- Proxy Statement April 7, 2000 [LOGO] Southwest Water Company YOUR VOTE IS IMPORTANT If you were a Stockholder of Southwest Water Company as of March 31, 2000, you are eligible to vote on the proposals described in this Proxy Statement. Depending on how your shares are registered, as described below, please use one of the following voting procedures: (1) If your securities are registered in your name with our transfer agent, ChaseMellon Shareholder Services, you have two ways that you can vote: . By Telephone: Call the toll-free telephone number on your proxy card to vote (1-800-840-1208). . By Mail: Mark, sign, date and mail your proxy card to our transfer agent, ChaseMellon Shareholder Services, in the enclosed postage-paid envelope. (2) If your shares are not held in your name with our transfer agent, they are held for you by a bank, broker or other agency. You will receive voting instructions directly from that agency, along with your proxy materials. ELIMINATE DUPLICATE MAILINGS If you are a Stockholder with your stock recorded in your name with our transfer agent and have more than one account in your name, or live at the same address as other stockholders who have stock recorded with our transfer agent, you may authorize us to discontinue multiple mailings. To discontinue multiple mailings, mark the box on the appropriate proxy card(s). SOUTHWEST WATER COMPANY NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE AND TIME: Tuesday, May 23, 2000, at 10:00 a.m., Pacific time ============================================================================================================================ PLACE: Hotel Inter-Continental 251 South Olive Street, Los Angeles, California ============================================================================================================================ ITEMS OF BUSINESS: (1) Elect three members of the Board of Directors for three-year terms. (2) Approve the Amended and Restated Stock Option Plan for Non-Employee Directors, including increasing the number of authorized and available shares by 120,000 and increasing the automatic annual and initial grant level to 5,000 shares, all as described on Page 19. (3) Approve the Second Amended and Restated Stock Option Plan, including increasing the number of authorized and available shares by 750,000 shares, providing for a 150,000 share annual award limit and adding certain non- employee consultants as potential optionees, all as described on Page 22. (4) Ratify the appointment of KPMG LLP as our independent auditors for fiscal year 2000. (5) Transact other business as may properly come before the Annual Meeting and any adjournment or postponement. ============================================================================================================================ RECORD DATE: You can vote if you owned Southwest Water Company stock on March 31, 2000. ============================================================================================================================ ANNUAL REPORT AND FORM 10-K: Our 1999 Annual Report and Form 10-K, which are not a part of the proxy soliciting material, are enclosed. ============================================================================================================================ PROXY VOTING: It is important that your shares be represented and voted so that we can have a valid meeting. Please vote in one of two ways: (1) Use the toll-free telephone number shown on the enclosed proxy card, (1-800-840-1208) OR (2) MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card in the postage-paid envelope. Your proxy may be revoked or changed at any time prior to the Annual Meeting by submitting a new, later-dated proxy card. ============================================================================================================================ Peter J. Moerbeek April 7, 2000 Secretary ============================================================================================================================
TABLE OF CONTENTS - -------------------------------------------------------------------------------
Page PROXY STATEMENT Proxy Delivery....................................................... 1 Annual Meeting Admission............................................. 1 Stockholders Entitled to Vote........................................ 1 Proxies.............................................................. 1 Vote by Telephone.................................................... 1 Vote by Mail......................................................... 1 Voting at the Annual Meeting......................................... 2 Voting on Other Matters.............................................. 2 List of Stockholders................................................. 2 Quorum............................................................... 2 Required Vote for Passage............................................ 2 Cost of Proxy Distribution and Solicitation.......................... 2 Section 16(a) Beneficial Ownership Reporting Compliance.............. 2 GOVERNANCE OF THE COMPANY Our Corporate Governance Principles.................................. 3 Board and Committee Membership and Information....................... 4 Compensation Committee Interlocks.................................... 5 Compensation of Directors - Fees and Benefit Plans for Non-Employee Directors.............................................. 5 Beneficial Ownership of the Company's Securities..................... 7 Comparison of the Cumulative Total Return on the Company's Common Stock to Certain Industry Standards................ 8 Related Transactions................................................. 9 EXECUTIVE COMPENSATION Summary Compensation Table for Executive Officers Who Are Not Directors........................................................... 10 Executive Officers' Severance Compensation Agreements................ 11 Option Grants to Named Executive Officers in 1999.................... 12 Option Exercises in 1999 and Year-End Option Values.................. 13 Retirement Benefits.................................................. 13 Report of the Compensation Committee of the Board of Directors....... 15 ITEM 1 - ELECTION OF DIRECTORS Nominees for Directors Whose Terms Expire in 2000.................... 17 Directors Whose Terms Expire in 2001................................. 18 Directors Whose Terms Expire in 2002................................. 18 Executive Officers Who Are Not Directors............................. 18 ITEM 2 - APPROVAL OF CHANGES TO THE DIRECTORS' STOCK OPTION PLAN......... 19 ITEM 3 - APPROVAL OF CHANGES TO THE EMPLOYEE STOCK OPTION PLAN........... 22 ITEM 4 - RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS........... 25 REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS............... 26
(LOGO) Southwest Water Company "A Water Management Company" 225 North Barranca Avenue, Suite 200 West Covina, California 91791-1605 Telephone: (626) 915-1551 - Fax: (626) 915-1558 e-mail: swwc@southwestwater.com www.southwestwater.com ---------------------- PROXY STATEMENT - -------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Proxy Delivery to five votes per share on matters properly brought These proxy materials are delivered in connection before the Annual Meeting. The combined total number with the solicitation by the Board of Directors of of votes eligible to vote is 6,516,814. Southwest Water Company, a Delaware corporation, ("Southwest Water," the "Company," "we" or "us"), Proxies of proxies to be voted at our 2000 Annual Meeting Your vote is important so we can have a valid meeting. of Stockholders and at any adjournment or The proxy card that accompanies this proxy statement postponement of that meeting. will give you voting instructions. Please review the enclosed proxy materials and vote as soon as possible. You are invited to attend our Annual Meeting of Stockholders (the "Annual Meeting") on May 23, Proxies may be changed or revoked at any time before 2000, beginning at 10:00 a.m., Pacific time. The the Annual Meeting by: Annual Meeting will be held at the Hotel (1) written notice to the Secretary of the Company, Inter-Continental, 251 South Olive Street, Los (2) timely delivery of a valid, later-dated proxy, or Angeles, California. (3) voting by ballot at the Annual Meeting. You can save us the expense of a second mailing by This Proxy Statement, form of proxy and voting voting promptly. Choose one of the following voting instructions are being mailed on or about April 7, methods to cast your vote, unless you are instructed 2000. differently: Annual Meeting Admission 1. Vote by Telephone If your shares are held in the name of a bank, You can vote your shares by telephone by calling the broker or other holder of record and you plan to toll-free telephone number on your proxy card attend the Annual Meeting, please obtain proof of (1-800-840-1208). Telephone voting is available 24 ownership, such as a current brokerage account hours a day. Have your proxy card with you when you statement or certification from your broker. place your call. Easy-to-follow voice prompts allow Admission to the Annual Meeting depends on your you to vote your shares and confirm that your physical proof of ownership. If your shares are instructions have been properly recorded. If you vote registered with our transfer agent, they will by telephone, you do not need to return your proxy provide your proof of ownership at the Annual card. Meeting. 2. Vote by Mail Stockholders Entitled to Vote If you choose to vote by mail, simply mark your proxy, Owners of Southwest Water Company common or date and sign it, and return it in the postage-paid preferred Series "A" stock at the close of business envelope provided. If your shares are registered with on March 31, 2000, are entitled to receive this our transfer agent, and if you wish to discontinue notice and to vote their shares at the Annual future duplicate mailings, check the box provided on Meeting. As of that date, there were 6,465,109 the card. shares of common stock outstanding and 10,341 shares of preferred Series "A" stock outstanding. Common shares are entitled to one vote per share, and preferred Series "A" shares are entitled - -----------------------------------------------------------------------------------------------------------------
1 - ---------------------------------------------------------------------------------------------------------------------------- Voting at the Annual Meeting ITEM 2. The favorable vote of a majority of the votes The method by which you vote a proxy now will not cast is required to approve the Amended and Restated limit your right to vote at the Annual Meeting if Stock Option Plan for Non-Employee Directors. Thus, you later decide to attend in person. If your abstentions and broker non-votes on this proposal will shares are held in the name of a bank, broker or not be counted as votes for or against the proposal. other agency and you plan to attend the Annual Meeting, please obtain proof of ownership, such as ITEM 3. The favorable vote of a majority of the votes a current brokerage account statement or cast is required to approve the Second Amended and certification from your broker. Restated Stock Option Plan. Thus, abstentions and broker non-votes on this proposal will not be counted All shares that have been properly voted - whether as votes for or against the proposal. by telephone or mail - and not revoked will be voted at the Annual Meeting in accordance with your ITEM 4. The favorable vote of a majority of the votes instructions. If you sign your proxy card but do cast is required to ratify the appointment of KPMG not give voting instructions, the shares LLP. Thus, abstentions and broker non-votes on this represented by your proxy will be voted as proposal will not be counted as votes for or against recommended by the Board of Directors. the proposal. Voting On Other Matters Cost of Proxy Distribution and Solicitation If any other matters are properly presented for We will pay the expenses of distributing the proxy consideration at the Annual Meeting, the persons materials and soliciting proxies. Proxies may be named in the enclosed form of proxy will have the solicited on our behalf by Directors, officers or discretion to vote on those matters for you. At employees, in person or by telephone, electronic the date of this proxy statement, we did not know transmission or by facsimile transmission. of any other matters to be raised at the Annual ChaseMellon Shareholder Services will distribute the Meeting. proxy materials to our registered stockholders, and, through a search process, obtain information to List of Stockholders distribute these materials to our beneficial holders. A list of stockholders who have shares registered in their own name and are entitled to vote will be Section 16(a) Beneficial Ownership Reporting Compliance available at the Annual Meeting. Section 16(a) of the Securities Exchange Act of 1934 requires our Directors, executive officers and Quorum beneficial owners of more than 10% of our common stock In order to carry on the business of the Annual to file reports of holdings and transactions in Meeting, there must be a quorum. This means at Southwest Water shares with the SEC and the Nasdaq least a majority of the outstanding shares entitled Stock Market. Based on our records and other to vote (with each share of Preferred Stock information, we believe that in 1999 all of our counting as five votes for every share owned for Directors and executive officers met all applicable purposes of the quorum) must be represented at the SEC filing requirements. Our records indicate that we Annual Meeting, either by proxy or in person. do not have any beneficial owners of more than 10% of Abstentions and "broker non-votes" will be counted the Company's common stock. as present and entitled to vote for purposes of determining a quorum. "Broker non-votes" are shares held by a broker, which are represented at the meeting, but as to which the broker is not empowered to vote on a particular proposal. Required Vote for Passage ITEM 1. The three nominees receiving the most votes will be elected as Directors. Abstentions and broker "non-votes" are not counted for purposes of the election of Directors. - ---------------------------------------------------------------------------------------------------------------------------------
2 GOVERNANCE OF THE COMPANY - -------------------------------------------------------------------------------- Our Corporate Governance Principles Role and Composition of the Board of Directors 1. The Board of Directors, which is elected by the stockholders, is the ultimate decision-making body of the Company, except with respect to those matters reserved to the stockholders. The Board selects the senior management team, which is charged with the conduct of the Company's business. Having selected the senior management team, the Board acts as an advisor and counselor to senior management and monitors its performance. 2. It is a policy of the Company that the Board consist of a majority of outside Directors and that the number of Directors not exceed a number that can function efficiently as a body. The Nominating Committee, in consultation with the Chairman and CEO, considers and makes recommendations to the Board concerning the appropriate size and needs of the Board. The Nominating Committee considers candidates to fill new positions created by expansion and vacancies that occur by resignation, retirement or any other reason. Candidates are selected for their character, judgment, business experience and acumen. Final approval of a candidate is determined by the full Board. All Directors are expected to own the Company's stock. The Company's current Directors are listed below. Non-Employee Directors: H. Frederick Christie, Monroe Harris, ---------------------- Donovan D. Huennekens, Richard Kelton, Maureen A. Kindel and Richard G. Newman. Employee Director: Anton C. Garnier, Chairman and CEO ----------------- 3. The Chairman and CEO is responsible for establishing effective communications with the Company's stockholders, Board members and Company associates. - -------------------------------------------------------------------------------- 3 Board and Committee Membership and Information During 1999, the Board of Directors and Board Committees met a total of 19 times, either in person or by telephone conference call. In 1999, all of our Directors attended 85 percent or more of the meetings of the Board and Board committees on which they served. Committees of the Board are as follows: - --------------------------------------------------------------------------------------------------------------------------------- The Audit Committee. The members of the Audit Committee . Sets overall investment policy with respect to the during 1999 were Mr. Kelton (Chair), Mr. Huennekens and Company's short-term funds; and Ms. Kindel. During 1999, this committee held three . Analyzes the effects of external economic conditions on meetings. Among its responsibilities, the Audit the Company's investment policy. Committee: . Recommends to the Board the appointment of the Company's The Nominating Committee. The members of the Nominating independent auditors for the ensuing year; Committee during 1999 were Mr. Newman (Chair) and Mr. . Reviews with the independent auditors and management the Harris. During 1999, the Nominating Committee did not hold scope and results of the audit engagement and a separate meeting outside the regular Board meetings where management's internal audit program; all Nominating Committee matters were discussed. The . Reviews the adequacy of the Company's internal control functions of the Nominating Committee include: procedures and reviews the independence of the auditors; . Establishing criteria for the selection of nominees for . Reviews with the outside auditors any questions or election as directors; suggestions they may have relating to our internal . Reviewing the qualifications of and maintaining controls, accounting practices or procedures or those of information concerning potential nominees; our subsidiaries; and . Making recommendations to the Board with respect to . Reviews compliance with laws, regulations, and internal nominees for election as directors at the Annual Meeting of procedures, contingent liabilities and risks that may be Stockholders; material to us. . Reviewing, on a long-term basis, the size and composition of the Board as vacancies occur; and The Investment/Acquisition Committee. The members . Making recommendations to the Board for age and service of the Investment/ Acquisition ("I/A") Committee during limitations. 1999 were Mr. Huennekens (Chair), Mr. Christie, Mr. Kelton and Ms. Kindel. During 1999, this committee held three The Nominating Committee will consider recommendations for meetings. Among its responsibilities, the I/A Committee: director nominees proposed by stockholders. Any . Provides direction in the areas of long-term planning, recommendations for nominees should be submitted in writing consideration of diversification alternatives, new to Mr. Newman at the Company's principal executive offices: business developments, and acquisitions and mergers; Southwest Water Company, 225 North Barranca Avenue, Suite 200, West Covina, California 91791-1605. - ---------------------------------------------------------------------------------------------------------------------------------
4 - --------------------------------------------------------------------------------------------------------------------------------- The Compensation Committee. The Compensation Committee Director Stock Option Plan. The Director Option Plan consists of independent, non-employee Directors. The provides that Non-Employee Directors are automatically members of the Compensation Committee during 1999 were granted an initial award of 1,000 shares of the Company's Mr. Harris (Chair), Mr. Christie and Mr. Newman. common stock when they become Directors, and they are During 1999, the Compensation Committee held six automatically granted an annual award of 1,000 shares of the meetings. This committee is responsible for: Company's common stock on the day of each subsequent Annual . Establishing annual and long-term performance goals for Meeting, provided the Director continues to serve as a appointed executive officers; Director following the Annual Meeting. These options have . Approving and reporting to the Board the annual been adjusted for stock dividends and stock splits. compensation for all executive officers, including salary, stock options, incentive compensation and other benefits; Initially, 50,000 shares of the Company's common stock were . Granting stock options for employees; and reserved for issuance under the Director Option Plan. Stock . Reviewing the Company`s benefit plans. dividends and stock splits, in the form of stock dividends, increased the number of shares reserved for issuance by an Compensation Committee Interlocks and Insider additional 68,125 shares to a total of 118,125 as of the Participation. There were no Compensation Committee Record Date. interlocks or insider participation during 1999. You are asked to approve a proposal to amend and restate the Director Option Plan, which, in part, will authorize an Compensation of Directors - Fees and Benefit Plans for additional 120,000 shares of stock for issuance under the Non-Employee Directors. Director Option Plan and increase the initial and annual automatic grant level to 5,000 shares per non-employee Annual Cash Retainer Fees. Non-Employee Directors Director. See Item 2. receive an annual cash retainer fee of $12,000. In addition, the Chair of each Board committee receives an Service Policy for Directors. In August 1998, the Board additional $1,200 per year. established a Service Policy for Directors. This policy stipulates that a Director will not serve on the Southwest Meeting Fees. Non-Employee Directors also receive a fee Water Company Board past his or her 72nd birthday. The of $1,000 for attending each Board meeting, committee Board authorized the Nominating Committee to develop a meeting and long-range planning meeting. When a transition plan for any Directors who were at the time older committee meeting is held on the same day as a Board than 72 years of age. The only remaining transition is for meeting, the committee attendance fee is $500. Mr. Harris, who, if re-elected, will serve a final 3-year term. Directors who are officers of the Company are not paid any fees or additional remuneration for services as members of the Board or any Board committee. - ---------------------------------------------------------------------------------------------------------------------------------
5 NON-EMPLOYEE DIRECTOR STOCK OPTIONS GRANTED IN 1999
------------------------------------------------------------ Individual Grants - ------------------------------------------------------------------------------------------------------- Exercise Options Base Price Expiration Eligible Directors (#)(1)(2) ($/sh.) (2) Date - ------------------------------------------------------------------------------------------------------- H. Frederick Christie 2,362 $10.00 2009 - ------------------------------------------------------------------------------------------------------- Monroe Harris 2,362 $10.00 2009 - ------------------------------------------------------------------------------------------------------- Donovan D. Huennekens 2,362 $10.00 2009 - ------------------------------------------------------------------------------------------------------- Richard Kelton 2,362 $10.00 2009 - ------------------------------------------------------------------------------------------------------- Maureen A. Kindel 2,362 $10.00 2009 - ------------------------------------------------------------------------------------------------------- Richard G. Newman 2,362 $10.00 2009 - -------------------------------------------------------------------------------------------------------
(1) Options vest 50% per year until fully vested. (2) All options have been adjusted to reflect a 3-for-2 stock split (paid in the form of a stock dividend) on October 1, 1999. NON-EMPLOYEE DIRECTOR OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
Shares Number of Acquired Unexercised Options Value of Unexercised In-the-Money On Value At December 31, 1999 Options at December 31, 1999 (1) Non-Employee Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable Director Name (#) ($) (#) ($) - ------------------------------------------------------------------------------------------------------------------------- H. Frederick Christie 0 0 5,101 / 4,583 43,868 / 29,963 - ------------------------------------------------------------------------------------------------------------------------- Monroe Harris 6,003 37,778 3,543 / 5,178 27,997 / 36,849 - ------------------------------------------------------------------------------------------------------------------------- Donovan D. Huennekens 0 0 11,227 / 3,543 98,656 / 19,368 - ------------------------------------------------------------------------------------------------------------------------- Richard Kelton 0 0 11,227 / 3,543 98,656 / 19,368 - ------------------------------------------------------------------------------------------------------------------------- Maureen A. Kindel 1,500 14,190 2,043 / 3,543 14,633 / 19,368 - ------------------------------------------------------------------------------------------------------------------------- Richard G. Newman 0 0 10,874 / 4,881 101,169 / 33,412 - -------------------------------------------------------------------------------------------------------------------------
(1) Difference between fair market value at fiscal year-end of $15.00 and option exercise price. At December 31, 1999, the Non-Employee Director Group had a total of 69,286 stock options outstanding with a weighted average exercise price of $7.16 per share. The stock options shown in the above table include stock options granted both under the current Director Option Plan and the Company's previous Stock Option Plan. 6 BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES ------------------------------------------------ By Directors and Executive Officers The following table sets forth, as of March 31, 2000, the number of shares of each class of equity securities of the Company beneficially owned by each Director and Executive Officer of the Company and its subsidiaries, and by all directors and executive officers as a group. All securities are common stock, and except as otherwise indicated, each individual named has sole investment and voting power with respect to the securities shown.
Number of Exercisable Total Number of Name of Shares Options Shares and Beneficial Owner and Beneficially Beneficially Exercisable Options Percentage Capacity with Company Owned Owned (a) Beneficially Owned Of Class - ---------------------------------------------------------------------------------------------------------------------- H. Frederick Christie, Director 9,922 7,983 17,905 * - --------------------------------------------------------------------------------------------------------------------- Monroe Harris, Director 29,499 (b) 7,020 36,519 * - --------------------------------------------------------------------------------------------------------------------- Donovan D. Huennekens, Director 30,555 (c) 13,589 44,144 * - --------------------------------------------------------------------------------------------------------------------- Richard Kelton, Director 67,425 (d) 13,589 81,014 1% - --------------------------------------------------------------------------------------------------------------------- Maureen A. Kindel, Director 3,375 4,405 7,780 * - --------------------------------------------------------------------------------------------------------------------- Richard G. Newman, Director 19,759 (e) 14,054 33,813 * - --------------------------------------------------------------------------------------------------------------------- Anton C. Garnier, Director, Chairman, President and Chief Executive Officer 220,866 (f) 168,777 389,643 6% - --------------------------------------------------------------------------------------------------------------------- Peter J. Moerbeek, Chief Financial Officer and Secretary of Company; President, ECO Resources, Inc. 14,441 (g) 64,412 78,853 1% - --------------------------------------------------------------------------------------------------------------------- Thomas C. Tekulve, Vice President Finance of Company 55 1,500 1,555 * - --------------------------------------------------------------------------------------------------------------------- Maurice W. Gallarda, Vice President of New Business Development of Company 0 1,050 1,050 * - --------------------------------------------------------------------------------------------------------------------- Michael O. Quinn, President, Suburban Water Systems 13,153 (h) 20,978 34,131 * - --------------------------------------------------------------------------------------------------------------------- Robert L. Swartwout, President, New Mexico Utilities, Inc. 7,618 15,005 22,623 * - --------------------------------------------------------------------------------------------------------------------- All Directors and Executive Officers As a Group (12 persons) 416,668 332,683 749,030 11% - ---------------------------------------------------------------------------------------------------------------------
* Indicates less than one percent of class of stock. (a) Includes options that become exercisable within 60 days after March 31, 2000. (b) Includes 25,573 shares of common stock held by Mr. Harris and his wife as co-trustees of a family trust. Mr. Harris has shared voting and investment power with respect to such shares. Not included in the table are 600 shares owned by Mrs. Harris in an IRA account for her benefit. Mr. Harris disclaims beneficial ownership of these shares. (c) Mr. & Mrs. Huennekens hold all of the 30,555 shares of common stock as trustees of a revocable trust for their benefit. Mr. Huennekens is a trustee of such trust, and has shared voting and investment power with respect to such shares. (d) Included in the table are 17,325 shares of common stock held by The Kelton Foundation (the "Foundation"), a charitable corporation. Mr. Kelton is President of the Foundation and has sole voting and investment power with respect to such shares. Mr. Kelton disclaims pecuniary interest in the shares held by the Foundation. (e) Mr. and Mrs. Newman hold all of the 19,759 shares of common stock as trustees of a revocable trust for their benefit. Mr. Newman is a trustee of such trust, and has shared voting and investment power with respect to such shares. (f) Included in the table are 88,648 common shares owned by Mr. and Mrs. Garnier as trustees of a revocable trust for their benefit. Mr. Garnier is trustee of such trust and has shared voting and investment power with respect to the shares. Also included in the table are 88,807 common shares representing Mr. Garnier's proportionate interests in two corporations of which Mr. Garnier is president, a director and a stockholder. Mr. Garnier has shared voting and investment power with respect to these two corporations, which own a total of 383,037 shares (6%) of Southwest Water Company common stock. Other than his proportionate interests above, Mr. Garnier disclaims beneficial ownership of these shares. (g) Mr. and Mrs. Moerbeek hold all of the 14,441 shares of common stock as trustees of a revocable trust for their benefit. Mr. Moerbeek is a trustee of such trust, and has shared voting and investment power with respect to such shares. (h) Excludes 2,852 shares of common stock held by Mr. Quinn's wife, over which Mr. Quinn has no voting or investment control, and Mr. Quinn disclaims beneficial ownership of these shares. 7 By Others The following table identifies others who own more than five percent of any class or series of the Company's outstanding voting securities as of the Record Date:
Number of Shares Percentage of Class of Stock Name and Address Beneficially Percentage Voting Power Of Beneficial Owner Owned Of Class - ----------------------------------------------------------------------------------------------------------------------- Series "A" Lincoln National Life Insurance Co. 3,607 35% 0.3 Preferred C/O Banker's Trust P.O. Box 704, Church Street Station New York, NY 10008 - -----------------------------------------------------------------------------------------------------------------------
COMPARISON OF THE CUMULATIVE TOTAL RETURN ON THE COMPANY'S COMMON STOCK TO CERTAIN INDUSTRY STANDARDS The following graph compares the cumulative total return to holders of the common stock of the Company during the most recent five fiscal years versus the average return to investors during the same period achieved by 12 publicly held water utilities listed in the Edward Jones Water Utility Index and that achieved by The Standard and Poor's Index of 500 Companies. The comparison assumes that $100 was invested on December 31, 1994, and the cumulative total return assumes the reinvestment of dividends. The historical stock performance shown on the graph is not necessarily indicative of future stock performance.
[FIVE-YEAR PERFORMANCE GRAPH APPEARS HERE] WATER SWC AVGE. S&P 500 12/31/94 100.00 100.00 100.00 12/31/95 124.36 127.77 137.55 12/31/96 221.85 154.34 169.11 12/31/97 301.38 211.90 225.52 12/31/98 343.95 265.19 289.96 12/31/99 504.39 262.71 350.96
8 - --------------------------------------------------------------------------------------------------------------------------------- Related Transactions In 1999, Suburban made a lease payment of $55,365 for the use of water rights owned by a family trust of Mr. Garnier. Mr. Garnier, our President, CEO and Chairman, is a Based upon payments made to other non-related parties, the director and a beneficial owner of approximately 10 payments made to the family trust were at the same rate as percent of the outstanding stock of California Michigan payments to non-related parties. Land and Water Company (California Michigan). East Pasadena Water Company (East Pasadena), a water The foregoing transactions were reviewed and approved by the purveyor, is a wholly owned subsidiary of California outside members of the Board of Directors of the Company. Michigan. In 1999, East Pasadena participated in Mr. Garnier did not participate in the Board's consideration employee insurance coverage with the Company and its of these transactions. wholly-owned subsidiary, Suburban Water Systems ("Suburban"), and reimbursed Suburban an aggregate of $24,051, representing its proportionate share of the cost of employee insurance coverage and other services. East Pasadena is also a party to the Company's Noncontributory Defined Benefit Pension Plan, and makes contributions and pays administrative fees on the same actuarial basis as payments by the Company. The Pension Plan owns 17 percent of the outstanding stock of California Michigan. As of December 30, 1999, the Pension Plan was terminated, all benefit accruals frozen, and all benefit accruals ceased. The Company anticipates that the Plan assets will be distributed, as permitted by ERISA, in late 2000. - ---------------------------------------------------------------------------------------------------------------------------------
9 EXECUTIVE COMPENSATION Summary Compensation Table
Long-Term Annual Compensation Compensation - ------------------------------------------------------------------------------------------------------------------ Stock Name and Salary Bonus Options Principal Position Year ($) (1) ($) (#) (2) - ------------------------------------------------------------------------------------------------------------------ Anton C. Garnier 1999 240,000 160,000 45,000 Chairman, Chief Executive 1998 230,000 120,000 46,875 Officer and President 1997 220,000 154,000 23,625 - ------------------------------------------------------------------------------------------------------------------ Peter J. Moerbeek 1999 190,000 123,709 67,500 Chief Financial Officer and 1998 180,000 78,000 37,500 Secretary of the Company; 1997 161,000 89,900 15,750 President, ECO Resources, Inc. - ------------------------------------------------------------------------------------------------------------------ Thomas C. Tekulve 1999 140,000 48,000 7,500 Vice President Finance 1998 - - - 1997 - - - - ------------------------------------------------------------------------------------------------------------------ Michael O. Quinn 1999 157,040 32,562 5,250 President, 1998 151,000 42,575 4,687 Suburban Water Systems 1999 146,500 44,450 4,921 - ------------------------------------------------------------------------------------------------------------------ Robert L. Swartwout 1999 112,320 36,023 4,200 President, 1998 108,000 38,000 3,750 New Mexico Utilities, Inc. 1997 104,800 16,000 3,937 - ------------------------------------------------------------------------------------------------------------------
(1) The salary shown in 1999 for Mr. Tekulve, who joined the Company in February 1999, is annualized based upon a full year of employment. Mr. Tekulve's actual salary for 1999 was $128,333. (2) Stock Options have been adjusted to reflect stock splits of 3-for-2 and 5- for-4, paid in the form of stock dividends, on October 1, 1999 and October 1, 1998, respectively, and stock dividends of five percent on January 2, 1998, 20 percent on January 2, 1997, and five percent on January 2, 1996, and were granted at fair market value on the date of grant. Restricted stock can no longer be granted. Previously awarded restricted stock vested 10 years after grant. The last of the restricted stock was released in March 1999. 10 - --------------------------------------------------------------------------------------------------------------------------------- Executive Officers' Severance Compensation Agreements severance payments are payable within five days after termination of employment. In 1998, Messrs. Garnier and Moerbeek entered into severance compensation agreements with the Company. Cash severance amounts as of December 31, 1999, assuming The Company has agreed to provide severance benefits termination meets the requirements for a severance payment, and payments to Messrs. Garnier and Moerbeek, based on are as follows: Mr. Garnier - $1,021,566; Mr. Moerbeek - 2.99 times their respective average 5-year compensation $740,375; Mr. Tekulve - $276,000; if certain conditions are met. Mr. Quinn - $271,598 and Mr. Swartwout - $199,231. In addition to the cash payment, each executive is entitled to In 1995, Messrs. Quinn and Swartwout entered into certain health insurance benefits with a value of severance compensation agreements with the Company. In approximately $25,000, and outplacement services with a 1999, Mr. Tekulve entered into a severance compensation maximum benefit of $15,000 each for Messrs. Garnier and agreement with the Company. The Company has agreed to Moerbeek and $4,000 each for Messrs. Tekulve, Quinn and provide severance benefits and payments to Messrs. Swartwout. For purposes of the severance compensation Tekulve, Quinn and Swartwout based on 1.5 times their agreements, a "change in control" is generally defined as a respective average 5-year compensation if certain change in the person or persons owning, directly or conditions are met. indirectly, sufficient voting stock to elect the Board of Directors for the entity that employs an executive. These The severance compensation agreements for Messrs. severance compensation agreements are in addition to the Garnier, Moerbeek, Tekulve, Quinn and Swartwout will be plans described under the heading "Retirement Benefits." triggered if one of the following conditions is met: (1) termination of the executive's employment by his In 1992, Mr. Swartwout and New Mexico Utilities, Inc. (NMUI) employer prior to the second anniversary of a change in entered into an agreement whereby upon a disposition of control, other than termination by retirement or for substantially all assets of NMUI, Mr. Swartwout is entitled death, disability or cause; or (2) termination of to a severance payment of one percent of the gross executive's employment by the executive within two disposition price if in excess of $6,000,000, or three years after a change in control for "good reason" percent of the gross disposition price if in excess of (including assignment of executive to duties $11,000,000. For Mr. Swartwout to receive this severance inconsistent with executive's position, duties, payment, he would need to continue his employment with NMUI responsibilities and status prior to the change in through the completion of the transaction, at which time he control, or alternatively, a reduction in salary, a would receive a cash payment equal to the greater of (1) the significant reduction in benefits, an elimination of cash severance payment determined by his severance stock plans or a relocation of employment greater than compensation agreement or (2) the amount determined under 50 miles). Under these agreements, cash severance the NMUI agreement based upon the gross disposition price of payments are based upon base salary, auto benefits, the NMUI assets. bonuses and certain life insurance premium amounts paid by the employer. Cash - ---------------------------------------------------------------------------------------------------------------------------------
11 Option Grants To Named Executive Officers in 1999 The following table sets forth a summary of information relating to the potential realizable value of stock options granted in 1999. Exercise prices and numbers of options have been adjusted to reflect a 3-for-2 stock split paid in the form of a stock dividend on October 1, 1999.
------------------------------------ Potential Realizable Value At Assumed Annual Rates Individual Grants Of Stock Price Appreciation For 10-Year Option Term - -------------------------------------------------------------------------------------------------------------------------- % of Total Options Granted Exercise to Or At 0% At 5% At 10% Options Employees Base Annual Annual Annual Granted In Price Expiration Growth Growth Growth Executive (#) (1) Fiscal Year ($/sh.) (2) Date Rate ($) Rate ($) Rate ($) - -------------------------------------------------------------------------------------------------------------------------- Anton C. Garnier 45,000 21% 10.08 2009 0 285,267 722,922 - -------------------------------------------------------------------------------------------------------------------------- Peter J. Moerbeek 67,500 31% 10.28 2009 0 436,579 1,106,376 - -------------------------------------------------------------------------------------------------------------------------- Thomas C. Tekulve 7,500 3% 10.08 2009 0 47,544 120,487 - -------------------------------------------------------------------------------------------------------------------------- Michael O. Quinn 5,250 2% 10.08 2009 0 33,281 84,341 - -------------------------------------------------------------------------------------------------------------------------- Robert L. Swartwout 4,200 2% 10.08 2009 0 26,625 67,473 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- All Stockholders (3) N/A N/A N/A N/A N/A 60,964,501 154,496,015 - -------------------------------------------------------------------------------------------------------------------------- All Optionees 218,022 100% 10.13 2009 0 1,389,144 3,520,363 - -------------------------------------------------------------------------------------------------------------------------- All Optionees' Gain As % of Total Stockholders' Gain N/A N/A N/A N/A N/A 2.3% 2.3% - --------------------------------------------------------------------------------------------------------------------------
(1) Options vest 20 percent per year until fully vested. Under the terms of the Company's Amended and Restated Stock Option and Restricted Stock Plan, the Compensation Committee retains discretion, subject to plan limits, to modify the terms of outstanding options and to re-price the options. However, in February 2000, the Compensation Committee determined that, it would delete all re-pricing opportunities under the Employee Stock Option Plan. The options were granted for a term of 10 years, subject to earlier cancellation upon certain events related to termination of employment. The exercise price and tax withholding obligations related to exercise may be paid by delivery of already owned shares, or by offset of the underlying shares, subject to certain conditions. (2) All exercise prices represent fair market value on the date of grant, after adjusting to reflect a 3-for-2 stock split paid in the form of a stock dividend on October 1, 1999. (3) Based on total number of shares outstanding at December 31, 1999. 12 Option Exercises in 1999 and Year-End Option Values The following table shows information on exercised and unexercised stock options, value realized and the value of unexercised options during the Company's most recent fiscal year by the chief executive officer of the Company and the other named executive officers. Shares Value of Unexercised In-The-Money Acquired Number of Unexercised Options Options at On Value At December 31, 1999 December 31, 1999 Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable Executive (#) ($) (#) ($)(1) - ---------------------------------------------------------------------------------------------------------------------- Anton C. Garnier 0 0 137,152 / 109,925 1,242,144 / 720,442 - ---------------------------------------------------------------------------------------------------------------------- Peter J. Moerbeek 0 0 45,975 / 118,480 458,973 / 715,385 - ---------------------------------------------------------------------------------------------------------------------- Thomas C. Tekulve 0 0 0 / 7,500 0 / 36,878 - ---------------------------------------------------------------------------------------------------------------------- Michael O. Quinn 14,551 79,527 15,816 / 15,278 163,514 / 109,602 - ---------------------------------------------------------------------------------------------------------------------- Robert L. Swartwout 0 0 10,811 / 11,912 100,727 / 84,397 - ----------------------------------------------------------------------------------------------------------------------
(1) Difference between fair market value at December 31, 1999 of $15.00 and option exercise price. Retirement Benefits Until December 30, 1999, the Company sponsored a Noncontributory Defined Benefit Pension Plan (the "Pension Plan"), which provided retirement benefits and certain death benefits to all eligible employees of the Company, Suburban Water Systems (Suburban) and New Mexico Utilities, Inc. (New Mexico Utilities). In August 1999, the Board of Directors approved a resolution to terminate the Pension Plan and ceased all benefit accruals as of December 30, 1999. In connection with the termination of the Pension Plan, the Company enhanced its current defined contribution plan, covering employees of the Company, Suburban and New Mexico Utilities. Upon receipt of a favorable determination from the Internal Revenue Service, the net assets of the Pension Plan will be distributed as permitted by ERISA and its related regulations. Four executive officers of the Company and its participating subsidiaries were participants in the Pension Plan. Non-Employee Directors were not eligible to participate in the Pension Plan. The Company and its participating subsidiaries paid the cost of administering the Pension Plan. All of the trustees and administrators of the Pension Plan are currently officers or employees of the participating companies. Payments to the Pension Plan by the Company were computed on an actuarial basis to provide fixed benefits to employees upon retirement at specified ages. 13 The following table indicates the approximate annual benefits that would be received by participants in the Pension Plan if the Plan had not been terminated, based upon the assumptions indicated.
5-Year Average Estimated Annual Benefit Annual Compensation for Years of Service Indicated ---------------------------------- 15 Years 20 Years 30 Years - ------------------------------------------------------------------------- $ 80,000 $23,300 $31,000 $ 46,500 120,000 35,300 47,000 70,500 160,000 47,300 63,000 94,500 200,000 59,300 79,000 118,500 240,000 71,300 95,000 142,500 - -------------------------------------------------------------------------
The actual maximum amount of compensation that may be recognized for Pension Plan purposes according to the Internal Revenue Code (the "Code") was $160,000 in 1999. The maximum annual defined benefit in 1999 allowable under the Code was $130,000. These limits are subject to annual cost of living adjustments. The compensation on which benefits under the Pension Plan were based is limited to salary paid by the Company and certain subsidiaries and excludes bonuses and other forms of compensation. The amounts used in making the calculations under the Pension Plan for 1999 were based on July 1, 1999 base compensation as follows: Anton C. Garnier - $240,000, Peter J. Moerbeek - $190,000, Michael O. Quinn - $157,040 and Robert L. Swartwout - $112,320. On December 31, 1998, years of credited service for each individual was 29, 4, 20 and 6, respectively. Thomas C. Tekulve was not eligible for benefits at July 1, 1999, when benefits were determined. Benefits under the Pension Plan are not subject to offset for amounts received from Social Security or other sources. 14 REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS Executive Officer Compensation Philosophy The compensation philosophy for executive officers is to ensure that compensation is directly linked to continuous improvements in the Company`s financial performance and increases in stockholder value. To implement the philosophy, the Committee is guided by the following objectives: (1) enable the Company to attract and retain highly qualified executives, (2) focus executives' efforts on the fulfillment of Company annual and long-term business objectives and strategies, and (3) ensure that a portion of executive compensation is tied to specific performance measures. The Committee has used various outside consultants in designing the current executive compensation plan. Executive Compensation In determining the base salary of executives, the Committee considers individual performance, the performance of the operations directed by the executives, and the competitive salary levels of executives in companies of similar size and complexity. Competitive salary information, obtained primarily through published compensation surveys, is used to determine the reasonableness of total compensation, which includes base salary and incentive compensation. For executives other than the Chief Executive Officer, the Committee also considers the recommendations of the Chief Executive Officer. Annual Incentive Compensation The Committee believes that the Company's short-term objectives are enhanced with annual performance-based incentive compensation for its executives. Annual incentive awards are based on meeting certain financial objectives for the Company and on an executive's achievement of goals in his or her area of responsibility. Executive performance objectives include both quantitative and qualitative criteria. As an executive's level of responsibility increases, a greater portion of potential total cash compensation is at risk in the form of annual performance-based incentives. Financial goals and performance-based measures are established by the Committee at the beginning of each year. Awards are made at the end of the year based on actual performance. Each year, the Committee establishes a performance threshold. No awards are made if the performance threshold is not met. In 1999, the results for the year exceeded the threshold set by the Committee, and incentive compensation awards were approved for the Company's executives. Long-term Incentive Compensation The purpose of long-term incentives is to encourage and facilitate personal stock ownership by the executive officers and thus strengthen both their personal commitments to the Company and a longer-term perspective in their managerial responsibilities. This component of an executive officer's compensation links the officer's interests with those of the Company`s stockholders. Currently, the primary form of long-term incentive compensation is non-qualified stock options. The Committee approves stock options for all executives and managers. 15 In determining the number of stock options awarded, the Committee considers a number of factors including the executive's pay level, responsibilities in the organization, and ability to significantly improve future financial results. In addition, the Committee compares the Company's option grant levels with similar industry practices. Chief Executive Officer Compensation Anton C. Garnier has been President and Chief Executive Officer of the Company since November 1968 and has been Chairman of the Board since August 1996. The Committee reviewed Mr. Garnier's 1999 performance based on the performance of the Company as a whole and his performance with respect to quantitative and qualitative objectives approved at the start of the year by the Committee. The Committee carefully considered the Company's continuing improvements in financial results, including earnings improvement, new business development, return on equity and the creation of stockholder value. The Committee also evaluated Mr. Garnier's progress in attaining qualitative objectives in such areas as investor relations, planning for the Company's long- term future, setting strategic objectives, and communications. The Committee did not use specific weighting factors with respect to quantitative and qualitative performance measures. The Committee Chairman prepared a CEO performance evaluation, which was discussed with Mr. Garnier. In determining Mr. Garnier's performance for 1999, the Committee gave particular emphasis to the continuing improved operating results of the Company's contract operations subsidiary. After the Committee's deliberations, the Committee increased Mr. Garnier's annual salary to $255,000, effective January 1, 2000, and awarded him an incentive compensation amount of $160,000 for 1999. In addition, on January 13, 2000, the Committee awarded Mr. Garnier a stock option grant of 45,000 shares of the Company`s Common stock. Compensation Committee Monroe Harris (Chair) H. Frederick Christie Richard G. Newman February 15, 2000 16 ITEM 1 - ELECTION OF DIRECTORS - --------------------------------------------------------------------------------------------------------------------------------- The Board of Directors maintenance services on an international basis. He also The Board of Directors is divided into three classes, serves on the boards of 13 mutual funds managed by the currently consisting of two classes of three Directors Capital Research and Management Company. Mr. Newman was and one class of two Directors whose terms expire at first elected a director in 1991. successive annual meetings. For 2000, the Class II Directors, consisting of three Directors, are nominated The three nominees receiving the most votes will be elected for election at our 2000 Annual Meeting for a as Directors. Abstentions and broker "non-votes" are not three-year term expiring at our Annual Meeting in the counted for purposes of the election of Directors. year 2003. The persons named in the enclosed proxy intend to vote the The Class II Director nominees are: Monroe Harris, proxy for the election of the three nominees, unless you Donovan D. Huennekens and Richard G. Newman. All three indicate on the proxy card that your vote should be withheld Directors were elected to their current terms of office from a named nominee or all of the nominees. If you are at the 1998 Annual Meeting of Stockholders. We expect voting by telephone, you will be instructed how to withhold all three Directors will be able to serve if elected. your vote from a nominee or nominees. If elected, the If any one of the nominee directors is not able to nominees will continue in office until their successors have serve, proxies may be voted for the election of a been elected, or until their resignation or retirement. substitute nominee recommended by the Board. There are no family relationships between any director and Information About the Nominees for any executive officer of the Company. None of the entities Directors Whose Terms Expire in 2000 by which the Directors are employed is related to the (Class II) Company. No Director is a director of any other corporation subject to Sections 12 or 15(d) of the Securities Exchange Monroe Harris, 78, is a consultant and retired executive Act of 1934 or registered as an investment company under the vice president and director of Johns-Manville Investment Company Act of 1940. No Director or executive Corporation. Mr. Harris was first elected a director in officer of the Company has been, during the last five years, 1963. He resigned from the Board in 1965 when he moved involved in a legal proceeding of the type that would to New York. Mr. Harris was reelected a director in require disclosure herein by the Securities Exchange Act of 1987. 1934. There are no arrangements or understandings between any Director and any other persons pursuant to which any Donovan D. Huennekens, 63, is a partner of HQT Homes, a Director was selected as a Director or nominee of the real estate development company and a director of Bixby Company or of any other company. Ranch Company. Mr. Huennekens was first elected a director in 1969. Your Board of Directors recommends a vote FOR the election of these nominees as Directors. Richard G. Newman, 65, is chairman, chief executive officer, and a director of AeCOM Technology Corporation, the parent of several subsidiaries that provide architectural, engineering, construction, operations and - ---------------------------------------------------------------------------------------------------------------------------------
17 - --------------------------------------------------------------------------------------------------------------------------------- Directors Whose Terms Expire in 2001 Officers Who Are Not Directors (Class III) Peter J. Moerbeek, CPA, 52, is our chief financial officer H. Frederick Christie, 66, is an independent and secretary, and is also president of ECO Resources, Inc. consultant. He retired in 1990 as president and chief (ECO), a subsidiary of the Company. Mr. Moerbeek joined the executive officer of the Mission Group, a subsidiary of Company in 1995 as vice president finance, chief financial SCEcorp, which oversaw SCEcorp's non-utility businesses. officer and secretary. From 1984 to 1987, he served as president of Southern California Edison Company, a subsidiary of SCEcorp. Mr. Maurice W. Gallarda, P.E., 46, was appointed vice president Christie is a director of Ultramar Diamond Shamrock, of new business development in August 1999, and in January IHOP Corp. and Ducommun Incorporated and also serves on 2000 was named president of Inland Pacific Water Company, a the boards of 19 mutual funds managed by the Capital subsidiary of the company. He brings more than 20 years of Research and Management Company. Mr. Christie was experience in corporate development and marketing to the first elected a Director in 1996. Company and leads the Company's efforts to expand into new markets and services. Anton C. Garnier, 59, has been president and chief executive officer of the Company since 1968. Mr. Thomas C. Tekulve, CPA, 48, joined us in February 1999 as Garnier was first elected a Director in 1968 and was vice president of finance. He oversees finance, accounting elected Chairman of the Board in 1996. and information systems and provides guidance in strategic planning for the Company and its subsidiaries. Mr. Tekulve Richard Kelton, 70, is an attorney and president of has 25 years' experience in finance. Bollenbacher & Kelton, Inc., a commercial and residential developer. Mr. Kelton was first elected a Director in Shelley A. Farnham, 44, joined the Company in July 1998 as 1969. vice president human resources. She brings 20 years experience in the human resources field. Ms. Farnham Directors Whose Terms Expire in 2002 oversees organizational planning and development, employee (Class I) relations, training, compensation and benefits administration for the Company and its subsidiaries. Maureen A. Kindel, 60, is president of Rose & Kindel, a public affairs firm. Ms. Kindel is past president of the Michael O. Quinn, 53, is president of Suburban Water City of Los Angeles Board of Public Works, is a founding Systems, (Suburban) a subsidiary of the Company. Mr. Quinn and current member of the Pacific Council on International has been with the Company over 28 years, serving as Policy, and is a board member of the International treasurer of Suburban prior to his move to ECO as CEO and Women's Forum, the Los Angeles Urban League, the president between 1985 and 1992. He rejoined Suburban and Board of Governors of Town Hall of Los Angeles and the was promoted to president of Suburban in 1996. Los Angeles Amateur Athletic Foundation. Ms. Kindel is a trustee for the International Foundation of Electoral Robert L. Swartwout, 58, joined the Company 7 years ago as Systems. Ms. Kindel was first elected a Director president of New Mexico Utilities, Inc., a subsidiary of the in 1997. Company. Mr. Swartwout is a registered professional engineer in New Mexico and New York and has over 30 years of Director Emeritus experience with public utilities and state/federal Michael J. Fasman, a member of our Board of regulatory agencies. Directors for 24 years, retired from our Board in 1999 and passed away in February 2000. We are deeply grateful for his wise counsel and his dedication to the Company's success. - ---------------------------------------------------------------------------------------------------------------------------------
18 ITEM 2 - APPROVAL OF CHANGES TO THE STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF SOUTHWEST WATER COMPANY - --------------------------------------------------------------------------------------------------------------------------------- The Board of Directors has approved an amendment by written request to Secretary, Southwest Water Company, and restatement of the Stock Option Plan for Non- 225 North Barranca Avenue, Suite 200, West Covina, Employee Directors, subject to stockholder approval. California 91791. You are encouraged to read the Director Proposed amendments include: Option Plan in its entirety. . Authorizing an additional 120,000 shares for issuance under the Plan. SUMMARY OF THE . Increasing the initial automatic grant and annual DIRECTOR OPTION PLAN automatic grant of stock option awards to 5,000 shares per Non-Employee Director. The Director Option Plan authorizes the grant to our . Allowing the exercise of options within 12 months non-employee directors of non-qualified stock options. of a Director ending his or her service on the Board. (The Plan now allows for various terms following a Securities Available Director leaving the Company, ranging from 3 months The aggregate number of shares of common stock currently to 12 months.) authorized and reserved under the Director Option Plan is . Decreasing the option term from 10 years and one 238,125 shares, inclusive of all stock dividends and stock day to 7 years and one day. splits. As of the Record Date, 72,066 shares were available . Permitting the transfer of an option to immediate for issuance. Assuming stockholder approval of this family members and family trusts, at the discretion proposal, 192,066 shares would be available for future of the Board of Directors. issuance under the Director Option Plan. Also available for . Extending the Plan termination date from May 21, future grant under the Director Option Plan are: 2006 to May 23, 2010. . shares subject to expired or canceled options; and . Confirming that the anti-dilution adjustments for . shares delivered to the Company or withheld by the stock splits and dividends provided by the Plan Company in payment of the exercise price or tax withholding applied to the 1,000 share annual automatic option obligations. grants since inception of the Plan, but will not apply to the 5,000 automatic option grants to be in Automatic Option Grants effect following adoption of the proposed amendments Non-qualified stock options are granted automatically to and restatement of the Plan. non-employee directors, as follows: . each person who is a non-employee director as of this The following is only a summary of the material Annual Meeting of Stockholders will automatically be granted terms of the Amended and Restated Stock Option on the date of this Annual Meeting an option to purchase Plan for Non-Employee Directors ("Director Option 5,000 shares of common stock; Plan"). A full copy of the proposed Director . each person who first becomes a non-employee director Option Plan can be obtained by contacting the after this Annual Meeting of Stockholders by election or Company's Secretary by telephone at (626) 915-1551 appointment to the Board shall be granted automatically on or the date of such person's election or appointment to the Board, an initial option to purchase 5,000 shares of common stock; and - ---------------------------------------------------------------------------------------------------------------------------------
19 - --------------------------------------------------------------------------------------------------------------------------------- . each non-employee director shall thereafter be Exercise of Options automatically granted, on the date of each An option may be exercised for any vested portion of the subsequent Annual Meeting of Stockholders as of shares subject to the option until the option expires or which such person continues as a non-employee terminates. Only whole shares may be purchased upon exercise. director, an additional option to purchase 5,000 shares of common stock. An option may be exercised by delivering to the Company a Thus, presuming they continue as non-employee written notice of exercise, together with payment of the directors following the Annual Meeting, each of aggregate exercise price in the form of cash or a check Messrs. Christie, Harris, Huennekens, Kelton and payable to the Company. The Board may, however, in its Newman and Ms. Kindel, will, if this proposal is discretion allow payment through: approved by the stockholders, be automatically . the delivery of shares of our common stock already owned granted an option covering 5,000 shares on the for more than six months; date of this Annual Meeting. . the surrender of shares of our common stock which would Each option, and its exercise price, term, vesting otherwise be issuable on exercise of the option; and other material terms are evidenced by a . use of an interest bearing full recourse note upon such written stock option agreement. terms as the Board prescribes; or . the delivery of a notice that the optionee has placed a Exercise Price market sell order with a broker with respect to shares of The exercise price of the options is the fair common stock issuable upon exercise of the option, and that market value for a share of our common stock on the broker has been directed to pay a sufficient portion of the date of grant, which equals the last sales the net proceeds of the sale to the Company in satisfaction price on the Nasdaq National Market. On March 29, of the option exercise price. 2000, the last sales price for our common stock as The Company must also receive payment of any applicable reported on the Nasdaq National Market was $11.00. withholding tax, which in the discretion of the Board may be in the same form as used to pay the exercise price. Vesting of Options An option may be exercised when and to the extent An optionee will not have any rights as a stockholder until it "vests." The options vest 50% on the first the Company has issued and delivered the shares of common anniversary of the grant date and 50% on the stock following option exercise. The Company will not second anniversary of the grant date. In adjust for dividends or distributions if the record date for addition, the options become fully vested upon the dividend or distribution is prior to the date of such termination of the optionee's service as a stock issuance. director of the Company after the first anniversary of the option grant date. Options Not Transferable An optionee cannot assign or transfer any option, except: Term and Termination of Options . by will or the laws of descent and distribution; The term of each option will be 7 years and one day . pursuant to a qualified domestic relations order; from the date of grant. In the event of the . or with permission from the Board, to certain family termination of the optionee's service as a members and family trusts. director of the Company, the optionee (or the optionee's representative) may exercise the option at any time prior to the earliest of: . one year following such termination, unless the optionee dies within such period; . one year following the death of such optionee; or 7 years and one day following the option grant date. - ---------------------------------------------------------------------------------------------------------------------------------
20 - ---------------------------------------------------------------------------------------------------------------------------- Plan Amendment and Termination Federal Income Tax Consequences The Board may not, without prior stockholder The following is a general summary under current law of the approval: material federal income tax consequences to participants in . change the number of shares of stock that may be the Director Option Plan. The summary does not discuss all issued under the Director Option Plan; aspects of income taxation that may be relevant to a . or amend the Director Option Plan in a manner particular optionee. requiring stockholder approval under any applicable law. For federal income tax purposes, optionees granted non-qualified stock options will not have taxable income on All other amendments may be made by the Board the grant of the option, nor will the Company be entitled to without stockholder approval. The Director Option any deduction. Generally, on exercise of non-qualified Plan will be in effect until May 23, 2010. stock options the optionee will recognize ordinary income, and the Company will be entitled to a deduction, in an Adjustment in Securities amount equal to the difference between the option exercise If there is a dividend, recapitalization, price and the fair market value of the common stock on the reclassification, stock split, merger, date of exercise. The optionee's basis for the stock for consolidation, split-up, spin-off, combination, purposes of determining gain or loss on subsequent disposition consolidation, dissolution or other similar of such shares generally will be the fair market value of the corporate transaction that affects the common common stock on the date of option exercise. Any subsequent stock, the Committee may appropriately adjust: gain or loss will be generally taxable as capital gains or . the aggregate number of shares of common stock losses. subject to the Director Option Plan; . the number of shares of common stock subject to ***** outstanding options; and . the price per share of outstanding options. Your Board of Directors and management believe that it is in After this Annual Meeting, however, no adjustment the best interest of the Company to approve the Director may be made to the number of options granted Option Plan in order to attract and retain qualified automatically under the Director Option Plan directors and remain competitive in a fast changing industry. (5,000) as a result of any stock dividend, split or combination. The Director Option Plan also The favorable vote of a majority of the votes cast is confirms that appropriate anti-dilution required to approve the Amended and Restated Stock Option adjustments were to be made to the 1,000 automatic Plan for Non-Employee Directors. Thus, abstentions and grant of options previously provided under the broker non-votes on this proposal will not be counted as Plan. These anti-dilution adjustments resulted in votes for or against the proposal. the Non-Employee Directors being automatically granted 1,200, 1,260 and 1,575 options in 1997, Your Board of Directors unanimously recommends a vote FOR 1998 and 1999, respectively. Item 2. In addition, if there is a merger of the Company, the sale of all or substantially all of the Company's assets or 80% or more of the Company's voting stock, or the dissolution or liquidation of the Company, the Board may provide in the option agreement or in a resolution that the options may be exercisable as to all shares covered by the option, and/or may provide for the assumption of the option by the successor corporation. - ---------------------------------------------------------------------------------------------------------------------------------
21 ITEM 3 - APPROVAL OF CHANGES TO THE SOUTHWEST WATER COMPANY STOCK OPTION AND RESTRICTED STOCK PLAN, AS AMENDED - --------------------------------------------------------------------------------------------------------------------------------- The Board of Directors has approved an amendment Securities Available and restatement of the Amended and Restated The aggregate number of shares of common stock Southwest Water Company Stock Option and currently authorized and reserved under the Employee Restricted Stock Plan for employees of the Stock Option Plan is 1,763,905 shares, inclusive of Company, now known as The Second Amended and all stock dividends and stock splits. As of the Restated Stock Option Plan (the "Employee Stock Record Date, only 13,942 shares were available for Option Plan"), subject to stockholder approval. issuance. Assuming stockholder approval of this Proposed amendments include: proposal, 763,942 shares would be available for future . Authorize an additional 750,000 shares for issuance under the Employee Stock Option Plan. Also issuance under the Employee Stock Option Plan. available for future grant under the Employee Stock . Set an annual award limit of 150,000 shares to any Option Plan are: one individual and make such other changes as are . shares subject to expired or canceled options; and advisable under Section 162(m) of the Internal . shares delivered to the Company or withheld by the Revenue Code. Company in payment of the exercise price or tax . Extend the Plan termination date from February 17, withholding obligations. 2007 to May 23, 2010. . Modify the eligibility requirements to include The maximum number of shares which may be subject to certain consultants to the Company. options granted to any individual in any calendar year may not exceed 150,000 shares. The following is a summary of the material terms of the Employee Stock Option Plan, as proposed to Grant and Terms of Options be amended and restated. A full copy of the The Compensation Committee of the Board of Directors, proposed Employee Stock Option Plan can be appointed to administer the Employee Stock Option Plan obtained by contacting the Company's Secretary by (the "Committee"), is comprised of two or more telephone at (626) 915-1551 or by written request directors, each a "non-employee director" as defined to Secretary, Southwest Water Company, 225 North by Rule 16b-3 under the Securities Exchange Act of Barranca Avenue, Suite 200, West Covina, 1934, and an "outside director" under Section 162(m) California 91791. You are encouraged to read the of the Code. The Committee grants the options and Employee Stock Option Plan in its entirety. determines the following: . which employees, directors or consultants are to be SUMMARY OF THE granted options; SECOND AMENDED AND RESTATED . the number of shares subject to option grants and STOCK OPTION PLAN the exercise price; and . the time in which the options may vest or be The Employee Stock Option Plan authorizes the exercised, including any accelerations or extensions. grant of non-qualified options to our employees, directors and certain consultants. Each option, and its exercise price, term, vesting and other material terms are evidenced by a written stock option agreement. - ---------------------------------------------------------------------------------------------------------------------------------
22 - --------------------------------------------------------------------------------------------------------------------------------- Inclusion of Consultants Term and Termination of Options In addition to employees and directors, certain The term of an option is set by the Committee, consultants are eligible for the grant of options provided, that no option shall be no longer than 10 under the Employee Stock Option Plan. To be years and one day from the date of grant. The eligible for an option grant, a consultant must Committee also establishes the time period following be: termination of employment or retention, death or . An individual who has contracted with the Company disability during which the optionee may exercise or a subsidiary to provide consulting or advisory vested options. services; . Rendering bona fide consulting or advisory Exercise of Options services to the Company or a subsidiary; and An option may be exercised for any vested portion of . Rendering services which are not in connection the shares subject to the option until the option with the sale of securities or promotion or expires or terminates. Only whole shares may be maintenance of a market for the Company's securities. purchased upon exercise. Options granted to consultants are subject to the An option may be exercised by delivering to the same provisions which govern options granted to Company a written notice of exercise, together with employees. payment of the aggregate exercise price in the form of cash or a check payable to the Company. The Committee Exercise Price may, however, in its discretion allow payment through: The Committee sets the per share exercise price at . the delivery of shares of our common stock already not less than 100% of the fair market value of owned for more than six months; our common stock on the grant date, which equals . the surrender of shares of our common stock which the last sales price on the Nasdaq National would otherwise be issuable on exercise of the option; Market. On March 28, 2000, the last sales price . use of an interest bearing full recourse note upon for our common stock as reported on the Nasdaq such terms as the Committee prescribes; or National Market was $11.00. . the delivery of a notice that the optionee has placed a market sell order with a broker with respect Re-pricing of Options to shares of common stock issuable upon exercise of Under the current terms of the Employee Stock the option, and that the broker has been directed to Option Plan, the Compensation Committee retains pay a sufficient portion of the net proceeds of the discretion, subject to plan limits, to modify the sale to the Company in satisfaction of the option terms of outstanding options and to re-price the exercise price. options. However, in February 2000, the The Company must also receive payment of any Compensation Committee determined that, subject applicable withholding tax, which in the discretion of to stockholder approval, it would delete all the Committee may be in the same form as used to pay re-pricing opportunities for the Employee Stock the exercise price. Option Plan. An optionee will not have any rights as a stockholder Vesting of Options until the Company has issued and delivered the shares An option may be exercised when and to the extent of common stock following option exercise. The it "vests." The Committee determines the period Company will not adjust for stock dividends or during which the optionee's right to exercise the distributions if the record date for the dividend or option in whole or part vests, which has been 20% distribution is prior to the date of such stock issuance. per year. No portion of an option which is not vested when the optionee's relationship with the Options Not Transferable Company is terminated shall thereafter become An optionee cannot assign or transfer any option, vested. At any time after the grant of an except: option, the Committee may accelerate the period during which an option vests. - ---------------------------------------------------------------------------------------------------------------------------------
23 - --------------------------------------------------------------------------------------------------------------------------------- . By will or the laws of descent and distribution; Option Plan. The summary does not discuss all aspects . pursuant to a qualified domestic relations order; of income taxation that may be relevant to a . certain family members and family trusts. particular optionee. Plan Amendment and Termination For federal income tax purposes, optionees granted The Committee may not, without prior stockholder non-qualified stock options will not have taxable approval: income on the grant of the option, nor will the Company be entitled to any deduction. . increase the number of shares of stock that may be issued under the Employee Stock Option Plan; or Generally, on exercise of non-qualified stock options . modify the 150,000 per person per year grant the optionee will recognize ordinary income, and the limit; or Company will be entitled to a deduction, in an amount . extend the expiration date of the Employee Stock equal to the difference between the option exercise Option Plan; or price and the fair market value of the common stock on . amend the Employee Stock Option Plan in a manner the date of exercise. The optionee's basis for the requiring stockholder approval under any applicable stock for purposes of determining gain or loss on law. subsequent disposition of such shares generally will be the fair market value of the common stock on the All other amendments may be made by the Committee date of option exercise. Any subsequent gain or loss without stockholder approval. The Employee Stock will be generally taxable as a capital gain or loss. Option Plan will be in effect until May 23, 2010. ***** Adjustment in Securities If there is a dividend, recapitalization, reclassification, stock split, merger, Your Board of Directors and management believe that it consolidation, split-up, spin-off, combination, is in the best interest of the Company to approve the consolidation, dissolution or other similar Employee Stock Option Plan as summarized in order to corporate transaction that affects the common attract and retain qualified employees, remain stock, the Committee may appropriately adjust: competitive and to continue to meet industry standards. . the aggregate number of shares of common stock subject to the Employee Stock Option Plan; The favorable vote of a majority of the votes cast is . the limit of 150,000 shares a year per person; required to approve the Second Amended and Restated . the number of shares of common stock subject to Stock Option Plan. Thus, abstentions and broker outstanding options; and non-votes on this proposal will not be counted as . the price per share of outstanding options. votes for or against the proposal. In addition, if there is a merger of the Company, Your Board of Directors unanimously recommends a vote the sale of all or substantially all of the FOR Item 3. Company's assets or 80% or more of the Company's voting stock, or the dissolution or liquidation of the Company, the Committee may provide in the option agreement or in a resolution that the options may be exercisable as to all shares covered by the option. Federal Income Tax Consequences The following is a general summary under current law of the material federal income tax consequences to participants in the Employee Stock - ---------------------------------------------------------------------------------------------------------------------------------
24 ITEM 4 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS - --------------------------------------------------------------------------------------------------------------------------------- The Board of Directors has selected KPMG LLP as If the stockholders fail to ratify the selection, the the Company's independent auditors for the year Board will reconsider whether or not to retain that ending December 31, 2000. KPMG LLP has audited firm. Even if the selection is ratified, the Board in the Company's financial statements since 1978. its discretion may direct the appointment of a different independent accounting firm at any time Representatives of KPMG LLP are expected to be during the year if the Board determines that such a present at the Annual Meeting and will have the change would be in the best interests of the Company opportunity to make a statement if they so desire and its stockholders. and will be available to respond to appropriate questions. The favorable vote of a majority of the votes cast is required to ratify the appointment of KPMG LLP. Thus, Stockholder ratification of the selection of KPMG abstentions and broker non-votes on this proposal will LLP as the Company's independent auditors is not not be counted as votes for or against the proposal. required by the Company's Bylaws or otherwise. However, the Board is submitting the selection Your Board of Directors unanimously recommends a vote of KPMG LLP to the stockholders for ratification FOR Item 4. as a matter of corporate practice. - ---------------------------------------------------------------------------------------------------------------------------------
25 REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF DIRECTORS AND OTHER BUSINESS OF STOCKHOLDERS - ---------------------------------------------------------------------------------------------------------------------------- The Company expects to hold the 2001 Annual Meeting of Also, the Company's Bylaws provide that for a stockholder Stockholders on May 24, 2001. proposal (including nomination of a person for election to the Board of Directors) to be acted upon at an annual Stockholder proposals (including nomination of a person meeting, the stockholder must provide written notice to the for election to the Board of directors) to be included Company no later than 90 days prior to the scheduled annual in the proxy statement for the 2001 meeting must be meeting. Thus, such notice must be submitted no later than received by the Company's Secretary not later than February 23, 2001. This notice must contain information January 24, 2001. In order for proposals to be required by the Bylaws. A copy of the Bylaws may be included, you must comply with the rules of the obtained from the Company's Secretary. Securities and Exchange Commission governing the submission of stockholder proposals. All proposals should be submitted in writing to the Company's Secretary at 225 North Barranca Avenue, Suite 200, West Covina, California 91791-1605. - ---------------------------------------------------------------------------------------------------------------------------------
Whether or not you plan to attend the Annual Meeting, please vote by telephone as instructed or mark, sign, date and promptly return the enclosed proxy in the envelope provided. By order of the Board of Directors, Peter J. Moerbeek April 7, 2000 Secretary 26 DIRECTIONS TO SOUTHWEST WATER COMPANY ANNUAL MEETING OF STOCKHOLDERS MAY 23, 2000 AT 10:00 A.M. (Pacific Time) [MAP APPEARS HERE] Suggested Route: - --------------- Exit the Harbor Frwy. (110) at 4th Street. Take 4th Street east to Olive Street, turn left. Hotel is about 100 yards on the left side of the street. Circular drive in front. Parking: - ------- To receive complimentary valet parking, please tell the attendant that you are attending Southwest Water Company's Annual Meeting. Hotel Inter-Continental ----------------------- Located on Bunker Hill At California Plaza 251 South Olive Street Los Angeles, CA (213) 617-3300 - -------------------------------------------------------------------------------- SOUTHWEST WATER COMPANY ANNUAL MEETING OF STOCKHOLDERS Please mark your votes as indicated in [X] this example The Board of Directors unanimously recommends a vote FOR the three Director nominees, and FOR Item 2 and Item 3 and FOR the limitation of the appointment of the independent auditors for the 2000 fiscal year. 1. Election as director of the nominees listed in the accompanying (INSTRUCTION: To withhold authority to vote for any Proxy Statement. 01 MONROE HARRIS individual nominee, write that nominee's name on the 02 DONOVAN D. HUENNEKENS space provided below.) FOR the nominees WITHHOLD AUTHORITY to 03 RICHARD G. NEWMAN listed at right for the nominees listed ______________________________________________________ at right [ ] [ ] FOR AGAINST ABSTAIN 2. Approval of the Amended and Restated Stock [ ] [ ] [ ] 4. Ratification of the appointment of KPMG Option Plan for Non-Employee Directors: LLP as the Company's independent auditors for 2000: 3. Approval of the Second Amended and Restated [ ] [ ] [ ] FOR AGAINST ABSTAIN Stock Option Plan: [ ] [ ] [ ] FOR SHAREHOLDERS WITH MULTIPLE ACCOUNTS ONLY: Mark this box to [ ] discontinue receipt of an Annual Report for this account.
Signature____________________Signature____________________Date________________ Note: Please sign your name as it appears on the label. Joint owners should both sign. When signing as attorney, administrator, trustee, or guardian, please give full title as such. - -------------------------------------------------------------------------------- -- FOLD AND DETACH HERE -- VOTE BY TELEPHONE [PICTURE OF TELEPHONE APPEARS HERE] [PICTURE OF TELEPHONE APPEARS HERE] QUICK *** EASY *** IMMEDIATE =============================================================================== VOTE BY PHONE: For U.S. Shareholders only, call toll free 1-800-840-1208 on a touch tone telephone 24 hours a day, 7 days a week. There is NO CHARGE to you for this call. Have your proxy card in hand. You will be asked to enter a Control Number, which is located in the box in the lower right hand corner of this form. OPTION 1: To vote as the Board of Directors recommends on ALL proposals, Press - -------- 1. When asked, please confirm by Pressing 1 OPTION 2: If you choose to vote on each proposal separately, Press 0. You will - -------- hear these instructions: Proposal 1, Director Election Proposal: To vote FOR ALL nominees, Press 1, to WITHHOLD FOR ALL nominees, Press 9. To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the instructions. Proposal 2, and All Other Proposals: To vote FOR, Press 1; AGAINST, Press 9; ABSTAIN, Press 0 When asked, please confirm by Pressing 1 ================================================================================ OR ================================================================================ VOTE BY PROXY CARD: mark, sign and date your proxy card and return it promptly in the enclosed envelope. NOTE: If you vote by telephone, THERE IS NO NEED TO MAIL BACK YOUR PROXY CARD. ================================================================================ THANK YOU FOR VOTING - ------------------------------------------------------------------------------- PROXY SOUTHWEST WATER COMPANY PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 2000 SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Anton C. Garnier and Peter J. Moerbeek, each with the power of substitution, are hereby appointed by the stockholders(s) named on the reverse side of this Proxy to vote all eligible shares of common or preferred stock of Southwest Water Company at the Annual Meeting of Stockholders to be held on May 23, 2000, or any adjournments thereof, on the matters set forth on the reverse side in accordance with any directions given by the stockholder(s) and, in the discretion of the Proxy holders, on all other matters that may properly come before the Annual Meeting or any adjournments thereof. IMPORTANT - PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3 AND 4. - ------------------------------------------------------------------------------- --FOLD AND DETACH HERE-- Southwest Water Company YOUR VOTE IS IMPORTANT! You can vote in one of two ways: 1. Mark, date, sign and return your Proxy by detaching the top portion of this sheet and returning it in the enclosed envelope. OR 2. Call toll-free 1-800-840-1208 on a touch-tone telephone and follow the instructions on the reverse side of this card. There is NO CHARGE to you for this call. - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----